Corporate Social Responsibility and the Law

Liability and Immunity for Human Rights Violations: The Impact of Current Legal Developments on Corporate Responsibility

blogs@foleyhoag.com (Elizabeth Holland) — Tue, 21 Feb 2012 19:53:36 -0500

It is likely that the coming year will see a number of legal developments relating to the immunity and liability of corporations, states, and individuals as recognized by U.S. courts. With an increasing number of suits filed against companies for human rights abuses, the question of whether immunity attaches is of great significance.

Courts inside and outside the United States are weighing questions regarding jurisdiction and immunity, and their decisions and arguments will likely be picked up by other courts dealing with issues of corporate responsibility for alleged human rights violations.

What follows is a brief round-up of some of the most anticipated legal developments in the field of corporate responsibility to keep an eye on during 2012. In this overview, we look at three key questions under consideration by U.S. and international courts :

Can corporations, or their executives, be sued for human rights violations?
Does immunity under the Foreign Sovereign Immunities Act reach to corporations, states, and individuals?
What does international law say about state immunity?

(1) Can corporations, or their executives, be sued for human rights violations?

The answer to the question of whether corporations may be sued for human rights violations under the Alien Tort Statute (ATS) or Torture Victim Protection Act (TVPA) in the U.S. will have serious consequences in terms of corporate liability. With the Supreme Court preparing to hear arguments in Kiobel v. Royal Dutch Petroleum and Mohamad v. Rajoub on February 28, discussions are ramping up regarding liability and immunity in human rights litigation in U.S. federal courts. Between the two (consolidated) cases the Supreme Court will be looking at three questions:

Whether the issue of corporate civil tort liability under the Alien Tort Statute ("ATS"), 28 U.S.C. § 1350, is a merits question, as it has been treated by all courts prior to the decision below, or an issue of subject matter jurisdiction, as the court of appeals held for the first time. (Kiobel v. Royal Dutch Petroleum)
Whether corporations are immune from tort liability for violations of the law of nations such as torture, extrajudicial executions or genocide, as the court of appeals decisions provides, or if corporations may be sued in the same manner as any other private party defendant under the ATS for such violations, as the Eleventh Circuit has explicitly held. (Kiobel v. Royal Dutch Petroleum)
Whether the Torture Victim Protection Act, 28 U.S.C. § 1350 note § 2(a), permits actions against defendants which are not natural persons (Mohamad v. Rajoub)

All three questions will be of significant consequence in the field of corporate responsibility. Until now there was a circuit split as to whether corporations may be sued under the ATS. Notwithstanding the disagreement of whether a corporation may be sued under the ATS, it is clear that an individual corporate executive may be sued pursuant to the statute. Thus, depending on the decision of the Supreme Court there may be an increase in suits filed against individuals rather than corporations. This may lead to the emergence of an additional line of questions regarding individual liability for the actions of a corporation.

Lurking in many of these cases is the question of what exactly comprises the law of nations, which is referenced in the ATS. Some courts have concluded it is synonymous with customary international law, while others have rejected such an understanding. A clear definition of what amounts to the law of nations is critical to determining if a claim properly falls within the ATS. Though not one of the questions presented to the Supreme Court, it will be interesting to see whether the Court addresses it in its decision.

(2) Does immunity under the Foreign Sovereign Immunities Act reach to corporations, states, and individuals?

The Foreign Sovereign Immunities Act (FSIA) is the U.S. statutory framework governing sovereign immunity. The FSIA is the “sole basis” for gaining jurisdiction over a foreign state in U.S. courts. It codifies the restrictive approach to immunity, recognizing immunity for claims arising from sovereign acts. It also sets out a number of exceptions to immunity, including waiver by the state, commercial or private acts, territorial torts, or state sponsored terrorism. Though the FSIA definition of a state is drafted broadly enough that it could, under certain conditions, include corporations, there would be an exemption to the immunity otherwise afforded if the corporation (acting as an agency or instrumentality of the state) is undertaking commercial or private acts. For more on commercial or private acts exception to immunity, see this primer.

Statutes such as the ATS and TVPA provide the bases for human rights claims. These avenues for litigation, however, often bump against the sovereign immunity recognized by the FSIA. Despite arguments before U.S. courts and in front of the International Court of Justice (ICJ), there is no absolute exception to sovereign immunity based on violations—even of an egregious nature—of international human rights or humanitarian law.

To get around the sovereign immunity hurdle many claims regarding human rights violations are brought against individuals. This resulted in a circuit split on the question of whether the FSIA applied to individual foreign officials. In 2010 the U.S. Supreme Court answered this question in Samantar v. Yousuf. The Court held that the FSIA does not govern whether an individual foreign official is afforded immunity from civil suits before U.S. courts. Rather, foreign official immunity is governed (at least in U.S. courts) by common law.

The Supreme Court remanded the case to the federal district court for determination of whether the petitioner is entitled to foreign official immunity under common law. The Court, however, did not provide specific guidance as to whether such a determination should be predicated solely on the opinion of the Executive Branch, or that other bases—such as customary international law or practices of other national courts—should be considered (for more on this, see here). In a recent hearing on a motion for reconsideration the district court judge indicated that the opinion of the Executive Branch is owed deference, but is not controlling on the question. Thus, we should watch for an answer from the lower court as to what will be the basis for determining immunity. If the court bases its decision on customary international law it will be particularly interesting to see how it articulates the rule, and to what state practice it refers in determining its customary character.

(3) What does international law say about state immunity?

The ICJ looked at a related, but distinct question, regarding immunity: whether or not international law recognizes state immunity to civil suits filed in national courts. On February 3 the Court issued its judgment in Jurisdictional Immunities of the State (Germany v. Italy: Greece intervening). The Court held in favor of Germany, upholding a traditional conception of state immunity under international law. Regarding the primary claim, the Court found Italy had violated its obligation to respect the state immunity of Germany in part by allowing civil cases to be brought against the state in Italian courts. The Court was not swayed by Italy’s argument of a jus cogens exemption to the principle of state immunity, nor was it convinced by Italy’s argument that the acts of armed forces during an armed conflict fall within a territorial tort exemption.

In upholding state immunity as a matter of customary law, the judgment contained a number of interesting statements:

The Court characterized the current rule regarding state immunity as one of customary international law, rather than comity or grace (¶54, 56).
The Court described state immunity as a balance struck between the fundamental ordering principles of the sovereign equality of states and the territorial sovereignty of each state. Immunity flows from the former, exceptions to immunity from the latter (¶57).
The Court explained that, as is the case with state official immunity, jurisdictional immunity in a particular venue does not alter the applicability of the substantive rules governing the wrongfulness of an action (¶100). It pointed out that “whether a State is entitled to immunity before the courts of another State is a question entirely separate from whether the international responsibility of that State is engaged and whether it has an obligation to make reparations.” (¶100).

Though the judgment of the ICJ—which binds only the parties— is limited in its analysis to the narrow question of whether there is state immunity in regards to the activities of a state’s military, engaged in an armed conflict, on the territory of the forum state, its methodology and reasoning may—and likely will—will be picked up in future discussions regarding the broader nature of both foreign official and state immunity. This is especially likely given the Court’s clear recognition of state immunity under international law, and its rejection of the argument that there would be a jus cogens exception to immunity.

Finally, what should we watch for?

Looking ahead there are a few issues and questions that could arise in regards to liability for corporations, states, and individuals, including:

In a recent blog post, Professor Ingrid Wuerth suggests a few possible consequences of the ICJ judgment. The ICJ relied rather heavily on decisions of national courts in its recognition of state immunity as customary international law. Professor Wuerth queries what role national courts, especially those in the U.S., may play in reshaping the contours of state immunity.
Might the reasoning put forward by the ICJ strengthen arguments that absent an express waiver, customary international law recognizes state immunity for all non-commercial acts? This would be a high bar for any arguments in favor of exceptions to state immunity. To the extent U.S. courts consider customary international law in human rights cases this could be a significant hurdle to establishing any implied or implicit exception to immunity. For more, see this blog post by Professor Chimène Keitner.
To round it out, Professor Paul Stephens suggests in a blog post that the ICJ decision may be used to support an argument that prescriptive jurisdiction—the type exercised by U.S. courts in some human rights litigation—may contravene international law. He suggests that at some point the Supreme Court may well have to decide whether egregious violations of human rights warrant an exception to immunity, or must give way to it. If the Court adopts the former, it may well be in direct disagreement with international law.

Corporations doing business abroad will need to keep an eye on the developments regarding liability and immunity – particularly in U.S. courts where human rights litigation over the past decade has had a significant impact on the field of corporate responsibility. As potential claimants determine who to sue for alleged human rights violations, considerations of liability and immunity will dictate their strategy.

Responding to Government Demands for Content Restrictions: The Need to Focus on Responsible Implementation Strategies

blogs@foleyhoag.com (Vivek Krishnamurthy) — Mon, 13 Feb 2012 01:17:06 -0500

The announcement by Twitter last month that it is deploying the ability to block tweets on a country-by-country basis in response to government demand for content restrictions has generated an enormous amount of controversy.

Some commentators have accused the company, whose CEO once memorably described it as belonging to the “free-speech wing of the free-speech party,” of giving in to the demands of governments who take a narrow view of the freedom of expression in order to grow their business in lucrative new markets.

Other commentators view the decision as inevitable given that the company has grown to the point that it requires a physical presence outside the United States. This makes both Twitter and its employees vulnerable to jurisdictional assertions by foreign governments, including by democratic governments whose constitutions afford somewhat less expansive free speech protections than does the uniquely American First Amendment.

Still others have welcomed Twitter's development of a mechanism to block certain tweets from appearing in a particular country pursuant to a government request as sparing both Twitter and its users the far worse fate of the site being blocked entirely, as happened in China.

While reasonable people can certainly disagree on whether Twitter's new country-specific tweet blocking abilities are a positive development in principle, what has largely been missing from the public debate is a recognition that the manner in which such policies are implemented has almost as much of an impact on what effect the policy has in the real world.

Developing the ability to block tweets on a country-by-country basis does not necessarily mean that Twitter will honor every request it receives from every government. Twitter may well decide that such requests are only legally binding in countries where it hosts data or where it has employees who can be dragged into court on charges of contempt. Alternatively, Twitter may only accede to requests from governments that have the technical ability to block Twitter without switching off the entire Internet, as Egypt attempted to do at the height to the demonstrations in Tahrir Square.

Factors that are important to consider when reviewing a company's response to government demands for content restrictions include:

Who exactly within the company is making the decision on whether to honor a government request to restrict content? Are lawyers knowledgeable in the laws of the requesting jurisdiction making the call, or is the decision left to technical staff who may not have the expertise to judge whether a particular request is legitimate?
What is the internal process for reviewing decisions by frontline staff?
When if ever might the company challenge the request of the government in court?

All of these factors ultimately have just as much of an impact, in the case of Twitter's recent policy announcement, on the type and number of tweets that will be blocked in a particular country as the bare bones of the policy itself.

Finally, from a technical perspective, it appears that the precise means Twitter has chosen for blocking certain content on a country by country basis allows users to easily evade these restrictions. Twitter reports that it uses a visitor's IP address in order to determine their physical location. Recognizing, however, that IP-based geolocation is not perfect, Twitter allows users to manually specify their location in their account settings. This information appears to be saved in a browser cookie which appears to override IP-based geolocation for all purposes–including country-specific content restrictions. No one has been able to test the efficacy of this feature against Twitter's new country-specific blocking abilities for the simple reason that Twitter has yet to publicly acknowledge blocking a tweet in a particular country. The real test will surely come, however, the next time that the Internet is pressed into service as a platform for organizing antigovernment protests of the kind that rocked the Arab world last year.

The 2012 IFC Performance Standard on Indigenous Peoples: What's the Fuss?

blogs@foleyhoag.com (Amy K. Lehr) — Thu, 09 Feb 2012 18:47:42 -0500

The new IFC Environmental and Social Performance Standards -- in particular, Performance Standard 7 on indigenous peoples -- present a range of management and operational challenges for certain companies. For the first time, the Performance Standard includes a requirement of free, prior, and informed consent (“FPIC”) from indigenous peoples.

The new Performance Standards went into effect in January 2012 and are applicable to a greater number of the IFC’s investments than the 2006 Performance Standards, which only applied to project finance. Notably, the new Standards only apply to the IFC’s new investments, while the the 2006 Performance Standards apply to existing investments. Notably, the Equator Banks will apply the 2012 Performance Standards to new investments, which will result in their application to much of the world’s project financing.

The 2006 Performance Standard on indigenous peoples required “free, prior, informed consultation.” The requirement of consent in the new Performance Standard 7 comes on top of arguably more rigorous and complex requirements in Performance Standard 1 that address engagement with all communities.

Performance Standard 7 requires IFC clients to identify adverse impacts on indigenous communities and develop action plans to address them with the informed consultation and participation of affected indigenous communities. In addition, companies are expected to seek the FPIC of communities when:

The project will impact the lands and natural resources subject to traditional ownership or under customary use;
The project will require relocation of communities; or
The project will significantly impact critical cultural heritage of indigenous peoples.

What is FPIC? Definitions vary, but the IFC’s definition will be influential. The IFC requires FPIC to be established though a good faith negotiation with the community. In addition, the client should document that there is a mutually accepted process for obtaining consent, and should ensure that there is evidence that the parties agree on the outcome of the negotiations. As we suggested in a previously published report, Implementing a Corporate Free, Prior, and Informed Consent Policy: Benefits and Challenges, this means that companies should:

Develop a formal agreement on the process with communities;
Document the process to demonstrate it was followed; and
Document the agreement, if one is obtained.

In addition, the Performance Standard requires companies to involve indigenous peoples’ representative bodies and members of the affected communities, and provide sufficient time for decision-making. Finally, the process should include vulnerable groups, such as women and youth.

Our conversations with companies indicate that they are grappling with how to best implement the new standards. Many companies are accustomed to engaging in complex negotiations with indigenous peoples, but may need to adjust their practices. Specifically, they may be required to demonstrate, to the IFC or other stakeholders, that:

The engagement process used to obtain consent was not imposed unilaterally by the company. The process should be tailored to a particular situation in consultation with the community;
The process should seek the input of vulnerable groups and involve traditional decision-making bodies – again, precisely how this should be done may be culture and context-specific;
The community agreed upon the process used to obtain consent; and
The company has documented the community’s agreement to the project, including the scope of that agreement.

In short, for some companies, the new Performance Standard 7 will require significant changes to company engagement processes. In other instances, it may simply require companies to more effectively document their existing good practices.

Given the controversy surrounding large scale infrastructure on indigenous lands around the world, companies should consider reviewing their practices and filling gaps to ensure they maintain their social licenses to operate, as well as their financing. When conducting such a review, companies should bear in mind that most national laws require consultation, not FPIC, so mere compliance with national law may not be sufficient to meet the requirements of the new Performance Standard.

Investors Urge Congress to Prioritize Proposed Transparency in Supply Chains Legislation

blogs@foleyhoag.com (Sarah A. Altschuller) — Tue, 31 Jan 2012 19:49:52 -0500

A coalition of 80 institutional investors sent a letter to Congress last week in support of the Business Transparency on Trafficking and Slavery Act (HR 2759). As discussed previously, the proposed legislation would require companies to disclose efforts to identify and address the risks of human trafficking, forced labor, slavery, and the worst forms of child labor in their supply chains.

Modeled after the California Transparency in Supply Chains Act, which went into effect on January 1, 2012, the proposed federal legislation, unlike the California statute, is not limited to retailers and manufacturers. If enacted, the legislation would be applicable to any publicly-traded or private company currently required to submit annual reports to the Securities and Exchange Commission ("SEC"), as long as the company meets an established annual gross receipts threshold. Companies would be required to include the required disclosures in their annual reports to the SEC.

In a letter sent to Speaker of the House John Boehner and House Majority Leader Eric Cantor, members of the Interfaith Center on Corporate Responsibility and U.S. SIF: The Forum for Sustainable and Responsible Investment called for HR 2759 to be placed at the top of the legislative agenda in order to move "this important legislation forward in an expeditious manner.” In urging Congressional leaders to prioritize the bill, the investors stated that the proposed legislation

reflects the realities of the marketplace, which increasingly requires that companies be sensitive to social and ethical issues, including human rights, in their operations and global supply chains, and create human rights policies, as well as due diligence processes to evaluate, monitor, and strengthen these policies.

Notably, the investors’ statement also argued that the U.N Human Rights Council’s unanimous endorsement of the Guiding Principles on Business and Human Rights in June 2011 established “a global norm for the ‘corporate responsibility to respect’ human rights and underscores the importance of public reporting by companies.”

When it was introduced in August 2011, HR 2759 was referred to the House Committee on Financial Services and currently sits with the Subcommittee on Capital Markets and Government Sponsored Enterprises. Given the contentious climate on Capitol Hill, and the upcoming presidential election, it is unlikely that the bill will move in 2012, but its introduction is reflective of shifting expectations regarding the responsibilities of companies to identify and account for the adverse human rights impacts of their operations.

Board Oversight and CSR - Obligations and Considerations

blogs@foleyhoag.com (Sarah A. Altschuller) — Thu, 19 Jan 2012 00:05:54 -0500

Gwen Jaramillo and I recently authored an article for BNA Corporate Governance Report on the role of the board of directors in overseeing a company's CSR initiatives and commitments. A copy of the article ("Board Oversight and Corporate Social Responsibility: Obligations and Considerations") is available here (.pdf).

At the conclusion of the article, we identify a number of questions that board members may wish to consider when thinking about their role in overseeing a company's approach to, and implementation of, CSR commitments. These questions are set forth below:

Considerations for CSR Positioning

How does the company currently perceive CSR? Is CSR seen as a foundation for risk management and compliance, philanthropic efforts, and/or sustainability reporting?
What are the major legal, operational, and reputational challenges faced by the company and its industry peers? Are the company’s CSR initiatives, along with other company policies and practices, preparing the company to meet those challenges?
Who are the company’s stakeholders? How does the company’s CSR program enable the company to engage with, and assess the concerns of, those stakeholders?
How does the company compare with its industry peers in terms of its view and implementation of CSR? What value do industry members derive from their CSR positioning?
What voluntary commitments, codes, or standards have the company’s industry peers signed on to? Has the company done the same? Why or why not?
Does company management see the company as a leader? Does management want the company to be perceived as an industry leader or as in “the middle of the pack”? Is the company’s CSR positioning appropriate given management’s goals and self-perception?
What are potential avenues for better calibrating the company’s CSR positioning with its internal and external goals?

Considerations for CSR Implementation

What is the company’s CSR strategy? To what extent has the company implemented CSR initiatives? What is the state of awareness among company personnel of the existence and importance of these initiatives?
Does the board have a clearly defined role in overseeing the company’s CSR strategy? If not, how can a role for the board be established? Can it be linked with existing compliance oversight functions of the board? What are the risks and benefits to the company of formalizing a role for the board with regard to CSR?
Is the board currently informed regarding CSR-related compliance and reputational issues? What information is regularly provided to the board regarding the social and environmental impacts of the company’s operations?
Who is responsible for defining and overseeing CSR at the company? What oversight and accountability mechanisms reinforce the company’s CSR strategy?
What specific resources are required to implement the company’s current CSR policies and initiatives? Have those resources been effectively deployed or allocated? Have, or can, existing compliance mechanisms been utilized to build CSR capacity? What costs does the board perceive will be involved in implementing or augmenting a CSR strategy, and are such resources appropriately allocated to CSR at this time?

Ultimately, as we state at the conclusion of the article,

...the board is charged with fulfilling its duties of care and loyalty. Whether the ultimate impact of CSR lies in its ability to protect against legal, reputational, and operational risks, or its capacity to create shared value for the company and its stakeholders, the board can best fulfill these duties to the corporation, and to stakeholders, by considering CSR’s value for the corporation and acting upon its conclusions.

The SEC's Delayed Rule-Making and Implications for Corporate Conflict Minerals Reports

blogs@foleyhoag.com (Sarah A. Altschuller) — Mon, 16 Jan 2012 23:09:01 -0500

This post, authored by Sarah A. Altschuller and Gwendolyn W. Jaramillo, was originally published, in excerpted form, by The Elm Consulting Group.

The U.S. Securities and Exchange Commission (“SEC”) failed to issue a final rule on conflict minerals regulations before the end of 2011, and companies still await clear guidance on the scope of Section 1502 and the nature of the relevant reporting requirements. In an announcement regarding "upcoming activity" related to the implementation of Dodd-Frank, the SEC has now indicated that the final rule for Section 1502 will be adopted between January and June 2012. Notably, the SEC’s announcement indicates that “this is an estimated timeline and may be subject to change.” The final rule was originally scheduled to be issued no later than April 15, 2011.

The Conflict Minerals Report Requirement

Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act requires companies that utilize tin, tungsten, tantalum, and gold to conduct and disclose due diligence on their supply chains in order to identify whether the those minerals originated in the Democratic Republic of Congo (“DRC”) or adjoining countries. If an issuer either determines that its conflict minerals originated in the DRC countries, or cannot conclude that the conflict minerals did not originate in the DRC countries, the issuer will be required to disclose this information in its annual report. The issuer must then furnish a Conflict Minerals Report (“CMR”) as an exhibit to the annual report, and must disclose the Internet address at which this exhibit is available.

The CMR must describe the due diligence that the issuer conducted on the source and chain of custody of its conflict minerals. Issuers will be required to describe: products that are not "DRC conflict free"; the country of origin of those conflict minerals; the facilities used to process those minerals; and efforts taken to locate the mine or source of the minerals with the greatest possible specificity.

The Reporting Timeframe

Section 1502 requires impacted issuers to submit their first disclosures regarding their first full fiscal year which begins after the promulgation of the final rule. With a final rule now delayed again, issuers currently subject to the legislation must evaluate how to prepare for the future disclosure requirements.

Looking ahead, and based on previous experience, it is most likely that the SEC will introduce a phased approach for disclosures, whereby certain initial disclosures will be required in the first reporting year that will need to be augmented in subsequent years. Many stakeholders have urged the SEC to adopt a phased approach in comments to the proposed regulations issued in December 2010.

Groups calling for a phased approach include the U.S. Chamber of Commerce, the National Association of Manufacturers, and the House Financial Services Committee. This could logically take the form of requiring larger issuers to fully comply in the first year following the issuance of the final rule, while giving smaller issuers the benefit of more time to comply. This approach has been used in several prior instances, including: the requirement for the inclusion of XBRL (eXtensible Business Reporting Language) data files in corporate filings; and the requirement, pursuant to Section 404 of the Sarbanes-Oxley Act, for an independent auditor’s report on the effectiveness of internal controls over financial reporting (although the requirement for smaller companies was eliminated by Dodd-Frank).

If the rule is issued in the next few months, issuers with fiscal years beginning in March/April or June/July would be required to issue their first reports in early to mid-2013. Issuers may fear being required to report on due diligence efforts undertaken during a time period unguided by final regulations, but that appears unlikely based on the language of Section 1502. That said, however, issuers with fiscal years beginning soon should be prepared to hit the ground running and ideally will have identified appropriate internal groups or departments who would be charged with collecting the required information in order to facilitate full compliance.

Obama Administration States that Corporations are Proper Defendants in Alien Tort Cases

blogs@foleyhoag.com (Sarah A. Altschuller) — Wed, 28 Dec 2011 14:26:25 -0500

The Obama Administration has filed an amicus brief with the U.S. Supreme Court in Kiobel v. Royal Dutch Petroleum in support of the plaintiffs' position that corporations are proper defendants in cases involving claims under the Alien Tort Statute ("ATS"). Filed on December 21, the brief was signed by the Department of Justice, the Department of State, and the Department of Commerce.

The Supreme Court will review the Second Circuit's controversial decision that corporations cannot be properly sued under the ATS for violations of customary international law. Notably, the Ninth Circuit, the D.C. Circuit, the Seventh Circuit, and the Eleventh Circuit have all upheld corporate liability under the ATS.

In its brief, the Administration states that neither international law nor "[t]he text and history of the ATS itself" provide a basis for distinguishing between natural and juridical persons. The brief then observes "[b]oth natural persons and corporations can violate international-law norms that require state action. And both natural persons and corporations can violate international-law norms that do not require state action."

Stating that international law is the proper source of law for the relevant standards of conduct in ATS cases, the Administration states that "[w]hether corporations should be held accountable for those violations in private tort suits is a question of federal common law." Federal courts must cautiously exercise their discretion to enforce specific international law norms and "[i]nternational law informs, but does not control, the exercise of that discretion."

Kiobel is scheduled for oral argument before the Supreme Court on February 28, 2012.

Business and Human Rights: A Convergence of Expectations

blogs@foleyhoag.com (Sarah A. Altschuller) — Mon, 19 Dec 2011 19:20:33 -0500

Former UN Special Representative on Business and Human Rights John Ruggie, now a senior advisor to our CSR practice, recently authored an article in Corporate Secretary magazine in which he observed that there has been a "convergence of expectations" with regard to business responsibilities in the area of human rights.

These expectations are set forth in the UN Guiding Principles on Business and Human Rights, authored by Professor Ruggie and his team. As discussed previously, these Principles were endorsed by the UN Human Rights Council in June of this year. Central to the Principles is the expectation that companies have a responsibility to respect human rights and that this requires companies to conduct human rights due diligence on their operations. As noted by Professor Ruggie,

[h]uman rights due diligence requires companies to develop effective policies and procedures to assess the actual and potential human rights impacts associated with their activities and business relationships, and to act upon the findings.

Professor Ruggie observes that the Guiding Principles are "not just another set of voluntary standards vying for attention in an increasingly crowded space" but rather represent "authoritative UN standards around which the articulated expectations of many public and private institutions have already converged." (emphasis added)

Specifically, as noted in the article, the United States Council for International Business, the International Organization of Employers, and the International Chamber of Commerce have all voiced support for the Principles. The guidance set forth in the Principles has also been incorporated into:

The revised Organization for Economic Cooperation and Development ("OECD") Guidelines for Multinational Enterprises;
The revised International Finance Corporation ("IFC") Sustainability Policy and the corresponding Performance Standards; and
The ISO 26000 social responsibility standard adopted by the International Organization for Standardization ("ISO").

The formal endorsement, and rapid incorporation, of the Guiding Principles marks 2011 as a transformative year in the field of business and human rights. Looking ahead to 2012 and beyond, companies should expect that stakeholder expectations with regard to corporate impacts on human rights will increasingly be informed by this new framework.

CSR and the Role of the Board of Directors

blogs@foleyhoag.com (Sarah A. Altschuller) — Mon, 05 Dec 2011 23:03:06 -0500

I recently authored an article for IR Magazine on "CSR and the Role of the Board." In looking at board oversight in the area of CSR, one source that I relied upon was the 2010 report, Board Oversight of Environmental and Social Issues, published by Calvert Asset Management Company and The Corporate Library.

The report analyzed board committee charters at S&P 100 firms and found that only 65 companies in the S&P 100 have board committees with some level of responsibility for oversight of corporate responsibility concerns. One of the most notable statistics from the study was the finding that less than 50% of those 65 boards monitor and provide recommendations on CSR trends and developments.

Ultimately, this lack of focus on trends is troubling. Looking at developments in the CSR field over the previous decades, it is not hard to see that stakeholder expectations in the areas of environmental and social standards have often lead to the developments of new regulations, legislation, and lending guidelines. As I noted in the article,

Understanding key trends is an integral component of effective long-term strategy development and can help ensure that companies have the capacity to respond to concerns when they arise. Companies regularly seek to identify trends in consumer preferences and in regulatory environments. Companies should exercise the same diligence in identifying future stakeholder expectations with regard to social and environmental performance. Stakeholder expectations in the area of CSR frequently ask companies to go “beyond compliance” with existing legal and regulatory standards. At the same time, these expectations are often predictive of the future content of legal and regulatory requirements.

A full copy of the article is available here (.pdf).

Is Your Mobile Device Watching You?

blogs@foleyhoag.com (Vivek Krishnamurthy) — Thu, 01 Dec 2011 15:39:42 -0500

A developer for Google's Android mobile phone operating system has exposed what has the potential to be the most significant user privacy security vulnerability ever discovered in any computing device.

In a video posted to YouTube, Connecticut-based developer Trevor Eckhard has demonstrated how a program called Carrier IQ logs an astonishing amount of information about every aspect of mobile device use — from the full-text of SMS messages to the URL of every website visited using the device, not to mention every single keystroke that a user enters into their phone or tablet.

The Carrier IQ software is made by an eponymous company based in Silicon Valley (www.carrieriq.com) and is now known to come preinstalled on Android phones sold by many major carriers, including Sprint in the United States. The software launches automatically whenever a device on which it is installed is powered up, and there appears to be no way to disable or delete the software without “rooting” the device. It has not yet been confirmed whether the software is preinstalled on devices running operating systems other than Android, although this seems very likely given that a media alert issued by Carrier IQ earlier this month explains that its software is used for “counting and measuring operational information in mobile devices” including “feature phones, smart phones and tablets.”

In the same media alert, Carrier IQ denied that its software was being used to “record[] keystrokes or provid[e] tracking tools.” This denial appears to be contradicted by Mr. Eckhart's YouTube video, although in fairness to Carrier IQ, the video does not actually demonstrate the information collected by the software being transmitted to a mobile phone operator.

It is, of course, entirely possible that the potential the Carrier IQ software seems to provide for tracking nearly everything an individual does on their mobile device cannot actually be realized due to other aspects of the software architecture. If this is the case, Carrier IQ needs to explain that the user tracking potential of its software is the result of a programming oversight and move quickly to patch its software. If, on the other hand, the Carrier IQ software can be used by a mobile phone company to capture keystroke, phone call, SMS, or URL information, the company needs to inform the public immediately. One does not need a very fertile imagination to see what a formidable surveillance tool Carrier IQ might be in the hands of a totalitarian government, and users in such countries ought to know whether their mobile devices can be used to expose intimate personal information.

More generally, the Carrier IQ incident offers an object lesson on the importance of collecting and retaining the least amount of data required to accomplish a given task. There is no reason to doubt Carrier IQ's statement in its media alert that its software is designed to “assist operators and device manufacturers in delivering high-quality products and services to their customers” by “counting and measuring operational information in mobile devices.” That being said, there is no reason that keystroke, phone number, URL, or SMS data needs be collected in the level of detail in which Carrier IQ seems capable to optimize mobile devices or their network use. Reducing the amount of data collected to the bare minimum required is not only a good strategy for protecting user privacy and preventing data breaches, but it also helps companies avoid the glare of negative publicity when overbroad data collection capabilities are revealed.

Facebook Settles FTC Charges and Agrees to Independent Audits of Its Privacy Program

blogs@foleyhoag.com (Vivek Krishnamurthy) — Tue, 29 Nov 2011 21:10:07 -0500

Earlier today, Federal Trade Commission ("FTC") and Facebook announced a settlement of the government's charges that the company had deceived users regarding their ability to keep their information private. We have reposted below a blog post outlining the major elements of the settlement agreement. The post was authored by our colleague Colin Zick, co-founder of Foley Hoag's Security & Privacy practice group, and originally posted on the firm's Security, Privacy, and the Law blog.

One of the most interesting aspects of the settlement from a corporate social responsibility perspective is that Facebook has agreed to submit to independent audits to ensure that its privacy controls and policies are consistent with the FTC settlement. These audits are to occur every two years -- over the course of the next 20 years. A similar requirement was imposed in the FTC's settlement of its case against Google, which involved charges stemming from the company's launch of the Buzz social network.

In incorporating independent audit requirements, these recent FTC consent orders are consistent with the best practices established over the last decade in a variety of industries. For example, the Fair Labor Association requires its apparel industry member companies to submit to independent external monitoring, while in the information and communication technology industry, member companies of the Global Network Initiative (including Google) have agreed to regular independent assessments of their policies and procedures intended to protect user privacy and freedom of expression online.

Looking ahead, it will be interesting to see whether today's announcement may lead to other social media companies developing stronger internal and external mechanisms to ensure that their privacy policies are appropriate and effective.

* * * * * * *

Facebook Settles FTC Charges that It Deceived Consumers, Agrees to 20 Year Consent Order

Posted on November 29, 2011 by Colin J. Zick

In a settlement announced today by the Federal Trade Commission and Facebook, the social networking service agreed to settle charges that it deceived consumers by telling them they could keep their information on Facebook private, and then repeatedly allowing it to be shared and made public according to the FTC's press release.

In its complaint, the FTC alleged, among other things, that Facebook users could not restrict access to their profile information to specific groups, such as “Only Friends” or “Friends of Friends” through their Profile Privacy Settings despite Facebook's representations that users could impose such restrictions on their accounts.

In the extensive consent order Facebook entered with the FTC, Facebook agreed (among other things) to “obtain initial and biennial assessments and reports . . . from a qualified, objective, independent third-party professional, who uses procedures and standards generally accepted in the profession,” which assessments and reports will:

set forth the specific privacy controls that [Facebook] has implemented and maintained during the reporting period;
explain how such privacy controls are appropriate to [Facebook's] size and complexity, the nature and scope of [Facebook's] activities, and the sensitivity of the covered information;
explain how the privacy controls that have been implemented meet or exceed the protections required by Part IV of this order; and
certify that the privacy controls are operating with sufficient effectiveness to provide reasonable assurance to protect the privacy of covered information and that the controls have so operated throughout the reporting period.

This consent order will last for an astoundingly long time: 20 years. (Query whether this agreement's terms and length will become the standard for future FTC privacy settlements.)

Facebook founder Mark Zuckerberg also released a blog post on the settlement, and in it he announced a split in the company's privacy officer role: Erin Egan will become Facebook's Chief Privacy Officer, Policy, and Michael Richter, currently Facebook's Chief Privacy Counsel,will become Facebook's Chief Privacy Officer, Products.

Investors Release New Guide to the California Transparency in Supply Chains Act

blogs@foleyhoag.com (Sarah A. Altschuller) — Thu, 17 Nov 2011 21:12:15 -0500

In less than two months, on January 1, 2012, the California Transparency in Supply Chains Act will go into effect. Companies impacted by the legislation will be required to disclose their efforts, if any, to ensure that their direct supply chains are free from slavery and human trafficking.

As discussed in previous posts, the legislation applies to retail sellers and manufacturers doing business in California that have annual worldwide gross receipts exceeding one hundred million dollars.

Today, a group of investors released a best practices guide for companies seeking to comply with the California legislation. The guide, Effective Supply Chain Accountability: Investor Guidance on Implementation of The California Transparency in Supply Chains Act and Beyond, was released by the Interfaith Center on Corporate Responsibility, Christian Brothers Investment Services, and Calvert Investments.

Beyond making the minimum disclosures required by the legislation, the guide urges companies to implement a comprehensive approach to the management of human rights risks in their supply chains. Specifically, the authors call on companies to develop a comprehensive management approach to human rights-related risks that includes the following elements:

A human rights policy;
Human rights due diligence;
Human rights risk assessments;
Verification and traceability mechanisms;
Training/capacity building;
Collaboration; and
Disclosure/transparency.

This guidance is responsive to the expectations of key corporate stakeholders, including shareholders, legislators, and consumers, who are increasingly demanding that companies identify and manage the human rights impacts of their operations, including human trafficking. As the guide states,

[g]iven the enactment and proposal of similar laws protecting human rights, including Section 1502 of the Dodd-Frank Act and HR 2759, the Business Transparency on Trafficking & Slavery Act, it has become clear that human rights risks within business value chains are becoming more widely acknowledged. As such, it is imperative that companies take active steps to combat human trafficking within their direct operations as well as supply chains to ensure that they are not complicit in human rights abuses.

In a press release accompanying the guide, David Schilling, Program Director for Human Rights at the Interfaith Center on Corporate Responsibility, observed that

We believe that additional legislation, at both the state and the federal levels, addressing these egregious human rights violations in company supply chains is inevitable. The California Supply Chain Act may be the first law of its kind in the nation, but it will most certainly not be the last.

We believe that stakeholder expectations regarding the corporate responsibility to respect human rights will be increasingly embedded in state, national, and international legislative and regulatory frameworks. This "convergence of expectations" is a trend reflected by the California legislation and the advice provided in the new guide is intended to assist companies in meeting both current and future compliance requirements.

Business Ethics Magazine: An Interview with John Ruggie

blogs@foleyhoag.com (Sarah A. Altschuller) — Wed, 09 Nov 2011 15:43:40 -0500

Business Ethics magazine recently published an interview with John Ruggie, the former U.N. Special Representative on Business and Human Rights who recently joined Foley Hoag's CSR practice as a senior advisor. Michael Connor, Editor and Publisher of Business Ethics, conducted the interview. The conversation focused on the Guiding Principles on Business and Human Rights, the business drivers for respecting human rights, and the ways in which the Principles have been adopted by both public and private stakeholders.

Speaking about the corporate responsibility to respect human rights, Professor Ruggie observed that,

The corporate responsibility to respect human rights is a social responsibility over and above compliance with applicable laws. It is the minimum expectation society has of business conduct in relation to human rights. It means that as business goes about its business, it should not infringe on the rights of others. So manufacture your mouse traps, deliver whatever services you provide, but don’t infringe on others’ human rights in the process.

He also discussed the "business case" for respecting human rights, in particular noting some of the costs that may be associated with lawsuits and community opposition when companies fail to address human rights concerns. In this context, he referenced recent research on the costs of conflict that was initiated under his former mandate. Specifically with regard to mining companies, he noted that,

For a world-class mining operation, which requires about $3-5 billion capital cost to get started, there’s a cost somewhere between $20 million and $30 million a week for operational disruptions by communities. Another estimate used by the mining industry is that an asset manager is supposed to spend between 5% and 10% of his or her time on community engagement issues. We found that it can be anywhere from a one-third to 50%, and in some cases 80% of their time. So there are opportunity costs, financial costs, legal costs and reputational costs.

Finally, speaking about the fundamental concept of human rights due diligence, which is a core element of the Guiding Principles, Professor Ruggie observed the extent to which this normative obligation has been adopted in both voluntary and legislative standards:

Human rights due diligence is now...in the requirements of the OECD (Organisation for Economic Development and Cooperation) guidelines on multinational enterprises. ..The principle has been incorporated into a new ISO (International Standards Organisation) standard, ISO 26000. The International Finance Corporation has updated the performance standards it requires of clients, which now reference the business responsibility to respect human rights. The European Commission has incorporated the same principles, including human due diligence, into a new EU strategy on corporate social responsibility. In the U.S., the Dodd-Frank Act includes a due diligence element for companies sourcing certain minerals closely tied to conflict in the Democratic Republic of Congo.

The full text of the interview is available here.

Ninth Circuit Upholds Corporate Liability Under the Alien Tort Statute

blogs@foleyhoag.com (Sarah A. Altschuller) — Mon, 31 Oct 2011 20:44:28 -0500

Almost one year ago, we wrote about the long history of Sarei v. Rio Tinto, an Alien Tort Statute ("ATS") case filed in 2000 against Rio Tinto Plc involving allegations stemming from the company's mining operations on the island of Bougainville, Papua New Guinea. Last week, on October 25, the Ninth Circuit Court of Appeals reversed the District Court's dismissal of plaintiffs' claims for genocide and war crimes. In doing so, the Court upheld corporate liability under the ATS.

Notably, this decision comes shortly after the Supreme Court's decision to grant plaintiffs' petition for a writ of certiorari in Kiobel v. Royal Dutch Petroleum Co. In Kiobel, the Second Circuit held that corporations are not proper defendants in ATS cases. The Ninth Circuit disagreed and emphasized the importance of looking to the statute's "language and purpose." The Court noted that it had previously held that Torture Victim Protection Act's "express language and documented legislative history reflected congressional intent to limit liability under that statute to individuals." (citing Bowoto v. Chevron, 621 F.3d 1116 (2010)). In comparison, the Court found that

The ATS contains no such language and has no such legislative history to suggest that corporate liability was excluded and that only liability of natural persons was intended. We therefore find no basis for holding that there is any such statutory limitation.

The Ninth Circuit thus joins the D.C. Circuit, the Seventh Circuit, and the Eleventh Circuit in upholding corporate liability under the ATS. In response to the Ninth Circuit's ruling, one legal observer stated, "[t]his opinion reiterates that Kiobel is an outlier."

Notably, one year ago, the case had been referred to a mediator “to explore the possibility of mediation.” Sarei v. Rio Tinto, 02-cv-56256 (9th Cir. October 26, 2010). In February 2011, the case was returned to the en banc Court. Sarei, 02-cv-56256 (9th Cir. February 11, 2011).

Supreme Court to Review Corporate Liability Under the Alien Tort Statute

blogs@foleyhoag.com (Sarah A. Altschuller) — Tue, 18 Oct 2011 01:49:27 -0500

On Monday, October 17, the U.S. Supreme Court granted plaintiffs' petition for a writ of certiorari in Kiobel v. Royal Dutch Petroleum Co. In Kiobel, the Second Circuit Court of Appeals held that corporations cannot be sued under the Alien Tort Statute (“ATS”) for violations of customary international law. The question of corporate liability under the ATS was left unsettled by the Supreme Court in Sosa v. Alvarez-Machain (2004) and the Court's decision to grant certiorari in Kiobel was widely anticipated.

Cases brought by plaintiffs in the United States under the ATS represent the largest body of domestic jurisprudence on corporate responsibility for violations of international human rights law. Kiobel itself is one of a series of cases arising from claims that Royal Dutch Petroleum was complicit in human rights abuses against the Ogoni people in Nigeria. Three related cases (the Wiwa cases) settled on the eve of trial in June 2009 for a disclosed settlement of $15.5 million.

The September 2010 decision in Kiobel was suggested by some legal scholars to be the beginning of the end for ATS litigation again corporate defendants. Since the Second Circuit's ruling, however, the Seventh Circuit and the D.C. Circuit have both issued decisions finding that corporate liability is proper under the ATS. The Eleventh Circuit has also upheld corporate liability under the ATS.

The Supreme Court also granted certiorari in Mohamed v. Rajoub, in which the D.C. Circuit held that non-natural persons were not proper defendants under the Torture Victims Protection Act. In Mohamed, plaintiffs had sought damages against the Palestine Liberation Organization and Palestinian Authority. In its orders granting certiorari, the Supreme Court directed that Kiobel and Mohamed be argued in tandem.

A New Set of Principles for the Nuclear Power Industry

blogs@foleyhoag.com (Gare A. Smith) — Wed, 12 Oct 2011 22:00:00 -0500

Corporate social responsibility and nuclear power? Indeed. In September, the very first code of conduct for the nuclear power plant industry was launched.

The development of the "Principles of Conduct" was facilitated by the Carnegie Endowment for International Peace. Representatives of all of the major exporters of nuclear power plants participated in the drafting process, which was initiated in 2008. I had the honor of being selected by the Carnegie Endowment to help facilitate the negotiations.

The Principles set forth expectations in the following areas:

Safety, Health, and Radiological Protection;
Physical Security;
Environmental Protection and the Handling of Spent Fuel and Nuclear Waste;
Compensation for Nuclear Damage;
Nonproliferation and Safeguards; and
Ethics.

While the Principles were initiated prior to the Fukushima nuclear accident, the completed text reflects certain initial lessons learned from that disaster, especially in the area of safety. At the time of the Principles' launch, Richard Giordano, Chairman of the Board of Trustees for the Carnegie Endowment, observed

Whatever lessons particular countries draw from Fukushima over time, new nuclear plants will continue to be built, some in countries that have only recently begun to utilize nuclear power. It is therefore imperative that nuclear energy is implemented safely and responsibly in both emerging and developed markets.

I was especially involved in the drafting of Principle 6, which focuses on ethics. Principle 6 helps nuclear exporters meet three primary objectives:

Safeguarding the environment and the wellbeing of communities near nuclear power plants, including through effective communication with those communities;
Respecting human rights, including the fundamental labor rights of employees; and
Fighting corruption.

Principle 6 is important because it addresses measures to mitigate the potential effects of nuclear power on communities and the environment. Principle 6 states that the exporters will work with their customers to consult with communities near nuclear power plants regarding the social and environmental effects of planned activities. The exporters also agree to take sustainable development into account in their activities.

Principle 6 also states that the exporters will respect the fundamental labor rights of their employees, including the right to collective bargaining. They also pledge to respect the Universal Declaration on Human Rights -- a commitment which has implications for their interactions not only with employees, but also with communities and other stakeholders.

Finally, Principle 6 addresses the challenge of corruption, which can arise in the context of large infrastructure projects. The exporters commit to having internal programs in place to fight corruption, and to seek a reciprocal commitments from customers.

The Principles represent a significant new development for the nuclear industry. As stated on the Principles' website,

The Principles of Conduct reflect a recent trend in the management of global challenges. Leading industries, including those in the oil and gas, apparel and pharmaceutical sectors, increasingly have recognized the value of their reputations as socially responsible actors to their long-term business success.

Ultimately, the launch of these new Principles reflects a convergence of international expectations regarding corporate behavior and self-discipline: companies in every industry are expected to demonstrate responsible stewardship with regard to the social and environmental impacts of their operations.

To date, the following companies have adopted the Principles:

AREVA
ATMEA (an AREVA-Mitsubishi joint venture)
Atomstroyexport
Candu Energy (the successor exporting company to Atomic Energy of Canada Limited)
GE Hitachi Nuclear Energy
Hitachi-GE Nuclear Energy
Korea Electric Power Company (KEPCO)
Mitsubishi Heavy Industries (including Mitsubishi Nuclear Energy Systems, a subsidiary)
Toshiba
Westinghouse Electric Company

Final GHG Protocol Scope 3 and Product Life Cycle Standards Available

blogs@foleyhoag.com (Amy Boyd) — Thu, 06 Oct 2011 10:51:39 -0500

The most popular suite of tools to measure and manage greenhouse gases just got a lot more complete -- allowing companies to track the impact of their products from natural resources and raw materials, through manufacturing, use and disposal, and providing a detailed framework to measure companies’ “everything else” Scope 3 emissions.

The Greenhouse Gas Protocol Initiative (a collaboration between the World Resources Institute and the World Business Council for Sustainable Development) finalized its two newest global greenhouse gas standards on October 4. The GHG Protocol are the most widely used suite of accounting tools for measuring, managing and reporting greenhouse gas emissions -- for instance, in 2010, more than 85% of the nearly 2,500 respondents to the Carbon Disclosure Project survey used these standards. With the addition of the two new standards -- the Corporate Value Chain (Scope 3) Accounting and Reporting Standard and the Product Life Cycle Accounting and Reporting Standard -- companies have more guidance on a methodology and common language to report the impacts of their operations as they span the supply chain and the life cycle of their products. The GHG Protocol website even includes a cute video to explain what Scope 3 emissions are and why they claim these new protocol will save the world.

The new standards, which have taken three years to develop, involved the input of close to 2,500 partners, and were actively road-tested by 60 companies from 17 countries. The final standards have been influenced by the many comments received since they were published in draft form last November, and are intended to build upon the GHG Corporate Standard from 2004 which details how to report Scope 1 emissions (direct emissions from sources a company owns or controls, like factory smokestacks and company-owned cars) and Scope 2 emissions (indirect emissions attributable to the electricity, heat and cooling the company directly consumes).

Scope 3 emissions, which include everything else, are the great unknown variable in greenhouse gas reporting. They contain the vast majority of emissions, and accordingly, have the biggest opportunities for reductions. The authors of these new standards hope that they provide companies with a “treasure map” to identify and locate these opportunities to help both the environment and the business’s bottom line. At the very least, these protocol will simplify and reduce the costs for companies taking on a Scope 3 inventory, and improve the relevance, completeness, consistency, transparency and accuracy of the emissions reported each year.

Respecting the Human Right to Water

blogs@foleyhoag.com (Sarah A. Altschuller) — Fri, 30 Sep 2011 15:55:22 -0500

More than a Resource: Water, Business, and Human Rights, a recent report by the Institute for Human Rights and Business ("IHRB") calls on companies to take action to respect the human right to water.

The report references the emerging consensus among international institutions that businesses have a responsibility to respect human rights, and highlights the Guiding Principles on Business and Human Rights, drafted by the former U.N. Special Representative on Business and Human Rights, John Ruggie, as providing the most authoritative guidance on how to implement this responsibility. The Guiding Principles specifically state that companies should conduct human rights due diligence in order to assess and respond to the actual and potential human rights impacts of their operations.

As previously discussed, in July 2010, the U.N. General Assembly declared access to safe water to be a human right. Soon thereafter, in September 2010, the U.N. Human Rights Council adopted a resolution recognizing access to clean water and sanitation as a fundamental human right, “equal to all other human rights” (emphasis added) and capable of legal enforcement. These developments came at the same time as increasing water scarcity is impacting communities, and companies, around the world.

The new report by IHRB suggests that

[i]n view of the fact that the right to drinking water and sanitation was formally recognized in 2010, all businesses should take account of this right when they implement human rights due diligence procedures and develop a human rights policy statement

as called for in the Guiding Principles. In our previous analysis of the human right to water, we noted that companies will likely find that stakeholders increasingly expect due diligence efforts, especially with regard to human rights impacts, to include assessments of corporate impacts on community water resources.

Notably, the IHRB report also predicts that "governments and intergovernmental organizations will increasingly call on businesses to be transparent and accountable for their impacts in relations to water, in human rights terms." That said, as the report observes, "most businesses do not yet consider water to be a social issue, and the great majority do not explicitly address the human rights impacts of their policies and operations in this area." This is an emerging challenge that many companies, especially those with water-intensive operations, will need to address in order to manage their operations and stakeholder relationships effectively.

Obama Administration Announces Intent to Join EITI

blogs@foleyhoag.com (Amy K. Lehr) — Wed, 21 Sep 2011 17:18:04 -0500

On September 20, the Obama Administration announced its intent to join the Extractive Industries Transparency Initiative ("EITI"). Government members of the EITI are required to disclose the payments that oil, gas, and mining companies make to them, and companies operating in those countries publish their payments to the governments. The two can then be reconciled for greater transparency and certainty regarding payments to governments.

A working group in each EITI member country – made up of the government, companies, and civil society -- determines precisely how the reporting is conducted for that jurisdiction. In most countries, the information is presented in a partially aggregated manner so that, for example, the precise dollar amount paid in royalties by a particular company for a specific project is not clear.

The Obama Administration’s statement would make it the first G8 government to become a reporting country under the EITI. Other G8 governments are "supporters" of the EITI, but this does not require them to undertake reporting on their own extractive industry revenues. As a political gesture, the Obama Administration’s statement is significant because it implies that western countries should be subject to the same reporting standards as less-developed nations. It also means that oil, gas, and mining companies with contracts with the U.S. government would be required to report on their payments.

The Obama Administration’s statement arrives amid continuing controversy in the United States regarding the best way to increase revenue transparency. Section 1504 of the Dodd-Frank Wall Street Reform Act requires companies reporting to the Securities Exchange Commission ("SEC") to disclose their payments to the SEC on a project basis. Civil society celebrated this development, stating that it will increase the accountability of governments to their citizens regarding the use of oil, gas, and mining money, and thus ensure more benefits reach the general public. Industry, however, has raised concerns regarding the cost and political implications of the reporting required by Section 1504, which is likely to be more detailed than that required by the EITI. Industry maintains that the EITI remains the best mechanism to enhance revenue transparency. The SEC has yet to issue its final rule to guide implementation, so it is not clear whether it will demand reporting significantly more detailed than the EITI requires. Therefore, the precise implications of the law are uncertain.

NGOs have welcomed the Obama Administration’s intent to join the EITI, stating that it ensures that privately held companies with oil, gas, or mining contracts with the U.S. government will be required to report their revenues. Such companies do not report to the SEC, and therefore are not covered by Section 1504. At the same time, the American Petroleum Institute has welcomed the Obama Administration’s decision, claiming that, based on the Administration’s support for the EITI, the SEC should simply follow the EITI’s reporting standards when devising its rule. Time – and the SEC rule – will tell which side has read the tea leaves correctly.

Keynote Remarks at the Voluntary Principles Extraordinary Plenary Meeting

blogs@foleyhoag.com (John G. Ruggie) — Tue, 20 Sep 2011 09:56:56 -0500

Last week, I gave the keynote address at an Extraordinary Plenary Meeting of the Voluntary Principles on Security and Human Rights, held in Ottawa, Ontario on September 15-16, 2011. (Note: I did not deliver my remarks in my capacity as Senior Advisor to Foley Hoag's CSR practice. As noted previously on this blog, however, Foley Hoag serves as the Secretariat for the Voluntary Principles.)

In my remarks, I observed that the Voluntary Principles "deals with the most palpable and widely recognized of all human rights: the physical security and integrity of the person." I also recognized that the multi-stakeholder nature of the Voluntary Principle provides critical support to companies operating in difficult environments. Specifically, I noted that "companies need granular advice and assistance from home and host states alike. They need to be able to count on the in-country government-to-government interface that is a critical component of the [Voluntary Principles]—for example, to address the challenges of security sector reform, or to provide assistance in managing the predictable influx of people and corresponding demand for infrastructure when a new site opens."

The full text of my remarks can be found here.