how an energy company takes a human rights approach

AlternativesTO THE HIGH COST OF LITIGATION

INTERNATIONAL INSTITUTE FOR CONFLICT PREVENTION & RESOLUTION VOL. 26 NO. 3 MARCH 2008

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TO THE HIGH COST OF LITIGATION

Publishers:Kathleen A. BryanInternational Institute for Conflict Prevention and Resolution

Susan E. Lewis John Wiley & Sons, Inc.

Editor: Russ BleemerJossey-Bass Editor: David FamianoProduction Editor: Ross Horowitz

VOL. 26 NO. 3 MARCH 2008 ALTERNATIVES 59

HOW AN ENERGY COMPANY TAKES A HUMAN RIGHTS APPROACH

BY JOHN SHERMAN

As National Grid’s in-house counsel for nearly 30 years, I han-dle the company’s U.S. litigation portfolio, manage its U.S.business ethics and compliance program, and more recently,play an active role on its international human rights team.

This article discusses the intersection of business, humanrights, and conflict prevention and resolution.

Not too long ago, it was unusual to see “business” and “hu-man rights” used in the same sentence. Not anymore. Now,many companies are beginning to recognize that they have a re-sponsibility to protect and promote human rights.

This emerging realization has been driven bymany factors: awareness that human rights abuseshave occurred in the wake of a globalized economy;the rise of socially responsible investment funds; andthe increasing willingness of public pension funds,such as Calpers, the New York Public Pension Fund,and the Government Pension Fund of Norway, to usetheir leverage to address human rights issues.

The drivers also include changing legal require-ments, such as the new “ethical culture” requirement of theU.S. Sentencing Guidelines for Organizational Defendants,and the U.K. Companies Act of 2006 requirement that com-panies take into account their actions’ impact on affected stake-holders beyond shareholders. Litigation against companies forcomplicity in human rights violations committed by state secu-rity forces also has played a factor in increased corporate hu-man rights responsibilities.

National Grid is an Anglo-American utility, headquarteredin London, which delivers gas and electricity to millions of cus-tomers throughout the United Kingdom and the northeasternUnited States. It’s the seventh-largest investor-owned utility inthe world, and the second largest in the United States.

National Grid operates under a “Framework for Responsi-ble Business,” which was adopted in 2003 following a dialogueof key internal and external stakeholders about running thebusiness and making decisions on economic, environmentaland social issues. The framework can be found in NationalGrid’s pamphlet, “Our Standards of Ethical Business Con-duct” (available at www.nationalgridus.com/non_html/d2-5_standards.pdf.)

The framework has three broad pieces: sustainable growth,

PRINCIPLES FOR HEARING GRIEVANCES, AND AN EFFECTIVE RESPONSE

BY CAROLINE REES

Consider the following: In June 2000, a truck from the Yana-cocha gold mine in Peru, majority-owned by Denver-basedNewmont Mining Corp., spills 330 pounds of mercury over 25miles of road, 53 miles from the mine site.

Villagers, thinking the mercury is mixed with gold, collect itand take it home to cook on their stoves. Allegations of extensivehealth damage to more than 1,000 people ensue, and a WorldBank report states that the mine delayed reporting the accidentto the national authorities, and downplayed its seriousness.

Protest escalates in light of Newmont’s perceivedinadequate response, and culminates in a class-actionsuit in the United States, which Newmont ultimatelysettles out of court. Three years later, as Newmontlooks ahead to exploring a highly lucrative new areaof their concession, local protest kicks in quickly, ris-ing to such intensity that Newmont is forced to backdown and ask the government to revoke its site per-mit. It emerges that a senior Newmont executive,foreseeing such an outcome, had presciently written:

We have come to this because we have been in denial. Wehave not heeded the voices of those most intimate with ourmine—those who live and work nearby.

While particularly striking, this is far from a rare example ofsuch disputes:

• The U.K. courts accepted jurisdiction in 2000, in a casefiled against Cape plc over compensation for asbestos-relat-ed diseases among the workforce at its former subsidiary’sasbestos mining and milling operation in South Africa. As aresult, Cape settled, finalizing terms about three years later.

• Texaco, now ChevronTexaco, is facing a suit in Ecuador overallegations that pollution from its dumping of toxic waste-water in the rain forest has seriously affected the health andlivelihoods of indigenous communities.

• Nike faced a worldwide public protest in the late 1990sover the use, by its Pakistani suppliers, of child labor tosew footballs.

• Coca-Cola is mired in a dispute in India over whether its

Published online in Wiley InterScience (www.interscience.wiley.com).Alternatives DOI: 10.1002/alt

ADR’s Role in Responsible Corporate Practices

ADR BENEFITS

(continued on page 62)

(continued on page 60) The author is a fellow at the Corporate Social Responsibility Initiativeat Harvard University’s Kennedy School of Government, in Cambridge,Mass., and an adviser to the U.N. Secretary-General’s SpecialRepresentative for Business and Human Rights, Harvard Prof. JohnRuggie. The views expressed in this article are those of the author aloneand do not imply endorsement by Harvard University, the KennedySchool of Government or Prof. Ruggie.

The author, based in Westborough, Mass., is deputy general counsel ofNational Grid, a United Kingdom-based energy delivery company with alarge business in the Northeast US. This article is an adaptation ofremarks he made on Oct. 28 at Alternatives’ publisher CPR’s Fall 2007Meeting in Boston.

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profits with responsibility, and investingin the future. As part of the framework,National Grid takes a proactive humanrights position.

Specifically, National Grid is one ofabout 100 companies with a human rightsposition statement, which recognizes its re-sponsibility to respect and promote humanrights within its sphere of influence. It is afounding member of the Business LeadersInitiative on Human Rights, or “BLIHR” agroup of 14 multinational companies un-der the leadership of Mary Robinson, a for-mer Ireland president and U.N. high com-missioner for human rights. Seewww.blihr.org for a full list of companies.

BLIHR takes a toolbox/soapbox ap-proach to human rights; i.e., “We are try-ing to determine how best to promote hu-man rights in our day-to-day business ac-tivities and inspire other companies to dothe same.”

BLIHR’s search for effective humanrights tools is critical. It’s one thing for acompany to say that it believes in humanrights. It’s another for a company to actual-ly conduct its operations in a way that re-spects and promotes human rights.

A key BLIHR initiative involves identi-fying human rights accountability mecha-nisms that companies can use, includingtools to enable a company to walk the talkon human rights, and align its performancewith its goals.

ADAPTING PRACTICAL TOOLS

National Grid’s gas and electric utility ex-perience involves practical tools that, withsome adaptation, could be used to addressconflict prevention and resolution in thehuman rights field.

In siting its transmission projects in theNortheast U.S., National Grid has publiclyendorsed, and attempts to follow, thestakeholder-driven consensus building andconflict management techniques similar tothe “mutual gains” approach to resolvingdisputes outlined by Lawrence Susskindand Patrick Field in “Dealing with an An-gry Public” (Free Press, 1996).

First, there are challenges to siting anenergy facility from an overall human

rights perspective. This has been a highlyproblematic area, as demonstrated by theconstruction of a gas pipeline from Thai-land to Burma, and drilling for oil in theEcuadorian rain forest.

Those projects produced allegations ofcomplicity by the companies in the mostserious of human rights abuses. They re-sulted in divestiture campaigns and litiga-tion against the companies.

The first involved the construction in1996 by Unocal and another company,Total, of the Yadana gas pipeline from

Myanmar, formerly Burma, to Thailand.Burmese villages filed suit against Unocalunder the Alien Tort Claims Act, 28U.S.C. §1350, in a California federalcourt, alleging that Unocal contractedwith the Burmese military junta to pro-vide security for the project, which dis-placed villages to make way for thepipeline and its accompanying infrastruc-ture. The suit also charged that Unocalforced people to work for the pipeline byrape and murder.

The villagers claimed that Unocal wascomplicit in the junta’s human rights viola-tions, and that they couldn’t get a fair hear-ing in the Burmese legal system. After theNinth U.S. Circuit Court of Appeals ruledthat Unocal could be held liable on the ba-sis of aiding and abetting the junta under

the Alien Tort Claims Act for abuses that itknew about and substantially assistedthrough practical encouragement or sup-port (Doe I v. Unocal Corp., 395 F.3d 932(9th Cir. 2002), and just before an en bancreview of Unocal’s rehearing petition, Un-ocal settled, in December 2004.

The precise settlement terms weren’tdisclosed, but it was reported that bothUnocal and Total agreed to pay substantialsums to the plaintiffs, and to fund socialand economic aid programs. Fishman,“Binding Corporations to Human RightsNorms through Public Law Settlement,”81 N.Y.U. L.Rev. 1433, 1451 (2006).

The second example relates toChevron’s oil drilling in the EcuadorianOriente rain forest, which is the subject ofan $11 billion suit now pending in theEcuadorian courts. It alleges that from1972 to 1992, Chevron, now Texaco, in-tentionally dumped 19 billion gallons oftoxic wastewater into the area, and was re-sponsible for 16.8 million gallons of crudeoil spilling from its pipeline into the rain-forest—six million gallons more than theExxon Valdez spill in Alaska.

The plaintiffs alleged that this pollutionhas had severe adverse health impacts onthe indigenous communities, and that thesoil and groundwater contamination hasthreatened the bases of their survival. See“Ecuador—Oil Rights or Human Rights?”a 2007 article available using the search boxat www.amnesty.org. See, also, Gerald P.Neugebauer, “Indigenous Peoples as Stake-holders: Influencing Resource-Manage-ment Decisions Affecting IndigenousCommunity Interests in Latin America,”78 N.Y.U. L. Rev 1227 (2003)(referred tobelow as “Neugebauer”).

The result of the rainforest drillingwill be a highly negative reputation inEcuador for U.S. companies that will lastfor generations.

STAKEHOLDER IDENTIFICATION

These companies’ decision-making pro-cesses aren’t apparent. And hindsight is al-ways 20/20. This author suspects that theymay not have engaged in an adequate ef-fort to identify the stakeholders who wouldbe adversely affected by the companies’ sit-ing and construction plans, to actively en-gage them to determine what their rights

Human Rights (continued from page 59)

‘Identify and Engage’

The problem: Energy industry

projects can produce communi-

ty clashes.

The bigger problem: Siting a fa-

cility can invoke human rights

issues, and demand a corporate

social responsibility program.

The solution: A New England

power company takes a busi-

ness leadership position with a

philosophy that centers its proj-

ects on consensus-building

techniques.

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VOL. 26 NO. 3 MARCH 2008 ALTERNATIVES 61


and interests were, and to evaluate other,less problematic alternatives.

This is what conflict prevention andresolution is all about. Understanding andresponding to legitimate stakeholder con-cerns is at the core of a company’s obliga-tion to behave ethically and responsibly.Paine, “A Compass for Decision Making,”Chapter 8, in “Value Shift: Why Compa-nies Must Merge Social and Financial Im-peratives to Achieve Superior Perfor-mance,” 201-226 (McGraw Hill 2003).

This applies with particular force to acompany’s human rights obligations.Neugebauer, supra, at 1240 et seq.; EsbenRahbek Pedersen, “Making Corporate So-cial Responsibility (CSR) Operable: HowCompanies Translate Stakeholder Dialogueinto Practice,” Business and Society Review111:2 137-163 (2006).

A core activity for National Grid is thesiting and construction of gas and electrictransmission facilities, which are critical forthe reliability of the company’s energy net-works in both countries. There has been abig increase in this activity in recent yearsin Massachusetts, as we seek to make ourelectric transmission system more robust.

National Grid has adopted guidelinesfor facilities licensing that requires it to en-gage with its stakeholders in all stages ofthe siting process. Preventing and resolvingconflict with those stakeholders—abutters,communities, public agencies, etc.—whoare affected by the projects is absolutelycritical to the company’s success.

That is, we need to build our transmis-sion facilities in a timely manner in orderto meet reliability and economic goals, tobuild them prudently, to comply with alllegal requirements, and by so doing,demonstrate our integrity and competenceto do the same for future projects.

National Grid is committed to treat-ing all stakeholders with courtesy and re-spect, to considering stakeholder inputon all phases of each project, and consid-ering the human and environmental im-pacts, cost and technical merits of eachsiting alternative.

THE POTENTIAL FOR CONFLICT

Not surprisingly, these projects offer a richpotential for conflict unless they are prop-erly managed. To mitigate such conflict,

the company has explicitly adopted in thenortheastern U.S. the Susskind and Fieldmutual gains approach to public conflictprevention and resolution.

That approach consists of six steps: (1)acknowledge the concerns of others; (2)encourage joint factfinding; (3) commit toworking with affected constituencies tominimize or correct project-related impactsif they do occur; (4) accept responsibility;admit mistakes, and share power; (5) act ina trustworthy fashion at all times, and (6)focus on building long-term relationships.

This author cannot say that NationalGrid slavishly follows every step to the let-ter. But we try hard to act in accordancewith these principles. Our public endorse-ment of this approach is on our website(see web address above). We have sent anumber of employees to Susskind’s consen-sus-building seminar at Harvard Universi-ty, and have successfully used the six-stepmutual gain approach in dealing withabutters and communities in siting severalMassachusetts electric transmission facili-ties. We have committed to working withour communities and customers to thegreatest extent possible when facility sitingoffers opportunities for compromise.

Typically, National Grid licensingteams present company projects in infor-mal public sessions prior to formal legalproceedings, in order to introduce theprojects to the communities and to learnwhether the projects raise to neighbor-hood concerns.

Then begins the challenge of meetingwith customers and officials to understandtheir issues and try to develop reasonablesolutions or compromises that calm localconcerns while permitting the company tomeet its public obligations in a timely andprudent manner.

Some solutions are as simple as beau-tifying what would otherwise be a starkindustrial facility. Others involve contri-butions to civic projects of importance toour communities.

We are not always able to satisfy every-one involved in the process. But NationalGrid works with all concerned to signalthat company officials and employees lis-ten to and respect their opinions.

Although we adopt this approach ex-plicitly for transmission siting, NationalGrid also has followed it implicitly in itscleanup of historically contaminated man-

ufactured gas waste sites in New Englandand New York. The company’s experienceis that active stakeholder engagement is afar better alternative to litigation.

The purpose of discussing here the mu-tual gains approach to conflict preventionand resolution isn’t to show how virtuousNational Grid is by comparison with oth-ers, but rather to demonstrate instead thatenergy construction projects need not haveprofoundly adverse stakeholder impacts ifcompanies identify and engage affectedstakeholders in the planning and imple-mentation stages.

The mutual gains approach must becarefully tailored to local conditions. It hasits limitations. Neugebauer, supra, pp.1252, et seq. One critical limit relates tocultural barriers, such as the fact that in-digenous stakeholders may be diverse.They may be unassimilated minorities intheir own countries, with their own uniquelanguages and cultures.

Another important limit relates to animbalance of power at the negotiating tablewhen a large company sits down with itsstakeholders. There likely is a lack of infor-mation; a lack of awareness of rights; a lackof access to technical and legal advisers,and a lack of expertise in high stakes hag-gling with professional negotiators.

In contrast, it is hard to swing a bag ina U.S. subway car without hitting at leasttwo lawyers. Indeed, in National Grid’sown experience in Massachusetts, Prof.Lawrence Susskind himself was an abutterof one the company’s lines.

This article doesn’t suggest that Na-tional Grid’s experience with the mutualgains approach in a relatively small U.S.corner automatically would translate intoits successful application in Burma orEcuador. Nevertheless, the need for com-panies to engage with their stakeholders,to determine their interests and needs,and to attempt to address them, is of uni-versal application.

If there are limitations to this approachin other companies, they can be addressedand mitigated. There seems no inherent orlogical reason why a species of the ap-proach cannot be used to mitigate corpo-rate human rights concerns wherever theymight arise. �

DOI 10.1002/alt.20216

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how an energy company takes a human rights approach

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