OECD National Contact Point (NCP) processes—discussed in a prior post and article—are an increasingly material source of ESG-related business risk. Two recent decisions illustrate how these processes are evolving to take on a broader mandate and harder edge. They concern rather different fact patterns, human rights allegations, and OECD governments. Together, however, they reveal important trend lines. NCPs appear increasingly willing to (i) undertake independent investigations in foreign jurisdictions; (ii) substitute their decisions for those of management; and (iii) embrace legal concepts around vicarious liability and remedy; while (iv) discounting legal notions of corporate separateness. The combination of this more aggressive approach to oversight with diffuse and substantial risks flowing from adverse outcomes warrants a particularly careful approach by companies and their in-house counsel when facing OECD NCP Specific Instances.
VEON and Freedom of Association
UNI Global Union v. VEON was a specific instance before the Dutch NCP concerning freedom of association in Bangladesh. UNI is a global trade federation; VEON is a global telecommunications company headquartered in the Netherlands. UNI lodged its complaint in 2016 on behalf of a local union in Bangladesh alleging labor rights violations by Banglalink, a telecommunications provider of which VEON is the indirect majority owner. UNI alleged that VEON breached the OECD Guidelines by not taking steps to identify, prevent and mitigate the human rights impact of their operations. VEON disputed the allegations, but argued that, since the local union is not recognized as legitimate under Bangladeshi law, entering a facilitated dialogue with UNI or the local union may infringe Bangladeshi law. VEON thus declined to participate.
The Dutch NCP proceeded anyway, issuing a Final Statement on 11 February 2020, nearly four years after the process started. The Statement criticizes VEON for declining to participate and concludes that VEON violated the Guidelines by failing to (1) conduct adequate diligence in Bangladesh; (2) develop relevant global policies to promote and facilitate freedom of association applicable to subsidiaries and “daughter” companies; and (3) use its leverage to promote worker engagement by Banglalink and “ensure that Banglalink will respect its employees’ decision on trade union membership,” and “adopt a more positive and proactive attitude.”
Although the decision was just issued, it has resulted in a flurry of press and tweets; and as the dispute was referenced in VEON’s SEC filings, we may see further fallout similar to other NCP cases, whether in the form of litigation, enhanced regulation, or media campaigns.
ANZ Group and Land Rights
The second notable case is Equitable Cambodia (EC) & Inclusive Development International (IDI) v. ANZ Group & ANZ Royal (together, ANZ), brought before the Australian NCP. EC & IDI are civil society groups acting on behalf of hundreds of Cambodian families who claimed that they were forcibly displaced and dispossessed of their land by the Phnom Penh Sugar Company (PPS). ANZ Group is a major Australian bank and was for a period one of PPS’s financiers. While recognizing that PPS was primarily responsible for the alleged harms, the civil society groups alleged that ANZ breached the OECD Guidelines by not implementing effective client due diligence. They sought Australian NCP’s help to engage ANZ in dialogue to improve its risk governance and redress mechanisms (particularly regarding land rights) and to disgorge its profits from the loan to PPS.
ANZ disputed the claims regarding its due diligence deficiencies but voluntarily participated in the proceedings. After an initial round of mediation, however, the parties concluded that discussions were unlikely to be successful. The Australian NCP then assessed the validity of EC’s and IDI’s allegations independently. Ultimately, the NCP focused on whether ANZ had “acted in line with its own stated corporate standards with respect to human rights,” concluding that it had not: “it is arguable that most (if not all) of them would not be satisfactorily met.” The Final Statement refrained from recommending particular remedies, but encouraged ANZ to improve its human rights governance, ensure their alignment with the OECD Guidelines, and establish an effective grievance mechanism. On 27 February 2020, the parties reached a final agreement in an NCP-facilitated mediation, in which ANZ accepted responsibility for inadequate pre-transaction due diligence into PPS and agreed to disgorge profits from the loan to the affected communities.
The two cases differ substantially in a number of critical regards, from the rights at issue to the relevant business relationships. But they share several structural similarities with important lessons for companies facing such complaints.
- First, NCPs are increasingly willing to investigate allegations independently and without consent. In both cases the NCPs proceeded even after the companies refused to participate. That marks a clear turn to judgment in a quasi-judicial sense rather than merely facilitating dialogue. The authority of NCPs as government institutions suggests that this judgment, even if only declaratory, could have diffuse effects on corporate risk and behavior.
- Second, there is no equivalent of the business judgment rule to grant deference to management decisions on human rights governance. VEON believed that it was bound by Bangladeshi law in its interactions with the putative local labor representatives. The Dutch NCP obtained its own legal advice on the issue and, without offering any protections in case it is wrong, concluded that VEON could find workarounds. The NCP thus cast judgment on Bangladeshi law and appeared to place the onus on VEON to encourage its (indirect) subsidiary to act consistent with its decision. In ANZ, the relevant issue was whether the bank had appropriately conducted diligence and exercised leverage over its foreign client. These are thorny and context-sensitive issues requiring a careful assessment of the specific relationship; there were nonetheless ones on which the NCP was willing to rule with little explanation of why it found ANZ’s claims regarding its leverage not credible. The conclusions in both cases reflect the breadth of an NCP’s authority to override major multinational companies’ assessments of relevant legal and business risks without referencing any zone of deference.
- Third, corporate separateness is of limited import when assessing a company’s responsibilities under the OECD Guidelines. Traditionally, companies have organized themselves as management and ownership thinks best for shareholders and stakeholders, which may mean centralized, decentralized, matrixed, and other operating models. Under those models, parent companies and owners may be active or passive in the management of separate affiliates that may comprise a multinational enterprise. Such a structure has diluted value for corporate responsibility under the OECD Guidelines. That VEON related to an indirect subsidiary relationship—with two separate entities between VEON, a Dutch company, and Banglalink, a Bangladeshi one—appeared barely to affect VEON’s responsibility under the Guidelines. Legal personality is distinct from responsible business personality.
- Fourth, legal concepts of vicarious liability and unjust enrichment are indirectly shaping NCPs’—ostensibly non-legal—process. ANZ focused on a downstream business relationship with an unrelated foreign entity. PPS was only a borrower, not a business partner in the legal sense. ANZ did not contribute to PPS’s violations, but in OECD terms it was directly linked to them. ANZ’s disgorging its profits, in essence a recognition that it should not benefit from the human rights violations committed by others, tracks the structure of recent litigation under the US Trafficking Victims Reauthorization Act, which may impose criminal and civil penalties for businesses that knowingly benefit from forced labor across global supply chains. While it seems plain that a business should not benefit, directly or indirectly, from a human rights violation, the move toward disgorging profits that reflect those benefits – novel in the ESG space but a conventional legal remedy – is notable. Such requests will become more commonplace, particularly where downstream transactions are at play.