CORPORATE SOCIAL RESPONSIBILITY IN GENERAL
1. CSR values and practices, including levels of support from government, business and the general public
CSR is understood as a concept according to which companies spontaneously decide to comply with standards or guidelines concerning a broad range of interests and aspirations relating to issues such as environmental care or human rights. CSR has not yet become a doctrine: it is a point of view about fostering corporate efficiency and ethical performance in keeping with a company’s voluntary commitment. Since CSR issues range widely and cannot be said to be a uniform concept or practice, references to CSR in law are indirect and related to specific legislation, eg labour law, human rights rules or environmental law. CSR practice is largely based on self-imposed rules that, in most cases, are not legally enforceable. However, exceptions can be found in the Penal Code and in some commercial legislation. For example, the Portuguese Companies Code demonstrates concern about CSR, by defining a company’s corporate goal with reference to some of the stakeholders’ interests. For a long time, CSR was not a theory, but a practice, followed only by some companies, most often the larger companies, or multinationals. Nowadays, most companies have begun to pay attention to CSR as a market tool; for example, human resources departments follow strict guidelines especially concerning safety, health and labour conditions.
CSR is neither charity nor an ethical aspiration, but a market instrument. As it relates to business, the best CSR practice one can find is related to a company’s private activity. The key role is that of companies and other social players. Each participant in CSR has a different view on its priorities and scope; companies themselves have the option of choosing the best way to bring social care and environmental standards to economic units. This is why CSR is a multi-form and imprecise concept.
In March 2000, the European Council met in Lisbon and defined a new strategy for the EU, defining employment and economic cohesion as priorities. The so-called Lisbon Strategy consists of a set of political steps towards the targets of competitiveness and sustainable growth. One of the decisions taken in Lisbon was on the renewal of the European social model and the modernisation of social protection.
CSR is increasingly becoming a governmental as well as a business concern, most evidently in the last two years. But it is not a governmental task. For instance, in 2003 Portugal’s Economic and Social Council presented a paper on CSR, calling for a debate on it and the institution of a database with information on good practices, in a way that would allow the development of a corporate, social and environmental culture in Portugal. The Portuguese Institute for Foreign Trade (ICEP) also plays an important role with regard to CSR, notably by publicising OECD standards.
2. Laws, statutes, government publications or other significant framework documents
CSR-related legislation in Portugal is not consolidated; rather, there is a wide variety of laws that indirectly concern CSR. Along with these laws, there have also been attempts to bring into tax legislation measures to encourage social commitment by companies, eg incentives for recruitment of young workers up to 30 years old seeking first-time employment, or exemption from Social Security contributions for long-term unemployed people returning to work. Also, under the Corporate Income Tax Code, companies are allowed to deduct social costs related to the well-being of company personnel and their families.
Contractual tax incentive schemes are also available for industrial investment projects carried out before 31 December 2010 if they involve investment of at least €4,987,978.97 and are deemed to be of strategic interest to the domestic economy and to encourage job creation, technological innovation or domestic scientific research. These incentives will be granted on a case-by-case basis and for a maximum period of ten years. They will include an investment tax credit of five per cent to 20 per cent, and an exemption or reduction of property transfer tax and real estate tax (Article 39 of the Tax Benefits Code). In order to support investment and job creation, and slow down emigration from Portugal’s interior regions, incentives are available for companies that settle in undeveloped areas, including a reduction in the corporate tax rate, accelerated depreciation and exemption from employer social security contributions for newly-created jobs.
3. International treaties, conventions or standards
CSR is not subject to an independent comprehensive framework but is instead referred to indirectly in laws and rules on a wide range of issues. Relevant agreements include the Universal Declaration of Human Rights, the International Covenant on Civil and Political Rights (ratified by Portugal on 15 September 1978), the International Covenant on Economic, Social and Cultural Rights (ratified by Portugal on 31 October 1978), the Convention against Torture and other Cruel, Inhuman or Degrading Treatment (ratified by Portugal on 11 March 1989). At a European level, the European Convention for the protection of Human Rights and Fundamental Freedoms (ratified by Portugal on 9 November 1978) and the Charter of Fundamental Rights of the European Union recognise fundamental human rights that should be respected by companies. With regard to environmental law, Portugal has ratified a considerable assortment of UN and other international environmental agreements, particularly concerning water pollution, air pollution, climate change, waste and other environmental damage (see section 10 below). The OECD Guidelines for Multinational Enterprises (adopted in 1976 and revised in 2000) are also recommended by Portugal. Finally, as a member of the International Labour Organisation (ILO), Portugal has signed numerous international instruments of relevance to labour law, and bilateral agreements with various countries regarding foreign employees.
At an international level, there are many treaties to which Portugal is a party, that address CSR directly or indirectly. Any breach of these treaties results in state liability, and not corporate liability; generally, corporate liability can only be grounded in domestic law that implements international law, in accordance with Article 8 of the Constitution of the Portuguese Republic. At EC level, there is also no framework legislation; regulations and directives related to CSR cover a wide range of areas. The most important documents are the February 2003 Council Resolution OJ 2003/C 39/2, the 2001 green paper, a Communication Document on CSR in July 2002 and the green paper on CSR of July 2001 (Brussels COM (2001) 416 final).
4. Non-statutory sources of liability for companies
CSR enforceable rules can be seen as a source of liability. Under Portuguese law, tort must be distinguished from contractual liability. On the one hand, whoever, whether by wilful misconduct or by negligence, unlawfully infringes the rights of another person or any legal provision intended to safeguard the interests of others must compensate the injured party for damages arising from such violation. There are several different cases falling within the scope of this provision, such as environmental damage or human rights violations inside a company. On the other hand, a company can also be deemed liable for negligence in performing an obligation arising from a contract: in this case, its responsibility is ruled by contractual liability rules which are, to some extent, different from tort rules. This situation corresponds, for instance, to cases involving workers’ rights under a labour contract. The Portuguese regime of liability is closest to the German model, ie protection under tort law is, in principle, limited to absolute rights and not grounded in a general liability clause, establishing that there may be liability whenever a person causes damage to another. Without a contract or an obligation, damage caused from lack of diligence, related to CSR, must arise from the violation of a third party’s legally protected absolute right.
5. Principal institutions, government agencies and/or major non-governmental organisations (NGOs)
In Portugal, CSR is most often discussed in non-governmental fora. There is no government department specifically in charge of CSR-related matters. For the most part, the entities that play an important role concerning CSR are the ICEP and the Association for Corporate Social Responsibility (ACSR). The latter, whose mission is the implementation and improvement of CSR in Portuguese companies, has only recently been created and has not yet issued recommendations, but its future influence is likely to be considerable. A working group has also been established that promotes the debate and improvement of CSR to Portuguese companies (Grupo de Reflexão e Apoio à Cidadania Empresarial or GRACE).
NGOs play a very important role, although this is generally limited to environmental aspects of CSR. The ‘green’ NGOs have played a crucial role in protecting and promoting environmental values; they participate in political debate and monitor activities that could harm the environment. Some of these NGOs are recognised as public interest legal entities and have significant rights under Law 35/98, such as the legal capacity, or standing, to file lawsuits despite a lack of any direct interest in the cause of the action. National NGOs have the right to be represented in the Social and Economic Committee, the directive council of the Environmental Promotion Institute (IPAMB) and consultative public administration bodies. At an international level, the Global Compact launched by the UN Secretary General in 2000, is of great value: it brings together companies, UN agencies and labour organisations in support of ten principles that offer guidance in terms of human rights, stating that businesses should support and respect the protection of internationally proclaimed human rights and ensure that they are not complicit in human rights abuses. The Global Compact was introduced in Portugal in May 2003, during a European Conference on Competitiveness and CSR in Setúbal.
SPECIFIC AREAS OF CORPORATE SOCIAL RESPONSIBILITY
6. Human rights
Human rights are increasingly becoming an area of concern to companies, mainly due to the pressure that international NGOs and other organisations are putting on the relationship between business and human rights. This raises questions about companies’ reputations, because bad behaviour can lead to shareholder disinvestment and poor staff morale.
Going beyond the treaties and international conventions referred to, the UN Sub-Commission on the Promotion and Protection of Human Rights on 13 August 2003 approved the Norms on Responsibilities of Transnational Corporations and other Business Enterprises with Regard to Human Rights by its Resolution 2003/16. These Norms proclaim general obligations as “states have the primary responsibility to promote, secure the fulfilment of, respect, ensure respect of, and protect, human rights recognised in international as well as national law, including ensuring that transnational corporations and other business enterprises respect human rights. Within their respective spheres of activity and influence, transnational corporations and other business enterprises have the obligation to promote, secure the fulfilment of, respect, ensure respect of and protect human rights recognised in international as well as national law, including the rights and interests of indigenous peoples and other vulnerable groups”. The text refers to the right to equal opportunity, and non-discriminatory treatment. It also mentions the respect for national sovereignty, human rights as well as consumer and environmental protection.
Following the adoption of these Norms by the UN Sub-Commission on the Promotion and Protection of Human Rights, the High Commissioner for Human Rights is currently preparing a report on “the Responsibilities of Transnational Corporations and related business enterprises with regard to human rights” that will be submitted to the Commission on Human Rights in March 2005. The OECD, for its part, has issued Guidelines for Multinational Enterprises that apply directly to companies, and although not binding on them, specify that enterprises should “respect the human rights of those affected by their activities consistent with the host government’s international obligations and commitments”. These Guidelines are implemented by the National Contact Points in each adhering country; in Portugal that is the ICEP. There is, furthermore, the ILO Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy, which calls for direct acceptance of fundamental labour standards by companies. These labour standards, such as the prohibition and abolition of forced labour, equal remuneration and prohibition of discrimination, minimum age of employment and freedom of association, are contained in the ILO Conventions and are binding on the states that have ratified them, including Portugal.
7. Corruption
Corruption is an area of CSR where there are a number of enforceable rules. There are several criminal offences under the Criminal Code and the Securities Code that may be relevant to corporate social liability; these cover corruption, fraud, deceptive insolvency, infidelity, and illegal share of corporate goods or insider trading. The punishments for these crimes are imprisonment for terms of between one year and eight years, or, in some cases, fines. The new Insolvency Code (Decree Law 53/2004 of 18 March 2004) has increased the term of imprisonment applicable to a director convicted of intentional deceptive insolvency where workers’ wages are not paid. Since 2002 several laws concerning money laundering have entered into force, eg Law 10/2002 of 11 February 2002 that makes illegal and punishes money laundering. Other recent relevant legislation includes Law 5/2002 of 11 January 2002 concerns some aspects of organised crime and Law 41/2004 of 18 August 2002 concerns the treatment of personal data and protection of privacy in electronic communications.
In addition to this domestic legislation, the OECD Convention on Combating the Bribery of Foreign Public Officers in International Legal Transactions entered into force on 9 June 2001 in Portugal, an OECD member state. The Convention provides that “enterprises should not, directly or indirectly, offer, promise, give, or demand a bribe or other undue advantage to obtain or retain business” and aimed at providing a framework for developed countries to implement legislation punishing acts of bribery of foreign public officials. The Council of Europe Criminal Law Convention on Corruption, adopted on 1 January 1999, is also related to the bribery of public officials, but unlike the OECD Convention, it aimed to harmonise laws; it came into force in Portugal on 1 September 2002. Portugal is a member of the Group of States against Corruption (GRECO) set up to monitor the implementation of this Convention and has also ratified the Convention on Money Laundering, Search, Seizure and Confiscation of the Proceeds from Crime, which came into force on 1 September 1999.
The annual report of the anti-corruption NGO Transparency International has placed Portugal with the EU countries needing stronger anti-corruption enforcement. We believe that CSR improvement rests mostly in the development of adequate levels of prevention and repression of corruptive practices inside the corporations. The Portuguese government has defined as a priority the prevention and the punishment of criminal activities related to organised crime, including those related to tax offences.
8. Corporate governance and business ethics
The Portuguese model of corporate governance is very flexible. It allows, to a certain extent, ‘tailor-made’ articles of association whose rules reflect the nature and ownership of the company. Nevertheless, the Portuguese Companies Code seeks a balance between the need for flexibility with the importance of protecting the interests of creditors, public investors and minority members; there are therefore mandatory rules on some aspects of the corporate governance of limited liability companies, eg shareholders’ rights to information, protection of minority shareholders, director’s control and liability. The management system and the role of directors are key CSR concerns, as the management of the corporation is the responsibility of the board of directors.
Directors are accountable to shareholders, to the company, to creditors and to third parties for damages caused by their acts or omissions committed in violation of their duties. Although the legal system strongly focuses on director accountability, the litigation of this matter is in practice mostly focused on cases of director liability to creditors. The acknowledgement of creditors’ and third party rights to compensation for damages incurred by them ensures an adequate level of protection of these stakeholders. Shareholders can bring legal action against directors for damages individually suffered and also on behalf of the company. According to Article 64 of the Companies Code, companies must be directed with particular respect to corporate goals and to employees and shareholders’ interests. Directors must take into consideration social concerns inside the company, reconciling these with other stakeholders’ interests.
Contractual freedom allows for the creation of executive committees, the nomination of independent directors and the creation of different auditing and management committees in companies. Directors’ remuneration is determined by a general shareholders’ meeting or by a special committee nominated by that meeting; it must take into account the management functions of the director as well as the company’s economic situation. The new Insolvency Code has strengthened the potential bases of director liability in the case of an insolvent company. First, court analysis of director liability has become a mandatory stage of insolvency proceedings. Second, if a director is found liable, he can be removed from his activity for a period of up to ten years. Portuguese law acknowledges stakeholders’ rights, and recognises broader interests in the corporate structure in insolvency procedures, considering that stakeholders are important resource providers and contributors to the company’s long-term success.
The Portuguese Securities Exchange Commission (Comissão do Mercado dos Valores Mobiliários) has held discussions on corporate governance practices and in October 1999 approved recommendations on governance of listed companies, which is a soft law; ie, the possibility of basing a lawsuit on it is doubtful and in most cases there are no legal consequences arising from breach of its provisions. These recommendations include: that companies establish internal organisational regulations to resolve conflicts of interest between members of the board and the company, and to oversee the implementation of directors’ duties of diligence, loyalty and confidentiality; that companies establish internal control systems, aimed at detecting risks arising from the company’s activities and at increasing transparent corporate governance strategies; that the board of directors should be composed in such a way as to ensure that management is not only geared towards protecting the interests of majority shareholders, but also of investors in the company and workers alike.
The Securities Exchange Commission in 2003 adopted new Corporate Governance regulations: Regulation no. 7/2001 was replaced by Regulation no. 11/2003. According to Article 1 of this new regulation, listed companies in a regulated market and subject to Portuguese Statutory Law are required to publish a detailed report on their corporate governance structures and practices, either as a chapter of, or appendix to, the annual report. The company’s annual reports follow a ‘comply or explain’ model and, in principle, cannot give rise to application of fines or other types of liability.
Listed companies are obliged to disclose financial information on a regular basis, and must also supply information that can influence the price of the shares, if applicable. Listed companies issuing shares, which are admitted to trading on a regulated market, must also submit to the Commission information relating to plans for the allotment of shares and/or stock options to employees and/or members of the board of directors. Recently, with Regulation no. 4/2004, disclosure duties were clarified.
We expect relevant further developments to flow from EC initiatives, such as the action plan on company law and corporate governance of 21 May 2003, entitled Modernising Company Law and Enhancing Corporate Governance in the EU, which aims to strengthen shareholders’ rights and protection for employees, creditors and other parties.
9. Corporate responsibility to employees
CSR has focused expectations that companies will treat employees fairly. In Portugal there is a corresponding commitment from government: the Constitution of the Portuguese Republic has a chapter on rights, freedom and guarantees of workers, and also refers to these rights as economic rights and duties. The Constitution guarantees workers’ rights regardless of age, sex, race, nationality, and place of origin, religion or political or ideological convictions. Those rights include remuneration for their work, based on its quantity, nature and quality, on the principle of equal pay for equal work, so as to guarantee to them an appropriate livelihood; organisation of work in keeping with human dignity and personal self-fulfilment, while reconciling the needs of vocational activity and family life; safe and healthy working conditions; rest and recreation, a limit on the length of the working day; a weekly rest day and regular holidays with pay; material assistance when they are involuntarily unemployed; and assistance and fair compensation for victims of accidents at work or of industrial disease. The Constitution also firmly protects the right to employment, forbidding the termination of employment agreements without cause. On 1 December 2003 the Portuguese Labour Code entered into force (as approved by Law 99/2003 of 27 August 2003), replacing most previous employment legislation by bringing existing provisions together in a single text. Earlier provisions were amended in several areas to allow for more flexibility in labour law, collective bargaining agreements and individual employment contracts.
In accordance with EC directives, and on principle, the Labour Code prohibits all kinds of discrimination, direct or indirect – based on sex, age, sexual orientation, marital status, family situation, genetic heritage, reduced work capacity, chronic illness, nationality, ethnicity, religion, political or ideological belief or trade union affiliation – providing equal opportunities and equal treatment regarding access to employment and working conditions.
Portuguese labour law also protects motherhood and fatherhood, by promoting accessibility to health services; maternity and paternity leave; parental leave; mother’s right to leave work in order to breastfeed; leave for employees to assist their family; pregnant or breastfeeding women’s right to special safety and health conditions in the workplace; and the right to work on a part-time or flexible timetable and with exemption from night work. In respect of health and safety, employees are entitled to compensation for damages resulting from labour accidents, and the employer is obliged to carry an insurance policy covering labour accidents. This obligation is met by transferring the employer’s liability to insurance companies authorised to undertake such activity. The law imposes obligations covering hygiene, health and safety at work, for both the employer and employee. A company’s failure to comply with labour law can result in the application of fines by state bodies (Instituto de Desenvolvimento e Inspecção das Condições de Trabalho), the level of which depends on: (i) how serious the infraction is; (ii) the volume of business and (iii) the company’s guilt. Additionally, certain company actions may be punished criminally.
10. Corporate responsibility towards the environment
Some companies have prioritised compliance with environmental standards in accordance with public expectations on CSR – firstly, because of the considerable social impact of pollution and environmental damage; and secondly, because companies must meet a broad range of environmental rules and standards.
With regard to air pollution and climate change, Portugal has ratified the 1992 UN Framework Convention on Climate Change and has approved the 1997 Kyoto Protocol to the United Nations and the Montreal Protocol on ozone-depleting substances. Portugal has also ratified numerous International Maritime Organisation conventions, and has adopted the International Convention for the prevention of sea water pollution by oils, the 1976 Protocol on the International Convention on Civil Liability for Damage caused by Marine Pollution by Hydrocarbons and the Convention for the Prevention of Maritime Pollution caused by immersion operations effected by vessels, among others. With regard to wastes, Portugal has ratified the 1989 Basel Convention on the control of trans-boundary movements of hazardous wastes and their disposal, and with regard to the protection of species and ecosystems, ratified the 1992 Convention on Biodiversity and the 2000 Cartagena Protocol on Biosafety.
Regarding internal law on environment protection, the Portuguese Constitution was one of the first explicitly to proclaim a fundamental rights with regard to the environment, in Article 66, which not only recognises the “right to a healthy and ecologically balanced human-life environment” and imposes a corresponding duty to defend the environment, but also imposes specific duties of environmental protection on the state. Law 11/87 of 7 April 1987, based on that constitutional provision, approved the Environmental Law Statute, which establishes a legal framework for environmental protection. Several key legal measures have followed, including Decree Law 194/2000 of 31 August 2000, which implemented the EU Integrated Pollution Prevention and Control Directive (Directive 96/61/CE, of 24 September 1996) and, in accordance with that Directive, introduced the Single Environmental License regime. Other important legislation includes: (i) the industrial licensing law (Decree Law 109/91 of 15 March 1991) and the water law (Decree Law 236/98 of 1 August 1998); (ii) the Environmental Law Statute (Law 11/87, of 7 April 1987); (iii) Decree Law 352/90 of 9 November 1990 (as amended by Decree Law 276/99 of 23 July 1999 and Decree Law 242/2001 of 31 August 2001) on Air Quality Protection and Atmospheric Emissions; (iv) Decree Law 239/97 of 9 September 1997 on collection, storage, carriage, treatment, valorisation and elimination of solid waste; (v) Decree Law 491/72 of 6 December 1972 that approves the Convention for prevention of maritime pollution caused by immersion operations effected by vessels. Hazardous materials are generally regulated by Decree Law 264/98 of 19 August 1998 and by Decree Law 273/98, of 2 September 1998. Noise is specifically regulated by Portuguese legislation, while the General Regulation on Noise was approved by Decree Law 292/2000 of 14 November 2000.
With regard to wildlife protection, Decree Law 321/83 of 5 June 1983 establishes a legal framework for the Portuguese National Ecological Reserve; and Decree Law 19/93 of 2 January 1993 identifies wildlife protection areas in the national territory. The authority responsible for enforcement of such legislation is the Institute of Nature Conservation (Instituto de Conservação da Natureza). Regarding forest conservation, Decree Law 196/89 of 14 June 1989 (as amended by Decree Law 274/92 of 12 December 1992 and Decree Law 278/95 of 25 October 1995) established a legal framework for the Portuguese National Agricultural Reserve.
Of vital importance with regard to environment protection is the legal framework for Environmental Impact Assessment procedures, approved by Decree Law 59/99, of 17 December 1999. This had to be reviewed in a cross-border context after the approval of the Convention on Environmental Impact Assessment, and was then followed by Decree Law 69/2000, of 3 May 2000 (amended by Decree Law 74/2001 of 26 February 2001 and Decree Law 69/2003, of 10 April 2003). This legislation implements in Portugal the EU Council Directive 85/337/CEE of 27 June 1985 as amended by the Council Directive 97/11/CE of 31 March 1997 and makes all public or private projects that may have significant environmental impact subject to Environmental Impact Assessment procedures.
11. Corporate responsibility to communities
Portuguese companies are becoming conscious of the importance of understanding the concerns of society at large. For example, several companies are following programmes to employ people with disabilities. The National Secretariat for the Rehabilitation and Integration of People with Disabilities, a public body with administrative autonomy whose main purpose is to co-ordinate national policy on the rehabilitation of people with disabilities, has been supporting these efforts. Other relevant activities are financial aid to child support institutions and to entities working against poverty and social exclusion.
12. Corporate responsibility for overseas activities
There are three main pieces of legislation regulating the jurisdiction applicable to Portuguese companies and/or their overseas subsidiaries: EC Regulation no. 44/2001, applicable if the subsidiary is located within the EU; the Lugano Convention, applicable if the subsidiary is located in a member state of the European Free Trade Association; and, finally, the Portuguese Civil Procedure Code. According to this Code, where the company is plaintiff, the competent court will be that of the state where the company is located. If the company is defendant, the competent court will be that of the country where the company has its corporate headquarters; if the lawsuit is brought against a subsidiary, then it is the court of the country in which the subsidiary is located.
In principle, Portuguese courts are only competent to decide lawsuits when there is an element connecting the plaintiff, the defendant or the facts to Portuguese territory. However, the Civil Procedure Code provides that the Portuguese courts may decide a case (i) if a person’s rights cannot become effective except by means of a lawsuit filed before the courts or (ii) if filing the lawsuit in a different country may cause the plaintiff considerable difficulty, and provided there is a connection between the Portuguese legal system and the area covered by the lawsuit.
13. Procurement
The two key laws governing public procurement procedures, Decree Law 197/99, of 8 June 1999, and Decree Law 59/99, of 2 March 1999, do not establish environmental protection rules as an award condition. However, it is inevitable that future legislation will move in that direction, especially considering that the European Court of Justice has recently issued decisions with this goal in mind.
14. CSR reporting and socially responsible investing
CSR is not settled territory: there is still much work to be done to define its merits. This might explain why CSR reporting – as well as CSR compliance – is currently a matter of voluntary commitment. In Portugal, companies do not have to justify whether their decision-making processes, notably concerning foreign investment, is in compliance with CSR standards.
