Academic

Developing a Coherent Transnational Jurisprudence of Ethical Investing: The Norwegian Sovereign Wealth Fund Ethics Council Model Part XV

This Blog Essay site devotes every February to a series of integrated but short essays on a single theme.  The Ruminations Series in 2009 produced a series of aphoristic (?????????) essays, meant to provoke thought rather than explain it. The hope was that, built up on each other, the series would provide a matrix of thoughts that together might lead the reader in new directions. Ruminations continue to be produced form time to time.  For 2010, this site introduced a new series--Business and Human Rights.  The series took as its starting point the issues and questions raised by John Ruggie, the United Nations Special Representative of the Secretary-General (SRSG) on business and human rights, in a global online forum. 

For 2011, this site introduces a new series of integrated essays--Developing a Coherent Transnational Jurisprudence of Ethical Investing: The Norwegian Sovereign Wealth Fund Ethics Council Model.  The object of this series to to consider the work of the Ethics Council of the Norwegian Sovereign Wealth Fund.  The thesis of this series is this:  The Norwegian Sovereign Wealth Fund (NSWF ) investment program is grounded in the application of a set of Ethical Guidelines adopted by the Storting (the Norwegian Legislature) and enforced through an Ethics Council charged with determining whether a company should be excluded from investment by the NSWF.  The work of the Ethics Council has produced the beginnings of a coherent jurisprudence of ethics for corporate investment.  That jurisprudence may contribute significantly both to the development of transnational social norm standards and  affect the way domestic corporate law is understood. This is Part II of the series.

The Council sustains that since November 2007 the scale of uncovered corruption at Siemens has increased significantly, something that is shown through investigations of new units in several new countries. . . . .  Since the corruption case was revealed, Siemens has introduced several measures that may be expected to contribute to reducing the risk of further corruption in the company. . . . The external analysis of compliance procedures and control mechanisms, and the company?s centralization of the compliance organisation seem positive. . . .  Furthermore, some replacements have been made among management and board members.  (Spt. 3 letter at 4-5).

The Council also makes a note of the fact that the new corruption revelations did not come as a result of internal investigations where the company itself notified the authorities, but because of the public prosecutor?s raid at Siemens? headquarters in Munich. The Council finds that the company has shown a passive attitude in face of the detected corruption. It has only confessed insofar as it has been exposed in the media. Only after the SEC initiated a formal investigation of the company did Siemens feel obliged to act and implement various anti-corruption measures. It seems to be a characteristic trend that Siemens only starts the clean-up once it is forced to, and not on its own initiative. (Id., 5-6).

 1.  Company subject to investigation
    a. Name: Siemens http://www.siemens.com/entry/cc/en/
    b. form of organization (corporation, Partnership, etc.):  Public Company
    c. home country: Germany
    d. countries (exchanges) where shares are traded:  FWB, NYSE, FTSE
e. largest shareholders (individual, state owned enterprise, etc): FMR LLC, FISHER INVESTMENTS, INC., Tradewinds Global Investors, LLC, WELLINGTON MANAGEMENT COMPANY, LLP, Ameriprise Financial, Inc.
    f. form of investment by the Norway SWF fund: Equity

2.  Chronology
    a. Date complaint filed: 5 March 2007
    b. Date complaint resolved by the Ethics Council: 15 November 2007

3.  Complainant
a.  If the state, the office from which the reference was made:  The ruling appears to be based on the sole decision of the Council who made the decision following significant media hype and investigations by over 25 countries. It is unclear whether the Council had the intent of conducting an independent investigation, or if it bowed to public pressure.
b.  If not the state the name and affiliation and home state of the complainant entity: Possibly to wide spread media coverage, outside political views of the Norwegian Government not wanting to be seen aiding Siemens, or foreign bodies.

4. Complaint
a. Action constituting violation: Patter of bribery and corruption of public officials in numerous countries from 1992 to 2007 with complicity within the company and little oversight or penalties done by the company.
    b.  ?Legal? basis of violation: The Council?s own guidelines, numerous outstanding cases against the company, violation of law in many nations that the company operates in.

5  Determination
    a.  Council recommendation (for example divest, retain, wait): Exclude
    b.  Legal basis for the determination: Corruption
c.  Underlying legal basis (Norwegian law, international treaty, customary international law principle, soft law standard, etc.): This is one of the few cases where it appears that the Council is directly using hard/domestic law.

6.  Basis of Determination
a.  standard of decision (rule or test etc.): Possibly setting the foundation for more cases in corruption, the Council is attempting to solidify its basis for what constitutes gross corruption.
b.  Use of prior Ethics Council recommendations as precedent or as persuasive:First of its kind.
c.  Use of case law of other courts or bodies: The legal battles being fought in Germany, Italy, Norway, Singapore (all with different laws on corruption) along with the SEC investigation in the U.S. Additionally actions by Transparency International and other NGO?s had influence in the case by the Council.

d.  Reliance on other materials (identify):  Transparency International already cut off Siemens membership and numerous NGO?s were reporting on Siemens. ?The White Paper preceding the Ethical Guidelines allows for the exclusion of companies as a precautionary measure in cases that are very serious from an ethical viewpoint? (Para. 7 Pg. 3). Questions that still go unanswered is: Should the company be found liable because of the actions of individuals (is the company as a whole guilty of corruption, complicity, or negligence), corruption because evident in Siemens over fifteen years prior to the judgment, why was it 2007 that the Council chose exclusion, what happens to companies that are similar to Siemens, what is the definition of bribery, and does the legality in the host nation as depict what is bribery and what is not (i.e. campaign contributions that in some states would be illegal and seen as playing against democracy).
e.  Rationale: After significant amounts of evidence compiled against the company for over the last decade the decision was the exclude Siemens from the Fund.

Full post as published by Law at the End of the Day on February 15, 2011 (boomark / email).