Priority actions for the new government on corporate accountability

 

10 Downing Street

 

In a poll conducted a few months prior to the UK’s 7 May general election, 79% of people agreed that ‘if big businesses do not want to comply with regulation they can usually get around it’.

This should come as no surprise given the repeated corporate scandals of the last five years.

Yet despite the seeming cynicism, there is still a clear expectation that government can and should take action to raise standards of corporate behaviour. 72% of people felt that ‘the next government should make it a priority to promote ethical practices among big businesses’, while 62% disagreed that ‘it is not the government’s place to make sure that big businesses act ethically’.

This is a clear mandate for action in the new parliament. Government should seek to build on notable steps taken over the last five years in the areas of business and human rights and transparency, while safeguarding protections for workers in the UK and proactively addressing allegations of serious corporate wrong-doing.

 

1. Lead the fight to eradicate slavery from UK supply chains

The Modern Slavery Act 2015 enjoyed cross-party support. Following pressure from parliamentarians, business and civil society, the Home Office introduced a clause into the Bill which requires companies operating in the UK to report on what they’re doing to ensure their supply chains are slavery free.

In a consultation that closed on Election Day, the Home Office sought views on the scope (which companies are covered) and detail of the new requirement. Responding, civil society organisations called for a “critical mass of vigilance” to eradicate slavery from supply chains, including a company size threshold of £36 million, and guidance for companies to report on the key risks of slavery in their operations and the effectiveness of measures they’ve put in place to address the risks.

Home Secretary Theresa May described the Act’s passage as ‘an historic milestone’ and went on, ‘Our work is far from over, and everyone in all sectors of society must play their part.’

The new government must now show leadership in implementing the law, ensuring that the supply chains measure has wide application and requires meaningful disclosure of companies’ processes, activities and performance in addressing modern slavery and trafficking. In particular, a central online repository should be established to make company reports easy to access and compare.

 

2. Make big business more transparent

New reporting requirements for large companies on general social, environmental and human rights issues in their supply chains were agreed last year in Europe, and must be transposed into national laws by October 2016.

Under the Companies Act 2006, the UK already requires large listed companies to report annually on these topics. The transposition of the new directive is an opportunity to extend this to cover company supply chains – giving consumers and investors assurances about products and performance – and all large non-listed companies.

This is appropriate given the market presence of private companies. A typical top 100 private company has sales ranging between £700 million and £3 billion and employs between 500 and 20,000 staff, while top mid-market companies’ sales range from £130 million to £650 million, and they each employ between 100 and 5000 staff. Requiring these companies to report will create a much-needed level playing field for all large firms.

 

3. Adhere to international labour rights standards at home

The Conservative Party Manifesto included a proposal that ‘Industrial action in essential services would require the support of at least 40% of all of those entitled to take part in strike ballots as well as a majority of those who actually turn out to vote.’ This is in addition to the existing requirement that the action should have the support of a majority of those voting.

The TUC is concerned that this will effectively outlaw strike action in the public sector, and the proposals have been criticised by leading labour rights experts, who have described them as not consistent with international legal standards.
Earlier in 2015, the right to strike was reaffirmed at the International Labour Organisation. The ILO describes this right ‘…an intrinsic corollary to the right to organize’, itself one of the fundamental rights recognized in the ILO Core Conventions.

Millions of workers around the world are denied these fundamental rights, making it very difficult for them to put pressure on employers to make workplaces safer. For the UK to place limits on labour rights at home sends the wrong signal at a time when there is a notable emphasis on the need for action to improve worker safety in the international value chains that supply UK consumer goods and vital equipment for the UK’s public sector.

 

4. Investigate credible allegations of serious corporate crime

“We are also making it a crime if companies fail to put in place measures to stop economic crime, such as tax evasion, in their organisations and making sure that the penalties are large enough to punish and deter.” Conservative Manifesto 2015.

Scandals and revelations about financial misconduct continue to reappear in the headlines, yet other types of serious corporate misconduct have received much less attention – even though such behaviour tends to be intrinsically linked to, and motivated by the desire to increase profit and to reduce costs.

Amnesty International has highlighted two cases in particular where there is evidence of illegal activity in the UK, related to UK company misconduct internationally.

In 2006, UK-Dutch shipping company Trafigura dumped toxic waste in the Ivorian capital Abdijan. Local hospitals were overwhelmed when 100,000 people sought medical attention as a result.

Despite extensive evidence that the actions of Trafigura and its staff in the UK may have amounted to an illegal corporate conspiracy in breach of the UK Criminal Law Act 1977, UK authorities have so far failed to properly investigate, with the threat of court action required to persuade the Environment Agency to review documents.

In a second case, calls have been made for a UK investigation into the British-Australian mining company Rio Tinto over a possible breach of EU economic sanctions on Burma, a criminal offence in the UK.

Government must make sure that UK companies and their directors are not let off the hook when they are alleged to have broken the law. Failure to investigate such serious allegations leaves the door wide open for future similar corporate misconduct and fosters a culture of impunity which has the potential to seriously damage the reputation of British companies around the world.

 

5. Take a strategic approach to business and human rights

Prime Minister David Cameron committed the UK to implementing the UN Guiding Principles on Business and Human Rights in November 2011.

This high-level engagement was positive, and the UK government broke new ground again in 2013, when the then Business and Foreign Secretaries launched one of the first Business and Human Rights Action Plans.

Since then, domestic and international interest in the business and human rights agenda has increased. Shortly before the start of the general election campaign, the FCO and BIS kicked off a review of the UK’s Action Plan with a cross-Whitehall meeting attended by 80 business and civil society representatives.

This review allows the UK government to reflect on progress to date and to set priorities for the next phase. While the first Action Plan contained some significant commitments, detail was sparse, and aspirations were sometimes simultaneously undermined by actual policies.

A strategic approach is vital if this is to be avoided in future. This requires clarity on how different departments will work together to achieve policy coherence.

The government must also use the Action Plan to describe the steps that the UK will take to improve access to remedy for communities adversely affected by the international operations of UK companies, an area repeatedly identified as a major gap in implementation.

There is now genuine global momentum on this agenda, with over 40 countries having commenced the process of preparing an Action Plan. The UK should be looking to set the bar high.