The relationship of human rights to business

Chapter 1

The relationship of human rights to business





The role that corporations play in domestic and international economies is fundamental and over the last few decades the impact of business on human rights has become increasingly visible. The growth and interest in business and human rights issues has in part stemmed from recurring examples of corporate irresponsibility but business can also be a transformative force for good. The opening chapter by Justine Nolan provides an overview of the relevance of human rights to business and their intrinsic interconnectedness. This contribution highlights how far some companies have come in their acknowledgement and acceptance of the relevance of human rights to their business operations and how far some companies still have to go.

A threshold question for companies’ engagement is how to justify potential investments in human rights. There is a long-standing debate on whether there exists a ‘business case’ whereby companies can quantify the benefits or costs of investments in human rights. Some scholars point out this normative question cannot be answered empirically and therefore the basis for demanding corporate action is ethics or morality. Yet, in corporate practice engagement with human rights needs to be linked to the long-term vision of a sustainable business model. Baumann-Pauly and Posner suggest broadening the debate that is currently narrowly focused on financial returns and risk mitigation. They present an argument that industry-specific standards for human rights both reduce reputational risk and provide affirmative benefits to companies.

Finally, this chapter features two prominent case studies that are commonly featured in any classroom discussion of business and human rights. Workplace incidents that violate individuals’ human rights have become commonplace features in the media over the last few decades. Every day, there are occurrences on a farm, in a factory, around a mine that are contrary to accepted workplace standards. Once every generation, there is a disaster that captures the world’s attention. The two case studies in this chapter – focusing on the toxic chemical spill at a factory in Bhopal, India in 1984 and the collapse of the Rana Plaza building in Dhaka, Bangladesh in 2013 nearly 30 years later – illustrate the devastating impact of a failure to protect human rights. These two examples showcase multiple failures of regulation involving both government and corporate actors. While these dramatic cases are indicative of what might be perhaps the worst that can happen when human rights are not protected, they are also representative of the many workplace problems that occur on a much smaller scale every day, which can cumulatively have a negative impact on an individual’s ability to work and live with dignity.

Section 1.1

Business and human rights in context

Justine Nolan

1 Introduction

Recent decades have witnessed the exponential growth of global corporations; at the same time, the power and resources of many governments has eroded. Many of the top Fortune 500 companies have revenues equivalent to and often significantly larger than the gross domestic product (GDP) of many nation states.1 With the increasing centrality of the role played by corporations in driving global commerce and trade comes increasing levels of corporate power – political and social, as well as economic – which suggests the need for a reappraisal of the appropriate role for business in an increasingly globalized world.

Writing over four decades ago, economist Milton Friedman argued that a company’s only social responsibility is ‘to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud’.2 He also wrote:

In a free enterprise, private property system, a corporate executive is an employee of the owners of the business. He has direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom.3

While Friedman referenced a narrow legal definition of a corporation’s potential social responsibility, he did recognize each company’s responsibility to conform to the basic rules of society including those based in ethical customs. Using this as a starting point, recent decades have seen the emergence of a broader understanding of a corporation’s social responsibility that seeks to embed respect for human rights in business operations. Significant developments have been taking place in factories, fields and workplaces all over the world where a variety of stakeholders have been pushing and prodding corporations to adopt operational changes that will lead to sustained compliance with international human rights standards. Sometimes business has been proactive in seeking such changes; at other times it has been reluctant or simply absent. The acceptance by the United Nations Human Rights Council in 2011 of the Guiding Principles on Business and Human Rights4 (Guiding Principles), which affirms that companies have a responsibility to respect human rights, solidifies the centrality of rights to business. For many (but not all) companies, the question is no longer: ‘Do we have an obligation to address human rights?’ Rather, it is: ‘How do we do it, at what cost, and with whom do we collaborate in addressing the problems that exist?’

The role that corporations play in domestic and international economies is fundamental. Their impact on human rights is equally important as they have the potential to make a direct and enduring impact on people’s lives. Business can be a transformative force for good. Through commercial activity driven by corporations, jobs and wages are made available, goods and services are provided and taxes are paid enabling governments to provide further goods and services. A globalized economy has generated millions of jobs over the last quarter-century. It has lifted hundreds of millions of people out of extreme poverty.5 Thereby, directly or indirectly, a vast array of human rights may be supported – from rights to work, welfare, food and shelter, health and education, to freedoms involving speech, association and movement. In short, corporations are central to the provision of many of the things that make human life more tolerable, enjoyable and fulfilling; indeed, the work and wages that corporate enterprise brings to many communities are key elements to the establishment and maintenance of individual human dignity – to which end human rights strive to meet.6

But some business practices have also eroded respect for or simply disregarded human rights. Corporations, both local and transnational, have been and continue to be minor and major abusers of human rights. Some corporations are guilty of treating workers badly – in terms of pay, conditions and working environments; some pollute the environment in ways that have dramatic and serious effects far beyond their immediate surroundings; some discriminate against indigenous peoples, or certain ethnic or religious groups, or against women, or people with disabilities, or on grounds of sexuality; and some work alongside (or inside) governments that perpetrate gross human rights abuses, such as in Nazi Germany, Apartheid South Africa and in the many authoritarian and repressive states in the world today.7

Today, many governments lack the will or capacity to protect the basic rights of their own people. Often they lack both. Companies are being forced to adjust to a much larger role – financially, socially and politically – than they have ever played or are comfortable playing. Various legal and non-legal initiatives have sprouted in the last few decades in an attempt to attach some sense of corporate responsibility to the protection of human rights. Understanding the roles and responsibilities of these companies in this new landscape and determining the practical ‘rules of the road’ for implementing such roles and responsibilities is a significant challenge. What the appropriate role is for business in an increasingly globalized world is a question that will draw diverse responses. A brief survey of some corporate approaches towards accepting (or not) the relevance of human rights to their business operations reveals both how far (some) companies have come, and how far some have to go.

2 Changing role of companies in society

2.1 Corporate catastrophe in Bhopal8

An early catalyst for recalibrating the role of companies in society was the 1984 disaster in Bhopal, India, in which more than 3,000 people were killed and tens of thousands injured in an industrial gas leak accident at a Union Carbide pesticide plant. In the aftermath of this catastrophe some blame was rightly attributed to the central and state Indian governments and their lax enforcement of safety laws and haphazard planning permissions.9 However, attention also focused on the plant operator, Union Carbide India Limited (UCIL), and its United States (US) based parent company, Union Carbide Corporation (UCC). Although UCC exercised extensive control over its Indian subsidiary (evidenced not simply by share ownership or representation on the board of directors but also by involvement in ‘key decisions regarding issues such as, technology, plant design, safety … training of employees’10), it attempted to shift the blame for the accident to its subsidiary UCIL. The reaction of these companies was generally one of obfuscation and a denial of responsibility for the calamity that ensued; liability was strictly defined by UCC and UCIL in terms of their legal accountability for the disaster. Litigation was pursued in both the American and Indian courts with mixed results.11 An action brought in the US against UCC was ultimately dismissed by the Second Circuit Court of Appeals;12 the case brought in India against UCC settled for US$470 million. Bhopal remains one of the modern world’s worst industrial accidents and, as a legal precedent, it is most noteworthy for highlighting the limitations of the law and the lack of justice ultimately delivered to those worst affected.13 In the more than 30 years since Bhopal, as corporate violations of human rights have continued to occur, what, if anything, has changed in terms of corporate and public perceptions of a company’s responsibility to act and provide redress in the face of corporate human rights abuses?

2.2 Managing global supply chains

In most industries, large companies now rely on a series of contractors and suppliers in a range of countries to produce and transport their products. Today’s global supply chains link individual workers with large and small companies across national, political and cultural boundaries. Companies do not generally own or operate the factories in which their goods are produced and they may contract with hundreds, sometimes thousands, of different suppliers annually. Nike,14 for example, sources its products from over 700 factories, engaging nearly one million workers across more than 40 countries.15 The problems associated with regulating multi-jurisdictional supply chains, along with civil society and public pressure to improve working conditions, has caused (some) companies to take a more proactive role in regulating the workplaces producing their goods.

In the mid-1990s, Nike faced allegations of using ‘sweatshop labour’ to produce its goods in factories throughout Asia. Under a barrage of media criticism, Nike first denied that it had any responsibility for the factory working conditions that allegedly included ‘physical and verbal abuse of workers, hazardous working conditions, pennies per hour wages, and anti-union efforts throughout Indonesia, China, and Vietnam, where Nike employ[ed] over 350,000 workers’.16

In response, Nike established a department tasked with working to improve factory conditions. Continuing criticism of the company led to protests on US college campuses, and in 1998, then CEO of Nike, Phillip Knight, acknowledged that ‘[t]he Nike product has become synonymous with slave wages, forced overtime, and arbitrary abuse … I truly believe the American consumer doesn’t want to buy products made under abusive conditions’.17

The 1990s was a tumultuous time for many companies flirting with the notion of corporate social responsibility (CSR). The decade was notable for the expansive adoption of corporate codes of conduct, the appearance of glossy CSR reports and experimentation in self-regulation – led by high-profile brands producing consumer goods such as Nike, Disney, Gap, Reebok, Levi Strauss and Mattel. Corporate self-regulation was the key buzzword but internal codes of conduct were generally developed with limited stakeholder input and few, if any, independent or transparent monitoring and reporting mechanisms to assess compliance with international human rights and labour and environmental standards. Unsurprisingly, these modes of self-governance were soon criticized for their lack of robustness, legitimacy and effectiveness.18

A change in strategy saw a limited number of companies engage external stakeholders and join multi-stakeholder initiatives19 to develop and implement compliance with human rights and environmental standards in the workplace. Nike today participates in the Fair Labor Association (FLA), a non-profit which is a collaborative effort of companies, universities and colleges and civil society organizations, aimed at improving working conditions in global supply chains.20 Such external collaboration can also lead to ongoing advances in corporate policies that do more to embrace human rights as part of corporate culture. In 2005, Nike was the first company in the apparel and footwear sector to disclose the names and locations of its contract factories, and that information is still publicly available on its website.21 In 2009, Nike joined three other apparel companies (Adidas, Gap and Knights Apparel) all with business interests in Honduras, in adopting an advocates approach to human rights by sending a letter to then US Secretary of State, Hillary Clinton, urging support for the restoration of democracy in Honduras (which would have the flow-on effect of stabilizing the local economy).22

The public criticism and media attention that forced apparel and footwear companies to act in the 1990s has more recently been centred on one of the world’s giants in the electronics sector – Apple – and the working conditions in its supplier factories in Asia. In the last decade, Apple has become one of the richest and most successful companies in the world, in part by mastering global manufacturing. However, a series of media and non-governmental organization (NGO) reports23 highlighted allegations that factory workers employed by Foxconn (a principal but not exclusive supplier for Apple) assembled iPhones, iPads and other devices while labouring in onerous and sometimes unsafe work environments. One report argued that

[e]mployees work excessive overtime, in some cases seven days a week, and live in crowded dorms. Some say they stand so long that their legs swell until they can hardly walk. Under-age workers have helped build Apple’s products, and the company’s suppliers have improperly disposed of hazardous waste and falsified records.24

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