National Association of Attorneys General
Rule of Law and the Role of the Private Enterprise
Sophie Briant, Public & Civil Law Team, Attorney General’s Office, United Kingdom; Harris Chen, Prosecutor, Taiwan Chiayi District Prosecutor's Office, Taiwan; Rachid Sadouk, Deputy Prosecutor General, Court of Cassation/Ministry of Justice, Morocco; Carlos Vasconcelos, Deputy Federal Prosecutor General, Office of the Federal Prosecutor-General, Brazil and Julie Warren, Assistant Attorney General, Office of the Attorney General of West Virginiah
This is the fourth and final rule of law article in our NAAGazette series. The articles are the work of attorneys who participated in the June 2014 National Attorneys General Training and Research Institute (NAGTRI) International Fellows Program.
This group was asked to consider the role that private enterprise or the business community has on promoting the rule of law to benefit society as a whole, whether in a developing or developed nation. To address this topic, the group provided examples from conversations they had with fellow colleagues about their personal experiences working with private enterprise or private enterprise having a presence in their countries. The group then drew upon their colleagues’ knowledge in developing this paper.
Private enterprise plays an integral role in helping to promote a strong rule of law. Having a vibrant private industry can help local and national economies thrive, thereby promoting growth that is especially important to developing nations. These enterprises can also partner with local, state, and national governments to make government operate more efficiently and bring heightened awareness to important causes that help societies at large. However, private enterprises may also be a detriment to furthering the rule of law when they do not engage in responsible corporate stewardship, and instead, foster an environment that does not adhere to the law.
To reflect on how private enterprise promotes or possibly hinders the rule of law, we listened to our fellow colleagues and invited speakers for this International Fellows Program. We learned of examples where private enterprise both contributes to – and undermines – the rule of law. We have presented these examples in this paper. We also submit our recommendations on the ideal ways enterprise should operate and offer practical solutions that support the rule of law in instances where it is compromised due to poor corporate governance in the private industry.
Positive Illustrations – A Good Symbiosis between Private Enterprise and the Promotion of Rule of Law
Our colleague from Taiwan informed our group about a positive example involving large IT companies actively working to promote the rule of law. Several large technology companies fund an organization called the Business Software Alliance (BSA) which rolls out anti-piracy training and enforcement programs in over 60 countries worldwide. Of course, companies benefit financially and therefore back this program, but the companies also support the rule of law by funding an organization that promotes awareness and the importance of adhering to anti-piracy laws. BSA investigates reports it receives through a combination of internal resources and through a network of over 80 law firms around the world. Through its communications and education programs, end-users are encouraged to report software piracy directly and confidentially to BSA.
Our guest speaker, Jim Wormington from the American Bar Association highlighted a positive project in Guinea where local communities are informed about their rights regarding mining industries in their local area. This education empowers local leaders to negotiate with the mining companies such that when a mining company goes into a new area, it is obligated to enter into a community benefits agreement. This agreement defines the community’s share of the profits. Wormington explained how systems such as this can lead to greater economic empowerment, thereby supporting the rule of law because marginalized groups are strengthened by having a direct voice at the table.
Our colleague from West Virginia described an example of how the rule of law can still be maintained and strengthened following a catastrophic event in the mining industry. It is essentially an example of the rule of law being enforced through a process of thorough investigations. The Mine Safety and Health Administration (MSHA) is a U.S. agency charged with regulating the mining industry to prevent death, disease, and injury and to ensure safe work environments for miners. In 2010, the worst mining disaster since 1970 took place following an explosion at the Upper Big Branch Mine in Raleigh County, W.Va. The explosion killed 29 miners. Following an investigation into the cause of the disaster, MSHA imposed 369 citations and issued orders upon Massey and Performance Coal in addition to imposing the largest fine in agency history. Moreover, the agency also issued 21 flagrant violations, which carried the most serious civil penalties that the law provided. As a result, MSHA imposed its largest fine in agency history in the amount of $10,825,368. MSHA also produced a report, concluding that the corporate culture at Massey resulted in the tragic accident. Alpha Natural Resources, which later acquired Massey Energy, entered into a non-prosecution agreement with the U.S. Department of Justice following its criminal investigation into the disaster, whereby it agreed to pay a total of $209 million, a portion of which is allotted to go to the families of the victims and also towards improving the safety of its mines. The criminal investigation also led to criminal charges and convictions of certain Massey Energy officials.
Illustrations Where Private Business has Undermined the Furtherance of the Rule of Law
Our colleague from Brazil mentioned a problem concerning mining companies operating in Brazil. In regions where these companies have a robust presence, the local areas heavily depend upon them for employment opportunities and the wealth that they could bring. In some instances the companies impose a number of conditions on the host areas, including entering into agreements that the police will rapidly clamp down on any protests about poor work conditions or labor rights demonstrations. The mining companies also interfere with the freedom of the press by paying the local media for positive news about the company and to repress any unfavorable reports like industrial accidents.
Our colleague from Zambia shared the difficulties this country faces involving the copper mining industry as well. Copper mines publicly seem to be very lucrative and successful, but these businesses claim to operate at and suffer from low profits or at a loss to avoid paying taxes. Hence, the Zambian government does not receive any direct financial benefits from having the mining industry operate in the country. When the government proposes to increase taxes or receive contributions from the mining industry, the companies threaten to cease operations and withdraw from the area if the proposals are implemented. Consequently, the government then withdraws the proposals.
Our colleague from Oklahoma informed us about the problem along the El Paso, Texas border involving small businesses that are very vulnerable because of a lack of rule of law. In her introductory remarks to the Fellows she commented on how businesses in the El Paso border area often fall victim to protection rackets – schemes where drug traffickers and other criminals mandate that businesses pay money for protection or face dire consequences, sometimes including death. Often, businesses that fail to pay or are fearful to participate in such tactics result in their businesses closing and lots remaining empty.
Consequences of Private Enterprise Failing to Promote the Rule of Law
There is both a cost to private enterprise and the community when the rule of law is not taken into account. Big corporations tend to harm the economically deprived and the most marginalized populations where instability and rule of law are lacking. We think the diagram displayed in Annex 1 demonstrates this mutually destructive relationship when businesses fail to make the rule of law a paramount concern. In our opinion the following problems arise at the highest level for those companies that fail to promote the rule of law:
- Companies blatantly do not abide by the law because they believe negative repercussions are unlikely. The companies fail to see their role positively as an investment in the country and understand that they will ultimately benefit from law-abiding behavior.
- Companies do not perceive their role as being an integral part of investment in the countries or communities where they operate. Instead, they focus on obtaining the highest profits at the expense of the community.
- Companies fail to take any responsibility in promoting important human or environmental rights. Instead, they pay their employees poor wages and force them to work in harmful conditions.
- Companies use their economic power to exert undue influence on local or national governments. Often, these companies operate in developing nations, where corruption is rampant or the local or national economy is quite impoverished, thereby giving these companies a substantial advantage to engage in unfair business practices that ultimately hurt employees.
In an ideal world companies would contribute to strengthening rule of law, thus promoting prosperity. In return, these corporations would benefit from a strong rule of law and ideally, secure financial rewards in a country that has stable contract law, for instance. Private enterprise and the rule of law do not need to be in conflict – they can be mutually-reinforcing. We think the diagram in Annex 2 helps show positive reinforcement and serves as an illustration on how private enterprise and strong rule of law promote growth and sustainable development.
At a simple level, businesses help to support a stronger rule of law each time they rely upon the law in courts to solve their differences, either between businesses or between businesses and the government. By using the court system businesses actually show the strength of the system and the rule of law in practice. They also can passively support the rule of law by simply adhering to existing laws and not breaching civil or criminal laws.
In addition to these ‘passive’ roles, however, we have attempted to develop ideas for how businesses can more proactively promote the rule of law. We have brainstormed ideas and divided our list between ideas more applicable generally to big corporations and created a list that is generally more applicable to smaller corporations. We learned that there is a large overlap between the two lists.
Big corporations should ideally:
- Employ an independent general counsel. Allowing for a strong independent general counsel – and exercising some restraint not to attempt to influence them too greatly – will help ensure that companies are informed about the law. Additionally, it is hoped that an independent general counsel will consider the law to be an important factor and not solely focus on the pursuit of profit.
- Encourage a culture where whistleblowing can take place. As we heard from NAAG Deputy Executive Director/NAGTRI Director Chris Toth when he spoke so powerfully about his own experiences in tackling corruption, whistleblowing is a powerful weapon in supporting the rule of law. However, protecting the practice of whistleblowing in the workplace is a hard thing to do and it can have real personal consequences for the whistleblower. While statutes can – and in many counties actually do – provide protection for whistleblowers, private corporations can play a part by informing employees that they can and should report illegal and improper practices that they witness. Having a strong internal counsel can help create an environment where whistleblowing is an encouraged practice.
- Develop a code of conduct. Companies should develop an ethical code of conduct to which they adhere even when they do business in countries that do not support or cannot enforce high standards. For example, it may be possible for a company to try or actually avoid using bribes even when working in a country in which they are commonly used. In addition, just because a country cannot enforce penalties, for example, on a case involving environmental damage, a company should not see this inability as a license to pollute. Multinationals should attempt or aspire to adhere to international standards.
- Undertake transparent transactions with local actors and officials. This suggestion truly is an example of a company adhering to a code of conduct. Companies should avoid paying bribes and should exercise restraint in lobbying. We found the U.S. Supreme Court decision in Citizens United v. Federal Election Commission that U.S. Sen. Whitehouse discussed to be demonstrative of how difficult the issues around lobbying by corporations can be, and we recognize that lobbying is a complex area. Bribery can also be a complex area where there is an entrenched cultural tradition of giving and receiving bribes. Nevertheless, in relation to transactions with the state at least, corporations should avoid taking part.
- Develop corporate network diagrams. We learned about these tools from our speaker, Sarah Chayes, who has worked extensively in Afghanistan. In the aid context they are a tool used to avoid giving funds to corrupt or repressive sectors of government or the community. Private enterprise could attempt to use the same network diagram tool to try and ensure that they are not doing business in such a way that contributes to repression.
- Exercise a social conscience. Companies should develop an ethos of contributing to the communities in which they work. This custom is sometimes reflected in a policy of corporate social responsibility. It may be that such policies have a benefit to companies, but they also should help boost employee morale when there is staff buy-in and community outreach.
- Cooperate with investigative and prosecution authorities during investigations. Corporations sometimes hold information and data which can assist state law enforcement agencies. For example, banks may have data that is relevant to fraud investigations. While ensuring that they adhere to any relevant laws surrounding confidentiality and data protection, corporations can help promote the rule of law by cooperating with law enforcement agencies. Our group discussed the extent to which the Swiss bank paradigm of secrecy, while itself is lawful, can be detrimental to the rule of law.
- Respect the Ruggie principles. The United Nations promulgates the Ruggie principles, which are concerned with ensuring that civil society is informed of its rights regarding corporations, giving civil society a better baseline position when bargaining with businesses.
- Establish a chamber of commerce. This course of action is particularly helpful in transitional societies – post-conflict or developing societies. Businesses can promote conditions which are favorable to enterprise, develop rules and best practices, and create a channel for interaction with government. All of these tools will assist the promotion of rule of law and establish conditions for greater prosperity.
Small corporations should ideally:
- Organize associations. Creating associations can strengthen the rule of law because an organization can serve as the police of the business industry. This is the corporate version of whistleblowing that can be very effective in businesses changing their behaviors.
- Small corporations should develop codes of conduct. These codes of conduct should include restrictions on certain conduct that private businesses can agree upon for the betterment of society and their companies. For instance, developing business models that will not contribute to pollution and other environmental damage can be a good start for many of these multinational corporations.
- Small companies can assist the rule of law by working with marginalized groups to empower them. Jim Worthington mentioned this role for enterprise in relation to the Democratic Republic of Congo (DRC), where businesses sometimes work with women in communities to increase their economic empowerment. The impact that working with this population has had in the DRC can be a model for businesses operating in other countries that are developing or in a transitional state.