Saturday, September 7, 2019
Have you ever wanted to learn the basics about blockchain? Do you think it's all hype and a passing fad? Whatever your view, take a look at my new article, Beyond Bitcoin: Leveraging Blockchain to Benefit Business and Society, co-authored with Rachel Epstein, counsel at Hedera Hashgraph. I became interested in blockchain a year ago because I immediately saw potential use cases in supply chain, compliance, and corporate governance. I met Rachel at a Humanitarian Blockchain Summit and although I had already started the article, her practical experience in the field added balance, perspective, and nuance.
The abstract is below:
Although many people equate blockchain with bitcoin, cryptocurrency, and smart contracts, the technology also has the potential to transform the way companies look at governance and enterprise risk management, and to assist governments and businesses in mitigating human rights impacts. This Article will discuss how state and non-state actors use the technology outside of the realm of cryptocurrency. Part I will provide an overview of blockchain technology. Part II will briefly describe how public and private actors use blockchain today to track food, address land grabs, protect refugee identity rights, combat bribery and corruption, eliminate voter fraud, and facilitate financial transactions for those without access to banks. Part III will discuss key corporate governance, compliance, and social responsibility initiatives that currently utilize blockchain or are exploring the possibilities for shareholder communications, internal audit, and cyber security. Part IV will delve into the business and human rights landscape and examine how blockchain can facilitate compliance. Specifically, we will focus on one of the more promising uses of distributed ledger technology -- eliminating barriers to transparency in the human rights arena thereby satisfying various mandatory disclosure regimes and shareholder requests. Part V will pose questions that board members should ask when considering adopting the technology and will recommend that governments, rating agencies, sustainable stock exchanges, and institutional investors provide incentives for companies to invest in the technology, when appropriate. Given the increasing widespread use of the technology by both state and non-state actors and the potential disruptive capabilities, we conclude that firms that do not explore blockchain’s impact risk obsolescence or increased regulation.
Things change so quickly in this space. Some of the information in the article is already outdated and some of the initiatives have expanded. To keep up, you may want to subscribe to newsletters such as Hunton, Andrews, Kurth's Blockchain Legal Resource. For more general information on blockchain, see my post from last year, where I list some of the videos that I watched to become literate on the topic. For additional resources, see here and here.
If you are interested specifically in government use cases, consider joining the Government Blockchain Association. On September 14th and 15th, the GBA is holding its Fall 2019 Symposium, “The Future of Money, Governance and the Law,” in Arlington, Virginia. Speakers will include a chief economist from the World Bank and banking, political, legal, regulatory, defense, intelligence, and law enforcement professionals from around the world. This event is sponsored by the George Mason University Schar School of Policy and Government, Criminal Investigations and Network Analysis (CINA) Center, and the Government Blockchain Association (GBA). Organizers expect over 300 government, industry and academic leaders on the Arlington Campus of George Mason University, either in person or virtually. To find out more about the event go to: http://bit.ly/FoMGL-914.
Blockchain is complex and it's easy to get overwhelmed. It's not the answer to everything, but I will continue my focus on the compliance, governance, and human rights implications, particularly for Dodd-Frank and EU conflict minerals due diligence and disclosure. As lawyers, judges, and law students, we need to educate ourselves so that we can provide solid advice to legislators and business people who can easily make things worse by, for example, drafting laws that do not make sense and developing smart contracts with so many loopholes that they cause jurisdictional and enforcement nightmares.
Notwithstanding the controversy surrounding blockchain, I'm particularly proud of this article and would not have been able to do it without my co-author, Rachel, my fantastic research assistants Jordan Suarez, Natalia Jaramillo, and Lauren Miller from the University of Miami School of Law, and the student editors at the Tennessee Journal of Business Law. If you have questions or please post them below or reach out to me at email@example.com.
September 7, 2019 in Compliance, Conferences, Contracts, Corporate Governance, Corporations, CSR, Current Affairs, Financial Markets, Human Rights, Law Reviews, Lawyering, Legislation, Marcia Narine Weldon, Securities Regulation, Shareholders, Technology | Permalink | Comments (0)
Friday, August 23, 2019
I had planned to write about the Statement on the Purpose of a Corporation signed by 200 top CEOs. If you read this blog, you've likely read the coverage and the varying opinions. I'm still reading the various blog posts, statements by NGOs, and 10-Ks of some of the largest companies so that I can gather my thoughts. In the meantime, many of these same companies will be at the UN Forum on Business and Human Rights touting their records. I've been to the Forum several times, and it's worth the trip. If you're interested in joining over 2,000 people, including representatives from many of the signatories of the Statement, see below. You can register here:
The UN annual Forum on Business and Human Rights is the global platform for stock-taking and lesson-sharing on efforts to move the UN Guiding Principles on Business and Human Rights from paper to practice. As the world’s foremost gathering in this area, it provides a unique space for dialogue between governments, business, civil society, affected groups and international organizations on trends, challenges and good practices in preventing and addressing business-related human rights impacts. The first Forum was held in 2012. It attracts more than 2,000 experts, practitioners and leaders for three days of an action- and solution-oriented dialogue.The Forum was established by the UN Human Rights Council in 2011 “to discuss trends and challenges in the implementation of the Guiding Principles and promote dialogue and cooperation on issues linked to business and human rights, including challenges faced in particular sectors, operational environments or in relation to specific rights or groups, as well as identifying good practices” (resolution 17/4, paragraph 12).
The Forum addresses all three pillars of the Guiding Principles:
- The State duty to protect against human rights abuses by third parties, including business, through appropriate policies, regulation and adjudication;
- The corporate responsibility to respect human rights, which means to avoid infringing on the rights of others and to address adverse impacts with which a business is involved; and
- The need for access to effective remedy for rights-holders when abuse has occurred, through both judicial and non-judicial grievance mechanisms
The Forum is guided and chaired by the UN Working Group on Business and Human Rights and organized by its Secretariat at the Office of the UN High Commissioner for Human Rights (OHCHR).
If you have any questions about the value of attending the Forum, feel free to reach out to me at firstname.lastname@example.org.
August 23, 2019 in Conferences, Corporate Personality, Corporations, CSR, Current Affairs, Human Rights, International Business, International Law, Marcia Narine Weldon, Shareholders, Social Enterprise | Permalink | Comments (0)
Friday, August 16, 2019
Last week, I led a “legal hack” for some of the first year students during orientation. Each participating professor spoke for ten minutes on a topic of our choice and then answered questions for ten minutes. I picked business and human rights, my passion. I titled my brief lecture, “Are you using a product made by slaves, and if you are, can you do anything about it”?
In my ten minutes, I introduced the problem of global slavery; touched on the false and deceptive trade practices litigation levied against companies; described the role of shareholder activists and socially responsible investors in pressuring companies to clean up supply chains; raised doubts about the effectiveness of some of the disclosure regimes in the US, EU, and Australia; questioned the efficacy of conscious consumerism; and mentioned blockchain as a potential tool for provenance of goods. Yes. In ten minutes.
During the actual hack later in the afternoon, I had a bit more time to flesh out the problem. I developed a case study around the Rana Plaza disaster in which a building collapse in Bangladesh killed over 1,000 garment workers six years ago. Students brainstormed solutions to the problems I posed with the help of upperclassmen as student facilitators and community stakeholders with subject matter expertise. At the end of the two-hour brainstorming session, the students presented their solutions to me.
We delved deeper into my subject matter as I asked my student hackers to play one of four roles: a US CEO of a company with a well-publicized CSR policy deciding whether to stay in Bangladesh or source from a country with a better human rights record; a US Presidential candidate commenting on both a potential binding treaty on business and human rights and a proposed federal mandatory due diligence regime in supply chains; a trade union representative in Bangladesh prioritizing recommendations and demands to EU and US companies; and a social media influencer with over 100 million followers who intended to use his platform to help an NGO raise awareness.
This exercise was identical to an exercise I did in March in Pakistan with 100 business leaders, students, lawyers, government officials, and members of civil society as part of an ABA Rule of Law Initiative. The only difference was that I asked Pakistanis to represent the Bangladesh government and I asked the US students to represent a political candidate.
In both Pakistan and Miami, the participants had to view the labor issues in the supply chain from a multistakeholder perspective. Interestingly, in both Pakistan and Miami, the participants playing the social media influencer rejected the idea of a boycott. Even though multiple groups played this role in both places, each group believed that seeking a boycott of companies that used unsafe Bangladeshi factories would cause more harm than good.
Of note, the Miami Law students did their hack during the call for a boycott of Soul Cycle due to Steve Ross’ decision to hold a fundraiser for President Trump. In my unscientific poll, three out of three students who patronized Soul Cycle refused to boycott. When it came to the fictionalized case study, all groups raised concerns that a boycott could hurt garment workers in Bangladesh and retail workers in the US and EU. Some considered a “buycott” to support brands with stronger human rights records.
I’ve written before about my skepticism about long term boycotts, especially those led by millennials. Some of these same students echoed my concerns about their own lack of sustained commitment on proposed boycotts in the past. The “winning” hack- #DoBetterBangladesh was a multipronged strategy to educate consumers, adopt best practices of successful campaigns such as the Imokalee
farm workers, and form acoalition with other influencers to encourage consumer donations to reputable NGOs in Bangladesh. After seeing what these student groups could do in just two hours, I can’t wait to see what they can accomplish after three years of law school.
Friday, May 24, 2019
Currently, I am working on a project that looks at how social value is measured and reported. As I dig deeper, I am becoming even more convinced that measuring social value may be too difficult for us to do well.
Let’s take scooters as an example. How would you measure (and report) the social value of these scooter companies? How many points should a “third-party standard” assign for the jobs created, for the gasoline saved, for the affordable transportation provided, for the fun produced? How many points should you subtract for a death, for injuries, for obstructing sidewalks? In the language of the Model Benefit Corporation Legislation, how do you know if a scooter company is producing “[a] material positive impact on society and the environment, taken as a whole”?
Over the past few weeks, I’ve been diving into the B Impact Assessment, (which is the top third-party standard used by benefit corporations) and, frankly, the points assigned seem somewhat arbitrary and easy for companies to manipulate. In my opinion, almost any company, including a scooter company, could get the 80+ points needed to qualify as a certified B corp. if they learned and worked the system a bit (and, as most readers know, you don’t even have to be certified to become a benefit corporation under the state statutes.)
I know bright people who would emphatically argue that scooter companies create a “material positive impact,” and I know bright people who think scooter companies are socially destructive. Social reporting does not have to be totally useless; it would be interesting to have the data on scooter usage (how many people are using them for their commute, what is the injury rate relative to cars, etc?). But the total amount of social value is not easily reduced to numbers and social reports. Given the nuance of each decision, the various externalities, and the difficulty in quantifying the social impact, I have previously suggested giving stakeholder representatives certain governance rights (such as the ability to elect and sue the board of directors). This way, directors will be more likely to consider each stakeholder group when making decisions.
Friday, May 10, 2019
Join me in Miami, June 26-28.
June 26-28, 2019
Managing Compliance Across Borders is a program for world-wide compliance, risk and audit professionals to discuss current developments and hot topics (e.g. cybersecurity, data protection, privacy, data analytics, regulation, FCPA and more) affecting compliance practice in the U.S., Canada, Europe, and Latin America. Learn more
See a Snapshot: Who Will Be There?
Learn More: Visit the website for updated speaker information, schedule and topic details.
This program is designed and presented in collaboration with our partner in Switzerland
May 10, 2019 in Compliance, Conferences, Corporate Governance, Corporations, CSR, Current Affairs, Ethics, Financial Markets, International Business, Law Firms, Law School, Marcia Narine Weldon, White Collar Crime | Permalink | Comments (0)
Tuesday, April 23, 2019
Prof. Justin Pace, Haworth College of Business, Western Michigan University recently sent me his paper, Rogue Corporations: Unlawful Corporate Conduct and Fiduciary Duty. In it, he discusses Delaware's "per se doctrine where the board directs the corporation to violate the law. A knowing violation of positive law is bad faith, which falls under the duty of loyalty. The business judgment rule will not apply and exculpation will not be available under Section 102(b)(7). The shareholders may not even need to show harm."
In the paper, he considers this concept from a moral and ethical perspective, which are interesting in their own right, though I remain more interested in the doctrine itself. The paper is worth a look. A few comments of my own, after the abstract:
On February 28, 2018, Dick’s Sporting Goods announced that it would no longer sell long guns to 18- to 20-year-olds. On March 8, 2018, Dick’s was sued for violating the Michigan Elliott-Larsen Civil Rights Act, which prohibits discrimination on the basis of age in public accommodations. Dick’s and Walmart were also sued for violating Oregon’s ban on age discrimination. In addition to corporate liability under various state civil rights acts, directors of Dick’s and Walmart face the threat of suit for breaching their fiduciary duties—suits that may be much harder to defend than the more usual breach of fiduciary duty suit.
Delaware corporation law appears to have an underappreciated per se doctrine where the board directs the corporation to violate the law. A knowing violation of positive law is bad faith, which falls under the duty of loyalty. The business judgment rule will not apply and exculpation will not be available under Section 102(b)(7). The shareholders may not even need to show harm.
This paper examines the relevant legal doctrine but also takes a step back to consider what the rule should be from an ethical and a moral standpoint. To do so, rather than apply traditional corporate governance arguments, this paper considers broader moral theories. In addition to the utilitarian calculus that is so ubiquitous in corporate governance scholarship via the law and economics movement, this paper considers the liberalism of both John Rawls and Robert Nozick. But liberalism may seem less persuasive given the rise of illiberalism politically on both the American right and left. Given that, this paper also considers two non-liberal models: one a populist modification of Charles Taylor’s democratic communitarianism and the other Catholic Social Thought.
Unsurprisingly, the proper rule depends on which moral theory is applied. If that theory is liberalism (of either form covered), then a per se approach is troubling. Harm to the corporation must be shown, and either the Delaware legislature or the corporate players, depending on the form of liberalism, must acquiesce to a per se rule. Counterintuitively, it is the per se rule that runs counter to basic democratic norms. It gives the power to litigate in response to harm not to the party harmed but to a third party. Given the divergent results from applying different moral theories, and given the democratic difficulty, the Delaware legislature should clarify the standard. It will likely find that a harsh, per se standard is unjustified.
First, I have always thought that some people read DGCL § 102(b)(7) too literally (or at least broadly). The statute reads:
(b) In addition to the matters required to be set forth in the certificate of incorporation by subsection (a) of this section, the certificate of incorporation may also contain any or all of the following matters:
. . . .
(7) A provision eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that such provision shall not eliminate or limit the liability of a director: (i) For any breach of the director's duty of loyalty to the corporation or its stockholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) under § 174 of this title; or (iv) for any transaction from which the director derived an improper personal benefit. No such provision shall eliminate or limit the liability of a director for any act or omission occurring prior to the date when such provision becomes effective. All references in this paragraph to a director shall also be deemed to refer to such other person or persons, if any, who, pursuant to a provision of the certificate of incorporation in accordance with § 141(a)of this title, exercise or perform any of the powers or duties otherwise conferred or imposed upon the board of directors by this title.
I have never been one to believe that directors face potential liability for any type of "knowing violation of law." Anyone who has seen a UPS or FedEx truck in New York City knows that the drivers knowingly park illegally and risk tickets (which they often get) for doing the job. It is a cost of doing business, and I find it hard to believe any court would hold directors liable for such a thing, though directors certainly know (or should) of the practice. That would make for one of the most absurd Caremark-like cases ever, in my view.
Prof. Pace argues in his paper:
A per se standard might prove lucrative. It opens up liability for losses normally insulated by business judgment rule. If Nike loses market share because it made Colin Kaepernick the face of a large marketing campaign, shareholders cannot successfully sue because that decision is protected by the business judgment rule. But if Dick’s Sporting Goods loses market share because it stops selling long guns to 18- to 20-year-olds, shareholders presumably can sue and recover based on that market share, even though civil liability for violating state bars on age discrimination may be negligible.
Perhaps, but I would still think that most courts would likely work around this. First, I think a court could easily calculate damages as the modest civil liability incurred, not the lost market share. Second, in Dick's Sporting Goods situation, as I observed elsewhere, "it is worth noting that Dick's sales dropped, but profits rose after the decision because the company cut costs by replacing some guns with higher-margin items." If there is no harm, is there a foul? Or maybe better said, it is possible that there is no director liability unless one can show actual harm.
I will concede that DGCL § 102(b)(7) likely eliminates business judgment rule protection for directors where one can show a knowing violation of the law. However, getting past the business judgment rule does not automatically lead to liability. It simply allows the court to review the board's decision, but the plaintiff still must show harm. And I am not at all sure one can show harm in the Dick's gun sales circumstance. It is, in my view, entirely fair. I also gather that I am may be in the minority on this one. But a good conversation, either way.
Friday, April 12, 2019
As a former compliance officer who is now an academic, I've been obsessed with the $25 million Varsity Blues college admissions scandal. Compliance officers are always looking for titillating stories for training and illustration purposes, and this one has it all-- bribery, Hollywood stars, a BigLaw partner, Instagram influencers, and big name schools. Over fifty people face charges or have already pled guilty, and the fallout will continue for some time. We've seen bribery in the university setting before but those cases concerned recruitment of actual athletes.
Although Operation Varsity Blues concerns elite colleges, it provides a wake up call for all universities and an even better cautionary tale for businesses of all types that think of bribery as something that happens overseas. As former Justice Department compliance counsel, Hui Chen, wrote, "bribery. . . is not an act confined by geographies. Like most frauds, it is a product of motive, opportunity, and rationalization. Where there are power and benefits to be traded, there would be bribes."
My former colleague and a rising star in the compliance world, AP Capaldo, has some great insights on the scandal in this podcast. I recommend that you listen to it, but if you don't have time, here are some questions that she would ask if doing a post mortem at the named universities. With some tweaks, compliance officers, legal counsel, and auditors for all businesses should consider:
1) What kind of training does our staff receive? How often?
2) Does it address the issues that are likely to occur in our industry?
3) When was the last time we spot checked these areas for compliance ? In the context of the universities, were these scholarships or set asides within the scope of routine audits or any other internal controls or reviews?
4) What factors or aspects of the culture could contribute to a scandal like this? What are our red flags and blind spots? Do we have a cultural permissiveness that could lead to this? In the context of the implicated universities, who knew or had reason to know?
5) How can we do a values-based analysis? Do we need to rethink our values or put some teeth behind them?
6) How are our resources deployed?
7) Do we have fundamental gaps in our compliance program implementation? Are we too focused on one area or another?
8) Are integrity and hallmarks of compliant behavior part of our selection/hiring process?
Capaldo recommends that universities tap into their internal resources of law and ethics professors who can staff multidisciplinary task forces to craft programs and curate cultures to ensure measurable improvements in compliance and a decrease in misconduct. I agree. I would add that as members of the law and business community and as alums of universities, we should ask our alma maters or employers whether they have considered these and other hard questions. Finally, as law and business professors, we should use this scandal in both the classroom and the faculty lounge to reinforce the importance of ethics, internal controls, compliance with law, and shared values.
April 12, 2019 in Business School, Compliance, Corporate Governance, Corporations, CSR, Current Affairs, Ethics, Law Firms, Law School, Lawyering, Management, Marcia Narine Weldon, Sports, Teaching | Permalink | Comments (0)
Wednesday, April 3, 2019
I recently received a copy of Citizen Capitalism: How a Universal Fund Can Provide Influence and Income to All from Sergio Gramitto. While I have not yet read the book, I didn’t want to let another blog post go by without passing along at least some of its highlights, as well as why I am particularly interested in its proposals.
In addition to Sergio, the authors of Citizen Capitalism include Tamara Belinfanti and the late Lynn Stout. Suffice it to say that Lynn was one of our true superstars, and I would hate to miss any presentation by either Sergio or Tamara. I’ve had the pleasure of engaging professionally with all of them in some capacity, and I hold them each in the highest regard.
Sergio and Lynn first discussed the idea of a Universal Fund in their article Corporate Governance as Privately-Ordered Public Policy: A Proposal, and then expanded on that idea with Tamara in Citizen Capitalism. The book has been reviewed in numerous places (see, for example, here and here). What follows is a descriptive excerpt from Cornell’s Clarke Program on Corporations & Society.
We offer a utopian-but feasible-proposal to better align the operations of business corporations with the interests of a broader range of humanity. The heart of the proposal is the creation of a Universal Fund into which individuals, corporations, and state entities could donate shares of public and private corporations. The Universal Fund would then distribute a proportionate interest in the Fund-a Universal Share-to all members of a class of eligible individuals (for example, all citizens over the age of 18), who would then become Universal Shareholders. Like a typical mutual fund, the Universal Fund would "pass through" to its Shareholders all income on its equity portfolio, including dividends and payments for involuntary share repurchases. Unlike a typical mutual fund, however, the Universal Fund would follow an "acquire and hold" strategy and could not sell or otherwise voluntarily dispose of its portfolio interests. Similarly, Universal Shareholders could not sell, bequeath, or hypothecate their Shares. Upon the death of a Universal Shareholder, that individual's Share would revert to the Fund.
Robert Ashford has been advocating for a similar proposal for years (see his SSRN page here) under the heading of binary economics (also known as “inclusive capitalism”). I’ve had the pleasure of working with Robert on a few related projects, and pass along the following excerpt from my article The Inclusive Capitalism Shareholder Proposal for whatever it may be worth.
When it comes to the long-term well being of our society, it is difficult to overstate the importance of addressing poverty and economic inequality. In Capital in the Twenty-First Century, Thomas Piketty famously argued that growing economic inequality is inherent in capitalist systems because the return to capital inevitably exceeds the national growth rate. Proponents of “Inclusive Capitalism” can be understood to respond to this issue by advocating for broadening the distribution of the acquisition of capital with the earnings of capital. Obviously, distributing capital more widely should, all else being equal, help alleviate at least some poverty and close at least some of the economic inequality gap by providing poor-to-middle-class consumers capital (paid for by the earnings of that capital) that they did not have before. But why should corporations distribute the ownership of their capital more broadly? The answer is because broadening the distribution of capital should promote greater growth because low-to-middle-income consumers are understood by many to spend more than wealthy consumers. This increased demand may then be expected to produce gains sufficient to offset the costs incurred in the process of instituting the Inclusive Capitalism proposal presented herein.
Based on my initial overview, I believe one meaningful difference between the Citizen Capitalism proposal and Ashford’s binary economics / inclusive capitalism proposal is the source of funding. The Citizen Capitalism proposal relies on donations while the binary economics proposal relies on the self-interest of corporations in increasing consumer demand.
Regardless, there are good arguments to be made for capitalism being the least worst system for advancing the well-being of individuals, and proposals like the foregoing provide important pro-market alternatives for addressing inequality.
Friday, December 7, 2018
In January 2018, Larry Fink of Blackrock, the world’s largest asset manager, shocked skeptics like me when he told CEOs:
In the current environment, these stakeholders are demanding that companies exercise leadership on a broader range of issues. And they are right to: a company’s ability to manage environmental, social, and governance matters demonstrates the leadership and good governance that is so essential to sustainable growth, which is why we are increasingly integrating these issues into our investment process. Companies must ask themselves: What role do we play in the community? How are we managing our impact on the environment? Are we working to create a diverse workforce? Are we adapting to technological change? Are we providing the retraining and opportunities that our employees and our business will need to adjust to an increasingly automated world? Are we using behavioral finance and other tools to prepare workers for retirement, so that they invest in a way that will help them achieve their goals?
In October 2018, Blackrock declared, “sustainable investing is becoming mainstream investing.” The firm bundled six existing ESG EFT funds and launched six similar funds in Europe and looked like the model corporate citisen.
So does Blackrock actually divest from companies with human rights violations or that do not provide meaningful disclosures on human trafficking, child slavery, forced labor, or conflict minerals? The company did not publicly divest from gun manufacturers although it did “speak with” them in February after the Parkland school shooting; the company has stated that due to fiduciary concerns, it cannot divest from single companies in a portfolio.
In theory, a behemoth like Blackrock could have a significant impact on a firm’s ESG practices, if it so chose. It could set an example for companies and for other institutional investors by seeking (1) additional information after reviewing disclosures and/or (2) demanding changes in management if companies did not in fact, show a true commitment to ESG.
But I shouldn’t pick on Blackrock. Based on what I heard last week in Geneva at the UN Forum on Business and Human Rights, other investors outside of the SRI arena aren’t pressuring companies either. I attended the Forum for the fourth time with over 2,000 members from the business, NGO, civil society, academic, and governmental communities. There was a heavy focus this year on supply chain issues because 80% of the world’s goods travel through large, international companies.The Responsible Business Alliance and others stressed the importance of eradiating forced labor. Apple, Google, Microsoft, Intel, and Amnesty International focused on tech companies, artificial intelligence, and human rights implications. Rio Tinto and Nestle allowed an NGO to publicly criticize their disclosure reports in painstaking detail. An activist told the entire plenary that states needed to stop killing human rights defenders. In other words, business as usual at the Forum. Here are some of the takeaways from some of the sessions:
- NGO PODER warned that investors should not divest when companies are not living up to their responsibilities but instead should engage companies on ESG factors and demand board seats.
- The UN Working Group on Business and Human Rights observed that rating agencies can and should be a fast track to the board on ESG issues.
- A representative from the Sustainable Stock Exchanges Initiative, a joint initiative of UNCTAD, PRI, the UN Global Compact, and UNEP-FI, indicated that investors want to know if ESG information is material. It may be salient, but not material to some. 79 stock exchanges around the world have partnered with the SSEI. 39 have voluntary ESG disclosures and 16 have mandatory disclosures.
- The Business and Human Rights Resources Center noted that of 7,200 corporate statements mandated by the UK Modern Slavery Act, only 25% met the minimum requirements required by law. As they shocked the audience with this statistic, news alerts went out the Australia had finally passed its own anti slavery law.
- 40% of companies in apparel, agricultural, and extractive industries have a 0 (zero) score for human rights due diligence, indicating weak implementation of the UN Guiding Principles on Business and Human Rights. The average score in the benchmark was only 27%.
- French companies must respond to the French Duty of Vigilance Law and the EU Nonfinancial Disclosure regulations, which have different approached to identifying risks. It could take six months to do an audit to do the disclosure, but investors rarely question the companies directly or the data.
- SAP Ariba found that 66% of consumers believe they have a duty to buy goods that are good for society and the environment and that sustainability is mostly driven by millennials and generation Z consumers.
- Nestle, the biggest food and beverage company in the world, requires its 165,000 suppliers to follow responsible sourcing standard especially for child and forced labor. The conglomerate partners with NGOs to conduct human rights impact assessments for their upstream suppliers.
- Apple has returned 30 million USD in recruitment fees to workers since 2008 to address forced labor and illegal practices. HP has also returned fees. The hotel industry has banded together to fight forced labor. Most responsible businesses have banned the use of recruitment fees but many workers still pay them to personnel agencies in the hopes of getting jobs with large companies.
- Many companies are now looking at human rights and ESG issues throughout their own supply chains but also with their joint venture, merger, and other key business partners.
- Rae Lindsay of Clifford Chance noted that avoiding legal risk is not the main role of human rights due diligence but lawyers working across disciplines can make sure that clients don’t inadvertently add to legal risk in deals. She encourages deal lawyers to become familiar with the risks and law and business students to learn about these issues.
So do investors care about ESG? Are these disclosure rules working? You wouldn’t think so by hearing the speakers at the Forum. On the other hand, proxy advisory firm ISS recently launched an Environmental and Social Quality Score to better evaluate the ESG risks in its portfolio companies. I’ll keep an eye out for any divestments or shareholder proposals.
I’m not holding my breath for too much progress next year at the Forum. While I was encouraged by the good work of many of the companies that attended, I remain convinced that the disclosure regime is ineffective in effectuating meaningful change in the world’s most vulnerable communities. Unless governments, rating agencies, investors, or consumers act, too many companies will continue to pay lip service to their human rights commitments.
December 7, 2018 in Compliance, Conferences, Corporate Governance, Corporations, CSR, Current Affairs, Human Rights, International Business, International Law, Marcia Narine Weldon, Shareholders | Permalink | Comments (1)
Friday, November 23, 2018
Greetings from Panama. Are you one of the people who look for products labeled "organic," "non-GMO," or "fair trade"? According to the official Fairtrade site:
Fairtrade is a simple way to make a difference to the lives of the people who grow the things we love. We do this by making trade fair.
Fairtrade is unique. We work with businesses, consumers and campaigners. Farmers and workers have an equal say in everything we do. Empowerment is at the core of who we are. We have a vision: a world in which all producers can enjoy secure and sustainable livelihoods, fulfill their potential and decide on their future. Our mission is to connect disadvantaged farmers and workers with consumers, promote fairer trading conditions and empower farmers and workers to combat poverty, strengthen their position and take more control over their lives....
Over and above the Fairtrade price, the Fairtrade Premium is an additional sum of money which goes into a communal fund for workers and farmers to use – as they see fit – to improve their social, economic and environmental conditions...
Fairtrade is about better prices, decent working conditions, local sustainability, and fair terms of trade for farmers and workers in the developing world. By requiring companies to pay sustainable prices (which must never fall lower than the market price), Fairtrade addresses the injustices of conventional trade, which traditionally discriminates against the poorest, weakest producers. It enables them to improve their position and have more control over their lives..
With Fairtrade you have the power to change the world every day. With simple shopping choices you can get farmers a better deal. And that means they can make their own decisions, control their future and lead the dignified life everyone deserves.
In 2016, farmers received 158 million euros in Fairtrade premiums.
This sounds great in theory, but according to a cacao farmer I spent time with in Panama, fair trade is not fair to the farmers. He and others in his indigenous tribe earn so little from the cacao exported to Switzerland for fine Swiss chocolate that he must resort to giving tours of his plantation in order to maintain the village school and pay for medical expenses for his tribe. His farm earns only 85 cents per half kilo of cacao (or 12 pods). This .85 cents is only for the exceptional cacao. Sometimes they earn even less. The Swiss tout the organic, non-GMO product and inspect the farms annually, which means that the farmers cannot use any fertilizers to combat the fungus that kills 85% of the crop every year. This also means that the farmers do everything by hand, including cutting, fermenting, roasting, and shelling the beans. The farmer/tour guide explained that they treat the cacao plants like a woman-- they love, cherish, and protect them every day. They use the same harvesting process that they have used for over 1,000 years.
Just like coffee farmers I met in Guatemala, the cacao farmer I met in Panama calls "fair trade" a marketing scheme for the Americans and Europeans. I assume the farmers I met represent the view of some portion of the 1.65 million farmers involved in the Fairtrade program. For more on the Fair Trade debate, see here.
I will have more on this and other sustainability issues next week. I'll be at UN Forum on Business and Human Rights with 2500 companies, NGOs, academics, and state representative in Geneva. In the meantime, if you're buying someone Fairtrade chocolate for the holidays, do it for the taste because you're not really doing much to help the farmer.
Saturday, October 13, 2018
Last week Dr. Denis Mukwege won the Nobel Peace Prize for his work on gender-based violence in the Democratic Republic of Congo (DRC). This short video interview describes what I saw when I went to DRC in 2011 to research the newly-enacted Dodd-Frank disclosure rule and to do the legwork for a non-profit that teaches midwives ways to deliver babies safely. For those unfamiliar with the legislation, U.S. issuers must disclose the efforts they have made to track and trace tin, tungsten, tantalum, and gold from the DRC and nine surrounding countries. Rebels and warlords control many of the mines by controlling the villages. DRC is one of the poorest nations in the world per capita but has an estimated $25 trillion in mineral reserves (including 65% of the world's cobalt). Armed militia use rape and violence as a weapon of war in part so that they control the mineral wealth.
The stated purpose of the Dodd-Frank rule was to help end the violence in DRC and to name and shame companies that do not disclose or that cannot certify that their goods are DRC-conflict free (although that labeling portion of the law was struck down on First Amendment grounds). I wrote a law review article in 2013 and co-filed an amicus brief during the litigation arguing that the law would not help people on the ground. I have also blogged here about legislation to end the rule, here about the EU's version of the rule, here about the differences between the EU and US rule, and half a dozen times since 2013.
I had the honor of meeting Dr. Mukwege in 2011, who at the time did not support the conflict minerals legislation. He has since endorsed such legislation for the EU. During our trip, we met dozens of women who had been raped, often by gangs. On our way to meet midwives and survivors of a massacre, I saw five corpses of villagers lying in the street. They were slain by rebels the night before. I saw children mining gold from a river with armed soldiers only a few feet away. That trip is the reason that I study, write, and teach about business and human rights. I had only been in academia for three weeks when I went to DRC, and I decided that my understanding of supply chains and corporate governance from my past in-house life could help others develop more practical solutions to intractable problems. I believed then and I believe now that using a corporate governance disclosure to solve a human rights crisis is a flawed and incomplete solution. It depends on the belief that large numbers of consumers will boycott companies that do not do enough for human rights.
What does the data say about compliance with the rule? The General Accounting Office puts out a mandatory report annually on the legislation and the state of disclosures. According to the 2018 report:
Similar to the prior 2 years, almost all companies required to conduct due diligence, as a result of their country-of-origin inquiries, reported doing so. After conducting due diligence to determine the source and chain of custody of any conflict minerals used, an estimated 37 percent of these companies reported in 2017 that they were able to determine that their conflict minerals came from covered countries or from scrap or recycled sources, compared with 39 and 23 percent in 2016 and 2015, respectively. Four companies in GAO’s sample declared their products “DRC conflict-free,” and of those, three included the required Independent Private Sector Audit report (IPSA), and one did not. In 2017, 16 companies filed an IPSA; 19 did so in 2016. (emphasis added).
But what about the effect on forced labor and rape? The 2017 GAO Report indicated that in 2016, a study in DRC estimated that 32 percent of women and 33 percent of men in these areas had been exposed to some form of sexual and gender-based violence in their lifetime. Notably, just last month, a coalition of Congolese civil society organizations wrote the following to the United Nations seeking a country-wide monitoring system:
... Armed groups and security forces have attacked civilians in many parts of the country...Today, some 4.5 million Congolese are displaced from their homes. More than 100,000 Congolese have fled abroad since January 2018, raising the risk of increased regional instability... Since early this year, violence intensified in various parts of northeastern Congo’s Ituri province, with terrifying incidents of massacres, rapes, and decapitation. Armed groups launched deadly attacks on villages, killing scores of civilians, torching hundreds of homes, and displacing an estimated 350,000 people. Armed groups and security forces in the Kivu provinces also continue to attack civilians. According to the Kivu Security Tracker, assailants, including state security forces, killed more than 580 civilians and abducted at least 940 others in North and South Kivu since January 2018. (emphasis added)
The U.S. government provides $500 million in aid to the DRC and runs an app called Sweat and Toil for people who are interested in avoiding goods produced by exploited labor. As of today, DRC has seven goods produced with exploitative labor: cobalt (used in electric cars and cell phones), copper, diamonds, and, not surprisingly, tin, tungsten, tantalum, and gold- the four minerals regulated by Dodd-Frank. The app notes that "for the second year in a row, labor inspectors have failed to conduct any worksite inspections... and [the] government also separated as many as 2,360 children from armed groups...[t]here were numerous reports of ongoing collaboration between members of the [DRC] Armed Forces and non-state armed groups known for recruiting children... The Armed Forces carried out extrajudicial killings of civilians including children, due to their perceived support or affiliation with non-state armed groups. .."
For these reasons, I continue to ask whether the conflict minerals legislation has made a difference in the lives of the people on the ground. The EU, learning from Dodd-Frank's flaws, has passed its own legislation, which goes into effect in 2021. The EU law applies beyond the Democratic Republic of Congo and defines conflict areas as those in a state of armed conflict, or fragile post-conflict area, areas with weak or nonexistent governance and security such as failed states, and any state with a widespread or systematic violation of international law including human rights abuses. Certain European Union importers will have to identify and address the actual potential risks linked to conflict-affected areas or high-risk areas during the due diligence of their supply chains.
Notwithstanding the statistics above, many investors, NGOs, and other advocates believe the Dodd-Frank rule makes sense. A coalition of investors with 50 trillion worth of assets under management has pushed to keep the law in place. It's no surprise then that many issuers have said that they would continue the due diligence even if the law were repealed. I doubt that will help people in these countries, but the due diligence does help drive out inefficiencies and optimize supply chains.
Stay tuned for my upcoming article in UT's business law journal, Transactions, where I will discuss how companies and state actors are using blockchain technology for due diligence related to human rights. Blockchain will minimize expenses and time for these disclosure requirements, but it probably won't stop the forced labor, exploitation, rapes, and massacres that continue in the Democratic Republic of Congo. (See here for a Fortune magazine article with a great video discussing how and why companies are exploring blockchain's uses in DRC). The blockchain technology won't be the problem-- it's already being used for tracing conflict diamonds. The problem is using the technology in a state with such lawlessness. This means that blockchain will probably help companies, but not the people the laws are meant to protect.
October 13, 2018 in Compliance, Corporate Governance, Corporations, CSR, Current Affairs, Human Rights, International Business, International Law, Legislation, Marcia Narine Weldon, Securities Regulation | Permalink | Comments (1)
Sunday, September 16, 2018
I knew it would be impossible. There was no way to relay my excitement about the potential of blockchain technology in a concise way to lawyers and law students last Friday at the Connecting the Threads symposium at the University of Tennessee School of Law. I didn't discuss cryptocurrency or Bitcoin other than to say that I wasn't planning to discuss it. Still, there wasn't nearly enough time for me to discuss all of the potential use cases. I did try to make it clear that it's not a fad if IBM has 1500 people working on it, BITA has hundreds of logistics and freight companies signed up to explore possibilities, and the World Bank, OECD, and United Nations have studies and pilot programs devoted to it. As a former supply chain person, compliance officer, and chief privacy officer, I'm giddy with excitement about everything related to distributed ledger technology other than cryptocurrency. You can see why when you read my law review article in a few months in Transactions.
I've watched over 100 YouTube videos (many of them crappy) and read dozens of articles. I go to Meetups and actually understand what the coders and developers are saying (most of the time). A few students and practitioners asked me how I learned about DLT/blockchain. First, see here, here, here, and here for my prior posts listing resources and making the case for learning the basics of the technology. What I list below adds to what I've posted in the past.
Here are some of the podcasts I listen to (there are others, of course):
1) The Decrypting Crypto Podcast
2) Block that Chain
3) Block and Roll
4) Blockchain Innovation
Here are some of the videos that I watched (that I haven't already linked to in past posts):
There are dozens more, but this should be enough to get you started. Remember, none of these videos or podcasts will get you rich from cryptocurrency. But they will help you become competent to know whether you can advise clients on these issues.
September 16, 2018 in Compliance, Corporate Governance, Corporations, CSR, Current Affairs, Financial Markets, Human Rights, Law Firms, Law Reviews, Law School, Lawyering, Marcia Narine Weldon | Permalink | Comments (1)
Tuesday, August 21, 2018
Senator Elizabeth Warren last week released her Accountable Capitalism Act. My co-blogger Haskell Murray wrote about that here, as have a number of others, including Professor Bainbridge, who has written at least seven posts on his blog. Countless others have weighed in, as well.
There are fans of the idea, others who are agnostic, and still other who thinks it’s a terrible idea. I am not taking a position on any of that, because I am too busy working through all the flaws with regard to entity law itself to even think about the overall Act.
As a critic of how most people view entities, my expectations were low. On the plus side, the bill does not say “limited liability corporation” one time. So that’s a win. Still, there are a number of entity law flaws that make the bill problematic before you even get to what it’s supposed to do. The problem: the bill uses “corporation” too often where it means “entity” or “business.”
Let’s start with the Section 2. DEFINITIONS. This section provides:
(2) LARGE ENTITY.—
(A) IN GENERAL.—The term ‘‘large entity’’ means an entity that—
(i) is organized under the laws of a State as a corporation, body corporate, body politic, joint stock company, or limited liability company;
(ii) engages in interstate commerce; and
(iii) in a taxable year, according to in- formation provided by the entity to the Internal Revenue Service, has more than $1,000,000,000 in gross receipts.
Okay, so it does list LLCs, correctly, but it does not list partnerships. This would seem to exclude Master Limited Partnerships (MLPs). The Alerian MLP Indexlist about 40 MLPs with at least a $1 billion market cap. It also leaves our publicly traded partnerships(PTPs). So, that’s a miss, to say the least.
Section 2 goes on to define a
(6) UNITED STATES CORPORATION.—The term “United States corporation’’ means a large entity with respect to which the Office has granted a charter under section 3.
The bill also creates an “Office of United States Corporations,” in Section 3, even though the definitions section clear says a “large entity” includes more than just corporations.
Next is Section 4, which provides the “Requirement for Large Entities to Obtain Charters.”
(1) IN GENERAL.— An entity that is organized as a corporation, body corporate, body politic, joint stock company, or limited liability company in a State shall obtain a charter from the Office . . . .”
So, again, the definition does not include MLPs (or any other partnership forms, or coops for that matter) as large entities. I am not at all clear why the Act would refer to and define “Large Entities,” then go back to using “corporations.” Odd.
Later in section 4, we get the repercussions for the failure to obtain a charter:
An entity to which paragraph (1) applies and that fails to obtain a charter from the Office as required under that paragraph shall not be treated as a corporation, body corporate, body politic, joint-stock company, or limited liability company, as applicable, for the purposes of Federal law during the period beginning on the date on which the entity is required to obtain a charter under that paragraph and ending on the date on which the entity obtains the charter.
Here, the section chooses not to use the large entity definition or the corporation definition and instead repeats the entity list from the definitions section. As a side note, does this section mean that, for “purposes of Federal law,” any statutory “large entity” without a charter is a general partnership or sole proprietorship? I would hope not for the LLC, which isn’t a corporation, anyway.
Finally, in Section 5, the Act provides:
(1) RULE OF CONSTRUCTION REGARDING GENERAL CORPORATE LAW.—Nothing in this section may be construed to affect any provision of law that is applicable to a corporation, body corporate, body politic, joint stock company, or limited liability company, as applicable, that is not a United States corporation.
Again, I will note that “general corporate law” should not apply to anything but corporations, anyway. LLCs, in particular.
The Act further contemplates a standard of conduct for directors and officers. LLCs do not have to have either, at least not in the way corporations do, nor do MLPs/PTPs, which admittedly do not appear covered, anyway. The Act also contemplates shareholders and shareholder suits, which are not a thing for LLCs/MLPs/PTPs because they don’t have shareholders.
This is not an exhaustive list, but I think it’s a pretty good start. I will concede that some of my critiques could be argued another way. Obviously, I'd disagree, but maybe some of this is not as egregious as I see it. Still, there are flaws, and if this thing is going to move beyond even the release, I sure hope they take the time to get the entity issues figured out. I’d be happy to help.
August 21, 2018 in Corporate Governance, Corporate Personality, Corporations, CSR, Joshua P. Fershee, Legislation, LLCs, Management, Partnership, Shareholders, Unincorporated Entities | Permalink | Comments (0)
Thursday, August 16, 2018
On Tuesday, Elizabeth Warren penned an article in The Wall Street Journal entitled Companies Shouldn’t Be Accountable Only to Shareholders: My new bill would require corporations to answer to employees and other stakeholders as well.
The article announced and promoted her Accountable Capitalism Act. With Republicans in control of Congress and the White House, Warren’s bill almost certainly doesn’t stand a chance of passing in the short-term.
Yet, because the bill draws on benefit corporation governance, a main scholarly interest of mine, and because it may foreshadow moves by a Democrat-controlled Congress in the future, I decided to read the 28-page bill and report here briefly.
Portions of the bill summarized:
- As has been widely reported, the bill only applies to companies with more than $1 billion in revenue.
- The bill seeks to establish an “Office of United States Corporations” within the Department of Commerce, which will review, grant, and rescind charters for the large companies covered by the bill.
- The bill takes language from benefit corporation law and requires that U.S. Corporations must have a purpose to serve a “general public benefit” – “a material positive impact on society resulting from the business and operations of a United States corporation, when taken as a whole.” This purpose is in addition to any purpose in the company’s state filing.
- The governance requirements are a mix of the Model Benefit Corporation Legislation and Delaware version of benefit corporation law – requiring both that directors balance the “pecuniary interests of shareholders” with the "best interests of persons that are materially affected by the conduct of the United States corporation” (drawn from Delaware) and that directors consider a litany of stakeholders in their decisions (including shareholders, employees, customers, community, local and global environment - drawn from the Model). Only shareholders with 2%+ of the shares can sue derivatively.
- Employees must elect 40%+ of the board of directors.
- 75%+ of shareholders and 75%+ of directors must approve political spending of over $10,000 on a single candidate.
My brief thoughts:
- This is a lot of press for benefit corporations.
- The press may not be good for benefit corporation proponents who have been largely able to pitch to both sides of the political aisle in their state bills. B Lab co-founder Jay Coen Gilbert has already written an article trying to promote what he sees as the bipartisan nature of benefit corporations: Elizabeth Warren, Republicans, CEOs & BlackRock's Fink Unite Around 'Accountable Capitalism'
- I have noted in my scholarly work how the state benefit corporation laws fail to align the purported “general public benefit” corporate purpose with effective accountability mechanisms. This bill, however, takes one step toward aligning company purpose and accountability by requiring that employees elect 40%+ of the board. Of course, that still leaves out many other stakeholders that directors are supposed to consider, and shareholders are still the only stakeholders with the ability to sue derivatively. A better solution is to have stakeholder representatives who elect the entire board and also possess, collectively, the right to sue derivatively. This stakeholder representative framework, articulated in my 2017 American Business Law Journal article, has the benefit of keeping the board united on a common goal – instead of fighting on behalf of the single stakeholder group who elected them – while also being held to account by representatives of all major stakeholder groups, collectively.
- Suggesting that benefit corporation law become mandatory will likely not be popular among many conservatives. See, e.g., this early response in the National Review: Elizabeth Warren’s Batty Plan to Nationalize . . . Everything. Currently, a fair response to conservative critics of state benefit corporation laws is "if businesses do not like the benefit corporation framework, they can just choose to be a traditional corporation." This bill attempts to remove that choice for large companies.
(My co-blogger Joshua Fershee may be horrified to learn that the bill purports to apply not only to corporations, but also to LLCs, even though they use the term "U.S. Corporations" throughout).
Friday, July 27, 2018
Pura vida from Costa Rica. Between recovery from carpal tunnel surgery a few weeks ago and an ATV flip two days ago, I don’t have much mental or physical energy to do a full post. I haven’t mastered dictation so I’m typing this on an iPad with one hand. Next week, I’ll provide more substance as well as a preview on my September talk at our second annual BPLB symposium at the University of Tennessee. Today, I want to pass on some resources for those who don’t know anything about blockchain.
For those who want to provide resources for students, Walter Effross has put together a great site:
The following sources come from Professor Tonya Evans at UNH, who has developed an online curriculum on blockchain:
Blockchain + Law:
Next week, I’ll talk about my research into how blockchain is used in corporate governance, compliance, supply chain management, enterprise risk management, cybersexurity, and human rights.
Friday, May 4, 2018
Does CSR Really Exist in Latin America? Should Corporations be Treated as Persecutors Under Asylum Law? Is Labor an Extractive Industry? Buy This Book and Find Out
In 2015, I and several academics and other experts traveled to Guatemala as part of the Lat-Crit study space. The main goal of the program was to examine the effect of the extractive industries on indigenous peoples and the environment. During our visit, we met with indigenous peoples, government ministers, the chamber of commerce, labor leaders, activists (some who had received multiple death threats), and village elders.
Our labor of love, From Extraction to Emancipation Development Reimagined, edited by Raquel Aldana and Steve Bender, was released this week. My chapter "Corporate Social Responsibility in Latin America: Fact or Fiction" introduces the book. I first blogged about CSR in the region in 2015 in the context of a number of companies that had touted their records but in fact, had been implicated in environmental degradation and even murder. Over the past few years, one of the companies I blogged about, Tahoe Resources, has been sued in Canada for human rights violations, the Norwegian pension fund has divested, and shareholders have filed a class action based on allegations re: the rights of indigenous people.
Although the whole book should be of interest to business law professors and practitioners, chapters of particular interest include a discussion of the environment and financial institutions, the Central American experience with investor protections under CAFTA, whether corporations should be treated as persecutors under asylum law, climate adaptation and climate justice, the impact of mining on self-determination, environmental impact assessments, and labor as an extractive industry.
Other chapters that don't tie directly to business also deserve mention including my mentor Lauren Gilbert's closing chapter on gender violence, state actions, and power and control in the Northern Triangle, and other chapters on the right to water and sanitation in Central America, community-based biomonitoring, and managing deforestation.
We encourage you to buy the book and to invite the chapter authors to your institutions to present (shameless plug for panels, but we would love to share what we have learned).
Saturday, April 21, 2018
Last week, I blogged blogged about lawsuits against chocolate makers alleging unfair and deceptive trade practices for failure to disclose that the companies may have used child slaves to harvest their products. Today, I want to discuss steps that the Business Law Section of the American Bar Association is taking to provide more transparency in supply chain practices.
In 2014, the ABA House of Delegates adopted Model Principles on Labor Trafficking and Child Labor developed by over 50 judges, in-house counsel, outside counsel, academics, and NGOs. The Model Principles address the UN Guiding Principles on Business and Human Rights and other hard and soft law regimes. At last week’s ABA Business Law Spring Meeting, academics David Snyder and Jennifer Martin presented on human rights issues in supply chains alongside practicing lawyers and in-house executives. Many of them (and several others) had formed a Working Group to Draft Human Rights Protections in Supply Contracts. The Group aims to provide contract clauses that are “legally effective” and “operationally likely.”
As a former Deputy GC for a supply chain management company, I can attest that the ABA’s focus is timely as companies answer questions from customers, regulators, shareholders, and other stakeholders. Human rights issues play out in dozens of regulations, including, but not limited to: the Foreign Corrupt Practices Act, Trafficking Victims Protection Act, Dodd-Frank Conflict Minerals Act, California Transparency in Supply Chains Act, the UK Modern Slavery Act, the Trade Facilitation and Trade Enforcement Act, and the updated Federal Acquisition Regulations. Australia and at least seven EU countries are currently working on their own regulations. Savvy lawyers have use the Alien Tort Statute, RICO, negligence, and false advertising allegations to state claims, with varying success.
The following statistics may provide some context. Thanks to e. Christopher Johnson, Jr., CEO of the Center for Justice, Rights, and Dignity.
- there are 21 million victims of human trafficking
- Human trafficking provides $150 billion in profit
- Women and girls are 55% of the victims, and children 17 and under are 26%
To help companies mitigate their supply chain risks, the Business Law and UC Article 1 and Article 2 Committees have drafted more specific model clauses to incorporate human rights provisions in certain contracts. The Committees are also establishing an information exchange with NGOs and developing a Toolkit for Canadian lawyers.
One of the most practical features of the Group’s work is Schedule P, the warranties and remedies to protect human rights in the supply chain. The Working Group’s Report provides guidance on how to use the clauses as well as potential limitations. It’s a long read but I recommend that you look at the report and consider whether the model clauses and Schedule P, an appendix to supplier agreements, will help in the fight to combat human trafficking and forced labor.
Friday, April 13, 2018
Greetings from the ABA Business Law Meeting in sunny Orlando, Florida. Today, I attended an excellent program on Protecting Human Rights in Supply Chains; Moving from Policy to Action. I plan to blog more about the meeting next week, highlighting the work surrounding draft human rights clauses for supplier contracts. The project was spearheaded by David Snyder of American University and corporate lawyer Susan Maslow. In this post, I want to address one of the topics Susan Maslow discussed-- the recent spate of lawsuits brought by consumers who allege unfair trade practices based on what companies say (or don’t say) about their human rights records.
I’ve blogged (incessantly for the past five years) and written longer articles about the various ESG disclosure regimes. I’ve argued that in theory, disclosure is a good thing. But without meaningful financial penalties from regulators for violations, many corporations won’t do anything more than the bare minimum for human rights, even with the threat of (often short-lived) consumer boycotts. Further, most consumers suffer from disclosure overload or don’t understand or remember what they read.
The disclosure issue has now reached the courts. In 2015, a law firm filed cases in California under unfair competition and false advertising laws against the Hershey Company, Mars, and Nestle. The firm likely chose those causes of action because there’s no private right of action under the California Transparency in Supply Chain Act. The suits claimed, among other things that:
- in violation of California law, Hershey’s, Mars and Nestle failed to disclose that their suppliers in the Ivory Coast relied on child laborers and profitted from the child labor that supplies the chocolate sold to American consumers,
- the children subjected to the forced labor are victims of hazardous work involving dangerous tools, transport of heavy loads and exposure to toxic substances, and,
- “sometimes extremely poor people sell their own children into slavery for as little as $30. Children that are sometimes not even 10 years old carry huge sacks that are so big that they cause them serious physical harm. Much of the world’s chocolate is quite literally brought to us by the back-breaking labor of child slaves.”
Plaintiffs lost those cases because the court found that these companies had no legal duty to disclose on their labels that African child slaves might have been involved in manufacturing their cocoa. Had the plaintiffs won, I imagine that the First Amendment argument that prevailed in the Dodd-Frank conflicts minerals litigation would have played a prominent role in the appeal.
Fast forward a few years and the same law firm has now filed a similar class action lawsuit against Hershey in Massachusetts. This claim alleges unjust enrichment in violation of the state’s consumer protection law. According to plaintiffs, “much of the world’s chocolate is quite literally brought to us by the back-breaking labor of children, in many cases under conditions of slavery.” Moreover, they claim, “Hershey’s material omissions and failure to disclose at the point of sale [are] all the more appalling considering that Hershey’s Corporate Social Responsibility Report state[s] that ‘Hershey has zero tolerance for the worst forms of child labor in its supply chain.’ But Hershey does not live up to its own ideals.”
Hershey, like many companies, produces a CSR report showcasing its efforts and progress in accordance with the Global Reporting initiative, the gold standard for CSR. Companies like Hershey also report on their CSR initiatives in good faith with the knowledge that their statements are generally not legally binding, at least not in the United States. I’ll be following this case closely. If the court grants class certification, this could have a chilling effect on what companies say in their CSR reports, and that would be a shame.
Friday, March 30, 2018
Corporate Boycotts, A Change of Heart from CEOs, and H & M's Diversity Initiative- A Roundup of The Week's News Stories
Within the past 24 hours, I've seen at least three news article that led me to reflect on my past blog posts. Rather than write a full post on each article, I've decided to note some observations.
The Tweet That Launched A Boycott (And Maybe a Buycott)
I've been skeptical in the past about whether boycotts work. Perhaps times are changing. This week, Parkland shooting survivor David Hogg tweeted that advertisers on Laura Ingraham's cable show should pull out after she tweeted, "David Hogg Rejected By Four Colleges To Which He Applied and whines about it. (Dinged by UCLA with a 4.1 GPA...totally predictable given acceptance rates.) https://www.dailywire.com/news/28770/gun-rights-provocateur-david-hogg-rejected-four-joseph-curl …" On March 28th, the 17-year old activist responded with "Soooo
@IngrahamAngle what are your biggest advertisers ... Asking for a friend. #BoycottIngramAdverts." He then provided a list of her top twelve sponsors.
As of 8:00 p.m. tonight, the following companies dumped the Fox show, eleven after the talk show host had apologized, stating “On reflection, in the spirit of Holy Week, I apologize for any upset or hurt my tweet caused him or any of the brave victims of Parkland... For the record, I believe my show was the first to feature David immediately after that horrific shooting and even noted how ‘poised’ he was given the tragedy ... As always, he’s welcome to return to the show anytime for a productive discussion.”
The companies that have pulled their advertising include Nutrish, Office Depot, Jenny Craig, Hulu, TripAdvisor, Expedia, Wayfair, Stitch Fix, Nestlé, Johnson & Johnson, Jos A Bank, Miracle Ear, Liberty Mutual and Principal. But will they ever return to the show after the attention moves to something else? Will the sponsors face a "buycott," where Ingraham's fans boycott the boycotters or increase their support of the advertisers that Hogg specifically named but have chosen to stay with Ingraham? Time will tell.
Silicon Valley CEOs Warm to President Trump
Last year, I posted about various CEOs choosing to distance themselves from President Trump by resigning from advisory councils because they disagreed with his actions or positions on everything from immigration to his reaction to the events in Charlottesville. Today, the New York Times reported that some of the same CEOs that bemoaned Trump's election and/or publicly condemned him have now had a change of heart. Apparently, they have more common ground than they thought on areas of tax reform, infrastructure, and looser regulation. I look forward to seeing whether any of these companies or CEOs refrain from criticizing him in the future or, more tellingly, whether they choose to use PAC money or personal funds to support his re-election.
H & M Asks One of Its Lawyers To Lead Diversity Initiative
H & M has lots of problems from underperforming designs (billions in unsold clothes) to continued fallout from its "coolest monkey in the jungle" hoodie. As you may recall, in January, a number of consumers, public figures, and other called for a boycott of the company after a young black boy advertised a green hoodie with the word "monkey." H & M even had to close its store in South Africa. The fast fashion company has now turned to one of its in-house lawyers to lead a 4-person team to focus on diversity and inclusiveness. The lawyer will report directly to the CEO in Stockholm. Notably, the board is all white. Should the board diversify as well? It's hard to say. While I support diversity in the executive ranks and the boardroom, there is no evidence that the monkey hoodie led to the 62% drop in operating profit in Q1. Instead, experts note that consumers just didn't like the selections, even at steep discounts. Further, the average H & M customer probably has no idea about this new diversity initiative and even if the customer knew, it'sdoubtful that would change buying habits. Even so, I applaud H & M for taking concrete steps. The company already produces a compelling Sustainability Report. I look forward to seeing if the company can return to profitabiity while keeping its commitment to diversity.
Tuesday, March 6, 2018
Prof. Jena Martin's New Human Rights Paper: Applying Bystander Intervention Training to Corporate Conduct
Friend and colleague Jena Martin has posted her new paper, Easing "the Burden of the Brutalized": Applying Bystander Intervention Training to Corporate Conduct. And when I say new, I mean new. It went on SSRN within the last hour.
Prof. Martin is an expert in business and human rights, and her new paper offers a new framework for corporations that are seeking to reduce or eliminate human rights violations. Her paper is designed to help corporation beyond due diligence and reporting to allow them to "engage with either the oppressor or the oppressed in a way that directly minimizes human rights abuses." It is a timely piece with some interesting and innovative suggestions. I look forward to seeing where the final version ends up.
The last few years have borne witness to a shift regarding how to address issues of oppression and social injustice. Across many different advocacy points - from police brutality to sexual violence - there seems to be a consensus that simply engaging the oppressor or the victim is not enough to affect real social change. The consensus itself is not new: it has been at the heart of many social justice movements over the years. However, what is new is the explicit evocation of the bystander within this framework. Too often, in conversations on conflicts generally (and negative human rights impact specifically), bystanders have been relegated to the sidelines, with no defined, specific role to play and no discussion within the larger narrative. Now, however, -- through the use of bystander intervention training -- these actors are taking on a more prominent role.
In previous articles, I have stated that the rhetoric and posture that transnational corporations (TNCs) maintain vis-à-vis human rights impacts is that of a bystander. Frequently, when human rights abuses occur, TNCs find themselves in the position of having to acknowledge their presence in the area of the underlying conflict, while profusely maintaining that none of their actions caused the harm against the community. Building off this prior work, this article seeks to answer the following question: are there lessons that can be learned from bystander intervention training in other contexts, that can be used for the benefits of TNCs within the field of business and human rights? I conclude that what is lacking in the current discourse on corporate policies regarding addressing negative human rights impacts is an articulation regarding when, and under what circumstances, it is appropriate for corporations to intervene in negative human rights disputes. This goes beyond the current proposals for human rights due diligence frameworks in that, rather than merely undergoing an assessment and then reporting this information out (as is required by most current legal frameworks that address business and human rights reporting) this would help corporations – informed by a bystander intervention framework – to engage with either the oppressor or the oppressed in a way that directly minimizes human rights abuses.