Company transparency high on European governments’ agenda

Richard Karmel is the Global Head of Human Rights at Mazars. He and his team are responsible for the firm’s award winning business and human rights reporting service line.

Richard recently attended the European Development Days event in Brussels where he was a guest speaker at the ‘Business and human rights: from principles to practice, Two innovative tools for compliance and reporting’ session.

Private Bill 501

It seems to have escaped the mass European media and even much of the human rights media, but on 30th March 2015, the Assemblée Nationale (the French parliament) passed private bill 501.

This bill requires all French companies with over 5,000 employees based in the country, or 10,000 employees under its direct control globally, to prepare and make public a ‘plan de vigilance’ – in English, let’s call it, an ‘awareness report’.

Article 1 of the law informs that the ‘awareness report’ must include details of the oversight mechanisms that the company has in place to identify and mitigate against the following risks arising from its activities:

  • Human rights and fundamental freedoms,
  • Personal injury,
  • Serious environmental impacts, and
  • Health impacts.

Furthermore, the article explains that as well as applying to the activities of companies within its direct control (i.e. subsidiaries), it’s also related to sub-contractors and suppliers with which the company has an established business relationship.

The ‘plan’ also aims to prevent direct or indirect behaviours that could encourage corruption within its direct group.

Awareness

This ‘awareness report’ must be made public and included in the wider report that also discloses the remuneration of the corporate officers, by the company.

According to Law 225-102-1 companies will need to first prepare this report by the 31st December, 2016. Private Bill 501 is currently indicating that any finding against a company falling foul of this law, could face a non-tax deductible fine of up to 10 million euros.

However, Private Bill 501 is not yet quite law. It needs to go before France’s upper house, the Senate. The Senate has the right to change the wording of the law, but not to throw it out.

France taking the lead in Europe

The very fact that such a law has managed to pass the first chamber shows that France is prepared to take the lead in ensuring that its largest companies show respect to human rights.

In the UK, the Modern Slavery Act, which was passed a few days before 501, requires companies to understand whether its own companies and supply chains are free of human trafficking.

Whilst this is a positive start for the UK, it’s not as far reaching as the potential French law.

In any case, the ramifications of both laws are potentially huge, with both requiring companies to understand the behaviours within their supply chain.

Reporting

Whilst these are, of course, laudable actions, it’s my opinion that many multi-national companies don’t have the management systems in place to demonstrate that they fully know what is going on in all of their first tier suppliers, let alone the third and fourth tier of suppliers.

I would suggest that what is required from the official guidance for both the French and UK laws, is the ability for these companies to demonstrate publicly two journeys:

  1. They understand their current impacts and risks arising from their activities in the supply chain; and
  2. They can demonstrate the progression of behavioural change. This will be through policy implementation, the tracking of the effectiveness of processes and the resulting learnings which are then implemented to progress change.

If both laws want to achieve their desired objectives, they can’t expect companies to demonstrate a positive compliance overnight.

The laws should provide guidance to facilitate these journeys.  These journeys should be viewed as long term, positive investments for both companies and the wider society.

Reporting Framework

I would recommend that there is allowance within both the UK act and the French bill to indicate to companies that initially they should focus and report on the high risk geographies.

In tackling 10% of the countries in the short to medium term, potentially 90% of the objectives of the laws can be achieved.

This is the same approach of the recently launched and lauded United Nations Guiding Principles Reporting Framework. There’s no reason why this principle couldn’t apply more widely.

It’s clear that governments and other oversight bodies are now making more of a play for companies to change their internal management systems to cover wider societal issues.

The tool for this greater transparency is by public manifestation in some form of report signed by a Director on behalf of the Board, which by implication becomes accountable.

With the French and UK laws potentially biting in the next two years, together with the EU non-financial reporting directive, it’s vital that companies start addressing their management systems now.

This will be a journey, which should be positive for all stakeholders; but most of all for the company itself.

Follow Richard on Twitter for more of his thoughts on business and human rights.