Why human rights law could apply to companies, how ethics could have stopped the credit crunch, and why foreign firms are giving something back in China

Taking Ruggie to task

Do companies have human rights obligations? If so, what are they? And how far do they stretch? All these questions and more were put to Harvard professor John Ruggie four years ago. No small task. The special representative to the secretary-general of the United Nations buried himself away with his law books. In 2008, he presented his conclusions in a final report.

This paper, by David Bilchitz, makes no bones of taking Ruggie to task. The author’s objections revolve around two issues. The first is Ruggie’s assertion that, in general, companies do not have binding legal obligations under international law. Agreed: the legal waters are muddy. Human rights law is addressed primarily to state actors. The same broad legal duties apply to companies, Ruggie concluded, but with provisos: only when they fall within a company’s direct sphere of influence; and only ever as secondary, not primary, duties. Bilchitz, on the other hand, maintains that international human rights law includes features that “as a necessary logical consequence” place a burden on companies to “respect” human rights. He goes further, arguing that this obligation incorporates a responsibility to “protect” them too.

The second string to Bilchitz’s argument is based on Ruggie’s tendency to focus on companies’ negative duties – a duty not to do something. That’s muddle-headed, Bilchitz suggests. The law enables companies to function as separate legal persons. It does so in order that they might create certain social benefits, Bilchitz argues. Companies should therefore be required to play their part in helping to provide social goods (such as access to healthcare, clean water, and so on).

At stake here is more than academic argument. A formal statute stating businesses’ responsibility on human rights is unlikely any time soon. That leaves us with what the lawyers call “customary international law” – laws derived from consistent conduct or a discernible sense of obligation. Ruggie’s conclusion that only codified laws are applicable to business severely hampers this option, this paper suggests.

“The Ruggie framework: an adequate rubric for corporate human rights obligations?”, David Bilchitz, University of Pretoria, Working Paper, May 2009.

Giving credit to ethics

Corporate responsibility has emerged from the current financial crisis badly bruised. Greedy bankers and irresponsible lending are identified among the chief culprits. Glossy corporate responsibility brochures may abound among the world’s largest banks, the critics say, but little good they did. This paper asks some important “what ifs”. What if ethical values had curbed excessive risk-taking, or lies to regulators? What if a long-term sustainability viewpoint had triumphed over short-term earnings?

However, the paper’s true value lies in pointing to the future, not the past. Trust in the financial sector needs to be restored. A corporate responsibility theory premised on maximising shareholder value will not cut it with the bank’s lenders. It sounds obvious but a trust-based system can only be established when the system’s operators become trustworthy. That’s to say, when financiers assume the personal responsibility of being good, honest professionals.

The author argues this includes a voluntary duty for bankers to take into account the consequences of their actions on society. And to compensate those that have been harmed. A fanciful suggestion? No more fanciful, perhaps, than predicting the collapse of the global financial order.

“Can corporate social responsibility help us understand the credit crisis?”, Antonio Argandoña, IESE Business School, Working Paper No 790, March 2009.

Sichuan and corporate social responsibility

When an earthquake with magnitude 7.9 ripped through the Chinese province of Sichuan, all eyes were understandably on the victims. More than 70,000 died and five million were left homeless. When the dust settled, questions began to be asked about the help offered by business.

Chinese companies donated $650m in cash and goods within the first eight days. Foreign investors reacted more slowly and in a manner “not commensurate with their presence in the Chinese market”, according to this paper. At least, that’s how the Chinese public perceived it. Some investors were quick to realise this. Nokia, for example, more than trebled its initial donation to $1.43m. Likewise, Coca-Cola raised its gift from $710,000 to $2.4m.

Global corporate policies on natural disasters must be tailored to Chinese expectations, this Wharton think-piece argues. That’s beginning to happen. The US-China Business Council, for example, has pledged to publish all its members’ charitable contributions. Foreign companies have done well out of China in recent years. Now the pressure is on for them to give something back.

“The Sichuan earthquake and the changing landscape of CSR in China”, Ariel McGinnis et al, Knowledge@Wharton research article, April 2008.

Campus news

Walden University has linked up with the Aspen Institute to present a series of free online seminars. The webinars are hosted by academic and corporate leaders on subjects related to business in society. www.WaldenU.edu/aspenforum.

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