The Future of Corporate Human Rights Accountability

Many corporate counsel and human rights advocates will view last month’s $15.5 million settlement of Wiwa v. Shell, correctly, as further evidence that the Alien Tort Statute (ATS) is a viable tool for corporate human rights accountability. The future of corporate human rights accountability, however, is more likely to focus on human rights due diligence and reporting than human rights litigation. Companies and human rights organizations that hope to influence the business and human rights debate should devote resources to improving corporate human rights due diligence and to shaping human rights reporting requirements under national law.

Potential legal liability for corporate complicity in the worst forms of human rights abuse is now a permanent feature of doing business for most transnational companies. Some form of legal jurisdiction over the extra-territorial activities of home companies is increasingly common in OECD countries. For transnational companies doing business in the United States, the ATS provides foreign victims of the worst forms of human rights abuse a tool for holding corporations accountable for their actions abroad.

The Shell settlement follows the landmark Unocal settlement in 2005 of ATS claims alleging complicity in forced labor and other abuses committed by Burmese security forces. The first generation of ATS cases against companies generated two notable settlements and two dismissals following jury trials (Bowoto v. Chevron; Romero v Drummond). In 2007, Yahoo reached an undisclosed ATS settlement with the families of imprisoned Chinese journalists after a public apology. Another ATS lawsuit against Pfizer surrounding clinical trials in Nigeria appears to be headed toward settlement. While most ATS cases against corporations have been dismissed on procedural grounds or for failure to state a valid claim, the US Supreme Court declined to eliminate the ATS as a human rights litigation tool when provided the opportunity in Sosa v. Aavarez-Machain (2004). In Sosa, the Court held that “the door is still ajar” to ATS litigation, but “subject to vigilant door keeping.” Only violations of international law with “definite content and widespread acceptance” can trigger liability under the ATS according to Sosa. Since Sosa, the Second Circuit Court of Appeals, has continued to interpret the ATS expansively, holding that aiding and abetting liability is sufficiently well established under customary international law to meet the Sosa threshold. The corporate ATS settlements and ongoing viability of ATS claims in US federal courts means that corporate complicity in human rights violations creates a real legal risk for corporate defendants. Competent corporate counsel will ensure that companies do not violate, or become complicit in state violations of, the most egregious human rights abuses – genocide, slavery, war crimes, crimes against humanity, disappearances, arbitrary detention, forced labor, torture and systematic discrimination.

The future of corporate human rights accountability, however, is more likely to focus on human rights due diligence and reporting, than litigation stemming from the most egregious abuses. As John Ruggie, the UN Special Rapporteur for Business and Human Rights, emphasizes in his influential “protect, respect and remedy” framework for business and human rights, companies must understand how corporate conduct affects the full range of human rights, not just the worst forms of human rights abuse, in order to meet their human rights responsibilities. Prudent corporate counsel will invest in due diligence to ensure that companies respect human rights in their operations and become aware of, prevent and address human rights issues before they trigger any legal liability. Contrary to the views of some companies that human rights due diligence increases potential legal liability, gathering information and managing risk through human rights impact assessments and other tools is “highly advisable from a business perspective in today’s highly visible and transparent environment.” Indeed, OECD governments are likely to focus in the future on creating policy incentives for improving corporate human rights due diligence.

Smart corporate counsel will anticipate an increased focus on human rights requirements under national corporate law. John Ruggie has highlighted this trend in his ongoing work and has commissioned a survey of corporate law provisions relating to human rights in over forty jurisdictions. Mandatory non-financial reporting is gaining a foothold in Europe. In the United Kingdom, for example, the 2006 Companies Act requires directors to consider the impact of a company’s operations on the community and companies listed on the London Stock Exchange to provide information on social and community issues in the company’s business review. In Denmark, the largest companies will need to report on their corporate responsibility efforts beginning in 2010. In the United States, forward-thinking companies should begin preparing to report human rights impacts as they do any other material risks. A growing number of companies are using human rights performance indicators, such as those in the Global Reporting Initiative, and a few, such as Timberland and Nike, have begun to draft corporate responsibility reports with sections analogous to the management discussion and analysis required under US securities law

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Posted on: July 23, 2009
Posted by: Anthony

2 thoughts on “The Future of Corporate Human Rights Accountability”

  1. Elizabeth Ghormley says:

    I enjoy the post and am quite interested in the trend.

    Due diligence and reporting in place of extreme litigation seems productive and widely applicable. From what I hear, it indeed seems to be gaining momentum.

    The trend begs the question of how to improve efficacy in reporting, I think, as well.

    The “Standards for the Knowledge and Skills of Social Auditors” (www.socialauditor.org — financed by US Department of State’s Office of International Labor Affairs and Corporate Social Responsibility) project is an interesting approach to Human Rights and Labor issues for CSR practitioners the world over. To address the potential use of independent auditors in Human Rights and Labor Reporting — or “Social Reporting” — for companies, CREA and Verite have come together to research what the ideal auditors need to bring to the table, what skills they must have, where their focus should lie, etc. An interesting project that could change and/or enhance reporting as it takes center stage.

    Do you see courts or litigation practice referring to GRI, internal measurement standards you mentioned, Global Compact, auditing possibilities, etc? Do the legal and reporting functions still present separately in your experience?

    Hope to continue the conversation…

  2. Elizabeth,

    Thanks for your comment.

    The growing importance of transparency for companies seeking to demonstrate meaningful corporate responsibility is a clear trend, and strengthening non-financial reporting by adopting GRI and by improving social auditing are two ways to improve transparency. Just as business and human rights has emerged as a field of study over the past fifteen years, social auditing has become a professional discipline with its own skill sets and best practices. The standards you cite sound like a worthwhile effort to advance the profession.

    You raise an interesting point about the connection between litigation and reporting. A key case was Nike v. Kasky (2002), in which Nike was sued for unfair business practices under California law, based on its public statements about labor conditions in its supply chain. At first, Kasky had a chilling effect on the communication of corporate responsibility efforts in the United States. But since then, most companies active on corporate responsibility issues have concluded that the benefits of reporting outweigh the risks of litigation or of not communicating at all.

    It remains to be seen whether GRI and social auditing will be used in future litigation as benchmarks for appropriate corporate due diligence on human rights issues. I view them as tools for reducing the risk of future liability, both legal and reputational.

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