Presentation by Kathryn Gordon 4/4/2019 Global Forum V – Session on Voluntary Initiatives for the Private Sector Conducting business with integrity in weak governance zones Presentation by Kathryn Gordon Senior Economist, OECD Investment Division

What is a weak governance zone (WGZ)? 4/4/2019 What is a weak governance zone (WGZ)? An investment environment in which governments cannot or will not assume their responsibilities: protecting rights, providing basic public services and ensuring that public sector management is efficient and effective . 4/4/2019

RISKS AND ETHICAL DILEMMAS IN WEAK GOVERNANCE ZONES 4/4/2019 RISKS AND ETHICAL DILEMMAS IN WEAK GOVERNANCE ZONES Government failures lead to broader failures in political economic and social institutions In addition to the usual financial and business risks, WGZ pose special risks that stem directly from government failure The WGZ Tool seeks to help companies face these risks . 4/4/2019

Multilateral credentials for WGZ project 4/4/2019 Multilateral credentials for WGZ project A major political issue – 15 per cent of the world’s people live in WGZ UN Security Council request G8 2005 Summit mandate OECD value added relative to other multilateral processes 4/4/2019

DEVELOPMENT OF THE TOOL 4/4/2019 DEVELOPMENT OF THE TOOL Extensive multi-stakeholder consultation, including with WGZ investors Face to face meetings in Paris Two web-based consultations Major pan-African meeting in Addis Ababa in early 2005 ILO, UN Global Compact participation 4/4/2019

4/4/2019 SUBJECT AREAS COVERED Obeying the law and observing international instruments Heightened managerial care Political activities Knowing clients and business partners Speaking out about wrongdoing Business roles in weak governance societies – a broadened view of self interest 4/4/2019

OBEYING THE LAW Companies have the same broad responsibilities in WGZ as they do in other investment environments – they are expected to obey the law and to observe other international instruments covering human rights, anti-corruption, labour management and environmental protection. 4/4/2019

HEIGHTENED MANAGERIAL CARE The heightened risks encountered in WGZ create a need for heightened managerial care. Heightened care consists of reinforcing the risk management techniques routinely used in other investment contexts: board level involvement, gathering information, assessments, building in safeguards, human resources management. 4/4/2019

POLITICAL ACTIVITIES Excessive discretion for political leaders – a key symptom of weak governance Hard for investors to argue they are apolitical Avoid illegal political involvement under OECD anti-bribery convention Thinking about legitimate political activity Thinking about dealings with public officials having flagrant conflict of interest 4/4/2019

KNOWING CLIENTS AND BUSINESS PARTNERS Asks for heightened care in managing risks of entering into business relationships with criminal elements Extensive reference to major private initiatives: Wolfsberg AML standards, OGP Guidelines on Reputational Due Diligence. 4/4/2019

SPEAKING OUT ABOUT WRONGDOING Tool recognises the risks of speaking out about wrongdoing They are asked to weigh the risks, both of speaking out and of failing to do so Availability of whistle-blowing facilities (e.g. home country diplomatic networks) Need for partnership in speaking out (EITI is a best practice example) 4/4/2019

A BROADENED VIEW OF SELF INTEREST Is there a role for business advocacy for public sector reform? Possibly, but it is by no means certain Examples of advocacy – promoting better governance practices with WG state-owned enterprise sector; promoting integrity enhancing institutions (e.g. by being an active member of local chambers of commerce) 4/4/2019

PHASE II – HELPING COMPANIES ANSWER THE QUESTIONS OECD-NEPAD Investment Initiative Sector-specific follow up The OECD Investment Committee is developing a follow up strategy for the WGZ Tool – it welcomes your ideas 4/4/2019