TransNational Corporation Law Reform

This document is evolved, and is still evolving, with the collaboration of a number of NGOs in the UK whose work is affected by the activities transnational corporations. These gargantuan economic actors are at present substantially unregulated, and can and do use their economic power to circumvent such regulations as to apply to them.

The document is a brief overview of some of the regulations that might be applied to bring them within the rule of law.


Taming the Tiger: TransNational Corporation Legislation

Introduction
Corporations, whether Trans-National, (a.k.a. Multinational) or large national corporations have as much if not more economic power than half of the nations on earth. They frequently use their economic power either directly or indirectly to influence decisions made by politicians.

Democracy means that the bedrock of political power lies with the people, who commonly delegate their power to Governments to act on their behalf. The de facto existence of commercial organisations with power to influence politicians for their own benefit runs counter to the core principle of democracy.

Corporations have acquired for themselves in law the status of “corporate personhood”, which has given them powerful leverage.

This has resulted in many instances where the activities of Corporations have caused damage, sometimes severe, to human rights, human health, and the environment where they operate. In some instances they have used their political, financial and legal power to escape the consequences of such activities, and it is generally difficult to obtain information about their workings, especially in relation to their subsidiary companies and sub-contractors.

Voluntary Corporate Social Responsibility (CSR) initiatives have had very little real effect on corporate behaviour.

There is a need for governmental bodies at national and international level to create a legislative framework designed to prevent TNCs from causing harm to the society and the natural environment in which they operate. The problem is that governments are often financially beholden to corporations, and are reluctant to offend them. This means that the initiative for constraining corporations must come from civil society.
Many non-governmental organisations (NGOs) and individuals are campaigning against various aspects of corporate abuse.
The aim of this document aims to provide an overview of the legal changes required to bring TNCs under the rule of law, as a guide to legislators, politicians, political parties and NGOs.

Legal Status of TNCs

TNCs have obtained for themselves the status of corporate personhood or legal personality, which allows them to act as persons for certain limited purposes—most commonly lawsuits, property ownership, and contracts. This has given them certain legal rights which are not balanced with legal responsibilities, since their central legal responsibility is to maximise the profit of their shareholders.
The aim is to establish in law the principle that Human Rights (HR) are superior to rights and interests of Private Corporations.

Reforms to Legal Status of TNCs


1. The Council of Europe should revise the European Convention on Human Rights in order to make it clear that the Convention only applies to human beings. An exception would be made in respect of Article 6 of the European Convention on Human Rights, which relates to the right to a fair trial.

2. English law should rule invalid future reliance on any precedent set by assuming that Corporations are persons, changing their status to that of “artificial persons in law”.

3. Amend UK law to prevent courts in the UK from enforcing judgments in US courts which rely on corporations being granted 'Human Rights'.

Corporate Social Responsibility
Corporate Social Responsibility (CSR) as a voluntary undertaking has proved ineffective in the majority of cases. There is a clear need to for legally enforceable obligations and standards.
In particular, there is a need to hold Corporations responsible for subsidiary companies and sub-contractors, since at present they can shed responsibility for harm onto subsidiary companies.
There is also a need to ensure that States will guarantee that TNCs will work to the same standards in third countries as in their base country, or in the country of origin of materials with which they are dealing.

Reforms to create effective CSR

1. Establish a Commission for Business, Human Rights and the Environment (CBHRE)
This new agency would incorporate some of the powers of the US Public Company Accounting Oversight Board, which is charged with overseeing, regulating, inspecting and disciplining accounting firms in their roles as auditors of public companies. It would also help guide UK companies towards best practice when operating at home and overseas and prevent harmful impacts to people and the environment.

The Commission should help resolve disputes between companies and those affected by the companies’ activities, promoting solutions when harm had been done. This body would have the remit of reducing violations of environmental and human rights standards related to UK companies’ operations abroad, and help those companies improve their corporate conduct globally.

Key objectives of a UK CBHRE would be to:
Provide redress for overseas victims of human rights abuses involving UK companies when local redress channels had been exhausted
promote appropriate environmental and human rights standards for UK companies operating overseas and promulgate best practice
work with other human rights commissions and relevant bodies to share learning and build their collective capacity to strengthen the effectiveness of redress in developing countries.

2. Establish Responsibility for subsidiaries and sub-contractors
To establish in law a principle that Corporations must publish details of “Beneficial Ownership”, and to enshrine in law the principle that that responsibilities follow the flow of profit.

3. Protect third party states

To establish in law the principle that a corporation must apply the same environmental and social standards in a third party state as apply in the state where the company is based, registered, or from whence it acquired materials which it wishes to dispose of.

Limited Liability
At present, shareholders in limited liability companies are protected from losses cannot lose value of their shares if the company is successfully sued. The externalisation of risk through Corporate Limited Liability is a privilege providing wealth to shareholders without liability for the impact of the way that wealth is obtained. If shareholders stood to lose financially from any harmful actions of the company, there would be a powerful internal motivation to inhibit any such actions.

Reforms to Liability Law

Company Law is to be amended so as to remove shareholders’ immunity to losses incurred as a result of human rights abuses or environmental pollution caused by the company.
Libel Law
Corporations have used Libel Law, particularly the draconian English libel law, to silence any criticism of their actions. The principle of Free Speech should be enshrined in law, as it is in the First amendment of the Constitution of the USA.

Reforms to Libel Law

The following changes to English Libel Law are required:
1. Capping libel damages at, say, £10,000 and making an apology the chief remedy
2. Shifting the burden of proof so claimants have to demonstrate damage
3. Preventing cases from being heard in London unless, say, 10% of copies of the offending publication are circulated in England
4. Stopping large and medium-sized companies from being able to launch libel actions unless they can prove malicious falsehood
5. Making some internet comments exempt as part of efforts to reflect the arrival of the world wide web
6. Establishing a libel tribunal, along the lines of employment tribunals, as an alternative to expensive full court trials
7. Reducing the prohibitive cost of defending libel actions by capping base costs and making success fees non-recoverable
8. Strengthening the public interest defence and expanding the definition of fair comment.
9. Parliament shall make no law abridging the freedom of speech


In the EU, the Council of Europe should secure an amendment to Article 6, to ensure that any party in a civil dispute is able to mount a defence or response, and that effective sanctions are applied to any vexatious or intimidating litigant. This amendment would be brought into English law whether or not the convention was so amended.

Political Influence of Corporations
At present, politicians and political parties can benefit greatly from corporate donations, which militates against their core responsibility to act on behalf of the welfare of the people who have entrusted them with their power. Politicians are also unduly affected by corporate lobbying.

Reforms to political donations

A cap is to be set on donations to political parties, both direct donations and loans and other indirect forms of aid.

Donations of over, say, £5000 to main political party offices must be reported to and published by the Electoral Commission, and donations of over, say, £200 must be recorded by the party, though not reported.

Political parties must be funded by tax-raised subsidies in proportion to their share of the vote in elections.

Tax Haven Reform
At present, corporations can avoid paying tax by sophisticated avoidance devices involving locating aspects of their operations in different countries, particularly in tax havens. This represents a leaching of wealth away from the societies in which they operate, and results in a heavier burden on ordinary taxpayers.

International agreements will reform Tax Law so as to close down tax havens, and ensure that corporations pay tax to any country in which they are operating.

(Tax havens are pretty unpleasant places for their citizens as well as being bad for nations).

Tax transparency
Require all corporations to publish complete accounts in order to avoid hiding their profit flows and tax liabilities.

Additions
This document is not complete. Suggestions for further additions (for example, on land acquisition rights of corporations, and on ownership of news corporations) and amendments are welcome.

Conclusion
Mega-corporations have arrogated to themselves legal, and economic power that has often been exercised against the interests of people and environment. Voluntary measures have proved ineffective. A legal framework to constrain the activities of corporations is necessary, but politicians are often pliable to the wishes of powerful corporations. It is therefore necessary for civil society organisations to initiate action, and to exert pressure on politicians to legislate.



Remit
This document was commissioned by the Campaigns committee of the Green Party of England and Wales, prepared by Dr Richard Lawson with the assistance of a group of NGO representatives who convened in London on 27.1.2010. Any errors in the document are entirely the responsibility of Richard Lawson.
rlawson@gn.apc.org

30 January 2010

Update: an event similar to this will be held in the European Parliament.
We were 3.5 years ahead.