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John Evans, General Secretary TUAC (Trade Union Advisory Committee to the OECD)

 

The Report of the Finance Ministers’ Deputies to the G8 Finance Ministers meeting, held in Lecce in June 2009, called for “a rethinking of the foundations of the global economic and financial system” in the light of the “worst crisis since the Great Depression”. Given the appalling human cost of the crisis - a probable 60 million more people unemployed globally and an extra 230 million pushed into extreme poverty - trade unions can only concur.

 

Beyond the re-regulation and more effective supervision of financial markets and institutions, such rethinking must also encompass the rules and oversight of the market system more generally. As a result trade unions are closely following the development of the G20 and G8 initiatives aimed at preventing excesses of the market and ensuring more balanced economic development.

 

The “Charter for Sustainable Economic Activity”, being prepared by a G20 Task Force and due to be discussed at the Pittsburgh G20 Summit in September, needs to be comprehensive in scope and incorporate economic, financial, development, environmental and social instruments, including most importantly the “decent work” agenda and the relevant labour standards of the International Labour Organisation (ILO).

 

The G8 Finance Minsters’ “Lecce Framework” for a “Global Standard of Common Principles of Propriety, Integrity and Transparency of International Economic and Financial Activity”, which appears to be designed to be one chapter of the Charter, brings together international instruments that govern private sector conduct. The Framework focuses on corporate governance, market integrity, financial regulation and supervision, tax cooperation, and transparency of macroeconomic policy and data. While these elements are necessary, they are not sufficient. Trade unions consider it essential that the Lecce Framework, in view of its focus on the private sector, incorporate the ESG (Environment, Social and Governance) standards on which private sector conduct must be based, if we are to achieve a shift to a new paradigm of economic development. The OECD Guidelines for Multinational Enterprises should therefore be comprehensively incorporated into the Framework, alongside other relevant OECD instruments – at the moment they are merely referenced in the Deputies’ report for Lecce.

 

These instruments have the potential to send a strong political message on the political priority given to the social and labour dimension of governance and development and provide a sustainable framework within which to strengthen inter-institutional cooperation and overall policy coherence. However, their actual impact will depend on their effective implementation, including the strengthening of existing instruments (the building blocks), achieving buy-in from governments and the adoption of a rigorous monitoring mechanism.

by Alberto Mazzoni - Professor of Commercial Law, Catholic University, Milan

 

The “Lecce Framework” of June 13, 2009 has once more confirmed the common intention to overcome the regulatory deficit showed by the actual financial crisis by way of setting or reinforcing common principles and standards on conduct of international business and finance. This intention must be supported by new ideas and proposals but must also build on existing initiatives, since a number of international standards and standard-setting bodies do already exist, and shall mainly focus on five sectors: a) corporate governance, b) market integrity, c) financial regulation and supervision, d) tax cooperation, and e) transparency of macroeconomic policy and data.

 

The general approach of reinforcing governance by starting from the recognition of a wider and more influential role of soft law is to be shared. However, there are a number of issues that need to be carefully evaluated, since the real question seems to be what kind of governance we are ultimately aiming at.

 

In the first place, it is well-known that the reason why the Financial Stability Forum (FSF) – now transformed into the Financial Stability Board (FSB) – was created was exactly to reinforce international standards and coordinate standard-setting bodies under the same umbrella, so as to have a consistent implementation system. Indeed, the FSF selected a list of existing standards which were thought to be of key importance for the prevention of international crises, promoted their implementation and mechanisms for review, and also required the IMF and the World Bank to sit together in a joint exercise to assess whether States would adequately consider these as precondition for development and stability. In short: we had already attempted to go the way we are now re-advocating, but the attempt has proven to be unsatisfactory, or at least not sufficient.

 

In the second place, the five selected sectors of intervention all require different tools and governance mechanisms. They indeed touch upon very diversified matters and require involvement of different actors. For each of them a distinct analysis of what governance should mean may be required. Anti-money laundering schemes, for instance, might require a combination of soft and hard law, cooperation among tax authorities but also banks and supervisory authorities. On a quite different level, corporate governance would involve analysis of companies structures and the interaction between corporate law and the law of the market, involving not only different authorities but also different economic and legal approaches.

 

Finally, macroeconomic data and objectives do inevitably share a common ground with some aspects of financial regulation, but we should never forget that macroeconomic policies of States require to be coordinated under different parameters than regulation of behaviour of private actors. In these contexts, the role of international organizations such as the IMF and the World Bank may have to be more political and more conscious of the need of global cooperation among States than that of a mere warden or custodian of the respect of international standards.

 

The main purpose of these brief and heterogeneous comments is to stress that in fact, behind the label of “international standards”, “regulation” and even “governance”, lay a number of articulated alternatives that need to be carefully weighed. What I am saying is that it is not the mechanism as such which has to be discussed – after all, the mechanism or the panoply of mechanism as such has been in place since long -, but rather the oil that we intend to pour into such mechanism.

 

For this, I would spend a few considerations on what “soft law” exactly is: standards are not simply “non-binding” instruments. They should be the result of a bottom-up formation of rules, made out of general agreement among all relevant actors. They should be so generally shared that their force reside in their inherent capability to persuade rather than to be imposed. Assuming that this quick definition of the essence of soft law is shared, it implies that standards can only work if they are perceived by all relevant stakeholders as their-own, and as representing a common set of values that deserve to be shared.

 

This is not an easy task in such a complex world as the one we live in. However, a full involvement of certain communities that may be effective conscience builders at the international level may lead to results easier to accept. This might mean to start reconsidering a larger involvement of international organizations and a diversification of tasks.

 

For instance, there are international organizations or bodies having as their main scope the unification of law. These can produce international conventions but also model laws and principles. They already have strong partnerships with civil society, although their products are political in essence and pass through the Cabinets of States. Unquestionably, these institutions should be directly and intensely involved in the process of setting standards.

 

In parallel, judges, whether in national courts or in international contexts, should increasingly inject in their interpretation of the rules the awareness of the legal importance of commonly accepted legal standards.  The law has (and must resume full awareness of having) ethical foundations. The common standards are, in substance, a conscious compilation of a number of ethical foundations of the law.  As history tells us, judge-made law is often a better promoter of the socialization of ethical rules than the legislative attempt to crystallize them in technical rules.

 

Finally, a number of organizations, including the OECD, the IMF and the World Bank, provide technical assistance to States: this activity could and should be a powerful vehicle for the spreading of common principles and their absorption and appropriation by each addressee State, if only they could be better inserted in a consistent frame and gain a better reputation.

 

Indeed, the Lecce Framework declares to lay on three focal concepts: property, integrity and transparency. Each of these is a prism containing a plurality of meanings. A way to overcome the difficulties of the past could be to start asking what we exactly mean with each of these, what we mean to protect, how people could believe these are relevant to our living together, whereafter the task of shaping common standards and ultimately of identifying by whom they should be shaped in the different areas would be greatly clarified and facilitated in implementation.

 

 

 

 

Towards a Global Standard

Posted by 19218 Jul 16, 2009

Paul Hohnen is an Associate Fellow of the Royal Institute for International Affairs (Chatham House)

 

The attention which the 2009 G8 Summit gave to a Global Standard is to be welcomed.

 

First, because it is and will always remain the final responsibility of government to shape standards, whether legally binding or voluntary. Second, because the process offers an opportunity to review existing principles and standards and to identify how well these are implemented. Thirdly, to be effective, any new standards need to be legitimate and practical. This will require a high level of consultation with stakeholders, offering opportunities promote partnerships and learning.

 

Government responsibility:  In the last two decades, governments have largely left standards making in relation to responsible business conduct at the global level to the private and civil society sectors. A notable exception was the OECD Guidelines for Multinational Enterprises (MNEs), which were developed by OECD governments jointly with representatives of the business community and of employee organizations and enjoy a level of NGO support. The Guidelines have a number of characteristics that make them attractive. These include the fact that they: were specifically crafted to provide guidance and recommendations  on what constitutes good business practice (covering issues such as disclosure, employment and industrial relations, environment, consumer interests, and combating bribery); have global application (they have also been endorsed by a number of non-OECD countries and are used by a wide variety of companies in developing their own approach to sustainable development and corporate social responsibility);  and have a mediation mechanism.

 

There are now hundreds of general or sector specific standards offering guidance on what it is to be a good company. Some of these help companies understand what to do, and others how to do it. Many specifically reference or embrace government-agreed principles; others don’t.  Most represent an attempt to fill a gap in guidance on what is expected of business.  While healthy in terms of public participation, this development represents a challenge for governments. For example, private standards might redefine agreed government policy or displace government-agreed instruments. In still other cases, sensible standards might simply not be applied.

 

If governments want agreed international principles on responsible business practices to be widely respected, they need to go further. They need to build greater awareness of existing standards and to make improvements needed to ensure increased uptake. Government participation and leadership in this process has often been a missing element in global standards-making, and its return is timely.

 

Build on Existing Foundations: Many organizations have the sense that there are already too many standards in the market place. Others aren’t aware of the standards that already exist, including governmental ones. As a first step, the Global Standard process needs to define:

• what its specific goals are
• what organizations and/or sectors it will apply to
• what standards already exist and their strengths and weaknesses
• how a new Standard would complement existing standards.

 

Experience with privately-developed standards over the last decades suggests that standards that are too broadly defined do not meet the needs of modern organizations, which may need recognition in the form of assurance or certification.  Experience also suggests that governmentally-developed principles and standards, including OECD and ILO guidance, have not been as fully promoted as they could be.  Indeed, the G8 has committed to promoting such instruments as a high priority. (For a more detailed discussion of this point, see:  http://www.oecd.org/dataoecd/18/56/40889288.pdf)
Above all, experience shows that unless governments take a close and consistent interest in standards implementation, implementation is patchy. This has been the reason that some organizations have called for legally binding rules.

 

The Importance of Stakeholders:  Partnerships of business and non-profit organizations – sometimes with government involvement - have developed a wide range of standards. These include: the general guidance being developed by ISO on what it means for an organization to be ‘socially responsible’; the UN Global Compact’s ten principles, and the Global Reporting Initiative’s (GRI) sustainability reporting framework.  Organizations such as these have immense experience in the development. With the proposed expanded role of governments in the standards-making space, it will be crucial to engage the business and other organizations that will be using the Standard to ensure that it is practical, measurable, and implementation beneficial.

 

The Lecce Framework opens a Pandora’s box of questions and challenges. But in doing so, it offers the opportunity for a new level of global discussion on how best to harness the powers of the market to achieve a more sustainable and equitable globalization.

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