Corporate human rights abuse is a topic getting more and more visibility, and most companies today are aware of violations across the world and are keen to not promote such abuses. But how much of a duty does a company have to actively monitor whether its activities lead to human rights abuses? Do companies face legal or reputational risks if they don’t take steps to actively reduce human rights abuses? These questions have garnered a lot of attention in recent years as customers and governments have become more aware of human rights abuses and seek ways to reduce the number of abuses around the world.
Recently, this issue has come to the forefront in the United Kingdom and other parts of Europe. A study published by the British Institute of International & Comparative Law and global law firm Norton Rose found that almost half of major companies are not performing an assessment of potential human rights impact on their business or supply chain. Of the companies that performed such an assessment, more than 75 percent identified actual human rights impacts and more than 70 percent found impacts linked to the activities of third-party relationships. The takeaway from this study is that, while there are widespread human rights impacts from business activities, almost half of businesses are not aware of them.
This can pose a major problem for businesses if they face legal repercussions as a result of not being aware of human rights abuses related to their businesses. The UK has introduced legislation in the form of the Modern Slavery Act, which seeks to impose legal duties for companies above a certain size to investigate and report steps they are taking to fight human slavery and human trafficking. Additionally, Norton Rose notes that there is an emerging body of law in different nations that may impose legal liability on companies for human rights abuses in their supply chain.
While the current legislation and legal liability seemingly apply to foreign companies, U.S. businesses should not be lax about monitoring the potential human rights abuses related to their activities. Any publicly traded business will likely have operations throughout the world. Particularly if they are in industries known for human rights abuses, such as the garment or manufacturing industries, it may not matter if the U.S. company did not know about abuses in foreign countries. Rather, what may matter is whether the company investigated potential human rights abuses in its own business as well as potential human rights abuses associated with companies in its supply chain. For instance, if a U.S. apparel company makes products in Asia through a third-party manufacturer, it should investigate the labor practices of its manufacturing partner. Not doing so could result in legal liability in the U.S. or in other nations where it operates and could also result in significant damage to its brand.
Even companies that are not multinational corporations may find themselves on the wrong end of a potential human rights abuse situation. With the increasing globalization of markets, a company that operates predominantly in the U.S., or even in only one region or state, may still have a supply chain that includes foreign labor. In such cases, the sins of the company’s supply chain may pass through to the company itself. As of today, there are no U.S. laws that would impose legal liability on such a company if it did not know about human rights abuses in its supply chain. However, given how fast information spreads through the internet and traditional media sources, it’s quite likely that a human rights violation in a company’s supply chain will not only be known, but also that customers and the public at large will demand change. In this type of a situation, a company could suffer serious reputational consequences, and the damage to its brand could take a lot of time and money to fix. This threat is compounded by potential of legal liability imposed by governments. The best option, therefore, is for companies to get ahead of the curve and actively promote respect for human rights in their own business activities as well as the business activities of their suppliers where it’s practical to do so. By doing so, a company may not only avoid legal and reputational damage, but also increase the value of its brand in the process.
Ajitav Mick Misra has been a practicing business and tax lawyer since 2002. Senior counsel with Radix Law, he represents businesses in all their activities and has worked with technology, real estate and energy companies in domestic and international transactions, capital raises, financings and contractual relationships.