Doing it right

Three villagers from Ecuador landed in a Toronto courtroom in March to move forward their $1-billion human rights lawsuit against a Vancouver mining company. The claim pits the villagers against Copper Mesa Mining Corp., a pair of its directors, and the Toronto Stock Exchange. It alleges the company employed armed guards who threatened and assaulted them in an effort to quell protestors who believe the company’s proposed operations under the tropical cloud forest would destroy its delicate ecosystem. They also claimed a $10-million TSX listing helped pay for those armed guards.

 

In early May, the court dismissed the case, saying “…there is no connection between the plaintiffs and TSX defendants…[so as to] impose an obligation on the TSX defendants to be mindful of the plaintiffs’ interests when conducting their affairs.” The company’s shares were delisted in February 2010, and previously in 2008 the Ecuadorian government revoked its rights to mine at the contested site.

At the end of April, protesters from Papua, New Guinea and Chile travelled all the way to Toronto to picket outside the annual general meeting of Barrick Gold Corp. They wanted shareholders to know first-hand about damage to their property and lives they claim arise from Barrick’s mining activities in their countries. Inside the meeting, Barrick chairman Peter Munk defended the company, telling shareholders that corporate social responsibility is “part of our DNA.”

“By moving into these countries and developing their mines, we provide — way beyond the importance of money — we provide human dignity,” said Munk.

The Barrick protest and lawsuit against Copper Mesa exemplify the type of scrutiny Canadian companies face moving into emerging markets and developing nations. Businesses may be focused on the bottom line when they set up operations in parts of South America, Asia, and Africa, but many have learned the hard way that it’s essential to develop a strong relationship with local communities if they hope to have a long-term and peaceful presence. And those who have been there say in-house counsel have a distinct role to play in the process, juggling a complex set of tasks to help put the company’s best foot forward as it opens up shop abroad.

Daniel Desjardins, senior vice president, general counsel, and assistant secretary at Bombardier Inc., juggles these issues for a company with facilities in 29 countries. He says Bombardier always takes into account what he calls the “local flavour” when establishing operations abroad. “It’s fine to kind of overlay the Bombardier approach and view of the world and systems and processes, but there’s always a local colour that you’ve got to take into account.” That means hiring local management rather than sending in a delegation of expatriates to steer the operation. Not only will that help the company quickly build strong roots in the community, but in the long run it’s simply impossible to sustain a high expatriate presence. Canadians eventually want to come home after spending years abroad, notes Desjardins.

From a corporate social responsibility standpoint, Bombardier adheres to a supplier code of ethics, and has signed the United Nations Global Compact. Since its creation in July 2000, over 5,300 businesses in 130 countries have joined the initiative, which links their operations with 10 principles targeting human rights, labour, environment, and anti-corruption. “It gives us credibility both internally and externally,” says Desjardins of the UN compact. “It gives us a framework to say, ‘Those are the values in which we believe, and we will abide by those values and we will ask you to abide by those values if you want to be a supplier of Bombardier.’ . . . It gives us credibility internally to say, ‘We’re a serious company and we want to do the right thing.’”

Desjardins urges corporate counsel to make a point of meeting up with a wide range of professionals in the country in which operations will be set up. Lawyers, bankers, accountants, and other manufacturers with an existing presence in the jurisdiction can offer vital information to help counsel avoid some of the struggles they may have had to deal with. “You may save yourself a lot of grief.” It’s also crucial to manage the distance between corporate headquarters and operations abroad, says Desjardins. The best way to do that is by making communication a priority. He advises counsel to start the process by meeting with managers and lawyers that will oversee the operation to make clear your reporting expectations. Establishing that relationship, and maintaining it, is the best way to avoid reporting catastrophes down the road, he says.

Gwen Klees, vice president of legal affairs and corporate secretary for technology company GLV Inc. in Montreal, has been dealing with these types of questions a lot lately. She has been guiding the company for the last year through its acquisition of 30 companies across the globe. Klees notes that other jurisdictions may have requirements that are more or less onerous than what exist in Canada, whether they relate to human resources or industry-specific regulations. It may be tempting to simply toe the line of those standards, but Klees cautions companies against that. She says it is wise to keep standards in line with those in other locations, or observers may question the company’s motives. “There’s going to be local legal differences, but you have to be able to, as a global company, say, ‘I’m doing what I can to ensure that I’m applying the same rules across the board.’” Counsel should keep in mind that the company will at some point need to disclose these policies to the public.

However, uniformity is unlikely to happen overnight. That means the legal team must show patience as new operations are realigned with the company’s harmonized standards. “Your idea is to go in with the goal that there will be consistency, and work towards that goal, and give it a time frame,” she says. “That’s very important. If everyone understands that, both on the target and within the company, that helps.”

But just as important as the company’s relationship with its new employees is its approach to external ties. Al Gourley, managing partner of Fasken Martineau DuMoulin LLP’s Johannesburg office, says companies he represents — primarily Canadian businesses in the energy and mining sectors — face a range of relational issues when setting up shop in Africa. That includes working with local governments, regulatory institutions, and nearby tribes. “Some of the issues that you face are subtle, but if you impose, let’s say a mining operation, on a local community without the support of the local community, you’re going to be hiring from the local community, you’re going to be drawing resources from the local community,” says Gourley. “Even things as simple as bread and butter that you need to buy from a local market in order to feed your mining staff all involve interconnectivity between the relevant company and the local community.”

Companies that opt to ignore these fundamental ties end up regretting it, says Gourley. Local communities will often turn hostile. He has seen companies face ongoing theft of corporate assets, which he considers “almost impossible to guard against.” He has even seen a local chief impose a toll on a mining company’s vehicles for passing through his territory, because the company had not established an adequate relationship with his people.

Sean Quinn, vice president of law and general counsel at Saskatoon-based mining company Cameco Corp., knows what can happen when relations sour with a community in the developing world. He says the company took a serious hit following a 1998 sodium cyanide spill into a lake near the Kumtor gold mines it partially owned at the time in Kyrgyzstan. While the spill caused little harm, it quickly morphed into a “public relations disaster,” says Quinn. “That was a real learning experience for the company, on how quickly things can unravel.”

While the company took quick action to deal with the spill, it led to demonstrations by the local population — including a brief blockade — and became a point of contention with the Kyrgyz government. Quinn says local groups also attempted to use the spill as a bargaining chip. Cameco conducted a thorough review of the spill and took steps to prevent similar incidents, he says. A compensation agreement was eventually reached with the local authorities. “It was dealt with very responsibly, but it was just the unpredictability of the response that caught everybody by surprise,” says Quinn. “I think the best tip would simply be that when something adverse happens in a foreign jurisdiction, be prepared for the worst. People will take advantage of situations.”

Meanwhile, Gourley says it’s best to leave the management of relationships with local communities to experts, such as consulting firms. Customs in Africa can range widely, so it’s vital to gain specific knowledge about the area in question. He says some communities are more swayed by an offering of water or honey than money. “In fact, to introduce the concept of money as a bargaining chip can totally transform a community in a way that you hadn’t anticipated and may not be desirable in the long run in terms of managing your relationship with the community,” says Gourley.

Jorge Neher, an international partner with Macleod Dixon LLP based in Caracas, has worked through these issues for clients throughout Latin America. He urges companies looking to invest in operations in South America’s emerging markets to also touch base with the nearest Canadian embassy when setting up shop. “It’s usually a lot of help to investors in setting up their operations in a country,” he says. “They usually have very good relations with the government, and they go out of their way to make a project successful for a Canadian investor.”

Neher also says it is essential to devote time to understanding the general legal regime of the sector the company is investing in, whether it be the resource, manufacturing, or other area. Chances are that significant differences exist from what the lawyer has experienced in Canada. It may be as straightforward as counsel reacquainting themselves with the ins and outs of civil law systems, which predominate in Latin American countries.

But perhaps the most vital move for in-house counsel as they guide their company’s operations in developing nations is the selection of local outside counsel to help steer the operation in the right direction. Neher says it’s best to find a lawyer who has experience working in the region on the type of project the company is developing, but also understands the North American legal scene. “If you come to a country in Latin America and ask for an opinion on some legal tenure of some oil and gas properties, and you get the best regulatory attorney to do that, they will probably come back to you with some 45-page opinion, which nobody is going to read,” he says. With that in mind, it’s likely best to go with someone who knows how the profession operates north of the Rio Grande.

One of the key issues that local counsel and in-house lawyers must guard against is the growing spectre of bribery allegations. Canadian public companies must pay particular attention in light of the Corruption of Foreign Public Officials Act, which became law in 1999. “One would normally say that companies that are blue chip, or extremely well known and reputable, would not engage in bribery,” says Riyaz Dattu, a partner in Osler Hoskin & Harcourt LLP’s Toronto office who focuses on international trade and investment law. “But the experience of the United States shows otherwise.”

German car company Daimler was forced to pay US$185 million to settle bribery charges in March following accusations from the U.S. Securities and Exchange Commission that it paid tens of millions of dollars to secure government contracts throughout the world. In 2008, German engineering group Siemens paid US$800 million to U.S. authorities to settle charges stemming from accusations of bribery and corruption. That shows why all companies, including Canadians, listed on U.S. exchanges must also be guarding against corruption.

Dattu points out there is no limitation period on the U.S. Foreign Corrupt Practices Act and advises in-house counsel to put a compliance program in place. At the same time, many of these accusations arise during the due diligence process of mergers and acquisitions, so it’s vital to put an end to a deal where indications of possible corruption arise. If that’s not enough encouragement to make anti-corruption protocols a priority, U.S. lawyers are reporting an influx of cases involving shareholders seeking reparations from officers and directors of corporations they claim should have ensured compliance, says Dattu.

Meanwhile, Canadian oil, mining, and gas companies are awaiting the fate of a private member’s bill that aims to establish corporate social responsibility standards on their operations abroad. The bill, spearheaded by Liberal MP John McKay, has passed second reading and is now at the standing committee on foreign affairs and international development. If passed, the bill would create a complaint process, with violations leading to the possibility of loss of financial support to the offending company from Export Development Canada, the Canada Pension Plan, and the Department of Foreign Affairs and International Trade. “What it does show is that Canadian companies are now going to have to make sure that in their conduct in foreign countries they do have compliance programs to deal with social responsibility, particularly in the area of environmental laws and human rights abuses,” says Dattu.

As in-house counsel work through all of these issues, they can at least be comforted by the fact that Canadian companies are generally viewed positively throughout the world. Angus Mitchell, a partner at Bennett Jones LLP’s Calgary office, spent seven years in Asia, including stints in Rangoon and Singapore for a large U.K. law firm. He says in Mongolia, for example, Canadian investment is viewed as a positive countervailing presence to the overwhelming presence of Chinese and Russian players. “Generally, I think Canadian companies are viewed more positively than, I would even say, American companies,” says Mitchell. “Right or wrong, there’s a perception that they are, perhaps, softer, more accommodating, without being pushovers.”

At the same time, Mitchell suggests in-house counsel may do their company the best service of all by advocating against a project that business development managers may be viewing through rose-coloured glasses. He notes that such proponents may get wrapped up in the potential benefits of a proposed project in emerging markets, without offering a full accounting of the pitfalls. “General counsel needs to be able to see through that,” he says.

At the end of the day, Mitchell says it is vital for counsel to get a tangible sense of what it’s like to operate in the target community. No amount of preparation can equal the benefit of hiring a trusted local lawyer or firm that knows the subtle ins and outs of the region, he says. “You will inevitably get it wrong if you haven’t spent any time there,” he says. “You learn more three months in at a cocktail party than reading all the international articles that you can find. The way things actually work is usually quite different than the way it appears from afar.”

Recent articles & video

Charter applies to self-governing First Nation’s laws, but s. 25 upholds Charter-breaching law: SCC

Ontario Superior Court rejects class action lawsuit against online travel giants

Court must 'gaze into the crystal ball' to determine loss of future earning capacity: BCCA

NS Supreme Court imputes income in child support case due to non-disclosure

Federal Court orders re-evaluation of refugee claim due to unreasonable identity verification

BC Court of Appeal upholds immunity of nurses from personal liability in medical negligence case

Most Read Articles

Canada Revenue Agency announces penalty relief for bare trusts filing late returns

Ontario Court of Appeal upholds spousal support order in 'unusual' divorce case

Ontario Superior Court awards partner share in the estate despite the absence of marriage

Developing an AI oversight system is vital for organizations: Tara Raissi at Beneva