Filling the governance gap: multi-stakeholder standard-setting -- The Board of Directors

Editor’s note: This post is the first in a new occasional series, “Filling the Governance Gap: Multi-stakeholder Standard-setting,” which examines the features of multi-stakeholder initiatives that set and enforce standards for human rights in different business sectors.

Governance gaps exist where transnational companies (TNCs) operate in states that cannot, or will not, fulfill their obligations to protect the rights of their own citizens. Multi-stakeholder Initiatives (MSIs) have emerged to address these governance gaps in specific industries. Human rights governance MSIs, as distinct from best-practice sharing or certification MSIs, are voluntary initiatives that seek to govern the human rights conduct of TNCs in their global operations by creating enforceable rules for groups of competitor companies.  

Below is a chart summarizing the board membership structure of five MSIs: FairWear Foundation, the Fair Labor Association, Global Network Initiative, International Code of Conduct Association, and the Voluntary Principles on Security and Human Rights. These five MSIs are identified as human rights governance MSIs by the forthcoming textbook, Business and Human Rights: From Principles to Practice by Dorothée Baumann-Pauly and Justine Nolan.

Their boards are tasked with working together to reach the goals of the MSI. For example, the responsibilities of the board of the Fair Labor Association include voting on:  

·         The amendment of the Charter, Bylaws, or Articles of Incorporation;

·         The appointment or removal of the President, the Executive Director, or Senior Officers;

·         The adoption of the annual operating plan, budget, and the setting of annual dues;

·         The decision whether a particular Company, Retailer, Supplier or College or University Licensee is eligible to participate in the Association;  

·         The decision to approve a finding that products of a participating company comply with the Fair Labor Association Standards;

·         The decision to suspend the finding that the products of a participating company comply with the Fair Labor Association Standards and to place the company’s membership on special review or to terminate the membership. 

Board Structure of Human Rights Governance MSIs:

Board Size

As this chart shows, regardless of the number of members, there are six to nineteen board seats in each MSI. This is consistent with governance norms for non-profit organizations—a board should be large enough to get work done, but small enough to communicate and work as a team. In the non-profit sector, most indicators of good practice identify an appropriate board size as being between 9 and 14 members; for corporations, the average board size is around 11. Members of large boards may feel like their participation is too limited, but members of small boards may be over-taxed. Whether too big or too small, the wrong size board can cause board members to become disengaged. Board member disengagement decreases the quality of governance within the MSI and can decrease its effectiveness and ability to tackle human rights challenges.

Balance of Board Seats

By definition, MSIs include multiple stakeholders. These are represented in “pillars” within the MSI, which include companies and civil society organizations or NGOs, in addition to other groups, such as universities and academics, governments, or investors. This diversity is reflected in the board structure of the different MSIs. Strong representation from the non-business pillars helps reduce the perception of the “fox guarding the henhouse.” As this chart shows, regardless of the size of the membership in each pillar, in most MSIs, each pillar is allocated equal representation on the board. GNI stands out as an exception; it allocates half of its board seats to the business pillar, while the other half is divided between the other three pillars. Given the small number of company members in GNI, individual companies have greater influence in GNI than in other MSIs—GNI’s six member companies are allocated eight board seats.

Representing Affected Communities

MSIs seek to fill governance gaps by setting and enforcing standards for human rights in challenging business environments. One of the challenges MSIs face is how to engage affected communities, such as factory workers in the context of the FLA or the FairWear Foundation, or indigenous people and land owners in the Voluntary Principles, or Internet and smartphone users in GNI. All MSIs seek to represent the interests of affected community members through civil society and NGO participation on the board, but people from the affected communities do not serve on boards. For example, the FLA and FairWear both have designated seats for labor representatives, but there are no factory workers or national-level unions or workers’ rights organizations from major sourcing countries on the boards of either. This is an area ripe for further study and experimentation to more effectively bring in the voices of workers and communities to the governance of MSIs.

Qualitative Factors for Good Governance

Over the years, members of the Center’s staff – Michael Posner, Sarah Labowitz, Dorothée Baumann-Pauly, Auret van Heerden, and Justine Nolan – have been involved in many of the human rights governance MSIs, as board members, participants, and staff. Beyond what the numbers show, there are several qualitative factors that help create a climate of good governance:

·         Trust: Multi-stakeholder initiatives bring disparate parties to the same table, often in the wake of a crisis. The parties may have competing interest and a natural distrust of each other’s motives. Over time, successful MSIs build trust within and across membership pillars, while maintaining a healthy tension that allows them to fulfill their accountability functions. Good governance helps build the trust that is required to propel MSIs to meet constantly evolving challenges in their respective fields.

·         Strong executive function and communication: Boards that are supported by strong executive secretariats are more successful. Staff support from the executive director and secretary of the board help governance bodies arrive at decisions – especially on contentious issues – in a way that preserves trust and confidence in the organization. The secretariat should prepare written materials in advance of meetings, inform the membership and solicit input on key decisions, and keep clear records that inform future debates.  

·         Organizational experts: One of the keys to the success of an MSI is the longstanding participation of board members, especially those with deep experience in governance and organizational development. Having an expert in the processes and systems that undergird sound decision-making and governance serving on, and helping to lead, a board helps create an atmosphere of trust that enables an MSI to thrive.