Unit 6: Corporate Liability and Business Ethics (4 hrs)

6.1 Civil Liability and Criminal Liability of Companies

6.2 Corporate Human Rights Responsibility

6.3 Corporate Social Responsibility

6.4 Corporate Environment Responsibility

6.5 Workers Participation in the Management

6.1 Civil Liability and Criminal Liability of Companies

1. Corporate liability

Corporate liability is referred to liability of legal persons. It determines the extent to which a
company as a legal person can be held liable for the acts and omissions of the natural persons it
employs.

Since corporations and other business entities are a major part of the economic landscape,
corporate liability is key element in effective law enforcement for economic crimes. A 2016
mapping of 41 countries’ corporate liability systems shows wide variations in approaches to
liability and that corporate liability is a dynamic area of legal innovation and evolution.

The term legal person refers to a business entity (often a corporation, but possibly other legal
entities, as specified by law) that has both legal rights (e.g. the right to sue) as well as legal
obligations. Because, at a public policy level, the growth and prosperity of society depends on
the business community, governments must carefully tailor the extent and ways that each
permitted form of business entity can be held liable.

Important design elements of corporate liability systems include (a) jurisdiction, (b) successor
liability, (c) related and unrelated entities as a source of liability, (d) sanctions and (e) mitigating
factors.

Poorly designed or non-existent corporate liability systems can make it impossible to enforce
laws effectively and can lead to profound injustices for individuals or entities seeking
accountability and redress for wrongdoing.

2. Nature of corporate liability

Countries can base their corporate liability systems in criminal or non-criminal law (that is,
administrative or civil law) or in both. They can also enact legislation that creates liability for
legal persons in specific areas of law (e.g. covering health and safety, and product safety issues).
Under this approach, the wording of a statutory offence specifically attaches liability to the
corporation as the principal or joint principal with a human agent.

Generally, countries’ approaches to this issue reflect long-standing and diverse legal traditions.
For example, Australia and Canada anchor their corporate liability systems in criminal law, while
the German and Italian systems are based in administrative law. Some jurisdictions use criminal
and civil systems in parallel, thereby expanding options for pursuing legal accountability for legal
persons and for making political judgments on when to use the criminal law in order to
maximise the impact of those cases that are prosecuted. The United States’ system of corporate
liability is an example of one that incorporates both criminal and civil law elements.

The advantages of criminal versus civil law approaches are as follows:

Using the criminal law

Represents formal public disapproval and condemnation because of the failure to abide by the
generally accepted social norms, codified into the criminal law. Police powers to investigate can
be more effective, but the availability of relevant expertise may be limited. If successful,
prosecution reinforces social values and shows the state's willingness to uphold those values in
a trial likely to attract more publicity when previously respected business leaders are called to
account. The judgment may also cause a loss of corporate reputation and, in turn, a loss of
profitability.

Justifies more severe penalties because it is necessary to overcome the higher burden of proof
to establish criminal liability. But the high burden means that it is more difficult to secure a
judgment than in the civil courts, and many corporations are cash-rich and so can pay
apparently immense fines without difficulty. Further, if the corporation knows that the fine is
going to be severe, it may seek bankruptcy protection before sentencing.

The theoretical value of punishment is that the offender feels shame, guilt or remorse,
emotional responses to a conviction that a fictitious person cannot feel.

If a state turns too often to the criminal law, it discourages self-regulation and may cause
friction between any regulatory agencies and businesses that they are to regulate.

Using the civil law

With the lower burden of proof and better case management tools, civil liability is easier to
prove than criminal liability, and offers more flexible remedies which can be preventive as well
as punitive.

But there is little moral condemnation and no real deterrent effect so the general management
response may be to see civil actions as a routine cost of business.

Standards of liability

Standards of liability for legal persons help clarify when a legal person can be held liable for an
unlawful act. This raises subtle questions: since business entities can only commit crime through
the agency of the people (natural persons) they employ or otherwise contract with, under what
conditions should culpability be attached to the business entity? Indeed, what does culpability
mean for such entities? Can the concepts of knowledge and intent required for mens rea (guilty
mind) even be applied to business entities?

Typically, companies are held liable when the acts and omissions, and the knowledge and intent
of its employees or business partners can be attributed to the corporation. But again, countries
adopt a wide variety of approaches to this attribution. These vary from the all-encompassing
approach of strict liability to those that look at the entity’s corporate culture and management
systems in order to determine whether these ignored, tolerated or encouraged criminal activity.

Strict liability

Strict liability is a standard of liability under which a person (legal or natural) is legally
responsible for the consequences flowing from an activity even in the absence of fault or
criminal intent on the part of the defendant. The difficulty of proving a mens rea is avoided by
imposing absolute, strict liability, or vicarious (second hand) liability which does not require
proof that the accused knew or could reasonably have known that its act was wrong, and which
does not recognise any excuse of honest and reasonable mistake. When applied to corporate
liability, strict liability eases the task of attaching liability to business entities.

Identification or ‘controlling mind’ test

Under this standard, only the “acts of a senior person representing the company’s ‘controlling
mind and will’ can be attributed to the company. This approach has its roots in English law. In a
seminal case, Tesco Supermarkets Ltd v Nattrass [1972] AC 153, the House of Lords found that a
store manager was not a part of the "directing mind" of the corporation and therefore that his
conduct was not attributable to the corporation.

This approach has been criticised because it restricts corporate liability to the acts of directors
and a few high-level managers. It may therefore unfairly favour larger corporations because
they may be able to escape criminal liability for the acts of employees who manage their day-to-
day activities. This has proved problematic as in the cases involving corporate manslaughter.

A 2016 study of 41 countries’ corporate liability systems shows that meeting the ‘controlling
minds’ test is not usually required for liability, though it is almost always sufficient to attribute
liability to a company.

Aggregation tests and collective knowledge

This standard, termed the Doctrine of Collective Knowledge, originated in US law. It holds that
the individual knowledge of a legal person’s agents can be aggregated into ‘collective
knowledge’ in order to establish corporate liability. In effect, this doctrine is relevant to
establishing the knowledge (but not the intent) aspect of mens rea for legal persons. In United
States v Bank of New England (1987) 821 F2d 844, the Supreme Court sanctioned the use of the
doctrine to uphold the conviction of the Bank of New England for wilfully failing to file reports
relating to currency transactions. The Court confirmed the collective knowledge doctrine,
arguing that, in the absence of such a principle, business entities could divide the duties of their
employees so as to compartmentalise their knowledge, thereby avoiding liability.

Aggregation has been applied in Australian courts, but is rejected in England.

Corporate culture and compliance systems

Many legal analysts (e.g. Gobert) argue that if a corporation fails to take precautions or to show
due diligence to avoid committing a criminal offence, this will arise from its culture where
attitudes and beliefs are demonstrated through its structures, policies, practices, and
procedures.

This approach rejects the notion that corporations should be treated in the same way as natural
persons (i.e. looking for a "guilty" mind), and advocates that different legal concepts should
underpin the liability of fictitious legal persons. These concepts reflect the structures of modern
corporations which are more often decentralised and where crime is less to do with the
misconduct by or incompetence of individuals, and more to do with management and
compliance systems that fail to address problems of monitoring and controlling risk.
Many corporate liability systems consider that corporate culture and the management and
compliance systems adopted by companies are relevant to understanding culpability. Such
considerations may enter as an element of the offense (so that prosecutors must prove that
management and compliance systems were inadequate) or as an element of defence for the
company (wherein the company must show that its systems were adequate). Some countries do
not permit management and compliance systems to preclude liability, but nevertheless allow
them to be considered as mitigating factors when imposing sanctions.

Benefit test

Before they will impose liability on a legal person, some countries require that the natural
person who commits the offence does so with the intent to benefit the legal person. Across
countries, numerous variations on the benefit test exist — notably, some require that the legal
person actually does benefit from the illegal act.

A benefit test has been applied in the Federal Court of Australia, the House of Lords (now the
Supreme Court of England) and the Supreme Court of Canada. Put simply, the test proposes that
where a company gains the benefit of an act, it is considered to be attributed with that act. The
test is applied differently when an act is performed by a "mind and will", which usually prompts
the use of the organic theory, as opposed to an agent which usually prompts the use of the
agency theory.

Specific issues

Successor liability

The problem of successor liability arises when a company does something that affects its
organisation or identity, such as a name change or a merger or acquisition. Rules on successor
liability determine when and how corporate liability is affected by various changes in a
company’s organisation or identity. In the absence of such rules, companies may be able to
avoid liability through reorganisation or by otherwise altering corporate identity. The 2016 study
of comparative corporate liability systems shows that successor liability is, in quite a few
countries, an under-scrutinised area of law — in some jurisdictions, it may be the case that even
cosmetic organisational changes can, from a corporate liability perspective, ‘wipe the slate
clean.’

Sanctions

Sanctions for corporate crime can take a number of forms. First, there are fines, which, in many
jurisdictions, are subject to maximum and (in fewer cases) minimum thresholds. Second,
confiscation is designed to deprive the sanctioned companies of the proceeds of their crimes.
Third, other, punitive actions may be taken that deprive the company of certain rights or
privileges or that impose certain obligations. Loss of rights may include inelibility for public
subsidies or to participate in public procurement processes. Sanctions may also impose
monitoring of the company’s legal compliance policies, either by a court or by a court-appointed
corporate monitor.’ The combined impact of these sanctions, taken together, is supposed to be
deterrence — they should dissuade the sanctioned companies and others from engaging in
 crime. There is some doubt in many jurisdictions that sanctions are actually set in such a manner
as to make them dissuasive.”

Fraud

In some instances of fraud, the court may pierce the veil of incorporation. Most fraud is also a
breach of the criminal law and any evidence obtained for the purposes of a criminal trial is
usually admissible in civil proceedings. But criminal prosecutions take priority, so if civil
proceedings uncover evidence of criminality, the civil action may be stayed pending the
outcome of any criminal investigation.

Secondary liability

Some crimes are considered inchoate (imperfectly formed) because, like a conspiracy or
attempt, they anticipate the commission of the actus reus (the Latin for "guilty act") of the full
offence. One option for prosecution would be to treat a corporation as an accomplice or co-
conspirator with the employees. In general terms, most states permit companies to incur
liability for such offences in the same way as natural persons so long as there are at least two
natural persons involved in the conspiracy and one other accomplice to aid the commission of
the offence by a principal.

6.2 Corporate Human Rights Responsibility

The United Nations Guiding Principles on Business and Human Rights (UNGPs) is an instrument
consisting of 31 principles implementing the United Nations' (UN) "Protect, Respect and
Remedy" framework on the issue of human rights and transnational corporations and other
business enterprises. Developed by the Special Representative of the Secretary-General (SRSG)
John Ruggie, these Guiding Principles provided the first global standard for preventing and
addressing the risk of adverse impacts on human rights linked to business activity, and continue
to provide the internationally accepted framework for enhancing standards and practice
regarding business and human rights. On June 16, 2011, the United Nations Human Rights
Council unanimously endorsed the Guiding Principles for Business and Human Rights, making
the framework the first corporate human rights responsibility initiative to be endorsed by the
UN.

The UNGPs encompass three pillars outlining how states and businesses should implement the
framework:

 The state duty to protect human rights

 The corporate responsibility to respect human rights
 Access to remedy for victims of business-related abuses

The UNGPs have received wide support from states, civil society organizations, and even the
private sector, this has further solidified their status as the key global foundation for business
and human rights. The UNGP are informally known as the "Ruggie Principles" or the "Ruggie
Framework" due to their authorship by Ruggie, who conceived them and led the process for
their consultation and implementation.

I. THE STATE DUTY TO PROTECT HUMAN RIGHTS

A. FOUNDATIONAL PRINCIPLES

1. States must protect against human rights abuse within their territory and/or jurisdiction
by third parties, including business enterprises. This requires taking appropriate steps to
prevent, investigate, punish and redress such abuse through effective policies,
legislation, regulations and adjudication.

2. States should set out clearly the expectation that all business enterprises domiciled in
their territory and/or jurisdiction respect human rights throughout their operations.

B. OPERATIONAL PRINCIPLES

GENERAL STATE REGULATORY AND POLICY FUNCTIONS

3. In meeting their duty to protect, States should:

(a) Enforce laws that are aimed at, or have the effect of, requiring business
enterprises to respect human rights, and periodically to assess the adequacy of
such laws and address any gaps;

(b) Ensure that other laws and policies governing the creation and ongoing
operation of business enterprises, such as corporate law, do not constrain but
enable business respect for human rights;

(c) Provide effective guidance to business enterprises on how to respect human

rights throughout their operations;

(d) Encourage, and where appropriate require, business enterprises to

communicate how they address their human rights impacts.

THE STATE-BUSINESS NEXUS

4. States should take additional steps to protect against human rights abuses by business
enterprises that are owned or controlled by the State, or that receive substantial
support and services from State agencies such as export credit agencies and official
investment insurance or guarantee agencies, including, where appropriate, by requiring
human rights due diligence.

5. States should exercise adequate oversight in order to meet their international human
rights obligations when they contract with, or legislate for, business enterprises to
provide services that may impact upon the enjoyment of human rights.

6. States should promote respect for human rights by business enterprises with which they
conduct commercial transactions.

SUPPORTING BUSINESS RESPECT FOR HUMAN RIGHTS IN CONFLICT AFFECTED AREAS

7. Because the risk of gross human rights abuses is heightened in conflict affected areas,
States should help ensure that business enterprises operating in those contexts are not
involved with such abuses, including by:
 (a) Engaging at the earliest stage possible with business enterprises to help them
identify, prevent and mitigate the human rights-related risks of their activities
and business relationships;

(b) Providing adequate assistance to business enterprises to assess and address the
heightened risks of abuses, paying special attention to both gender-based and
sexual violence;

(c) Denying access to public support and services for a business enterprise that is
involved with gross human rights abuses and refuses to cooperate in addressing
the situation;

(d) Ensuring that their current policies, legislation, regulations and enforcement
measures are effective in addressing the risk of business involvement in gross
human rights abuses.

ENSURING POLICY COHERENCE

8. States should ensure that governmental departments, agencies and other State-based
institutions that shape business practices are aware of and observe the State’s human
rights obligations when fulfilling their respective mandates, including by providing them
with relevant information, training and support.

9. States should maintain adequate domestic policy space to meet their human rights
obligations when pursuing business-related policy objectives with other States or
business enterprises, for instance through investment treaties or contracts.

10. States, when acting as members of multilateral institutions that deal with business-
related issues, should:

(a) Seek to ensure that those institutions neither restrain the ability of their
member States to meet their duty to protect nor hinder business enterprises
from respecting human rights;

(b) Encourage those institutions, within their respective mandates and capacities,
to promote business respect for human rights and, where requested, to help
States meet their duty to protect against human rights abuse by business
enterprises, including through technical assistance, capacity-building and
awareness-raising;

(c) Draw on these Guiding Principles to promote shared understanding and

advance international cooperation in the management of business and human
rights challenges.

II. THE CORPORATE RESPONSIBILITY TO RESPECT HUMAN RIGHTS

A. FOUNDATIONAL PRINCIPLES
11. Business enterprises should respect human rights. This means that they should avoid
infringing on the human rights of others and should address adverse human rights
impacts with which they are involved.

12. The responsibility of business enterprises to respect human rights refers to

internationally recognized human rights – understood, at a minimum, as those
expressed in the International Bill of Human Rights and the principles concerning
fundamental rights set out in the International labour Organization’s Declaration on
Fundamental Principles and Rights at Work.

13. The responsibility to respect human rights requires that business enterprises:

(a) Avoid causing or contributing to adverse human rights impacts through their
own activities, and address such impacts when they occur;

(b) Seek to prevent or mitigate adverse human rights impacts that are directly
linked to their operations, products or services by their business relationships,
even if they have not contributed to those impacts.

14. The responsibility of business enterprises to respect human rights applies to all
enterprises regardless of their size, sector, operational context, ownership and
structure. Nevertheless, the scale and complexity of the means through which
enterprises meet that responsibility may vary according to these factors and with the
severity of the enterprise’s adverse human rights impacts.

15. In order to meet their responsibility to respect human rights, business enterprises
should have in place policies and processes appropriate to their size and circumstances,
including:

(a) A policy commitment to meet their responsibility to respect human rights;

(b) A human rights due diligence process to identify, prevent, mitigate and account
for how they address their impacts on human rights;

(c) Processes to enable the remediation of any adverse human rights impacts they
cause or to which they contribute.

B. OPERATIONAL PRINCIPLES

POLICY COMMITMENT

16. As the basis for embedding their responsibility to respect human rights, business
enterprises should express their commitment to meet this responsibility through a
statement of policy that:

(a) Is approved at the most senior level of the business enterprise;

(b) Is informed by relevant internal and/or external expertise;

(c) Stipulates the enterprise’s human rights expectations of personnel, business

partners and other parties directly linked to its operations, products or services;
 (d) Is publicly available and communicated internally and externally to all
personnel, business partners and other relevant parties;

(e) Is reflected in operational policies and procedures necessary to embed it

throughout the business enterprise.

HUMAN RIGHTS DUE DILIGENCE

17. In order to identify, prevent, mitigate and account for how they address their adverse
human rights impacts, business enterprises should carry out human rights due diligence.
The process should include assessing actual and potential human rights impacts,
integrating and acting upon the findings, tracking responses, and communicating how
impacts are addressed. Human rights due diligence:

(a) Should cover adverse human rights impacts that the business enterprise may
cause or contribute to through its own activities, or which may be directly linked
to its operations, products or services by its business relationships;

(b) Will vary in complexity with the size of the business enterprise, the risk of
severe human rights impacts, and the nature and context of its operations;

(c) Should be ongoing, recognizing that the human rights risks may change over
time as the business enterprise’s operations and operating context evolve.

18. In order to gauge human rights risks, business enterprises should identify and assess any
actual or potential adverse human rights impacts with which they may be involved
either through their own activities or as a result of their business relationships. This
process should:

(a) Draw on internal and/or independent external human rights expertise;

(b) Involve meaningful consultation with potentially affected groups and other
relevant stakeholders, as appropriate to the size of the business enterprise and
the nature and context of the operation.

19. In order to prevent and mitigate adverse human rights impacts, business enterprises
should integrate the findings from their impact assessments across relevant internal
functions and processes, and take appropriate action.

(a) Effective integration requires that:

(i) Responsibility for addressing such impacts is assigned to the appropriate

level and function within the business enterprise;

(ii) Internal decision-making, budget allocations and oversight processes

enable effective responses to such impacts.

(b) Appropriate action will vary according to:

 (i) Whether the business enterprise causes or contributes to an adverse
impact, or whether it is involved solely because the impact is directly
linked to its operations, products or services by a business relationship;

(ii) The extent of its leverage in addressing the adverse impact.

20. In order to verify whether adverse human rights impacts are being addressed, business
enterprises should track the effectiveness of their response. Tracking should:

(a) Be based on appropriate qualitative and quantitative indicators;

(b) Draw on feedback from both internal and external sources, including affected
stakeholders.

21. In order to account for how they address their human rights impacts, business
enterprises should be prepared to communicate this externally, particularly when
concerns are raised by or on behalf of affected stakeholders. Business enterprises
whose operations or operating contexts pose risks of severe human rights impacts
should report formally on how they address them. In all instances, communications
should:

(a) Be of a form and frequency that reflect an enterprise’s human rights impacts
and that are accessible to its intended audiences;

(b) Provide information that is sufficient to evaluate the adequacy of an

enterprise’s response to the particular human rights impact involved;

(c) In turn not pose risks to affected stakeholders, personnel or to legitimate

requirements of commercial confidentiality.

REMEDIATION

22. Where business enterprises identify that they have caused or contributed to adverse
impacts, they should provide for or cooperate in their remediation through legitimate
processes.

ISSUES OF CONTEXT

23. In all contexts, business enterprises should:

(a) Comply with all applicable laws and respect internationally recognized human
rights, wherever they operate;

(b) Seek ways to honour the principles of internationally recognized human rights
when faced with conflicting requirements;

(c) Treat the risk of causing or contributing to gross human rights abuses as a legal
compliance issue wherever they operate.
 24. Where it is necessary to prioritize actions to address actual and potential adverse
human rights impacts, business enterprises should first seek to prevent and mitigate
those that are most severe or where delayed response would make them irremediable.

III. ACCESS TO REMEDY

A. FOUNDATIONAL PRINCIPLE

25. As part of their duty to protect against business-related human rights abuse, States
must take appropriate steps to ensure, through judicial, administrative, legislative or
other appropriate means, that when such abuses occur within their territory and/or
jurisdiction those affected have access to effective remedy.

B. OPERATIONAL PRINCIPLES

STATE-BASED JUDICIAL MECHANISMS

26. States should take appropriate steps to ensure the effectiveness of domestic judicial
mechanisms when addressing business-related human rights abuses, including
considering ways to reduce legal, practical and other relevant barriers that could lead to
a denial of access to remedy.

STATE-BASED NON-JUDICIAL GRIEVANCE MECHANISMS

27. States should provide effective and appropriate non-judicial grievance mechanisms,
alongside judicial mechanisms, as part of a comprehensive State-based system for the
remedy of business-related human rights abuse.

NON-STATE-BASED GRIEVANCE MECHANISMS

28. States should consider ways to facilitate access to effective non-State-based grievance
mechanisms dealing with business-related human rights harms.

29. To make it possible for grievances to be addressed early and remediated directly,
business enterprises should establish or participate in effective operational-level
grievance mechanisms for individuals and communities who may be adversely
impacted.

30. Industry, multi-stakeholder and other collaborative initiatives that are based on respect
for human rights-related standards should ensure that effective grievance mechanisms
are available.

EFFECTIVENESS CRITERIA FOR NON-JUDICIAL GRIEVANCE MECHANISMS

31. In order to ensure their effectiveness, non-judicial grievance mechanisms, both State-
based and non-State-based, should be:

(a) Legitimate: enabling trust from the stakeholder groups for whose use they are
intended, and being accountable for the fair conduct of grievance processes;
 (b) Accessible: being known to all stakeholder groups for whose use they are
intended, and providing adequate assistance for those who may face particular
barriers to access;

(c) Predictable: providing a clear and known procedure with an indicative time
frame for each stage, and clarity on the types of process and outcome available
and means of monitoring implementation;

(d) Equitable: seeking to ensure that aggrieved parties have reasonable access to
sources of information, advice and expertise necessary to engage in a grievance
process on fair, informed and respectful terms;

(e) Transparent: keeping parties to a grievance informed about its progress, and
providing sufficient information about the mechanism’s performance to build
confidence in its effectiveness and meet any public interest at stake;

(f) Rights-compatible: ensuring that outcomes and remedies accord with

internationally recognized human rights;

(g) A source of continuous learning: drawing on relevant measures to identify

lessons for improving the mechanism and preventing future grievances and
harms;

Operational-level mechanisms should also be:

(h) Based on engagement and dialogue: consulting the stakeholder groups for
whose use they are intended on their design and performance, and focusing on
dialogue as the means to address and resolve grievances.

Corporate Human Rights Responsibility

 The United Nations Guiding Principles on Business and Human Rights (UNGPs) is an
instrument consisting of 31 principles.
 "Protect, Respect and Remedy"
 Developed by the Special Representative of the Secretary-General (SRSG) John Ruggie,
 On June 16, 2011, the United Nations Human Rights Council unanimously endorsed the
Guiding Principles for Business and Human Rights,

The UNGPs encompass three pillars outlining how states and businesses should implement the
framework:

 The state duty to protect human rights

 The corporate responsibility to respect human rights
 Access to remedy for victims of business-related abuses

The UNGP are informally known as the "Ruggie Principles" or the "Ruggie Framework"

I. THE STATE DUTY TO PROTECT HUMAN RIGHTS

A. FOUNDATIONAL PRINCIPLES
 States must protect against human rights abuse within their territory and/or jurisdiction
by third parties, including business enterprises.

States should set out clearly the expectation that all business enterprises domiciled in
their territory and/or jurisdiction respect human rights throughout their operations.

B. OPERATIONAL PRINCIPLES

GENERAL STATE REGULATORY AND POLICY FUNCTIONS

In meeting their duty to protect, States should Enforce laws.

THE STATE-BUSINESS NEXUS

States should take additional steps to protect against human rights abuses by
business enterprises that are owned or controlled by the State.

SUPPORTING BUSINESS RESPECT FOR HUMAN RIGHTS IN CONFLICT AFFECTED AREAS

States should help ensure that business enterprises operating in those contexts
are not involved with such abuses.

ENSURING POLICY COHERENCE

States should ensure that governmental departments, agencies and other State-
based institutions to observe the State’s human rights obligations when fulfilling
their respective mandates.

II. THE CORPORATE RESPONSIBILITY TO RESPECT HUMAN RIGHTS

A. FOUNDATIONAL PRINCIPLES

Business enterprises should respect human rights.

The responsibility of business enterprises to respect human rights refers to

internationally recognized human rights – International Bill of Human Rights and
International labour Organization’s Declaration on Fundamental Principles and
Rights at Work.

The responsibility of business enterprises to respect human rights applies to all

enterprises.

Business enterprises should have in place policies and processes.

B. OPERATIONAL PRINCIPLES

POLICY COMMITMENT

Business enterprises should express their commitment to meet this

responsibility through a statement of policy.

HUMAN RIGHTS DUE DILIGENCE

 In order to identify, prevent, mitigate and account business enterprises should
carry out human rights due diligence.

Identify and assess any actual or potential adverse human rights impacts

(a) Draw on internal and/or independent external human rights

expertise;

(b) Involve meaningful consultation with potentially affected

groups

Business enterprises should be prepared to communicate this externally,

REMEDIATION

Business enterprises should provide for or cooperate in their remediation through

legitimate processes.

ISSUES OF CONTEXT

(a) Comply with all applicable laws and respect internationally recognized human
rights,

(b) Seek ways to honour the principles of internationally recognized human rights

(c) Treat the risk of causing or contributing to gross human rights abuses as a legal
compliance

III. ACCESS TO REMEDY

A. FOUNDATIONAL PRINCIPLE

States must take appropriate steps to ensure, through judicial, administrative, legislative
or other appropriate means.

B. OPERATIONAL PRINCIPLES

STATE-BASED JUDICIAL MECHANISMS

STATE-BASED NON-JUDICIAL GRIEVANCE MECHANISMS

NON-STATE-BASED GRIEVANCE MECHANISMS

EFFECTIVENESS CRITERIA FOR NON-JUDICIAL GRIEVANCE MECHANISMS

Non-judicial grievance mechanisms, both State-based and non-State-based, should be:

(a) Legitimate:

(b) Accessible:

(c) Predictable:

(d) Equitable:
 (e) Transparent:

(f) Rights-compatible:

(g) A source of continuous learning:

(h) Based on engagement and dialogue:

6.3 Corporate Social Responsibility

The term corporate social responsibility (CSR) refers to practices and policies undertaken by
corporations that are intended to have a positive influence on the world. The key idea behind
CSR is for corporations to pursue other pro-social objectives, in addition to maximizing profits.
Examples of common CSR objectives include minimizing environmental externalities, promoting
volunteerism among company employees, and donating to charity.

Since the 1960s, corporate social responsibility has attracted attention from a range of
businesses and stakeholders. It is also called corporate sustainability, sustainable business,
corporate conscience, corporate citizenship, conscious capitalism, or responsible business.

Part of the problem with definitions has arisen because of the different interests represented. A
business person may define CSR as a business strategy, an NGO activist may see it as
'greenwash' while a government official may see it as voluntary regulation." In addition,
disagreement about the definition will arise from the disciplinary approach." For example, while
an economist might consider the director's discretion necessary for CSR to be implemented a
risk of agency costs, a law academic may consider that discretion to be an appropriate
expression of what the law demands from directors.

In the 1930s, two law professors, A. A. Berle and Merrick Dodd, famously debated how directors
should be made to uphold the public interest: Berle believed there had to be legally enforceable
rules in favor of labor, customers and the public equal to or ahead of shareholders, while Dodd
argued that powers of directors were simply held on trust.

CSR - Pyramid

Corporate social responsibility has been defined by Sheehy as "international private business
self-regulation." Sheehy examined a range of different disciplinary approaches to defining CSR.
The definitions reviewed included the economic definition of "sacrificing profits," a management
definition of "beyond compliance", institutionalist views of CSR as a "socio-political movement"
and the law's focus on directors' duties. Further, Sheehy considered Archie Carroll's description
of CSR as a pyramid of responsibilities, namely, economic, legal, ethical, and philanthropic
responsibilities.
This view is reflected in the Business Dictionary which defines CSR as "a company's sense of
responsibility towards the community and environment (both ecological and social) in which it
operates. Companies express this citizenship (1) through their waste and pollution reduction
processes, (2) by contributing educational and social programs, and (3) by earning adequate
returns on the employed resources."

True Responsibility (TRE)

The “deep” definition for CSR is the following: The Truly Responsible Enterprise (TRE): – sees
itself as a part of the system, not a completely individual economic actor concerned only about
maximizing its own profit, – recognises unsustainability (the destruction of natural environment
and the increase of social injustice) as the greatest challenge of our age, – accepts that
businesses and enterprises have to work on solutions according to their economic weight, –
honestly evaluates its own weight and part in causing the problems (it is best to concentrate on
2-3 main problems), – takes essential steps – systematically, progressively, and focused–
towards a more sustainable world. The five principles of the TRE are 1) minimal transport, 2)
maximal fairness, 3) zero economism, 4) maximum middle size, 5) product or service falling to
the most sustainable 30%.

Approaches

Some commentators have identified a difference between the Canadian (Montreal school of
CSR), the Continental European, and the Anglo-Saxon approaches to CSR. It has been described
that for Chinese consumers a socially responsible company makes safe, high-quality products;
for Germans it provides secure employment; in South Africa it makes a positive contribution to
social needs such as health care and education. Even within Europe, the discussion about CSR is
very heterogeneous.

A more common approach to CSR is corporate philanthropy. This includes monetary donations
and aid given to nonprofit organizations and communities. Donations are made in areas such as
the arts, education, housing, health, social welfare, and the environment, among others, but
excluding political contributions and commercial event sponsorship.

Another approach to CSR is to incorporate the CSR strategy directly into operations, such as
procurement of Fair Trade tea and coffee.
Creating shared value or CSV is based on the idea that corporate success and social welfare are
interdependent. A business needs a healthy, educated workforce, sustainable resources, and an
adept government to compete effectively. For society to thrive, profitable and competitive
businesses must be developed and supported to create income, wealth, tax revenues, and
philanthropy. The Harvard Business Review article "Strategy & Society: The Link between
Competitive Advantage and Corporate Social Responsibility" provided examples of companies
that have developed deep linkages between their business strategies and CSR. CSV
acknowledges trade-offs between short-term profitability and social or environmental goals, but
emphasizes the opportunities for competitive advantage from building a social value proposition
into corporate strategy. CSV gives the impression that only two stakeholders are important –
shareholders and consumers.

Many companies employ benchmarking to assess their CSR policy, implementation, and
effectiveness. Benchmarking involves reviewing competitor initiatives, as well as measuring and
evaluating the impact that those policies have on society and the environment, and how others
perceive competitor CSR strategy.

Management Concept

Corporate Social Responsibility is a management concept whereby companies integrate social

and environmental concerns in their business operations and interactions with their
stakeholders. CSR is generally understood as being the way through which a company achieves a
balance of economic, environmental and social imperatives, while at the same time addressing
the expectations of shareholders and stakeholders. In this sense it is important to draw a
distinction between CSR, which can be a strategic business management concept, and charity,
sponsorships or philanthropy. Even though the latter can also make a valuable contribution to
poverty reduction, will directly enhance the reputation of a company and strengthen its brand,
the concept of CSR clearly goes beyond that.

Triple bottom line

"People, planet, and profit", also known as the triple bottom line, form one way to evaluate CSR.
"People" refers to fair labour practices, the community, and the region where the business
operates. "Planet" refers to sustainable environmental practices. Profit is the economic value
created by the organization after deducting the cost of all inputs, including the cost of the
capital (unlike accounting definitions of profit).

Overall, trying to balance economic, ecological, and social goals are at the heart of the triple
bottom line.

Corporate social responsibility (CSR) is a self-regulating business model that helps a company be
socially accountable—to itself, its stakeholders, and the public. By practicing corporate social
responsibility, also called corporate citizenship, companies can be conscious of the kind of
impact they are having on all aspects of society, including economic, social, and environmental.

To engage in CSR means that, in the ordinary course of business, a company is operating in ways
that enhance society and the environment, instead of contributing negatively to them.
Corporate social responsibility is a broad concept that can take many forms depending on the
company and industry. Through CSR programs, philanthropy, and volunteer efforts, businesses
can benefit society while boosting their brands.

As important as CSR is for the community, it is equally valuable for a company. CSR activities can
help forge a stronger bond between employees and corporations, boost morale and help both
employees and employers feel more connected with the world around them.

For a company to be socially responsible, it first needs to be accountable to itself and its
shareholders. Often, companies that adopt CSR programs have grown their business to the point
where they can give back to society. Thus, CSR is primarily a strategy of large corporations. Also,
the more visible and successful a corporation is, the more responsibility it has to set standards
of ethical behavior for its peers, competition, and industry.

Small-and-mid-sized businesses also create social responsibility programs, although their

initiatives are not often as well-publicized as larger corporations.

Corporate Social Initiatives

Corporate social responsibility includes six types of corporate social initiatives:

 Corporate philanthropy: company donations to charity, including cash, goods, and

services, sometimes via a corporate foundation
 Community volunteering: company-organized volunteer activities, sometimes while an
employee receives pay for pro-bono work on behalf of a non-profit organization
 Socially-responsible business practices: ethically produced products that appeal to a
customer segment
 Cause promotions and activism: company-funded advocacy campaigns
 Cause-related marketing: donations to charity based on product sales
 Corporate social marketing: company-funded behavior-change campaigns

Common actions

Common CSR actions include:

 Environmental sustainability: recycling, waste management, water management,

renewable energy, reusable materials, 'greener' supply chains, reducing paper use, and
adopting Leadership in Energy and Environmental Design (LEED) building standards.
 Human capital enhancement: Companies provide additional resources for capacity
building of local employees, including technical and professional training, adult basic
education, and language classes.
 Community involvement: This can include raising money for local charities, providing
volunteers, sponsoring local events, employing local workers, supporting local economic
growth, engaging in fair trade practices, etc.
 Ethical marketing: Companies that ethically market to consumers are placing a higher
value on their customers and respecting them as people who are ends in themselves.
They do not try to manipulate or falsely advertise to potential consumers. This is
important for companies that want to be viewed as ethical.
UNIDO Model

Promoting the uptake of CSR amongst SMEs requires approaches that fit the respective needs
and capacities of these businesses, and do not adversely affect their economic viability. United
Nations Industrial Development Organization (UNIDO) based its CSR programme on the Triple
Bottom Line (TBL) Approach, which has proven to be a successful tool for SMEs in the
developing countries to assist them in meeting social and environmental standards without
compromising their competitiveness. The TBL approach is used as a framework for measuring
and reporting corporate performance against economic, social and environmental performance.
It is an attempt to align private enterprises to the goal of sustainable global development by
providing them with a more comprehensive set of working objectives than just profit alone. The
perspective taken is that for an organization to be sustainable, it must be financially secure,
minimize (or ideally eliminate) its negative environmental impacts and act in conformity with
societal expectations.

Key CSR issues: environmental management, eco-efficiency, responsible sourcing, stakeholder

engagement, labour standards and working conditions, employee and community relations,
social equity, gender balance, human rights, good governance, and anti-corruption measures.

A properly implemented CSR concept can bring along a variety of competitive advantages, such
as enhanced access to capital and markets, increased sales and profits, operational cost savings,
improved productivity and quality, efficient human resource base, improved brand image and
reputation, enhanced customer loyalty, better decision making and risk management processes.
Reporting guidelines and standards

Reporting guidelines and standards serve as frameworks for social accounting, auditing, and reporting:

 AccountAbility's AA1000 standard, based on John Elkington's triple bottom line (3BL) reporting
 The Prince's Accounting for Sustainability Project's Connected Reporting Framework
 The Fair Labor Association conducts audits based on its Workplace Code of Conduct and posts
audit results on the FLA website.
 The Fair Wear Foundation verifies labour conditions in companies' supply chains, using
interdisciplinary auditing teams.
 Global Reporting Initiative's Sustainability Reporting Guidelines
 Economy for the Common Good's Common Good Balance Sheet
 GoodCorporation's standard developed in association with the Institute of Business Ethics
 Synergy Codethic 26000 Social Responsibility and Sustainability Commitment Management
System (SRSCMS) Requirements—Ethical Business Best Practices of Organizations—the
necessary management system elements to obtain a certifiable ethical commitment
management system. The standard scheme has been built around ISO 26000 and UNCTAD
Guidance on Good Practices in Corporate Governance. The standard is applicable to any type of
organization.
 Earthcheck Certification / Standard
 Social Accountability International's SA8000 standard
 Standard Ethics Aei guidelines
 The ISO 14000 environmental management standard
 The United Nations Global Compact requires companies to communicate on their progress
 (or to produce a Communication on Progress, COP), and to describe the company's
implementation of the Compact's ten universal principles.
 The United Nations Intergovernmental Working Group of Experts on International Standards of
Accounting and Reporting (ISAR) provides voluntary technical guidance on eco-efficiency
indicators,[61] corporate responsibility reporting, and corporate governance disclosure.
 The FTSE Group publishes the FTSE4Good Index, an evaluation of CSR performance of
companies.
 EthicalQuote (CEQ) tracks the reputation of the world's largest companies on Environmental,
Social, Governance (ESG), Corporate Social Responsibility, ethics, and sustainability.
 The Islamic Reporting Initiative (IRI) is a not-for-profit organization that leads the creation of the
IRI framework; the guiding integrated CSR reporting framework based on Islamic principles and
values.

Why should a company implement CSR?

Many companies view CSR as an integral part of their brand image, believing that customers will
be more likely to do business with brands that they perceive to be more ethical. In this sense,
CSR activities can be an important component of corporate public relations. At the same time,
some company founders are also motivated to engage in CSR due to their personal convictions.

What is the impact of CSR?

The movement toward CSR has had an impact in several domains. For example, many
companies have taken steps to improve the environmental sustainability of their operations,
through measures such as installing renewable energy sources or purchasing carbon offsets. In
managing supply chains, efforts have also been taken to eliminate reliance on unethical labor
practices, such as child labor and slavery. Although CSR programs have generally been most
common among large corporations, small businesses also participate in CSR through smaller-
scale programs such as donating to local charities and sponsoring local events.

Industrial Enterprise Act 2020

CSR Requirement for Industries:

54. Provisions relating to corporate social responsibility: (1) A medium or large industry or
cottage or small industry with annual turnover of more than one hundred fifty million
(Rs. 15,00,00,000) rupees shall set aside at least one percent of its annual net profits in
each fiscal year for the purpose of performing the corporate social responsibility.

(2) The amount set aside under subsection (1) shall be spent in such areas as
prescribed, upon making annual plans and programmes.
 (3) An industry shall submit details on the programmes completed in each fiscal
year under subsection (2) and amounts spent in such programmes to the concerned
industry registration body within six months after the end of the fiscal year.

43. Punishment: (1) If any person operates an industry without registration under section 3,
the industry registration body may require immediate closure of the industry and
impose the following fine:

(7) If an industry does not perform the corporate social responsibility under
section 54, the Ministry may, on the recommendation of the industry registration body,
impose a fine to be set by one point five percent of the yearly net profits of the industry.
The Ministry shall impose an additional fine at the rate of zero point five percent of the
yearly net profits for each year on an industry which does not perform such
responsibility for a period exceeding one fiscal year.

CSR Requirement for BFIs:

3.1. Applicability:

The NRB Circular (16) has required BFIs to allocate at least one percent (1%) of net profit and
deposit the same in a separate CSR fund. The fund allocated is to be utilized in the subsequent
fiscal year.

3.3. Area of Utilization:

The area of utilization has been categorized in the following manner;

(a) Utilization for social projects: Direct and indirect utilization in programs related to
education, health, disaster management, environment protection, cultural promotion,
infrastructural development in remote areas, and improvement in earning capabilities of
socially backward groups, financial literacy and customer protection, Travelers waiting
room, street lamp, public toilets. Projects should be selected through proposal with public
notice by highly recognized organizations working in the related field.
(b) Financial Education: Five percent of Fund shall be spent on making women and socially left
behind class financial service literate and to increase access to financial service by
conducting different program and training on financial literacy.

(c) Direct grant expenditure: Direct expenditure towards providing grant for education and
health of backward classes or expenditure in construction of infrastructures, buying of
vehicles and cost of operating them, etc. for organizations working towards the same
cause.

(d) Sustainable development goals: Sustainable development goals of Nepal, direct and
indirect expenditure towards achievement of goals set in the 17 areas recognized by the
2016-2030 (Sustainable Development Goals, 2016-2030).

(e) Actual expenditure on prevention and treatment for maintaining staffs of bank and
financial institute safe from pandemic disease like Covid 19.

(f) The cost borne by BFIs while setting up a Child Day Care Centre for their employees.
(g) Grant and expenditure made for orphanage, Balmandir, old-age home except
established for business purpose.

(h) Rs. 100 deposited in each bank account by the bank and financial institutions under
"Open Bank Account Campaign 2076"
6.4 Corporate Environment Responsibility

Corporate Environmental Responsibility (CER) refers to a company's duties to abstain from

damaging natural environments. The term derives from corporate social responsibility (CSR).

The environmental aspect of CSR has been debated over the past few decades, as stakeholders
increasingly require organizations to become more environmentally aware and socially
responsible. In the traditional business model, environmental protection was considered only in
relation to the "public interest". Hitherto, governments had maintained principal responsibility
for ensuring environmental management and conservation.

The public sector has been focused on the development of regulations and the imposition of
sanctions as a means to facilitating environmental protection. Recently, the private sector has
adopted the approach of co-responsibility towards the prevention and alleviation of
environmental damage. The sectors and their roles have been changing, with the private sector
becoming more active in the protection of the environment. Many governments, corporations,
and big companies are now providing strategies for environmental protection and economic
growth.

The World Commission on Environment published the Brundtland Report in 1987 to address
sustainable development. Since then, managers, scholars, and business owners have tried to
determine why and how big corporations should incorporate environmental aspects into their
own policies. In recent years, an increasing number of companies have pledged to protect
natural environments.

CER is, in many ways, connected to CSR, as both of them influence environmental protection.
CER, however, is strictly about the consideration of environmental implications and protection
within corporate strategy. The understanding of CER cannot be separated from CSR—both are
interconnected and based on environmental protection. There are three major areas related to
these two concepts—economic, environmental and social. CER is focused more on economic
and environmental while CSR relates to social and environmental aspects. Economy, society,
and environment all play significant roles in the development of an efficient and effective
company strategy.

Main elements

These cover the environmental implications of a company's operations:

 Eliminate waste and emissions

 Maximize the efficient use of resources and productivity
 Minimize activities that might impair the enjoyment of resources by future generations.

Drivers and challenges

Among the main drivers for CER are government policies and regulations. Many states provide
their own legislation, regulations and policies, which are important in creating a positive
environmental attitude within companies. Subsidies, tariffs and taxes play a vital role in the
implementation of these policies. Another significant factor is the competitive environment
among companies generated by media, public, shareholder and NGO awareness, which are also
major drivers of CER.

Challenges include the cost of regulation and difficulties in predicting economic gains, which
could become problematic for a company's management. Additionally, new technologies are
frequently too expensive for a lot of companies. Another challenge is the lack of harmonization
of regulations among different states—often there is a mosaic of propositions, leading to
unclear strategies for environmental behavior, especially in multinational corporations.

Worldwide Perspectives on Corporate Environmental Responsibility

The majority of international CSR studies focus on business practices and its aspects, such as
business economics and the legality of environmental law. Most companies are noticing the
importance of taking into account one of its most important stakeholders: employees and
customers and their commitment to sustainability. Studies have demonstrated that once
companies place sustainability practices they can be directly linked to financial success and
customer satisfaction, which in turn can be used as a marketing tool. Although every country has
a different culture, and each country determines their own scale of environmental
responsibility, research has shown that there is a standard global human values that drive
customer needs and wants. Companies have taken initiatives to take sustainability and align it
with each company's economic goals. Managers and other people at the top, play the key role in
decision-making and implementing the firm's sustainability practices.

Benefits of Corporate Environmental Responsibility

Corporate social responsibility can prove to be more profitable for companies and to extend it
survivability in markets because greater awareness on this topic, in both social and business
markets, has been in higher demand. Customers have responded with overall satisfaction and
loyalty when companies have a better CSR, especially in countries like Spain and Brazil. Culture
has an impact on the CSR ratings and studies, as well as human values across different nations.

This topic can also be found under sustainable development. This area is concerned with not
only protecting the environment but maintaining economical growth. There were several
agreements internationally to help adopt new business practices that held these standards, but
they were considered individual and there was no law-abiding body to regulate nor implement
them.

One of the other factors that is considered an integral part of sustainable development are
human beings, and specific groups and their habitat. Counties and companies that more
developed would lead, and other small countries and business would slowly make gains. It is
important to recognize that just because corporate environmental responsibility is being
recognized that consumption is something that is not discouraged.

The idea of corporate environmental responsibility (CER) is for humans to be more aware of the
environmental impact and counteract their pollution/carbon footprint on the natural resources.
One of the main factors is to reduce carbon footprint and carbon emissions. Many of the studies
focus on trying to find a balance between economic growth and reducing waste and cleaner
environments.
 Furthermore, many firms are discovering that there is an advantage to advocating for
environmental regulations and preparing for them to be implemented before they become law.
In a recent study, the researcher found that firms support climate change legislation as a means
of gaining power over their competitors. Essentially, even if a new regulation hurts a firm in the
short term, the firm may embrace it because they know that it will hurt their competitors even
more. This allows them to come out on top in the long run.

Environment Protection Act, 2019

Environment Protection Regulation, 2020

A Brief Environment Study

1. Forest Sector
2. Health Sector - Hospital
3. Tourism Sector - Hotel, Resort
4. Road Sector
5. Energy, hydropower, and irrigation Sector
6. Residence, housing and settlement development and urban development Sector
7. Industry Sector
8. Education - Teaching Hospital
9. Mining Sector

B. Initial Environment Examination

1. Forest Sector
2. Industry Sector
3. Mining Sector
4. Road Sector
5. Residence, housing and settlement development and urban development Sector
6. Energy, hydropower, and irrigation Sector
7. Tourism Sector - Hotel, Resort
8. Water Supply Sector
9. Waste Management Area
10. Agriculture Sector
11. Health Sector - Hospital
12. Education - Teaching Hospital

B. Environment Impact Assessment

1. Forest Sector
2. Industry Sector
3. Mining Sector
4. Road Sector
5. Residence, housing and settlement development and urban development Sector
6. Hydropower and Energy Sector
7. Tourism Sector - Hotel, Resort
8. Water Supply Sector
9. Waste Management Area
10. Agriculture Sector
11. Health Sector - Hospital
12. Education - Teaching Hospital
6.5 Workers Participation in the Management

Participatory management is the practice of empowering members of a group, such as

employees of a company or citizens of a community, to participate in organizational decision
making. It is used as an alternative to traditional vertical management structures, which has
shown to be less effective as participants are growing less interested in their leader's
expectations due to a lack of recognition of the participant's effort or opinion.

While group leaders still retain final decision-making authority when participatory management
is practiced, participants are encouraged to voice their opinions about their current
environment. In the workplace, this concept is sometimes considered industrial democracy.

The participatory management model or at least techniques for systematically sharing authority
emphasize concerns with the delegation of decision making authority to employees.
Participatory management has cut across many disciplines such as public administration, urban
planning, and public policy making. In theory, the model does much more than recognize that
employees ought to be able to recommend changes or course of action, but rather reflect a
belief that authority should be transferred to and shared with employees. The belief in this
theory stems from understanding what the culture of an organization or institution represents.

Participatory Management may contribute to a more productive environment by:

 Promoting sustainable management practices.

 Increasing social acceptability levels.
 Minimizing social conflicts, for example: eliminating competition.
 Allowing the use of local values and knowledge to be utilized during management.
 Greater job satisfaction which in turn increases productivity
 Reduced costs through increased efficiency and a lesser need for supervision and
delegation.
 Participatory Management can lead to the empowerment of employees which in turn
could lead to employees taking more risks. These risks can be successful or harmful to
the project's productivity level.

In corporate governance, codetermination (also "copartnership" or "worker participation") is a

practice where workers of an enterprise have the right to vote for representatives on the board
of directors in a company. It also refers to staff having binding rights in work councils on issues
in their workplace. The practice of board level representation is widespread in developed
democracies.

The first laws requiring worker voting rights include the Oxford University Act 1854 and the Port
of London Act 1908 in the United Kingdom, a voluntary Act on Manufacturing Companies of
1919 in Massachusetts in the United States, and the Supervisory Board Act 1922 in Germany,
which codified collective agreement from 1918.

Most countries with codetermination laws have single-tier board of directors in their corporate
law (such as Sweden, France or the Netherlands), while a number in central Europe (particularly
Germany and Austria) have two-tier boards.
The threshold of a company's size where co-determination must apply varies between
countries: in Denmark it is set at 20 employees, in Germany over 500 (for 1/3 representation)
and 2000 (for just under a half), and in France for over 5000 employees. Sweden has had a law
of codetermination since 1980.

In economies with codetermination, workers in large companies may form special bodies known
as works councils. In smaller companies they may elect worker representatives who act as
intermediaries in exercising the workers' rights of being informed or consulted on decisions
concerning employee status and rights. They also elect or select worker representatives in
managerial and supervisory organs of companies.

In codetermination systems the employees are given seats on a board of directors in one-tier
management systems, or seats in a supervisory board and sometimes management board in
two-tier management systems.

In two-tier systems the seats in supervisory boards are usually limited to one to three members.
In some systems the employees can select one or two members of the supervisory boards, but a
representative of shareholders is always the president and has the deciding vote. Employee
representatives on management boards are not present in all economies. They are always
limited to a Worker-Director, who votes only on matters concerning employees.

In one-tier systems with codetermination the employees usually have only one or two
representatives on a board of directors. Sometimes they are also given seats in certain
committees (e.g. the audit committee). They never have representatives among the executive
directors.

The typical two-tier system with codetermination is the German system. The typical one-tier
system with codetermination is the Swedish system.

There are three main views as to why codetermination primarily exists:

 to reduce management-labour conflict by improving and systematizing communication

channels;
 to increase bargaining power of workers at the expense of owners by means of
legislation; and
 to correct market failures by means of public policy.

The evidence on "efficiency" is mixed, with codetermination having either no effect or a positive
but generally small effect on enterprise performance.

In the UK, the earliest examples of codetermination in management were codified into the
Oxford University Act 1854 and the Cambridge University Act 1856. In private enterprise, the
Port of London Act 1908 was introduced under Winston Churchill's Board of Trade.

While most enterprises do not have worker representation, UK universities have done so since
the 19th century. Generally the more successful the university, the more staff representation on
governing bodies: Cambridge, Oxford,[20] Edinburgh, Glasgow and other Scottish Universities,
have rights for staff election of councils in statute, while other universities have a wide variety of
different practices. Under the UK Corporate Governance Code 2020, listed companies must
comply or explain with one of three worker involvement options including having a worker
director on board. However, companies have not yet ensured workers have the right to vote for
representatives on the board.

In USA, a large number of universities also enable staff to vote in the governance structure. In
the 1970s, a number of large corporations including Chrysler appointed workers to their board
of directors pursuant to collective agreement with the labor union. Massachusetts has the
world's oldest codetermination law that has been continually in force since 1919, although it is
only voluntary and only for manufacturing companies.

Worker representation on corporate boards of directors, also known as board-level employee

representation (BLER) refers to the right of workers to vote for representatives on a board of
directors in corporate law. In 2018, a majority of Organisation for Economic Co-operation and
Development, and a majority of countries in the European Union, had some form of law
guaranteeing the right of workers to vote for board representation. Together with a right to
elect work councils, this is often called "codetermination".

Some of the forms of workers participation prevalent in India are:- 1. Works committees 2. Joint
management councils 3. Joint councils 4. Unit councils 5. Plant councils 6. Shop councils 7.
Workers’ representative on the Board of Management 8. Workers’ participation in share capital
9. Participation through quality circles 10. Participation through Collective Bargaining.

Additionally, there are eleven forms of workers participation in corporates:- 1. Participation at

the Board Level 2. Participation through Ownership 3. Participation through Complete Control 4.
Participation through Works Councils 5. Participation through Joint Committee 6. Participation
through Collective Bargaining 7. Participation through Job Enlargement 8. Participation through
Suggestions Schemes 9. Participation through Quality Circles 10. Empowering Teams 11. Total
Quality Management (TQM).

In India the workers’ participation in management scheme is vogue in three forms, viz.:

(i) The works committees (set up under the Industrial Disputes Act, 1947);

(ii) The joint management councils (set up as a result of the Labour- Management Co-operation
Seminar, 1958); and

(iii) The scheme for workers’ Representative on the Board of Management (under the
Management and Miscellaneous Scheme, 1970) on some public and private sector enterprises,
including industrial undertakings and nationalised banks.

Since July 1975, a two-tier participation model, namely, the shop council at the shop level and to
joint council at the enterprise level, were introduced. On 7th January 1977, a new scheme of
workers’ participation in management in commercial and service organisations in public sector
undertakings was launched with the setting up of unit councils.

On 30th December 1983, a comprehensive scheme for workers’ participation in public

undertakings was introduced. It was decided that workers would be allowed to participate at
the shop level, the plant level and the board level.
As the scheme of shop council and workers’ representation on the board of directors were
already functioning, greater emphasis was placed on the setting up of unit councils.

In Nepal, Labour Act 2017 and Trade Union Act 1992 were enacted with the intention of
maintaining good relation between Capital and Labour and thereby ensuring good industrial
relations. In Government owned companies and corporations, there are provisions of having
employee's participation in Board of Directors.