---

Clarifications

The Guidelines are recommendations jointly addressed by adhering countries to multinational enterprises operating in their territories. They lay down standards for the activities of multinational enterprises and, where relevant, of national enterprises in the different adhering countries. Observance of the Guidelines is voluntary and not legally enforceable. They represent, nevertheless, adhering countries firm expectations for multinational enterprise behaviour². Although compliance with national law is necessary this is not necessarily sufficient to observance of the Guidelines Every State has the right to prescribe the conditions under which multinational enterprises operate within its national jurisdiction subject to international law and the international agreements to which it subscribes. The Guidelines are not a substitute for national laws, to which multinational enterprises are fully subject. They represent supplementary standards of behaviour of a nonlegal character, particularly concerning the international operations of these enterprises³.

The Guidelines do not define the term ``multinational enterprises'', a concept which embraces a diversity of situations found throughout the business world. Rather they describe some general criteria covering a broad range of multinational activities and arrangements⁴. These arrangements can include traditional international direct investment based on equity participation, or other means which do not necessarily include an equity capital element. Majority ownership is not the exclusive form of linkage between two companies in different countries which allows one to exercise a significant influence over the activities of others. Accordingly, an entity may be considered part of a multinational enterprise without necessarily being a majority owned subsidiary. The sharing of knowledge and resources among companies or other entities does not in itself indicate that such companies or entities constitute a multinational enterprise.⁵

Responsibilities of the various entities of a multinational enterprise

All entities, including parent companies, local subsidiaries, as well as intermediary levels of the organisation, are expected to cooperate and assist, as necessary, in observing the Guidelines. To the extent that parent companies actually exercise control over the activities of their subsidiaries, they have a responsibility for observance of the Guidelines by those subsidiaries.⁶ and its local entities would undoubtedly assist in achieving the purposes of the Guidelines. As long as enterprises can ensure this cooperation and assistance, it would be up to the various entities to decide the division of responsibilities between parent companies and local entities

Since the expectations of the Guidelines are that all entities will cooperate to ensure observance of the Guidelines, it would be reasonable to expect that a ``prudent enterprise'' would set up whatever internal procedures would be necessary to ensure that the Guidelines are known and applied by its various entities. The Guidelines do not, however, imply a model of corporate decision making nor do they interfere with the way parent companies communicate with their affiliated entities.

The concept of responsibilities of the various entities of a multinational enterprise is relevant for specific paragraphs of the Guidelines, particularly those dealing with the provision of information to employee representatives (see, for example, paragraphs 2 and 3 of the Employment and Industrial Relations chapter of the Guidelines). It is also important to the Guidelines as a whole. The chapter on Disclosure addresses the parent company directly when referring to ``the fact that the information should be disclosed for the enterprises as a whole and, where appropriate, along business lines or geographic areas'' that is, information which must be gathered and prepared by the parent company. In other areas, such as taxation, observance of the Guidelines may also require that a full picture of the operations of the enterprise as a whole be made available and that enterprises, including parent companies co-operate with national authorities.⁷

The question whether parent companies should assume responsibility for certain financial obligations of subsidiaries as part of good management practice raises complex problems in view of the limited liability principle embodied in adhering countries' national laws. The Guidelines cannot supersede or substitute for national laws governing corporate liability. They do not therefore imply an unqualified principle of parent company responsibility. Nonetheless, in certain cases parent companies have assumed on a voluntary basis financial responsibility for a subsidiary, and such behaviour may actually be considered good management practice under the Guidelines. This question is especially relevant when discussing changes in the operations of a firm and co-operation between the entities to mitigate resulting adverse effects.⁸

---

Next: General Policies
Up: Concepts and Principles
Previous: Text