Human Rights and Corporate Accountability

Human rights have traditionally only applied to state actors. Corporations and other non-state actors are generally free under international law to engage in behavior that would clearly constitute a human rights violation if done by governments. In few cases are governments obligated to stop abuse of an individual by a third party. In our globalized world, multinational corporations are more powerful than many governments. In the developing world, governments are often too weak to regulate the multinational corporations that do business in their countries. Shouldn’t corporations be held to the same standards? How can we ensure compliance?

Amnesty International is engaging in a novel approach. They have bought shares in Exxon, and are introducing resolutions for a human rights policy at shareholder meetings. The argument is that human rights violations can hurt a company’s reputation and financial standing. The resolution received only 6.8% of the vote, but proposals to institute a renewable energy plan and a prohibition on discrimination against gays have received increasing support. What’s the potential for this strategy? Are voluntary codes of conduct the best way to hold corporations accountable?

Those who don’t realize the kinds of violations that corporations have been involved in should take a look at Shell Oil’s actions in Nigeria. When the Ogoni people began to protest the destruction of their lands, the Nigerian military began terrorizing the villagers, killing about 2000. Shell admitted to paying the military. Oil revenues accounted for 80% of the dictatorship’s revenues, with Shell contributing half of all oil money.

Amnesty International’s ExxonMobil site
Exxon Mobil shareholders dodge protesters as meeting begins, AP
Exxon Shareholders, NPR All Things Considered
Shareholders blast ExxonMobil, CBS.Marketwatch
ExxonMobil shareholders reject proposals, Dallas Business Journal
Human Rights Watch’s Corporation and Human Rights website
Background on Shell in Nigeria

This is certainly nothing new. That’s what I’m always saying about Latin America-in Central America, the governments and the military was mainly controlled by the United Fruit Company.

While I absolutely admire A.I.'s plan to attempt to work within the system by buying ownership in corporations, I reject part of your initial premise, namely this part:

For one thing, the governments don’t have to allow the corporations in in the first place; and if they do, they certainly don’t have to allow their armies to be used as guns-for-hire. In fact, that’s one thing governments have that corporations don’t–armies, with guns. If nothing else, guns make pretty effective regulation against corporations if they’re screwing with your populace.

Nevertheless, that does not absolve the corporations from acting ethically and not trying to hire the guns to begin with. And in fact, I have been engaged in a personal boycott of Shell Oil products since this story first became public knowledge.

But A.I.'s strategy is the smart one–use the forces of the market to change the way the market operates. Buy part of the company, and use the shares to introduce resolutions that support your goals while maintaining the company’s business model and profitability.

What’s more, there are now mutual funds and other investment organizations that practice “ethical investing” or “environmental investing.” If A.I. aligns itself with these bodies, it can bring the power of Wall Street’s buy side to bear and find itself with much larger blocks of shares, and hence much more voting power.

Whoops–forgot something. This is why we small-l libertarians are always praising the powers of markets to make changes. Letter-writing campaigns and sidewalk protests are one thing, but hold no guarantee of effectiveness. Owning part of the company? That’s how you get it to do business differently.

Well, I am not sure it is the best way or should be considered a substitute for other methods, but I certainly support it as part of a lot of approaches that could be used to make corporations more accountable.

However, there are certain laws that would help here. One of the “socially-responsible” mutual funds that I have money in [Domini, I believe] was amongst the first to make public (i.e., to the investors in their fund) how they voted on shareholder resolutions the shares they own of the various corporations. They are trying to encourage other funds to do the same. And, of course, legislation that required such disclosure to be made would be even better.

Those shareholder resolutions are publicity exercises. They have been around for many years (and were directed against aparteid, btw). To my knowledge none of them have ever passed.

Still, they do have the benefit of focusing management’s (and politician’s and more to the point consumer’s) attention on the problem. As jshore noted, they are one tool among many.

Another reform to push for would be to pass 1st (and 2nd) world laws to curb Corporate bribes directed at 3rd world politicians, generals and bureaucrats.

What real choice does the Nigerian government have? They would cease to exist if they lost 40% of their revenue. Of course in this case the dictatorship didn’t care at all if the Ogoni were killed. But as a general rule, 3rd world governments worry that foreign investment will decrease if they start enforcing environmental, labor, and human rights standards. That problem would disappear if we had equivalent standards throughout the world.

I suppose they are publicity exercises, with little chance of success. AI and its supporters will never have the resources to buy a majority of shares. As shareholders, they have access to a forum that the general public does not, but it doesn’t differ significantly from protest and letter-writing campaigns.

flowbark, international pressure did bring about the end of apartheid. I’m too young to remember the details what went on, but I wonder what lessons can be learned from that successful campaign. (By the way, I knew that AI wasn’t the first to use this strategy, but I didn’t know the whole history.)

As I understand it, anti-corruption reforms have received widespread support from powerful countries and corporations. The OECD has drafted a convention on the subject. It’s in the interest of multinationals and 1st world governments, which generally have less corruption, to promote those policies. But what’s their incentive to promote broader human rights?

My feeling is that strategies such as voluntary codes of conduct do not offer a real solution, other than publicizing corporations’ failure to meet these standards. It can weaken movements for more radical reforms. Corporations need to face real consequences for their human rights violations. I don’t see how entities whose reason for existing is to maximize profits is going to be persuaded to take actions that might negatively affect their profits.

That, and the fall of communism.

But we’re probably on the same page. I was just noting that social proxy fights work indirectly, to the extent that they work at all.

  1. I read one management report that asserted that refusing bribery can be an effective corporate strategy. As can granting bribes. What doesn’t work as well is a corporate policy that allows bribery in some cases. So while some companies may support anti-bribery efforts, others may not.

  2. Social responsibility helps management in a couple of ways. a) They avoid consumer boycotts (which draw their effectiveness more from creating a headache for the head office than any actual financial impact, or so I’ve heard it asserted.)

b) Scandal hurts employee morale.

My feeling is that “real solutions” are few and far between and that so-called “radical reforms” are too often, too simplistic. But I would need to examine the actual proposed reform in question.

As for the OP, given the vast inequality in share ownership in the US, I find it doubtful whether AI will win any proxy fights at all. Ever. Which is not to say that the exercise is a waste of time, though. I suspect that the attendant publicity is more likely to encourage changes in governmental policy, as opposed to deflecting attention.

Yikes. If 3rd world governments adopted 1st world labor and environmental standards, a decline in foreign investment would be the least of their problems.

Assuming those standards were enforced (big assumption: they wouldn’t be) they would essentially act as a huge supply shock.

And frankly, those governments have bigger fish to fry. It would be better to direct India’s limited national resources towards universal primary education and clean water than towards repetitive motion injuries or catalytic converters. And yes, directing scarce resources towards the latter does imply neglecting the former.

To be more specific, I would like to see a legal mechanism for holding corporations accountable. Such as allowing victims to sue U.S.-based corporations in U.S. courts for human rights violations. The Alien Tort Claims Act allows this but is practice courts have limited its effectiveness. The ATCA dates from 1789, but it wasn’t until 1996 that supporters of human rights realized the potential for it to be used against coporations. A legal analysis of corporate liability for HR violations can be found here.

I also feel that corporations should not be fashioning their own standards but should be held to universal standards developed by others. International human rights law already exists; it just needs to be enforced.