Student:
Advisor:
Doha Filfil
Matthew Haigh
Student No. 282677
Department of Business
Studies
A discussion on the development of the C.S.R.
phenomenon and corporate engagement
How to operationalize Human Rights in TNCs extraterritorialy?
State
Human Rights
TNC
NGO
Aarhus School of Business, May 2010
1
Abstract
The focal point of this assignment is to examine an academic debate concerning how the
international human rights regime is expanded to include non-state actors, specifically transnational
corporations(TNCs). The fundamental premise in the debate is how the state, corporations and other
institutions interact to develop and implement human rights in TNCs.The study is done through the
analysis of three United Nations (UN) initiatives on businesses and human rights. The first is the
‘Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with
Regard to Human Rights’, which involves a set of standards meant to have a legally binding effect
on TNCs. The Norms was welcomed by non-governmental organizations (NGOs) but apposed by
key governments including the US and the UK. Based on that the UN Human Rights Commission
asked the Office of the High Commissioner for Human Rights to examine the issue further without
adopting the Norms. After examining the subsequent report the Commission asked the UN
Secretary-General, Kofi Annan, to appoint a special representative to clarify and elaborate on the
roles and responsibilities of TNCs in relation to human rights. Professor John Ruggie was therefore
appointed to the post. Professor Ruggie was also one of the key figures in the development of
another UN initiative called the Global Compact, which is voluntary in nature and is based on the
notion of Corporate Citizenship (CC).
The analysis shows that the international human rights regime is still settled on the notion of the
state as the main institutional enactor of human rights obligations. This contrasts the concept of CC,
which argues that the state has failed its obligations and that corporations have become the new key
actors in providing social rights.
Although it is evident from the analysis that the literature on CC is silent on the issue of human
rights, it still shows the need to include corporations in the decision making process for norms to be
adopted. Furthermore, the literature points out several reasons for the inefficiencies of the UN
initiatives and what might be needed before any consensus can be reached.
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Table of contents
1
Introduction ............................................................................................................................................. 5
1.1
2
1.1.1
Primary objective .................................................................................................................................................... 8
1.1.2
Secondary objective ............................................................................................................................................... 8
1.2
Structure of the dissertation ....................................................................................................................... 9
1.3
Delimitation .................................................................................................................................................. 10
Literature Review................................................................................................................................ 11
2.1
Global actors ................................................................................................................................................ 12
2.2
The human rights regime .......................................................................................................................... 16
2.3
Corporate Social Responsibility .............................................................................................................. 18
2.3.1
Criticism on CSR ................................................................................................................................................. 19
2.3.2
Development of CSR .......................................................................................................................................... 20
2.4
Generations of rights........................................................................................................................................... 23
2.4.2
Discretionary versus non-discretionary duties............................................................................................ 24
2.4.3
Human rights instruments ................................................................................................................................. 24
Corporate Citizenship ................................................................................................................................ 26
2.5.1
CC in the real world ............................................................................................................................................ 28
2.5.2
Trust balance ......................................................................................................................................................... 29
2.5.3
Survey...................................................................................................................................................................... 30
2.5.4
Criticism on CC.................................................................................................................................................... 30
Method ................................................................................................................................................... 31
3.1
4
Human Rights .............................................................................................................................................. 21
2.4.1
2.5
3
Problem formulation .................................................................................................................................... 7
Delimitation .................................................................................................................................................. 33
Analysis .................................................................................................................................................. 33
4.1
The Norms .................................................................................................................................................... 33
4.1.1
Outcome.................................................................................................................................................................. 34
4.1.2
Criticism ................................................................................................................................................................. 35
4.2
The Secretary-General’s Global Compact............................................................................................ 36
4.2.1
Outcome.................................................................................................................................................................. 38
4.2.2
Criticism ................................................................................................................................................................. 38
4.2.3
Empirical Analysis on the Global Compact ................................................................................................ 40
4.3
Ruggie Report 2008 .................................................................................................................................... 41
3
4.3.1
‘State’s duty to protect human rights’ ........................................................................................................... 43
4.3.2
‘Corporate responsibility to respect human rights’ ................................................................................... 44
4.3.3
‘Access to remedy’ .............................................................................................................................................. 45
4.3.4
Criticism ................................................................................................................................................................. 45
4.4
Findings ......................................................................................................................................................... 47
4.4.1
4.5
Theory of Justice and Natural Law ................................................................................................................ 49
Interview ....................................................................................................................................................... 50
5
Discussion .............................................................................................................................................. 52
6
Policy recommendations and conclusion ....................................................................................... 53
7
Conclusion ............................................................................................................................................. 58
8
Bibliography ......................................................................................................................................... 60
9
Appendix ............................................................................................................................................... 65
4
1
Introduction
The concept of globalization is a controversial topic in the academic discourse. Literary review
yields numerous definitions and explanations on globalization. Various characteristics have been
associated with globalization such as ‘internationalization’, ‘universalization’, ‘westernization’ etc.
Globalization is defined as;
“… the progressive eroding of the relevance of territorial bases for social, economic and
political activities, processes and relations”1
What is evident is that the process of globalization hascreated a vacuum due to the decrease of the
nation states’ capability to govern. This governance gap has been covered by transnational
corporations (TNCs) and non-governmental organizations (NGOs).
The power TNCs posses in world economy has made them the most important actors in
globalization. The strong growth of TNCs has resulted from deregulations and the withdrawal of the
state from the economy.
TNCs’ worldwide operations have been based on different modes of controlled and coordinated
transactions within geographical dispersed production networks (Pawel, 2006:1).The rapid growth
of TNCs can be illustrated by the outward stock of FDI worldwide, running from US$112.3 billion
in 1967 to US$10,671.9 billion in 2005 (Whelan, 2009:368).
The largest TNCs enjoy total annual sales that either equal or exceed most countries’ GDP. For
instance, the aggregate sales of Mitsui and General Motors are greater than the GDPs of Portugal,
Denmark, and Turkey combined, while Royal Dutch/Shells equal Iran’s GDP.
Sixty percent of worldwide sales are in the hands of five car and truck manufacturers, while the top
five oil majors are responsible for over forty percent of their industry’s global market share. (Greer
and Singh, 2000)
The United Nations Conference on Trade and Development’s (UNCTAD) research in2006 shows
that the worlds largest TNCs maintain a presence in 40 countries on average. With approximately
77,000 TNCs in the world, generating 16percent of total estimated foreign sales, only a 100 of them
play a key role in the global economy. In 2004 TNCs topping the list were General Electric,
Vodafone and Ford, holding an accumulated $877 billion in foreign assets, corresponding to almost
1
Crane and Matten (2007:17)
5
25 percent of total foreign assets of the largest 100 TNCs.2 The main locations of the 85 of the top
100 TNCs’ headquarters are in the Triad-the US, the EU, and Japan. The US leads with the highest
number of TNCs-that is 25 entries while the 25 EU countries has 53 TNCs and Japan has 7 entries.
According to the location intensity3, the developed countries attract the largest 100 TNCs with
theUS ranking highest as the top destination, followed by the UK and the Netherlands. (see
appendix 1)
The process of globalization affects the corporations by giving the economically strong preference,
while eliminating the weaker ones. In effect, the most competitive enterprises, in terms of
efficiency, reap the greatest benefits. The disproportionate high benefits which the key actors in
globalization enjoy gives rise to controversy (Pawel, 2006:3).
A quote from David C. Korten’s (2001, cited in Jan-Erik, 2008:5) When Corporations Rule the
World, explains the TNCs chase for profits to the extreme, enabled by the trade liberalization which
eventually create callous greed:
“From Asia, Latin America, Western and Eastern Europe, Africa, and North America the
reports are all much the same. Civilization is being dismantled as a trade barrier and the
commons is for sale to the highest bidder. Social and environmental standards are being
rolled back. Safety nets for the poor are being phased out in favor of increased welfare for
dependent global corporations. Small farms, shops, and factories continue to be displaced by
global corporations subsidized imports”
According to Crane and Matten (2007:15), the controversy over globalization plays a crucial role.
On the one hand, globalization drives the demand for TNCs in terms of corporate citizenship (CC)
to provide protection in areas such as human rights and the environments where governments are
either reluctant, unable or undemocratic. On the other hand, CC allows TNCs to overtake power
and autonomy of governments, provided that TNCs are socially responsible and capable of
replacing government functions as an institution for meting out justice and advancing social
welfare. But with the primary motive of corporations being to maximize profits, the situation looks
different in developing countries especially in times of troubled economy. This is evident in TNCs’
2
3
http://www.stwr.org/multinational-corporations/key-facts.html
Defines the total number of TNCs, which have at least one affiliate in a host country.
6
‘race to the bottom’4 practices in the global economic arena, which ishighly criticized by the public
especially with the “few checks against [corporations] operating as unjust institutions that promote
global anarchy or corporate autocracy, violating liberty, and corrupting the market system”.
(Ludescher, 2009)
It is interesting and relevant to see how TNCs being self-interested and profit oriented pursueto
taking overgovernment functions provided that they are better capable of providing rights than
government. It seems puzzling and suspicious especially when large corporations such as Nike,
Proctor and Gamble, and Shell prove records of abusing human rights, labor laws, and the
environment in other countries. This type of privatization of the government is alarming and
since TNCs make up such a major part of the global economy the lack of regulations allows them to
neglect/abuse human rights(Salman, 2009). Status quo remains that there are no extraterritorial
regulations on corporate nationals, making it easy for entities to bypass national laws by relocating
their operations in locations where human rights regulations are lax (McCorquodale, 2009, p. 389).
With that said, it seems crucial to investigate the legal measures set out to regulate TNCs and to
investigate the approach used to hold TNCs responsible for their abuses. It apparent that the
deregulation mindset prevails in the academic discussion based on neoclassical economic theory5
and is more focused on government failurethan on how to regain government effectiveness or
success(Balleisen and Moss, 2010:1). Evidently there is though a shift towards a more regulatory
mindset.
1.1 Problem formulation
In accordance with the above introduction, the purpose of this dissertation is to examine TNC’s
triangular relationship with the State and the NGOs in relation to the international human rights
regime. The primary research question is;
How to operationalize human rights in TNCsextraterritorialy?
This terms describes the process in which TNCs pitch developing countries against each other by allocating FDI
in the country that offers the least regulated conditions for TNCs. (Crane and Matten, 2007:15)
5 The term refers to the rejection of government intervention in markets. http://www.neoclassic.com/
4
7
1.1.1
Primary objective
The thesis’ primary objective is to explain how the international human rights regime is being
expanded to include non-state actors, based on two schools of thought. The first advocates the need
for legal measures for human rights based on the principle of ‘natural law’while the second is CC
concept, based on Rawls ‘theory of justice’ and which is voluntary in nature. The study is done
through the analysis of three United Nations (UN) initiatives on businesses and human rights. The
first is the ‘Norms on the Responsibilities of Transnational Corporations and Other Business
Enterprises with Regard to Human Rights’ (the Norms), which involves a set of standards meant to
have a legally binding effect on TNCs. The Norms was welcomed by NGOs but apposed by key
governments including the US and the UK. Based on that the UN Human Rights Commission asked
the Office of the High Commissioner for Human Rights to examine the issue further without
adopting the Norms. After examining the subsequent report the Commission asked the UN
Secretary-General to appoint a special representative to clarify and elaborate on the roles and
responsibilities of TNCs in relation to human rights. Professor John Ruggie was appointed to the
post. Professor Ruggie was also one of the key figures in the development of another UN initiative
called the Global Compact, which is voluntary in nature and based on the notion of CC. The Global
Compact was launched in 1999. It comprises of 10 principles, with the two first regarding human
rights. The principles are derived from international treaties and declarations covering areas such as,
human rights, labor standards, the environment and anti-corruption. The Global Compact is nonbinding and encourages human rights through direct interactions with business leaders via tools
provided such as web-based information sharing, policy dialogue, and local network creation and
support for the promotion of human rights.
The comprehensive body of literature will elicit the different initiatives made by the UN - whether
meant as voluntary or legally binding mechanisms – and examine the blurred lines between the
legal and the non-legal dimensions.
1.1.2
Secondary objective
An illustrative grounding section will provide rich and nuanced foundation for the above analysis
by explaining the background and role of the tripartite, namely, TNCs, the State and NGOs in
particular the United Nations.
8
In order to get a comprehensive overview of the current situation, a delineation of the global
governance issue in addition to the judicial status of states, NGOs and TNCs and the issues related
will be provided.
A brief presentation shall be made on Corporate Social Responsibility (CSR) and the historic
development of it in terms of the three CSR generations and how they are operationalized in
corporations. A historical and theoretical background of human rights is also provided.
Since the most eclectic field on this topic in literature is to whether apply regulations on TNCs or
let them be self-regulated. The focus will be on these two areas of the discussion.
Following the two principal themes that the literary review reflects, the broad context of CC and all
it entails will be examined. In so doing, an investigation ofCC’s standpoint and contribution to the
ongoing debate of how to operationalize human rights in TNCs extraterritorially will be provided.
This will provide a theoretical research question, which will be attempted to beanswerby
scrutinizing the Global Compact in contrast to Corporate Citizenship (CC), with support of an
empirical analysis provided in the literature.
It is hoped that the topic of human rights regulation will be shown to be more nuanced than a simple
dichotomy between ‘legal’ versus ‘voluntary’ regulation as the literature indicates.
1.2 Structure of the dissertation
The first part of the thesis is Chapter 2, which is the literature review. This part is divided into five
subsections.
Section 2.1 will introduce the reader to the theoretical foundation of the judicial triangular
relationship between the State, TNCs and NGOs .
Section 2.2 will be an explanation on the judicial status of TNCs in the human rights regime.
Section 2.3 includes a brief explanation of CSR and its developments with a review of the, for and
against arguments on social responsibility.
Section 2.4 will be about human rights, the history behind it and the development of the rights. The
role of the United Nations its initiatives and standards will be discussed in terms of their
effectiveness and legal status.
9
Section 2.5 of the literature review identifies a broader theory, namely corporate citizenship. The
theory is delineated and explained in relation to it real world contributions. A survey conducted in
the literature will support the explanation. Criticism on CC will be provided.
Chapter 3 comprises of two methods. The first is an archival discourse analysis and the second is an
interview with scholar.
Chapter 4 of the thesis is the analysis. The I three human rights instruments, which is the Norms in
section 4.1, the Global Compact in section 4.2, and the Ruggie Report in section 4.3. will be
presented. The three initiatives will be examined in terms of the recent debate on human rights and
TNCs. The outcome and criticism each UN initiatives will be provided.
Section 4.4 will elicit the finding by comparing all three human rights initiatives and presenting the
common issues. An explanations and comparison of the underlying theories in terms of CC will be
provided.
Section 4.5 is the interview. The debate in terms of CC will be constructed based on the arguments
elicited from the previous sections and the response from scholars.
In Chapter 5, the finding from the survey used in subsection 4.2 will be discussed in terms of the
Global compact.
The final Chapter 6 will be the Policy recommendation. The issues mentioned in the literature will
be revisited and followed by policy recommendations.
The final Chapter 7 will be conclusion, in which the main findings will be delineated and a final
suggestion will be made.
1.3 Delimitation
The field of human rights is broad and it can be addressed and examined from many different
perspectives. Therefore the consequent delimitation must be selective. It is inevitable not to touch
upon several other concepts due to the interrelated nature of the concepts.
CSR definitions and the great proliferation of theories are legion, but due to the scarce space in the
thesis I have chosen to exclude, legal theory, political theory, social contract theory etc.
10
The focus of this thesis is chosen based on the collective issue addressed in recent articles.
Therefore the dissertation concerns the TNCs based in the US, which operate in developing
countries, where regulations regarding human rights are lax. As the thesis is conducted on the
international human rights regime, the focus on US corporations is limited and the issues in the
thesis primarily address TNCs in general. Although there is a range of human rights instruments,
the focus is only given to the three initiatives by the UN. The reason is that these initiatives have
generated tremendous amount of discussion. Furthermore, the directions which I have chosen for
this assignment are the ‘legal’ which the Norms support and the ‘voluntary’ which the Global
Compact advocates for. Many of the issues discussed in the literature on both instruments are
explained by the third UN initiative- the Ruggie Report.
My choice of location comes as a result of the fact that USA has strongly contributed in terms of
literature, authors, and conceptualizations to the debated concept of CSR6, in addition to that the US
is the number one, developed country, hosting the largest number of TNCs, and plays a major role
in their regulation. I have chosen to limit the empirical research to the possible reasons behind the
lack of extraterritorial regulation on TNCs with regards to human rights.
2
Literature Review
In this chapter I will demonstrate literature that is relevant to the issue and complexity of the state,
TNCs and NGOs. This will highlight the issue on the lack of regulation on TNCs and give readers a
reason why this research is necessary. In review of the literature on TNCs’ responsibilities, there are
evidently two schools of thought with respect to the matter of human rights. The question of legal
obligations on TNCs for human rights is highly controversial and the system is nonetheless
voluntary. Many scholars such as Mayer, McCorquodale, Nolan etc., argue that voluntary standards
need to be complemented by mandate. On the contrary, academics such as Crane and Matten,
Moon, and Waddock support the notion of Corporate Citizenship, which propounds the idea of
social obligations as voluntary but fails to address the issue of TNCs’ human rights responsibility.
Literature also suggests that the legal and non-legal categories on human rights provided for TNCs
lack consensus for several reasons. Furthermore, empirical evidence proves that without legal
6
Crane and Matten, (2007:51)
11
instruments on human rights, TNCs are given no incentive to abide by the human rights
requirements.
The literature discusses the issues behind the lack of consensus, the different views on the
obligations of TNCs with regards to human rights. In addition to that, the literature also delineates
issues in the global governance gap and the unregulated power, which TNCs have obtained.
2.1 Global actors
The United Nations (UN) Special Representative of the Secretary General (SRSG) on human rights
and businesses, John Ruggie (2003, cited in Hamann et al., 2009:454) proclaims 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. These
governance gaps provide the permissive environment for wrongful acts by companies of all
kinds without adequate sanctioning or reparation. How to narrow and ultimately bridge the
gaps in relation to human rights is our fundamental challenge.”
According to Whelan et al. (2009:369), TNCs are able to challenge the control of a state in
equivocal matters, ultimately creating governance gaps and governance failures.
Korbin (2009:354) argues that the core issue is not simply the emergence of powerful transnational
actors namely, TNCs but it is the power exercised by these non-state actors ultimately perceived as
legitimate in fields traditionally thought to be within the authority and domain of sovereign states.
The UN Secretary General Kofi Annan, recognizes in his ‘Global Compact’ initiative, the change of
roles and emphasizes the need for TNCs ‘to cooperate in the realization and promotion of human
rights, better working conditions and protection of the environment’. (Cited in Karl et al., 2007:4)
Seeing that, the capacity and resources of TNCs are much greater than the governments, the
practice of human rights according to Mayer (2009:569) should be shifted to TNCs while the
system of human rights should remain incumbent on governments. Notwithstanding the logic in the
shift, Mayer yet calls for a persuasive theoretical basis for making this shift.
Although the concept of CC might seem to answer Mayers prayers, the concept is nonetheless silent
on the issue of human rights as will be unveiled below.
12
Due to government failure or the political restrictions on governance, governments have found an
alternative mechanism for coordination, in the form of international or regional organizations such
as the UN, WB, IMF, EU, NAFTA, ASEAN and MERCOSUR.7 In this way governments maintain
their position to act bilateral. Governments can therefore participate in the creation and enforcement
of regulations, through institutionalization and universalization, which makes it applicable to all
members (Jan-Erik, 2008:110-111).
Although, states are major institutional actors within the global domain, they only have jurisdiction
over their own nationals, and can rarely enforce this jurisdiction in another state’s territory.
Therefore states have a variety of approaches for dealing with corporations that can utilize their
legal structure in order to avoid state regulations. Some states have chosen to allow possible
liability on the parent company with the argument according to Meeran (1999, cited in
McCorquodale, 2009:390) that;
“[If a TNC is regarded as] a conglomerate of units of a single entity, each unit performing a
specific function, the function of the parent company being to provide expertise, technology,
supervision and finance…[then if] injuries result from negligence in respect of the parent
company functions, then the parent should be held liable”
Although it is argued that any attempt to impose human rights obligations on TNCs through home
country headquarters can run the risk of clashing with the host government’s policies, considering it
as enforcing human rights obligations on foreign territory (Korbin, 2009:357-358). One aspect of
the government’s reluctance to apply national law extraterritorially is that it may have political
effects. This can be seen, according to Muchlinski (1999, cited in Seppala, 2009:410), as ‘a
violation of state sovereignty or an attempt to impose policies upon other countries’, basically
causing diplomatic conflict and retaliation. Furthermore, states rarely prioritize human rights over
economic and security interest in their foreign policy (ibid.).
Nonetheless, it has been proven that while home countries (the US in particular) have been reluctant
to sanction parent corporations for human rights violations of their subsidiaries, they have been
7
WB (World Bank), IMF (International Monetary Fund), EU (European Union), NAFTA (North American Free
Trade Agreement), ASEAN (Association of Southeast Asian Nations), and MERCOSUR –regional trade block for
South American countries.
13
willing to use that power to reach extraterritorially in other matters such as national security. Kobrin
argues that the selective use of extraterritoriality proves that the TNC is an actual entity under the
managerial control, and in that light the territory should not be used as a barrier to hold TNCs as a
whole responsible for human rights abuses by any of its subsidiaries. (Korbin, 2009:357-358)
In order to understand the complexity of TNCs, we try to understand their physical structure and
legal status.
The entities of the TNCs are linked, either by ownership or otherwise. The entities can exercise
significant influence over each other in terms of knowledge sharing, resource and responsibility. An
enterprise can also be associated with more than one TNC8. The parent company, located in the
TNC’s country of origin, is identified by the highest percentage ownership. The parent controls the
subsidiaries in other countries, either directly if it is private or, by owning some or all of the share,
if it is public. For instance, the US-based Union Carbide Corporation has subsidiary in India called
United Carbide India Ltd. The style of relationship, in terms of how control is exercised, can be
formal, centralized control which is typical for the US. Whereas, the relationship is less formal and
centralized in European corporations compared to that of the Japanese TNCs. (Greer and Singh,
2000)
The diversity of TNCs being active in more than one industry adds to its complexity. For example,
the US food processing company H.J. Heinz cover six continents, while US’s largest grain company
operate in 54 countries. The Swiss electric engineering giant ABB has facilities in 140 countries,
while Royal Dutch/Shell’s exploring facilities are located in 50 countries, refineries in 34, and has
markets in 100 countries. (Greer and Singh, 2000)
McCorquodale (2009:387), Nolan and Taylor (2009:437), and Korbin (2009:351) signify that
human rights supervisory bodies have held states to have obligations under human rights treaties
and can therefore be held responsible for human rights violations extraterritorially by any one
within the power, control or authority of that state in addition to areas which are within effective
control of that state. For example, the Inter-American Commission on Human Rights assessed the
legal status of US Guantanamo Bay detainees, and concluded that although they were outside the
territory of the US, they were still under its jurisdiction as they were within the authority and
control of US government.
8
http://www.unctad.org/templates/Page.asp?intItemID=3159&lang=1
14
States that support their national corporations through aids or abets can incur international
responsibility in relation to the extraterritorial corporate activities in the case of human rights
violations. If there is lack of evidence of home state control over corporate extraterritorial activities,
states are prohibited from causing harm in other countries and therefore have the duty to prevent
such harm. States can be seen as facilitating extraterritorial harm when home states enter bilateral
investment treaty (BIT) with a developing country. BIT treaties include restrictive repudiation
clauses, which can restrict host state’s ability to control foreign investors. The US and Canada
negotiate the BIT treaties to include non-discriminatory rights which precludes the host state from
screening prospective foreign investors and investments in effect limits the host states ability to
ensure that these investments will benefit the host state’s development and protect human rights. In
addition to that, such treaties do not oblige foreign investors to respect human rights in the host
state but merely oblige them to comply with domestic law which in most cases lack effective
mechanisms to ensure that foreign investors do not abuse human right of the inhabitants.
McCorquodale criticizes that the states that facilitate such agreements are fully aware that national
corporations are unregulated and unrestricted in addition to that, the states fail to exercise due
diligence, to prevent harm by its corporate nationals. (McCorquodale, 2009:101)
The theory of realism9 explains the priorities of a state in an anarchic international system where
national interest and security takes precedence over moral concerns. In light of this, realism posits
that states only respond to international legal norms that can maximize their political power.
Realism thus advocates “voluntary restraints, moderation, and the underlying assumption of
possible harmony among national interest”. (Hoffmann, 1959:354)
The economic power, the TNCs hold over developing countries, provided by the free-market
neoliberal capitalism, gives them the ability to relocate their operations in search for higher profits.
Developing countries that wish to attract foreign direct investment (FDI) – including factories and
plants – allow TNCs to operate with unfettered discretion, taking advantage of the lower wage rate
and thereby exploiting the workers (Beck, 2000:2). NGOs have managed to expose many
companies, such as Nike, Apple, IBM, and the Gap taking advantage of slave labor in Burma,
wages below minimum in East Asia in addition to violations that have direct effect on living
standards such as environmental damages and explosions as in Nigeria and Bhopal in India
(McCorquodale, 2002:384).
9
also called political realism
15
2.2 The human rights regime
“After more than a generation of deregulation and a presidential declaration that the ‘era of big
government is over,’ the political pendulum has apparently begun to swing back towards
regulation” (Balleisen and Moss, 2010:1)
The international human rights standards and law have been conceptualized on the basis of regime
theory. Regime theory builds on converging a set of norms and principle and implementing it
through a variety of actors. International regimes functions as an international cooperation and are
established in terms of areas or issue areas such as environmental issues, trade, collective security,
nuclear proliferation etc. Regime theory seeks to explain how order is transpired in what might be
considered an anarchic world of states (incl. corporations), in which self-interested actors come
together to agree on norms that might limit their behavior. Regime theory is traditionally based on
the role of the state to implement the regime through legislation and other measures. The United
Nations is the main venue for the human rights regime. (Seppala, 2009:402).
Scholars differ over how much of a role international institution should play and how the
enforcement of the regime should occur. Nonetheless, the support for legal regulation of TNCs is
echoed in most of the literature. This is exemplified by the theory of law enforcement, which posits
that global legal norms require institutionalization (Deflem, 2008:227) “because regulation without
law and legal compliance mechanisms is rarely effective as a means of long-term social, economic
or public behavioral change” (McCorquodale, 2009:385). Although there have been several attempt
on the national, regional, and international level to regulate corporate behavior in relation to human
rights through mechanisms such as the ECOSOC Norms, 2003: OECD, 2000, notwithstanding,
these attempts have largely failed due to the lack of political support by states or due to strong
resistance by corporations (ibid.).
Mayer (2009:562) suggests that “[t]he harm caused to vulnerable populations in poor countries by
unregulated globalization could be assessed as unacceptable from several standpoints.” She adds in
light of the international human rights law “… that allowing TNCs to act in destructive or
exploitative ways in poor countries clashed with human rights principles.” Mayer considers the idea
of expanding the coverage of international human rights law to include TNCs as a plausible tack.
16
Whether corporations have human rights obligations is described as ‘hoary’ debate justified in that
“international and national laws have long recognized that non-state actors, including individuals,
corporations qua individuals and international organizations, are subject of international laws and
bearers of responsibilities as well as rights”. Nolan and Taylor support the claim with the
Nuremberg trials although it has not yet been involved in the prosecution of corporations but is the
authority to do so at the international level. Nolan and Taylor (2009) add that the obligations should
“supplement and not replace State obligations; in such a situation corporations and States can and
should assume a responsibility to protect, not simply respect, human rights”. (Nolan and Taylor,
2009:433, 444)
Korbin (2009:355) and McCorquodale (2002:387) suggest that rights go hand in hand with duties.
Since TNCs function with private political authority in international politics and have been granted
significant rights under international law, they are, according to Cutler (2001, cited in Korbin,
2009:355), “increasingly functioning as participants in the direct creation, application and
enforcement of transnational law”. Korbin argues for symmetry “that power, authority and rights
should imply duties, obligations and liabilities” and adds that there should be direct obligations on
TNCs with regard to human rights law.
Karp (2009:108) suggests an expansion of international human rights mechanisms, which officially
at this point only holds states obligated for human rights violations, to hold non-state actors
accountable by way of the International Criminal Court (ICC) for human right violations in such a
way identifying that TNCs are a unique kind of violators, instead of the dichotomous identification
of human rights violators, being either the state or an individual. Karp (2009:110) also suggests an
alternative to the extraterritorial application of human rights standards to either include a new
international institution such as the ICC, or arbitration tribunals, in order to make the consequences
transparent for TNCs for human rights violations.
According to Marrewijk (2003:96) the debate and the lack of action is due to the lack of an allembracing definition of Corporate Social Responsibility (CSR) in addition to the “subsequent
diversity and overlap in terminology, definitions and conceptual models [which] hampers academic
debate and ongoing research”.
17
2.3 Corporate Social Responsibility
The question of CSR has been debated since the second half of the twentieth century and numerous
definitions have been developed in an attempt to express the concept. The field of CSR is now an
ocean containing a vast proliferation of theories, approaches and terminologies. Some of the terms
used to describe the CSR phenomenon are corporate accountability, stakeholder management,
social issue management, society and business, public policy and business, etc. A renewed interest
for the notion of CSR has given rise to the proposition of new alternative concepts, such as
Corporate Citizenship (CC) and Corporate Sustainability (CS). (Garriga and Melé, 2004:51)
Votaw (1972, cited in Garriga and Melé, 2004:51) described the core issue of the great variety in
definitions and theories, thirty years ago as: “corporate social responsibility means something, but
not always the same thing to everybody. To some it conveys the idea of legal responsibility or
liability; to others it means socially responsible behavior in the ethical sense; to still others, the
meaning transmitted is that of ‘responsible for’ in a causal mode; many simply equate it with a
charitable contribution; some take it to mean socially conscious; many of those who embrace it
most fervently see it is a mere synonym for legitimacy in the context of belonging or being proper
or valid; few see a sort of fiduciary duty imposing higher standards of behavior on businessmen
than on citizens at large”.
There is a large consensus according to Wood (1991, cited in T. Jones, 1999:164) on “the basic idea
of corporate social responsibility [which] is that business and society are interwoven rather than
distinct entities; therefore, society has certain expectations for appropriate business behavior and
outcomes”; however, what are the determinants of the institutionalization?
One of the most prestigious scholars in this discipline, Archie Carroll, regards CSR as a multilayered concept, which is divided into four inter-related aspects in terms of corporate responsibility.
Namely; economic, legal, ethical, and philanthropic responsibilities. The different responsibilities
are presented in a pyramid with a successive order (see figure 1)
18
Philanthropic
responsibility
Ethical
responsibility
Legal responsibility
Economic responsibility
Figure # 1 Carroll’s pyramid of corporate social responsibility.
Source: Crane and Matten (2007:49)
Carroll and Buchholtz (2000, cited in Crane and Matten, 2007:49) define CSR as follows:
Corporate Social Responsibility encompasses the economic, legal, ethical, and philanthropic
expectations places on organizations by society at a given point in time.
2.3.1
Criticism on CSR
The argument on CSR is two-fold. Proponents of CSR commence from an ethical and instrumental
rationale, whereas opponents base their arguments on institutional function or property rights
perspective. Ethicists justify their arguments from religious, principle, philosophical, or prevailing
social norm perspective. Ethicists view the firm’s duty to behave in a socially acceptable manner as
morally correct. Ethicists advocate social responsibility even in cases of unproductive resource
expenditure for the corporation. From an instrumental perspective, it is argued that socially
responsible businesses will ultimately benefit. Opponent’s arguments are derived from Parsonian
pluralism, claiming that social responsibility is an institutional function, meaning that governments,
churches, civic organizations and labor unions have to perform that function, and not businesses. It
also argues that the tremendous responsibility cannot be traced back to an empowered management
unlike democratically elected politicians and therefore, can become a dangerous authority without
accountability. The property right argument is derived from classic capitalism and demands that
management has one responsibility, namely, a fiduciary one, otherwise it constitutes a legal
violation on behalf of the shareholders. (T. Jones, 1999:164-165)
19
CSR from an ethicist’s perspective seems therefore to contradict the purpose of a self-interested
profit-maximizing corporation. Meaning that corporations would have to tradeoff profit for
normative morality. And according to the Economist (2005, cited in Amaeshi ad Adi, 2006:2)
“when commercial interest and broader social welfare collide, profit comes first”
Waddock (2008:30) emphasizes that CSR is a narrow conception, which is what some critics call
“window dressing”, in which corporations undertake philanthropic, collaborative, or voluntary
initiatives to disguise their corporate misconducts such as employee mistreatment, unsafe or
wasteful production etc, which their supply chain policies permit.
McCorquodale (2009:391) emphasizes that CSR is management-driven which is set to design and
assist the corporation’s business, while in contrast human rights protections are person-oriented and
have legitimate compliance mechanisms which makes “[h]uman rights are not voluntary”.
According to Crane and Matten, the US strongly focuses on profitability of companies, and
therefore, only prioritizes the responsibility to shareholders. Korbin (2009:356) adds that the US
does not recognize human rights obligations on the part of private individuals and corporations.
The Anglo-American worldview regards legal responsibility on corporate governance as an
interference with private liberty. The social legitimacy and philanthropic responsibility in the US
have less impact on the corporate agenda as opposed to Europe. In Europe discretionary duties are
made compulsory via the legal framework whereas in the US, such philanthropic responsibility is
expected from successful corporations or rich capitalists. (Crane & Matten, 2007:51-52)
2.3.2
Development of CSR
“The increased interdependence associated with globalization dynamics such as
environmental crises and exposés of workplaces abuse have resulted in new forms of
organizing, novel types of organizational constraints and opportunities, and increased global
interest in corporate social responsibility (CSR) and business ethics”(Stohl, et al., 2009:607)
A fundamental indicator of CSR is the application of Codes of Ethics on corporations. Codes of
Ethics is a public statement, which formally express the governing of practices and relations in
terms of corporate principles and rules of conduct.
20
It signals the corporations’ recognition of, the need for and commitment towards ethical behavior.
Studies conducted in 1990s show that there is a regional and national difference in the adoption of
Codes of Ethics. The percentage of US corporations that had Codes of Ethics was 90 percent,
whereas UK only had 57 percent, and Germany had 51 percent, last was France with the lowest
percentage of 30. (Stohl, et al., 2009:609)
TNCs have opposed attempts to hold the corporations legally bound in terms of human rights, and
are dismissive of whether their codes of conduct explicitly mention human rights. Although human
rights in principle relate to international human rights law, compliance and adherence is meant as
voluntary and serves no legal grounding. Mayer (2009:567) explains this being due to the lack of
distinction between the legal and non-legal dimensions.
Mayer (2009:563) suggest that “[n]o consensus about the foundations of human rights has yet
emerged” and adds that “[w]hether human rights are to be viewed as divine, moral, or legal
entitlements; whether they are to be validated by intuition, culture, custom, social contract theory,
principles of distributive justice, or as prerequisites for happiness; whether they are to be
understood as irrevocable or partially revocable … these kindred issues are matters of ongoing
debate and likely will remain so as long as there exist contending approaches to public order and
scarcities among resources.”
2.4 Human Rights
The first marking of human rights in history took place in 539 B.C. when the first king of Persia,
Cyrus the Great, conquered the city of Babylon with his army. Cyrus the Great, announced the
freedom of all slaves and that all people had the freedom to choose their own religion in addition to
the establishment of racial equality. These decrees among others were documented on what is
known today as the Cyrus cylinder. Human rights were born and quickly spread to India, Greece,
and eventually Rome. The Roman human rights law was then based on the concept of “natural
law”, derived from the observation that people naturally followed certain unwritten laws in their
lives. Since then, many covenants codifying individual rights were launched, from the Magna Carta
(1215), to the Petition of Right (1628), the US Constitution (1787), the French Declaration of
Rights of Man of the Citizen (1789), on to the US Bill of Rights (1791) etc. (Dhall, 2009: 4)
Despite the efforts, human rights were merely applicable in the western civilization, and the rest of
21
world suffered colonization by Europe’s massive empires. In the aftermath of the Second World
War, and as a response to the Holocaust, the countries of the world created the United Nation (UN)
in 1945 with the purpose (Article 1; 3);
‘To achieve international cooperation in solving international problems of an economic,
social, cultural, or humanitarian character, and in promoting and encouraging respect for
human rights and for fundamental freedoms for all without distinction as to race, sex,
language, or religion.’10
The question remained on what human rights were. In 1948, the Universal Declaration of Human
Rights (UDHR) referred to as the International Bill of Human Right, was adopted and proclaimed
by the General Assembly of the UN.11 The UDHR compiles 30 articles of human rights and is, due
to the ratification of the declaration, considered a universal agreement. (Crane and Matten,
2007:100)
However, the declaration is non-binding and lacks global ratification of the International
Convention on Civil and Political Rights (ICCPR), and the International Covenant on Economic,
Social and Cultural Rights (ICESCR). The UN adopted these documents in 1966 in order to make
the UDHR binding on all states that have signed the treaty, consequently creating human rights law.
This non-binding effect issue is evident in China, which has only ratified the ICESCR and not the
ICCPR, and the US has engaged in the opposite, by ratifying the ICCPR but not the ICESCR. As a
result, it is difficult to talk about a universal agreement on human rights when 25 percent of the
worlds population live under states which have not ratified either one of the two major ‘binding’
human rights covenants. (Whelan et al., 2009:370)
Academics with a law background or lawyers claim that human rights have a legal grounding as
they are incorporated in the UN system of international law since 1945. Mayer also admits that
although it might seem “fair to treat human rights as falling within the ambit of international law,
lawyers have to concede that human rights spill over into domains like philosophy, ethics, theology,
intellectual history, anthropology, political science, and public policy.”(Mayer, 2009:563)
It is argued that the soft foundation of human rights is due to weak epistemological bedrock, which
creates the issue of a universally applicable human rights regime (Dhall, 2009:6).
10
11
http://www1.umn.edu/humanrts/instree/chapter1.html
http://www.humanrights.com/#/humanitarian/history-of-human-rights-new
22
2.4.1
Generations of rights
According to Stohl et al. (2009:610-611) human rights were divided into three generations, with the
first generation developed with the Magna Carta and then further developed through the English
Bill of Rights in 1989.
The first generation of CSR thinking is consistent with the classic capitalism, which Friedman
(1970) depicts about CSR. It constitutes the ethics about the management’s fiduciary responsibility,
whichshould be consistent with the law. The corporation is required as the state to refrain from
improper behavior or the violation of its national laws (ibid.).
The second generation of CSR is based on the state urging corporations to provide adequate
compensation, working conditions and the right to fair and equitable wages. Basically, this
generation requires the state to exert its power on behalf of claimants.
Most Western countries have first and second generation of rights embedded in the law of the
country. Therefore, in countries where that is the case, corporations include these rights implicitly,
in contrast to countries where these rights are not a part of the labor law, and therefore require
explicit appearance (ibid.)
The third generation of rights regards proactive and positive responsibilities. The rights are focused
on humanity and what is considered the common heritage of all people in terms of the right to live
in a peaceful and healthy environment.
The third generation contradicts the first generation, which is there for the protection of individuals
in the country of the corporations headquarter, i.e. where the corporation is under the jurisdiction of
that particular state. The second generation, although more proactive, still only protects individuals
within the national borders, and therefore, individuals and cases which fall outside the scope of the
state’s mandate, are under no protection from these generations of rights. (Stohl, et al., 2009:612)
The incorporation of the third generation of rights in Codes of Ethics, takes an aspirational course.
Despite that, according to a study conducted by Stohl, et al. (2009:619) shows that 87 percent of
European corporations included third generation thinking in their Codes of Ethics, whereas US
corporation only amounted to 6 percent.
23
2.4.2
Discretionary versus non-discretionary duties
Waddock (2004:315) proposes that “[t]he proliferation of standards, principles reporting initiatives,
and codes threatens confusion and continued lack of implementation unless there is a common set
of principles”, this creates a gap between the growing public expectations from various stakeholders
and actual performance by the company. Waddock suggests a need for foundational or fundamental
principles, which she describes as being the “floor” and not the “ceiling” for responsible practice.
Donaldson and Dunfee (1994:265) have coined such foundational principles as ‘hypernorms’ and
define to “entail principles so fundamental to human existence that they serve as a guide in
evaluating lower level moral norms”. Waddock (2004:315) opine that such ‘hypernorms’ can help
corporations avoid information overload with the proliferation of initiatives as well as the growing
disparities between developed and developing countries.
What is evident from the above CSR and human rights discussion is that there are a variety of
definitions of CSR policies, which are voluntary in nature whereas human rights have a legal
grounding and are not voluntary, and therefore require a clear distinction in the form of protection
policies and practices. (McCorquodale 2009:391)
Karp (2009:97) tries to distinguish between voluntary and non-voluntary duties as discretionary and
non-discretionary. Discretionary duties are duties such as charity and in this category, the moral
agent can rely on own judgment. Non-discretionary duties on the other hand are various kinds of
moral duties, which can be classified as legal duties when they are institutionalized in accordance
with legal principles. Karp (2009:106) considers CSR as discretionary duties whereas he considers
human rights to be non-discretionary.
Karp (2009:111) establishes that the ‘entire idea behind non-discretionary duties is that judgment
about what is ‘avoidable’ or ‘unnecessary’ is and ought to be removed from particular decisionmaking agents and placed in the hands of an external authority. This leads us back to our primary
question raised in this paper: how to operationalize human rights in TNCs extraterritorially?
2.4.3
Human rights instruments
International institutions such as the United Nations (UN), the Organization for Economic Cooperation and Development (OECD) and the International Labour Organization (ILO) have during
the last decades deployed human rights as numerous initiatives and instruments that would regulate
and guide corporations. (Voiculescu, 2009:420)
24
The chronicles of UN initiatives were set out in the 2005 report by the Office of the United Nations
High Commissioner for Human Rights (OHCHR) to assess the legal status and scope of existing
initiatives and standards. (see Appendix 2)
The initiatives are International Instruments such as treaties and declarations addressing the states
with regards to business or nationally based standards, which are legally binding standards
including constitutional provisions, national law, and national regulations with regards to business
activities. Additionally there are the Certification Schemes, which are programs with a set of
standards developed by an organization, group or network, requiring adherence. These schemes
require support and are then monitored independently in order to ensure compliance.
Furthermore, Voluntary Initiatives are adopted by businesses as the name indicates on a voluntary
basis. These consist of codes of conduct, directives, policies, third-party and self-reporting
initiatives established by individual companies, groups of companies, intergovernmental
organizations or civil society groups in addition to mainstream financial indices, whichare used to
monitor companies based on an objective criteria tracking them for social and environmental
activities, in order to change the nature of business activities through investors and markets, and
tools, meetings and other initiatives, which seek to promote a broad understanding in terms of
human rights by undertaking human rights impact assessments, management tools, workshops,
public-private partnerships, training manuals etc. (OHCHR)
The main focus of the literature surrounds three initiatives set out by the UN on businesses and
human rights12.
One obvious criticism, also found in the literature (see Mayer, 2009 : Hamann, 2009 : Seppala,
2009), is the lack of standardized and limited scope of the human rights coverage. As an example,
the OECD Guidelines on Multinational Enterprises only refers to human rights in general terms,
where as the ILO Tripartite Declaration is more specific in its reference to workers rights.
All of the above initiatives on human rights are categorized as non-binding on businesses outside
national borders.
Nolan and Taylor (2009:434) suggest that the continuous use of soft law mechanisms indicate that
there is no ‘silver bullet’ mechanism to hold corporations accountable for human right violations.
12
This will be elaborated on in section 4
25
Mayer (2009:567) as noted earlier suggests a need for a persuasive and broadly supported theory
justifying whether international human rights law does govern TNCs as a prerequisite before any
affirmative steps can be taken.
2.5 Corporate Citizenship
The intensive international debates surrounding the social role of businesses with focus on labor
and human rights have been an important driver of the corporate citizenship (CC) movement in the
last two decades (Hamann et al., 2009:456).
CC theory and multiple other theories were produced to define the role of companies,which were
struggling to cope with the demands placed on them for responsibility, accountability, and
transparency.
The usage of the term CC by practitioners and academia has been far from consistent. The language
of CC is simply a new terminology for existing concepts. There are three different perspectives on
the term CC, two of which are largely conventional views based on CSR, while the third extended
perspective goes beyond existing conceptions of CSR . (Matten et al. 2003:112)
According to Matten et al. (2003) The Limited view of CC equates CC with philanthropy, which
implied voluntary responsibility such as charitable donations. Carroll connoted this discretionary
corporate practice with the fourth level of CSR in his CSR pyramid- namely, philanthropy.
Academics and practitioners commonly refer to this understanding of the term CC (ibid.).
The second perspective on CC is the Equivalent view of CC, which is essentially a conflation of CC
with existing concepts of CSR. Two decades later after the first introduction of CC, Carroll
described CC in a paper as “The four faces of corporate citizenship” where he rebrands CSR
exactly as CC. This caused a good deal of skepticism about the term and a new Extended view of
CC was developed to signify the notion of ‘citizenship’. According to Marsden (2000, cited in
Matten et al., 2003:114) CC signified that corporations are “legal entities with rights and duties, in
effect, ‘citizens’ of states within they operate”.
A common understanding of citizenship is based on the liberal tradition of three different aspects of
entitlement: civil rights, social rights and political rights. Social rights provide the right to freely
26
participate in society. Civil rights provide freedom from abuses and interference by third party.
Political rights include the active participation in society, which is the process of governance
beyond the sphere of own privacy. Citizenship is not confined to only rights but also includes
duties. Corporations have become the ‘counterpart’ of citizenship by taking over functions which
previously were regarded in the governments domain, such as the protection, facilitation and
enablement of citizen’s rights. In the traditional sense, the rights that are embodied in the concept of
citizenship are linked to the state, which is sovereign within its own territory. The notion of
deterritorialization came as a result of globalization, which also seems to have triggered the
heightened attention to CC (see figure 2).
Figure # 2 Number of citations for Corporate Citizenship
Source: Waddock (2008:31)
Crane and Matten (2007:77) define the extended view on CC as:
“Corporate citizenship describes the corporate function for governing citizenship rights for
individuals”.
Matten et al. (2003:117) emphasize that corporations do not share the status of citizenship as
individuals but that they have gradually assumed the responsibility for the protection and
facilitation of social, civil, and political rights. The argument of power in this relation is dismissed
with a counter-argument that corporations are economic institutions, which are reliant on citizens
but cannot be categorized as citizen in the traditional way.
According to Waddock (2008:37) transparency is considered one possible solution to the issue of
power, but another concern about legitimacy is raised in relation to the complex structure of TNCs.
27
Another issue is if TNCs taker over government functions, they should be held equally accountable,
as is demanded by governments in modern societies. But such accountability mechanisms do not
exist for corporations. (Matten et al., 2003:117)
Critics argue that the issue of legitimacy and accountability in the power equation cannot be dealt
with no matter the amount of transparency, or change in rhetoric as long as corporations continue to
take over fundamental government duties. They therefore call for more mandatory measures rather
than voluntary ways of holding TNCs accountable for their actions as CC suggests. (Waddock,
2008:37)
2.5.1
CC in the real world
The present situation is that corporations progressively have picked up on CC although there are yet
many corporations that only practice CSR on a philanthropic level. (Waddock, 2008:31)
The situation looks quite different in developing countries where governments have failed to protect
human rights. Waddock (2008:36) suggests that the relative rootlessness of TNCs give rise to
concerns about their commitment to any given society.
The pressure from NGOs and social activists has led many corporations such as Levi Strauss, Nike,
and Reebok to reform their labor and human rights abuses in their supply chains (Waddock,
2004:315).
Matten et al. (2003:116), claim that TNCs such as Nike, Shell, Levi Strauss and others have
engaged under the banner CC in improving working conditions in sweatshops, ensuring employees
a living wage, providing schools, roads, medical centers, or even providing financial assistance for
schooling of child laborers.
Supporters of CC argue that most of the human rights violations are perpetrated by state agents, and
in such situations the prevailing wisdom of international management is to emphasize integration by
pursuing positive engagement instead of going head to head with the oppressive regime. It is argued
that corporations should only concentrate on issues where they can have direct impact on, such as
wages, work conditions, access to health and education. TNCs choose instead to become involved
in community development projects (CDP), within their area of operations. (Theobald and Arkani,
2007:39)
Seppala (2009:410) argue that corporations are faced with a perplex situation when they operate
abroad. As corporations are expected to abide by the standards of the home state, local corporations
and TNCs on the other hand, from countries such as China and Malaysia only have to comply with
28
the local legislation, which have lower and thereby less expensive standards and corporate behavior.
In effect, companies can suffer competition if they comply with human rights standards (ibid.).
2.5.2
Trust balance
The balance of trust has shifted tremendously over the past two decades due to human right abuses
and environmental degradation primarily instigated by corporations, which were revealed by NGOs
(Waddock , 2004:314).
Theses various successes have established NGOs as credible and legitimate contributors to human
rights and environmental matters than corporations (see figure 3).
Figure # 3 Perceived
credibility of NGOs and
corporations regarding
specific issues.
Source: Crane and Matten (2007:410)
A survey conducted on the level of trust in NGOs in contrast to corporations in Europe and the US
show for example, that44% of opinion leaders in the US trust businesses to do the right thing over
governments (27%) and NGOs (26%), while in Europe, trust was given to NGOs (44%) over
government (36%) or businesses (32%)13. (Crane and Matten, 2007:409).
The decline in trust in businesses is due to the lack of credibility of companies in their reports on
responsibility. As a response, many corporations began to bring in external groups to study their
internal and supply chain practices. Companies started to produce reports verifying their
compliance with their codes of conduct. This aspect of CC is almost entirely voluntary, although
13
The survey is not consistent between particular organizations and between particular countries in Europe
(Matten and Crane, 2007:410).
29
some countries have enforced certain requirements for reporting and disclosure by law. It is argued
that the companies’ activities regarding issue related to health and education form a bridge into the
public policy arena, which previously was reserved for governments. (Waddock, 2008:26)
Matten et al.(2003:115) add that the boundaries between government and corporation responsibility
associated with CC have become less clear. In effect the notion of CC being voluntary in certain
aspects has shifted due to the institutional failure to unavoidable demands.
2.5.3
Survey
Hamann et al. (2009:455) found that although there has been large prominence on human rights in
the form of guidelines, standards and frameworks, the question on the extent to which corporate
decision makers recognize and respond to human rights has hardly been researched except for two
surveys conducted by SRSG- Ruggie.
The first survey was based on a questionnaire that was sent out to the Fortune Global 500
companies, from which 120 responded. The response rate was low and it was likely that companies
with no human rights policies where among the companies that did not respond. In addition to that,
there was no appropriate point of contacts identified, and not the least among companies in Asia.
The second survey examined the public reports of 300 companies from around the world in addition
to eight collective initiatives and five socially responsible investment funds. The conclusion found
by Ruggie (cited in Hamann et al., 2009:456) was that:
“In short, leading business players recognize human rights and adopt means to ensure basic
accountability. Yet even among the leaders, certain weaknesses of voluntarism are evident.
Companies do not necessarily recognize those rights on which they may have the greatest impact.
And while the rights they do recognize typically draw on international instruments, the language is
rarely identical. Some interpretations are so elastic that the standards lose meaning, making it
difficult for the company itself, let alone the public, to assess performance against commitments”.
2.5.4
Criticism on CC
Jones and Haigh (2006:55) point out four main problems with the CC concept.
1. It has no theoretical grounding, in terms of the business firm and its institutional function in
contemporary capitalist society in relation to CSR and the corporation’s fiduciary
obligations.
30
2. The selective use of recent developments in citizenship theory with an economistic
orientation rather than a political capacity, in addition to the selective use of political science
literature.
3.
It neglects important recent institutional developments in the global political economy of
corporations moving away from the concept of CC in terms of maximizing rights and
minimizing responsibilities by channeling power to private sectors without justifications (eg.
Shift of provisions of social protection and social services to private retirement pensions).
4. The CC concept does not contribute to how it can be applied at the national level and to
TNCs. Matten et al. explain that the question of how to operationalize the concept at this
point is beyond the scope of its development.
T. Jones and Haigh (2006:62) argue that the CC concept does not contribute to the ‘real world’
issue of TNCs’ practices in developing countries and add that the operationalization of CC “would
exacerbate the negative implications of globalization”. They also suggest that a well functioning of
CC will require a strong state to authorize necessary punitive system.
Hamann et al. (2009:454) argues that as the concept of human rights is closely linked to a strong
tradition of international and national law, the voluntary nature of the concept CC is therefore silent
on the discussion of human rights and businesses. Hamann et al. (ibid.) adds that the issue is not
merely to identify human rights as a “moral framework for voluntary corporate citizenship” but the
discussion is rather how to extend international and national human rights law to include
corporations.
3
Method
The focal point of this assignment is to examine how the international human rights regime is
expanded to include non-state actors, specifically TNCs. The fundamental premise in the debate is
how the state, corporations and other institutions interact to develop and implement human rights in
TNCs. I have used a mixed method approach. The first section will demonstrate a comprehensive
archival discourse analysis of the three UN initiatives, namely;
1. The Norms on the responsibility of transnational corporations and other business enterprises
with regard to human rights
31
2. The Secretary- General’s Global Compact
3. The Ruggie Report
The three initiatives will be examined in terms of the recent debate on human rights and TNCs. The
method is based on Nina Seppala’s article: “Business and the International Human Right Regime: A
Comparison of UN Initatives”.
The analysis will provide us with an understanding of the differences in the initiatives, their
purpose, their actual influence (on extraterritorial jurisdiction), their legitimacy (enforceability), and
their interrelated connection. The characteristics of the first UN initiative (the Norms) used in this
analysis advocates the proposed mandate regulation in contrast to the second initiative (the Global
Compact) which supports voluntary regulation of TNCs. The third most acknowledged initiative
(Ruggie report) clarifies and delineates the relationship of the state and the TNCs in relation to
human rights obligations. A report on the operationalization of the report is anticipated.
The objective of this analysis is to show the international human rights regime is still settled on the
notion of the state being the main institutional manifest of human rights obligations. This contrasts
the notion of corporate citizenship, which argues that the state has failed its obligations and that
corporations have become the new key actors in providing social rights. The analysis will elicit the
implications of legal regulation in contrast to CC on human rights.
The most evident and agreed part in this topic is the need for a way to regulate TNCs’ behavior
beyond the boundaries of their states. Much of the literature discusses how this issue should be
approached with regard to the numerous suggestions that have been introduced over the last two
decades.
The analysis will highlight the intentions behind the initiatives and their outcomes based on the
academic literature, which also points out several reasons for the inefficiencies of the instruments.
Furthermore, it highlights what might be needed before any consensus can be reached. A
preliminary conclusion will compare the scope and legal status of the three initiatives.
The second method used in the analysis is an interview and discussion conducted through emails
with scholar on both side of the debate. I have chosen to interview Andrew Crane, Dirk Matten,
Anne Elizabeth Mayer, and Marc T. Jones. The interview is based on the theoretical question
elicited from the literature review, namely why CC is silent on the issue of human rights. The
discussion was built on precedent arguments.
32
The interview turned out to be fruitful, giving a chance for proponent of CC to clarify their
objectives and a chance for opponents to debunk the concept. The last part of the interview gave an
interesting twist to the discussion leading us to a new perspective on the topic.
3.1 Delimitation
Although the discussion takes many directions, I have chosen the two most significant directions to
the theories presented. Furthermore, I have chosen these three initiatives specifically given their
relevance to the ongoing debate. I have chosen to limit the choice of initiatives due to scarcity of
space in the thesis. (see appendix 2)14
In terms of the interview, the questions were sent to a couple of other scholar used in the thesis but
there was unfortunately no response. I also sent professor Ruggie an email asking about his
upcoming report on the operationalization of his framework with no response either.
4
Analysis
4.1 The Norms
In 1999 the United Nations Sub-Commission for the Promotion and Protection of Human Rights
initiated the “Norms on the Responsibilities of Transnational Corporations and Other Business
Enterprises with regard to Human Rights”15(the Norms), which was approved on 13 August 2003
(Seppala, 2009:403)
The document constitutes a preamble to an extensive list of international human rights law
instruments for corporations. The objective was not to introduce new obligations for businesses but
rather reaffirm and reinforce the existing declarations on human rights responsibilities such as the
OECD-guidelines on multinational enterprises etc (Karl-Heinz, 2005:1).
The Norms is considered to be more legally oriented as it was prepared under the auspices of the
UN Commission on Human Rights16, and it was referred to international human rights law, in
addition to the legal background of the team behind the initiative (Mayer, 2009:573).
14
Appendix 2 compares the legal scope of all the UN initiatives.
http://www.unhchr.ch/huridocda/huridoca.nsf/%28Symbol%29/E.CN.4.Sub.2.2003.12.Rev.2.En
16 The UN Commission on Human Rights was later renamed to the UN Human Rights Council
15
33
The Norms consist of 19 operative regulations, laid out in a format normally associated with
international treaties, which are relatively specific in terms of the TNCs direct accountability for
human rights standards (Mayer, 2009:573; Seppala, 2009: 403). Each operative regulation included
a commentary,the document also contained four closing provisions, which explained the key terms
used in the document (the Norms, Karl-Heinz, 2005:2).
The Norms with the interpretative Commentary17, was the first comprehensive set of international
human rights norms aimed at TNCs and other business enterprises. The Norms was seen as an
authoritative guide, setting out the responsibilities for TNCs with regard to human rights, labor
rights, and guidelines for companies in conflict zones. (Hillemans, 2003:1065)
A section in the Norms is dedicated to the general provisions for implementation. The team behind
the Norms had an ambitious vision to enforce the Norms by implementing it through national
legislation (para. 17). Furthermore, companies were expected to adopt internal policies to
implement the Norms. Additionally, provisions for internal and external monitoring and reporting
of compliance for the Norms were required by the UN (para. 16). The companies had to incorporate
the Norms into their business contracts and provide remedies for victims of human rights abuses
(para. 15 and 18). (The Norms, Seppala, 2009:411).
According to Seppala (2009: 403), although the Norms does not have any legal grounding, it is
considered to be “soft law” similar to the UN declarations, Guidelines, standards, principles which
use existing law without imposing any obligations on companies. The intention of the Norms and
the actual perception seem to contradict. Seppala views the Norms as a process of consensus
building that eventually could result as an institutionalized treaty. The Norms was intended to put
direct responsibility on companies withincreased power privilege that gave them an international
reach, and in many cases allowing for their relative autonomy, independent of national regulation.
(The Norms, Hillemans, 2003:1067).
4.1.1
Outcome
There was large dispute over the legal character of the Norms. All the norms, which were
provisioned in the document, were meant as mandatory. Evidently from the preparatory statement
17
Sub-Commission on the Promotion and Protection of Human Rights, Fifty-fifth session, Commentary
on the Norms on the responsibilities of transnational corporations and other business enterprises with
regard to human rights, E/CN.4/Sub.2/2003/38/Rev.2 of 26 August 2003, available at:
http://www.unhchr.ch/Huridocda/Huridoca.nsf/TestFrame/293378ff2003ceb0c1256d7900310d90?Ope
ndocument.
34
in the Norms, TNCs were proclaimed to have a broad range of human rights responsibilities.
Principle 1 ambitiously and without limitation asserts that “[w]ithin their respective sphere of
activity and influence, transnational corporations and other business enterprises have the obligation
to promote, secure the fulfillment of, respect, ensure respect of and protect human rights recognized
in international as well as national law..”. The Norms implicitly declared TNCs to have expansive
human rights obligations. (the Norms, Mayer, 2009:537 ; Whelan, 2009:368).
The content of the Norms was intended to be as authoritative recommendations that had to be
incorporated in the internal rules of corporate operation, which meant that host country rules would
become irrelevant. Mayer argues that even if the host country’s legal system failed to address
human rights, TNCs would be legally bound according to the Norms.
The lack of consensus on the Norms legal character meant the Norms received immense amount of
resistance (Mayer, 2009:574), while the UN Human Rights Commission was considering it in April
2004. Certain groups of businesses such as the International Chamber of Commerce and the
International Organization of Employers in addition to certain national governments intensely
lobbied against the Norms (Voiculescu, 2009:422).
There was also little agreement amongst human right groups too, based on the fact that the Norms
selectively excluded a number of principles from the overall universe of human rights standards,
which Ruggie (2008, cited in Seppala, 2009:403) explained that “any limited list will almost
certainly miss one or more rights that may turn out to be significant in a particular instance, thereby,
providing misleading guidance”. NGOs still explicitly urged the need to reinforce ‘hard’ national
and international mechanisms to hold TNCs accountable for their transgressions (Whelan,
2009:368).
An oral statement sponsored by more than 200 NGOs, and human rights advocates, pleaded for the
Norms, at the 60th session of the Commission, to be given a chance to be reviewed by all
stakeholders before it would get prematurely discarded. Despite the request, the Commission
discarded the draft for not having any legal standing (Voiculescu, 2009:422)..
4.1.2
Criticism
The International Chamber of Commerce and the International Organization of Employers viewed
“the essential problem with the Norms is that it privatizes human rights by making private persons
(natural and legal) the duty-bearers” and added that “privatization leaves the real duty-bearer-the
State- out of the picture” (cited in Seppala, 2009:403). The Norms lacked a distinction between the
35
level of responsibility between the corporations and the state, and in some cases placed heavier duty
on corporations compared to the state. Nonetheless, a counterargument defended the Norms by
arguing that the preliminary statement proclaimed the main responsibility belong to the state.
(ibid.).
The Norms was also condemned by the US as being part of the “anti-business agenda”18 pursued by
the UN, and that theinternational human rights law is only applicable to states and not to non-state
actors. This follows the ideology of the free market espoused by the George W. Bush administration
(Mayer, 2009:574).
Professor John Ruggie (2007, cited in Mayer, 2009:574), had to investigate the legal status of the
Norms andafter reviewing relevant international human rights instruments he concluded that
although the Norms assume to “reflect and restate existing international law” and that they
“attributed the entire spectrum of State duties under the treaties – to respect, protect, promote, and
fulfill rights – to corporations within their sphere of influence” - notwithstanding, the Norms could
not impose direct legal obligations on corporations.
4.2 The Secretary-General’s Global Compact
The previous Secretary-General of the UN, Kofi Annan, launched the Global Compact in 1999. The
Compact is composed of 10 principles, with the two first regarding human rights. The principles are
derived from international treaties and declarations covering areas such as, human rights, labor
standards, the environment and anti-corruption. The Global Compact is a non-binding, voluntary
initiative, which encourages human rights via direct interactions with business leaders.
Additionally, the Compact provides a variety of tools such as web-based information sharing,
policy dialogue, and local network creation and support for the promotion of human rights
(Seppala, 2009:404).
The Global Compact is based on a liberal, free market ideology. The backgrounds of the most
prominent figures that produced the Global Compact were all in fields other than law, such as
governance, economics, and management. The Global Compact was construed in cooperation with
the world’s most influential business leaders, in an attempt to address the deficiencies of global
18
This might be due to the growing emergence of tension between developing/developed countries (eg BRIC vs
USA/EU) particularly over the disparity in influence over the UNs actions that each side has. (UN = USA rubberstamp)
36
capitalism (Mayer, 2009:565 ;Seppala, 2009:409). Unlike the Norms, the Global Compact
successfully engaged business leaders and raised awareness on the norms of the international
human rights regime from the beginning through direct contacts (Seppala, 2009: 408). Annan urged
the business leaders to cross the line and undertake what had conventionally been anticipated as
governmental responsibility. With that said, the Global Compact took a different approach to the
issue and although Annan (cited in Mayer, 2009:565) realized that it is first and foremost the
responsibility of the government to ensure the protection of human rights, he also acknowledged the
inefficiencies of the government saying: “certainly, there is much that governments can and must
do…However, more and more business leaders are realizing that they do not have to wait for
governments to do the right thing and indeed they cannot afford to. In many cases, governments
only find the courage and resources to do the right thing when business leaders take the lead”.
(Mayer, 2009:565)
The Global Compact was developed in order to create an international corporate citizenship
network with the purpose of encouraging the private sector to collaborate with social actors
(Hancock, 2006:22). The companies were asked to embrace, support and enact a set of core
principles, two of which were on human rights.
The first principle proclaims that : “Business should support and respect the protection of
internationally proclaimed human rights”and the second principle continues that businesses
should“make sure that they are not complicit in human rights abuses” (Global Compact).
Although the principles are claimed to be derived from the UDHR, the Global Compact does not
serve as a regulatory framework or Codes of Conduct for companies, “but rather a voluntary
initiative that relies on public accountability, transparency and disclosure to complement regulation
and to provide a space for innovation” (UN Global Compact ; Mayer, 2009:571).
The purpose of the instrument is not linked to the issue on the reach of international law, instead,
the aim was to establish a network that was exclusively voluntary and extra-legal (Mayer,
2009:571). Companies found it easier to engage with Global Compact as it served as a progressive
learning nest unlike the Norms, which required direct compliance with principles and failed to
involve stakeholders in its decision making process (Seppala, 2009: 408).
37
4.2.1
Outcome
According to Mayer (2009:561), the tenets of the Global Compact can be understood in a variety of
ways. Annan’s approach to the Global Compact seemed to be based on the obvious failure of the
governments to respond to the crisis of globalization, in effect having TNCs by default take up a
leading “social policy” role. Mayer (2009:571) argues that the non-law approach to the initiative
reflects different significance to the terms used than lawyers would do, which in effect results in the
blurred lines between legal and non-legal categories. Furthermore, the explicit reference to
international human rights law in principle 1 and 2 would be assumed to be endorsing the
proposition that TNCs are obliged to adhere to international human rights law. These speculations
are derived from the fact that the authors had no intentions of creating a legal framework but rather
a learning network, whilst the Global Compact website claim that its principles in the areas of
human rights “enjoy universal consensus”. This adds to the controversial question of whether TNCs
are governed by international human rights law at all, additionally, this also asserts the underlying
perceptual differences in terms of the claimed superficial consensus (ibid.).
Despite the popularity of the Compact due to the non-binding nature and flexibility of the initiative,
many corporations in North America have seen little advantage in being associated with the UN and
are cautious with any initiative that might be used as a basis for litigation.The fate of this and other
projects similar to it are directly impaired by the popular lackluster perception of the UN as a body
capable of tangible action (Seppala, 2009:404)
4.2.2
Criticism
Mayer (2009:572) argues that the principles claimed to be derived from UDHR, go well beyond
anything that is explicitly stated in the UDHR, meaning that UDHR never confirmed TNCs
responsibility in terms of human rights. It is questionable how the authors derived the principles
from UDHR, as the second principle deals with the issue of ‘complicity’ which the UDHR has
never dealt with. Principle 2 could be explained as a response to the numerous cases involving
TNCs being affiliated with governments, which have violated human rights in the course of
pursuing business projects19. (Mayer, 2009: 572-573)
Seppala (2009:404), suggests that the clarity and definite scope of the principles on labor compared
to the ones on human rights explain why companies report to have established more definite
policies and practices on labor in comparison to the selective set of human rights. Furthermore, the
19
An example is the Unocol in Burma (see section 5 ATCA).
38
lack of a time-frame for human rights compliance indicate a weakness in the Compact. (Hancock,
2006:24).
The Global Compact differed significantly in contrast to the other UN initiatives’ structure, which
were state-centric in nature embodying decisions on the international human rights regime (Seppala,
2009:409).
The absence of State involvement in the Global Compact is somehow unusual considering the
previous UN initiatives, which were developed with the State having the central role. Due to the
structure, this can be considered as an innovative solution breaking out of the conventional
agreement, while on the contrary, the Global Compact might be disregarded from the usual decision
making process as it serves no basis for actors that are used to the traditional agreement, in addition
to the suspicious support it serves to businesses (Seppala, 2009:409).
Although the approach of the Compact is considered novel in the sense that it engages a set of nonstate actors outside the traditional mechanism of the human rights regime (Seppala, 2009:404). The
Compact has received considerable criticism from NGOs in terms of it voluntary status seemingly
“lacking teeth” and furthermore perceived as a mechanism for “bluewashing” corporations that
benefitted from the association with the UN in terms of projecting a socially responsible image
(Utting et al., 2009:47 ;Seppala, 2009:408). Human rights groups realized that these benefits were
received even without the need for compliance with human rights standards, in effect questioning
the actual benefits of the Global Compact and therefore appealing to a binding regulation in order to
extend the reach of the international human rights regime to all corporations (ibid.)
Waddock (2004) suggest that companies try to demonstrate their commitment to CC by joining the
Global Compact in addition to other principles and standards. Criticism is notable on the slow
progress of the Compact. In 2003 there were only a 1,00020 members out of the 70,000 transnational
corporations (Waddock, 2004:324).
The corporate engagement with the UN known as UN-business partnerships has been a target for
considerable criticism too in terms of corporate influence in UN affairs. Substantial resistance from
leading activists, advocacy and research NGOs from around the world has resulted in the formation
of a Corporate-Free UN alliance. NGOs also joined the Global Compact in an attempt to reform the
20
According to a statement on the Global Compact, the no. of corporation participants in 2009 is more than
5,000 . The no. is still small out of 70,000 corporations.
39
Compact from within, but with no luck. This group of NGOs and high profile advocacy21 went
public with their concern in the form of a letter to the UN Deputy Secretary-General. Their concern
regarded the weakening of accountability mechanisms, limited evidence of progress and lack of
consequential specifications on TNCs that are in breach of the principles. Furthermore, the letter
emphasized the need for closer monitoring of corporations and greater participation of NGOs and
trade unions in the process of operationalizing then Compact. NGOs also denounced corporations
that use the Global Compact as a marketing tool and called for a more result-oriented approach.
(Utting, 2008:47-48).
The question remains whether these voluntary initiatives in addition to continued activism and
public pressure would create more accountable corporations that meet basic standards of practice.
(Waddock, 2004: 325)
4.2.3
Empirical Analysis on the Global Compact
An empirical analysis was conducted by Hamann et al. (2009) based on the increase prominence of
human right as a business issue. Hamann et al. (2009) analyzed the content of the public reports of
the top 100 companies listed on the Johannesburg Stock Exchange (JSE) in relation to hypothesis of
companies’ demonstration of human rights due diligence based on assumptions and findings of the
SRGR. Hamann’s et al. (2009) choice of South Africa is due to the historical 22 and institutional
context in addition to the international leadership role of South African companies in terms of social
responsibility reporting. The hypotheses stipulated in the analysis attempt to investigate, inter alia,
whether the role of sector, company size, government regulation, leadership commitment, and what
is most relevant to our discussion, whether the membership in the Global Compactand JSE Socially
Responsible Investemnt (SRI) Index play a role in the demonstration of human rights due diligence.
The results showed that the first hypothesis on whether certain sectors that were more exposed to
human rights challenges would devote greater efforts to corporate responsibility was not supported.
The second hypothesis suggested that the size of the corporation played a role in terms of showing
greater human rights due diligence. Their results showed that company size played no significant
role in matters related to human rights. The third hypothesis23 postulated that companies would
21
Human Rights Watch, Amnesty International, Oxfam International and Lawyers Committee for Human Rights.
The apartheid legacy which is still relevant in current corporate social responsibility practices in addition to the
current government’s policies in South Africa. (see Hamann et al., 2009:456)
23
This hypothesis is based on specific labor rights and human rights in the Black Economic Empowerment (BEE)
policies in South Africa (Hamann et al., 2009:457)
22
40
show more due diligence on human rights that are represented in government regulations. The
findings indicated that companies did show high due diligence on human rights that were present in
the governments regulations. This supports the prominent argument that states do play a crucial role
in creating institutional pressure for increased corporate responsibility.
The fourth hypothesis stipulated that corporations with explicit leadership commitment on human
rights would be related to the corporation’s positive performance on human rights issues. The result
showed that leadership commitment was a good indicator of performance. In effect, the result
contradicted the criticism that corporations received, stating that corporate policy statements did not
mean actual performance24.
The fifth hypothesis suggested that companies that are members of the JSE SRI Index would show
greater due diligence on human rights than others. The result contradicted the underlying
assumption that such members would have more rigorous management systems and therefore
perform better on social and environmental issues.
This leads us to the sixth and most relevant hypothesis that members of the Global Compact
showed greater due diligence on human rights. The result completely contradicted the underlying
assumption in the hypothesis and in addition to that showed that Global Compact members
performed worse on average25. The results also support critics of Global Compact and related
initiatives, who criticize the voluntary nature of the Compact and the “blue-washing” effect on
corporate image due to their association with the UN. Hamann et al. (2009) suggest that there is a
noteworthy difference between companies with explicit human rights support expressed by their
corporate leaders and the participation in external initiatives, which according to their results show
no significant relation to actual performance.
4.3 Ruggie Report 2008
Professor John Ruggie, who is an international political theorist, was appointed in 2005 by the UN
as a Special Representative on the issue of TNCs and human rights (Nolan, 2009: 434).
The Special Representative of the Secretary-General (SRSG) of the United Nations (UN) on the
Issue of Human Rights and Transnational Corporations and Other Business Enterprises(the Ruggie
Report 2008). The Report is a tripartite framework called ‘Protect, Respect, and Remedy’ which
24
25
See section 2.4.1
Members performed worse on average on specific human rights issues.
41
deals with the state’s duty to protect against human rights violations, the corporations responsibility
to respect human rights, and the need for more effective access to remedies.The framework is of
importance to both governments and corporations. (McCorquodale, 2009:385).
Ruggie justifies the framework stating that
Each principle is an essential component of the framework: the State duty to protect because
it lies at the very core of international human rights regime; thecorporate responsibility to
respect because it is the basic expectation society has of business; and access to remedy,
because even the most concerted efforts cannot prevent all abuses, while access to judicial
redress is often problematic, and non-judicial means are limited in number, scope and
effectiveness. The three principles form a complementary whole in that each supports the
others in achieving sustainable progress. (Ruggie, 2008, para. 9)
The mandate for the Report came as a response to the disagreement on the Norms that prevented the
adoption of the draft (Voiculescu, 2009:420).
The Commission requested Ruggie to examine and clarify the issue by identifying the standards of
corporate responsibility and accountability regarding human rights; elaborate on the states role
regulating and adjudicating corporate activities; to clarify and elaborate concepts such as
“complicity” and “sphere of influence”; to develop material and methodologies for undertaking
human rights impact assessments and consider state and corporate best practices (Ruggie, 2009,
Intro by SP ; McCorquodale, 2009:386).
As described by Ruggie, the purpose of the framework was initiated as “a conceptual and policy
framework to anchor the business and human rights debate, and to help guide all relevant actors”
(Ruggie, 2008).
Unlike the approach in the Norms and the Global Compact, which basically sets out a list of
principles or standards, the Ruggie Report reviews existing policies and practices with respect to
business and human rights and identifies the deficiencies in the current system. The deficiencies,
according to Ruggie, came as a result of ‘governance gap’, which has increased the flexibility of
companies to operate globally without authority to regulate their behavior (Seppala, 2009:404).
Although the scope of the SRSG’s mandate is considered ambitious, the narrowness of the report
which focuses on mapping the corporate responsibility with respect to human rights deemed it to be
less controversial than if it had sought to develop a new set of legal norms addressing the complex
issue of expanding the human rights responsibilities onto TNCs. Another aspect, which has
42
supported the Report was that the approach was based on a legal grounding in terms of TNCs’
responsibility towards human rights, rather than mere ethics. But instead of addressing the obvious
issue of the legal standpoint of the corporate responsibility in terms of human rights violations, the
report proposes a CSR framework which appears to dilute the legal aspect of corporate
responsibility (Voiculescu, 2009:420).
4.3.1
‘State’s duty to protect human rights’
The first part in the Ruggie’s framework involves the ‘state’s duty to protect human rights’. Under
international law, every state has a legal obligation to protect against human rights abuses as every
state in the world has ratified at least one of the human rights declarations. In effect the first part
recognizes the central role of the state in maintaining the international regime of human rights. The
level of human rights protection vary amongst states depending on which treaty they have signed,
but nevertheless, international human rights law binds all states. The obligation includes the
protection of human rights against actions by non-state actors such as corporations that are within
their territory. States have been found to be in breach of their obligations to protect human rights in
terms of corporate activities such as the dismissal of employees in corporations for joining a trade
union, or where the activities of a corporation have polluted the environment, etc. The state is held
liable for the corporation’s actions based on the lack of positive action in responding to or
preventing the human right violation by the corporation. Even in cases where the corporation is
economically more powerful than the government of the state, such as the example of BHP26, the
established obligations of a state extend beyond economic inequalities (McCorquodale,2009:387).
Since a state’s obligations in general are not limited to territory but rather extend to cover all those
within its jurisdiction. The Inter-American Commission on Human Rights clarified the difference
between ‘jurisdiction’ and ‘territory’ stating that:
[The Commission] does not believe…that the term “jurisdiction”…is limited to or merely
coextensive with national territory. Rather, the Commission is of the view that a state …
may be responsible under certain circumstances for the acts and omissions of its agents,
which produce effect or are undertaken outside that state’s territory.
26
BHP is an Australian-based corporation with strong influence over the government of Papua New Guinea and its
foreign currency income. The government passed laws to protect BHP from legal prosecutions on its activities despite
the severe effects it had on the locals.
43
In effect, corporations are considered ‘within the jurisdiction’ of a state even when operating
extraterritorially, therefore a state can be found to be in violation of its human rights obligations if
the corporation abuses human rights outside the state’s territory (McCorquodale, 2009:387-388).
The issue of states’ extraterritorial control on corporations is complex, as corporations are usually
not attributed to a state. The International Law Commission (ILC) has identified four key situations
in which corporations (and other non-state actors) can be attributed to the state.
First, the state holds responsibility if the corporation violating human rights was empowered by law
in order to pursue governmental activities. Second, the state is also responsible for acts by
corporations that are under the instruction or control of the state. Third, a state can be held
responsible if the act by a corporation is either adopted or acknowledged by the state as its own.
Lastly, a state may incur responsibility for either being complicit or failing to exercise due diligence
in order to prevent the consequences of corporate activities (ibid.).
The main reason behind the state’s international responsibility comes as result of the active support
that the governments provide for their corporations, through financing, in terms of the provision of
export credits and political risk insurance, in addition to entering into bilateral investment treaties 27
that assist them, etc (ibid.).
Therefore in relation to the first principle, there is a growing consensus on the responsibility of the
state for the activities of its corporate nationals and therefore it is the states duty to regulate and
prevent human rights violation by their corporate nationals. This responsibility cannot be limited to
territory without extraterritorial regulations, as corporations will easily bypass national laws by
relocating (McCorquodale, 2009:389).
4.3.2
‘Corporate responsibility to respect human rights’
The second part of the framework, is regarding corporate responsibility to respect human rights.
The difference in the terms used to describe the duties of the state and the corporation is due to the
different roles played by these actors (Seppala,2009:405).
Although the following statement on corporate responsibility is supported by key business
organizations and is defined as:
[The corporate] responsibility to respect is defined by social expectations – as part of what is
sometimes called a company’s social license to operate … [and] “doing no harm” is not
merely a passive responsibility for firms but may entail positive steps. To discharge the
27
See McCorqudale’s (2009) criticism on BIT p. 15
44
responsibility to respect requires due diligence. This concept describes the steps a company
must take to become aware of, prevent and address adverse human rights impacts. (Ruggie,
2008, paras. 54-61)
Ruggie argues that corporations should carry due diligence to implement their human rights
responsibilities. Human right groups have raised their concern towards the voluntary nature and the
weak ‘black sheep’ consequence of the framework, but seem to be waiting with the corporations on
the second part of the report to see which direction it take (Seppala,2009:405).
The above statement is supported by corporations which is based on the view that the legal
obligations of corporations differ compared to the states’ in terms of international law, and that
most corporations operating outside their national borders have some sort CSR policy that deals
with social, environmental, and ethical issues. Although CSR policies are obviously not equivalent
to the protection of human rights, many corporations view them as being compliant with human
rights norms (McCorquodale, 2009:391).
4.3.3
‘Access to remedy’
The third principle in the framework pertains the access to remedy for those whose human rights
have been violated. Ruggie recognizes the limited relief measures in the system and necessitates the
need for new measures. NGOs have asked Ruggie to consider how human rights abuses can be
investigated and sanctioned, especially in situations when remedies for victims are inaccessible.
(Seppala,2009:405).
This last element of access to remedy in the framework proves to have errors due to the serious
flaws in the terminology used for the second element. As the access to remedy from a corporation
requires the corporation to have a legal obligation and since corporations only have ‘responsibility
to respect’, which proclaims no legal obligations.(McCorquodale,2009:395). Due to that, the debate
on redress has been taken further, with corporations calling for national legislation, while human
rights groups push for supranational mechanisms (Seppala,2009:405).
4.3.4
Criticism
In the statement ‘[The corporate] responsibility to respect is defined by social expectations …’
(Ruggie, 2008, paras. 54-61) (see full statement above) Ruggie defines corporate ‘responsibility’ by
‘social expectation’, which is difficult to determine, and even if that was possible to discern through
45
empirical evidence, what sets the standards for which ideal society is relevant to determine the
expectations and which sets of human rights are to be included. Therefore the definition and
standard of ‘social expectations’ can be manipulated to serve the corporation and with the lack of
corporate transparency on these matters, it would be difficult to measure the corporation’s
compliance with human rights. (McCorquodale,2009:391).
Therefore, the part of the report dedicated to the responsibility of corporations to respect human
rights is derived from insufficiently specified legal or ethical content (Voiculescu, 2009:422).
The notion of ‘due diligence’ appears to be entwined with human rights obligations in relation to
actions of corporations. The type of obligation is also not clarified as the obligation of ‘due
diligence’ under international law is on the state as it is responsible for the actions of its corporate
nationals, which demands considerable resources in terms of investigations and to provide redress.
In contrast, corporations also undertake ‘due diligence’ in the form of auditing, which has a large
impact on the business if neglected, therefore Ruggie’s choice of including ‘due diligence’ in the
framework as a legal obligation is puzzling. This can be explained as a requirement of the corporate
responsibility to enable positive actions and not merely a requirement not to do harm
(McCorquodale, 2009:392)
What is worrisome in this relation is that although Ruggie attempts to distinguish between legal and
social expectations on corporations in terms of human rights, this distinction is based on the lack of
direct legal obligations on corporations under international human rights law, which might prove to
be a tedious and severe problem when it is operationalized. This is based on the confusing ‘duty’
and ‘responsibility’ terminology used in the framework, which muddles the corporations’ use of
‘due diligence’ and the diluted notion of ‘social expectations’. This is compounded with the blurred
concept of CSR and human rights when each of them serves a distinct purpose. McCorquodale
(2009:393), urges for a clear distinction and clarification of these terms and concepts before moving
on to the operationalization step.
The highly controversial question of whether the state’s obligations to protect human rights extend
to the extra-territorial activities of corporations is not considered sufficiently in the Report. (ibid.)
The operational link between business and human rights is yet to be established in the subsequent
report promised by Ruggie. The big challenge that the promised report faces is to maintain the
46
consensus it has built while at the same time answer to social expectations (Voiculescu, 2009:421422).
Despite the criticism it has received, the framework was adopted by the UN Human Rights Council
Resolution 8/7 (2008) as a way forward (McCorquodale, 2009:386).
4.4 Findings
It is evident that support for the different initiatives has varied. The Norms enjoyed great support by
NGOs, and was seen to provide the necessary standards and practices for corporate behavior, while
the business community opposed to it, as the Norms asserted that companies could be held directly
responsible in the international arena for human rights violations. These responsibilities that
previously were assumed by states were now the corporations’ liability. Although, international law
has progressively recognized the responsibility of corporations in the human rights regime, which
means direct responsibility is possible, but the issues of politics and pragmatics reach far beyond
(Nolan et al., 2009:445).
The Global Compact was set to clarify and promote the standards for corporate behavior in terms of
human rights. The Compact attracted many corporations, and relied on the exposure of public
pressure as a compliance mechanism. The Global Compact lacked a systematic compliance
monitoring mechanism and it mostly attracted corporations, which had already decided to adhere to
human rights standard. The Global Compact also received substantial criticism by human rights
groups at the Human Rights Council due to its voluntary nature (Seppala, 2009:412).
The Ruggie Report clarified many aspects of human rights and the responsibilities in relation to
international law with the state in central. The Report still lacked clear specifications due to the
terminology used. A subsequent report is anticipated, which should take the debate to the next level
in terms of operationalization of human rights in TNCs. The surviving UN initiatives, namely the
Global Compact and the Ruggie Report, still have not resolved the issue of human rights and
businesses but are seen as a step forward. At the moment, governments have not yet set up binding
responsibilities on companies. Countries such as the UK and the US have resisted binding
approaches, while developing countries have shown their concerns in terms of the cost of such
measures (Seppala, 2009:413-414).
The approach, which Ruggie pursued, was to minimize the distinction between law and ethics. In
the absence of ‘hard law’ regulating corporations, the notion of ‘soft law hybrids’ has emerged in
47
the form of Codes of Conduct, guidelines, ethical principles etc. (Nolan et al., 2009:437). Ruggie
(2007, cited in Mayer, 2009:575) admits that even after seven years after the Global Compact, he
still doesn’t have the answer, stating that:
“disputes between Governments and businesses over just where the boundaries of their respective
responsibilities lie are ending up in courts. The soft law hybrids have made a singular contribution
by acknowledging that for some purposes the most sensible solution is to base initiatives on the
notion of “shared responsibility”. This is a conclusion some moral philosophers have also reached
with regard to global structural inequities that cannot be solved by individual liability regimes
alone. This critical nexus requires greater clarification”
The blurred lines between the moral and legal responsibilities are vexed and as Ruggie noted, there
is a need for clarifications on the “critical nexus”. He also acknowledges that the lines separating
the human rights responsibilities of states and corporations are blurred and therefore encourages the
notion of “shared responsibility” (Mayer, 2009:575).
A part of this issue is what Ruggie has strived to clarify, which is the controversial concept of
“sphere of influence” in relation to when the governmental responsibilities end and when those of
corporations begin. This concept refers to the corporations impact and was mentioned in the Global
Compact asking businesses to ‘support and respect the protection of internationally proclaimed
human rights within their sphere of influence’ and in the Norms positing that although states have
the responsibility to protect rights, the corporations also have an obligation to protect ‘within their
sphere of activity and influence’. Both instruments lacked an elaborate definition of the concept,
which is why Ruggie was specifically asked in his mandate to clarify the concept. Ruggie, being
dissatisfied with the terminology explained the concept as a ‘useful metaphor for companies in
thinking about their human rights impacts beyond the workplace and in identifying opportunities to
support human rights’ but preferred the concept of ‘due diligence’ in his framework which instead
defines the parameters of a corporation’s responsibility to respect (Ruggie, 2008, para. 67). (Nolan
et al., 2009:437).
Predominantly, a majority of NGOs agree with Ruggie that there is a need for guidance, constraint,
encouragement, and pressure on TNCs to ensure that they do not undermine human rights. But
concerns arise from Ruggie’s suggestion that states have duty to respect while corporations
voluntarily (as apposed to mandatorily) have the responsibility to respect. The concern is related to
the ‘soft law hybrids’ which ultimately questions the actual outcome of these initiatives in relation
48
to the ungovernable extraterritorial activities of TNCs (Whelan et al.,2009:376). Literature clearly
suggests the need for some sort of legally binding international convention in order to overcome the
human rights violations, but in order to do that, scholars call for a foundational theory or normative
framework to be able to clarify the blurred lines between moral and legal obligations (Whelan et al.,
2009:376 ; Mayer, 2009:576)
4.4.1
Theory of Justice and Natural Law
Crane and Matten (2007:107) use the ‘theory of justice’ by John Rawls (1971) to justify the TNCs’
exploitation of low wages and poor conditions in less developed countries under certain conditions.
The CDPs which TNCs are involved in provide leverage for them to take advantage of lower wages
while at the same time, according to Crane and Matten, they provide a “system of basic liberties
compatible with similar system of liberty for all” and thus creating “conditions of fair equality of
opportunity” in effect the resulting inequalities are still “to the greatest benefit to the least
advantaged”. Justifying that local people would be worse of without the manufacturing plant, facing
greater poverty and less opportunity for development.
Although Crane and Matten (2007:299) agree that human rights violations are ethically
unacceptable, they argue that ethical considerations beyond that in terms of treatment of employees
on a global level are not “necessarily ethically wrong per se but depend on the relative economic
development of the country in which the practice is taking place”.
Human rights have become a social expectation based on the notion of ‘natural rights’ or moral
claims. Understood that all humans are entitled to these rights and are expected to be respected and
protected (which is the states function). In terms of ethical theory this means that these rights
typically result in the duty of others actors to respect them. The concept of CC in this respect claims
that corporations facilitate social rights. (Crane and Matten, 2007:100)
But as Friedman contested, “only people can have responsibilities” and with executives having
contractual obligations to shareholders to maximize profit. The issues of justice become therefore
prominent when in the hands of self-interested and supposedly ‘socially responsible’ corporations.
Therefore in light of Rawls theory of justice and CC, corporations cannot take up a state-like role in
terms of facilitating social rights specifically human rights while on the other hand, deprive others
from their natural rights in the pursue of profit. (Ludescher, 2009)
49
4.5 Interview
The question on why CC is silent on the issue of human rights based on precedent arguments was
sent to Andrew Crane, Dirk Matten, Anne Elizabeth Mayer, Marc T. Jones.
The arguments were based on Hamann et al. (2009:454) statement that the voluntary nature of CC
does not contribute to the international human rights regime, which originates in a strong tradition
of international and national law. Furthermore, the argument made by T. Jones and Haigh on CC
that if it were to be operationalized it would then “exacerbate the negative implications of
globalization” and therefore suggest that a well functioning CC would require a strong state to
design and administer necessary sanctions.
The debate on whether TNCs should be regulated or not is evidently very controversial. It is clear
from the literature that the opinion varies extremely and there are many problems identified in both
cases (see Korbin, 2009). Marc T. Jones reflected on the issue of CC and explained that the old
adage that ‘self regulation is no regulation’ has been confirmed during the current economic and
financial crisis28. This in his opinion could be applied to the idea of having TNCs voluntarily
define, measure and report on their impact on human rights in countries where they employ people
and do business explaining that “having all three of these processes left entirely to TNCs would be
the most extreme form of self-regulation”. Furthermore, Andrew Crane and Dirk Matten explain
that their CC theory does not ‘support’ voluntary regulation but rather describes what is currently
happening by identifying the shift in some of the responsibilities for protecting the rights of citizens
from government to business. Jones points out that “it is dangerous for host governments and other
key societal stakeholders to have TNCs engage with human rights in a voluntary manner as some
corporate citizenship scholars would have them do” explaining that “the manner of their
engagement would be more erratic than steady over time, as it would depend on the 'business case'
impact of a particular engagement strategy (which may fluctuate) along with the internal support for
the strategy - which may depend on a very small number of executives/managers, all of whom will
be rotated to other positions in other countries within a few years” this means that “the ability of a
TNC to maintain a consistent voluntary engagement with human rights in a given operating
environment depends on the maintenance of a delicate 'balance of forces' with the subsidiary
28
see also McCorquodale 2009
50
organization, as well as with respect to its relationship to its parent (regional or global headquarters)
organization”.
This can be reflected on the epistemology of CC in which Jones argumentatively proves that
initiatives such as the Global Compact, which is supported by CC, ultimately give corporations
leverage to avoid external regulation. Although Matten explain “that descriptively corporations are
players in the arena of liberal citizenship , for better or for worse and as such, they become involved
in administering citizenship rights, which include a lot of human rights”. It is the rationalization of
CC that is worrisome because it can turn out to have tremendous effects on the international human
rights regime.
Jones also argues that “even the proposition of government regulation of human rights without TNC
influence is a dangerous delusion in weak, corrupt or failed states where 'strong' TNCs are present
(typically, but not only, for resource extraction purposes). This has been true for western TNCs for
many years; it will also be the case, although perhaps in different ways, as Chinese TNCs make
their presence felt in Africa and elsewhere”
Despite these strong arguments against CC it is unfair to disregard it as the concept has contributed
via the Global Compact and other voluntary initiatives (Waddock, 2004), and through leadership
commitment (Hamann et al. (2009), in addition to the public and corporate pressure (Mayer, 2009)
which CC exerts. Waddock (2004: 325) suggest that although there are no voluntary nor mandated
assurances in today’s world, the fact that corporations are active in implementing core principles
indicates that CC is being realized rather than just being mere rhetoric and should therefore be
honed further.
The findings from Hamann et al. (2009) and from Ruggie’sframwork (2008) and Seppala (2009)
confirm that the state is and ought to be the central decision making authority in the human rights
regime, Crane who also agrees that strong states are important, explaining that that unfortunately is
not the case in the real worldespecially in developing countries or in the context of transnational
problems. Crane argues that, “states now often opt for "softer" more participative forms of
regulation than "harder" forms”. Either way he agrees with Jones and Haigh that, sanctions (as well
as incentives) are crucial – but adds that “getting the right mix of carrots and sticks is a key problem
in the design of any decent governance system”.
51
Mayer echoes the assessment in Larry Cata Backer (2006)29 article, which points out the important
points in the Norms. Mayer believes that the Norms is a good step30 in which it alters the debate on
CSR. The Norms assume that corporations should serve not merely traditional stakeholders, but the
state and the international community, as well. Mayer cites Backers argument that “The Norms
reduce the ability of states to resist emerging international law norms. Because the Norms are based
on a number of international instruments that have not been ratified by all states, they use
transnational corporations as a means of end-running states, and in the process create the basis for
the articulation of customary international law principles that will apply to states. Most importantly
for the future, the Norms suggest the ways that the governance norms for states and non-state
entities are converging in theory and in fact”.
It can be argued that Mayer accepts the ideology behind CC to a certain extent but nonetheless
insist on a more legally based regulation. Matten shares the same argument as Mayers (2009) that
although it is evident and logical to shift duties on to corporations there is still a need for a powerful
normative starting point to delineate rights and duties of corporations.
5
Discussion
The findings from Hamann’s et al. (2009:469) analysis 31 provide us with an insight on the actual
benefits of the Global Compact in relation to CC. They argue that the debates on the issue of human
rights in relation to corporations play a crucial role in advancing and focusing on the role of
corporations in today’s society. Their results contradicted numerous assumptions prevalent in the
academic literature and in the public and private sector. Their most relevant findings were that the
participation in the Global Compact and other initiatives had no significant impact on the
performance of the companies or in relation to their due diligence on human rights. This contradicts
the arguments by Kofi Annan that the participation in the Global Compact would serve as a
learning nest and lead to peer pressure. The results support the argument that the participation in the
Global Compact benefits the corporations in terms of the association with the UN known as “bluewashing” without actual proactive impact on human rights. Hamann et al. (2009), also suggest that
Larry Cata Backer, Multinational Corporations, Transnational Law: The United Nations’ Norms on the
Responsibilities of Transnational corporations as a Harbinger of Corporate Social Responsibility in International Law,
37 Colum. Human Rights L. Rev. 287 (2006)
30
This opinion is doubted by many scholar see Seppala (2009)
31
see section 4.2.3
29
52
due diligence was only apparent on human rights that were embedded in government policies in
effect attracting most attention.
This finding shows that institutional pressure is crucial for
companies to proactively consider human rights. Furthermore, the findings confirm that company
policy and corporate commitment play a crucial role and therefore deserve greater attention from
researchers and policy makers.
Hamann et al., therefore conclude that due to the lack of impact by the Global Compact and such
voluntary initiatives in addition to the evident important role played by external regulatory
institutions, special attention should be given to the divers role of the state to mandate or encourage
human rights due diligence.
6
Policy recommendationsand conclusion
There has been a proliferation of lawsuits in US courts alleging human rights abuses against TNC32.
This can create tremendous threat for corporations that would be faced with indirect costs such as
substantial potential liability and mammoth legal expenses in addition to the negative publicity,
disrupt operations, and the harmful effects left on future businesses. (Drimmer and Dyck, 2009:26)
A predominant number of cases are based on the Alien Tort Claims Act (ATCA) of 1789, which is
a US statute that provides jurisdiction to US Federal Courts for aliens to file a tort claim, if it
‘violates the law of nations or a treaty of the United States’. The Supreme Court has confirmed the
ability to apply ATCA on court cases where there is an infringement of a ‘narrow set’ of human
rights based on violations of customary international law. (Nolan and Taylor, 2009:439,440).
There have been attempts to file suits against corporations outside the US using ATCA. An
example of a case was Exxon Mobil’s activities in Indonesia alleging human rights violations by
security forces employed by Exxon. Another case was in Colombia, where paramilitary death
squads were targeting trade union leaders at Coca-Cola’s plant. Numerous other cases were alleging
human rights violations by corporations such as Shell, Chevron, Dyncorp and Rio Tinto. The only
case, which has prompted both antagonism by the business community and enthusiasm by the
human rights community, has been the case of Unocol in Burma. The case was about the US
companyUnocol being complicit with the Burmese government in the ruthless execution of a
pipeline project, leading to egregious violations of international human rights. In 2005 Unocol
32
The extraction industry has been a primary target for litigations.
53
agreed to compensate Burmese villagers for the cases brought on behalf of the villagers. (Betton,
2008, p. 21; Mayer, 2009, p.573)
Most federal districts now allow suits against TNCs for similar types of human rights violations as
those brought against individuals. (Koppel, 2009)
Given the potential hazardous effects of these litigation and the growing number of lawsuits in UN
courts, corporations are increasingly realizing the paramount need for proactive steps to protect
against potential human rights issues. (Drimmer and Dyck, 2009:26)
In response to that, policy recommendations have been constructed. The recommendations are
inexpensive, easy-to-implement steps designed for TNCs to integrate sustainable, legal, and
communication resources to address the issue of human rights directly and to avoid being litigated.
These suggestions do not solve the issue on human rights but can serve as a significant part in the
operationalization of the international human rights regime. The diversity in public debate on the
governance of human rights is obviously more nuanced than simple dichotomy between ‘legal’
versus ‘voluntary’ regulation.
Evidently from the literature review and from the analysis of the UN initiatives, the issue of
consensus is largely due to the confusing terminology used especially in relation to ‘respect’,
‘protect’ and ‘responsibility’ etc. (Mayer, 2009) and McCorquodale (2009) highly criticized the
terminology used to describe obligations and responsibilities of TNCs which in effect interfere in
the progress of the debate on TNCs’ human rights due diligence. This issue was also addressed by
business leaders who participated in the Human Rights Impact Assessment (HRIA) 2009 online
discussion33 lead by Christine Bader, advisor to Professor Ruggie.
This issue can be reflected on, by having TNCs communicate with stakeholders in order to set as
clear boundaries as possible (Koster, 2010) and create a separate code of conduct that cover human
rights (Drimmer and Dyck, 2009:27).
Evidently from Hamann et al.’s (2009) analysis, the commitment by CEOs and other board
members to the issue of human rights provided best results. It is therefore, recommended to have a
clear and strong commitment by members of the executive board to actively monitor and challenge
33
Participant in the sessions were 40 company representatives in addition to 30 other stakeholders. The participants
were given anonymous identities in order to foster an open and honest discussion. The discussion provided the
challenges in assessing human rights in terms of the human rights language and provisions that needed to be made more
accessible and comprehensible for companies
54
the company in relation to human rights. This can be accomplished through strategic engagement
with key international stakeholders (Koster, 2010).
Its is very clear from the literature that the notion of CSR and human rights is constantly being
mixed up and there should therefore be a clear distinction between what a violation of human rights
is and what philanthropic contribution to human rights is.
Although Matten et al. (2003) discuss the three views on CC and emphasize on the extended view,
moving away from the notion of equating CSR with CC, Waddock (2008) argue that many
companies still simply practice CSR.
CSR can therefore be useful in the sense that there should be a "floor" of human rights (Waddock,
2004) or as Donaldson and Dunfee (1994) call it 'hypernorms', which have a clear legal grounding.
These hypernorms can be worked into Carrolls CSR model in the legal dimension, and what ever
additional voluntary work (such as CDP) which corporations engage in, whether out of self-interest
or actual philanthropic intentions, then that could obviously be placed in the fourth dimensionphilanthropy (see figure 4).
Philanthropic
responsibility
CDP and
donations etc.
Ethical
responsibility
Legal responsibility
hypernorms
Economic responsibility
Figure # 4 Modified Carroll’s Pyramid with suggestions
From a corporations perspective, this can be seen as to have minimum requirements which should
be adhered to across all operations (Koster, 2010).
55
Waddock (2004:324) suggest for corporations with long supply chains to employ minimum
requirements on all of their suppliers. This in effect would create a chain reaction.
Crane and Matten (2007:298) justify that wages and labor condition are related to the economic
development of the country in question. This as previously noted have led to human rights abuses.
It is therefore crucial for the minimum requirements to be sufficiently differentiated on a local level.
This can be reached by having open dialogues with internal and external stakeholders. In addition to
a provision of practical and detailed guidelines for subsidiaries, which should be implemented and
internalized at the discretion of the subsidiary through communication and training. Tools for
implementation should be provided for subsidiaries to pick from and adapt locally. (Koster, 2010)
Human rights should be put on the agenda, by having an open dialogue and a follow up with
managers of the subsidiaries. This will bring up the question of human right assessment in relation
to international stakeholders and their expectations. Furthermore, stakeholder perspectives should
be exposed to as many line managers as possible. The adherence to human rights principles can be
promoted via reward systems.It is crucial that employees are also made aware of their human rights
and how it is linked to their daily work. (Koster, 2010)
It is clear from HRIA’s online discussion that an issue in human rights violations can be caused
from the difference in local legislation and international human rights treaties.
Potential risk of human rights violation can be assessed by building a legal capacity internally or by
working with human rights expert institutions and thereby assess the anticipated risks. (Koster,
2010)
TNCs are recommended to be involved in multi-stakeholder initiatives, where corporations,
governments and NGOs address human rights concerns. Dilemmas and issues can be discussed
from different perspectives and corporations can work together with peers in the same industry to
level out the playing field by sharing experiences. (Koster, 2010)
The issue of government agents being the actual violators of human rights was brought up by
Theobald and Arkani (2007). Meaning that for corporations that have no choice but to rely on
foreign governments to provide various services that can create human right concerns, corporations
should strive to enter in contractual agreements that include human right principles. The contracts
should also be clear on the respective roles and responsibilities especially in areas where the
corporation lacks direct control, should be made explicit. (Drimmer and Dyck, 2009)
56
This recommendation would clarify the corporation’s role and partially resolve the issue of
‘complicity’ mentioned by McCorquodale (2009) on corporations’ knowing compliance with
government violations such as the case with Unocol in Burma.
Drimmer and Dyck (2009) suggest for corporations to be prepared for immediate response when an
issue is discovered in an early stage in order to minimize potential exposure.
A key problem with the above recommendations is that they all are voluntary. They lack
compliance mechanisms and are driven by self-interest.
It is therefore crucial to ensure compliance, illustrated by the watchdog model, whereby the
government polices private enterprise, is obsolete in the globalised context, and the only way is to
link the degree of complicity with human rights guidelines to the company's revenue by informing
consumers directly and transparently on how well companies are implementing measures.
Keith Slack (2006) identifies two areas, which are crucial for corporate profitability. The link
identified between corporate performance and CSR issues is the access to capital and markets.
The focus could be on the private banks that finance TNCs. Banks can incorporate the hypernorms
for human rights in contracts with TNCs, which in effect become legally binding. The capital can
be cut off as a consequence for serious human right violations. The World Bank previously used
this approach but was later discarded. But increased financial risk involved in human right
violations by TNCs can be an incentive for banks to start reusing the disinvestment approach.
Another area, which can be used to pressure TNCs that violate human right, is by denying markets
for them. This can be achieved through pressure that can be exerted by large institutions such as
public utilities, pension funds, universities and corporations that consume significant volumes.
These institutions can adopt legally binding contracts that consequently due to human rights
violations can discontinue stock purchases from such corporations. Similar to product quality, this
approach can force corporations to pay more attentions to human right aspects.
This would help utilize market forces as companies would compete to gain better ratings, which
could also lead them getting more preferential treatment from national authorities (in terms of
licensing, tax etc..)
57
7
Conclusion
One might say that the mindset of deregulation based on neoclassical approach was exacerbated by
globalization. As a result according to Whelan et al. (2009:374) TNCs’ rights and capacities “have
far outpaced the construction of regulative frameworks that might control them”. The lack of
regulation has led to various egregious activities by TNCs in developing countries, which are
ethically unacceptable. There has therefore been a shift in the mindset towards more legally
oriented approaches to hold TNCs accountable. There seems to be no doubt that the descriptive
concept of CC is occurring in today’s world. The justifications in CC to take over government
functions have caused controversy amongst academics in relation to the prominent profitmaximizing purpose of businesses in contrast to the government’s purpose to promote and protect
social welfare. Evidently the findings witnessed in the thesis support CC critics’ demand for the
human rights regime to be settled on the state as the main institution to implement the regime
through relevant regulation.
The analysis also illustrated that the notion of human rights is more nuanced that simple dichotomy
between ‘voluntary’ and ‘legal’ regulation.
Ruggie also confirmed in his report that the human rights regime is not only settled on the state to
institutionalize human rights but that there is also a need for TNCs’ collaboration and involvement
in the regime. Ruggie supported his argument by his many years of work on distinguishing
government and TNCs responsibilities, which he admits constantly seem to overlap. So the question
remains: How can the human rights be operationalized in TNCs extraterritorially?
There is still a lack of consensus on how this problem might be approached. Literature identified
several issues that might be the core problems in the debate in terms of unclear terminology, lack of
theoretical foundation and so on.
This has caused a proliferation of initiatives, guidelines, approaches etc. based on different
ideologies on how to deal with the issue of human rights and TNCs.
This as Waddock (2004) argued has created a gap between the increasing social expectations and
the actual performance by corporations.
Seeing that there are many useful grounded propositions to the problem -whether being the concept
of CC, the Norms, Global Compact, Ruggie report etc.-, it is suggested that policy makers and
58
academics from various disciplines come together to clarify the blurred lines between legal and
non-legal categories.
With that said, it is suggested that academics and policy makers stop adding more water to a filled
cup by creating more initiatives and as a result spilling over and gaining nothing. Instead it seems
wise to use the already existing knowledge and propositions to hone and refine a powerful initiative
with an agreed foundation for the operationalization of the human rights regime in TNCs.
59
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