Linking Regulations to Corporate Behaviour and Sanctions

In previous Labour Law iterations and amendments, there was a significant gap between senior management/board (reporting and sanctioning) and actual on-the-ground compliance. The traditional role of the board and senior management in the context of workplace safety and social security was limited to signing off on compliance handled by mid-level management. Unless there was a major safety incident or union activism, senior management would, with a few exceptions, remain distant from Business and Human Rights (BHR) issues.

These new versions of the Labour Codes, while introducing significant changes conceptually, do not provide the board or key managerial personnel with new impetus to actively participate in the formulation of impactful BHR strategy beyond technical compliance.

That said, the government has made some effort to recognize the critical link between BHR and senior management/the board. In addition, there are various parallel developments and requirements that add to the pressure on businesses to accept the regulations as baseline and do more to demonstrate their willingness to engage on these issues. These include the following:

Expanded coverage under Safety Laws

The Codes themselves are a move to expand BHR coverage in certain areas. As discussed previously, the occupational safety and health code now applies to all establishments with 10-plus workers (and all hazardous establishments). A number of provisions expand liability (and consequently the avenues of recourse for accidents and defaults), including:

• holding the principal employer (rather than the contractor) primarily responsible for providing welfare facilities for contract labour and inter-state migrant labour;
• holding both the owner and the occupier jointly and severally liable for maintenance of factory premises (unlike the current position which places the onus solely on the owner); and
• incorporating duties and liabilities of specialists (architects, designers, machinery installers/suppliers/importers, etc.) in the project management and supply chain.

Further, there is an increased penalty (both monetary fine and term of imprisonment of company officers) for violating safety provisions resulting in an accident.

More Robust Disclosure

The Indian Ministry of Corporate Affairs (MCA) has released a fulsome set of guidelines on responsible business conduct and format for comprehensive business responsibility reporting, which take into consideration global developments in non-financial sustainability reporting.

The reporting format requires disclosures on key BHR aspects in granular and disaggregated detail, in respect of sustainable sourcing, human rights protections, permanence of/diversity in workforce, stakeholder complaints, bribery and corruption, community development projects, environmental impact assessment of operations etc.

The top 1,000 listed companies by market capitalization in India must make these disclosures to the securities regulator annually, commencing from FY21–22. The MCA may subsequently also require unlisted companies with an annual turnover or paid-up capital above a certain minimum threshold to mandatorily make these disclosures.

A more concise reporting format has also been released for voluntary adoption by smaller unlisted companies, with the aim of encouraging more companies to take up sustainability reporting. The government’s intention in the long term is to use the information captured through these filings to develop a ‘Business Responsibility Sustainability Index’ which will be relied on to give procurement preference to companies that demonstrate responsible business conduct.

Prosecution of Senior Management

Courts and enforcement authorities have also displayed readiness to step in to bring defaulters to task, relying on both sector-specific and general criminal law, and putting senior leaders at personal risk of prosecution. For instance, the CEO and senior personnel (including two foreign nationals) were arrested for negligence under the Indian Penal Code following a recent gas leak at the South Korean-owned LG Polymers plant in Vishakhapatnam, on account of poor safety protocols and the breakdown of emergency response procedures, which killed 15 people.

Pandemic-driven Learnings

Covid-19 has brought BHR onto Centre stage and shaken decision makers into prioritizing a more socially responsible approach to investment. In addition, the pandemic has demonstrated that relief measures outside the organisation – contributions to funds, re-aligning assembly lines to produce relief material, protecting workforce etc?(traditionally viewed as the cost of corporate responsibility) – have been fundamental to generating goodwill for contributing enterprises. Examples include Diageo, which pivoted to hand sanitiser production and committed targeted non-cash support to struggling food and beverage players such as hygiene kits, access to cashless systems etc, and Danone’s job security guarantee over a portion of the lockdown.

At the same time, one of the first (and highly publicised) pandemic-related public interest cases was against Jubilant Generics on account of negligence in precautionary measures jeopardising workers’ health. As such, market incentives seem to be shifting so as to render the perceived tussle between creating shareholder value and contributing to societal welfare as increasingly illusory (and, in fact, social responsibility may even provide a competitive edge).

Conclusion

Regulations, while a good starting point, are often compliance driven and reactive – prescribing remedial measures once an incident/accident occurs. The Codes make a genuine effort to move away from this practice, as is evident from the significant conceptual changes that they introduce. However, the law continues to fall short in drawing the board/senior management into actively participating or promoting the BHR agenda.

That said, regulations alone cannot bring about clear and present compliance with BHR principles. Businesses must use regulations as a starting point, building robust reporting requirements based on ethical standards and adopting a top-down compliance model to drive BHR compliance into the very fabric of their companies. Irrespective and independent of labour regulations, there are certain Indian companies that have far surpassed BHR requirements. This has helped them to build employee morale, brand recognition and, ultimately, shareholder confidence to emerge as leading employers of choice with an outstanding global reputation.

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