Kangaroo to the CORE
IT JUST GOT RISKIER AND MORE EXPENSIVE FOR CANADIAN COMPANIES TO DO BUSINESS OUTSIDE THE COUNTRY
The f ederal government announced last week its latest attack on Canada’s investment climate: The Canadian Ombudsperson for Responsible Enterprise ( CORE). The CORE will be mandated to investigate allegations of human- rights abuses linked to Canadian corporate activity abroad. While critical details on how the ombudsman will operate were absent from the announcement, it is clear that Canadian companies operating abroad were dealt a major blow. It just got riskier and more expensive for Canadian companies to do business outside the country. This responsible- business ombudsman’s scope will focus on the mining, oil and gas and garment sectors, with the expectation that it will expand within a year to other business sectors, and replaces the Office of the Extractive Industry CSR Counsellor, which served as a remediation service for complaints against Canadian mining companies.
The federal government expects the CORE to begin accepting applications for the job within weeks. However, whether the principles of natural justice will apply is an open question. In other words, will safeguards be in place to ensure procedural fairness? As this ombudsman will have the power to sanction companies through public disclosure, these principles should apply.
There’s reason to be skeptical about that, considering that this single organization will serve as both investigator and judge.
The CORE’s operating procedures are still being determined, including how decisions are made on whether an allegation should be investigated, how investigations are undertaken as well as how determinations will be made on the outcomes of these investigations. While the CORE is supposed to have the power to undertake independent fact finding, it is hard to imagine the ombudsman’s office having the resources to send investigative staff to places like the Congo to verify allegations.
While final reports will be shared with the party investigated, the standard operating procedures for appeals has yet to be determined.
Fair treatment for companies that are investigated may prove irrelevant given the new office’s already misguided policy on transpar- ency, which includes making all the stages of investigations public. By the time an investigation is completed, t he r e putati o nal damage may already be done, given how f ast i nformation spreads through social media.
The bonanza for the legal community could be substantial. 2018 may go down with Canadian lawyers as the year of the kangaroo. Public companies will likely have to disclose the material risks of possible allegations in securities filings. Accused companies will need legal representation, and there will be no shortage of frivolous allegations from organizations with their own agendas, such as NGOs seeking to stop projects altogether. Lawyers stand to profit from class- action lawsuits. There will also likely be libel lawsuits against the federal government settled at taxpayer expense.
Small companies are advised by the federal government’s website that they can protect themselves from investigations by following the human-rights standards laid out in UN and OECD guidelines. From briefly skimming these long dense documents, it is clear that they were drafted by i nternational bureaucrats who are not in tune with the real world. In summary, these standards state that it is not enough to be free of association with human- rights abuses. Companies must subject themselves to a monumental compliance burden to show this to be the case.
Many Canadian companies may decide their best option would be to avoid doing business abroad or to leave Canada altogether. For instance, many exploration and mining companies are based in Canada but only operate in other parts of the world.
It would be easy for these companies to relocate their head offices. With other recent policy changes such as a higher personal income tax rates, relocation may prove to be a no-brainer.
The CORE was described in the news release as the first of its kind in the world. It may be a long time before other jurisdictions follow suit. In promoting this ombudsman for business abroad, Canada’s trade minister has talked about the Canadian brand, using the beaver as a symbol of its value. Perhaps a kangaroo with a backdrop of a maple leaf will prove to be more appropriate.