Britain should resist copying the EU's corporate responsibility law

8 July 2021

4:30 PM

8 July 2021

4:30 PM

Big corporations have a lot not to be proud of, and we certainly could do with laws to rein in some of their excesses. But that doesn’t mean that we should necessarily nod those laws through without a careful look.

A case in point is the demand made in recent days for the government to follow an EU initiative and introduce a ‘corporate responsibility’ law. This would require British companies to vet their entire supply chains for, among other things, human rights violations.

The EU scheme in question, based on a European parliament vote in March, is what you have to look at to see just what is being asked for. Its demands are both interesting and, shall we say, not modest.

Large or publicly-listed undertakings must, under the Euro-proposal, be required by law to show ‘due diligence’ to prevent their activities contributing to adverse impacts on human rights anywhere in their supply chain throughout the world. This includes impacts created not only by those they deal with directly, but also by organisations those people buy from, and so on.

If they do not do this corporations are to be landed with ‘effective, proportionate and dissuasive’ (i.e. swingeing) fines, plus the possibility of lawsuits in their home jurisdictions even where the practices they contributed to were entirely lawful where they occurred. There would also be legal obligations to publicise steps taken to remediate problems, for example by paying money or making a public apology, and to negotiate with trade unions and ‘stakeholders’ – a term including, among others, ‘citizens’ associations’ and ‘civil society organisations’ (polite Euro-speak for approved pressure groups).

It is true that many responsible multinationals already do at least some of these things: apart from anything else, their reputation depends on it. We should nevertheless be cautious about legislation of this sort.

For one thing, it involves diverting managers from doing what they are good at – developing the business – to something they are neither trained nor well-placed to do: namely, acting as global human rights policemen in countries half-way across the globe. We may live in a welfare state, but we do not live in a welfare world: and any initiative under which the law requires UK companies to embrace inefficiency and uncompetitiveness of this kind needs looking at sceptically.

For another, we need to worry about the forced politicisation of business. True, much of the corporate West is already falling over itself to embrace political wokery as a kind of PR gig; but at least it is doing so by choice, and sensible companies can opt out. By requiring multinationals to take steps to mitigate threats to human rights emanating from third parties abroad, these proposals amount to ordering them to take a political stance in foreign countries, and probably an unpopular one at that.

We would rightly be outraged if, say, Huawei said it would only deal with businesses in the UK that undertook to suppress what it saw as unfair criticism of the Chinese Communist party, or gave universities money on the understanding that they told researchers not to look too hard at events in Xinjiang.

We should equally not contemplate mandating UK multinationals to lecture organisations in, say, the Philippines or Brazil on their duties to recognise trade unions or respect European equality norms.

What’s more, it’s all very well for the law to demand that a multinational closely supervise all companies abroad from whom it buys, whether directly or not, and ensure they stay in line on human rights. But suppose they don’t, perhaps for the understandable reason that they cannot afford to be uncompetitive. What then? Must the multinational withdraw its custom?

If it does, it will either bankrupt that supplier, something unlikely to benefit their workers, or more likely make them deal with other, less scrupulous, buyers. Demands from (say) Chinese or Malaysian mega-corporations may take many forms; but decent treatment of workers is unlikely to feature very high.

In fact, one suspects that those backing these proposals, including a body called the corporate justice coalition, may not be too worried about such matters anyway.

Although the coalition calls for corporate responsibility legislation in the language of the enlightened European governing class, the coalition is actually an umbrella group covering organisations that are hardly falling over themselves to support capitalism. They include, for example, Amnesty, Oxfam, Share Action, Tax Justice, 38 Degrees, Global Justice Now, and other bodies that help make London the world centre for radical pressure groups.

Whatever its effect on events abroad, a corporate responsibility law would be a godsend to these organisations whenever they felt like making life difficult for businessmen and women in London boardrooms. They could be able, with legal backing, to strong arm directors into negotiating with them as ‘civil society organisations’; and by presenting dossiers of alleged human rights abuses. they could force them to exercise ‘due diligence’ in investigating them. They could also weigh companies down by demanding ream after ream of information about their activities and suppliers.

If this doesn’t work, there is always litigation. London multinationals already face occasional lawsuits for human rights violations allegedly caused abroad (sometimes brought by Leigh Day, which – you guessed it – is a member of the coalition). But until now, companies have been fairly successful in seeing off such claims (something made easier by Brexit, which got rid of a technical EU legal rule allowing a company based in London to be sued here however appropriate it might be for the litigation to take place somewhere else, such as where the events had actually happened). An open invitation to come to London to fight human rights cases and air grievances from all over the world would, one suspects, suit the members of the coalition just fine.

In short, corporate responsibility laws like this may not do much good for oppressed foreigners. They may even drive the odd UK multinational out of business or cause it to relocate elsewhere. But for those who dislike multinationals and global capitalism anyway, this probably doesn’t matter much: indeed, it can actually be chalked up as a victory.

There’s a moral here. Before you support attractive-looking proposals for new laws, it’s wise to do as good lawyers do: read the small print.

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