Analysis of the proposal of the General Law of Companies Liability and Corporate Due Diligence

On October 6th, 2020 was published in the Senate ?s Gazette the General Law of Companies Liability and Corporate Due Diligence (Ley General de Responsabilidad Empresarial y Debida Diligencia Corporativa) project (the “Project”), that to this day is in lingering status, elaborated by the senator German Martinez Cazares of the Parliament Group of Morena, regulatory of the article 25 of the Political Constitution of the United Mexican States (Constitución Política de los Estado Unidos Mexicanos), related with the national development, granted in a comprehensive and sustainable way, through corporate liability and human rights respect.

Below is a brief analysis of the Project to identify the most relevant issues to be considered for a future approval.

Under the Project, subjects to which law applies are defined as the “Companies”, in which it comprises, the following: (i) collective name companies; (ii) simple partnership companies, (iii) limited liability companies; (iv) limited companies; (v) companies in partnership by shares; (vi) cooperative companies; (vii) companies by simplified shares; (viii) limited companies investment promoters; (ix) limited stock companies; (x) popular financial companies; (xi) collective management companies; (xii) rural production companies; (xiii) diverse banking institutions; (xiv) banking and development institutions; (xv) civil companies; (xvi) civil associations; (xvii) legal foreign persons of private nature; (xviii) statewide participation companies; (xix) national institutions of credit; (xx) national auxiliary organizations of credit; (xxi) national institutions of insurance and bail; (xxii) the schools that are provide in chapter IV of the Organic Law of Education (Ley Orgánica de Educación); and (xxiii) superior educations institutions, leaving several companies out of its scope.

The purpose of the Project is to regulate the responsible conduct of the companies so that they mitigate, in an enunciative but not limitative manner: (i) the negative impact associated with supply chains and other business relations, (ii) employees conditions, (iii) respect to human rights, (iv) environmental care, (v) corruption combat, (vi) consumers rights protection, and (vii) corporate government enforceability.

With respect to “regulate de liable conduct of the companies so that they mitigate the negative impact associate with supply chains and other trade relations”, it is important to mention that this is a contractual matter, and that, in commercial agreements that implicates all the procedures so that a product arrives to the final client, the parties look for the greater convenience and efficiency for its application and results, in addiction the charges imposed by the Project to the companies in that respect, among which the one of evaluate their operations, do not assure in no way the mitigation any damage that could be generated.

It should be noted that the objectives described are already regulated in other specialized laws/regulations, such as the Federal Law of Labor (Ley Federal del Trabajo), in the case of the point “Workers conditions”, and the General Law of the National Anticorruption System (Ley General del Sistema Nacional Anticorrupción), in the case of the point “corruption combat”.

The potential negative effects that could derive in formalizing this Project would impose unnecessary charges to the companies and that would leave in hands of the Nation Supreme Court of Justice (Suprema Corte de Justicia de la Nación) a wide labor of interpretation, because the existent regulation provide the necessary protection in the points that seeks to regulate and, if this have not been perfectly efficiently, the problem is that the application of the dispositions depends in the obliged correct observance.

Likewise, we may observe the use of the ambiguous terms in the Project that will be necessary to delimitate in order to determine if the normative hypothesis update is actualized or not, as well as the inconsistencies when it remits to other laws/regulations.

Finally, it should also be considered that, as it is a nonexclusive matter of the federation, the local entities could legislate in this regard, which could complicate even more its applicability and interpretation.