Policy Innovations Digital Magazine (2006-2016): Innovations: Better Safe than Sorry

Public revolt in Tunisia, Egypt, Libya, and elsewhere makes it clear that many yearn for rights and liberties. But states are not the only institutions obligated to respect human rights. Companies also have human rights responsibilities and can be complicit in violating human rights.

For example, during the first days of protests in Cairo, telecom firm Vodafone suspended mobile and internet access. Egyptian authorities then used Vodafone's network to send text messages asking people to "confront the traitors and criminals."

Vodafone claims that the authorities invoked emergency rules, and that they could not contest Egyptian officials. But even in complicated situations, companies such as Vodafone must ensure that they do not abet human rights violations. Moreover, the company now risks being punished by its Egyptian customers, as well as the new government, through a boycott of its products and services.

Vodafone is not unique—many firms face human rights dilemmas every day. In November 2010, the French national railway chairman apologized for the transport of 76,000 people to Nazi death camps during World War II. The apology came out of fear that lawmakers in California and Florida would block the company from winning contracts for high-speed rail projects in those states. Aetna, J.P.Morgan, and Wachovia have all apologized for their past operations related to slavery in the United States. Clearly, corporate violation of rights can wound in ways that do not heal with time or new management.

Corporate violation of rights can wound in ways that do not heal with time or new management.

Despite growing recognition of the importance of human rights, managers struggle to ensure that their operations, including those of their suppliers, do not undermine personal liberties. For example, Nestle and Mars formed a voluntary effort called the Cocoa Protocol in response to learning that child slavery factored into their cocoa production. In 2006, it came to light that Whirlpool, Toyota, and General Motors were using pig iron produced with slave labor in Brazil. Cisco Systems continues to provide hardware and software for China's Internet, which the government uses to filter web traffic and police users. These companies, like Vodafone, are perceived to be complicit in human rights violations.

Policymakers, activists, and executives have been developing strategies to prevent violations. For example, some investment companies, pension funds, and banks are disinvesting from firms that have not developed actionable human rights strategies. In 2006, one of the world's largest pension funds, the Norwegian Government Pension Fund, excluded Walmart and Freeport McMoRan Copper & Gold from investments, arguing that the companies were too risky. The fund said Walmart was complicit "in serious or systematic human rights violations," and that Freeport had done "severe environmental damage."

Meanwhile, citizens, activists, and policymakers have challenged some of these violations in civil and criminal court cases. While few cases have proceeded to trial, several companies have settled cases related to their human rights practices. For example, Unocal reached a settlement in 2004 with Burmese plaintiffs over alleged human rights violations related to its pipeline operations in Burma. In 2007, Yahoo settled a case in which the plaintiffs alleged that the company provided the Chinese government with Internet records that led to the identification and torture of a human rights activist. In 2009, Pfizer settled a criminal case in Nigeria alleging that the drug company had illegally tested an experimental drug on children in 1996 without the informed consent of their parents. Such settlements are not admissions of guilt, but they are evidence that firms see their human rights behavior as creating risk for the firm.

Settlements are not admissions of guilt, but they are evidence that firms see their human rights behavior as creating risk for the firm.

Clearly executives need greater understanding of their human rights responsibilities. Executives should begin by examining how their company's activities affect human rights. The costs to the firm may not be easily quantified, but they include reputational risk, legal liability, operational risk (such as work stoppages, boycotts, blackmail, and sabotage), and loss of investor or consumer confidence. Ironically, despite their awareness of these risks, many managers have not been supportive of efforts to define and implement their human rights responsibilities.

International law clearly delineates that companies have human rights responsibilities. The Universal Declaration of Human Rights calls upon all organs of society (whether civic groups, corporations, or governments) to protect and promote human rights. But international law does not specify whether companies are responsible for the actions of their suppliers or subcontractors, nor does it set clear guidelines regarding complicity (when firms participate in or assist governments in human rights violations).

In 2005, UN Secretary-General Kofi Annan designated Harvard Professor John Ruggie to map out these human rights responsibilities. Building on years of research and multi-stakeholder dialogue, Ruggie outlined a framework and Guiding Principles to help firms "operationalize" their human rights responsibilities. The UN Human Rights Council approved the framework in 2008 and is expected to vote on the Principles in June 2011 (they were published in draft form in November 2010; the Council will be voting on a finalized version). The Ruggie principles delineate how states and companies can meet the state responsibility to protect, the corporate responsibility to respect, and the need for effective grievance mechanisms when companies violate human rights.

While some business associations have expressed generic support for Ruggie's efforts, most firms have had little to say. BASF, Novo Nordisk, and Talisman are among the few firms that have commented on, and tried to publicly influence discussion of, the Guiding Principles, which were open for public consultation via an online forum through January 31. Some firms have groused quietly that the multi-stakeholder consultations were too focused on lawyers, academics, and activists and not sufficiently directed at the real-world needs of managers.

Meanwhile, most firms are waiting to see how policymakers from their home countries respond, which in turn will influence how the Human Rights Council votes. Britain, France, Norway, and the European Union were among the few governments that offered comments during the consultation period.

The Guiding Principles are not perfect, but they will help firms operationalize, monitor, and audit their human rights performance. Therefore, they represent a strategy that firms should test. Most firms have done very little to ensure that they do not undermine the human rights outlined in the Universal Declaration of Human Rights. Of the 80,000 firms estimated to operate across borders, the Business & Human Rights Resource Centre reports that only 272 companies, or 0.3 percent, have publicly delineated a code of conduct with specific human rights policies.

First movers may reap market benefits as they learn how to build and improve managerial capacity in human rights.

After surveying the Fortune Global 500 companies in 2007, Ruggie's team found that European firms were likelier than North American and Asian firms to have a human rights policy. While many companies with such codes include labor rights, very few such codes include rights such as the right to privacy, or the right to life, liberty, and security of person. In our own research, we were unable to find a firm that had delineated publicly how it would deal with, or how it had dealt with, discrepancies between national laws and international standards. We also found no firms that had clearly articulated how and when they would engage with policymakers to address human rights violations. Finally, very few firms have put in place policies to audit or remediate human rights impact.

A few firms have decided to be "early adopters" of strategies to advance human rights. Barclays, BP, Control Risks, Credit Suisse, ExxonMobil, Gap, Hewlett-Packard, Imperial Tobacco, Novo Nordisk, and Shell reference the Ruggie guidelines in their human rights policies, and some of these firms are "road-testing" grievance mechanisms. On February 1, Ruggie published an updated report that cites examples of "applications" of his framework. He found that ExxonMobil, Cerrejón, Nestle, and Phillips-Van Heusen are using the framework to assess the efficacy of their current strategies.

These first movers may reap benefits as they learn how to build, benchmark, and improve managerial capacity in human rights. Over time, these firms may be able to use their human rights expertise to grow their market share and attract investors and employees.

But they would be the exception among the world's many multinationals. While most executives see human rights as a potential business risk, they are not yet willing to be safe rather than sorry. Executives should never have to apologize for violations—instead, these men and women should build global opportunities by advancing human rights.

Susan Ariel Aaronson is a professor and Ian Higham is a research assistant in the Elliott School of International Affairs, George Washington University. Their joint research focuses on business and human rights.