Weak points of the Initiative

Swiss companies do not wilfully violate human rights and environmental standards. On the contrary: they do not only comply with the applicable laws but also follow European standards when operating in newly industrialised and developing countries. In doing so, they do not only create jobs, pay taxes and invest in local infrastructure but also indirectly convey values and standards in dealing with people and nature. This does not only take place via export, but also through their local presence and direct investments in those countries. Therefore, the business activities of group companies are not the problem, but are rather part of the solution for social and economic challenges (see box).

Nonetheless, it has to be clear that it is primarily the duty of governments to ensure that human and environmental rights are respected. The companies have no sovereign powers and no instruments of enforcement. Their scope of action is limited. It is also quixotic to assume that globally active companies – even those with the highest CSR standards – succeed in preventing all abuses at their suppliers. Their ability to influence suppliers and subcontractors is limited or entirely non-existent. Suppliers are independent companies under their own management. So they cannot be controlled in the same way as a business department that is fully integrated within the company (see illustration). Companies already take action against critical incidents in their supply chain and endeavour to prevent them. However, this may prove very difficult, especially in companies that operate outside the group structure.

The Initiative takes a one-sided approach in enforcing penalties for abuses, causing more harm than good for humans and the environment in the process. Implementing the Initiative would lead to a juridification of Corporate Social Responsibility. Today's innovative means of cooperation with NGOs and local groups (communities) would be reduced to purely formalistic and legal questions by the forcefully imposed new risk assessments. This means the Initiative would result in a decline of CSR measures, and may force some companies to withdraw from newly industrialised and developing countries under certain circumstances. It is also likely that local companies would have to be excluded from the value chain, forcing companies to resort to vertical integration. Multilateral companies would become more dominant in the medium term.

Legislative activities in Switzerland must always be seen in the international context. With regard to the competitiveness of companies in Switzerland the consequences are clear: the appeal of the country as a business centre would drop and significant economic costs would arise. International cooperation within the framework of the UN, the EU and OECD would also be affected. Efforts to create a global uniform standard would be undermined. Even more serious is the fact that the Initiative also prescribes instruments that to some extent reduce the decision-making capacity of other countries in the matters (similar to a form of legal imperialism).

Various states are currently issuing new legal provisions in the field of CSR. New CSR legislation has been passed in the EU and in some other countries. However, such far-reaching liability clauses and interventions in the legal system as found in the Initiative have not been proposed anywhere. The foreign regulations basically require the same actions as recommended by the voluntary agreements that are widely accepted in Switzerland. But none of these legislative measures propose specific liability of companies in the event of violations of human and environmental rights. Not even the revised recommendation of the Council of Europe goes beyond the UN Guidelines.

Acceptance of the Initiative would be another blow to Switzerland as a business centre, with possibly serious consequences. Besides the legal uncertainty for all companies – also SMEs – it would call Switzerland's status as a business location for large group companies into question. If the Initiative were accepted, big companies could circumvent it quite easily by shifting their business activities to other countries. Everyone would then be affected since the group companies have a great economic impact that is often underestimated. About one third of all workplaces, tax revenue and the gross domestic product is generated from group companies with international operations. This does not include the interactions between group companies and SMEs serving as suppliers and depending on their local orders.

The Initiative demands the most massive intervention in the existing legal system and disregards fundamental principles of company, liability and private international law. Legally it goes far beyond anything found in the world today. The Initiative demands much more than new duties of care:

• The Initiative demands that companies check and monitor human rights and international environmental standards ("Standards") throughout the entire value chain, which means down to every supplier. Although this aspect is of paramount importance to the Initiative’s design, it is unclear which standards the Initiative actually refers to.
• ­The Initiative demands far-reaching liability provisions for companies if the Standards are not met. This liability extends to all companies that are "controlled" by a parent company in any manner, and here again it is not at all clear how far such controls would go.
• ­The Initiative proposes unconditional liability to the disadvantage of companies in Switzerland. They would be liable in all cases if they cannot prove that they monitor and implement the Standards throughout the whole international value chain (reversal of the burden of proof).
• ­Swiss courts would have mandatory jurisdiction over the legal enforcement, and Swiss law would stringently apply, not only for court proceedings, but also for contracts, encompassing the whole value chain (legal imperialism).