Corporate accountability is one of the most powerful litmus tests of corporate and governmental willingness to direct markets to the common good and shared prosperity. At present, the litmus paper is showing a corrosive lack of attention, writes Phil Bloomer, Executive Director of the Business and Human Rights Resource Centre
In the week prior to writing this article, our Weekly Update catalogued many alleged abuses including violence against women in oil palm plantations in West Africa; industrial salmon farms’ destruction of livelihoods in southern Chile; and poverty wages for garment workers in Bangladesh.
Most of these allegations of abuse and calls for redress and justice will never be addressed by irresponsible companies and investors. Focused on the narrow interests of their shareholders, they see no commercial rationale to take into account the interests of their wider stakeholders. This sense of impunity is an expression of the profound inequality of wealth and power between big business and their workers or the communities where they operate. In too many instances, the gains to the company of tolerating abuse such as modern slavery or pollution in their supply chain outweigh the costs of remedy. As John Ruggie, author of the UN Guiding Principles for Business and Human Rights (UNGPs), wrote recently, “It is certainly no secret that access to judicial remedy remains the biggest challenge in the global business and human rights space. It is also the most difficult to resolve.”
This is the reality of corporate accountability, as our societies and economies enter a period of intense transformations such as the transition to low-carbon economies and the introduction of artificial intelligence and automation in the workplace.
This is why the movement for corporate accountability will be so vital over the next decade. We must expand accountability to help re-purpose companies to deliver shared prosperity and shared security for workers, communities and shareholders and a safe environment for the next generation. Fortunately, there are clear reasons for optimism, alongside worrying signs of regression.
Increased efforts to demand accountability
Civil society has redoubled its efforts to demand corporate accountability by exposing the abuses of irresponsible companies and heighten their reputation risk. Equally, the media is alert to the collapse of public trust in the global markets. This has led to more willingness to cover stories of abuse, corruption, tax evasion, the concentration of economic power and the need for effective corporate accountability. An example is the tech giants, Google and Facebook, who have undergone a reverse metamorphosis in the media: from the butterfly of democratic flowering, to the worm eating at the sacred fruit of privacy, rights and democracy. However, campaigns and media do not inevitably lead to justice for victims of abuse.
The UN Guiding Principles insist that companies provide access to remedy for when things go wrong. With notable exceptions, like Adidas, companies have generally ignored this responsibility. Our Corporate Human Rights Benchmark of 100 of the largest global companies gave an average score of just 14% for their Remedies and Grievance Mechanisms. This scale of neglect leaves victims of unpaid wages, pollution and land grabs around the world with only the courts by which to gain remedy. This is why the Business and Human Rights Resource Centre devotes a portal to tracking corporate legal accountability around the world.
Another reason for optimism is the recent French Duty of Vigilance law. This establishes parent companies’ obligation to identify and prevent human rights violations resulting from the operations of all entities under their control, including subsidiaries and subcontractors. This is ground-breaking. It not only insists that companies set out their efforts to prevent abuse in their operations and supply chains, but will also allow victims of abuse to take cases to the French courts for parent companies and their subsidiaries. The Swiss National Council has similarly been negotiating a bill looking to introduce mandatory human rights due diligence for parent companies.
Remedy through courts of law?
However, in most countries, a legal obstacle to redress for victims is the difficulty of ‘piercing the corporate veil’. In essence, parent multinational companies set up subsidiaries, as separate legal entities, around the world. These subsidiaries are subject to national laws and human rights standards that are often far more lax and unenforced than in the parent company’s jurisdiction. But when victims seek remedy from the courts in the parent companies’ home country, the courts are often reluctant to ‘pierce the corporate veil’ that subsidiaries hide behind. In May 2018, for example, a US federal court decided that a case brought by Peruvian farmers against Newmont and its local subsidiaries over alleged attempts to forcibly evict the claimants from their land should be heard in Peru instead of the US, even though the plaintiffs argued convincingly that they were unable to obtain justice in Peru. These obstacles are likely to worsen still further with changes in the US Supreme Court.
In contrast, in the European Union, foreign plaintiffs can bring a claim against a parent company domiciled in an EU Member State in the court of the country where it has “statutory seat; central administration; or principal place of business,” irrespective of where the damage occurred. In 2015 for example, a Dutch appeals court allowed a case against Royal Dutch Shell over damage from oil pollution allegedly caused by its Nigerian subsidiary to proceed in the Netherlands. These avenues are still to be further tested.
Finally, there are the tentative steps at the United Nations to establish an international treaty for human rights in business. This could substantially enhance the opportunity for corporate accountability, including extra-territorial obligations to provide remedy and justice in national laws. However, the treaty faces great opposition, and it will be an uphill struggle to deliver anything concrete in the next decade, if at all.
In conclusion, accountability for corporate harm to workers and communities remains an orphan of the UN Guiding Principles, through the inaction of most governments and companies. There are encouraging signs that a cluster of governments and companies are taking this obligation more seriously, perhaps spurred on by the loss of public trust in the global markets. Kofi Annan stated nearly twenty years ago that the social and environmental pillars of globalisation had to be strengthened. A year later, he added: “My friends, the simple fact of the matter is this: if we cannot make globalization work for all, in the end it will work for none”. Corporate accountability is one of the most powerful litmus tests of corporate and governmental willingness to direct markets to the common good and shared prosperity. At present, the litmus paper is showing a corrosive lack of attention.
This text is originally part of KIOS publication “From little things, big things grow. KIOS – 20 years defending human rights”, which will be published on 28th January 2019.