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The Importance and Application of
the OECD Guidelines for
Multinational Enterprises for
Argentine MNEs
This report has been prepared by the University of San Andrés’ Corporate Governance Program in 2019, with funding provided by the British Embassy in Buenos Aires 2019 Project Fund. The views
presented in this guide do not necessarily reflect the views of the British Embassy in Buenos Aires, nor the United Kingdom Foreign and Commonwealth Office. To contact the report authors, please
send any correspondence to [email protected]
1. Introduction 2
2. Overview of Multinational Enterprise Guidelines 4 The Role of National Contact Points 4 Why MNEs Should Continue Developing Good Governance Practices 5 Benefits of Adoption 9
3. Overview of Argentina’s MNEs by Sector 12
4. Assessment of Argentine MNEs Compliance with OECD MNE Guidelines by Topic 18
5. Conclusion 25
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1. Introduction For many years, as an Organization for Economic Cooperation and Development (OECD) adhering nation, Argentina has continued to progress in its efforts to strengthen its capital market by adopting and promoting a plethora of voluntary, internationally sanctioned and supported principles and guidelines in the realm of business. Many of these guidelines focus on how companies in a host country should conduct their operations to support global development goals. Although all enterprises, regardless of structure, size, location, or industry should strive to uphold the highest standards of corporate governance - the concept that refers to the relationships that exist within a company between its board, management, shareholders and other internal and external shareholders - it is important to note that different governance structures are more appropriate or relevant for some businesses depending on the nature and complexity of their operations. For example, multinational enterprises (MNEs) take on an entire set of challenges traditional domestic businesses do not; this includes providing products and services across borders, adhering to multiple sets of labor, competition, and taxation laws, and maintaining strong relationships with shareholders from all over the world. As such, the OECD has created a set of voluntary guidelines specifically aligned for these companies, the OECD Guidelines for Multinational Enterprises, that Argentina adheres to. The Guidelines aim to improve overall market conditions in each country through a series of responsible business conduct recommendations aimed at the country’s multinational, and thus often largest, companies. The aspired outcome of adoption of the recommendations in the Guidelines by a country’s MNEs is that there will be a resulting increase in corporate transparency, greater trust between companies and consumers, and fairer competition across the market. In light of the adoption of the MNE Guidelines not receiving hitherto as much attention as other initiatives in Argentina (such as the G20/OECD Principles of Corporate Governance), this report aims to assist in the promotion of the recommendations of the MNE Guidelines in Argentina by 1) analyzing the various recommendations in the MNE Guidelines and offering justification as to why MNEs should seek to go beyond general corporate governance standards, 2) examining Argentine MNEs as they exist presently, and evaluating how they measure in comparison to the MNE Guidelines, and 3) offering recommendations to Argentine MNEs on the steps they can take moving forward in pursuit of better levels of corporate governance and adopting the practices recommended in the MNE Guidelines.
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As an emerging market with many young MNEs hoping to expand, the Argentine market, from government and businesses to individual consumers, would greatly benefit from the proposals outlined in this report, and adhering to the recommended practices outlined in the MNE Guidelines. With the greater standard of corporate governance that stems from adhering to the covered recommendations, the Argentine market would be able to position itself as a more attractive destination to receive increased investment, development and overall business growth.
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2. Overview of Multinational Enterprise Guidelines The OECD Guidelines for Multinational Enterprises are principles and recommendations on good governance procedures for companies that conduct business on an international scale. Put forth as non-binding doctrines, the Guidelines are the only multilaterally agreed and comprehensive code of responsible business conduct that OECD adhering governments have committed to uphold. The principles help businesses operate reliably with respect to both codified laws and established international standards in order to promote three aspects of sustainable development: 1) higher economic growth; 2) human and social development; and 3) environmental protection. The Guidelines, in their most recent form, were adopted by the 42 OECD adhering governments on May 25, 2011, at the OECD’s 50th Anniversary Ministerial Meeting. Although the OECD has published many declarations discussing good governance practices, these principles are unique in their focus on the role that multinational enterprises have in advancing OECD development goals. New chapters include guidance on human rights, due diligence, supply chain management, and consumer interests. Furthermore, there are updates on practices regarding employment and industrial relations, the environment, and disclosure. In total, part one of the Guidelines is divided into eleven distinct chapters: I) Concepts and principles; II) General Policies; III) Disclosure; IV) Human Rights; V) Employment and Industrial Relations; VI) Environment; VII) Combating Bribery, Bribe Solicitation and Extortion; VIII Consumer Interests; IX) Science and Technology; X) Competition; and XI) Taxation. Additionally, the OECD Guidelines for Multinational Enterprises introduced a new implementation mechanism in the form of National Contact Points (NCPs). These agencies are established by adhering governments to help promote and implement the Guidelines. The NCPs also serve as a platform for mediation or resolving practical issues that may arise with regard to the Guidelines. Part two of the Guidelines is focused entirely on how to establish the NCPs and various procedural steps to take when implementing the Guidelines.
The Role of National Contact Points Unique to the OECD Guidelines for Multinational Enterprises, National Contact Points (NCPs) are the mechanism in which OECD adhering nations not only promote the principles outlined in the Guidelines, but also mediate disputes. Although the MNE Guidelines grant countries a great deal of flexibility in establishing their NCPs, there are certain requirements that must be met. Specifically, the Guidelines offer four criteria to help establish “functional equivalence” among all NCPs.
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1. Visibility: Adhering governments should ensure that businesses and the community
know of services and materials provided by the NCP. 2. Accessibility: Adhering governments should facilitate easy access to the NCP so that
it can respond to issues in a timely manner. 3. Transparency: In general, activities and decisions by the NCP should be made
known to the public. This, in turn, will promote public trust and confidence of not only the NCP, but also its services and the enterprises it works with.
4. Accountability: All NCPs report to the OECD Investment Committee. Furthermore, all NCPs should hold regular meetings and build relationships with business leaders and government officials in their respective regions.
In addition to these criteria, NCPs are tasked with the responsibility of resolving disputes in a manner that is impartial, predictable, equitable, and compatible with the Guidelines. NCPs do not typically handle cases on their own initiative. Instead, they will adjudicate cases when requested to do so by adversely impacted individuals, unions, or non-governmental organizations (NGOs).
Why MNEs Should Continue Developing Good Governance Practices
Good corporate governance practices are perpetually evolving as businesses grow, expand and progress through their life-cycles. Although many multinational enterprises (MNEs) meet the general standards for good governance practices, the process is not complete. The OECD urges countries to be proactive in their approach to good governance in order to avoid needing to address problems retroactively. For MNEs, this responsibility extends further than for smaller corporations. As a result of their sheer size, many MNEs have a significantly larger impact on the societies and environments in which they operate, and do so across multiple jurisdictions. This influence is only magnified when the supply chain, including subcontractors, suppliers and joint venture partners, is included in calculations. Similar to how traditional companies may be scrutinized for having practices that fall below socially acceptable standards, MNEs are at risk of being scrutinized if any facet of their supply chain fails to uphold a certain standard in whichever jurisdiction it has operations in. As such, many of the recommendations in the MNE Guidelines charge MNEs with the responsibility of conducting due diligence reports not only on themselves but on their business partners as well . 1
1 The OECD have released an accompanying document on how to perform due diligence to ensure responsible business conduct - OECD Due Diligence Guidance for Responsible Business Conduct.
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Furthermore, MNEs, governments, and consumers alike should have a vested interest in cultivating healthy investment climates for the regions in which they operate. Investments are the backbone for ensuring that MNEs are able to operate in several different regions and sustain strong growth for the future. Healthy investment climates help to spur sustainable development and economic growth in the region. Countries with established and fair labor laws, healthy ecosystems, strong anti-bribery commitments and an educated consumer base, are strong candidates for securing future investments. Although the MNE Guidelines do not cover topics such as shareholder relations or board composition in as much detail as the G20/OECD General Principles, this is not because these areas are not viewed as important for MNEs. Rather, it is assumed that MNEs would already meet the standards in these key areas, allowing them to instead focus further on developing practices in more specific issue areas, to be discussed in detail below. Disclosure Timely and accurate release of information is an important component of good governance for all corporations. Whereas the General G20/OECD Guidelines on Corporate Governance emphasizes the disclosure of financial information to relevant shareholders, stakeholders, employees, and potential investors, the MNE Guidelines focus on additional items of non-financial disclosure that MNEs can look to publish. Although disclosure policies of enterprises should be tailored to the nature, size, and location of the enterprise, the MNE recommendations prompt a greater level of accountability on a wider range of issues. In addition to reporting information regarding the company’s financial situation, performance, ownership and governance, as well as the remuneration of its board members and key executives, MNEs should also disclose information in “areas where reporting standards are still evolving, such as social, environmental, and risk reporting”. Furthermore, it may be prudent for MNEs, when applicable, to disclose information on the activities of other partners in their supply chain. Doing so offers interested parties a transparent look into the interconnected relationship that many MNEs have with other businesses. As another additional step, enterprises are encouraged to provide easy and economical access to published information, especially for communities that might not have access to printed media (for example, poorer communities that are directly affected by the enterprise’s activities). Human Rights
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In the General G20/OECD Principles of Corporate Governance, corporations are encouraged to disclose information regarding human rights practices. This recommendation is expanded upon in the MNE Guidelines which contains six new principles that mandate enterprises to make commitments to address and/or remediate rights complaints, decrease violations of partner companies, and disclose steps that their companies are taking to improve human rights in the region. These new principles reflect a greater responsibility being placed upon MNEs. Although there are several declarations on human rights that MNEs could use as standards, the Guidelines suggest that enterprises should, at a minimum, uphold those outlined in the International Bill of Rights. Employment and Industrial Relations Although the General G20/OECD Principles of Corporate Governance do not explicitly address Employment and Industrial Relations issues, the International Labour Organization (ILO) does exist as the competent body to set and deal with international labor standards. As such, many of the guidelines outlined in this chapter of the MNE guide reflect ILO standards. Enterprises are encouraged to respect their workers' rights to establish and join trade unions and representative organizations of their own choosing. Furthermore, enterprises are encouraged to assist said organizations in the development of effective collective agreements. This can include disclosing relevant information and granting union representatives access to the necessary facilities. Additionally, companies are encouraged, to the greatest extent practicable, to employ local workers and provide them with training to improve skill levels. During the process of hiring employees, enterprises are encouraged to make explicit proactive commitments against child labor and compulsory labor. Enterprises are also encouraged to offer wages and benefits that are at least adequate to satisfy the basic needs of workers and their families. Environment The MNE Guidelines devote an entire chapter to outlining practices that enterprises should take to be proactive about their commitment to protecting the environment. The recommendations include measures such as establishing accessible environmental goals and reporting on progress towards these goals, providing the public and employees with information regarding environmental impacts and training workers on environmental health and safety. In addition to these proactive approaches, enterprises are encouraged to be accountable for any environmental damages associated with them or their partners. Combating Bribery, Bribe Solicitation and Extortion
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In the G20/OECD General Guidelines, companies are encouraged to comply with statutes criminalizing the bribery of foreign public officials as outlined in the OECD Anti-Bribery Convention. MNEs are encouraged to do the same and are, moreover, encouraged in the MNE Guidelines to form collective agreements with other enterprises and publicly announce commitments against bribery. The MNE Guidelines direct enterprises to abide by the principles outlined in the anti-bribery recommendations from the 2009 OECD Anti-Bribery Convention. Consumer Interest The chapter on consumer interest in the MNE Guidelines builds on the work of the OECD Committee on Consumer Policy. It introduces eight recommendations discussing how enterprises should provide products and services to consumers. The OECD recognizes that markets are becoming ever more complex. As such, the OECD is encouraging enterprises to make the consumption of goods and services as simple as possible. This includes providing adequate health and safety information and ensuring that similar goods are easy to compare. Furthermore, enterprises should establish and publicize the mechanisms that they will use to handle consumer complaints, especially when complaints involve cross-border purchases. Additionally, enterprises should be cognizant of both the benefits and dangers associated with collecting personal data from consumers. Although the data is a useful tool to gain insight about consumers, it is important that the information be securely and properly managed. Science and Technology The MNE Guidelines offer guidance on how to handle technology and the sciences; something not covered by the General Guidelines. It is recommended that enterprises support the rapid dispersion of technology, respect intellectual property rights, and, when appropriate, work with host governments, universities, and communities to offer research opportunities, given that MNEs can often possess large in-house research and development capabilities. Competition and Taxation The MNE Guidelines recommend that enterprises refrain from entering into or carrying out anti-competitive agreements among competitors. This includes price fixing, collusive tenders, establishing output restrictions/quotas or dividing markets by allocating customers, suppliers or territories.
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Enterprises should be sure to support the public finances of host countries by making timely payments on their tax liabilities. This is more than simply fulfilling a legal obligation. Adhering to these principles helps strengthen the market and investment climate; spurring the flow of more capital into the region.
Benefits of Adoption
When MNEs enact the highest corporate governance standards, markets, enterprises, and host countries are all recipients of the benefits. On the whole, a market stands to gain from having enterprises that adhere to the highest corporate governance standards. Investors recognize that companies which practice the more stringent principles of corporate governance can be the companies which are more stable, more efficient, and safer investments in the long-run. As a result, these markets with higher standards of corporate governance and investor confidence have a higher inflow of capital. This contributes to the growth of new firms, which fosters competition. This competition not only spurs improved products and services as businesses compete for consumers, but it also incentivizes new or smaller firms to increase corporate governance standards as they vie for investments. It is this cyclical pattern that will lead to market growth and sustainability in the long run. When markets fail to uphold sufficiently high standards, investors are more hesitant to enter the arena, seeing investments as higher risk. Failing ecosystems can deter investments in many industries. Furthermore, if there is a history of bribery, worker rights violations, and data protection issues, investors will be more hesitant to be associated with businesses in the market. For both reputational and fiscal reasons, these market-wide failures represent a significant risk that can postpone or even prevent investment. Good corporate governance helps to avoid these problems, increase confidence and strengthen markets. Robust standards and a strong market are also positive factors for enterprises. Corporations are the beneficiaries of a strong market with a strong investment climate. Many businesses view developed markets as opportunities to have access to more consumers, more partners, and more capital. Furthermore, when companies collectively agree to uphold standards involving bribery or unfair labor practices, for example, they will not have to be as concerned with competitors using these practices to gain an advantage. Companies with strong products or services will welcome the competition in a fair market where consumers are well-informed, and where they can position themselves as market-leaders in sustainability areas, such as Unilever (see box below).
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Unilever: Best in Class Unilever is a British-Dutch transnational fast-moving consumer goods company that distributes over 400 brands in approximately 190 countries worldwide. Their good governance practices have assisted them in their efforts to be very active in emerging markets, with over 58% of their turnover coming from these regions. Even as one of the largest and most valuable enterprises in Europe, Unilever acknowledges that its commitment to corporate governance does not cease when it meets only the most basic standards. In publications that are easily accessible and regularly updated, Unilever explains how it is attempting to uphold the tenets listed in the MNE Guidelines. On their web-page, it is easy to access documents concerning Unilever’s corporate governance policies. In its overarching document, The Governance of Unilever, there are commitments to the basic principles outlined in the G20/OECD General Guidelines in addition to commitments to newer principles such as protecting the environment, promoting consumer interests, eradicating child and compulsory labor and fighting bribery. Unilever also commits to ensuring that its business partners also have standards that are in alignment with OECD development and governance goals. Unilever recognizes that not all of the principles are equally applicable to their enterprise. Some sections, such as anti-bribery or competition, are not as detailed, while other sections, such as employment or the environment, are discussed at length. Other companies, such as JP Morgan, instead place more of an emphasis on covering taxation, anti-bribery and competition in their corporate governance documents, due to these topics more direct relevance to JP Morgan’s operations. It is important to note that although not all principles are equally applicable across all companies, they should be equally considered by a company and taken into account when drafting their reports. Often, enterprises will find that they, or someone in their supply chain, undertakes operations relevant to a principle that was not previously acknowledged in a company’s reporting. Furthermore, in its annual statements, Unilever outlines good governance goals and the plans necessary to achieve said goals. Understanding the impact that a poor ecosystem will have on its food products, Unilever has pledged to halve greenhouse gas emissions by 2030 and reduce landfill usage during the same time-frame. Unilever aims to accomplish this goal by targeting the production process in its supply chain and prompting partners to craft products in a manner that makes them easier to be reused and recycled. This example demonstrates how enterprises can go beyond the recommendations in the G20/OECD General Guidelines and follow the MNE Guidelines: not only has Unilever published findings on its environmental impact, but it has also
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disclosed information about its partners and how it hopes to influence their practices and promote greener standards throughout its supply chain. The extra steps Unilever has taken to implement exceptional corporate governance standards have correlated to recognition and success for the firm. In 2018, Unilever was named industry leader in the Dow Jones Sustainability Index (DJSI) - an index used by investors to recognize businesses who are committed to sustainability goals surrounding the environment, economics, and social issues. Unilever also earned best scores in a number of other areas including product stewardship, innovation management and packaging and climate strategy. Many of the proposed guidelines do not require exhaustive changes to established governance procedures. In many cases, as shown by Unilever, corporate governance can be improved by simply issuing official statements in support of socially accepted standards, formalizing mechanisms to address potential wrongs, and being transparent about practices of the company and other parties involved in the company’s operation.
Lastly, countries as a whole can expect to experience spillover benefits as well of MNEs with high standards of corporate governance operating in their domestic markets. Foreign companies bring investment, technology, resources and demand for labor into a region; the critical facets of regional growth and development. This is especially important for emerging-market countries. Good governance can sometimes be sufficient to offset questions investors may have about market stability in a region. The World Bank’s Business and Development Discussion Papers find three important principle conclusions when analyzing the effects of good corporate governance on country market growth: (1) investors will pay a higher premium for good corporate governance, (2) good corporate governance reduces the cost of debt, and (3) good corporate governance improves the stability, operational efficiencies and sustainability of businesses. In Brazil, for example, firms with above average corporate governance had returns on equity that were 45% higher and net margins that were 76% higher than those with below-average governance practices. Furthermore, companies with the best corporate governance in each of a large number of emerging market countries had eight percentage points higher measures of economic value added than the average firm. Good corporate governance has the potential to yield substantive benefits for the entire market.
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3. Overview of Argentina’s MNEs by Sector Argentina is categorized as an emerging market with strong potential for growth in the coming years. This report analyzes 24 large multinational enterprises who are headquartered in Argentina, which are also to be among the leading enterprises in their industry. Although not every Argentine MNE is covered in this report, it is a sample that spans nearly a dozen different sectors ranging from Technology and IT to Engineering and Waste Management. To conduct the analysis, this report has examined the corporate disclosure documents, including codes of ethics, sustainability reports, and annual reports of each company, which are available on its respectives websites. While this approach allows for each company’s and industry’s transparency practices to be matched with those of the principles of the MNE Guidelines, such an analysis does not account for how each company acts in practice. For example, certain companies featured below have been involved in the recent notebooks corruption scandal (‘el caso de los cuadernos’), which has revealed repeated acts of bribery in the private sector in Argentina. Therefore, the following assessments should not be considered as a definitive statement on the actual corporate governance practices of the companies featured, but rather an indication of the degree of public corporate governance information that each company makes available on its website vis-a-vis the recommended practices of the MNE Guidelines.
Technology Industry
Company Industry
Globant Technology
Mercado Libre Technology
BGH Technology
The ASSA Group IT/Technology
Despegar Online/Travel
As is also true worldwide, the technology industry is rapidly growing in Argentina. Strong legal protections, effective human resources and incentives and promotional regimes have all helped facilitate an environment where tech companies can mature. From 2003 to 2013, the Argentine industry grew more than two-fold from 1,852 tech related services to nearly 4,300.
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Although many of these new enterprises are small and medium sized businesses, the larger Argentine MNEs are regional leaders in the market. In 2018, Globant operated in thirteen different countries, employing over 8,000 people while earning nearly $525 million in revenue. Mercado Libre operates in 18 countries, is publicly traded on NASDAQ, and earned over $840 million in profits in 2016. Other leading Argentine tech MNEs include Despegar, BGH and the ASSA Group. With regards to corporate governance transparency standards, the surveyed companies uphold many of the general G20/OECD corporate governance guidelines, and all of the surveyed companies have a code of ethics or corporate governance document that is easily accessible online. Many of the companies are successful in explicitly committing to maintaining good investor relations, and responsible board management. For example, the ASSA Group is especially effective at disclosing information outlined in the MNE Guidelines. Their annual sustainability strategy report outlines the steps they are taking to improve the environment and their community, as well as containing information about competition with fellow businesses, access to technology and innovation, and consumer education. Particularly noteworthy, The ASSA Group gives detailed results about a youth education program that they help coordinate in Argentina, Brazil, Chile and Mexico. They also specifically link their corporate goals with United Nations development goals about the environment and consumer education. However, in general, the reporting of the surveyed Argentine MNEs did not cover in any, or hardly any, detail many other chapters of the MNE Guidelines, including those on especially relevant areas such as science and technology, consumer interest and competition, and taxation. It does not appear that Mercado Libre, BGH and Despegar make statements in their code of ethics or annual report explicitly committing to avoid the use of child or compulsory labor, for example. There are therefore areas in which Argentine MNEs on the whole can work to improve their disclosures to cover more thoroughly the topics highlights in the MNE Guidelines.
Food/Agri-business Industry
Company Industry
Arcor Food Products/Agri-business
Molinos Food Products/Agri-business
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San Miguel Food Products/Agri-business
Sancor Food Products/Agri-business
Havanna Food Service/Holdings
Grupo los Grobo Agriculture
Cresud Agriculture
The agriculture industry is one of the most important sectors for the Argentine economy. Argentina is a world leader in beef, citrus fruit, soybeans and wheat exports, and, in total, agriculture accounted for 6% of Argentina’s GDP in 2017. The industry is home to a variety of different agriculture-related enterprises which also have a presence in other countries. This includes mega-farms, such as Cresud and Grupo Los Grobo, that operate in several countries, including Paraguay, Uruguay, Brazil and Bolivia. Other agri-business and food-product MNE companies include Arcor, San Miguel, Molinos, Sancor and Havana. Presently, many of the surveyed Argentine agri-sector MNEs are doing an effective job at disclosing relevant information and upholding MNE Guideline transparency principles. Generally, the observed enterprises adequately cover in their reporting more advanced issues of corporate governance including making commitments against human rights violations, adhering to fair labor laws, fighting bribery, informing consumers and protecting consumer rights and fair competition. Especially noteworthy, all of the MNEs have sections of their annual reports or code of ethics devoted to proposing environmental goals and plans for achieving stated goals. This is particularly important for an industry that heavily depends on a healthy ecosystem and that has high impact on the natural environment. In 2019, Arcor and Grupo Los Grobo were recognized as worldwide leaders in good corporate governance principles . They each ranked #1 in their respective industry (food 2
and agriculture) after completing four different evaluations conducted by panels of senior executives, financial analysts, experts in corporate social responsibility and consumers. Exemplary results like this help enhance the reputation of not only these MNEs, but also the market they work in. As a result of the high standards of these two agri-business companies - along with YPF, another Argentine leader in corporate governance recognized in 2019 - Argentina was commended for corporate governance progress by hundreds of senior executives globally.
2 In the 9th edition of the ‘Merco Corporate Governance and Responsibility’ Rankings.
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That being said, other Argentine food and agriculture MNEs could benefit from making some of their information easier to access. The disclosure documents for Havana and Cresud could be difficult for the average consumer, or even investor, to find. Additionally, the OECD has identified employment and industrial relations as a specific area of concern for the agriculture industry. Particularly, agricultural workers in many countries are excluded from national labor laws, and are subject to low wages, dangerous working conditions, and there remains a largely unrecognized role for women in the industry. As a result, it may also be prudent for agricultural companies to adhere to recommendations outlined in the OECD-FAO Guidance for Responsible Agricultural Supply Chains. This complementary document advises larger agricultural businesses on how to use their leverage to incentivize better labor policies from smaller farms. Energy Industry
Company Industry
Pan American Energy Energy
Pluspetrol Energy
YPF Energy
Argentina’s natural resources help support a strong energy industry. Argentina is an exporter of gas, petroleum and coal and constitutes the third largest power market in Latin America. YPF, Pan American Energy and Pluspetrol comprise three of the larger multinational energy enterprises in Argentina. YPF controls over $24 billion worth of assets and employs more than 14,000 workers. Pluspetrol has a presence in eight countries, with Pan American Energy also operating throughout the region. The enterprises in this sector are well established, and do a reasonably sufficient job adapting and changing their transparency practices to keep pace with evolving corporate governance standards. Of the three observed energy sector MNEs, all use their annual statements or code of ethics to cover human rights, environmental, bribery, and science and technology topics. Additionally, in 2019, YPF was recognized globally as an industry leader in upholding corporate governance standards . 3
3 In the 9th edition of the ‘Merco Corporate Governance and Responsibility’ Rankings.
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Although the companies already meet many G20/OECD general corporate governance transparency guidelines and the MNE Guidelines recommended transparency practices, they could still improve by being sure to explicitly state their adherence to rules that they already follow. For example, although all of the companies commit to fair labor practices, they could take the extra step by also being sure to state that they respect the rights of employees to unionize, when the laws stipulate, and bargain as a group. They could also lay out policies for maintaining channels of communications with union representatives. Another step might also include publishing procedures used for addressing any harm they may cause to the community or environment they work in. The MNE Guidelines encourage enterprises to take a proactive approach to problem solving whenever possible. For enterprises in the business of extraction this often times includes conducting comprehensive due diligence reports of third party suppliers to ensure that the supply chain does not use products from conflict areas. Construction/Engineering Industry
Company Industry
Techint Group Construction
IECSA Construction
TECNA Construction
IMPSA Engineering
Construction and engineering is one of the larger service industries in Argentina. Construction and engineering account for over 5% of Argentina’s GDP and employ close to 8% of the labor force. Argentina’s leading MNEs in the industry include: TECNA, IECSA and the Techint Group. The Techint group, along with its subsidiaries Tenaris and Ternium (both of which are traded on the Argentine stock market, earns over $24 billion in revenue each year employs more than 50,000 workers and has completed projects in 45 different countries. Two of the three surveyed companies recognize that they should, at the very least, make statements about their environmental and social policies. Unfortunately, many of the statements are vague and fail to present concrete goals followed by plans of action to achieve these goals. After the initial step of claiming to be against anti-bribery for example, companies should follow up in their disclosure documents about plans to train their employees on the steps they can take to identify and avoid bribes. This is particularly
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important for the construction sector which has been heavily involved in the recent notebooks corruption scandal looking at public works contracts. In general, there is a lot of room for improvement in reflecting the transparency principles outlined in the MNE Guidelines for the Argentine construction MNEs. This includes annually publishing both financial and non-financial governance policies, opening channels for good investor relations, and being proactive about helping to develop the community and environment in which the enterprises operate. Other Industries
Company Industry
Roemmers Pharmaceuticals
Grupo Bagó Pharmaceuticals
CLISA Waste Management
Plastar Group Plastics
Biosidus Research & Development
Other MNEs in several industries are also taking steps to improve their transparency practices. Companies such as CLISA (Waste Management) and Biosidus (Research and Development) have easy to access information about various corporate governance issues. For example, CLISA has distinct, in-depth reports about some issues that it deems very important such as anti-corruption. There are two examined Argentine MNEs that operate in the pharmaceutical industry, Roemmers and Grupo Bagó. The disclosure documents for both of these companies are difficult to find on their website. It is important that consumers, partners and investors have easy access to these documents in order to promote transparency and accountability, and to work towards reflecting the transparency recommendations of the MNE Guidelines.
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4. Assessment of Argentine MNEs Compliance with OECD MNE Guidelines by Topic When looking at Argentina as a whole, many of the MNEs are somewhere in between fulfilling the recommended transparency practices of both the General G20/OECD Guidelines and the MNE Guidelines. MNEs across the market should aim to progress to the next level of corporate governance disclosure standards as laid out in the MNE Guidelines. This includes regularly publishing financial and non-financial information annually in a manner that is easily accessible to the general public and also includes conducting due-diligence reports, not only on the company and its operations but on the operations of third-party partners as well. Building on the analysis found in Section III, the below chart 1 on the application of the MNE Guidelines by Sector fulfills the function of providing a snapshot of how each major industry is performing in the various issue areas of the MNE Guidelines. To produce the results of the table, the disclosure practices of the sampled enterprises were judged based on information made readily available to the public online. For each topic area, a business was given a score of one to five grading the coverage of the relevant topic in its available corporate disclosures (ranging from not covered, 1, to excellently covered, 5), with the scores averaged for companies across each industry.
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It is important to highlight that this analysis does not necessarily reflect actual corporate governance practices of the sampled companies, but is a reflection of the transparency and disclosure practices and their comparison with the recommended practices of the MNE Guidelines.
The result is that the sampled companies in the agri and energy industry show the overall combined highest levels of coverage of the MNE Guidelines topics in their available corporate disclosures, with the construction industry lagging behind. When it comes to specific topics, some sectors have clear strengths and weaknesses, which will be explored further below. This section now again divides the MNE Guidelines by chapter; this time to offer recommendations on how enterprises and boards in Argentina can best work towards implementing more of the transparency principles of the MNE Guidelines. Before doing this, it is important to highlight the crucial role of the Board of Directors as being the instrumental body that drives both cultural changes and ensures responsible business conduct is carried out through a company. In an era with an increased focus on corporate governance, the responsibility of the Board is no longer solely to pursue maximum profits for the company. Although financial motives remain a priority, best corporate governance practices require that Boards be at the forefront of the efforts that build company-wide cultures centered around integrity, accountability and proactiveness in stakeholder relations, which ultimately may also serve the purpose of fulfilling financial goals and sustainable viability of a business. Companies have a dual responsibility to the communities and markets in which they operate; a responsibility to maintain a healthy ecosystem, promote fair competition and pay taxes to host countries. This is an approach that starts at the top with the Board, and through good leadership and long-term agenda setting with various directors and managers, this culture should permeate through an entire organization. As such, a company’s Board of Directors will be ultimately responsible for ensuring that the transparency standards outlined in the MNE Guidelines are adopted and enforced within the company. This will take the form not just of providing a strong commitment to adhere to the practices of the MNE Guidelines, but also the practical steps of ensuring that the appropriate internal structures are formed and adequately maintained. The Board is the body with the ability to define the roles and responsibilities of internal departments, and should ensure that each relevant officer and body have the autonomy necessary to conduct its function, free from interference. For example, in regards to respecting labor laws or environmental regulations it is often prudent for there to be separate jurisdictions
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for managers reporting standards and managers in charge of production or sales to ensure objective disclosures. General G20/OECD Corporate Governance Principles Across most industries, there appears to be good compliance with the transparency practices recommended in G20/OECD General Guidelines from Argentine MNEs. Most of the enterprises publish financial statements, release information about their Boards (including measures to maintain or increase Board diversity), and have channels for communicating with relevant shareholders and investors. The pharmaceutical industry is the only sector where information is more difficult to find. Each company’s corporate reports vary in structure and points of access but fulfill their function. For example, some industries, such as energy and construction, have separate documents or web-pages specifically for their environmental sustainability reports. Conversely, several companies in the tech industry have entire documents devoted to how they involve the community in their innovation plans in order to increase consumer knowledge and technology dispersion. Disclosure Looking at the MNE Guidelines, with regards to the recommended disclosure practices, all industries would benefit from releasing more information about third-party partners in their supply chain, which is currently largely lacking. Companies should clearly outline potential risks associated with their chosen partners as well as plans to ensure that their partners uphold the same values as the firm. Additionally, more companies should have entire documents, protocols and/or web-pages devoted to outlining their sustainability policies. These documents could be integrated into the annual financial report or be stand-alone. Ensuring that such information is collated and known internally by a company is a prerequisite before a company is able to disclose it. It is thus imperative for a company’s corporate governance structure to contain adequate reporting and communication lines, information collation procedures, and disclosure policies that allow for front-line employees to collect reliable data that is consistent across a company’s operations. Such information gathering often goes hand in hand with control processes, which also require the internal collection of data and information on supply-chain partners. The benefits of strengthening these corporate governance aspects leads to more effective monitoring throughout a company’s operations, and ability for senior management and the Board to exercise their oversight function and enact strategy based off of reliable, accurate and full information. Additionally, shareholders and potential investors have a right to access reliable and
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comparable information in sufficient detail for them to assess the stewardship of management and to make informed decisions. In some cases, it may be in the companies interest to appoint an Investment Relation Officer to assist shareholders and investors in information gathering. Human Rights Currently, the agriculture and energy industries seem to be better positioned in reflecting the human rights disclosure practices outlined in the MNE Guidelines than the other industries. The majority of agriculture and energy companies sampled cover the issue extensively in their annual reports or on their sustainability web-page, whereas the issue is not widely covered by the sampled companies in the technology and construction industries. In general, many companies have preliminary statements about respecting human rights, but the next step as per the MNE Guidelines is to go further and be proactive about preventing violations; in both the enterprise and in partners. Additionally, companies should formalize mechanisms and procedures they would use to acknowledge and redress potential human rights violations. Dispute resolution mechanisms and procedures for dealing with grievances (whether derived internally or externally to a company) are important to formalize, and to be communicated to relevant staff members, prior to any such dispute or grievance, which may not be limited to one involving a human rights violation. Acting proactively instead of reactively allows for a company to stay ahead of any potential issues, deal with it efficiently, and gives internal and external stakeholder confidence that the company takes the issue seriously, and has actual procedures in place to deal with the issue instead of merely having a commitment to it. Employment and Industrial Relations Employment and industrial relations covers a wide range of issues ranging from union rights to fair wages and safe work environments. A number of Argentine MNEs begin to touch on some of these issues in their reports. For example, many companies, especially in the agriculture industry, provide policies to ensure the safety and health of their workers. That being said, these are initial steps that can be developed upon, as outlined in the MNE Guidelines. For example, despite all companies abiding by laws that forbid child and compulsory labor, few explicitly publish commitments to help eradicate these practices. It is often the case that companies can build good relations with investors and the public by disclosing more information about their compliance practices.
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Regarding industrial relations, Arcor is one of the few companies to take the step of discussing the role of unions and collective bargaining in their enterprise in their disclosures. Although discussion of unions may not seem relevant to many industries, for some investors or stakeholders it is still important that companies at least acknowledge these topics and show themselves as being proactive in preventing problems in these areas from arising. Similarly to the topic of human rights, being proactive and formalizing procedures and mechanisms for ensuring that labor regulations and standards are upheld by a company and its supply chain partners is vital in giving confidence to both employees and other stakeholders that the company takes the subject seriously. It is important that internal control systems are adequately resourced, trained and equipped to monitor workplace safety, and ensure that both relevant labor laws and internal procedures are adhered to. Furthermore, effective communication of violations or deficiencies in labor conditions or practices is imperative to both ensure unnecessary sanction from authorities, and to promote a culture of safety. Whistleblowing channels that protect the anonymity of the whistleblower and protect them from any recriminations are a vital component of upholding labor standards and identifying lapses. In many cases, it is the responsibility of the board to set the tone at the top and convey to managers the importance of encouraging the reporting of unlawful and unethical behavior. The Board should also feel responsible for the protection of these whistleblowers, and give them confidential direct access to someone independent of the board, often a member of an audit or an ethics committee. Environment The environment is universally mentioned by Argentine MNEs across all industries, with all of them recognizing that they have an impact on the environment in which they operate. Although this is a critical realization, there is space to go further. Businesses in the energy and agriculture sector are making it a regular practice to publish their environmental sustainability goals as well as their plans to meet these goals, complying with the transparency recommendations of the MNE Guidelines in this area. Other industries should follow this example. Furthermore, all enterprises can improve on the coverage of their partners’ environmental policies. This is especially true for food and agriculture companies where supply-chains are large and there is a greater chance for variance among corporate values. Larger MNEs should also consider to use their influence to promote green policies throughout the entire market, regardless of their industry.
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Consideration of the environment is not only a topic that is related to the corporate disclosure of a company’s environmental impact, but instead can be treated transversally throughout a company’s operations from the strategy-formation level, through to risk identification and management, compliance, and reporting. Attention should be paid to not only a company’s operational impact on the environment, but also how a changing environment can present risks to a company’s operations, and affect medium- and long-term strategy formation. The latter renders climate change and environmental change as important factors to consider, irrespective of the particular sector a company finds itself in, and by adequately including environmental change into regular strategic discussions and risk analysis, all companies will be able to more accurately plan for their future operations. Combating Bribery, Bribe Solicitation and Extortion The degree to which Argentine MNEs abide by the transparency recommended MNE Guidelines practices concerning bribery and extortion varies greatly. No single industry covers the issue particularly better or worse than another, although, there are some companies that cover the issue in far greater detail than others. For example, The ASSA Group, Despegar, and Pluspetrol have entire documents and/or employee training programs disclosed which are devoted to ensuring that their company refrains from intentionally or unintentionally soliciting bribes. The remaining companies could improve their corporate governance further by following the example of the aforementioned companies and publicly disclosing clearly their practices in their code of ethics or annual reports. Aside from greater disclosure, combating bribery directly relates to how solid and thorough a company’s compliance and internal control structure is. Providing employee trainings in bribery, and procedures for identifying and eradicating instances of it, are as crucial as fostering an overall culture of compliance that promotes honest business operations, and the easy identification of business practices that fall short of appropriate standards. Although the Board can adopt overall standards, it is ultimately the responsibility of a company’s management to provide employees with the training and resources to learn how to combat bribery efforts. Moreover, it is the responsibility of the Board to provide employees with a confidential, yet direct avenue of voicing knowledge of unethical behavior to the Board. Consumer Interest & Science and Technology Many sampled Argentine MNEs indirectly address consumer interests in their corporate reports. Across several industries, enterprises pledge to distribute their products fairly and provide health and safety warnings when appropriate.
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Consumer education has close ties with the science and technology aspect of corporate governance principles. A well-informed consumer base strengthens markets and is ultimately beneficial to both producers and consumers. Many businesses, especially those in the technology industry, are undertaking initiatives to educate consumers and provide training on how to use certain products and services. The ASSA Group even publishes the results of these initiatives in their reports, sharing success stories about communities gaining access to new inventions or providing more resources to schools. All industries, especially the food and agri-business industry, could improve their corporate governance disclosure procedures by committing to accurately label products in a way that facilitates easy comparison of similar goods, as recommended by the MNE Guidelines. This would promote competition in the market while also giving individual consumers more choice. Such strategies of improving communication with clients directly relate to how a company interacts with its various stakeholders, and manages these relationships. Formalizing mechanisms and internal procedures to identifying, mapping and communicating with a company’s stakeholders, including customers, is a vital exercise that allows for proactive engagement strategies to be identified and enacted. Internal awareness of stakeholder engagement plans gives confidence to employees, and helps foster a unified culture and approach to a company’s external communication. Competition and Taxation Many sampled Argentine MNEs across several industries have made commitments to maintain free and fair competition in the marketplace. This includes refraining from exclusive price manipulation practices and implementing quotas or restrictions. The MNE Guidelines make compliance with this facet of corporate governance fairly simple. It is in the collective interest of all enterprises to have healthy competition and a well financed host-country. In as much as taxation involves the adherence with local regulation and accurate financial reporting, this area directly relates to a company’s internal audit procedures and financial oversight by its audit committee and Board of Directors. Going further and making public commitments to upholding high standards of adhering to taxation and reporting practices, as well as ensuring fair competition and operations, helps to elevate this area to one that is indicative of a company’s overall corporate culture and commitment to good corporate governance.
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5. Conclusion
In this report, an analysis and discussion of the importance of the OECD Principles of Responsible Business Conduct for Multinational Enterprise, the MNE Guidelines, for Argentine multilatinas has been undertaken. While Argentina has been seeking to allign corporate governance standards with those of the OECD, such attention has been largely focussed on the G20/OECD General Principles of Corporate Governance, and improving awareness of the MNE Guidelines will be beneficial in developing further the standards in the Argentine market. It is apparent that current transparency and disclosure practices of Argentine MNEs across all sectors varies greatly, with some companies offering greater detailed information in their corporate reporting regarding many of the topic areas of the MNE Guidelines. In order to provide increased confidence to their stakeholders, and raise standards as a whole throughout the Argentine market, it is recommended that While the disclosure recommendations in the MNE Guidelines will assist in promoting an adoption of higher standards by Argentine multilatinas, such disclosures also need to be accompanied by action and the adoption of internal processes and practices. Best corporate governance practices are forever evolving for every company, and it is vital that Argentine MNEs can continue to review and improve their own corporate governance practices, as doing so will help them to be more resilient and attractive to investors.
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Contributors to this version
Santiago Chaher Co-Director Corporate Governance Program at Universidad de San Andrés & Managing Director at Cefeidas Group [email protected]
Juan Cruz Díaz Co-Director Corporate Governance Program at Universidad de San Andrés & Managing Director at Cefeidas Group [email protected] Christopher Burt Corporate Governance and Compliance Lead Specialist at Cefeidas Group [email protected] G Terrell Seabrooks Corporate Governance and Compliance Intern at Cefeidas Group [email protected]
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