Fair law: legal proposals to improve corporate accountability for environmental and human rights abuses

Filip GREGOR, Hannah ELLIS, European coalition for corporate justice (ECCJ), May 2008, 33 p.

The first Multinational Enterprises (MNEs) can be
traced back in law to the industrial age, amongst a
backdrop of vast improvements in global
transportation, rapidly expanding manufacturing
industries and emerging notions of free trade.
New legal structures were required to
accommodate the huge sums of capital needed to
fuel the industrial expansion. The new
corporations were provided with unique structures
and privileges – separate legal personality, limited
liability for shareholders and the ability for the
company itself to become a shareholder in other
companies (full legal capacity). These three pillars
of corporate structure continue to form the basis of
the legal corporate form today.

The underpinning of the company structure in this
way has, however, had undesired consequences.
Implicit in this structure is the notion that a
company should act solely in the economic
interests of its shareholders. This accountability
to the owners of the company has often been at
the expense of the company’s accountability to
other key stakeholders such as workers, local
communities affected by the companies
operations, and to society at large. States have
generally failed to reform relevant legislation in
order to address this accountability gap for a
number of reasons. One significant practical
obstacle has been the international law principle
of non-intervention. This prevents a state from
regulating the whole MNE, only the part of the
company registered within that state. Secondly,
there are requirements in the European Community (EC) for free European Market access
– EC law gives only limited scope for a Member
State to regulate its imports. International
initiatives aimed at addressing the accountability
gap also leave much room for improvement.

However, as this briefing describes, there are a
number of regulatory reform measures that the
European Union could take to help improve the
accountability of MNEs. This improved
accountability would help reduce the current
adverse international environmental and human
rights impacts of companies based in the Europe
but with a wider operational reach, as well as
international companies that operate within the
European market. Further, the measures proposed
would ensure that MNEs with responsible
environmental and human rights practices are not
placed at a competitive disadvantage within the

 Read the report "Fair law: legal proposals to improve corporate accountability for environmental and human rights abuses" (pdf)