The OECD has had Guidelines for Multinational Enterprises since 1976. The Guidelines apply to enterprises carrying on business in at least one OECD country and provide a number of principles and standards for responsible business conduct. After the opening of the new Danish Mediation and complaints body on 1 November 2012, the Guidelines are now expected to also be enforced in respect of Danish multinational enterprises.
Many Danish enterprises are multinational enterprises
The OECD Guidelines regulate multinational enterprises operating in OECD member countries. While the original Guidelines primarily imposed an implementation obligation on the OECD member countries, the updated Guidelines now impose obligations directly on the enterprises though the new enforcement. The term "multinational enterprise" is not accurately defined in the Guidelines but cover all enterprises carrying on business in more than one country. Accordingly, there are no requirements about corporate form, minimum revenue or number of employees. The only requirement is that the enterprise must be active in more than one country, including at least one OECD country (e.g. Denmark).
A Danish enterprise does not need to have permanent representation in another country to be covered by the Guidelines; it will be covered if it has business relationships such as business partners, entities in the supply chain and any other entities directly linked to the business operations, products or services of the enterprise. The other country does not have to be an OECD country. Only one OECD country has to be involved in order for an enterprise to be subject to the Guidelines. Thus, the term "multinational enterprise" has a broader meaning than what most people believe. It will therefore be more difficult to find Danish enterprises which are not subject to the Guidelines, than enterprises which are. Only a very few Danish enterprises are purely national when taking into consideration both the supply and the distribution chains.
What do the Guidelines say?
The Guidelines contain principles and standards for business conduct within various areas, the most important areas being human rights, environment, employment and industrial relations, and combating of bribery. These principles and standards - in addition to national legislation - must be observed by Danish enterprises and to a considerable extent also by the business partners of the enterprise, including suppliers.
The Guidelines were updated in 2011, in which connection significant changes were adopted to the chapters on employment and industrial relations, combating of bribery, bribe solicitation and extortion, environment, consumer interests and taxation. In addition, there is a new chapter on human rights, which is consistent with the UN recommendations on business and human rights. Finally, the updated Guidelines contain clearer and reinforced procedural guidance to strengthen the role of the National Contact Points (NCPs), which will in future considerably improve the enforcement of the Guidelines. The Danish NCP is the new Mediation and complaints body.
What will be considered non-compliance with the Guidelines?
The enterprises are responsible for their compliance with the Guidelines. The update of the Guidelines in 2011 introduced a new and comprehensive approach to due diligence and responsible supply chain management in the enterprises. The enterprises are responsible for exercising due diligence in determining whether the business partners, including suppliers and sub-contractors, comply with the Guidelines. An enterprise's responsibility for its business partners' compliance with the Guidelines is generally limited to the influence sphere of the enterprise. The extent of the influence sphere of an enterprise must be assessed in each individual case. The trend is that it is necessary to exercise due diligence in more links in the chain than earlier (at least in the case of large enterprises).
The due diligence required must be assessed on the basis of the specific facts, including industrial sector and geographic region. If the enterprise operates in the textile industry and has several suppliers in south-east Asia, the requirement for a due diligence investigation of the suppliers is higher than if you have a few suppliers in Australia who supply software services. In other words, industry risk plays an important role. If you operate in a high-risk industry and, in addition, in a high-risk region (reference is made to Transparency International's list), the duty to exercise due diligence is extended correspondingly.
The purpose of the Guidelines is to create continuous improvements in cooperation with the local stakeholders, for which reason enterprises and local business partners are encouraged to have a dialogue. If an enterprise becomes aware of non-compliance, for example by a supplier, it is a minimum requirement that a protest against such non-compliance must be filed with the supplier. However, a protest cannot stand alone, if it is not obeyed. Other measures will be required, and if nothing happens, it may be necessary to discontinue the business cooperation. Some instances of non-compliance will be deemed to be so severe and irremediable that they will always be unacceptable and require immediate discontinuation of the cooperation.
The enterprise must to begin with make an estimate of the nature and extent of the non-compliance. In order to qualify the decision-making process and ensure an efficient strategy, the enterprise should in the event of verified non-compliance make an overall assessment of i) the perspective of engaging in it (is the improvement perspective hopeless?) compared to ii) the perspective of discontinuing the cooperation (will discontinuation or continuation of the cooperation result in continuation or worsening of the situation?).
Administrative procedure in the Danish mediation and complaints body
In connection with the updating of the Guidelines in 2011, Denmark introduced a new Mediation and complaints body, which became effective on 1 November 2012. It is now possible to file complaints about non-compliance by multinational enterprises. As a general rule, a complaint will be dealt with in the country in which the complaint is filed. However, after an assessment of the case it may be decided to refer the complaint to be dealt with in another OECD country with a closer connection to the complaint.
The Danish Mediation and complaints body is not a court and will therefore not make a legally binding decision. The body will issue a reasoned statement, which will be made public on the body's website. Consequently, the sanction is "name and shame". Still, it is not the intention of the body to "hunt" Danish enterprises or to contribute to the promotion of groundless or dubious complaints. The body sees itself as a facilitator and mediation agency intended to solve disputes between Danish enterprises and complainants with legitimate complaints.
This is also supported by the administrative procedure of the board. When filing a complaint about an enterprise, the body will therefore make an initial assessment, after which the complaint may be rejected if it falls outside the powers of the body, due to formalities or because the complaint is not supported by justifying reasons and reasonable documentation. If the complaint is not rejected after the initial assessment, the parties will be encouraged to negotiate and settle the dispute themselves. The parties will then have two months to agree on a settlement. If the complaint is closed either because it is rejected or because the parties agree on a settlement, the outcome will not be made public. Rejected complaints will, though, be mentioned in the annual review of the body, but without names.
If the parties cannot agree on a settlement, the body may choose to:
- dismiss the case;
- act as mediator; or
- investigate the case.
Mediation must be accepted by both parties before this step is taken by the body. If the dispute is then settled by mediation, the body will release a statement with a brief description of the case and the mediation result. If mediation is not initiated or is not successful, the body may choose to make an investigation. Based on such investigation the body will release a statement about the case, which may be accompanied by recommendations on how to comply with the Guidelines. The body will each year publish an annual review about its work.
Summary and recommendation
The OECD Guidelines have been applicable for a long time, but due to their non-enforcement, their existence has been very quiet. They will now be enforced by making public the complaint, the enterprise name and maybe a recommendation on the suggested changes to be implemented by the enterprise. To many enterprises, such publicity will be much worse than a fine, which noone will know of or be interested in. When it comes to substance, the Guidelines are very similar to those known from the government's action plan, Global Compact, etc. Consequently, in terms of substance there are no major surprises. It is worth paying attention, though, to the dynamic due diligence standard, which requires increased diligence in the selection of business partners. What is new is that the CSR principles and rules already known to us will now get a new life because they will be enforced effectively by the mediation and complaints body.
No enterprise wants to be exposed to "name and share" if avoidable, and therefore preventive measures, e.g. due diligence and proper contracts with business partners, will be preferred by the enterprise as well as by us.