OECD’s government-developed Guidelines for Multinational Enterprises are being updated. Speaking to Ethical Corporation, Paul Hohnen, who has been involved in the process, explains what the changes might mean for business.
What are the OECD MNE Guidelines?
The Guidelines for Multinational Enterprises are a set of official recommendations on what constitutes responsible business practice in the realms of economic, social and environmental behaviour. They were first developed in 1976 and revised in 2000 under the aegis of the Paris-based Organisation for Economic Cooperation and Development (OECD).
There seem to be countless corporate responsibility guides on the market. What makes these different?
From a business perspective, they are special for three main reasons.
First, they can be used to help avoid some of the most common problems facing businesses operating around the world. Because they were developed by most of the world’s largest economies – in consultation with representatives from business, labour and advocacy organizations – they offer an extraordinarily authoritative mapping of the landscape of key issues and expectations. In a sense they are the corporate responsibility gold standard.
Second, they can be used to address problems that do arise. The guidelines have a complaints and government mediation mechanism that can be brought into action where differences arise over their use. This is a non-legal grievance process that enables parties to resolve issues in structured way.
Third, they are binding on governments and are addressed to all multinationals operating from, or in, OECD countries. This makes them unique. They cover general policies as well as issues such as disclosure, environment, bribery, consumer interests, science and technology, competition and taxation. This broad scope means they can also be useful in dealings with partners, including SMEs, along the supply chains.
Who uses them?
It’s hard to know the exact level of their actual use. Companies are not required to report on whether or how they use them. Many do, however. Annual sustainability reports by a number of blue chip companies acknowledge that their corporate responsibility policies have been informed by the guidelines. Some have even used Global Reporting Initiative indicators to report on specific aspects.
What is the update and when will it be completed?
Governments decided in May 2010 to undertake an update. The process has taken the form of several multi-stakeholder consultation meetings between the 42 adhering governments and representatives of business, labour and non-government organisations, as well as a written submissions process. The target is to complete it by May 2011.
Why was it necessary?
There were mixed views about the need for an update. Personally, I thought the existing guidelines were already comprehensive, clear and compact. However there was a sense that there had been a number of important changes in the business environment since 2000 that needed to be reflected.
These included such things as the emergence of climate change as a major issue, the greater clarity on the role of business in the human rights arena following the work of John Ruggie (the UN special representative on human rights), and the increasing importance of supply chains and associated risks.
There has also been a sustained theme of criticism about the role of the National Contact Points (NCPs) – the designated government office responsible for promoting the guidelines and mediating disputes. For advocacy groups especially, it was felt that there was a need to revisit how to ensure better and more consistent performance here. There has also been pressure to improve the problem-preventing and solving character of the NCP system.
How can companies make inputs or follow progress?
Companies can track progress on the OECD website or by contacting the business and industry advisory committee to the OECD, which provides a business voice in the consultations. Unions and NGOs also have their own representative bodies.
What are likely to be the main new elements for business?
We won’t know the exact details until the final package is agreed. In addition to greater clarity around human rights, climate and supply chain management, I would also expect greater detail on corporate governance issues, including disclosure. In general, the updated guidelines will represent the latest thinking is on what responsible business practices look like between now and 2020.
How will the new guidelines fit with other widely used frameworks?
The negotiators are sensitive to the fact that companies often use a range of instruments and frameworks, such as the UN Global Compact principles and GRI. They also know that there are ‘new kids on the block’, such as the recently released ISO 26000 social responsibility standard. My sense is that the updated guidelines will be quite compatible with these other approaches.
The conclusion of memorandums of understanding by the OECD secretariat with GRI, ISO and the Global Compact underline the desire to provide business with a coherent and practical operating environment.
But will Chinese and Indian companies use them?
They would be wise to. As the processes of globalisation see Brazilian, Chinese, Indian and Russian investors expand their operations, the OECD guidelines become increasingly relevant. The guidelines apply automatically to multinationals from any country operating in OECD countries and could be used as a basis for complaints.
The guidelines are also relevant to BRIC companies that would like to sell to OECD multinationals in a supply chain context, where use of the guidelines could be a determining factor in selecting suppliers. By using the guidelines, emerging economy companies can reduce the risk of complaints and be recognised as observing world-class standards.
Amsterdam-based, Paul Hohnen consults, speaks and writes on sustainability and corporate responsibility issues. Hohnen is a member of Ethical Corporation’s advisory board. www.hohnen.net