Liz May speaking at Doing good business parliamentary event, while Sir Eric Pickles watches on

'Doing good business' at breakfast time

May 10, 2016 - Liz May, Head of Policy & Advocacy at Traidcraft

With the government's Anti-Corruption Summit taking place later this week, Traidcraft and others held a breakfast briefing yesterday titled 'Doing good business: challenges of corruption and accountability'. The event in Parliament brought together politicians, senior civil servants, lawyers, journalists and NGOs to talk about how to tackle corruption and to hold businesses accountable for their actions across the world.

Chaired by Catherine McKinnell MP, the event helped raise awareness among politicians of the need for companies to be held to account for their actions around the world. Following speeches from Sir Eric Pickles, the government’s Anti-Corruption champion, and David Green, the Director of the Serious Fraud Office, Traidcraft’s Liz May spoke about the changes we want to see in the law. Below is her speech in full.

 

Thank you Catherine and thank to the APPGs on Anti-Corruption and Rule of Law for this opportunity. It’s a real privilege to speaking to you here today.

And I would like to commend the Government for the action taken so far in bribery and corruption and to wish them well for a productive summit later this week.

Today I’m going to make the case for 2 simple changes to the UK’s criminal law which we think would significantly improve corporate accountability and public trust in UK businesses.

For those of you not familiar with Traidcraft, we are a medium sized UK plc with a turnover of £11 million, we employ 120 staff in Gateshead and for over 35 years have been trading fairly with producers from over 30 countries in the developing world. So we know a little about doing good business in difficult environments.

 We have also participated in many voluntary initiatives aimed at supporting companies to improve their practice, ETI, responsible purchasing initiatives for different sectors, initiatives to encourage better reporting. And these have met with mixed success.

 Whilst there are some great British companies that are working hard have a positive impact, sadly there is also a persistent minority of companies who continue to be implicated in serious harms in the developing world.  For those with no public face, with no consumer pressure or brand to protect the push to cut corners, to lower standards and sometimes to suppress dissent far outweighs any costs of not doing so. So our reliance on voluntary mechanisms is failing and we continue to see incidents like Rana Plaza – harms that could clearly have been predicted and therefore could have been prevented.

 And this small, but persistent group of ‘laggard’ companies make it much harder for those who are trying to do the right thing, to compete. They make for a very uneven playing field.

 So how serious are these harms? And how widespread? Is it just a case of the media and NGOs picking out the worst cases and exaggerating them or is there something more systemic?

 Firstly we are talking about only the most serious harms, forced evictions, beatings, severe pollution that destroy livelihoods of families and communities. Not trip hazards!

While there is no one authoritative source of evidence, a number of different sources build up a similar picture.

 The Business & Human Rights Resource Centre is a well respected independent think tank, it receives allegations, approaches the companies for a response and then publishes it all. Their data released last year relating specifically to UK-linked companies shows 303 allegations against 127 companies over the period 2004-2014. The vast majority of cases relate to incidents in Africa and Asia.

If we take complaints made to the UK’s NCP over the last ten years as another important source, we find 12 allegations of serious overseas harms ranging from forced evictions to child labour.

And this chimes with Traidcraft’s own research commissioned last year.  Our review uncovered 26 allegations against 20 UK-linked companies over the period 2005-2015.A number of  the allegations also appear in the NCP list.

So these 3 sources together show a similar picture of a persistent minority of companies – including a number of repeat offenders - who at least should be investigated. But there have been no criminal prosecutions in the UK. Not a single one. There is quite simply no satisfactory piece of criminal legislation via which these companies can be held to account.

Of course the ideal would be for the authorities in the country where the harm took place to prosecute. But as the evidence shows that is clearly not happening and in countries with weak or developing legal systems this is a stretch. The SFO and CPS and DFID have a number of programmes aimed at strengthening the ability of prosecutors in these countries to bring cases and of course this needs to be encouraged. In many ways it is not an either or situation, as an investigation here may well pave the way for action in the country of harm at a later date. But we do need to ensure our own systems are up to scratch.

And at present our criminal law is falling down in two important ways:

The identification principle, as we have heard, makes it extremely difficult to secure convictions of large and complex companies. And creates the perverse incentive where it is in the Directors interest to NOT know about what is happening in their overseas operations. Completely counter to good corporate governance.

And the second current failing is the lack of ability to hold companies to account here for decisions, management failings, poor processes which lead to serious harms in other countries. This is beginning to change, and both the Bribery Act and the Government’s proposals on tax evasion show we are working to update our legal framework to better take account of the transnational nature of companies and business today.

Now coming on to what could be done. There are two important, but relatively simple proposals that we are making.

First develop a section 7 type offence that would cover serious crimes that a company can benefit from and which it could reasonably be expected to take steps to prevent. I want to emphasise here that we are talking about only the most serious harms here.

And second update the corporate manslaughter act so that deaths which occur in other parts of the world would be covered.

Taking the first proposal, Section 7 of the Bribery Act which as we know introduced the innovative offence of ‘failure to prevent bribery’ and encouraged companies to develop sound management systems that would act as their defence.

This is a better formulation than the identification principle for establishing liability, especially for large and complex companies

And for us most importantly the inclusion of the adequate procedures defence has had a tangible impact on company practice – companies have taken it very seriously and have put in place the necessary systems to prevent bribery which at the end of the day is what we all want to see. Not necessarily hundreds of convictions but legislation that is effective in preventing future victims.

Our second proposal would involve updating the corporate manslaughter act, which although it was innovative at the time, now needs improvement. The liability regime is something of a hybrid between the identification principle and a failure to prevent model - we are only seeing smaller firms prosecuted. But the other major gap with this piece of legislation is that at the moment if a company through negligence or management failings causes a death in the UK it can be prosecuted. But if that exact same incident were to happen in a developing country or somewhere with a weak legal system, the company is effectively operating with impunity. This is simply not right.

Together these two simple changes would go a long way to preventing future Rana Plazas.

So we would encourage parliamentarians to consider these options –  and we’d caution against a piecemeal approach. Whilst progress is, of course welcome, it is unclear to us why bribery and tax evasion – important as they are - should be prioritised over fraud or forced labour, severe pollution or causing deaths.

Yes the public are concerned about tax evasion, but they also shared the CPS’s frustration at not having the right tools to be able to secure a prosecution in the phone hacking scandal and there are also frustrated at the lack of action on overseas. So we need a more comprehensive solution.

Latest Edleman survey found just 35% of those in low income brackets say they trust companies to do the right thing and when asked what companies could do to restore trust the top two answers were pay taxes and ‘behave responsibly’

So in summary there is clear evidence of harms going unpunished and a system which is failing and creating perverse incentives around corporate governance

We want to see a review of corporate criminal liability in the UK and the development of a more coherent approach , covering the all serious crimes that companies can profit from and which it would be reasonable to expect them to take steps to prevent. What is required now is the political will to move forward. The benefits of doing so would be a more level the playing field for business who are striving to do the right thing, improved public trust in British business and most importantly the possibility of preventing future tragedies.

 

If Liz’s words have inspired you to do something, you can email Sajid Javid, the Business Secretary. We want him to commit to look at criminal legislation for companies as part of the revised National Action Plan on Business and Human Rights, which has still not been published. Email Sajid Javid today.