Regulatory framework and Guiding Principles

Chapter 2

Regulatory framework
and Guiding Principles




In recent years, much has been written about the positive and negative impact of business on human rights, and how, why and if the corporate sector should be more engaged in respecting and protecting rights. Beginning in earnest in the 1990s, the debate has now largely moved from ‘if’ business should be engaged with human rights to ‘how’. But, as the role and influence of corporations has increased globally, so too has the confusion around what specifically is required of them, and what the best mechanisms are to encourage companies to engage more substantially with human rights.

This chapter provides an overview of the principal regulatory developments in this field; those developments encompass a broad array of tools including international and national laws, soft norms and stakeholder-led initiatives. A reference to ‘regulating’ corporate conduct will mean different things to different people. Regulation is used here in a broad sense to incorporate formal and informal and legal and non-legal mechanisms, designed to influence or at times press corporations to better respect and/or protect human rights. Indeed, the business and human rights field is remarkable for the diversity of techniques that have been employed to regulate corporate conduct along with the breadth of stakeholders involved in using varied strategies.

The contribution by Justine Nolan spans the breadth of this movement and reinforces the apt statement of the former Special Representative of Business and Human Rights, that ‘there is no single silver bullet solution to the institutional misalignments in the business and human rights domain. Instead, all social actors – States, businesses, and civil society – must learn to do many things differently’.1 The adoption by the UN Human Rights Council in 2011 of the Guiding Principles on Business and Human Rights (Guiding Principles) was a major development in the business and human rights field. Chip Pitts describes the Guiding Principles and their impact. John Ruggie discusses his foundational premises in the development of the Guiding Principles and what, in his view, are the crucial next steps to be addressed in the business and human rights field.

What is becoming increasingly apparent is that in striving for greater protection for human rights, a multiplicity of stakeholders (both state and non-state actors) must be involved. Some of the most powerful global actors today are companies, not governments. Logically, recourse to international or local laws and a system of enforcement and judicial relief in the host countries where global corporations operate should be the primary option for ensuring greater protection for human rights. However, the reality is that in many countries this simply is not occurring. Laws are sometimes weak but enforcement is weaker still. Soft-law and stakeholderled initiatives have an important role to play in engendering greater corporate respect for human rights and many of these mechanisms highlighted in this chapter must necessarily work in collaboration with each other.


1 Human Rights Council, ‘Protect, Respect and Remedy: a Framework for Business and Human Rights’, Report of the Special Representative of the Secretary-General on the Issue of Human Rights and Transnational Corporations and Other Business Enterprises, John Ruggie, UN Doc. A/HRC/8/5 (7 April 2008), para. 7.

Section 2.1

Mapping the movement: the business and
human rights regulatory framework

Justine Nolan

1 Introduction

Traditionally, responsibility for protecting and advancing respect for human rights has been assumed to be the duty of the state (national governments), with rules drawn predominantly from international treaties that might then be translated into national laws, such as health and safety or anti-discrimination legislation. It is only quite recently that discussion has expanded to focus on the human rights responsibilities of companies. In response to the evolution of the global business and human rights agenda in the last three to four decades, private (or public–private) regulation1 has become a central means of driving consensus on how corporations can and should advance respect for (and sometimes protect) human rights. International law and its state-centric framework for protecting rights is proving inadequate to stem and redress corporate rights violations and has led to protection or governance gaps.

Writing in 2008, then United Nations (UN) Special Representative for Business and Human Rights (SRSG), John Ruggie noted that ‘the root cause of the business and human rights predicament today lies in the governance gaps created by globalization – between the scope and impact of economic forces and actors, and the capacity of societies to manage their adverse consequences’.2 That is, corporations often operate in countries that do not have the capacity or will to protect the rights of those within their jurisdiction; as a result, their activities are difficult to monitor and regulate, and wrongs often remain without redress. All around the global marketplace, non-state actors such as non-government organizations (NGOs), international institutions, unions, companies, multi-stakeholder groups and industry bodies, have stepped in to develop governance mechanisms that attempt to fill such gaps.3

The adoption by the UN Human Rights Council in 2011 of the Guiding Principles on Business and Human Rights4 (Guiding Principles) signalled acceptance of the notion that corporate responsibility to respect human rights exists independently of, and as a complement to, states’ duties to protect human rights. While the Guiding Principles provide a useful foundation for future action, many stakeholders were already involved in developing non-state-based regulatory initiatives – such as the Fair Labor Association or the Global Network Initiative – to develop industry standards, metrics and implementing procedures that give substantive content to corporate human rights responsibilities. This transfer or sharing of regulatory authority between states and non-state actors utilizes a combination of hard and soft laws5 to establish relevant standards for corporate activity, including compliance mechanisms to monitor implementation of these standards.

This chapter provides an overview of the history of international, state and non-state efforts to regulate corporate compliance with human rights standards. It begins by highlighting the central obligations of states to protect human rights on the basis of international human rights and labour laws and national laws. The chapter then takes note of the corollary development of soft law (both from a top-down international institutional perspective and from a bottom-up stakeholder driven process) that has arisen in response to gaps in state protection mechanisms. What is becoming increasingly apparent is that for sustained improvements to occur, a multiplicity of stakeholders and mechanisms must be used to both prevent and redress the impact of business on human rights.

2 The human rights framework and its
traditionally state-centric focus

The international human rights framework has been a touchstone for many seeking to attach human rights responsibilities to corporations. The relevance of human rights to business is now more generally accepted,6 but the extent of corporate responsibilities (or perhaps even obligations) flowing from that symbiotic relationship is more contested. Understanding the human rights framework helps attach content to the rights themselves and gives a broader basis for understanding the independent but also interdependent responsibilities of both states and business in protecting and respecting these rights.

2.1 Universal Declaration of Human Rights

The Universal Declaration of Human Rights (UDHR) lists 30 substantive human rights that are promulgated as a common standard of achievement for all peoples and all nations: every ‘individual and organ of society’ shall strive by teaching and education to promote respect for these rights and by progressive measures secure their universal and effective recognition and observance.7 Motivated by the experiences of the preceding world wars, the UDHR was the first time that countries agreed on a comprehensive statement of inalienable human rights. The UDHR is expressed entirely in terms of entitlements for individuals and peoples rather than obligations on states or other entities. As a declaration of the UN General Assembly, it does not create legal obligations of itself. Nevertheless, the UDHR is frequently cited as the source of human rights obligations that corporations are urged to follow.

The expression ‘every individual’ in the UDHR can be taken to include juridical persons. Thus ‘every individual and organ of society’ excludes no one, including corporations.8 Furthermore, the phrase ‘every organ of society’ indicates that the human rights in the UDHR are to be respected, protected and promoted not only by states but also by all social entities capable of affecting the enjoyment of human rights, including corporations.9

Extending the moral, if not legal, authority of the UDHR to corporations relies on art. 29, which acknowledges that ‘everyone’ has ‘duties’ to the community, and art. 30, which prohibits any ‘group’ from engaging in any activity or performing any act aimed at destroying any of the rights and freedoms in the UDHR. Ultimately, however, the UDHR’s provisions arguably express no more than a desire that corporations might ‘strive’ to promote respect for human rights rather than directly imposing any binding legal obligations on these non-state entities.10

2.2 International human rights treaties

While the UDHR identifies human rights entitlements rather than explicit legal obligations, international human rights treaties transform those rights into binding legal obligations upon states. The International Covenant on Civil and Political Rights (ICCPR)11 and the International Covenant on Economic, Social and Cultural Rights (ICESCR)12 make all the rights in the UDHR, other than the right to property, obligations of states party to them. Human rights obligations are also contained in subject-specific treaties including conventions of the International Labour Organization (ILO),13 agreements concerning slavery14 and racial discrimination15 and the rights of particular groups including women,16 children17 and migrant workers.18

The state-centric framework of international human rights law emphasizes the primary responsibility of governments to protect human rights while remaining partially blind to the opportunity to speak more directly to influential non-state actors including corporations. The size, revenues and global reach of some corporations now means that their potential power to impact communities is commensurate with those of states; yet they are not directly bound by international human rights laws.19 More recent treaties, and occasionally treaty bodies, have begun to refer more directly to the role of states in specifically preventing human rights abuses by corporations.20 It is commonly assumed that these treaties do not themselves create direct obligations for corporations21 but instead require states to regulate and adjudicate the acts of corporations in order to fulfil their duty to protect human rights as outlined in the treaties. Thus, a state failure to ensure compliance by private employers with basic international (or comparable national) labour standards could amount to a violation of the right to work or to just and favourable working conditions. However, the fact that a treaty imposes an obligation on a state to protect private persons from the actions of another does not automatically enable an individual to seek legal recourse from another private actor (such as a company) for violating his or her rights. Without direct obligations for companies, any allegation of a violation of human rights needs to be framed in terms of the responsibility of the state to protect human rights from violations by private actors.

2.2.1 A business and human rights treaty?

The resolution adopted by the UN Human Rights Council in 201422 to explore the development of a business and human rights treaty raises anew the issue of whether the international human rights law framework can accommodate corporate liability. Questions arise as to the necessity for a treaty, the potential effectiveness of a treaty and the theoretical and practical feasibility of establishing a framework to hold hundreds of thousands of corporations to account.23 The current debate harks back to that which began in the 1970s (with respect to the development of a UN Draft Code to regulate transnational corporations) and perhaps illustrates how little has changed in certain respects. This issue is discussed in more detail in Sections 2.3, 2.4 and 2.5.

2.3 ILO conventions and guidelines

Core labour standards are a subset of fundamental human rights, some of which are expressly recognized in human rights treaties. However, it is a ‘regrettable paradox that the human rights movement and the labor movement run on tracks that are sometimes parallel and rarely meet’,24 despite the substantial overlap between the two. The right to work has direct intersections with many other rights, including civil and political rights, such as the right to life and freedom of expression, and also economic, social and cultural rights, such as the rights to health and an adequate standard of living.

The ILO (the establishment of which pre-dates the UN by more than 25 years) liaises closely with UN charter-based and treaty-based bodies, and reports on issues such as child labour, discrimination, forced labour, migrant workers and freedom of association. Although the essence of both the UN and ILO compliance mechanisms is based on dialogue and persuasion, the systems of supervision (ILO) and monitoring (UN) differ. The ILO’s unique tripartite structure aims to ensure the full participation of not only governments but also employer and employee representatives in the drafting and implementation of labour standards. Tripartite governance is not a panacea, however, and its effectiveness relies on the ability of each of the parties to negotiate as independent entities. In some regions of the world,

industrial relations law and practice are closely bound up with industrialisation and development strategies that are generally accompanied by state control over labour unions in order to maintain the stability that national governments may feel is needed for rapid economic development.25

China is but one example of a country where the independence of the three delegate factions to the ILO is compromised.

International labour standards take the form of conventions (legally binding treaties) that may be ratified by member states, which are then monitored for compliance. Recommendations (non-binding guidelines) may supplement a particular convention or provide more general guidance on labour standards and their implementation. In the nearly 100 years since its creation, the ILO has drafted numerous conventions and recommendations covering a diverse range of topics but it has been less effective in enforcing standards than creating them. The ILO has enunciated four ‘core labour standards’ – freedom of association and collective bargaining, elimination of discrimination, elimination of forced labour and elimination of child labour – which are linked to eight conventions, commonly referred to as the ILO’s fundamental or core conventions.26 Like international human rights treaties, ILO conventions legally and directly bind states, rather than business. However, in 1977 the ILO attempted to speak more directly to business and launched its Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy.27 The Declaration aims to provide guidance concerning how corporations can positively contribute to economic and social progress. It encourages companies to implement labour rights but does not contain any enforcement mechanisms to ensure they do so.


The ILO and the Cambodian garment sector

Cambodia’s Better Factories programme is illustrative of a departure from the ILO’s traditional approach and highlights the potential value of involving a multiplicity of stakeholders and approaches (i.e. both ‘carrot and stick’) in improving working conditions.28 The programme developed out of the 1999 US–Cambodia Bilateral Textile Trade Agreement, which provided Cambodia with increased access to the US market (via increased quotas) based upon tangible improvements in working conditions in Cambodia’s garment factories.29 The project, launched in 2001, monitors factory performance against international and national labour standards and was established by the ILO in cooperation with the US and Cambodian governments. It is not strictly a multi-stakeholder initiative in terms of its governance and structure but the participation of non-state actors (including business, NGOs and unions) in the programme is crucial.

Monitoring reports concerning the labour standards have been used by the US government to assess quota increases, as well as by global corporate buyers to determine where they should place their orders. Quotas were eliminated in 2005, but the ILO programme continues with the ongoing support of the Garment Manufacturers’ Association in Cambodia, international buyers and unions; however, concerns have been raised about progress since 2005.30 Key to the continuation of the programme are global buyers who are conscious of their own reputations and who, ‘in the continuing absence of a [local] well-funded labor inspectorate … appear to be driving improved compliance with ILO labor standards’.31

While international standards, such as those found in ILO and human rights treaties, are the appropriate baselines against which to monitor corporate compliance, they have meaning only if effective remedies and enforcement mechanisms are put in place or if they are taken up by local governments. The Better Factories project has the potential to showcase a concrete example of how international standards, together with strong monitoring and trade incentives and encouragement (in the form of orders) by global buyers and the involvement of civil society and unions, could be combined to form a sustainable basis for improving working conditions. However, some dispute the continued improvements in Cambodian factories, in part due to the fact that with the elimination of the quotas in 2005, the programme became ‘non-binding and unenforceable’.32 Some argue that ‘by implementing non-binding programmes that offer carrots without wielding a stick, poverty wages and precarious work continue to be the norm in Cambodia’s garment factories’.33

2.4 National laws

In most jurisdictions, national laws regulate specific corporate activities that affect human rights through provisions dealing with labour rights, anti-discrimination, environmental protection and crime. National laws can and do directly target corporations as subjects of law, although domestic legislation typically does not apply extraterritorially. Responsibilities of states as bounded by territorial limits do not match the transnational operations of the companies based or operating within their territory. The Guiding Principles adopted a rather modest approach to the prospect of states regulating corporate activities extraterritorially by noting only that ‘[s]tates must protect against human rights abuse within their territory and/or jurisdiction by third parties, including business enterprises’.34 The Commentary to Guiding Principle No. 2 elaborates on these territorial and jurisdictional limits by noting the possibilities open to states to broaden and deepen the scope of the duty to protect under international human rights treaties, but it does not go so far as to suggest that states are obliged to act in this regard.35 However, in contrast, several UN bodies have taken a more expansive approach regarding who and what a state might regulate in the pursuit of protecting human rights.36 The barriers to regulating corporate activity extraterritorially are more likely to be political than legal.37


US Foreign Corrupt Practices Act

When looking for examples of how a state might reasonably regulate corporate activities beyond its borders, one model of extraterritorial legislation that has had a widespread impact on the private sector is the US Foreign Corrupt Practices Act (FCPA).38 Adopted in 1977,39 the FCPA has influenced the way in which US businesses operate abroad, and has changed the global business environment more generally with respect to corruption. Setting a precedent for how a legislative model can reverberate globally, the FCPA was followed into operation by the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, and the UN Convention Against Corruption,40 which established international standards for combating corruption. Companies have responded to these global anti-corruption laws by developing due diligence programmes to proactively identify potential risks. The global implementation of laws to combat corruption is a useful model for assessing how greater rigour could be brought to bear in applying international human rights standards to business, and the mandated due diligence requirements showcase how the Guiding Principles could be hardened into a national legislative model with extraterritorial reach.

Another way states can ‘regulate’ corporate activities that take place outside their territory is to mandate increased transparency in global business operations. For example, s. 1502 of the US Dodd–Frank Act requires all listed companies to report on the sources of minerals used in their products that originate from the Democratic Republic of Congo (DRC) or adjoining countries.41 The purpose of this provision is to provide greater transparency about how the trade in minerals is potentially fuelling and funding the armed struggle in the DRC; functionally, it relies on the adverse reputational impact of such disclosure rather than mandating penalties for actually sourcing minerals from conflict-afflicted regions.

Reporting requirements are a first step in linking transparency with accountability, but much depends on the quality of the reports and to what use the information is then put. A study of the first set of Conflict Minerals Reports submitted to the Securities Exchange Commission up to June 2014 argues that these reports exhibited a low level of compliance with due diligence requirements and identified several obstacles to achieving broader compliance, including that:

(i) international norms on supply chain due diligence are in their infancy; (ii) the proliferation of certification standards and in-region sourcing initiatives are still evolving and often competing; and (iii) inadequate local security and weak governance inhibit the mapping of mineral trade and the tracing of minerals in the region.42

Ultimately, however, laws – whether national or international – are only as strong as their enforcement capacity. In many countries, labour laws, in particular, are hampered by the inability or unwillingness of the state to enforce them. For example, in 2013 the US ‘federal Occupational Health and Safety Administration ha[d] just two thousand inspectors to monitor over eight million workplaces in the United States, meaning that it [could] inspect each workplace only once every 131 years’.43 In 2013, the Bangladeshi government identified

the need to hire 800 additional labor inspectors to conduct factory inspections. Almost two years later, the government had created 392 new positions (almost half of the target number of inspectors). However, as of October 2014, the government had only been able to fill 50 of these positions.44

Likewise, reporting regulations with no sanctions attached for non-compliance are likely to result in partial compliance.45 Such regulatory enforcement gaps have led to increased reliance on tools developed by non-state actors to monitor and report on workplace conditions.

3 International institutional initiatives

There have been a variety of attempts, particularly since the mid-1970s, to use ‘soft law’ to regulate the impact of business practices on human rights, for instance, through multi-stakeholder guidelines, declarations or codes of conduct. The institutional initiatives highlighted below are examples of attempts by various international organizations to harness the power of business to positively impact human rights by providing broad frameworks that assist companies in understanding what constitutes responsible business conduct. The utility of these initiatives is not their ability to act as a tool of legal accountability or as a means of providing sector-specific advice on how to respect and protect human rights; rather, the initiatives engage with companies to assist them to better understand the general contemporary responsibilities of business with respect to human rights and in promoting ethical leadership on human rights.

3.1 The UN Draft Code of Conduct on Transnational

In 1973 the UN Economic and Social Council charged a ‘Group of Eminent Persons’ with the task of advising on matters related to transnational corporations (TNCs) and their impact on the international development process. In 1974 the UN established the Centre on Transnational Corporations, which, by 1977, was coordinating the negotiation of the Draft Code of Conduct on Transnational Corporations (Draft Code). The text of the Draft Code contained duties for TNCs to respect host countries’ development goals, observe their domestic laws, respect fundamental human rights and observe consumer and environmental protection objectives. The Draft Code was never officially adopted and its legal nature was never established. There were proponents of both a universally applicable, legally binding code and a voluntary code. If binding, the Draft Code would have served as a convention with both national and international mechanisms for implementation. If voluntary, it would have merely served as a set of broad guidelines to be observed by participating parties. That decades-old debate is now being reinvigorated with the 2014 resolution by the UN Human Rights Council to explore a treaty to regulate corporate activity.

3.2 The Organisation for Economic Co-operation and
Development Guidelines for Multinational

The OECD Guidelines for Multinational Enterprises (OECD Guidelines) are ‘recommendations addressed by governments to multinational enterprises operating in or from adhering countries’.47

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