As the world becomes increasingly flat with international enterprises become increasingly more pervasive, the need for a common framework to help multinational enterprises work fairly and justly is also needed. To help multinational enterprises operate in alignment with government policies, gain the confidence of society, and improve the foreign investment climate to contribute to sustainable development, the OECD has developed Guidelines for Multinational Enterprises - Recommendations for responsible business conduct in a global context (The Guidelines).
Multinational enterprises are engaged in many sectors in several developing countries - production and extraction, manufacturing and assembly. They transfer knowledge, bring significant investments and connect different regions of the world via trade. Many multinational enterprises operate under high standards of business conduct and, increasingly, promote sustainable development where they operate.
The OECD's Guidelines provides recommendations jointly developed by government and multinational enterprises. They provide principles and standards of good practice consistent with applicable laws and internationally recognized standards. The Guidelines are intended to complement and reinforce private efforts to support responsible business conduct.
The Guidelines encourage cooperation between governments through international legal and policy frameworks such as International Labor Organization's Universal Declaration of Human Rights. It also encourages governments to develop effective domestic policy frameworks that include appropriate regulations, prudent oversight and stable macroeconomic policies, among other recommendations. As presented in last week's blog, government instruments and frameworks should create a level playing field and promote good practices for both state-owned enterprises (SOEs) and competing private companies. They also clearly state the need for governments to be transparent in their interactions and consultations with the SOE and private companies.
The Guidelines set forth standards that all SOEs should meet, including self-regulatory practices, management systems and internal controls. These include the need for SOEs to implement due diligence processes that help SOEs to identify, prevent, mitigate and account for how they address their actual or potential adverse impacts as a part of business decision-making and risk management systems. With this said, the Guidelines recognize limitations of SOEs and private companies to affect the behavior of their suppliers. However, it does provide suggestions on how SOEs can positively influence suppliers, such as through the use of management contracts, pre-qualification requirements, among other tools and mechanisms. They encourage companies to engage suppliers in a manner that advances governance, responsible behavior and sustainable development - whether through direct partnership, multi-stakeholder initiatives or industry collaboration.
As presented in last week's blog, SOEs should be responsive to the public's demands for information. The Guidelines state that enterprises should disclose accurate and relevant information regarding their structure, governance, activities, financial situations, performance and ownership in a timely and transparent manner just as a private company would. They also hold SOEs to the same high standards for accounting, financial and non-financial disclosure, including annual independent, third-party audits to provide appropriate assurances of financial statements.
The Guidelines recognize the evolving need to disclose social and environmental conditions and provides recommendations for SOE and private companies to prepare for such disclosure. They present recommendations for topics ranging from human rights; employment and industrial relations; environment; combating bribery, bribe solicitations and extortion; consumer interests; science and technology; competition and taxation.
Is it realistic and reasonable to encourage SOEs to act, report and compete under the same conditions as privately owned multinational enterprises?