Intellectual property law and Corporate social Responsibility

June 16, 2017 | Autor: J. Nguyen Thai Cu... | Categoría: Intellectual Property Law
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ENFORCING CORPORATE SOCIAL RESPONSIBILITY BY PUBLIC REGULATIONS NGUYEN THAI CUONG Keywords: Corporate social responsibility, corporate governance, corporate objective, compulsory license, consumer protection, shareholder, stakeholder. Introduction Public ownership replaced private ownership is a part of Marxist revolution1. In 19th century, the critical model set up the dominance of exploitation scheme on society. On the contrary, Smith and Ricardo set up the liberal model which confirm individual as rational actor2. Nowadays, company understands the requirement to build a substantial development, companies need to corporate to community in a “Win Win” agreement then we now present these structures: the philanthropic, ethical responsibility, and legal responsibility and economic responsibility3. Obviously, corporate social responsibility in pharmaceutical company demands companies have to share their interests not only to their shareholders as the function of incorporate but also to their stakeholders as a social redistribution. The private interest need to correspond with the public interest by a voluntary manner. In European Union, the freedom of establishment and freedom of goods help enterprises easily to circulate merchandises within members of Union but corporate social responsibility stay apart from its pillars. CSR exist in different forms whether Treaty of Lisbon in 2007 do mention implicitly about the social liability of Union as a fundamental protection in European Union. Article 168 state that “1. A high level of human health protection shall be ensured in the definition and implementation of all the Union’s policies and activities. Union action, which shall complement national policies, shall be directed towards

Gerald Vinten, Shareholder versus Stakeholder – is there a governance dialemma, Volume 9 Number 1 January 2001, p1. 2Robert O’Brien, Marc Williams, Global political economy, Palgrave Macmillan, 2nd edition, 2007, p24. 3 Carroll, Archie B, The Pyramid of Corporate Social Responsibility: Toward the Moral Management of Organizational Stakeholders, Business Horizons, July-August 1991. 1

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improving public health, preventing human illness and diseases, and obviating sources of danger to physical and mental health”4. Obviously, the protection of public health is an important issue beside the interests of a union of economic. “How can and do corporate contribute to constructing ‘the good society’ ”5 ? On the contrary, as an international dimension, compulsory licence6 contributes enormously in the protection of public interests. However, many consecutive restrictions of transfer pharmaceutical are patents from India, Brazil to Africa. Americana and EU moved forward to sign bilateral agreements which establish a higher standard of IP protection comparing to TRIPS agreement in 1994, implicitly impeded the transfer “compulsory license” in many countries from Thailand, Vietnam to Brazil7. The regulation do allowed the government to use public power to ask companies corporate with society but the political pressure are more important than regulation, a ‘green room’ club of WTO8. In 2012, India authority have an audacity order to protect more the public interest, in Natco Pharma Ltd v Bayer9, India’s patent office granted a compulsory license to sell Sorafenib to treat kidney and lung cancer. The Patentee Bayer AG’s surely wasn’t joyful about the decision which raise many question around the types of diseases should be excluded from licensing non-voluntary. It is difficult for authority to set out a regulation for pharmaceutical products whether more and more diseases will appear and it could discourage pharmaceutical industry to invest and develop new products. The influence of corporate social responsibility to the corporate government in pharmaceutical companies and the social protection is undeniable.

Treaty of Rome 25 March 1957. Donna J. Wood, Toward Improving corporate social Performance, p 1. 6 “The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) also sets out specific provisions that shall be followed if a compulsory license is issued, and the requirements of such licenses”, Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) 1994. 7 Us – Thailand, Trade and Investment Framework Agreement (TIFA) signed in 2002; The Vietnam-U.S. Bilateral Trade Agreement in 2002; The Free Trade Area of the Americas (FTAA) 2005. 8 See Hiroyuki Odagiri, Arika Goto, Atsushi Sunami, and Richard R. Nelson, Intellectual property rights, Development, and catch-up, Oxford, p 361, 2010 9 License Application No 1 of 2011, 9 March 2012. 4 5

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New horizon of companies to corporate with community in voluntarily manner Nowadays, companies are more and more focus on the CSR to raise their reputation and increase the investment in the market as a business strategy through many channels for “clever consumers”. On the other hand, consumers also have some external channels to protect their innocence behaviors through the consumer protection organizations. Consumer can banded together to claim for damage by class action which is used enormously in US10. The question raise out is whether there existed a mechanism to enforce CSR? And what is the director duty to enforce the CSR in a company to balance the shareholders interest11 and stakeholders, a channel to redistribute the company’s benefits to the society. CSR toward society, employer, and company law has considered employers are the stakeholders of the companies. CSR has express through the social care to its employers of the companies by sharing companies share. The employers will contribute more to their companies by work for them and work for companies. What is within scope of “corporate social”? Corporate social is different with the consumer protection12 whether consumers can bring a claim to tribunal by an individual claim for damage or a class action13 as a private enforcement or whether by a public enforcement, consumer protection in this sense is very general. CSR is aim to the Company duty towards society in a narrow term: we try to establish a formation in which dedicate to company objective and management. The obligation to produce safety products to guarantee their quality should not in scope of corporate social because it is regulates by others mechanism above on consumer, human rights and environment law. We now discuss about CRS to modify the corporate governance objectives, to balance the interest between company and society. CSR contribute to economic reform after its

Vietnam follows civil system like in France. They do not have class action regulations; they are mainly base on other regulation in environmental law, consumer law in public enforcement. 10

Stephen f. Copp, Corporate social responsibility and the companies act 2006, Institute of economic affairs, Oxford, 2009. 12 See “A General Duty to Trade Fairly – A discussion paper – Office of Fair Trading ( London, 1986). Section 5.11 “[…] fair trading drawn up in such a manner as to increase the likelihood of satisfactory trading behavior and improve consumers’ opportunity of redress”. 13 UK is still hesitating to apply class action. On the contrary, it is very develop in US. 11

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recession whether “corporate Social responsibility (CSR) is one of the most important elements requiring reconsideration and regulation post-crisis”14. In civil liability, we can only claim for damage if there is damage. How can we claim company without damage? It is help us answer the question the role of corporate social responsibility is to prevent the damage to the society rather than a method to claim for damage. Stakeholder’s management desires to maximise returns through sustainable growth of the corporation15. CSR is a guide to achieve this goal. The importance is to coherence shareholders’ and stakeholders’ interests16 as an inalienable property. A hybrid model of management is significantly recognised by big cooperation. The guideline of OECD on CSR is so wide to implement when it is ambitious to cover all aspects “Human rights, employment, combating bribery, consumer interests, competition and taxation”17. Therefore, the guideline of OECD is rest in place of a political act. This article will be divided into four main sections. The first section reviews the concept of CSR and examines its nature. The second section will review company management and CSR to find out the controversy of companies objective and director duty to CSR. The third section analyzes the corporate social liability in Vietnamese law and self evident of the violation to environment of foreigner companies in 2006. Finally, the fourth section will provide a balancing regulation on CSR and its remedy and claim for damage by public enforcement. This article will try to relate public interest through health protection and CSR through public mechanism whether government can use their state power to keep balance public health protection through CSR.

Jingchen Zhao, Promoting More Socially Responsible Corporations Through UK Company Law After the 2008 Financial Crisis: The Turning of the Crisis Compass, I.C.C.L.R, Thomson Reuters [2011]. 15 John Kong Shan Ho, Is the section 172 of the Company Act 2006 the guidance for CSR? Company lawyer, 2010, p 3. 16 Thomas Clarke, ‘accounting for Enron: shareholder value and stakeholder interests’, September 2005, Blackwell, page 604. 17 See OECD guidelines address to 44 countries in the world. 14

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I – Concept of corporate social responsibility Legislation is not only protect the company to freedom exercise their rights to establish company and get easy to access to the market, but also the protection of social interests play an importance role in new economy and pharmaceutical industry is more concern in this matter. Social liability is define through corporate social responsibility, in some countries we hear about the political responsibility whether in every administrative decision concerned to millions of people and if the wrong decision has approved the governors give up their power to express their responsibility to population. What is the corporate social responsibility? To what remedy is reward to society? CSR is not a legal duty? CSR consist of many types of social responsibility: economic, legal, ethical18. Literary, “responsibility” is different to “Liability”. According to Longman dictionary “Responsibility is “a duty to be in charge of someone or something, so that you make decisions and can be blamed if something bad happens”19. Liability is “legal responsibility for something, especially for paying money that is owed, or for damage or injury”20. And Duty is “something that you have to do because it is morally or legally right”21. Apparently, why don’t we should call CSR is a duty rather than responsibility or Liability? In the legal term, Liability emphasizes to the legal duty other than moral duty, civil liability, criminal liability, limited liability whether responsibility duty emphasise to the moral sense as corporate social responsibility. That means it is a natural obligation to society, to corporate with society, to protect the common interests, company in one side and society in the other side. Moreover, it is not a legal duty, that why we need to normalize CSR to the legal regulation, in particularly in the objective of company’s referendum. On the contrary, there are no legal remedy for CSR for the wrong doers as well as there is no remedy cap for the sanction. How can we condemn these companies? Contrary with the idea CSR is a legal responsibility because although companies must comply with the laws and regulations promulgate by federal, state and governments but Archie B. Carroll. “The Pyramid of corporate social responsibility: toward the moral management of organisational stakeholders,” Business Horizon, July-August 1991, p 40. 19 See http://www.ldoceonline.com/dictionary/responsibility 18

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See http://www.ldoceonline.com/dictionary/liability See http://www.ldoceonline.com/dictionary/duty 5

it is more than sense as a social contract than a legal responsibility22. Observably, companies need to conform to laws: environmental law, consumer law, human rights law, and competition law, labour law present CSR in every code. This interaction conform the CSR in a whole picture to protect the social interests and companies’ interests.CSR is not simply a donation to society. Some companies measure CSR by donation index23. Donation is a willing of company to redistribute their wealthy to society in general to enhance social security, reduce poverty. The donation aim to a very wide community and some of them are clients or consumers of those companies. Thurs, the donation destination is different from the framework of CSR. CSR is not measure by donation index, in fact, it is not measurable but we can control CSR through director management. Law will regulate where there are some unregulated relations. Therefore, there are not sufficiency regulations on social responsibility so they need to regulate, a corporate between companies and society. Therefore, CSR is not a legal duty by wording it is a deal between companies and society. This relation is base on corporate deal. How can we explain the responsibility of dominant companies to society? Dominant companies have their market power to decide their providing service. Laws do not forbid dominant companies, law forbid any acts which abuse of dominant position in the market for any act which restrict others competitors. Article 102 TFEU prohibit any incompatible to the relevant market to undertaking to protect consumer welfare as a type of corporate social responsibility as a responsible matrix24. European commission apply this article for competitive process by protecting all competitors or at least in the dominant field. It apply to bilateral conduct for the abuse but 102 also apply to cumulative dominant undertaking. This example explain why company have market power to orientate consumer behaviour to set up their own regimes in the market and there are no specific regulations base on types of companies, behaviours, market

Archie B. Carroll. “The Pyramid of corporate social responsibility: toward the moral management of organisational stakeholders,” Business Horizon, July-August 1991, p 41. 22

John Kong Shan Ho, Is the section 172 of the Company Act 2006 the guidance for CSR? Company lawyer, 2010, p 2. 24 This matrix show the relation classifies CRS in four types: economic, legal, ethical, philanthropic. It is also enhance the interest of state holder: owners, customers, employees, community, competitors, suppliers, social activist groups, public at large and others. See more in “Archie B. Carroll. The Pyramid of corporate social responsibility: toward the moral management of organisational stakeholders, Business Horizon,” JulyAugust 1991, p 44. 23

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powers or any anti-competitive acts. Thus, There are many public mechanisms to control CSR as a Macroeconomic. II – Company management and CSR As we mention above about why we need to regulate and apply the CSR. Besides legislation, there are two main channels to control CSR, international control and external control. The duty of director to promote the success of company specifically for shareholder25 is the heart of company Act 200626. This Act does not regulate the duty of director to corporate social responsibility (section 171 to section 177 of company act 2006). CSR is the redistribute the companies’ interest to society therefore it is conflicts to the shareholder interests. Director must “avoid a situation in which he has, or can have, a direct or indirect interest that conflicts, or possible may conflicts, with the interest of company”27. The sustainable harm to companies are very large to interpret whether the director decide to redistribute benefit to society. Therefore, the Companies Act 2006 is not in favor of corporate social responsibility in the regulation of director duty. It is the same approach in Vietnamese company law 2006. “Director recommends the plan for use of profits or for dealing with losses in business”28. And “Obligations of members of the Members’ Council, director or general director”29 are mainly to focus the shareholder

Shareholder interest is a corps of corporation from the proposal of company act. See more in “the company Law review Steering Group adopt the “enlightened shareholder” in 1998. 26 The secretary of State for trade and industry emphasised the promotion of shareholder interest in house of common, see more in Lisa, “Promoting success : the Companies Act 2006,” company lawyer, 2007. 27 Section 175, Company Act 2006. 28 Article 55, Vietnamese company law 2005. 29 Article 56, Vietnamese company law 2005. “1. A member of the Members’ Council, the director or general director of the company shall have the following obligations: (a) To exercise the delegated rights and perform the delegated duties honestly and diligently and to his or her best ability to assure the best lawful interests of the company and the company owner; (b) To be loyal to the interest of the company and the company owner; not to use information, know-how or business opportunities of the company; not to abuse his or her position and power nor to use assets of the company for the personal benefit of himself or herself or other organizations or individuals; (c) To notify the company in a timely, complete and accurate manner of the enterprises of which he or she and his or her related person is the owner or holds shares or a controlling share of capital contribution. This notice shall be displayed at the head office and branches of the company; (d) To perform other obligations stipulated by law and the charter of the company. 2. The 25

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interests as the purpose of corporate governance because CSR is not only base on the director duty but also on shareholders and stakeholders to demand company to implement CSR as common interests. Thus, the formation of company set up a limited liability to limit their payable capacity in the proportion of shareholders 30. The limited liability is clearly protecting more companies than social interest whether stakeholders will get more benefits on unlimited companies31. CSR is a part of corporation’s performance through company’s charter. Companies will engage their obligations to society until they disappear in the market. Moreover, the arguing points in the corporate government are whether the director decisions on behalf of social interests may potential effect on shareholders’ the interest. Thurs, it is better to regulate in the objective of memorandum of the companies in the very beginning of corporate charter.

III – Corporate social liability in Vietnamese company law 2005 Legal culture and political model influence to the application of CSR in Vietnam which make them different to the common law culture. The population cannot themselves protect their rights effectively because they do not like litigation; these factors explain why the public enforcement is used most favourable in this country, thus the need to implement CSR by public enforcement rather than private enforcements: Foreign companies infringe the environmental regulation, applying compulsory licence to protect public health. Recently, there are many transnational companies in Vietnam did not respect the environment protection. Vedan32 is an international company, produce process food. All of waste water exported directly to Thi Vai River where a thousand people have intoxicated by waste rubbish of Vedan. These toxic fluids are potentially causing cancer director or general director shall not be entitled to any pay rise or bonus when the company is unable to pay all of its due debts”. 30 Paul L.Davies, Principles of modern company law, 6th edition, Sweet & Maxwell, p80 1997. 31 It is arguable that in case companies are in insolvency the winding up procedure may rescue companies, thus protect stakeholders. 32 Vedan Vietnam Enterprise Corporation Limited (Vedan Vietnam) was established in 1991 in Phuoc Thai Commune, Long Thanh district, Dong Nai Province. http://vedan.com.vn/vedan/?q=en/node/386 8

and some severe diseases33. The habitants around this area are fear to go to justice. Fortunately, some active lawyers demand a public enforcement from government by a collective petition. At the end, these companies have to apply the remedy to the habitants living around after many years in process. There are many companies still did not respect the environment protection in developing countries34, on one hand, they take advantage of cheap workers and in the other hand they take advantage of cheap labour market and the weak regulation of protection to increase the profits by non respect waste resolution. “Over 77 other companies in industrial parks in the two provinces have been found to be discharging untreated wastewater into the river”35 . As a socialism system which given more protection on social interest, CSR is implicitly regulated by Vietnamese constitution36 to protect public employees and other working people. Furthermore, Vietnamese law 2005 regulate Obligations of enterprise is “to ensure and be responsible for the quality of goods or services in accordance with registered or published standard, to comply with the law on national defense, security, social order and safety, protection of natural resources and the environment, protection of historical and cultural sites and places of interests”37.

33For

more information, see settlement talks continue in Vedan pollution case, (2010) available at http://vietnamnews.vn/environment/202178/settlement-talks-continuein-vedan-pollution-case.html Manuwadi Hungspreugs, Heavy Metals and Other Non-Oil Pollutants in Southeast Asia, Page 178 of 178-182. 35 Many foreigne companies use the weak regulation on environmental law and Vietnamese 34

culture to take more benefit on waste procedure. See. http://english.thesaigontimes.vn/Home/business/environment/1268/ 36Article

10, Vietnamese constitution 1992 amended “The Vietnam Confederation of Trade Unions, as the socio-political organization of the working class and working people, together with State bodies and economic and social organizations cares for and protects the interests of workers, public employees and other working people; takes part in the inspection and supervision of the activities of State bodies and economic organizations; educates cadres, workers, public employees and other working people in the building and defense of their homeland ”. 37Article 9, Vietnamese Enterprise law 2005. 9

Enforcement CSR by compulsory licence38 It is arguable that CSR appear in many domains. Obviously, Vietnam and some others countries like Thailand, Brazil consider CSR in pharmaceutical regulation. Company has obligation to distribute their benefit to their member only according to certain condition39. Law did not say that companies need to distribute benefit to society. On the other hand, company did not oblige to apply CSR policy in the companies but the government can force company engage its responsibility to society. CSR is the corporate between companies and society. Therefore, in 2003, the declaration of WTO in protection of public health which concrete the TRIPS agreement 1994 give member state a flexibility to force transnational pharmaceutical companies to transfer licence ( compulsory license) in urgent circumstance40. On the contrary US, EU use political pressure to stop this regulation implement in Vietnam, Thailand and Brazil 41. Obviously, the developed countries are always in advance to avoid the implementation of CSR in developing countries by many ways such as political pressure or economic advantage42. Recently, we can see in EU legislation, there are many regulations concerning to consumer Protection for Product safety43, Directive 98/6/EC of the European Parliament and of the Council of 16 February 1998 on consumer protection in the indication of the prices of products offered to consumers which contribute a gateway to enhance the implement of CSR. However, the position of consumer will depend on the

‘Compulsory licensing is when a government allows someone else to produce the patented product or process without the consent of the patent owner. It is one of the flexibilities on patent protection included in the WTO’s agreement on intellectual property’, TRIPS (Trade-Related Aspects of Intellectual Property Rights) Agreement 1994. 39 Article 61 Conditions for distribution of profits, Vietnamese company law 2005. 40 Article 31f, Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs). 41 In 2006, the flu grippe spread all the countries. Vietnamese government unsuccessfully used the compulsory licence to negotiate with Abbott to produce Kaletra. See more http://www.lemonde.fr 42 Us pharmaceutical company urged to stop commercialise of local government applied compulsory licence. “ US Congressional support to Thailand’s Compulsory License Issuance”, available at http://www.oxfamblogs.org/asia/us-congressional-support-to-thailands-compulsorylicense-issuance/ 43 Directive 2001/95/EC of the European parliament and of the council of 3 December 2001 on general product safety. 38

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nature of damage or loss suffered44. Consumers are not easy to collect the whole evidences in all damages. Again, public enforcement is very important in these situations. Obstacle for legal remedy of CSR in Vietnam One reason make Vietnamese people do not want to go to court to ask for remedy is Vietnamese culture don’t encourage people to access to litigation. There are many regulations for protection but there is insufficient because people are never going to use it regulation45. As a socialism country, Vietnam has a different view on human right which base on sovereignty of a country, there are no regulation concerning to human right and CSR in Vietnam. In an overview, Vietnamese government use the state owner enterprise to balance the market economy but in the recent years the privitilisation has grown up enormously which give a pressure to government to implement the CSR regulation. IV –Balancing regulation on CSR Firstly, the need to propose a Code, so called ‘Corporate social responsibility code’ which regulate CSR in the objective of company. Secondly, enhancing a Tax policy as “One potential way to encourage companies to adopt CSR would be for the United States Government to give corporate tax benefits for implementing CSR

46“.

Companies will

implement CSR voluntarily in a sustainable development. CSR annual report There are still no mechanisms to enforce the CSR in the company’s vision. This is a voluntary job between companies towards society in Annual report. In this report, See more C.J. Miller, Brian W. Harvey, Deborah L. Parry, consumer and trading law, Oxford, 1998. 45 See more in Vietnamese consumer protection 2012; Vietnamese environmental law 2005 and others regulation to protect social interests. 46 2182. Similar tax incentives already exist for encouraging environmental friendly corporate practices. See generally 26 U.S.C. § 179D (2000) (deduction available for energy efficient commercial buildings); 26 U.S.C. § 48 (2000) (tax credit available for use of solar and other renewable energy. See. See. Martin L. Hirsch, Side effects of corporate Greed: Pharmaceutical companies need a dose of corporate social responsibility. 44

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companies must have 2 separate reports; one is financial report for shareholders and another report on CSR. Section 417 CA 2006. This statement inform to the public about the corporate social impact on the environment, the company’s employees and social47. The contents of directors’ report are also in question because director will report on the positive side but not the negative side. What is the director liability if he not performs the statement in a transparency and fairness manner? This raise out the question of the responsibility of auditors to verify the precise of information is accessible to public. Sanction The level of CSR has to comply with the types of companies form small enterprise to the big companies, from medium companies to dominant position48 companies. CSR has the conformity to environment, health, consumers and human rights regulations which are enforced significantly by public entities. Thurs, CRS need to regulate the company’s interests to society interest through public enforcement by a number of mechanisms and set up sanction in case companies fail to comply with it.

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Company Act 2006, Section 417 (5). Tesco Plc is currently the largest retail chain in UK. 12

Conclusion CSR is still an issue arguable whether the companies’ duty is mainly focusing on the interest for shareholders; on the contrary CSR protect social interests to redistribute to society as a long-term investment. How can we condemn a companies failed to follow the CSR is still in question. The pluralism mechanism engages with CSR in the international level49 through soft law, hard law, host states’ regulations and some others mechanisms in company law, labour law, consumer law and environmental law. Thus, the need is to codify CSR in an international framework as standardization50. CSR has related to sustainable development of companies. Recently, Germany goes ahead in given a legal framework in German sustainability code51 with an ambitious to create a model law for international substantial development. At this time, there are no regulations on the social responsibility of multinational companies on host communities, in Germany, instead of there is no bribery Act52 which implement but in this proposal which also cover bribery and CSR as a complete instrument. There are still wide interpretations of CSR from state to state because CSR cannot cover all the manner of companies. CSR must go along voluntarily with companies as a whole structure to enhance the wealthy of their business.

OECD ; United Nation, WTO and WIPO corporate to enhance a sustainable development through many mechanisms. 50 ‘The ISO 9000 related to quality management systems and designed to disclose to customers and other stakeholders’. 51 “The transparency standard was sent to German Federal Government with a recommendation for implementation”, available at http://www.nachhaltigkeitsrat.de/en/projects/projects-of-the-council/deutschernachhaltigkeitskodex/ 52See The Foreign Corrupt Practices Act of 1977 (FCPA) (15 U.S.C. § 78dd-1); The Bribery Act 2010 (c.23). 49

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SUMMARY I – Corporate social responsibility and Law. II – Company management and CSR III – Corporate social liability in Vietnamese law. IV –Balancing regulation on CSR

Abbreviations CSR

Corporate social responsibility

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