How Business-Based Standards Can Support Human Rights

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When promulgating human rights rules for businesses, specific is better.

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International businesses must now decide whether to sign on to a lengthy and disparate list of principles and standards that aim to promote human rights. Sometimes associations of regulators promulgate these human rights standards for businesses; other times non-governmental organizations promulgate them and ask businesses to sign them. Regardless of who adopts them, these “voluntary” standards constitute a different form of regulation, and not just because of their subject matter. In promulgation, content, and authority, these efforts do not entail traditional rulemaking or adjudication.

But human rights standards are a growth industry. In fact, it is fair to say that the obligation of businesses to consider human rights is at a turning point. Although business-based standards to improve human rights are all less than a decade old, they are gaining adherents, even among regulators. Even the U.S. Securities and Exchange Commission (SEC) and the European Union have now announced rules that discourage the use of conflict minerals in manufacturing. Other countries are following suit in restricting trafficking in conflict diamonds, a phenomenon which I examine further in this paper.

But some of these new regulatory efforts will do more to further human rights than others. Sometimes narrow, even collateral requirements— “tell us what you’re doing,” for example—work better than broad bans that simply state, “do not do x.”

Consider the Extractive Industries Transparency Initiative (EITI). It is an example of a clear and comprehensive regulatory regime that benefits from its simplicity. The EITI requires mining and oil companies to disclose all of the payments that they make to foreign governments to obtain mining and oil resources, ranging from royalties to taxes to gifts. Every penny a company sends to a foreign government must be included in these disclosures.

The EITI may well increase transparency and deter governments from wasting the benefit of resource wealth—although, to be sure, requiring corporations to stand up for government transparency in foreign realms may not be a core competence of agencies enforcing these requirements.

Specific rules can work particularly well if the reporting required of firms is publicly available—as is the case with the EITI’s resource extraction reports—because it adds the discipline of public scrutiny. It also is somewhat efficient, at least in the context of human rights requirements. Companies must track their expenses, after all, and report them if they are publicly traded—the EITI can build on this work that companies are already doing.

The reporting required under the EITI can be controversial, but it is a regime that has specific requirements with a clear goal and a straightforward mechanism for reaching that goal.

Perhaps these advantages persuaded the United States to adopt resource extraction disclosures. Under Congress’s direction, the SEC recently issued a rule patterned after the EITI. Although the courts threw out the first version of the rule, the SEC is in the process of re-promulgating it.

If the EITI is an example of a simple and specific disclosure rule, many human rights efforts take a very different approach. For whatever reason, broad “requirements” abound in human rights regulatory efforts, and I am much less hopeful about their promise. The United Nations Guiding Principles on Business and Human Rights exemplify the broadest of standards. The UN Guiding Principles ask firms to produce “a policy commitment to meet their responsibility to respect human rights,” conduct “human rights due diligence,” and, if problems are discovered, “provide for or cooperate in their remediation through legitimate processes.” It is the sort of guidance that could mean anything, from issuing a pious statement on a company website to directing aggrieved locals to pursue their claims of abuse in the nearest court.

Lawyers often think of the differences between rules and principles as two of the main ways to regulate anything. Rules are specific and limited, which are often good things. Principles offer the benefits of flexibility, but they can be unclear.

Granted, vague principles are not so bad when enforced in a predictable way. The American common law system is based on relatively vague principles like “meet a duty to provide reasonable care”—the negligence standard. Vague principles gain specificity when courts cite them and follow precedent, but they also offer judges flexibility to deal with new problems when the precedent is thin.

But for international initiatives focused on human rights, the rule-based approaches that aspire to narrow, clear, corporate commitments can do more. This is especially the case when the regulatory regime is voluntary, as exemplified by the UN Guiding Principles. When companies independently determine what the rules require, broad principles tend to encourage lowest common denominator implementation.

Some observers are skeptical that asking corporations to take steps to protect human rights does any good at all. Many developing countries, on the other hand, would like to see a global treaty on the subject.

The most likely future source of obligations for businesses would strike a middle path between a treaty and no obligation. Human rights obligations are likely to be promulgated by someone else, and then voluntarily adopted by businesses. This sort of regulatory, or self-regulatory, program is more likely to arise than would a global treaty. It is also more consistent with modern interests in corporate social responsibility than just letting businesses be businesses.

Companies, of course, have many reasons to be cautious before signing on to any regulatory regime, and many might want to commit only to those where the burden is minimal. But for those hoping to make a difference in the new effort to use businesses to support human rights, specific rule-based approaches offer the most promise.

David Zaring

David Zaring is an Associate Professor of Legal Studies and Business Ethics at the Wharton School of Business. His research interests include domestic and international administrative law.