EIDHR - Training on
Monitoring International Mechanisms
July 2010
Module 3
International corporations, and their human rights
obligations
Indigenous Peoples Links (PIPLinks)
http://www.piplinks.org
Plan of presentation
1.
Explanation of key words & concepts
2.
Structure of a company and of the industry, including
industry bodies
3.
Globalisation & role of financing
4.
State obligations - companies and human rights
1a. Keywords & concepts
• Capital / Capitalisation – Money, or total amount of money
possessed by a business, especially when used to produce
more wealth
• Corporation - A way for companies to organise (to be
‘incorporated’. A corporation is created by a corporate
statute, defined in its home country. It is a separate legal
entity distinct from its management and shareholders.
• Multinational company (MNC) / Transnational company
(TNC) - Business company which has production and/or
distribution operations in several countries, via
subsidiaries, holding companies etc.
1b. Keywords & concepts
• Globalisation – used in this case as economic globalisation
- is the integration of national economies into the
international economy through trade, investment (finance)
and migration
• Commodity – Something that is bought or sold – refers to
real items, such as gold, coal etc.
• Commodity super-cycle – Theory that prices for
commodities will, despite fluctuations, keep rising over
time
2a. Size of the mining industry
Key financials
(source Price Waterhouse Cooper)
2008
$ billion
2007
$ billion
%
Change
Revenue (money earned)
349
284
23
Operating expenses
208
164
27
Adjusted earnings before tax
(EBITDA)
141
120
18
Net profit
57
66
(14)
Net operating cash inflows
104
83
25
Capital expenditure
66
48
38
Net debt
115
106
8
Distribution to shareholders
29
37
(22)
2b. Structure of mining industry
• The industry is huge. In January 2010 the world's biggest
100 mining companies had a US$2 trillion market value.
• There is a split between major (big) companies & junior
(small) companies – with some mid-tiers (medium sized)
• Commodity super-cycle was a huge time for mergers &
acquisitions – with the major companies growing bigger
• The world’s big three – BHP Billiton, Vale and Rio Tinto comprise 26% US$2 trillion
• See tables of comparison…
2c. Top 10 Multinational companies in 1995
Company
Nationality
Capital ($bn)
%share in top 100
BHP
RTZ
Anglo-American
CVRD
Barrick Gold
Alcoa
CRA
Alcan
Placer Dome
Western Mining
Australia / UK
UK / Australia
UK (SA)
Brazil
Canada
US
Australia
Canada
Canada
Australia
24.08
13.62
12.38
9.17
8.90
8.28
7.97
6.65
6.03
5.90
8.35
4.73
4.30
3.18
3.09
2.87
2.76
2.31
2.09
2.05
Source:James Cappel Global index, 1995
2d. Top 10 Multinational companies in 2010
Company
Nationality
BHP Billiton
Australia/UK
Vale (CVRD)
Brazil
Rio Tinto (RTZ)
Australia/UK
Shenhua
China
Anglo American UK (SA)
Suncor
Canada
Xstrata
UK/Switzerland
Barrick
Canada
FreeportMcMoRan USA
NMDC
India
Capital ($bn)
%share in top 100
209.11
165.70
135.45
83.70
60.99
58.15
57.13
40.98
37.87
37.20
10.45
8.28
6.77
4.18
3.05
2.91
2.85
2.05
1.89
1.86
Source: Barry Sargant, Mineweb – January 2010
2e. Where companies are spending money on exploration
Mining fever
In the global search for minerals, companies consider South America the hottest
destination. Liberalization of mining in the 1990s, sale of government mines, cuts to
local regulations and large areas of virgin land have made this region particularly
attractive.
3a. Structure of a mining company
• Corporations are considered in law to be a separate
“person” or legal entity: they enjoy the same rights as
people
• However, corporations do not have a conscience, and their
motives are entirely driven by their financial performance –
their “bottom line.”
• Issues like social, cultural and environmental performance
will only matter if they affect the finances of the company
• When a company engages in Corporate Social
Responsibility (CSR) it is to support the “bottom line”
3b. Public / private companies
•
A private company raises its money from “private” sources (e.g.
company founders or families or ‘sophisticated’ investors
including pension funds or hedge funds). De Beers or Glencore
are private companies
•
A public company sells shares to the public via stock exchanges
and similar public financial markets. People who invest in shares
of the company (whether private or public) are called
shareholders. Most mining companies are public (& include Anglo
American & Xstrata)
•
People who lend money to the company in the form of debt are
called creditors. These are mostly banks. They will receive interest
on the loan, while shareholders will receive dividends if the
company is in profit.
3c. Structure of a public mining
company
Shareholders
Voting control (AGM) Dividends
Non-executive (exec)
Executive
Interest
Board (led by Chair)
Creditors (banks etc.)
Loans
Management (led by CEO)
Subsidiaries
Staff
3d. Shareholders
•
Shareholders are theoretically in control of a public company
(however in practice this is often weakly implemented)
•
They will buy shares through one or more stock exchanges (that
may, or may not be, in the home country of the corporation). The
foundation document of the corporation and the stock exchange
in question will set out the rules for shareholders and company
•
Generally shareholders will get to vote on company policy and
practice once a year at an Annual General Meeting (AGM), where
the board are voted in & allotted power to run the company
•
Very often shareholders will be nominees (often banks, who
effectively hold the shares for other unknown actual owners,
known as “beneficial shareholders”). It is the nominees who can
vote, but often don’t – so it is a weak link
3e. Subsidiaries
• Corporations often form and own other corporations, which
are called “subsidiaries” (if they own over 50% of the voting
shares) or affiliates or related companies (if they own a
lesser portion)
• These subsidiary companies are considered to be
corporate persons separate and distinct from the parent –
and they can often be in different countries, e.g. TVI Pacific
in Canada and TVI Resource Development (Philippines)
• Many mining companies incorporate a separate entity to
manage each mine, if not each country. There can be an
endless chain of subsidiaries, affiliates and related
companies, incorporated in many different
places/countries.
3f. Example of structure - Lafayette
Corporate Set-up of the Lafayette
Group of Companies
LML
F&N
100% Foreign
100% LPI-Owned
100%
LMI
100% LML Owned Local Subsidiary
40%
RRHI
RRPI
100% LPI Owned
60%
40% LPI
60% F&N
40%
60%
Source: Rapu Rapu FactfindingCommission Report
based on 2005 General Information Sheets of RRPI,
RRMI, RRHI, LPI & F&N. 19th May 2006
RRMI
40% LPI, 60% RRHI (with nationality requirement)
3g. Majors - BHP Billiton
•
Recent capitalisation is US$209bn - BHP Billiton's London price is
currently near £21.00 a share. It has a vast array of interests.
•
During its latest three financial years (to 30 June), BHP Billiton
produced cash flows [real money income] totalling US$25bn
•
BHP Billiton's base metals division posted underlying profits of
US$8bn during the financial year to 30 June 2008, before crashing
down to US$1.3bn for financial 2009
•
Underlying profits from nickel crashed from US$3.7bn in 2007 to a
loss of more than US$800m in 2009. Rumours it will leave nickel
all together, but definitely moving out of local ‘laterite’ nickel, with
the selling/closing of Australian refineries (Ravensthorpe &
Yabulu)
•
BHP Billiton has been looking to merge with Rio Tinto
3h. Majors - Vale
• Based on national Brazilian iron ore production (on
indigenous land), and is still the world’s biggest producer
of iron ore pellets, and second largest of nickel (behind
Russia’s Rusal)
• Company was privatised in 1997, and changed its name
from CVRD in 2007 (after acquiring Canada’s second
largest company, Inco for $18.9bn). Left it with huge debt,
which is still a problem for its stability/viability
• Although it prides itself on a good CSR policy, the company
has recently been locked in a series of strike actions
(especially in Canada), with international mining unions
3i. Majors - Xstrata
•
Founded in 1926, but it was really created in 2002 when it was
listed on the London Stock Exchange (to be the public vehicle for
private trading company Glencore, which is still the biggest
shareholder)
•
Has had a meteoric rise by mergers – including Falconbridge and
MiM. It looked at buying Anglo American but pulled back.
•
Expansion has also left it with a big debt (but did not stop CEO
Mick Davis making $8million on selling his shares in October
2009)
•
There are many campaign issues with the company around the
world – including Colombia, Argentina, Chile, Canada & Australia.
There are Swiss & London groups concerned with the company.
3j. Majors & the Philippines
• BHP Billiton pulled out of its last mining operation in 2009
(although still has off-shore oil exploration)
• Rio Tinto pulled out of the Philippines in 1999 (leaving
much of their exploration areas to likes of TVI &
Oxiana/Royalco). They met with President GMA in London
in September 2009
• Anglo American confirmed it was withdrawing from the
Philippines in April 2010.
• Although Vale is still talking about investing in the
Philippines, it only leaves Xstrata with serious interests
3k. Junior companies
• There are a large number of juniors, the majority registered
on the Toronto (Canadian) Stock Exchange (TSX), then
Australian Stock Exchange (ASX) & London’s Alternative
Investment Market (AIM)
• There are plenty of new companies being speculatively
linked to Philippines (including Metals Exploration and
European Nickel from UK, CGA and Rusina from Australia
and Philippines Metals & MBMI from Canada).
• Based on past experience much of this will be speculation
• There is an attempt to legislate to control Canadian juniors
after many problems – struggle still ongoing
4a. Mining industry bodies - GMI
• The idea of ‘Sustainable Mining’ was work of the Global
Mining Initiative (GMI), leading up to the World Summit on
Sustainable Development (WSSD or Earth Summit in
Johannesburg in 2002
• The founders of GMI included BHPBilliton, Rio Tinto, Anglo
American, Freeport McMoRan, Western Mining and
Newmont (biggest companies at the time)
• The outcome was to feed into the WSSD process and
resulted in the questionable insertion of the term
“sustainable mining” into the post WSSD plan of action
4b. Mining industry bodies - MMSD
• This led to a supposedly ‘multi-stakeholder’ Mines Minerals
& Sustainable Development Initiative or MMSD (based at an
NGO in London) – but the idea came from a meeting in
meeting of GMI in Davos, Switzerland
• MMSD was widely criticised and boycotted by Indigenous
Peoples organisations, NGOs with expertise on the issue
and mines affected communities as its framework,
objectives and structure were all set by industry
• It produced a final report called Breaking New Ground in
2002, see http://www.iisd.org/mmsd/)
4c. Mining industry bodies - ICMM
• The International Council on Mining and Metals (ICMM) was
established in 2001, to continue this work
• Is is also based in London, and has 19 mining company
members (including all the majors) & 30 mining
associations.
• It produces regular publications, on issues like human
rights and complaints mechanisms. It represents the
industry in international meetings and pushes multistakeholder engagements
4d. Return of ‘CSR agenda’
•
During the financial crisis CSR in the mining industry was
mainly ‘downgraded’ (no representatives came to Manila
meeting on Indigenous Peoples in March 2009)
•
It is now ‘back with a vengeance’ - 2010-11 to be the years that
‘sustainable mining’ will be discussed at the UN Commission on
Sustainable Development
•
ICMM is working on a number of initiatives, including a flawed
process on engagement with indigenous peoples – industry is
really challenged by FPIC
•
Climate change increasingly a big issue for industry & the
major players have shifted from a denial position to damage
limitation
5a. Globalisation & role of financing
•
There has been a massive increase in the amount of money being
invested around the world, and in how inter-linked it has become
thanks to new trading rules, deregulation and liberalisation
•
Much of this is truly ‘private money’ (in unregulated areas such as
hedge funds or derivatives trades) that is often based on pure
speculation. This new private money is a real challenge to
campaigners, as who it belongs to is often truly private (hidden)
•
Hedge funds are private funds, who partly exist to effectively bet
on the stock-market (through different instruments, including
betting shares will lose value, called ‘short-selling). Derivatives
are effectively bets laid on the future prices of commodities
•
Estimates of the size of the derivatives market was $600 trillion in
September 2008.
5b. Globalisation & role of financing
• Globalisation is a threat, but globalisation and new
technologies have made companies more vulnerable to
organised international protest and opened up “ethical
investment”. This is the globalisation of activism
• There are different types of finance – these can roughly be
broken down into private (personal) and public (state / taxpayers) financing.
• Most financing is private - $178 billion was loaned by
private banks for mining between 2001-6, as opposed to $8
billion by the World Bank
5c. Types of private finance
•
These can roughly be broken down into shareholder investment
(equity – or stocks and shares), who make up the bulk of company
capital, and lenders (via direct loans or bonds)
•
They are made up of the companies themselves (for ownership or
‘buy-back’), banks, pension funds, professional equity
(investment) funds. Then there is individual or truly private money
(including shady hedge funds & derivatives, which is effectively
the unregulated, hidden, sector)
•
The growing size of all this private finance has created a ‘wall of
money’ that led to risky investments, and eventually the financial
crisis of 2008-9
5d. Types of private finance
•
These can roughly be broken down into shareholder investment
(equity – or stocks and shares), who make up the bulk of company
capital, and lenders (via direct loans or bonds)
•
They are made up of the companies themselves (for ownership or
‘buy-back’), banks, pension funds, professional equity
(investment) funds, and individual or truly private money
(including shady hedge funds & derivatives – the unregulated
sector)
•
Much of this unregulated sector is often pure speculation or
difficult to monitor – estimates of the size of the derivatives
market was $600 trillion in September 2008. This has created a
‘wall of money’ that led to the financial crisis of 2008-9. This new
private money is a real challenge to campaigners
5e. Types of public finance
•
There is multilateral public and national public investment
•
Multilateral public money, is primarily through development
banks, which include the World Bank and the Asian Development
Bank
•
National investment can be direct via state-owned enterprises
(SOEs), for instance the governments of China or India, or
increasing nationalisation in Latin American countries like
Venezuela. There can also be tax benefits, subsidies & hidden
support for infrastructure.
•
Also governments are indirectly controlling, primarily by
becoming shareholders, with ‘sovereign wealth funds’ (ironically
mostly created by extractive industry profits). These include ones
listed in Abu Dhabi, China and the Norwegian Pension Fund
5f. Insurance
•
Mining companies also need to insure their projects, so
will have insurers. Very often the insurers will have a
keen interest in environmental and social issues (as they
will pay out for any problems)
•
Insurance can be private (via private insurance
companies) or public. Public insurance tends to be
‘political risk insurance’ – from likes of World Bank’s
Multilateral Investment Guarantee Agencies (MIGA) or via
start Export Credit Guarantee agencies
5g. Commodities
•
Companies are very vulnerable to constant changes in
the price of commodities (their products)
•
Commodity markets in 2009 had their strongest year
since 1973 (but from a very low base after the financial
crisis) – it is basically about people snapping up bargains
and not wanting to invest in stocks
•
Allegedly the commodities super-cycle, which ran from
early 2002 to peak out between mid-2007 and mid-2008,
has largely resuscitated itself over the past year.
5h. Commodities
•
Copper, lead and zinc have each risen by more than 100% in
dollar terms during 2009
•
There is a belief the copper price will hold as supply is still
fundamentally tight. However, no-one is really sure of stocking
levels in China & rumours are that they are over-stocked having
bought up at bargain prices
•
Over 2009 gold prices have rocketed to record heights close to
$1,200 an ounce (& have gone up to $1,500) an ounce. Gold
does not follow clear rules of supply & demand, and people are
buying as a ‘hedge’ against inflation
•
However, at least some commodities are rumoured to be
‘bubbles’ – platinum, uranium, lithium, rare-earths
5i. Industry recovery from financial crisis
•
Industry has bounced back from low point in late 2008, but it is
very precarious. It is important that the lows were very low – so
this is only a relative recovery, mostly based on opportunism
•
Surprisingly not many small companies went bust – although
predicted by Frasier Institute (half the companies on TSX) &
many were close (TVI is a good example)
•
Most companies are still badly in debt – industry as a whole
estimated to be over £50bn in debt, which is a weak position
(although have been winners & losers)
•
The economic recovery is tentative – it relies on government
subsidies, government borrowing & at present Chinese (&
Indian) growth/stability
5j. Financial research
•
Research on companies, their bankers, shareholders and
financiers is essential (& much can be done via Internet)
•
However, it can be complicated and frustrating. The main
banker who holds the accounts for a mining company may not
be its biggest lender, some lending could be for the company
and some for projects or done in consortiums.
•
Even where shareholders are publicly available they may be
nominees
•
There are good guides, research tools and researchers to help –
notably Cornerhouse “Campaigners Guide to Financial
Markets”
6a. State obligations, companies and
human rights
• There is a particular frame-work for business and human
rights
• This is being developed by John Ruggie, the UN SecretaryGeneral’s Special Representative on Business and Human
Rights
• There has been a growing correlation globally between the
extractive industries & human rights abuses, and it is
getting worse
• Because of this there have been growing interest and
numbers of people working on the issue
6b. Mining and human rights abuses
•
The extractive industries are extremely vulnerable to
human rights and environmental risks. John Ruggie,
noted that the sector accounts for two thirds of the cases
of alleged human rights abuses reported by nongovernmental organisations (NGOs).
•
Examples include:
•
the current assault of the Indian Government on ‘naxalites’ in
the tribal areas in the North-east of the country
Arrests and harassment of anti-mining activists in China &
Vietnam
Riots & community confrontations in Peru & Ecuador
Recent murders of activists in El Salvador & Mexico
•
•
•
6c. State obligations - companies and
human rights
• Internationally only States (governments) have human
rights duties imposed on them by international law (as
covered in earlier modules)
• Companies have to obey the laws of their home countries,
and countries they are operating in, but in theory they have
no other obligations (although they say they respect them –
and join voluntary initiatives like the UN Global Compact)
•
In 2004, the UN Commission on Human Rights debated
draft Norms on Transnational Corporations and Other
Business Enterprises. These tried to impose (secondary)
obligations on companies, which vehemently resisted them
6d. Special Representative on B&HRs
•
This led to an impasse, and in 2005 the UN Secretary General,
Koffi Annan, appointed John Ruggie (a Harvard Law Professor) for
a 3-year term as his Special Representative on Business and
Human Rights to further investigate the issue
•
In June 2008, Professor Ruggie presented a policy framework,
called the Protect, Respect and Remedy framework, and his
mandate was extended until 2011 to create practical
recommendations on how it should be implements
•
Ruggie does not hear individual complaints, but if you copy in his
office information will feed into his work (& may be quoted in
reports etc)
6e. Protect, Respect and Remedy
•
This provides three differentiated but complementary
pillars:-
•
the state duty to protect against human rights abuses by
third parties, including business, through appropriate
policies, regulation, and adjudication
•
the corporate responsibility to respect human rights,
which in essence means to act with due diligence to
avoid infringing on the rights of others
•
greater access for victims to effective remedy, judicial
and non-judicial
6f. Implementing the framework
•
Although there are still arguments over the framework, things
have moved on to try to implement it, and various initiatives
have started to assist
•
These include work on a set of guiding principles on the
corporate responsibility to respect and related accountability
measures (various initiatives including those by ICMM & OECD)
•
Reviewing obstacles to accessing justice and sharing on
mechanisms – including Wiki site (http://baseswiki.org/)
•
There are other initiatives including creating human rights
impact assessments (HRIAs) & supporting legal cases
End thoughts
• “Of all those expensive and uncertain projects which bring
bankruptcy upon the greater part of the people that engage
in them, there is none more ruinous than the search for new
silver and gold mines” - Adam Smith - The Wealth of
Nations (1776)
• ”Corporation: An ingenious device for obtaining profit
without individual responsibility.” - Ambrose Bierce