Corporate transparency laws
| Date | 01 September 2018 |
| DOI | 10.1177/0924051918786623 |
| Author | Radu Mares |
| Published date | 01 September 2018 |
| Subject Matter | Articles |
Article
Corporate transparency
laws: A hollow victory?
Radu Mares
Associate Professor, Raoul Wallenberg Institute of Human Rights and Humanitarian Law, Lund University, Lund, Sweden
Abstract
The article examines reporting laws to determine if and how these laws shape corporate conduct
and protect human rights. Since 2010 a wave of laws with extraterritorial effects has appeared as
home states of multinationals began to mandate social disclosures. However, opinions as to their
importance differ and some wonder whether these transparency laws are ‘a hollow victory’. What
is the evidence regarding the effectiveness of these laws? If they work, what are the exact pathways
for change? The laws selected for analysis cover corporate sustainability, slavery, conflict minerals,
revenue transparency, and corporate governance. To assess the impacts and potential of these
laws, the article distinguishes between dynamics that are internal and external to the corporation,
and between direct and more remote effects. Drawing on the evidence surrounding these
transparency laws, their place in the regulatory regime for global value chains as well as the
functions this regulatory method fulfils in relation to human rights are discussed.
Keywords
Extraterritoriality, corporate social responsibility, supply chains, conflict minerals, slavery.
1. Introduction
The governance of corporate social responsibilities (CSR) of multinational enterprises has largely
evolved through soft law and corporate voluntarism, against a background of ‘governance gaps’ in
international and national laws.
1
In the narrower area of ‘business and human rights’ (BHR), hard
laws with extraterritorial effects were largely absent until 2010.
2
At that time home states began
Corresponding author:
Radu Mares, Associate Professor, Raoul Wallenberg Institute of Human Rights and Humanitarian Law, Lund University,
Lund, Sweden.
Email: radu.mares@rwi.lu.se
1. John Ruggie, Just Business: Multinational Corporations and Human Rights (Norton 2013) 39-47.
2. The Alien Tort Claim Act is a unique US law, and has been the main generator of litigation against multinationals for
human rights abuses committed abroad. See 28 US Code, para 1350.
Netherlands Quarterly of Human Rights
2018, Vol. 36(3) 189–213
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adopting such laws mainly in the form of mandatory disclosure of social and environmental
impacts. However, opinions as to their importance differ. On the one hand, lawmakers and some
activists consider them as a game changer,
3
‘truly groundbreaking’,
4
‘the ultimate appropriate
regulation’,
5
a landmark step in the quest for corporate accountability.
6
On the other hand, some
academics warn that it is unclear whether social disclosure actually changes corporate behaviour as
‘research on the utility of social disclosure obligations has been inconclusive’,
7
and some go
further deeming mandated disclosure the ‘least successful regulatory technique in American
law ... a Lorelei, luring lawmakers onto the rocks of regulatory failure.’
8
This article asks whether these post-2010 laws are ‘a hollow to victory.’
9
What is the empirical
evidence regarding their effectiveness? If they work, what are the exact pathways for change these
laws chart to increase the protection of human rights? What are the functions of disclosure
regulations in the multi-layered legal order that characterise transnational business governance?
To begin answering these questions, the analysis covers the main transparency laws adopted by
home states of transnational businesses in areas such as corporate sustainability, slavery, conflict
minerals, anti-corruption, and corporate governance.
The article seeks to grasp the significance of transparency laws by tracking their effects and
dynamics. It distinguishes between their internal and external dynamics, and their direct and
indirect effects. Internal dynamics refers to dynamics within the company; there are direct effects
on the information released, that is, the quantity and quality of reports, and indirect effects on the
way companies change their de cision-making as new information became availabl e and new
processes of data collection were set in place. In contrast, external dynamics refer to happenings
outside the company; there are direct as well as more remote effects on the users of information and
other legal orders.
Getting clarity on the more remote effects is indispensable for assessing transparency laws and
grasping their added value to human rights protection. This is particularly important in an area like
transnational BHR where other more coercive laws are in short supply and even problematic at
times as they can create tensions with other legal orders.
10
Furthermore, transnational business
operations are shaped through an emerging multi-layered legal regime relying on private, public
3. Quintin Lake and others, Corporate Leadership on Modern Slavery: How Have Companies Respondedhave companies
responded to the UK Modern Slavery Act One Year On? One year on? (Hult International Business School, Ethical
Trading Initiative 2016), 9.
4. UK Home Office, Transparency in Supply Chains etc.: - A Practical Guide (UK Home Office, 2015) Guidance Issued
under Section 54(9) of the Modern Slavery Act 2015 (‘The Practical Guide’), 2
ds/2013/05/responsible-investment-reporting-requirements-final.pdf>
government/uploads/system/uploads/attachment_data/file/649906/Transparency _in_Supply_Chains_A_Practical_
Guide_2017.pdf> accessed 2 May 2018.
5. European Parliament, ‘Motion for a European Parliament Resolution on Corporate Social Responsibility: A New
Partnership’ (2006/2133(INI)) (20 December2006), explanatory statement.
6. Richard Howitt, ‘The EU law on Non-Financial Reporting: How We Got There’, The Guardian (16 April 2014)
theguardian.com/sustainable-business/eu-non-financial-reporting-how-richard-howitt> accessed 2 May 2018.
7. Barnali Choudhury, ‘Social Disclosure’ (2016) 13 Berkeley Business Law Journal 183.
8. Omri Ben-Shahar and Carl E. Schneider, More Than You Wanted to Know: The Failure of Mandated Disclosure
(Princeton University Press, 2014) 3-4.
9. The NGO European Coalition for Corporate Justice (ECCJ) quoted in Jerome Chaplier, ‘EU to Force Large Companies
to Report on Environmental and Social Impacts’, The Guardian (24 February 2014).
tainable-business/eu-reform-listed-companies-report-environmental-social-impact> accessed 2 May 2018.
10. See Radu Mares, ‘De-centring Human Rights from the International Order of States: The Alignment and Interaction of
Transnational Policy Channels’ (2016) 23 Indiana Journal of Global Legal Studies 1.
190 Netherlands Quarterly of Human Rights 36(3)
and hybrid forms of regulation.
11
In this context, transparency laws appear as a distinctive reg-
ulatory tool for implementing soft law such as the UN Guiding Principles (UNGPs),
12
a project
seeking to mobilise leverage from diverse sources and direct it through the blood vessels of the
global economy to increase the protection of human rights.
13
Indeed, the UNGPs affirmed the
importance of transparency both in terms of law as well as an element of corporate due diligence.
14
The OECD Guidelines are aligned with the UNGPs and similarly emphasise human rights
disclosure.
15
In terms of structure, Section 2 identifies the objectives and expectations of lawmakers and civil
society groups supporting transparency as a regulatory strategy. Section 3 gathers the evidence
accumulated after these laws entered into force. Section 4 reflects on the functions of transparency
laws in the governance of transnational business operations.
2. Objectives of disclosure laws
Transparency laws are policy instruments pursuing multiple goals. Their objectives can be iden-
tified from preambles in the laws, statements of policymakers, and the positions of civil society
groups and potential users advocating for such instruments.
2.1. To support substantive policy goals
Transparency laws aim to contribute to specific substantive policy objectives. Thus, the California
Supply Chains Act (2010)
16
and the UK Slavery Act (2015)
17
aim to protect workers in supply
chains from forced labour.
18
The two laws share similarities and require companies to disclose the
presence of slavery and human trafficking in their global supply chains and their efforts to
eradicate them.
The EU Non-Financial Reporting Directive (2014) states that releasing nonfinancial informa-
tion ‘is vital for managing change towards a sustainable global economy by combining long-term
profitability with social justice and environmental protection.’
19
The Directive asks businesses to
report on human rights, social and employee-related matters, anti-corruption, and environmental
11. Ruggie called it ‘polycentric governance’ consisting of public, corporate and civil governance systems. Ruggie (n 1)
xliii–xliv.
12. Special Representative of the Secretary-General, ‘Guiding Principles on Business and Human Rights: Implementing
the United Nations ‘‘Protect, Respect and Remedy’’ Framework’ (21 March 2011) UN Doc A/HRC/17/31.
13. Ruggie referred to his approach as ‘principled pragmatism’. John Ruggie, ‘Interim Report of the Special Representative
of the Secretary-General on the Issue of Human Rights and Transnational Corporations and Other Business Enter-
prises’ (22 February Enterprises (2006), UN Doc E/CN.4/2006/97 para 81.
14. See UNGPs (n 12) Principles 3d and 21.
15. OECD, ‘OECD Guidelines for Multinational Enterprises (2011) paras III.33 and IV.45
48004323.pdf> accessed 2 May 2018.
16. California Transparency in Supply Chains Act 2010 (California Transparency Act).
17. Modern Slavery Act 2015 (hereinafter ‘The UK Slavery Act’).
18. The Practical Guide (n 4) Foreword.
19. Council Directive 2014/95/EU of 22 October 2014 amending Council Directive2013/34/EU of 26 June as regards
disclosure of non-financial and diversity information by certain large undertakings and groups[2014] OJ L330/1
(Council Dir. 2014/95/EU, OJ L330/1), Preamble para 3 (‘EU Reporting Directive’).
Mares 191
matters. Information on policies, outcomes, risks, and due diligence processes should be
released.
20
The first reports are expected in 2018.
The (US) Dodd-Frank Act (2010) – Section 1502
21
– and its counterpart EU Regulation
(2017)
22
aim to cut the link between trade in minerals and conflict by draining revenues for armed
groups. The objective is to ‘inhibit the ability of armed groups... to fund their acti vities by
exploiting the trade in conflict minerals’
23
as a way to protect human rights, end the conflict, and
promote peace and security and development.
24
The Dodd-Frank Act requires companies to track
to the source the minerals used in their products and report if they found minerals from conflict
zones (the Democratic Republic of Congo region). Thus, the Act is a ‘trace and report’ type of law
that mixes due diligence measures (trace) and transparency (report) requirements.
The (US) Dodd-Frank Act (2010) – Section 1504
25
– and the EU Directive on the annual
financial statements (2013)
26
aim to combat corruption and ‘empower citizens of resource-rich
countries to hold their governments accountable for the wealth generated by those resources.’
27
The two laws require extractive industry companies to disclose the taxes and other revenues they
pay to host governments.
The (US) Responsible Investment in Burma law (2012)
28
also used transparency as a lever for
good governance to address the effects of new investment on ‘the political transition in Burma.’
29
It asked companies to report on 11 points including human rights policies and procedures, risk
prevention and mitigation measures. It operated from 2013 to 2016.
Corporate governance instruments in the UK
30
and the EU
31
rely on transparency to protect
investors and to ‘facilitate effective, entrepreneurial and prudent management that can deliver the
long-term success of the company.’
32
These instruments require companies to report how they
comply with corporate governance provisions, but offer them the possibility to diverge from such
20. ibid, art 1 and Preamble para 6.
21. Dodd-Frank Wall Street Reform and Consumer Protection Act 2010 (hereinafter ‘Dodd-Frank 1502’).
22. Council Regulation 2017/821 of 17 May 2017 laying down supply chain due diligence obligations for Union importers
of tin, tantalum and tungsten, their ores, and gold originating from conflict-affected and high-risk areas [2017] OJ
L130/1 arts 3-7 (Council Reg. 2017/821, OJ L130/1). (‘EU Regulation on minerals’)
23. Securities and Exchange Commission, ‘Conflict Minerals (Final Rule)’ (13 November 2012) no 34-67716,
paras 6 and 8.
24. EU Regulation on Minerals (n 22), para 1 Preamble.
25. Dodd-Frank Wall Street Reform and Consumer Protection Act 2010 (hereinafter ‘Dodd-Frank 1504’).
26. EU Directive2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the Annual Financial
Statements, ‘Consolidated Financial Statements and Related Reports of Certain Types of Undertakings’ [2013] OJ
L182/19, Art 41-45 and Preamble para 44-49 (EU Dir. 2013/34/EU, OJ L182/19).
27. Securities and Exchange Commission, ‘Disclosure of Payments by Resource Extraction Issuers’ (Final Rule) (26
September 2016) no 34-78167, 7 accessed 2 May
2018 (further referring to ‘strong foreign policy interests’ of the US and the USAID’s goal to support ‘economic
growth, good governance, transparency, and building civil society’ in resource-rich countries).
28. ReportingRequirementsfor Responsible Investmentin Burma (4 October2012) (The US Burma ReportingRequirements).
accessed 2 May 2018.
29. ibid.
30. The UK Financial Reporting Council, ‘The UK Corporate Governance Code’ (2016) 4 and 25 (‘The UK Governance
Code’).
31. EU Dir. 2013/34/EU, OJ L182/19, (n 26), Art 20.1.iii(b).
32. The UK Governance Code (n 30) 1.
192 Netherlands Quarterly of Human Rights 36(3)
provisions as long as they explain the reasons for departure.
33
These are the innovative ‘comply or
explain’ provisions that first appeared in UK corporate governance in 1992.
34
2.2. To enhance the quality and quantity of data companies disclose
Rather self-evidently, the immediate objective of transparency laws is to increase the quantity and
quality of disclosures. For example, the EU Reporting Directive state as its objective ‘to increase
the relevance, consistency and comparability of information’ business disclose.
35
The Directive
was necessary to correct market and regulatory failures.
36
2.3. To enrol the regulatory potential of private actors
Transparency laws are explicit in their aim of mobilising external actors such as consumers and
investors. The EU Reporting Directive signals the importance of ‘identifying sustainability risks
and increasing investor and consumer trust’.
37
Regarding costumers, the UK Slavery Act indicates
that information will give consumers ‘greater confidence in the goods and services they buy.’
38
The California Transparency Act aims to inform and educate consumers ‘on how to purchase
goods produced by companies that responsibly manage their supply chains.’
39
Regarding inves-
tors, the UK Slavery Act requires transparency that ‘allows investors to move capital towards more
sustainable, responsible organisations and strengthen the long-term ethical sustainability of the
financial system.’
40
Dodd-Frank 1502 aims to ‘help American consumers and investors make more
informed decisions.’
41
The empowering function of transparency laws is emphasised by certain NGOs. For example,
the Burma Reporting Requirements serves ‘to empower civil society [and] offer a framework for
investors and civil society organisations to monitor, analyse, and engage with U.S. companies’.
42
Similarly, the EU Reporting Directive enables stakeholders to protect human rights: ‘Access to
non-financial information by workers, communities, consumers is essential in order to hold com-
panies accountable for negative impacts. Those affected by business operations will better assert
33. EU Recommendation 2014/208/EU of 9 April 2014 on the Quality of Corporate Governance Reporting (‘comply or
explain’) [2014] OJ L109/43 (‘EU Rec. 2014/208/EU, OJ L109/43’).
34. The UK Governance Code (n 30) 4.
35. Council Dir. 2014/95/EU, OJ L330/1 (n 19) Preamble, 21.
36. European Commission, ‘Proposal for a Directive of the European Parliament and of the Council amending Council
Directives 78/660/EEC and 83/349/EEC as Regards Disclosure of Non-Financial and Diversity Information by Certain
Large Companies and Groups (16 April 2013), COM/2013/0207 final – 2013/0110 (COD)/1, paras 4-5 (‘European
Commission, Proposal COM/2013/0207 final – 2013/0110 (COD)’).
37. Council Dir. 2014/95/EU, OJ L330/1,(n 19) Preamble 3.
38. The Practical Guide (n 4) Foreword.
39. California Transparency Act (n 16) Preamble, (j).
40. The Practical Guide (n 4) 4.
41. SEC, Final Rule 1504 (n 23) 9.
42. EIRIS, Re: Reporting Requirements for Responsible Investment in Burma (2016)
tentStreamer?documentId¼DOS-2015-0070-0050&attachmentNumber¼1&contentType¼pdf> accessed 2 May 2018.
Mares 193
their rights and fulfil their roles, as more robust reports will enable them to better assess the scope
and impacts of companies’ operations on society and to monitor their progress.’
43
2.4. To stimulate responsible decision-making
Transparency laws seek to stimulate improved internal processes within organisations. Policy-
makers behind the UK Slavery Act view reporting as a risk-management tool: ‘Due diligence
processes and reporting are essential management tools that improve risk identification and long-
term social, environmental as well as financial performance.’
44
The EU Reporting Directive also
considers that ‘Enhanced transparency may help companies to better manage non-financial risks
and opportunities, and thus improve their non-financial performance.’
45
Transparency on gender
equality is justified in the EU Reporting Directive as promoting Board diversity and ultimately
better management.
46
Corporate governance instruments target internal corporate processes with
the stated aim ‘to facilitate effective, entrepreneurial and prudent management’
47
and further refer
to improvements in corporate culture which the ‘comply or explain’ principle promotes.
48
Some civil society groups also see reporting requirements as a trigger for more responsible
business conduct. Commenting on the EU Reporting Directive, a NGO wrote: ‘For companies,
publicly acknowledging the problems is a first step to start addressing them. By complying with the
new requirements, companies will have a better understanding of the risks they face’.
49
Thus ‘If
problems are not even acknowledged, they will never be addressed.’
50
Another NGO supporting
the Burma Reporting Requirements ‘believes that the process of responding to the reporting
requirements is equally as important as the report itself. Companies are improving their practices
simply by being required to consider issues and answer questions related to operations in Burma/
Myanmar.’
51
2.5. To generate change in other legal orders
Some transparency laws expressly draw on and reinforce other regulatory orders wherefrom
authoritative and specific guidance emerges. For example, the conflict minerals laws
52
expressly
refer to the OECD Guidance on conflict minerals while the revenue transparency laws
53
refer to the
Extractive Industry Transparency Initiative’s Standards (EITI). The OECD Guidance on conflict
43. ECCJ, ‘Assessment of the EU Directive on the Disclosure of Non-Financial Information by Certain Large Companies’
(2014)
ing-may-2104.pdf> accessed 2 May 2018 3.
44. The Practical Guide (n 4) 4.
45. European Commission, EU Proposal COM/2013/0207 final – 2013/0110 (COD), (n 36) Preamble para 1.
46. Council Dir. 2014/95/EU, OJ L330/1, (n 19) Preamble para 18.
47. The UK Governance Code (n 30) 1.
48. EU Rec. 2014/208/EU, OJ L109/43 (n 33).
49. ECCJ (n 43).
50. ECCJ (n 9).
51. EIRIS (n 42).
52. SEC, Final Rule (n 23) 206 (indicating that the OECD Guidance satisfies the Dodd-Frank 1502 criteria and may be used
as a framework for due diligence under this law).
53. Dodd Frank 1502 (n 25) s 1504(2) and EU Dir. 2013/34/EU, OJ L182/19 (n 26) Preamble para 45.
194 Netherlands Quarterly of Human Rights 36(3)
minerals
54
and the EITI Principles
55
are governance schemes lacking legally binding character and
emerged as the result of a ‘government-backed multi-stakeholder process.’
56
For some proponents of transparency laws the implicit or explicit objective is to trigger or
facilitate further regulatory changes. Thus, many civil society groups see mandatory disclosure as a
break with voluntarism and a first step towards more stringent obligations on companies. A NGO
considered that the EU Reporting Directive ‘creates precedents for future policy developments on
CSR and corporate accountability.’
57
Based also on the inherent limitations of transparency laws,
some NGOs consider that ‘Legislation can and should go beyond transparency to mandate that
companies conduct human rights due diligence in their supply chains regarding forced labour/
human trafficking’ and give victims access to remedies.
58
2.6. To deliver flexible but effective state interventions
With mandatory disclosures legislators seek to turn the inherent limitations and the flexibility of a
less coercive regulatory strategy into an effect ive policy intervention.
59
By their very nature,
disclosure laws require companies to be more transparent about their decision-making processes
and impacts of operations, but not to change their conduct to prevent or address human rights
impacts. As commented on the UK Sl avery Act, ‘While the act recommends disclosure of a
company’s due diligence policies, it does not actually require a company to conduct due
diligence’.
60
These inherent limitations of disclosure laws are accompanied by further flexibilities of various
sorts. The EU Reporting Directive explains the regulatory design as ‘allowing for high flexibility
of action, in order to take account of the multidimensional nature of corporate social responsibility
(CSR) and the diversity of the CSR policies implemented by businesses matched by a sufficient
level of comparability’.
61
The 2013 Draft EU Reporting Directive clarified that the EU ‘takes a
flexible and non-intrusive approach. Companies may use existing national or international report-
ing frameworks and will retain their margin of manoeuvre to define the content of their policies,
and flexibility to disclose information in a useful and relevant way.’
62
In corporate governance, the
‘comply or explain’ approach ‘provides companies with flexibility by allowing them to adapt their
corporate governance to their size, shareholding structure or sectoral specificities.’
63
54. OECD, ‘Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk
Areas’ (3 rd edition, 2016).
55. EITI International Secretariat, ‘The EITI Standard 2016’ 2016 accessed 2 May 2018.
effrey-vogt/efforts-to-clean-up-global-supply-chains-so-far-come-up-
dard_(2016_-_english.pdf> Accessed 2 May 2018.
56. European Commission Proposal, COM/2013/0207 final – 2013/0110 (COD), (n 36) 7.
57. ECCJ (n 43).
58. ITUC, ‘Closing the Loopholes - How Legislators Can Build on the UK Modern Slavery Act’ (2 February Act (2017) 8
59. This is the ‘meta-regulation’ approach discussed by Choudhury drawing on the works of Coglianese, Mendelson, and
Parker. Choudhury (n 7).
60. Jeffrey Vogt, ‘Efforts to Clean up Global Supply Chains So Far Come Up Short’ Open Democracy (22 March 2017)
short> accessed 2 May 2018.
61. Council Dir. 2014/95/EU (n 19) Preamble, para. 3.
62. European Commission Proposal COM/2013/0207 final – 2013/0110 (COD) (n 36) 2.
63. Commission Recommendation (n 33).
Mares 195
There are several ways through which legislators insert flexibility in transparency regimes.
With the exception of the Dodd-Frank 1502 and 1504 and their EU equivalents, the transparency
laws discussed herein are not that prescriptive and detailed in their requirements. Some of these
transparency laws have outright opt-out clauses such as companies to ‘disclose to what extent, if
any’
64
or ‘may include’
65
or to ‘the extent necessary’ or ‘where relevant and proportionate’
66
information mentioned in the law. A slightly strengthened version of the opt-out is through
‘disclose or give notice’ provisions which are exempt from disclosure as long as express notice
is given to the user.
67
An even more demanding version of opting-out are ‘comply or explain’
provisions which require a company to give reasons for not observing a requirement.
68
Other flexibilities consist of relevan ce thresholds such as ‘materiality’ of information
69
or
‘severity’ of impact with information below such thresholds not being required.
70
Also the sanc-
tions for non-compliance tend to be limited to injunctions
71
and fines
72
and even the most pre-
scriptive law herein, the Dodd-Frank 1502 has ‘failed to structure the compliance obligations in a
way that maximises transparency.’
73
The independent verification of reports is sometimes not
required at all in social disclosure laws, or if required, auditors merely verify a report has been
issued, but not whether the content is truthful.
74
There is also opacity that can be expected from the
very reliance on self-reporting given the bias towards selecting positive items only
75
as well as
from commercial secrecy (safe harbour) provisions
76
if they are not precisely circumscribed.
For these reasons, the transparency laws and their prized flexibility might appear as watered-
down requirements offering loopholes for companies not inclined towards meaningful reporting
and a change of their conduct. Disclosure laws appear as alternatives to more coercive laws
targeting internal processes, such as obligations to undertake risk management (i.e. ‘human rights
due diligence’ laws
77
), or imposing liability for the harm caused.
3. Compliance with and effects of disclosure laws
Lawmakers and some NGOs count on dynamics internal and external to the company, and hint at
direct and indirect effects of transparency laws. But are these effects materialising? What is the
evidence regarding the effectiveness of transparency laws?
64. California Act (n 16) s 3.
65. The UK Slavery Act (n 17) s 54.
66. Council Dir. 2014/95/EU (n 19) Preamble.
67. The UK Slavery Act (n 17); Reporting Burma (n 28) 2; Kamala D. Harris, ‘The California Transparency in Supply
Chains Act - A Resource Guide’ (Attorney General California Department of Justice, 2015) 4.
68. EU Dir. 2013/34/EU (n 26) art. 20; Council Dir. 2014/95/EU (n 19) Article 1 and Preamble, para. 19.
69. Financial Reporting Council, Guidance on the Strategic Report (2014).
70. Dir. 2014/95/EU (n 19) Preamble, para. 8.
71. The Practical Guide (n 4)
72. Verite, ‘Compliance is Not Enough: Best Practices in Responding to The California Transparency in Supply Chains
Act’ (2011)
accessed 2 May 2018.
73. Jeff Schwartz, ‘The Conflict Minerals Experiment’ (2016) 6 Harvard Business Law Review 129.
74. Council Dir. 2014/95/EU, OJ L330/1 (n 19) Preamble, para 16 and art 1.5.
75. See Schwartz (n 73)
76. Council Dir. 2014/95/EU, OJ L330/1, 1 (n 19) art 1.1.
77. France offers an example unique so far with its ‘duty of vigilance’ in ‘Proposition de Loi: Proposition Relative au
Devoir de Vigilance des Socie´te´sMe`res et des Entreprises Donneuses d’Ordre’ (21 February 2017).
196 Netherlands Quarterly of Human Rights 36(3)
3.1. Internal dynamics
This subsection analyses dynamics within the company that transparency laws trigger or facilitate.
They cover direct effects on the quantity and quality of reports, as well as more remote effects on
decision-making in the company.
Anti-slavery laws. Birkey and colleagues conducted an analysis of the first round of reports submitted
under the California Transparency Act.
78
They found that although companies largely complied by
issuing reports as requested, the disclosures appeared to be ‘more symbolic than substantive.’
79
They trace this unsatisfactory compliance to diverging demands and reactions from investors and
civils society, something not anticipated by lawmakers: ‘While co nsumers, NGOs, and other
stakeholder groups clearly seem to want richer information on corporations’ efforts to ensure more
ethical performance within their supply chains ..., investors appear to interpret increased disclo-
sure as potentially costly in terms of firm value. Accordingly, managers may be reluctant to be
more transparent with respect to their supply chain activities.’
80
Furthermore, with less meaningful
information being gathered and released, the indirect effect on corporate risk-management might
not materialise: complying without providing genuine transparency makes it ‘unlikely that the
disclosure will induce better corporate efforts at safeguarding their supply chain activities.’
81
Prokopets also studied the California Transparency Act and its potential effects in the decision-
making processes of consumers and companies.
82
She evaluated the design of the law and its likely
efficacy based on Fung’s theory on mandated disclosure regimes. Fung argued that ‘disclosure
regulation can do more than simply provide information, that it can actually change practices’ if
five criteria are met.
83
Prokopets found the Californian law deficient on two criteria – reporting
structure and enforcement mechanisms – and concluded the law was unlikely to change the
behaviour of consumers and companies. Nevertheless, she points to indirect dynamics of transpar-
ency laws: ‘Even if information disclosure does not directly cause an action cycle, it can help
spawn political organising and activism as political and economic pathways often intertwine’.
84
Regarding the UK Slavery Act, companies issued reports and did no t take advantage of a
straightforward escape hatch: of the 1,300 company reports, ‘none of them explicitly states that
the company has taken no steps to address modern slavery in its operations and supply chains.’
85
However the reports were of weak quality pointing to paper compliance as ‘too many companies
are using a tick-box approach, incorporating key words and generic language without providing
78. Rachel Birkey and others, ‘Mandated Social Disclosure: An Analysis of the Response to the California Transparency in
Supply Chains Act of 2010’ (2016) Journal of Business Ethics 1.
79. ibid.
80. ibid.
81. ibid.
82. Alexandra Prokopets, ‘Trafficking in Information: Evaluating the Efficacy of the California Transparency in Supply
Chains Act of 2010’ (2014) 37 Hastings International & Comparative Law Review 2, 354.
83. Archon Fung, Mary Graham, and David Weil, Full Disclosure: The Perils and Promise of Transparency (Cambridge
University Press 2007) 37-38; quoted in ibid, 355.
84. Prokopets (n 82), 371.
85. Patricia Carrier and Joe Bardwell, ‘How the UK Modern Slavery Act Can Find Its Bite’ Open Democracy (24 January
2017)
can-find-its-bite> accessed 2 May 2018.
Mares 197
substantive or meaningful information.’
86
Overall the assessment stroke a cautiously positive note
deeming there is ‘progress, but slow’ and pointed to indirect effects on internal decision-making:
‘Despite the lackluster findings from these first statements, it is clear the act is driving
change ...[A]s a result of the act, modern slavery policies and processes have been developed
and implemented, or were in the process of being developed.’
87
Another assessment of reports under the UK Slavery Act impresses the importance of directors
having to sign the annual modern slavery statement. This requirement ‘has raised the profile of
modern slavery issues within companies [and increased] senior level involvement and engagement
across the business.’
88
This indicates an internal effect on risk management given that ‘dealing
with modern slavery issues tends to be dispersed throughout different corporate functions and
lacking strategic oversight.’
89
Such dispersion results in a less cohesive and effective due diligence
effort; therefore inter-departmental cooperation and top-level leadership are indispensable.
90
This
legal provision worked to increase the standing of CSR units within some companies.
91
Burma reporting requirements. A 2014 analysis of the first-year reports found ‘significant limita-
tions’ and ‘uneven quality’, with some reports failing to provide information in direct contradiction
to the law.
92
By 2016, it was noted that ‘many companies provide insufficient information, or none
at all, and overall quality of the reports varies widely’
93
with only three companies out of 32
companies submitting reports recognised as doing ‘a solid’ reporting job.
94
Concerning the law’s effects on risk management, an NGO counted on the reporting process to
‘provide an important incentive for new investors to assess potential risks, challenges and oppor-
tunities’.
95
In contrast, the American Chamber of Commerce considered that the law generated no
86. BHRRC, ‘FTSE 100 Modern Slavery Act - An Analysis of Company Statements’ (2017)
sites/default/files/documents/FTSE%20100%20Modern%20Slavery%20Act.pdf> accessed 2 May 2018. Know the
Chain, ‘Know The Chain, Eradicating Forced Labor in Electronics: What do Company Statements Under the UK
Modern Slavery Act Tell Us?’ (March 2018)
Web.pdf> accessed 2 May 2018 (finding that industry compliance with the minimum requirements of the legislation
was low with only 18%of the statements meeting the three minimum requirements of the Act).
87. Carrier and Bardwell (n 85).
88. Lake (n 3), 13.
89. BHRRC (n 86), 14.
90. ibid.
91. Sourcing manager quoted in Lake (n 3).
92. EIRIS, ‘Investment Watch Burma/Myanmar. Briefing Paper’ (May 2014)
2016/11/EIRIS-Conflict-Risk-Network_Briefing-Paper-BURMA_US-version.pdf> accessed 2 May 2018 (hereinafter:
‘Investment Watch, Burma/Myanmar Briefing Paper (2014)’).
93. EIRIS (n 42).
94. Myanmar Centre for Responsible Business (MCRB), ‘Submission to the US State Department on US Reporting
Requirements on Responsible Investment in Burma (Myanmar)’ (25 January 2016)
humanrights.dk/files/media/dokumenter/countries/dihr_usburma_reporting_requirements-jan2016.pdf> accessed 2
May 2018.
95. US Campaign for Burma, ‘Recommendations in favor of and strengthening the Reporting Requirements for
Responsible Investment in Burma’ (2016) ¼DOS-2015-0070-0051> accessed 2
May 2018
198 Netherlands Quarterly of Human Rights 36(3)
discernible internal or external effects, neither on corporate conduct nor on better conditions on the
ground.
96
Conflict minerals laws. Regarding Dodd-Frank 1502, Schwartz’s in-depth analysis of the first rounds
of reports (over 1300) concluded the reports are ‘muddled, redundant, and difficult to compare’,
‘brief and devoid of detail’ and ‘reveal quite little about conflict mineral supply chains’.
97
Thus
many company filers ‘complied in a largely superficial manner suggestive of minimal effort’ and
some exploited the flexibilities within the law: ‘the companies usually chose to read the rules
literally and narrowly, seizing on opportunities ...to provide as little information as possible.
Worse still, many corporate filers simply ignored clear requirements. The reports ultimately reveal
shallow, almost cynical, compliance with poorly crafted rules built on a regulatory paradigm better
suited to simpler contexts.’
98
The Responsible Sourcing Network evaluated the third round of disclosures (2016).
99
Based on
a sample of 200 reports, it arrived at a more up-beat assessment although the overall picture
appeared uneven, evolving and d ifficult to interpret. The report found positive dev elopments
regarding the high level of detail compared with any other human rights issues. In the same time,
there are both quality problems and gaps in reports. Thus, the information in most reports ‘lack[s]
standardization or clarity’ and key actionable information on smelters and countries is missing
from a majority of reports.
100
Even though the Securities and Exchange Commission recognised
the OECD Guidance, most companies followed it ‘superficially, and only a handful of companies
utilized the guidance to its full extent.’
101
Although the law is highly prescriptive on how companies should go about collecting data and
trace minerals, Schwartz indicated that the vast majority of companies ‘conducted their diligence
in nearly the same way (the centrepiece of nearly every effort was a simple supplier survey).’
102
Some companies used the industry-run certification of smelters (refineries).
103
However, his
research notes the law had internal effects in terms of creating a conflict minerals policy (75%
of companies) and setting up internal cr oss-functional teams (90%of companies).
104
A2016
analysis showed some companies exploited a flexibility in the law that gives companies discretion
to pursue an expedited, less demanding form of due diligence.
105
Another internal effect is on the purchasing decisions of companies. Were their products free of
conflict minerals? Did they stop buying from the Democratic Republic of Congo (DRC) region
96. US Chamber of Commerce, ‘Comments Concerning Reporting Requirements for Responsible Investment in Burma’
(25 January 2016)
final_statement.pdf> accessed 2 May 2018.
97. Schwartz (n 73) 164, 158.
98. ibid 131, 133.
99. Responsible Sourcing Network, ‘Mining the Dis closures 2016. An Investor Guide to Co nflict Minerals
Reporting in Year Three’ (2016)
8165f518b0a25269/1511988966489/2017þMtD16_Executive_Summa ry_2016_RSN_Digital_v3.pdf> acce ssed 2
May 2018.
100. ibid 4.
101. ibid 5.
102. Schwartz (n 73) 158, 132.
103. ibid 153, 4.
104. ibid 149, 150.
105. ibid 4, 22 (the ‘reasonable country of origin inquiry’ provision in Dodd-Frank 1502).
Mares 199
altogether? The de-facto boycott o f DRC minerals and its unintended consequences on DRC
miners have been the main controversy around the Dodd-Frank 1502 from its inception.
106
This
indicates that transparency and the associated reputational risks alter corporate behaviour but not
necessarily in the most desirable way: companies subjected to Dodd-Frank might chose to become
conflict-free by simply being DRC-free.
107
There is recent evidence that well-known companies
prohibit their suppliers to purchase DRC minerals.
108
However Schwartz argued that Dodd-Frank
did not change the conduct of American companies (purchasing decisions) as the first year filings
‘contain little to suggest corporations are significantly altering their sourcing practices.’
109
Recent
research from the Enough Project, a promoter of Dodd-Frank 1502, acknowledged that the boycott
happened but proved temporary and the law ‘has now spurred record-breaking exports of clean,
conflict-free minerals.’
110
To conclude on the internal effects on risk management, it appears that the supply chains are
changing towards being conflict-free, and traceability is advancing (at least in 3 T minerals if not in
gold). Whether, or to what extent, this is happening due to the purchasing practices of companies
and the transparency strategy enshrined in Dodd-Frank is unclear. It appears that corporate reports
remain rather opaque and of poor quality, and there has been neither a detectable mobilisation of
consumers or investors nor some enforcement action from the Securities and Exchange
Commission.
There are two factors that seem to have triggered change. The minor factor is how specific and
prescriptive Dodd-Frank 1502 is about collecting and reporting information, an exception among
transparency laws. The major factor might well be that so much is happening in the governance of
conflict minerals: the OECD guidance,
111
certification schemes for smelters,
112
certification of
mines,
113
the appearance of new laws in other jurisdictions, the innovations of leading companies,
and changes on the ground in the DRC.
114
The positive trend in corporate sourcing behaviour
seems due to ‘public scrutiny, collaboration, and alignment with global principles.’
115
This
enabling environment shapes the risk management strategies of companies subjected to Dodd-
Frank as they offer different compliance options ranging from boycotting DRC minerals
106. Critics contented the Dodd-Frank 1502 was ‘well-intentioned, but misguided’ and lead to a boycott of DRC minerals.
Marcia Narine, ‘From Kansas To The Congo: Why Naming And Shaming Corporations Through The Dodd-Frank
Act’s Corporate Governance Disclosure Won’t Solve A Human Rights Crisis’ (2013) 25 Regent University Law
Review 351.
107. ibid 4, 21.
108. Responsible Sourcing Network (n 100) 4.
109. Schwartz (n 74) 169.
110. Enough Project, ‘Enough Project Comment to the SEC in Support of Conflict Minerals Rule Implementation’ (24
February 2017)
tation-2> accessed 2 May 2018.
111. OECD (n 55).
112. Conflict-Free Sourcing Initiative (CFSI, now Responsible Minerals Initiative). In his proposal for reform of Dodd-
Frank 1502, Schwartz considers that ‘The key is the CFSI audit program’, in Schwartz (n 73) 169.
113. IPIS, ‘Analysis of the Interactive Map of Artisanal Mining Areas in Eastern DR Congo’ (October 2016)
be/wp-content/uploads/2016/10/Analysis-and-map-artisanal-mining-DR-Congo_v005-1.pdf> accessed 2 May 2018.
114. United Nations Security Council, ‘Final Report of the Group of Experts on the Democratic Republic of the Congo’ (16
August 2017) UN Doc S/2017/672/Rev/1/Congo 2; See also Enough Project, Comment to the SEC in Support of
Conflict Minerals Rule Implementation (24 February 2017)
sec-support-conflict-minerals-rule-implementation-2)> accessed 2 May 2018.
115. Responsible Sourcing Network (n 99) 4.
200 Netherlands Quarterly of Human Rights 36(3)
altogether, to relying on third-part y certification for smelters, to making individual efforts to
purchase responsibly.
Corporate governance instruments. The UK authorities wrote in 2016, 24 years after introduction of
the ‘comply and explain’ requirement, that ‘Overall, too many explanations of non-compliance are
of poor quality.’
116
Some appear misguided as these ‘explanations are indeed sometimes rather
perfunctory. They can come across as an assertion of difference rather than a full explanation of
why the company in question has chosen to deviate from agreed best practice.’
117
The EU also
found that explanations were of poor quality, used ‘standardised language’ and disabled the
possibility of meaningful dialogue between companies and shareholders.
118
Therefore both the UK and EU have issued guidelines on comply or explain requirements.
119
To
improve the quality of explanations, the EU recommends companies should explain ‘the manner in
which the company has departed [from a corporate governance code], the reasons for the departure,
the way in which the decision to depart from a recommendation has been arrived at, the timeframe
of the departure and the measures taken to ensure that the company action remains consistent with
the objectives of the recommendation, and of the code.’
120
3.2. External dynamics
This subsection analyses dynamics outside the company. They cover immediate effects on the
users reacting to corporate reports and more remote effects within the transparency legal regime
and other legal orders.
It is important to get more clarity on the external dynamics for three reasons. First, there are
inherent limitations of mandated disclosure as a regulatory strategy, which cannot by itself force
changes in conduct and offer reparations for harm. Second, there is an overall picture of superficial
compliance, poor quality of reports, and ambiguous indirect effects on a company’s decision-
making, as documented in the previous section. Third, known from voluntary CSR reporting, there
is some apathy from stakeholders; companies complain that their CSR reports are not read despite
recurring public calls for increased transparency.
121
There are thus reasons for cautio n about
relying too much on users to press companies based on information released. Grasping the more
remote effects of transparency laws is therefore necessary for a fuller assessment of this regulatory
strategy.
116. Financial Reporting Council (FRC), ‘Developments in Corporate Governance and Stewardship 2016’ (January 2016
(2017) 7, 11
rate-Governance-and-Stewardship-2016.pdf> accessed 2 May 2018.
117. FRC, ‘What Constitutes an Explanation Under ‘Comply or Explain?: Report of Discussions Between Companies and
Investors’ (February 2012) 1
stitutes-an-explanation-under-comply-or-exlpain.pdf> accessed 2 May 2018.
118. EU Rec. 2014/208/EU, OJ L109/43 (n 33).
119. FRC (n 117); EU Rec. 2014/208/EU, OJ L109/43 (n 33).
120. EU Rec., 2014/208/EU, OJ L109/43 (n 33), Preamble, para 17.
121. Sustainability, ‘See Change: How Transparency Drives Performance’ (October Performance (2014) 15
pcdn.co/wp-content/uploads/2016/07/see_change_how_transparency_drives_performance.pdf> accessed 2 May
2018.
Mares 201
A. Effects within the transparency legal regime. Anti-slavery laws Evaluations highli ght both the
importance of a reaction from the users of data as well as the kind of reaction. The UK Slavery
Act has transformative potential but only if investors, civil society, consumers and companies use
their leverage.
122
The corporate responsibility to disclose has to be matched by a responsibility to
use the information. Furthermore, users should ‘reward leaders and expose laggards’ to create
‘positive competition among businesses.’
123
Thus there should be reputation rewards and, for
laggards, reputation risks. In this respect, an NGO called for a change in the reaction from media
and civil society, to ‘focus their attention on laggards, and avoid penalising leading companies that
demonstrate greater transparency.’
124
Apparently a trivial detail, the UK Slavery Act failed to
provide a centralised database of reports. This can trigger unproductive external dynamics: the lack
of a register makes it ‘nearly impossible to monitor whether companies that are meant to report
have done so. A consequence of this, however, is that the statements of companies with name
recognition will be sought out, while less familiar companies will be able to get away with not
reporting at all.’
125
Planitzer analysed the Californian and UK slavery laws and is sceptical whether consumers
have sufficient leverage to alter corporate conduct. She indicates that ‘many steps are necessary
before even a limited impact can be identified’
126
and the role of consumers should not be over-
estimated. Chilton and Sarfaty reach a similarly reserved conclusion regarding the Californian and
UK laws. They ran tests to measure consumers’ confidence and comprehension of disclosures and
found that despite consumer interest, the current regulatory design and corporate reports ‘do not
help consumers determine which companies are making comprehensive efforts.’
127
Exemplifying with the California Transparency Act, Chon concurs that stakeholders are not
offered ‘reliable, trust-worthy, and ultimately verifiable’ information.
128
She detects the paradox
of living in an information society but where ‘‘smart information’’ is in short supply. Her proposal
is to develop ‘tracermarks’ through which stakeholders can ‘disclose, disseminate, and ultimately
make decisions about previously hidden qualities of specific goods and services throughout global
value networks.’
129
Such information enables consumers or citizens ‘to protect themselves and
police the market’ and would ‘shorten the ethical and communicative distance between consumers
and the most distant and typically disconnected network nodes.’
130
Burma Reporting Requirements During the consultation for renewal in 2016, NGOs strongly
supported the Burma Reporting Requirements and generally assessed positively their impact. One
NGO explained the beneficial impacts of the law through its own experience as a user. It sought to
demonstrate the ‘multiplier effect’ of the law and highlighted its increased engagement with
122. Carrier and Bardwell (n 85).
123. ibid.
124. BHRRC (n 86), 15.
125. Carrier and Bardwell (n 85).
126. Julia Planitzer, ‘Trafficking in Human Beings for the Purpose of Labour Exploitation: Can Obligatory Reporting by
Corporations Prevent Trafficking?’ (2016) 34 Netherlands Quarterly of Human Rights 318, 329.
127. Adam Chilton and Galit Sarfaty, ‘The Limitations Of Supply Chain Disclosure Regimes’ (2017) 53 Stanford Journal
of International Law 1, 46.
128. Margaret Chon, ‘Tracermarks: A Proposed Information Intervention’ (2015-2016) 53 Houston Law Review, 421.
129. ibid, 422.
130. ibid, 457.
202 Netherlands Quarterly of Human Rights 36(3)
companies, its capacity support for local stakeholders, and its ranking of companies on
transparency.
131
There were suggestions to improve the design of the law along several lines. One NGO
advocated for the inclusion of a ‘comply or explain’ requirement.
132
Global Witness suggested
that the law should oblige investors to check and publish information on individuals who ulti-
mately own and control local partners.
133
Such disclosure of ‘beneficial owners’ is essential in a
secretive economy like Myanmar’s which is still under the control of cronies and military-owned
companies.
134
Conflict minerals laws Schwartz analysed Dodd-Frank 1502 as a ‘name and shame’ law, a
transparency approach based on the belief that ‘exposure of reprehe nsible conduct eliminates
it’.
135
He sees this law as a failure in its ‘principal goal of naming and shaming companies that
source minerals from militarised mines in the Congo.’
136
It lead to uninformative reports that do
not provide ‘insight into which companies ought to be praised and which condemned.’
137
He
explains that the name and shame approach ‘works best when the culpable can be clearly identified
and separated from the rest, and when those who are signalled out face severe public sanction.’
138
However, the deficient quality of reports resulted in a homogenous mass of companies.
There are additional factors that make a naming and shaming strategy ‘inherently difficult’ in
the conflict minerals context: the societal demand for information and action seems to be insuffi-
cient as conflict minerals do not appear to be ‘a top social issue’, the law did not stem from ‘a
public outcry’, and the poor quality of first reports triggered a few complaints about their ‘lack of
substance, but there has been no semblance of public outrage’.
139
Showing the weaknesses in the
Dodd-Frank 1502 regime, Schwartz concluded: ‘By pav ing the way for disclosures that were
difficult to absorb and compare, the regulations undermined the very market processes on which
they depend for their efficacy.’
140
Revenue transparency laws Dodd-Frank 1504, and other similar national laws, refer to the
Extractive Industry Transparency Initiative (EITI).
141
Through its principles and detailed guidance
the EITI emphasises the role of users and the importance of dialogue: ‘Publishing data is necessary,
but not enough. EITI implementation is most effective when it promotes and informs dialogue
between government, industry and civil society, and encourages informed debate about the reforms
that are needed to ensure the extractive industries support national development priorities.’
142
Notably the EITI has built institutional mechanisms for dialogue and secured a place for civil
131. MCRB (n 94).
132. ibid.
133. Global Witness, ‘Comment On The Information Collection: Reporting Requirements For Responsible Investment In
Burma’ (25 January 2016) ¼DOS-2015-0070-0052> accessed 2 May 2018
134. US Campaign for Burma (n 95).
135. Schwartz (n 73) 131.
136. ibid, 182.
137. ibid, 132.
138. ibid, 161.
139. ibid 162, 160.
140. ibid 165.
141. Dodd-Frank 1504 (n 53).
142. EITI Inter national Secretariat, ‘EITI Stat ement on the SEC’s Regulation on Mand atory Company Disclosure’
(18 July 2016) i-statement-on-secs-regulation-on-mandatory-company-disclosure> accessed 2 May
2018.
Mares 203
society representatives to join governmental and corporate representatives in national multi-
stakeholder groups.
143
Corporate governance instruments There is 25 years of experience with ‘comply or explain’
requirements in corporate governance. By now several external dynamics have become clearer.
The engagement of users with such explanations has neither been automatically high, nor has their
reaction been necessarily conducive for reasoned debates.
Regulators emphasise that ‘Satisfactory engagement between company boards and investors is
crucial to the health of the UK’s corporate governance regime.’
144
In corporate governance, the
ultimate prize is for organisational arrangements best suited to the circumstances of the company
and as agreed between the company and shareholders as most productive. However, alarmed by the
passivity of shareholders, the UK authorities have taken steps to enhance the participation of users
in the system through the introduction of the 2010 Stewardship Code ‘to increase the quantity and
quality of engagement’.
145
Through the years, the users’ reaction to explanations has however been problematic. It was
noted that shareholders mistakenly took a ‘box-ticking’ approach
146
and it was recommended that
departures from the UK Governance Code ‘should not be evaluated in a mechanistic way and
departures from the Code should not be automatically treated as breaches.’
147
This compromises
the prized ‘flexibility and experimentation’
148
in the corporate governance system that comply or
explain seeks to promote. Apparently, the users’ reaction to information was different from the
reasoned and constructive dialogue envisaged initially. Mechanistic adherence (comply) should
not become a substitute for dialogue and engagement (explain), which increase trust and thus
‘could generate a virtuous upward spiral in attitudes to the Code and in its constructive use.’
149
However the reaction of shareholders can partly be explained by the low quality of the explana-
tions that end up triggering a vicious circle.
150
There were two evolutionary dynamics that comply and explain triggered. On the one hand,
through its stated flexibility, comply or explain helped smoothen the transition to new practices as
it ‘helped prevent people digging in around differences of opinion and bringing the whole process
to a halt. ‘‘Comply or explain’’ was a bolt hole which meant that opponents did not have to be
overwhelmed or vanquished in the name of progress’.
151
Because comply or explain ‘relied on
143. EITI International Secretariat, ‘Establishment and Governance of Multi-stakeholders Groups: Guidance Note 14’
(May 2016)
accessed 2 May 2018.
144. The UK Governance Code (n 30) 4.
145. FRC (n 116) 24 (The FRC then began ranking signatories to the Code (investors) based on the quality of their reports
showing how signatories engaged with the companies they are invested in).
146. ibid, 16.
147. The UK Governance Code (n 30) 4.
148. Ira M. Millstein in Financial Reporting Council, ‘Comply or Explain: 20th Anniversary of the UK Corporate Gov-
ernance Code’ (2012) 8
Comply-or-Explain.pdf> accessed 2 May 2018.
149. The UK Governance Code (n 30) 4.
150. FRC (n 69) 1 (suggesting to companies that ‘the stronger the explanation, the less likely it is to be rejected by
shareholders adopting a box-ticking approach.’).
151. Anthony Hilton in Financial Reporting Council (n 148) 21.
204 Netherlands Quarterly of Human Rights 36(3)
market discipline rather than law or hard regulation to raise standards, resistance from business
failed to turn into effective opposition.’
152
On the other hand, companies learned that despite the claimed flexibility, the reality was that the
‘emphasis in the media and the markets was on ‘‘comply.’’ Non-compliance, even when explained,
was tolerated initially as a curiosity but it was seldom accepted for long. An organisation which did
not follow the letter of the Code, and persisted in not doing so for more than two or three reporting
periods, found markets ran out of patience ...‘‘Comply or explain’’ was usually a brief prelude to
‘‘saving face with grudging acquiescence.’’’
153
There was stigma attached to non-compliance.
154
The relation between comply or explain and more coercive laws should also be highlighted. As
the UK Code impresses, ‘Companies and shareholders both have responsibility for ensuring that
‘‘comply or explain’’ remains an effective alternative to a rules-based system.’
155
This British
innovation has been hailed as ‘a pragmatic tool that can improve corporate governance without the
need for inflexible, burdensome and misguided rules, laws or regulation.’
156
That raises the spectre
of de-regulation and lenient regulatory regimes.
157
Is comply or explain transparency an inherently
weak alternative displacing more coercive laws? The FRC Chairman noted that ‘Codes cannot
replace all regulation. But they can reduce the need for it, especially where the objective is cultural
and behavioural change over time.’
158
Another writer considered that ‘the Code provides an
antidote to the risk of corporate failure by accident or arrogance – it will never beat criminal intent
but continues to guide the inexperienced, focus the ambivalent and control the adventurous. Most
importantly, it encourages adherence to the spirit of the rules rather than simple obedience to the
letter of the law.’
159
B. Effects on other legal orders. Identifying effects in other legal orders is necessary in order to
complete the assessment of transparency law, which otherwise appear rather lacklustre on their
own terms. Such effects can be tracked in several directions. First, effects in other jurisdictions that
decide to pass similar transparency laws. Second, effects within the same jurisdiction but in other
bodies of law. Third, effects over time as the transparency laws provide new information and
understandings that make it necessary to adopt more prescriptive laws.
Regarding effects in other jurisdictions, there is ample evidence available. Regarding slavery,
the California Transparency Act served as model for the UK Slavery Act
160
, and the latter serves as
model for the draft Australian act.
161
In the literature this has been dubbed the ‘California
152. John Plender in ibid 46.
153. Anthony Hilton in ibid 22.
154. David Mayhew in ibid 29.
155. The UK Governance Code (n 30) 4.
156. Marco Becht in (n 148) 11.
157. Anthony Hilton in ibid 23 (writing that outside UK, ‘‘comply or explain’’ has been perceived as ‘‘light touch’’
regulation, as ‘a loophole through which too many might be tempted to slip.’).
158. Baroness Sarah Hogg in ibid 5.
159. Sir Roger Carr in ibid 15.
160. Australian Chamber of Commerce and Industry, ‘Modern Slavery in Supply Chains Reporting Requirement: Public
Consultation Paper’ (2017) 9 (acknowledging the Californian model)
uments/modern-slavery/australian-chamber-commerce-industry.pdf> accessed 2 May 2018.
161. ibid 14 (building on the UK model).
Mares 205
effect.’
162
Regarding conflict minerals, the Dodd-Frank 1502 inspired the EU Regulation
163
and
Canadian and Norwegian laws
164
and served to reinforce the efforts of the OECD on due diligence
in mineral chains
165
and other initiatives.
166
Regarding revenue transparency in the extractive
sector, the Dodd-Frank 1504 inspired EU legislation and reinforced the EITI.
167
In this way the
Dodd-Frank 1504’s effects endured even after the Trump administration revoked the law in 2017.
Finally, the UK innovation in corporate governance, the ‘comply or explain’ approach to transpar-
ency, has spread in Europe and globally in other corporate governance systems.
Regarding effects within the same jurisdiction but in other bodies of law, the California Trans-
parency Act was invoked in litigation concerning the Thai fishing industry.
168
The potential effects
of this law on Californian competition and consumer protection law are illustrated by how both
plaintiffs and defendants invoked the Act either as a ground for liability or on the contrary as a
defence under anti-competition law.
169
Another example is the ‘comply or explain’ approach,
which is spreading now in other legal orders, including human rights disclosure laws. Finally,
transparency laws such as the EU Reporting Directive might have effects of in tort law. Thus, the
ECCJ (European Coalition for Corporate Justice) indicated that the (lack of) information on a
company’s due diligence can be used as evidence that the company was negligent and thus should
be liable for the harm.
170
Regarding effects over time, NGOs work actively for a progressive strengthening of regulatory
regimes. For the corporate accountability movement, transparency laws are a first step in the right
direction as they mark a break with laisses-faire and corporate voluntarism.
171
Comments on the
UK Slavery Act show that the second step could be within the transparency regime or outside it.
Thus, activists pursue a double approach. One the one hand, make the transparency regime work
effectively so a company basically ‘demonstrate[s] that it takes the issue of slavery and forced
labour seriously and has developed a well-thought through response which covers the whole of its
business.’
172
On the other hand, go beyond transparency to obtain more coercive laws that provide
162. Remi Moncel, ‘Cooperating Alone: The Global Reach of US Regulations on Conflict Minerals’ (2016) 34 Berkeley
Journal of International Law 216.
163. Council Reg. 2017/821, OJ L130/1 (n 22) 9 (noticing the Dodd-Frank 1502 model).
164. Isabel Munilla, ‘Unfinished Dodd-Frank Rule Already Having Global Impact’ The Hill (23 July 2015)
blogs/congress-blog/energy-environment/248827-unfinished-dodd-frank-rule-already-having-global> accessed 2
May.
165. SEC (n 52) 206 (OECD Guidance is an acceptable template for compliance with Dodd-Frank 1502).
166. Enough Project (n 114) (crediting Dodd-Frank 1502 for spurring the state run and industry-run certifications).
167. SEC, ‘SEC Adopts Rules for Resource Extraction Issuers Under Dodd-Frank Act’ (27 June 2016)
r/06/gender-pay-gap-law-could-have-significant-impact-say-experts>
news/pressrelease/2016-132.html> accessed 2 May 2018 (indicating that the US, EU and Canadian laws are ‘sub-
stantially similar’ for purposes of reporting); The laws refer to the EITI and its methodology (n 53).
168. Daniel Aiken, Carol Trevey, and Brendan McHugh, ‘What Retailers Need to Know About the California Trans-
parency in Supply Chains Act’ DrinkerBiddle (27 February 2017)
2017/02/california-transparency-in-supply-chains-act> accessed 2 May 2018.
169. ibid.
170. ECCJ (n 43).
171. ibid.
172. CORE Coalition, ‘Beyond Compliance: Effective Reporting Under the Modern Slavery Act. A Civil Society Guide
for Commercial Organisations on the Transparency in Supply Chains Clause’ (February 2016)
bility.org/wp-content/uploads/2016/03/CSO_TISC_guidance_final_digitalversion_16.03.16.pdf> accessed 2 May
2018.
206 Netherlands Quarterly of Human Rights 36(3)
victims with effective judicial reme dies.
173
This evolutionary dynamic would b e powered by
showing perfunctory compliance with transparency laws, justifying therefore more forceful reg-
ulatory strategies to hold businesses answerable. Alternatively, drawing on the information thus
released would show the seriousness, scale and complexity of a problem that defies individual
corporate efforts, and would justify calls for stronger safeguards for victims.
4. Implications for the regulation of transnational business operations
The analysis so far established recurrent weaknesses in the quality of reports. The interest of users
in these reports as well as their actual leverage cannot be taken for granted. The limits inherent in
this regulatory strategy are evident and further raise the question whether meaningful self-
disclosed information can actually be expected under these laws. A lot seems to depend on
producing the right type of information as well as on the indirect effects of transparency laws.
The next two subsections identify two types of information that appear particularly consequential
for the BHR regime: actionable information and explanations following ‘comply or explain’
requirements. The last two subsections reflect on the functions of transparency laws after which
some specific challenges of regulating transnationally for human rights are highlighted.
4.1. Actionable information
There is a kind of straightforward information that enables immediate external action. Such
actionable information gives stakeholders data that would otherwise b e difficult to obtain. Its
simplicity prevents the positive information bias in self-reporting. It enables stakeholder reactions
in both ‘name and shame’ and ‘name and reward’ modes that some NGOs recommend. Therefore,
where possible, there is a strong case for lawmakers to adopt narrow and prescriptive designs of
transparency laws focused on actionable information. A few examples stand out from the laws
analysed here.
First, information on smelters and refineries under conflict minerals laws. Schwartz proposed
that the Dodd-Frank 1502 should require companies to disclose the ‘identity and conflict status of
the facilities that process their conflict minerals. These pieces of information are largely obtainable
and illuminate corporate supply chains more than a thousand other details.’
174
Enforcement of the
law would be simplified and already running schemes that certify smelters would facilitate com-
pliance.
175
The EU Regulation moved in this direction by giving importers a choice between
purchasing from certified smelters and conducting own inquiries into the source of minerals as
a way to comply with the Regulation.
176
Second, information on revenues companies pay to resource rich states is also actionable. This
quantitative information is released through Dodd-Frank 1504 and its EU counterpart. The EITI
was set up as a voluntary multi-stakeholder initiative to generate precisely such simple information
as a way to promote good governance.
Third, data on beneficial owners is another actionable information. The NGO Global Witness
advocated for such data to be mandatorily released through the Burma Reporting Requirements.
173. See ITUC (n 58).
174. Schwartz (n 73) 183.
175. By 2017, 75%of the world’s 325 smelters have passed independent audits. Enough Project (n 114).
176. Council Reg. 2017/821, OJ L130/1 (n 22), Art 4(g)iv-v.
Mares 207
This is in line with the recent emphasis in the EITI on hidden owners as a crucial piece of
information needed to combat corruption.
177
Fourth, information on board diversity disaggregated by age, gender or educational and pro-
fessional backgrounds is required under the EU Reporting Directive.
178
The UK gender pay gap
law also requires disaggregated quantitative data which some expect to deliver better results than
four decades of traditional equality legislation.
179
Finally, transparency on manufacturing sites in global supply chains is the focus of a civil
society initiative – Follow The Thread – that sprang up in 2017. It asked 72 companies in the
garment sector to reveal manufacturing sites in their supply chain. This concentrates on ‘a narrow
yet critical part of transparency in apparel supply chains.’
180
The ways in which the disclosure of
sites would help promote responsible conduct are explained: early warning for buyers, savings of
time and effort for watchdogs, and checks on unauthorised subcontracting.
181
4.2. Comply or explain provisions
Not all transparency settings might be amenable to requests for straightforward, actionable infor-
mation. There is thus place for comply or explain requirements to help assess the policies and
efforts of companies. Indeed a few of the laws herein have comply or explain provisions: the EU
Reporting Directive, and the corporate governance codes. The slavery laws have opt-out provi-
sions (California Transparency Act) or a mere ‘disclose or give notice’ provision (UK Slavery
Act); these provisions could be strengthened through a ‘comply or explain’ clause. Such an
upgrade was advocated for the Burma Reporting Requirements
182
and for the Dodd-Frank
1502.
183
The Follow The Thread initiative also relies on this provision as it asks companies not
taking the Transparency Pledge to provide reasons for choosing not to do so.
184
As comply or explain is or will be transplanted into human rights laws, corporate governance
offers both encouraging and cautionary messages.
185
On the one hand, the interest of users for
meaningful dialogue able to promote experimentation and adaptation cannot be taken for granted.
The quality of explanations has been low. In combination, this has created a vicious cycle that
policymakers are struggling to break. On the other hand, comply or explain worked in a more
‘comply’ mode than originally envisaged and sold to the business community. This facilitated the
introduction and acceptance of new principles, placated business opposition, and generated market
177. EITI (n 55), Standard para 2.5.
178. Council Dir. 2014/95/EU, OJ L330/1 (n 19) Preamble, para 19.
179. Alexandra Topping, ‘Gender Pay Gap Law Could Have Significant Impact, Say Experts’ The Guardian (6 April 2017)
accessed 2 May 2018.
180. Human Right Watch, ‘Follow the Thread: The Need for Supply Chain Transparency in the Garment and Footwear
Industry’ (2017) 8
ency-in-the-garment-and-footwear-industry/view> accessed 2 May 2018.
181. ibid.
182. MCRB (n 95).
183. Schwartz (n 73) 177 (Proposed that Dodd-Frank 1502 should require specific information coupled with comply or
explain so ‘Firms with legitimate excuses and tangible plans would come out looking much better than those that
respond with platitudes’).
184. Follow The Thread (n 180).
185. Virginia Harper Ho, ‘‘‘Comply or Explain’’and the Future of Nonfinancial Reporting’ (2017) 21 Lewis & Clark Law
Review 317, 340-349.
208 Netherlands Quarterly of Human Rights 36(3)
pressures for compliance strong er than envisaged. However, the special relationship between
shareholders and companies makes the corporate governance setting unique. The BHR context
is different from corporate governance as right holders have a much less privileged legal and
financial relation with the company.
Furthermore, the very applicability of comply or explain strategies, of transparency laws more
broadly, to the human rights area needs justification. Indeed, such transparency laws fall short of
more prescriptive command-and-control laws that might be warranted for the protection of human
rights as they create stronger legal incentives and/or legal remedies for victims.
4.3. Transnational human rights regime and regulatory options
The analysis so far revealed the limitations of transparency as a regulatory strategy. A legitimate
question to ask is why would such a law be chosen for the protection of human rights and not a
more coercive type of law? That helps answer the main question posed in this article: do transpar-
ency laws matter and, if yes, how? To begin answering the first question, some distinctions
introduced in the UN Guiding Principles (UNGPs) facilitate reflection on regulatory dynamics
and choices.
The UNGPs indicate businesses have a responsibility to respect human rights. That requires
them to act when they cause harm, when they contribute to it, or when they are linked to infringe-
ments through their business relationships.
186
This points to two broad types of involvement: direct
and indirect involvement with abuses in value chains. For regulatory analysis, it is essential to not
conflate direct and indirect involvement, that is, not imply that all value chain infringements are
ultimately traceable to decisions at the top of the chain. Indeed, the UNGPs expects businesses to
undertake due diligence in both types of involvement as a way to respect human rights; also, the
four steps of due diligence are the same.
187
However the regulatory task is very different in the two
settings.
The UNGPs specify appropriate conduct for the causation-contribution-linkages settings. The
corporate responsibility to act takes two main forms. On the one hand, the causation and contri-
bution settings recognise that the lead firm’s own decisions can be a cause for infringements
throughout value chains. Thus, the purchasing decision of lead firms or the way parent companies
set up subsidiaries in risky environments can expose right holders in weakly governed zones to
human rights abuses. In such direct involvement situations, the responsibility to respect becomes a
responsibility to cease harmful conduct.
188
On the other hand, the linkages and contribution
settings recognise that the conduct of business partners (e.g. suppliers) and the host state (i.e.
inadequate laws) are the cause of human rights abuses. Thus, lead firms are associated with private
and public actors infringing human rights and have to answer for the benefit they derive from or the
remote contributions to third party’s harmful conduct. In such indirect involvement situations, the
responsibility to respect becomes a responsibility to exercise leverage over the third party before
termination of the relationship is contemplated.
189
Regulating cessation and regulating leverage are two rather different tasks for lawmakers and
this has implications on the (coercive or less coercive) regulatory options available. Thus,
186. UNGPs (n 12) Principle 13.
187. ibid, Principles 17-21.
188. ibid, Principle 19 Commentary.
189. ibid.
Mares 209
regulating cessation is as simple as prohibiting the harmful conduct. For direct involvement of lead
firms, legal coercion is the appropriate strategy for the task of ensuring the company is ceasing its
harmful conduct and is held liable for its wrongful conduct.
190
However regulating leverage is
about mobilising and guiding leverage and not simply about instituting a prohibition. Could
coercive legal strategies hitting the top of the global value chain (lead firm) achieve this leverage
objective? The risk lies in creating incentives for lead firms to prematurely disengage from
business partners, as revealed in the DFA 1502 context of conflict minerals. Thus, applying legal
coercion on the lead firm has to be assessed against the danger of actually destroying the leverage
rather than securing that leverage. As a result, for indirect involvement of lead firms the regulatory
picture becomes complicated and one might need to look beyond coercive laws.
The peculiarity of protecting human rights in a transnational economic context needs to be
explained when pondering on coercive and less coercive regulatory options. The complication with
using legal coercion against lead firms as a way to regulate leverage lies in the compliance
response of the lead firm. Compliance with the law (e.g. a law mandating ‘human rights due
diligence’) could result either in strengthened protections for right holders through monitoring
and influencing affiliates or in the redirection of global value chains (GVCs) away from high risk
zones so the lead firm does not carry the administrative burdens and liability risks. Actually,
regulating coercively lead firms for their indirect involvement can be explained in terms of
frictions with three foundational principles: the legal separation of entities (company law), national
sovereignty (international law), and right holders’ interest in maximum leverage being mobilised
(human rights law).
191
These principles define the transnational BHR context and shape legalisa-
tion options.
192
The spectre of redirection of GVCs and the three foundational principles show the difficulty of
using legal coercion for indirect involvement situations, where the task is to mobilise the leverage
of lead firms. An important question remains: do less coercive strategies matter and can they ever
alter business conduct? The regulatory puzzle for less coercive mechanisms such as transparency
laws is: can they increase in strength without evolving into legally coercive forms targeting the top
of value chains? The beginning of the answer is to expand analysis beyond the lead firm-affiliate
relationship and account for developments in six transnational policy areas: international trade law,
international investment law, international human rights law, development cooperation, CSR, and
home state laws with extraterritorial effects.
193
They have a bearing on the governance of GVCs
and address causes of infringements at the top, bottom and throughout the chain. However most of
these developments are not coercive in nature, neither on states nor on businesses.
So even if all these developments are relevant and the density of such initiatives in the BHR
field has increased dramatically in the last 10-20 years, does the lack of coerciveness not doom
them anyway? There is some evidence that these channels increasingly align and interact, creating
new opportunities to harvest and direct their combined leverage towards the root causes of human
190. David Kinley, Civilising Globalisation: Human Rights and the Global Economy (Cambridge University Press 2009)
217.
191. Radu Mares, ‘Legalizing Human Rights Due Diligence and the Separation of Entities Principle’ in Surya Deva and
David Bilchitz (eds), Building a Treaty on Business and Human Rights: Context and Contours (Cambridge University
Press 2017).
192. Richard Locke, ‘We Live in a World of Global Supply Chains’ in Dorethee Baumann-Pauly and Justine Nolan (eds),
Business and Human Rights: From Principles to Practice (Routledge 2016) 305-308.
193. Mares (n 10).
210 Netherlands Quarterly of Human Rights 36(3)
rights infringements.
194
These new openings in multiple policy channels create the possibility to
devise a regulatory strategy of knitting harder and softer instruments into a protective network for
right holders.
195
A possibility appears to devise a strong ‘‘rope’’ from weaker threads. This is a way
to achieve strength without having to default on going coercive against lead firms at the top of the
chain. Transparency laws fit in this picture as a less coercive regulatory strategy but also as an
enabler of complementarities and interactions within the regulatory regime.
4.4. Functions of transparency laws in regulating global value chains
Once the place of transparency laws in the transnational human rights area has been demarcated
and justified, the question is what are the ways in which transparency laws contribute (or not) to the
increased protection of human rights?
First, transparency laws can serv e either an appeasing or a stepping stone function where
coercive strategies are genuinely needed. This can happen in both direct and indirect involvement
situations. In direct involvement cases where a company causes or contributes to harm, coercive
strategies are the only satisfactory option. Transparency laws might appear as appeasing businesses
in a laisses-faire mode and thus betray the lack of political will of home states to hold ‘their’
multinationals (lead firms) accountable and create much needed remedies for victims.
196
From a
different angle, such laws could appear as stepping stone, that is, a break with corporate voluntar-
ism and a first step on the ladder to coercive laws and corporate accountability. Even in indirect
involvement cases, transparency laws can act as a stepping stone. Thus, coercive strategies could
exceptionally be justified if the spectre of redirecting global value chains is acceptable: home states
might institute trade restrictions in exceptional cases (e.g. bans on importing blood diamonds or
products tainted by slavery), and host states might consent to take the risk of redirection of value
chains (e.g. not objecting to foreign laws with extraterritorial effects meant to protect human rights
throughout the value chain). Outside these two situations, tackling indirect involvement through
legal coercion becomes less feasible and problematic, and that requires alternative regulatory
strategies.
Second, transparency laws can by-pass challenges from the three foundational principles and
reach further into GVCs than coercive, command-and-control laws. Because disclosure laws do not
impose reparations for harm, they cannot hold the lead firm liable for harm in affiliate operations
and thus do not trigger objections based on the legal separation of entities in company law. Because
these laws are privately enforced, they are not as vulnerable to trade objections based on national
sovereignty as more coercive laws are.
197
Because of less incentives to redirect prematurely the
value chains, such laws do not shortcut the mobilisation of leverage that is important for the human
rights system.
198
Thus transparency laws have the function of managing frictions with foundational
principles characteristic to transnational BHR.
194. ibid.
195. Richard Locke, The Promise and Limits of Private Power: Promoting Labor Standards in a Global Economy
(Cambridge University Press 2013) 177.
196. Ben-Shahar and Schneider (n 8) 169-182.
197. Chon (n 128) (deeming California law as a policy tool with extraterritorial effects and less vulnerable to trade law
based challenges).
198. Kinley (n 190) 169.
Mares 211
In this light, these laws are not necessarily signs of lacking political will from home states to
hold MNEs accountable, but have a crucial role in mobilising leverage from stakeholders with a
bearing on GVCs. By not being outright coercive, transparency laws have a special ability to cross
jurisdictional borders and organisational boundaries in ways that coercive laws cannot. So, there is
a good match between transparency as regulatory strategy and GVCs as an organisational system.
Transparency laws are able to track a moving target like GVCs and reach deep into these chains.
Third, transparency laws function as part of a package of regulatory measures in a multi-
layered and decentred legal order such as BHR.
199
This legal order cannot revolve around coercive
laws at the top of GVCs. However, such transparency laws generate internal and external dynamics
and direct or more remote effects on companies, users and even other legal orders. Within this
transnational legal order, transparency law s can perform several useful functions: innovation,
facilitation of evolution of legal orders, and integration of a fragmented governance order.
Fourth, the innovation-promoting function is evident in supply chain management. Businesses
are asked under the UNGPs to eliminate their contributions and exercise leverage over their value
chains. The latter is no straightforward task for lead firms when competitive market pressures are
strong, the complexity of value chains is daunting, and the causes of human rights abuses run deep
(e.g. in host countries). Innovations around supply chain operations have occurred during the last
20 years of CSR and there is an appreciation that more complex solutions are needed in contrast to
simplistic ‘auditing’ approaches of yesteryears.
200
The ‘comply or explain’ approach itself is an
answer to such complexity and was developed to generate organisational innovations and fast
adaptability of companies to their environment.
Notably, there is also innovation needed in reporting. Guidelines for sustainability reporting are
still evolving to capture relevant dimensions and deliver more ‘material’ information,
201
starting
with the 20 years old Global Reporting Initiative,
202
continuing with the International Integrated
Reporting Framework,
203
and most recently with the arrival of the UNGPs Reporting Frame-
work.
204
It appears that mandatory disclosure can trigger innovation either through internal effects
on corporate decision-making (internal reflection) and/or on users (dialogue and engagement).
205
Fifth, transparency laws have a facilitation function for the evolution of the transnational legal
orders. This seems to operate in at least two ways. First, these laws have triggered effects in other
legal orders: they impact on more coercive laws already existing or being contemplated by policy-
makers, and can reinforce or trigger private and hybrid, public-private CSR governance
schemes.
206
Second, transparency laws are able to stimulate discussion and action on root causes
of infringements, reveal difficulties and good practices. With an approach to change depending on
leverage from numerous private and public stakeholders, transparency laws can steer dialogue on
199. Ruggie (n 1) xliii–xliv.
200. Locke (n 195) 2-3.
201. European Commission, ‘Guidelines on Non-Financial Reporting’ (2017/C 215/01), para 3.1.
202. See website Global Reporting Initiative accessed 2 May 2018.
203. See website Internet Reporting (IR) accessed 2 May 2018; Ruth Jebe, ‘Sustainability
Reporting and New Governance: South Africa Marks the Path to Improved Corporate Disclosure’ (2014-2015) 23
Cardozo Journal of International & Comparative Law 233 (commenting on the internal and external dynamics this
reporting template triggers).
204. See website UNGPs Reporting Framework accessed 2 May 2018.
205. Choudhury (n 7).
206. Section 3.2.B.
212 Netherlands Quarterly of Human Rights 36(3)
policy options and collective action. Thus, transparency laws can facilitate the development of a
multi-layered legal order around GVCs.
Sixth, transparency laws have integrati ve functions. GVCs are wrapped in a multi-layered
governance order mixing laws of home and host states, and involving public, private and hybrid
forms of governance and standard-setting. However, the issue of policy incoherence is pressing
and recognised in the UNGPs as well as by numerous policymakers.
207
To the extent that trans-
parency laws generate meaningful information and dialogue, they can be the magnifying lenses
that expose policy misalignments and inconsistencies. That can facilitate efforts toward policy
coherence and to find complementarities between policy instruments. Transparency laws can play
a coherence-enhancing function for a fragmented and evolving transnational legal order.
5. Conclusions
Are transparency laws ‘a hollow victory’? If the analysis is confined to direct effects, the answer is
hardly encouraging. Evaluations of corporate reports reveal a stream of uninformative reports and
superficial compliance. Responses from users such as consumers and investors have not been
overwhelming. Thus, the laws have so far not succeeded in a ‘name and shame’ mode of operation,
except maybe in corporate governance where ‘comply or explain’ requirements have generated
strong pressures. For the protection of human rights such laws seem inadequate and inherently
unable to overcome the profit motive and market pressures; furthermore, these laws could work in
a deregulatory mode to pre-empt needed coercive laws aimed at the top of value chains.
The picture becomes more complex when the more remote and rather diverse effects of dis-
closure laws are accounted for. There are both internal dynamics (i.e. impacts on decision-making
within the company) and external dynamics (i.e. impacts on users, the transparency law regime and
other legal orders) at play. For regulating the human rights impacts of GVCs, transparency laws
appear as a distinctive regulatory tool with genuine potential. Its merits become apparent once
contrasted with more coercive forms of law and when placed in the specific context of protecting
human rights in transnational business operations. One function of transparency law is to reduce
frictions with the legal principles shaping GVCs and to reach deeper into GVCs than more coercive
laws could. There are also functions regarding innovation, the evolution of legal orders, and the
integration of the polycentric business and human rights regime.
Declaration of conflicting interests
The author(s) declared no potential co nflicts of interest with respect to the research, authorship, and/or
publication of this article.
Funding
The author(s) received no financial support for the research, authorship, and/or publication of this article.
207. UNGPs (n 12) 8-10.
Mares 213
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