Wednesday, June 15, 2011

USA: Some Thoughts on US Multinationals and Their Global Codes of Conduct

By Donald C. Dowling, Jr.

The world’s many multinational employers that are based in the U.S., when venturing out and setting up new overseas employment operations, inevitably look at their foreign human resources relationships through a U.S. lens. But there is a fundamental problem here: American employment-at-will is inherently inconsistent with other countries’ laws, customs, and employee expectations. While national governments outside the U.S. welcome inbound investment from American companies, there is a persistent “Trojan horse” fear that U.S. investors might bring with them their harsh employment‑at-will approach, fomenting social disruption. Back in 2000, for example, the New York Times reported a “frenzy of concern in France that American pension fund investments in French companies might be promoting layoffs of French workers to benefit American retirees.” (Suzanne Daley, "Europe’s Dim View of U.S. is Evolving into Frank Hostility," N.Y. Times, Apr. 9, 2000, at 1.)

But perhaps this fear is unfounded. American employers figure out, quickly enough, that an enormous gulf separates their U.S.-domestic, market-oriented employment rules from the more benevolent workplace laws in the rest of the world. U.S. multinationals tend to bridge this gap by exporting a number of core tools and operating assumptions to their outside-U.S. employment relationships that help adapt to the very-different overseas employment-law environment. One of these is the phenomenon of the global code of conduct—many, probably most, U.S. multinationals export core human resources principles to overseas workforces via some sort of global employee code of conduct.

According to the International Labour Organisation website, “corporate codes of conduct do not have any authorized definition…. [T]here is a great variance in the way these statements are drafted.” Indeed, “code of conduct” is not a term of art, but is merely a label affixed to a range of corporate and non-governmental-organization policies. That said, though, a huge number of major multinationals based in the U.S. have issued a global conduct code that spells out certain rules applicable across their worldwide operations. The typical U.S. multinational’s internal employee code of conduct contains:

· anti-bribery provisions consistent with the U.S. Foreign Corrupt Practices Act
· anti-fraud and whistleblower-hotline provisions consistent with U.S. Sarbanes‑Oxley
· anti-discrimination/harassment provisions consistent with the extraterritorial reach of U.S. Title VII, the Age Discrimination in Employment Act, and the Americans with Disabilities Act.

Yet the principles underlying most of these codes tend to fill only a fairly shallow pool of employee rights—many of which U.S. law imposes extraterritorially anyway, or else already exist under host countries’ domestic employment protection laws. Few U.S.-imposed global employee codes of conduct grant to outside-U.S. employees of the multinational conglomerate significant, otherwise-unavailable substantive rights. In fact, while global employee conduct codes often extend some minimal protections to a multinational’s own workers overseas consistent with the organizational commitment to corporate social responsibility, perhpas American multinationals issue these internal codes as much to meet their own externally-imposed obligations, such as under laws that extend extraterritorially outside the U.S. But beyond perhaps-self-serving code of conduct provisions, multinationals' internal, global employee codes usually pepper in a number of other provisions influenced by American human resources practices, such as clauses addressing the employers’ right to monitor employee computer use, bans on workplace smoking and alcohol/drug use, confidentiality provisions, and restrictions on nepotism/co-worker dating.

This said, though, in discussing internal global employee codes of conduct we have to distinguish the confined and separate phenomenon of external global supplier codes of conduct. U.S. multinationals usually view their social obligations as extending only to their own employees (and independent contractors) with whom they have contractual privity. But there is a key exception: A subset of American multinationals—mostly those in the retail, apparel, toys, and home-improvement industries that source own-label product from the developing world—tends to impose on their developing-world suppliers external “sweatshop” codes of conduct meant to protect the suppliers’ employees from inhumane practices and employment law violations. After a series of highly-publicized scandals in the 1990s involving brands such as Nike, Wal-Mart and Kathy Lee Gifford, large American retail, apparel, toys, and home-improvement brands started imposing external codes of conduct on their suppliers. Some multinationals outside these industries, notable including General Electric, also impose tough codes on their suppliers. Indeed, by this point a mini-industry has sprung up around drafting, monitoring and enforcing external supplier codes.

After deciding to offer a code of conduct global, the issue becomes logistics. Any multinational launching, or revamping, a global employment-context code of conduct should first distinguish whether it needs an internal (“ethics”) code or an external supplier (“sweatshop”) code. In drafting a global code of conduct, a multinational should avoid copying a form from some other employer. Instead, tailor a code to the issuer’s own cross-border business needs, using a checklist of possible topics and omitting inherently-local matters better relegated to local employee communications. Once the code is drafted, the focus needs to turn to a legally-compliant global launch. Follow the necessary steps to ensure the code becomes enforceable in all applicable countries.

Donald C. Dowling, Jr., Partner, International Employment, White & Case LLP