Global business: getting the frameworks right

The OECD Guidelines for Multinational Enterprises are being reviewed. It’s a timely, though delicate, task.
Financial, Fiscal and Enterprise Affairs Directorate (DAF)

Dave Rooney

The far-reaching review of the OECD Guidelines for Multinational Enterprises is a delicate exercise. After all, any agreement has to take account of the different values, legal traditions and levels of economic development that are found in the many countries that would be affected by new norms. The Guidelines are non-legally binding recommendations to business by 32 governments (the OECD members plus those of Argentina, Brazil and Chile) covering a broad range of issues in business ethics. These range from labour relations and the environment to fighting corruption and protecting consumers. The trouble is that many of the Guidelines’ recommendations have not been altered much since their adoption in 1976. So, by drawing on consultations with business, labour unions, NGOs and non-member countries, the OECD has resolved to update and improve them.
The revised draft text is divided into ten sections: concepts and principles, general policies, disclosure, employment and industrial relations, environment, combating bribery, consumer interests, science and technology, competition and taxation. The original Guidelines were adopted as part of the OECD Declaration on International Investment and Multinational Enterprise, which provides a balanced framework defining both the rights and the responsibilities of the business community. But in 1976 multinational enterprises (MNEs) were just emerging as a major force in the international economy. Through their trade and investment activities and their positive impact on technology and human resources, MNEs were known to bring substantial economic benefits to home and host countries alike. At the same time, though, the ability of MNEs to organise their operations beyond national boundaries caused concerns about possible conflicts with host country policies and economic and political power concentrating in the hands of multinationals themselves.Many MNEs have tried to respond to these concerns, often by working in co-operation with civil society. In one of the most prominent trends in international business in recent decades, many have issued their own codes of conduct making corporate commitments that often cover the same issues as the Guidelines (the issues most often covered in the private codes are labour relations and environment). Companies have also refined and strengthened management controls and practices designed to help them to respect these commitments in their day-to-day operations. This movement has raised business awareness and boosted managerial know-how in such areas as environmental protection and combating corruption to levels that would have been unthinkable twenty years ago. In fact, in contrast to what is occasionally said of them, MNEs often lead other companies in defining and implementing high standards for business conduct.MNEs are an integral part of the international economy they themselves have helped to build. They are clearly vital for capital flows and diffusing technology. And they are also an important source of tax revenues. However, civil society remains cautious about the social, economic and environmental impacts of their activities. The OECD Guidelines, though non-binding, seek to address those concerns, in part by reinforcing the efforts MNEs have already made. They will do this by providing a common frame of reference that will help MNEs to ensure that their operations and activities fulfil the expectations of their home and host countries. For example, both OECD members and most non-OECD governments share the goal of promoting human rights in the workplace. Multinational enterprises, acting on their own and through their supply chains, can make an important contribution in this area. The Guidelines provide an institutional setting in which signatory governments can encourage those efforts.The Guidelines are, at present, the only multilaterally endorsed code of conduct covering so many areas of business ethics. When finalised, they will represent the consensus view on appropriate business conduct for 32 governments, including the home countries of most of the leading multinationals. Although corporate observance of the Guidelines is voluntary, governments, working with business leaders, are well pla-ced to see to it that these principles are respected. The current review, in trying to position the Guidelines in today’s rapidly evolving global environment, is expected to result in a revitalised and more transparent instrument. As part of this transparency, the draft Guidelines have already been opened for public comment and scrutiny since early January 2000 and the level of feedback has been substantial (see web reference below). OECD is also actively looking at the follow-up procedures and it is expected that geographical coverage of the revised Guidelines will be made global. The results of this process are expected to be finalised at the OECD Ministerial Council Meeting at the end of June. Business and labour interests have always endorsed the Guidelines and there is every reason to believe that this will be the case when this review is concluded. It is also hoped that non-governmental organisations will enter this partnership with governments, labour and business so that all can contribute toward a shared goal: the continual improvement of the framework for international business to help raise the welfare and living standards of people everywhere. END

Economic data

GDP growth: +0.6% Q1 2019 year-on-year
Consumer price inflation: 2.3% May 2019 annual
Trade: +0.4% exp, -1.2% imp, Q1 2019
Unemployment: 5.2% July 2019
Last update: 8 July 2019

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