THE FEDERAL GOVERNMENT’S announcement of two new initiatives for responsible business conduct for Canadian companies operating abroad has the potential to significantly increase reputational and other risks for those targeted by the measures.
The initiatives will create an independent Canadian Ombudsperson for Responsible Enterprise and a multi-stakeholder Advisory Body on Responsible Business. At press time, details of how these entities would operate, or a date for adoption of the necessary order-in-council to implement the initiatives, had not been announced.
“The way these initiatives are implemented has the potential for a lot of reputational risk,” says Stephen Nattrass in Norton Rose Fulbright Canada LLP’s Ottawa office. They “should be very careful that reports aren’t released prematurely, that they’re not too speculative, and that any information the company provides is protected.”
The ombudsperson’s mandate will be to investigate allegations of human rights abuses by Canadian companies abroad. The Ombudsman can undertake collaborative and independent fact-finding, even in the absence of a complaint, and make recommendations to the parties involved, including the government. Part of the Advisory’s Body function will be to help the Government determine the Ombudsperson’s mandate and investigative procedures.
Canadian companies operating abroad are already required to respect applicable human rights and Canadian laws. There’s also considerable pressure from governments for companies to operate to international corporate social and environmental responsibility standards.
The ombudsperson’s investigations and recommendations will also be made public.
“Companies may have to disclose the existence of the investigations — even early-stage investigations — in securities filings, which could have an effect on share values,” Nattrass says. “Then there’s the potential for class actions arising from the results of the investigation.”
Still, companies may have little choice but to cooperate with the Ombudsman.
“The key thing so far is that companies who refuse to cooperate in the process can face sanctions, including denial or withdrawal of certain government services such as financial and trade advocacy support,” says Vancouver-based Wendy King, VP, Legal Governance and Risk for Vancouver’s Capstone Mining Corp.
Whether or not a company should cooperate proactively, however, is not an easy question to answer.
“Will being proactive help in the long run or will it come back to haunt you?” Nattrass asks. “Without further details, there are a lot of unknowns.”
Nattrass also notes that the government recently released an updated integrity framework in the procurement context.
“So far, the integrity framework is focused on economic crimes, but sanctions could be expanded to violations of environmental and maybe even human rights,” he says. “It would make for an interesting overlap with the Ombudsperson’s powers.”
Also potentially intertwined is the evolving Canadian jurisprudence on jurisdiction over wrongs committed abroad in violation of international law. Simultaneously, our courts are examining the extent to which parent and related companies can be responsible for the acts of subsidiaries that commit international human rights and environmental transgressions.
The extent to which the new initiatives will have any teeth or produce any results remains to be seen.
“If you look carefully at what’s been said so far, it’s precious little,” says a former general counsel of a Canadian mining multinational who has been involved in a number of international investigations. “But ... it’s very hard, very expensive, and all-consuming to do an international investigation.
“There can also be serious language issues in terms of understanding the nuances of cultural differences, local laws, and documents,” he says. “As well, there are usually a host of players, including the complainants, the company, NGOs, and community stakeholders, quite apart from local, regional and national governments, all of whom typically weigh in.”
The federal government, he adds, could be going into this with a “very naïve” view of what’s required to conduct fair investigations that conform to international standards and Canadian principles of transparency and the rule of law.
“The big picture question, then, is really the extent to which the government will commit resources to the process,” the former mining company counsel concludes.