Corporate responsibility versus human rights
Debate around the twin issues of human rights and corporate social responsibility is widening by the day and will continue to evoke controversy in corporate boardrooms, civil society platforms and in academia.
Perhaps, in a globalized world, where some of the world’s biggest companies are those that come into contact with some of poorest people of the world, human rights issues cannot be left to boardroom decisions.
Sadly, in their search for raw materials and cheap labour to increase profits for their shareholders, most, if not all multinational companies are in breach of several human rights across the world. In this context, this essay attempts to evaluate why it has been difficult to hold companies accountable for human rights abuses and environmental degradation, despite several international protocols agreed to promote corporate accountability and responsibility.
What is a corporation?
To begin with, it is important to highlight what a company is and why this form of business has become so dominant globally. A company is a legal entity which is distinct from its shareholders and directors. In most jurisdictions, companies are recognized as legal entities, which can accrue rights and liabilities, as well as, some legal consequences. An incorporated company can enter a contract (trade and be traded with, borrow and lend money and employ workers. It can also accrue legal and human rights by virtue of its artificial personality. Similarly, companies are under obligation to abide by a set of tortious standards of behaviour on individuals or society. For example a business has a duty to undertake reasonable care of its employees, customers, and also to members of the public who are likely to be affected by its operations. This explains why companies should abide by international conventions that promote human rights of their workforce, as well as protecting the environment and livelihoods. Thus, corporate governance has become one global strategy to hold corporations accountable and responsible to both shareholders and stakeholders.
Shareholder primacy versus stakeholder theory
The basic principle of corporate governance is to enhance the reputation of the organization and also increase its profitability to shareholders. The shareholder principle assumes that the interests of the shareholders should be the overriding consideration for the existence of the company. This principle encourages the organisation to work on maximizing profits for its owners. At its face value, the shareholder primacy promotes the exclusion of other stakeholders like; customers, employees and creditors- seeing them as intruders. It does not consider the fact that other stakeholders are negatively impacted as a result of an organisation’s drive to maximize profit.
For instance, it is unjustifiable to suggest that powerful mining companies like Newmont and AngloGold Ashanti or telephone giants like MTN, Vodafone and Airtel should concentrate on making profits for their foreign shareholders, at the expense of host communities, along with the destruction of livelihoods in the case of mining. Worryingly, the desire by governments of poor countries to attract foreign investments has compelled them to relax investment laws which give companies license to violate human rights in mining communities for instance.
This explains why the stakeholder theory has emerged as a popular alternative to shareholder primacy. Stakeholders are individuals or groups who are positively or negatively affected by the activities of companies. Freeman (1984) argued that organisations do not just exist for the benefit of the investors alone, but represent the hopes, ambitions and objectives of a wide variety of stakeholders- employees, suppliers, customers, creditors, local communities and even governments.
Evans and Freeman (1993) identify two principles of stakeholders-- the corporate rights and the principle of corporate effect. The first principle demands that a company has an obligation not to violate the rights of others. Second, a company is responsible for the effects of its actions. A clear example in this context is the dumping of toxic waste in the Ivory Coast in 2009. Despite evidence that Trafigura, a multinational oil company dumped the waste in Abidjan, it continually denied complicity. A BBC News night report in 2009 noted that Trafigura had persistently denied that the waste was harmful, but internal e-mails showed staff knew it was hazardous. While it had denied it was to blame, Trafigura had offered to pay damages to settle a class action by 31, 000 people who were injured. Perhaps, due to its financial muscle Trafigura was able to assembly a large team of lawyers to defend it. Its crack team of lawyers also launched a libel case against BBC Newsnight and the Guardian (Guardian, 2009).
Similarly, Tobacco companies across the world had been in denial of the effect of tobacco on health; a clear case of failing to demonstrate ‘duty of care.’ In Britain, the duty of responsibility was established in the House of Lords in 1932 in the matter of Donoshue v. Stevenson to buttress the point that tobacco companies had a moral responsivity to warn consumers about the dangers of smoking.
In 1992 Martyn Day, a lawyer commenced a class action against British Tobacco companies for personal injuries as a direct result of using their products. Casale et al (1999, in SG, W822) claim that since 1950 there have been over 1800 lawsuits against tobacco companies in the USA, but such lawsuits were not always successful due to defence of consent; that is the claimant was aware of the risks associated with smoking.
In a classic case of Cipollone versus Ligget incorporated, the complainant won US$400, 000 which became the first monetary award against a tobacco company. The case however, was overturned by the Supreme Court in 1992, as the tobacco companies relied on the claimant’s ‘contributory negligence’ as a defence. With no money by the claimants to pursue the case, it died a natural death. This was another case of corporate power against stakeholder interest.
In both Britain and America, governments resorted to public policy and advocacy to educate the public that ‘smoking kills.’ But the relationship between the government and tobacco companies became a test case of conflict of interest; in that while government was advocating for a safe product, it was making money from the industry. This conflict of interest, perhaps, is another reason why governments cannot hold companies accountable for human rights violations.
Human rights and CSR
The UN Declaration on Human Rights indicates that it is a common standard of achievement that every individual and every ‘organ of society’ are under obligation to promote the ideals of human rights. This includes businesses, since they are also organs of society, besides having an economic and social function.
As a result, human rights now form an integral part of the commercial landscape, helping to define the parameters in which businesses can operate responsibly and not just pursing profit. Carroll (1979, in Voiculescu and Yonacopulos, 2011) suggest that the definition of Corporate Social Responsibility (CSR) encompass the range of social expectations placed on companies; including economic, legal, ethical and philanthropic. The focus on CSR is based on the need for an organisation to embrace environmental sustainability, while social responsibility is meant to address labour issues, like working conditions, health and safety, fair wages and ethical sourcing. This explains why these expectations have become the rallying point for the CSR debate.
Contrary to the UN Declaration on human rights, and the legal arguments on duty of care, economist, Milton Friedman in 1970 argued that the core business of companies is to make profits (New York Times, 1970). In his view, people should have responsibilities, not an artificial entity like a corporation (ibid).
However, under the UN Declaration, companies are identified as ‘social organs’, which cannot hide under the cloak of ‘artificial entities’ and shirk their ‘moral responsibilities’ to society. Advocates of social responsibility also argue that corporations need to consider the wider social need in their strategic decisions, and stand to benefit by creating a shared value of protecting the environment, promoting human rights and investing in the workforce.
On the contrary, those who support Friedman’s radical theory insist that a free market system should be the foundation for peoples’ development. His views appear more applicable in developed countries, than in poor countries. In the context of poor countries, one needs to consider the weak corporate governance structures, in addition to unaccountable governments, which often misapply tax revenue. This makes Friedman’s argument that business should concentrate on making profits for shareholders controversial, considering the negative impact of mining, for instance on the environment and livelihoods.
Certainly, the respect for human rights cannot be sacrificed on the altar of making profits for shareholders. Though the world is yet to adopt a human rights regime, the UN Global Compact appears to have filled the void for now. The Compact points out that corporate sustainability starts with a company’s value system and principled approach to doing business (UN Compact). This means operating in a manner that meet fundamental responsibility in human rights, labour, environment and anti-corruption. By incorporating the Global Compact principles into strategy and policies, companies are not only upholding their basic responsibilities to society, they are also setting the stage for long term success and brand enhancement (UN Compact). The Compact states that respect for human rights is not only right, it is also a business issue. From the above there is a growing business case for companies to avoid complicity in human rights violation, such as the case in Mae Sot, where some of the worse forms of human rights abuses are being committed against migrants from Burma, including children.
At the moment the adoption of CSR principles is self-regulatory or voluntary, in the absence of a global consensus on state regulation. Whatever the case companies that are purposefully investing in social responsibility achieve brand enhancement overtime, as well as building stakeholder relationship. Cadbury is a classic example of a company that continues to invest in attaining stakeholder outcomes.
For instance, in Ghana, Cadbury launched a country action to support cocoa growing communities to combat child labour. An ILO report in 2011 found that Ghana and Côte d’Ivoire, which are the world’s largest cocoa producers, have unacceptable child labour practices on cocoa farms. Thus, Cadbury has led the way in proving that all businesses, large or small, located anywhere have a baseline responsibility to respect human rights.
- Carroll, A. B. 1979. ‘A Three?dimensional Conceptual Model of Corporate Social Performance’. Academy of Management Review, 4: 497–506.
- Friedman, M. (1970) The Social Responsibility of Business is to Increase its Profits. The New York Times Magazine
- ILO (2011) chocolate and cocoa industry forge new partnership to combat child labour in West Africa.
- The Guardian (2009) “Trafigura abandons attempts to keep scientific report secret: 'Oil traders' waste chemicals were capable of causing coma and death”. Guardian Newspapers Limited
- The Open University (2007) Capacities for Managing Development. The Open University. Milton Keynes
- The Open University (2016) “Business, Law, Human rights and corporate social Responsibility. The Open University. Milton Keynes
- UNDHR (1948) [online], http://
www.un.org/en/documents/udhr/ (Accessed 14 March 2016).
- UN Global Compact “The Ten Principles of the UN Global Compact”, UN. New York.
- Voiculescu, A. and Yanacopulos (2011, p.3) (Eds.) The Business of Human Rights: An Evolving Agenda for Corporate Responsibility
(***The writer is a Development and Communications management Specialist, and a Social Justice Advocate. All views expressed in this article are my personal views and do not represent those of any organization(s). (Email: Mobile: 0202642504 0243327586/0264327586)