Implementing the New UN Corporate Human Rights Proposals:

Implications for Corporate Law, Governance and Regulation

Peter Muchlinski
Professor in International Commercial Law,
The School of Law,
The School of Oriental and African Studies
University of London
ABSTRACT: The UN Framework on Human Rights and Business comprises the States duty to
protect human rights, the corporate responsibility to respect human rights, and the duty to
remedy abuses. This paper focuses on the corporate responsibility to respect. It considers how to
overcome obstacles, arising out of national and international law, to the development of a legally
binding corporate duty to respect human rights. It is argued that the notion of human rights due
diligence will lead to the creation of binding legal duties and that principles of corporate and tort
law can be adapted to this end. Furthermore, the responsibility to respect, while not undermining
shareholder oriented approaches to corporate governance, requires their adaptation towards a
more stakeholder oriented approach. It is shown that recent legal developments accept an
enlightened shareholder value approach that allows corporate managers to consider human
rights issues without violating the principle of shareholder primacy.

The UN Special Representative of the Secretary General on Human Rights and Business
(SRSG), John Ruggie, has set in train what is perhaps the most comprehensive discussion to date
of the relationship between corporations and human rights. The SRSG has developed a three
pronged approach to this issue, known as the Protect, Respect and Remedy Framework(The
Framework). This is based on the states duty to protect human rights, the corporate
responsibility to respect human rights and access to an effective remedy.1 The present paper
focuses on the second pillar, the corporate responsibility to respect. It considers its implications
from the perspectives of external corporate regulation and internal corporate governance, the
main elements of corporate accountability. The responsibility to respect has significant, if not
revolutionary, implications for both elements. These have not yet been fully mapped out or
debated.
The SRSG has himself sponsored research on the corporate law implications of the framework.
The overall conclusions are that while current corporate and securities laws offer some room for
the consideration of human rights issues as factors in the governance of the company there is as
yet very little official guidance as to the precise parameters of this relationship.2 The present
paper is in broad agreement with these findings and attempts to make a further contribution by
highlighting some of the significant legal, regulatory and governance implications of the
corporate responsibility to respect.

In this connection the paper does not discuss whether corporate actors ought to have human
rights responsibilities, a matter already extensively debated elsewhere.3 It accepts the assumption
that the corporate responsibility to respect human rights is based on a normative moral duty and
not merely on an instrumental political or legal duty. 4 Rather, the paper argues that the corporate
responsibility to respect, as framed by the SRSG, has real legal consequences. It may prove
impossible in practice to establish such a corporate responsibility without creating consequential
legal duties. In particular the SRSGs framework envisages that the responsibility to respect will
be carried out through a due diligence mechanism used to assess the human rights risk involved
in an investment project and to develop strategic responses to control that risk. As will be shown
below, due diligence mechanisms normally create direct duties of care upon the entity carrying
out such an assessment. Once a due diligence obligation is accepted, failure to use due diligence
is evidence of a breach of such a duty as is the careless operation of such a process.

Such duties of care do not exist in a legal vacuum. The responsibility to respect is being
developed in the shadow of existing structures of corporate law and corporate governance theory.
The argument in this paper is that existing legal structures, and the theories supporting them, are
capable of relevant adaptation to operationalise the SRSGs framework. Corporations are
creatures of law. Collective bodies can exist without proper legal form but, historically, it has
been usual to place such bodies under some form of official legal organisation. 5 The corporate
form is one such method. The act of legal incorporation facilitates the operation of the economic
enterprise and outlines the permissible legal scope of its operations. The SRSGs framework
represents a novel attempt further to develop the regulatory agenda of corporate law, so far as
changes in national legal environments are concerned. Although the corporate responsibility to
respect is not framed as a binding legal duty, due to the absence of legal personality for
corporations under international law, it can be seen as informing the legal form of the
corporation and the need to define its legitimate functional limits.

In this connection, as will be developed below, certain key issues arise. In particular three
questions need to be borne in mind: should corporate directors have a duty of care, based on
human rights due diligence, in relation to addressing the human rights responsibilities of their
corporations, should those affected have enforceable rights and remedies against directors and
the corporation, and does the extension of human rights responsibilities to corporate actors
challenge the dominant agency costs theory of corporate governance and necessitate a shift
towards stakeholder approaches?6 These questions will be discussed using selected illustrative
approaches to corporate regulation and governance, taken from a number of jurisdictions studied
by the SRSG as part of his Corporate Law Tools Project as well as at the level of corporate
governance theory.7 The paper begins with a brief overview of the elements of the SRSGs
approach, so that the interactions of the various elements can be fully appreciated.
I. THE PROTECT, RESPECT AND REMEDY FRAMEWORK

In his Report to the UN Human Rights Council of April 2008 the SRSG asserted that
international law provides that States have a duty to protect against human rights abuses by non-

State actors, including by business, affecting persons within their territory or jurisdiction.8 In his
Report of April 2009 the SRSG re-emphasized the States duty to protect as one grounded in
international human rights law.9 In his latest Report of 2010 he continued to explore the
relationship between corporate law and human rights protection and the possible impact of trade
and investment agreements upon the States duty to protect human rights.10 The most recent
restatement of the SRSGs position can now be found in the Guiding Principles on Business and
Human Rights: Implementing the United Nations Protect, Respect and Remedy Framework
(Guiding Principles) which asserts that:
States must protect against human rights abuse within their territory and/or
jurisdiction by third parties, including business enterprises. This requires taking
appropriate steps to prevent, investigate, punish and redress such abuse through
effective policies, legislation, regulations and adjudication..11
The Guiding Principles elaborate this general duty by encouraging States to develop policies that
foster respect for human rights by business enterprises domiciled in their territory and/or
jurisdiction, by ensuring policy coherence between government departments, ensuring that Stateowned enterprises respect human rights, encourage human rights due diligence by export credit
agencies, use commercial transactions with corporations as a means of ensuring respect for
human rights as well as helping business enterprises operating in conflict zones to avoid
committing or contributing to human rights abuses.12 Finally, the Guiding Principles exhort
States to maintain adequate domestic policy space to meet their human rights obligations under
investment treaties and contracts and to use their membership of multilateral institutions to
ensure that they do not hinder member states from meeting their duty to protect nor hinder
business enterprises from respecting human rights and encourage business respect for human
rights.13

As regards the corporate responsibility to respect human rights, the SRSG emphasizes that while
corporations can be considered organs of society,

they are specialized economic organs, not democratic public interest institutions. As
such, their responsibilities cannot and should not simply mirror the duties of States.
Accordingly, the Special Representative has focused on identifying the distinctive
responsibilities of companies in relation to human rights.14

Thus the SRSG turns to the economic functions of corporations as the starting point for the
responsibility to respect. This is seen as a responsibility rather than a duty. The SRSG
does this so as to underline the fact that, as a result of the international legal doctrine that nonState actors, such as corporations, are not subjects of international law, there is currently no
general legal requirement for corporate actors to observe human rights under international human
rights law.15 Thus the responsibility to respect under international law remains a standard of
expected conduct acknowledged in virtually every voluntary and soft-law instrument related to
corporate responsibility16 To call this a duty would be to misrepresent the extent of the
obligation to respect human rights that a corporate actor has under international law.17 This does
not mean that no binding legal duties can arise for corporate actors under the Framework. There
is nothing to stop a State, in the exercise of its duty to protect human rights, from imposing
legally binding duties upon business enterprises operating in its jurisdiction or even outside, as in
the case of claims made under the US Alien Tort Claims Act. Thus the SRSG can say that the
Framework is not a law-free zone to the extent that State action under domestic law can create
legal duties for corporations.18
The corporate responsibility to respect is a standard independent of the States duty to protect,
even though a corporate actor could infringe any of the rights contained in the main international
human rights instruments and even though they are addressed to States.19 This raises the question
as to what we mean by human rights when applied to corporate actors. The Guiding Principles
avoid a full answer to this question by selecting certain international instruments as representing
the core internationally recognised human rights.20 This approach is problematic as it leaves
out many important international human rights instruments, such as, for example, the UN
Convention on the Elimination of all Forms of Discrimination against Women, which can create
issues of corporate respect for human rights. This approach also appears to side step the question

of how the progressive development of international human rights law through new instruments
will be met by the Guiding Principles. For now the Guiding Principles state only that:
Depending on circumstances, business enterprises may need to consider additional
standards. For instance, enterprises should respect the human rights of individuals
belonging to specific groups or populations that require particular attention, where they
may have adverse human rights impacts on them. In this connection, United Nations
instruments have elaborated further on the rights of indigenous peoples; women; national
or ethnic, religious and linguistic minorities; children; persons with disabilities; and
migrant workers and their families. Moreover, in situations of armed conflict enterprises
should respect the standards of international humanitarian law.21

For the purposes of this paper the use of references to human rights will be understood to mean
the human rights covered by the instruments mentioned in the Guiding Principles and any other
rights contained in international human rights instruments that may, in given circumstances, give
rise to a human rights violation risk as a result of corporate action or inaction.
One important change from earlier Reports of the SRSG is that the do no harm basis of the
responsibility to respect has given way to a more comprehensive foundation for the concept. The
responsibility to respect human rights now means that business enterprises should avoid
infringing on the human rights of others and should address adverse human rights impacts with
which they are involved.22 Thus a positive element of action is required not just a passive
avoidance of harm. This is significant given the SRSGs listing of a number of legal compliance
problems that may confront corporate actors, and which will require positive moves to respond
to adverse impacts. These include the need to observe international standards in weak
governance zones, resolving conflicts between international standards and national laws,
adequately assessing stakeholder risks that may require disclosure and action under national
company and securities law and certain categories of international crimes.23

The positive action element is also found in a more detailed exposition in the 2010 Report of the
due diligence concept. This requires the company to move from being a victim of naming and

shaming to knowing and showing that they understand and internalise human rights through
due diligence.24 The 2010 Report goes on to list the main elements of due diligence, including a
full human rights policy, periodic assessments of human rights impacts and proper control and
reporting systems laying stress on effective corporate grievance procedures. Quite correctly the
2010 Report stresses that this is not like other commercial due diligence processes, which are in
the main transactional processes, as there is a constant need to engage in communication with the
right-holders. In other words the firm must look beyond the protection of its own interests and
focus on the interests of those it affects by its actions.25 Under the Guiding Principles the due
diligence concept is further elaborated. In particular Principle 17 states that due diligence:

(a) Should cover adverse human rights impacts that the business enterprise
may cause or contribute to through its own activities, or which may be directly linked to its
operations, products or services by its business relationships;
(b) Will vary in complexity with the size of the business enterprise, the risk
of severe human rights impacts, and the nature and context of its operations;
(c) Should be ongoing, recognizing that the human rights risks may change
over time as the business enterprises operations and operating context evolve. 26
Thus the concept is potentially far reaching affecting relations between the enterprise and those
with which it interacts.

The legal implications of due diligence are also considered. In particular the SRSG argues that
properly conducted due diligence will provide strong protection against mismanagement claims
by shareholders and give proof that the company took every reasonable step to avoid
involvement in a violation, which should count in its favour in litigation. However the SRSG
rejects the notion that human rights due diligence should automatically absolve the company
from liability under, for example, the Alien Tort Claims Act in the US.27 The implications of this
due diligence based approach are discussed further in Section III below.

As to remedies, the SRSG is positive in his view that national legal remedies should be
strengthened and made more accessible to claimants.28 Equally the barriers to effective remedies

must be identified and removed.29 The 2010 Report stresses the value of proper and effective
corporate level grievance mechanisms and argues for a strengthening of national human rights
institutions involvement as well as a strengthening of the OECD Guidelines on Multinational
Enterprises National Contact Points.30 However, as the Report notes, relatively few States have
either type of institution and this absence encourages reliance on lawsuits against companies.31
As for judicial mechanisms the 2010 Report recommends clarification of the laws relating to
corporate group liability and the rules relating to the exercise of extraterritorial jurisdiction over
foreign elements of a multinational group so as to reduce barriers to litigation against such
groups. In addition the need for solutions to the practical obstacles to such actions are
highlighted including costs, the bringing of class actions and financial social and political
disincentives for lawyers to bring such claims.32 These issues are echoed in the Guiding
Principles.33
From the above summary it can be seen that the Protect, Respect and Remedy approach is
complex, interactive and nuanced. A number of important implications stem from this. First,
given the interaction between the States duty to protect, the requirement of an effective remedy
and the corporate responsibility of respect, the latter is more than a self-regulatory obligation
though, to a considerable extent, it requires an autonomous and voluntary commitment from
individual enterprises to take on the responsibility and to make it real. This is in keeping with
contemporary thinking about the relationship between self-regulation and mandatory regulation
which sees these approaches as inextricably intertwined and not mutually exclusive.34 Following
from this, the paper will examine the scope of external mandatory regulation as a means of
making the corporate responsibility to respect legally effective. It is here that the States duty to
protect meets the responsibility to respect and requires the securing of effective legal principles
and remedies for corporate failure to respect human rights.

Turning to internal corporate governance, two issues in particular will be covered. First, due
diligence will be examined to see how this concept, used mainly in commercial risk assessment,
can be adapted and developed to deal with human rights risk. This involves not only reducing the
commercial risks arising out of the failure to address human rights due diligence but also the role
that this procedure might play in reinforcing the responsibility to respect as a corporate policy. In

addition, the relationship between due diligence and a legally binding duty of care for human
rights observance will be considered from the perspective of both directors obligations and
those of the company itself. Human rights due diligence also raises more specific questions as to
whether all corporate human rights issues should be treated the same way or whether different
claims should give rise to distinctive due diligence approaches. Secondly, the responsibility to
respect human rights raises fundamental questions as to the nature of corporate governance and
how it should be regulated. Whether a responsibility to respect human rights is compatible with
the overarching concern about agency costs, characteristic of current corporate governance
models used in Anglo-American law, will be considered below.

II. THE RESPONSIBILITY TO RESPECT: A LEGAL DUTY TO RESPECT?

Under existing international law, the State may be indirectly responsible for human rights
violations by non-State actors under the so-called horizontal effects doctrine. This establishes
responsibility on the part of the State for the conduct of non-state actors that violates the human
rights of another non-State actor within their legal jurisdiction. The horizontal element may be
said to describe the relationship between the non-State actors themselves while being subject to
the law of the State that stands above them as guardian of their legal rights. There is some
evidence from case-law under the European Convention on Human Rights (ECHR) that the State
may be under an obligation to secure the rights of third persons against interference by a nonstate actor to whom they delegate activity. Failure to do so may result in a violation of the
Convention.35 Beyond the ECHR the horizontal effects doctrine is an integral part of the UN
International Covenant on Civil and Political Rights (ICCPR) as by Article2(1), each State
Partyundertakes to respect and to ensure to all individuals within its territory and subject to its
jurisdiction the rights recognised in the present Covenant This suggests a positive duty to
ensure that, under domestic law, there exist obligations on the part of the State to protect against
human rights violations by non-state actors which harm the rights of third parties.

As noted above, there is no international legal duty on the part of corporations to observe human
rights. Such a duty can only arise under domestic law at present. Thus it is in this sphere that the
legal development of a binding duty to respect human rights will first evolve, though future
international legal responsibility should not be ruled out. The development of a binding and
enforceable legal duty on the corporation to observe human rights faces a number of legal
obstacles both at the levels of domestic and international law. Under domestic law these may be
listed as: the limitations on liability arising out of the structure and logic of company law,
establishing the mental element of liability for the corporate actor and the impact of jurisdictional
limits on process and liability. Under international law the main obstacle remains the absence of
legal personality for corporate actors and limited direct human rights obligations on corporate
actors.

CORPORATE LAW AND LIABILITY

A major element limiting a binding corporate responsibility for human rights violations, and,
indeed for corporate wrongs in general, lies in the logic of company law. This is designed to
facilitate the formation of a capital fund for investment. It aims to reduce investment risk by
separating this fund from the personal assets of the company promoter and of its shareholders
who are often the same person. This leads to a legal separation between the owners and the
company itself and to a limitation of shareholder liability to the extent of the value of their shares
in the company. The classical model of the limited liability joint stock company assumes that the
owners are actual persons who require the corporate form to engage in the risks of business.36 It
does not contemplate the situation where one company owns and controls another, as in the case
of a multinational enterprise (MNE) consisting of a transnationally owned and controlled group
of companies. This creates especial problems in relation to one class of actors: tort victims, who
are often referred to as involuntary creditors of the company that has caused them injury. The
assets of the shareholders can only be touched up to the extent of the value of their shares in the
company. It also creates problems relating to the extraterritorial application of home country
liability laws to events occurring outside the home jurisdiction in the host State of the subsidiary,
and issue discussed further below.37

10

For present purposes victims of human rights violations may also be characterised as involuntary
creditors whose main claim against the company will normally lie in tort. Involuntary creditors
have no chance to bargain with the corporation over the allocation of risks, unlike voluntary
creditors, who enter into contracts with the company. 38 Yet they may have to bear the risk of loss
if the corporation does not possess sufficient assets to compensate them for their injuries.
Victims of alleged human rights abuses have brought claims against the parent company of a
MNE in its home State where they cannot obtain redress against the subsidiary in the host State
where they live and where the alleged harm arose. This type of litigation has come to be known
as foreign direct liability litigation. 39 Such a claim depends for its success on proof that the
parent company was directly involved in causing the alleged harm. This is not easy given the
logic of corporate separation and limited liability. This may lead to significant undercompensation of victims, or even no compensation, if the parent has used the separation between
itself and its subsidiary to insulate itself from liability. This position is reinforced by the highly
restrictive conditions under which a judge will lift the corporate veil and find the parent directly
responsible for the acts of the subsidiary. Current law only permits this in cases of abuse of the
corporate form.40

This effect of company law has been criticised in that it externalises a risk that ought properly to
be held by the company to the involuntary creditor. Thus the poorer risk taker assumes the burden
of the risk, contrary to well understood notions of efficient risk allocation in law which stress that
the person who has the best knowledge of the risk should bear it, which, in the case of hazardous
corporate actions would be the corporation itself.41 The logic of company law externalises the risk
of liability away from the controlling interest by insulating it from liability except in the few cases
where it can be shown that it has a direct involvement in the events leading to the violation. This is a
clear obstacle to the realisation of the third element in the SRSGs framework, namely, access to
effective remedies, as the SRSG has recognised. It is also a brake on the realisation of the corporate
responsibility to respect as this legal situation encourages irresponsibility by way of increasing
moral hazard. Therefore, one important change in national company laws would be to extend the
cases in which the corporate veil ought to be disregarded to include cases of human rights violations
by the company.

11

However, veil lifting is a far from perfect solution. It involves judicial discretion and so it may be
difficult to anticipate ex ante whether a particular legal form of group organisation will survive
judicial scrutiny.42 In the alternative, a presumption could be introduced of parent responsibility for
the acts of the subsidiary based on the actual or potential control exercised by the former over the
latter. This could be achieved by way of a statutory exception to the doctrine of corporate
separation. The approach is shown in the UK Corporate Responsibility Bill of 2002 where such
liability may be introduced by law.43 One important issue is whether parental liability should be
based on a duty of care, requiring proof of negligence on the part of the parent, or whether, as in
Indian enterprise liability doctrine, it should be strict, arising out of the fact that the parent is the
controlling entity in the enterprise.44 Clearly the incentive to internalise risk on the part of the parent
would be greater if liability was strict. Whatever approach to liability is taken the major issue in
such cases would be to show what the boundaries of the enterprise are for the purposes of liability.
Not only the parent but other affiliates might be relevant parties in given cases.

ESTABLISHING THE MENTAL ELEMENT OF LIABILITY

A further problem arising out of human rights responsibility for corporate actors is how to
establish the mental element of liability. Human rights violations involve the commission of
criminal acts and/or civil wrongs. Proof of criminal intent will be required to establish criminal
liability while an element of foresight will be required to prove negligence. In both cases the
main difficulty is how to attribute the human actions and intentions of corporate officers to the
company itself. As regards criminal responsibility one approach is shown in the English law on
corporate manslaughter. Under the Corporate Manslaughter and Corporate Homicide Act 2007 a
new offence of corporate manslaughter has been created. This no longer requires proof that the
directing will of the company carried the requisite intent and that one actual person acting as
an agent of the company, and who was part of the directing will, committed the act.45 Instead,
the offence is committed by an organisation if the way in which its activities are managed or
organised by its senior management is a substantial element in the breach46 The relevant
organisation includes a corporation among other bodies.47 Senior management is defined as the
persons who play significant roles in the making of decisions about how the whole or a
substantial part of the organisations activities are to be managed or organised or the actual

12

managing or organising of the whole or a substantial part of those activities.48 A gross breach
arises where conduct alleged to amount to a breach of that duty falls far below what can
reasonably be expected of the organisation in the circumstances.49 Thus while the threshold for
liability still remains high it is now possible to find the organisation liable where no one member
of senior management has committed a gross breach of duty but where the aggregate effects of
the actions of different senior managers, which in themselves do not amount to gross breaches of
duty, reach that threshold. Equally a larger range of managers conduct can now be taken into
account as the definition no longer limits itself to the very top of the management hierarchy but
extends to senior divisional managers as well.50

In relation to civil liability, the usual rule of attribution is that of vicarious liability. Thus the
company is liable for acts of its officers, agents and employees acting within the scope of their
authority or in the course of their employment.51 The question arises whether the company can
be liable only if an officer, agent or employee commits a tort or whether the company can be
liable regardless of the legal effects of the actions of its personnel. The better view is that the
actions of the personnel can be attributed to the company and so it can be liable regardless of
whether the individual concerned is also liable.52 Accordingly it is possible to make the company
itself liable for actions of its officers in a manner not dissimilar to criminal liability.

JURISDICTIONAL OBSTACLES TO LIABILITY

In addition to substantive and doctrinal obstacles to human rights liability for corporate actors,
procedural obstacles have arisen out of the mismatch between the national reach of state legal
systems and the transnational reach of multinational enterprise activities.53 Thus claims against
the parent company of the MNE have often been subjected to lengthy and costly litigation over
jurisdiction. This is especially problematic in common law systems espousing the forum non
conveniens doctrine. Here the judge presiding over the case that the claimant has brought before
the forum of one State, can exercise a discretion to remove the case to another, more appropriate,
forum in another State on the basis of a balancing of private party interests in the conduct of the
case (such as the location of evidence and witnesses, the cost of presenting the case, the balance
of procedural advantages between the parties) and the public interests of the forum and the

13

alternative forum jurisdictions (such as the extent of regulatory interest in the outcome of the
case). This has proved to be an impediment to the conduct of human rights based litigation
against parent companies of MNEs.54

A possible solution to this problem is to develop further the notion of universal jurisdiction for
human rights claims against corporate actors. Universal jurisdiction is defined as, the ability of
the court of any state to try persons for crimes committed outside its territory which are not
linked to the state by the nationality of the suspect or the victims or by harm to the states own
national interests.55 Crimes under international law, such as genocide, crimes against humanity,
war crimes, torture, extrajudicial executions and enforced disappearances, just like ordinary
crimes and crimes under national law of international concern, such as terrorist crimes, are
subject to universal jurisdiction.56 Where a corporate actor is implicated in such crimes universal
jurisdiction may be available in principle.57 The principle of universal jurisdiction may also
acquire relevance in civil as well as criminal cases, should the practice of subjecting MNEs to
actions for violations of human rights, arising outside the forum jurisdiction, become more
widespread.58 Should universal civil jurisdiction for human rights claims against corporate actors
emerge this would represent an act of legal harmonization and convergence that would further
strengthen the emergence of a new transnational order of responsibility. The SRSG has conducted
research seminars on universal jurisdiction but the issue is still open to significant disagreement and
debate.59

INTERNATIONAL LAW AND CORPORATE LIABILITY

Finally, the obstacles created by public international law are not insuperable. Corporations as
legal persons, have, as a consequence of this legal status, duties analogous to natural persons in
law. This is a result of the fact of incorporation which allows the enterprise to sue and, crucially
for this argument, to be sued. Indeed, as noted above, corporations can be liable for negligence,
for breaches of property rights and under criminal law including the law of manslaughter.60 Thus
there is no jurisprudential objection to the proposition that a corporate actor is bound to observe
human rights law to the same extent as a natural person given the already extensive range of
corporate liabilities in law or for national law to give sanction against it. The fact that the

14

obligation arises under international law is then irrelevant. Furthermore in legal systems where
the individual is directly subject to international law there is again no reason why corporations
should be privileged in this regard, especially where violations of human rights principles are at
stake.61

That said considerable obstacles remain in relation to the imposition of direct international legal
obligations on corporate actors in relation to human rights. As Korbin notes, such an approach is
anachronistic in that it tries to fit the MNE into a State-centric international law and would
require a significant disempowering of States in the regulation of transnational business to which
they are unlikely to consent.62 Korbin thus favours a transnational solution by which a new
institutional regime based on both State and non-State elements would emerge and that would
develop applicable standards through a process of learning, persuasion and deliberation.63 In this
connection it is notable that the SRSG is considering something of this kind as a means of
embedding the UN Framework and building capacity in this field. The SRSG recommends that
the [UN Human Rights] Council give consideration to requesting the High Commissioner (or the
Secretary-General) to establish a Voluntary Fund for Business and Human Rights, with the
primary purpose of addressing these capacity building needs. 64 The Fund is envisaged as
providing a mechanism for supporting projects developed at local and national levels that would,
increase the capacity of governments to fulfill their obligations in this area as well as strengthen
efforts by business enterprises and associations, trade unions, non-governmental organizations
and others seeking to advance implementation of the Guiding Principles.65 It could also be a
means to provide support to small and medium sized enterprises in implementing the Guiding
Principles, either directly or through local business associations, national networks of the UN
Global Compact, and national human rights institutions. Proposals might be coordinated and
submitted through UN Country Teams, which could help monitor their results. To ensure its
relevance and representativeness, the activities of the Fund should be overseen by a multistakeholder Steering Committee.66 The Fund may also consider proposals from the SRSG, due
in March 2011 on methods of local company-community dispute resolution.67
III. THE RESPONSIBILITY TO RESPECT AND INTERNAL CORPORATE
GOVERNANCE

15

As noted above the introduction of a corporate responsibility to respect human rights has
significant implications for the governance of companies. If the governance structure of the firm
cannot encompass such wider issues then the responsibility to respect will be a failed concept. At
heart is the need to understand human rights risk and corporate responses thereto. In this regard
human rights due diligence will be analysed both as a managerial tool and as the basis of a
general duty of care for human rights compliance. Then the more theoretical issues concerning
the relationship between the duty to respect and approaches to corporate governance will be
considered. This requires a re-examination of the relationship between shareholder and
stakeholder centred approaches to corporate governance
.
DUE DILIGENCE AND HUMAN RIGHTS RISK

In the context of commercial transactions due diligence was first used to describe the process in
s.11 (b) (3) of the US Securities Act 1933, which offers a defence against a claim arising out of
the issue of a false securities registration statement to anyone who has made a reasonable
investigation into matters contained in the prospectus for the issue of securities and has
reasonable ground to believe, and does believe, that at the time the registration statement was
true.68 Since then it has become a general term referring to, a process of discovery that is
relevant in key business transactions as well as operational activities.69 This process has a
strong legal dimension in that the main types of due diligence concern the discovery of legal
liabilities and the integrity of financial information, the latter being essential to the conclusion of
a commercially and legally effective transaction. Due diligence is normally associated with the
buying or selling of company assets, the lending of finance for a specific project, the assessment
of a potential joint venture partner, the listing of a company on the stock exchange to verify its
ability to carry out its prospectus and the privatisation of state enterprises or state bodies.70 In all
these cases investment risk is involved and due diligence seeks to minimise that risk through a
thorough investigation of the assets and liabilities of the firm or investor in question. Thus its
extension to human rights risks appears to be a novel departure as this is not a normal aspect of
what is generally understood as commercial risk, in that, as the SRSG points out, it requires a
shift form considering the risk to the company to risk to potential victims of corporate action.

16

That said, human rights risk is as much a commercial risk as a social or ethical concern. Firms
have become aware through painful direct experience that failure to identify such risk, and to
minimise it through corporate decision-making, can lead to serious and unwanted commercial
consequences, particularly in relation to reputation and goodwill as well as creating significant
clear up costs.71 For example Union Carbide incurred at least $270 million in punitive expenses
alone as a result of the Bhopal disaster.72 It can also lead to legal liability as highlighted by the
rise of foreign direct liability claims in recent years as well as claims under ATCA. Furthermore,
as studies conducted on behalf of the SRSG show, failure to address human rights concerns may
give rise to consequential violations which themselves continue to mount.73

However, to view human rights risk as merely an issue of corporate profitability, to be controlled
by way of due diligence assessments, would be an inadequate corporate strategy. In particular,
unless a corporate culture of concern for human rights is instilled into the officers, agents and
employees of the company due diligence could end up missing the very issues it is set up to
discover. At worst it could degenerate into a tick-box exercise designed for public relations
purposes rather than a serious integral part of corporate decision-making. It is here that the
ethical duty to respect human rights is key. The acceptance of such a duty may be said to
constitutionalise concern over human rights impacts in the corporate psyche and culture.74 The
due diligence process then allows this concern to be put into operation.

In this regard there is evidence to show that positive management commitments to such a moral
position have a far stronger effect on creating properly integrated ethics policies than merely
responding to external pressures, which may result in policies that are easily decoupled from
other aspects of corporate decision-making and which may be mainly legitimacy preserving
policies.75 That said leaving it to management discretion is not an option given the risks of
inaction and drift.76 Indeed the logic of the SRSGs framework and its stress on national legal
remedies among other policies, suggests that moral commitment may have to be induced by
instrumental means as well, even if non-instrumental normative moral preferences on the part of
management are the best way forward in safeguarding corporate human rights practices.77

17

As noted above, this goes beyond the SRSGs earlier exhortation of framework to do no harm
and requires positive action to operate investments in a human rights compliant way and to avoid
investments that cannot comply with human rights. In this regard the human rights due diligence
assessment may not sit easily with the corporate aim of profit maximisation. Whether corporate
actors can allow human rights concerns to trump profit maximisation concerns is open to debate
so long as corporate cultures and, as will be discussed below, corporate governance theories
upon which so much corporate law is based, remain rooted in the prioritisation of enhancing
shareholder value.78

DUE DILIGENCE AND A BINDING DUTY OF CARE

Notwithstanding issues of corporate culture and voluntary approaches to corporate human rights
observance, due diligence has certain important legal implications that may result in the
institutionalisation through legal practice of a legally binding duty to observe human rights. Due
diligence is part of the process of dealing with legal liability and so has to meet the standards set
up in law to discharge a duty of care. For example in Canada, due diligence has developed
beyond a simple commercial risk assessment process into a basic element of complying with a
wide range of environmental, health, safety and other regulations involving strict liability
offences. It has become analogous to the reasonableness element in civil tort cases. To exercise
due diligence corporate officers must put in place internal corporate systems to prevent
violations of regulatory requirements and to minimise their adverse effects. They must also
supervise operational personnel effectively and they must be proactive in monitoring and
remedying problems rather than merely turning a blind eye.79 Thus due diligence has led, in
Canada, to the development of important changes in internal corporate culture and decisionmaking processes.80

Equally in the United States, important legal developments have influenced the behaviour of
managers and helped to foster cultures of compliance with regulatory standards in corporations.
For example the Federal Sentencing Guidelines of 1991, which introduced guidelines for
sentencing organisations convicted of Federal crimes, require the establishment and effective
operation of a compliance programme based on good faith and due diligence.81 The Guidelines

18

list seven requirements of due diligence, and an effective compliance programme, covering: the
standards and procedures to be followed, the assignment of responsible personnel,
communication to employees, periodic evaluation of the programme, the establishment of a
secure and anonymous system for reporting infringements, procedures for responding to the
detection of criminal conduct and the continuing modification of the programme in response to
periodic risk assessment.82 In determining whether to prosecute for an offence, Federal
Prosecutors will consider whether corporations have made good faith efforts to develop and
operate an effective compliance programme. However, according to the U.S. Department of
Justice,
the existence of a compliance program is not sufficient, in and of itself, to justify not
charging a corporation for criminal misconduct undertaken by its officers, directors,
employees, or agents. In addition, the nature of some crimes, e.g., antitrust violations,
may be such that national law enforcement policies mandate prosecutions of corporations
notwithstanding the existence of a compliance program.83

Nor does the existence of a corporate compliance programme, even one that specifically
prohibits the very conduct in question, absolve the corporation from criminal liability under the
doctrine of respondeat superior.84

In addition to the Sentencing Guidelines, certain laws in U.S. States concerning stakeholder
responsibilities of directors should be mentioned. Statutes adopted by thirty U.S. states,
including New York but not Delaware (the main state of incorporation for US companies)
explicitly permit directors to consider the effect of board action or inaction on other stakeholders
(referred to as constituencies in these laws), including employees, customers, suppliers,
creditors, the community and the economy of the state and nation.85 These laws vary in terms of
the weight a director may give to nonshareholder interests in determining what is in the
companys best interests. They have been used by courts to safeguard directors decisions to take
into account the interests of nonshareholders.86 As for Delaware, according to the US Survey for
the SRSG, although its corporate law does not include other constituency provisions,
directors of Delaware corporations are generally considered to have the discretion to consider

19

societal effects in formulating corporate policies and otherwise making business decisions, in
determining what conduct is in the best interest of the corporation and its shareholders.87
Constituency statutes have proved controversial in practice.88 The American Bar Association
Committee on Corporate Law argued in 1990 that these laws should be narrowly interpreted so
as to avoid undermining the shareholder interests that lie at the heart of corporate law,89 while
proponents replied that such an approach would denude the statutes of their proper purpose
which was to give stakeholders other than shareholders enforceable rights.90 The better view
appears to be that these statutes allow for an enlightened management approach to be taken
which permits managers explicitly to consider ethics, and to see the consideration of stakeholder
interests as being broadly aligned with long-term shareholder interests, without risking legal
liability for breach of duty. 91
The SRSGs corporate law survey uncovered that such an enlightened management approach
is taken by other jurisdictions towards widening directors responsibilities when considering their
duties to their company, which might open the way for more explicit consideration of human
rights impacts of corporate activity. Thus the SRSG found that,
In Singapore, case law indicates that the companys best interests can correspond not
only to the interests of the company itself but also to the interests of its shareholders and
employees, creditors, or the group to which the company belongs. In Canada, the
Supreme Court has said that directors duties are owed to the corporation and not to
outside stakeholders, but that in considering the corporations interests, directors may
look to the interests of shareholders, employees, creditors, consumers, government and
the environment to inform their decisions. In the Netherlands, it is generally considered
that a director is to act in the interest of the company in the broadest sense, i.e. the
combined interests of its shareholders, employees, creditors and even society at large.92

This approach is also seen in changes made to English company law in 2006, an example that
has attracted considerable attention from the SRSG.93 Under English law directors have a
common law based duty of care to act in the interests of the company and to fulfil their fiduciary

20

duties towards the shareholders. The duty to act in the interest of the company has been reformed
by s.172 of the Companies Act 2006 to become a duty to promote the success of the
company.94 It is framed in a more inclusive way than the earlier law, though it remains firmly
focused on enhanced shareholder value in that the main duties of the director are still to,
promote the success of the company for the benefit of its members as a whole. The section
goes on to list a number of wider factors that directors should have regard for when making
decisions in the best interests of the company:
(a) the likely consequences of any decision in the long term,
(b) the interests of the companys employees,
(c) the need to foster the companys business relationships with suppliers,
customers and others,
(d) the impact of the companys operations on the community and the
environment,
(e) the desirability of the company maintaining a reputation for high
standards of business conduct, and
(f) the need to act fairly as between members of the company.
The reference to the impact of the companys operations on the community and the environment
has been interpreted as being capable of including human rights considerations. While s.172 does
not amount to a binding obligation to take such concerns into account it is an advance on the
previous law as it accepts that, community and environmental impacts along with other
considerations in section 172 are now expressly linked to the companys success in other
words, the legislature recognized that shareholders may be concerned that the companys
interests could be harmed by negative social impacts.95

The list of further factors that the director should consider relate to how the director should arrive
at his or her decision and so is a more precise articulation of the expectations arising from the
[directors] duty of care.96 Turning to the specific content of the directors duty of care, this is
explained in s.174 of the Companies Act 2006:

21

(1) A director of a company must exercise reasonable care, skill and diligence.
(2) This means the care, skill and diligence that would be exercised by a reasonably
diligent person with
(a) the general knowledge, skill and experience that may reasonably be expected of a
person carrying out the functions carried out by the director in relation to the company,
and
(b) the general knowledge, skill and experience that the director has.

Thus the English law duty of care is both an objective and subjective duty. It allows for a basic
benchmark relating to the average reasonably diligent director and a higher benchmark taking
into account special skills possessed by the director in question. The main feature is that the duty
of care relates to the conduct of the companys affairs rather than to any wider public interest
considerations. Thus the essential elements of the duty are that the director has a sufficient
knowledge and understanding of the companys affairs and that the director remains responsible
for the acts of those to whom he or she has delegated responsibilities.97 Is it sufficient to allow
for a duty of care to observe human rights?

Given that s.172 lists community and environmental concerns, and encourages the company to
maintain a reputation for high standards of business conduct, these could be interpreted to
include concerns over the human rights impact of the companys actions. Indeed the underlying
conception behind s.172 has been termed enlightened shareholder value in the United
Kingdom, so as to suggest that it goes beyond the strict enhancement of shareholder value and
requires that wider interests are taken into consideration.98 Such an interpretation is by no means
certain. If human rights concerns were in issue why did they not get an express mention? The
OECD Guidelines for Multinational Enterprises expressly require, in their General Policies
Guideline, that enterprises Respect the human rights of those affected by their activities
consistent with the host governments international obligations and commitments.99 As an
OECD Member, the UK could have used this as a benchmark for the list in s.172 but it did not.
Perhaps the list should use the OECD Guidelines as an aid to interpretation, given that English
law must evolve in line with the UKs international commitments, even soft law commitments

22

like the Guidelines, but there is no clear statutory intention that s.172 expresses the standards in
the Guidelines. Such an intention would need to be implied.100

More importantly, even if human rights concerns can be read into s.172 (d) and (e) the standard
of care may not be very exacting. According to the Explanatory Note to the Companies Act
2006:
328. In having regard to the factors listed, the duty to exercise reasonable care, skill and
diligence (section 174) will apply. It will not be sufficient to pay lip service to the factors,
and, in many cases the directors will need to take action to comply with this aspect of the
duty. At the same time, the duty does not require a director to do more than good faith
and the duty to exercise reasonable care, skill and diligence would require, nor would it
be possible for a director acting in good faith to be held liable for a process failure which
would not have affected his decision as to which course of action would best promote the
success of the company.

Thus so long as a good faith exercise has taken place this should be enough. Bearing in mind that
this duty refers to the success of the company and not to the interests of third parties affected by
the decision, it is clear that the duty of care for human rights abuses needs some further
development.

First, a duty of care for human rights abuses is by definition owed to persons outside the
corporation and is not always instrumentally linked to the success of the company. Accordingly a
wider tort based duty of care applicable to the director and to the company would appear more
appropriate. The company law duty of care is too easily met compared to the tort based standard
as it is designed to balance the needs of the company and its members to be protected from
incompetent management and the need to give directors flexibility and freedom to engage in
entrepreneurial activity. That is what acting to promote the success of the company means in
practice. Arguably the company law standard is irrelevant as it does not cover the question of
harm to parties outside the company except to the extent that such harm materially affects the
success of the company, a very vague standard that is not centered on the effects of corporate

23

decisions on third party victims. By contrast the tort based duty focuses on the avoidance of
harm to the foreseeable victim and so draws the line of balance differently. Here the general
standard of reasonable foreseeability of harm is a more appropriate guide to the parameters of the
duty of care than specific company law concerns.

Secondly, the relationship of liability between the director(s), or other relevant company
officer(s), and the company needs to be clarified. Arguably, the former will discharge their duty
through the undertaking of the due diligence approach advocated by the SRSG and the latter will
be liable on the basis of the principles discussed above. Thus the director(s), or other officer(s) or
agent(s) of the company, responsible for carrying out the due diligence, will need to meet the
appropriate standard of care to avoid personal liability. However, the company may be
responsible even where individual officers have carried out their duties but the organization as a
whole has nonetheless caused a violation of human rights. This assumes that personal liability
for failure to carry out due diligence is needed, to encourage responsible conduct by directors
and other company officers. It is arguable that the company itself also needs to carry liability so
as to develop a culture of compliance. Equally, it is essential that due diligence liability is not
embroiled in arguments about the legal separation between the company and its directors,
officers and agents, so as to shield these classes of corporate personnel from personal
responsibility, nor the insulation of corporate liability though the direct and exclusive personal
liability of directors.

Thirdly small and medium sized enterprises and members of supply chains will also have to
undertake due diligence although the precise scope and extent of this is yet to be determined.
This may have significant cost implications for smaller businesses and for the degree of
compliance needed in order to come within the duty of care as is recognised by the Guiding
Principles, discussed above. In this connection it should be noted that s.174 of the Companies
Act 2006 requires consideration of the skill and knowledge of the actual director undertaking the
duty of care as well as applying a more general duty based on the average director. Thus
directors in small and medium sized firms may well be less able to undertake due diligence
reviews than those working in larger firms with developed human rights compliance policies.
This will affect how far their duty of care will go.

24

Finally, the question whether different human rights risks should be treated differently needs to
be considered. For example, do human rights relating to labour lend themselves to the same
general concerns for corporate due diligence as do human rights relating to property or to other
human rights? While an exhaustive analysis is beyond the scope of this paper (it would require a
paper of its own!) it is useful to note that the SRSGs Guiding Principles address this issue by
focusing on the actual or potential human rights impact of a business enterprises activities and
associated relationships. This includes a number of sub-questions that need to be considered in
the course of the human rights due diligence exercise. According to the Guiding Principles these
include typically, assessing the human rights context prior to the proposed business activity,
where possible; identifying who may be affected; cataloguing the relevant human rights
standards and issues; and projecting how the proposed activity and associated business
relationships could have adverse human rights impacts on those identified.101 In this process,
business enterprises are exhorted to, pay special attention to any particular human rights
impacts on individuals from groups or populations that may be at heightened risk of vulnerability
or marginalization, and bear in mind the different risks that may be faced by women and men.
102

A further important factor would be to consider direct and indirect contributions to human rights
impacts. For example a direct contribution could involve a company inducing a supplier to abuse
worker rights due to unreasonable time demands being placed on it for delivery to the company.
An indirect contribution may arise where a company enters into a relationship with a business
partner that abuses human rights even though the activities of the company itself do not make the
human rights situation worse. The distinction is significant for due diligence analysis as direct
impacts can be avoided by changes in the firms own conduct while indirect impacts can only be
remedied by a change of behaviour of the business partner or through withdrawal by the
company from that relationship. The Guiding Principles expressly recognise this distinction in
Principle 13.103

IV. THE RESPONSIBILITY TO RESPECT AND CORPORATE GOVERNANCE

THEORY

25

The corporate responsibility to respect human rights poses a challenge for corporate governance
theory. It is an important factor in the further development of the shareholder/stakeholder debate
that is common to both law and business ethics scholarship.104 Indeed the inclusion of a
corporate responsibility to respect human rights suggests, at first glance, that a shareholder
primacy model of corporate governance may be inadequate to deal with the complex changes in
governance and regulation that such a responsibility would appear to impose on corporations.
However, it may be equally difficult to reject outright a shareholder based model of corporate
governance on this basis alone. Not only is this approach strongly embedded in the corporate
laws of many countries, most notably those following the Anglo-American model, but it also
contains a strong ethical foundation of its own so far as the preservation of the legitimate
property rights of shareholders against corporate malpractice at the hands of managers is
concerned.105 On the other hand it is hard to see how the existence of the corporate responsibility
to respect human rights can become a significant element in corporate action unless a more
stakeholder oriented approach is adopted in corporate governance and regulatory developments.
The implications of the shareholder and stakeholder approaches for this type of corporate
responsibility will now be considered in turn.

Shareholder oriented approaches to corporate governance were spurred by the interaction of

corporate strategy with market organisation and stimulus.106 This led to the development of
multi-divisional corporations and to the separation of ownership and control between managers
and shareholders, with the latter remaining at best nominal owners of the company, while
controlling power lay with the managers.107 It was this effect of corporate growth that led to the
development of agency based theories of corporate governance. These sought ways of avoiding
the problem that uncontrolled managers may not act in the best interests of the shareholders but
in their own interests, thereby undermining the basic promise made between the company and its
shareholders that it would be run in their best interests.

Consequently the main thrust of agency based theories is the reduction of agency costs, that is,
those costs which arise when managers fail to act in the best interests of the company and hence
of the shareholders. The principal cost that needs to be controlled is the misallocation of funds

26

away from the shareholder towards the enrichment of the manager. Based on the initial promise
made between managers and shareholders, the theory develops a contractual analysis of the
enterprise and posits that it is no more than a nexus of contracts between the managers and the
shareholders.108 Those contracts aim towards the protection of shareholders as the residual risk
bearers of the company. Thus the main thrust of these arrangements is to enhance shareholder
value. This is justified by the fact that shareholders take the greatest risks as they have no
contractual guarantee of a return on their investment, unlike voluntary creditors who have
entered into contracts with the company.109 The main mechanism for controlling managers in this
situation is the market itself. Inefficient firms will not attract shareholder interest, or will lead to
takeovers by more efficient management teams, and so the market offers the best discipline for
managers to run their companies efficiently. Equally managers are placed under a moral
imperative to protect the interests of shareholders as a result of their fiduciary duties towards
them.110

The value of these arguments can be questioned both from a regulatory and a business ethics
perspective. As John Boatright has asked whats so special about shareholders? His answer is
nothing much, given the erosion of shareholder power since the 1930s and the rise of public
policy shareholder protection regulation.111 As a result he rejects, as an inadequate
characterization of corporate governance law and practice, the notion that only shareholders can
be the subject of fiduciary duties or that only fiduciary duties can cover shareholder interests, or
that managers might not have responsibilities to other types of constituencies. Indeed given the
limited nature of fiduciary obligations, pertaining to general matters of organisation and strategy,
in the ordinary conduct of business, where the business judgment rule applies, the interests of
other constituencies may be taken into account without the possibility of a successful shareholder
suit for the breach of any fiduciary duty.112 In addition the success of the company cannot be
limited to the input of specific capital from shareholders, but is also dependant on the
opportunity capital that society provides.113 Thus other interests apart from shareholders can
and should be taken into account to ensure the success of the company, though shareholders
remain special, to the extent that public policy considerations support the continuation of the
corporation as a private, profit-making institution, with strong accountability to shareholders.114

27

Furthermore, the shareholder primacy approach has been criticised for limiting the scope for
wider claims to be taken into account by corporate managers as a result of an unfortunate trend
of analysis that has sought to overestimate the moral hazards arising out of the agency costs
issue.115 In particular a crude kind of economic determinism has informed the content of agency
theory leading to a reductionist tendency that seeks out underlying economic incentives to ethical
choices and that regards economic self-interest and opportunism as the dominant motives for
human behaviour.116 This in turn leads to the overemphasis on shareholder primacy even though
there is no necessary causal relationship between agency cost problems and shareholder
primacy.117 This approach is a caricature of human reality, and of corporate activity, and has
serious implications in relation to corporate human rights responsibilities.
Crude nexus of contracts and shareholder primacy arguments can be used to undermine
attempts to add human rights obligations to the range of corporate duties. First, they can be used
to prevent seeing the corporation as a collective actor based on co-ordinated management and so
could justify the rejection of a responsibility to respect human rights since corporations are no
more than, legal fictions which serve as a nexus for a set of contracting relationships among
individuals 118 and human rights victims by definition have no contractual nexus with the
corporation. Secondly, a crude agency approach is likely to see a commitment to observe human
rights as a threat to shareholder primacy. Should managers take steps to comply with any
corporate responsibility to respect human rights this would be an illegitimate extension of their
actions as it would fall outside the range of actions required to fulfil their agency obligations
toward shareholders. It sets up a competing set of claimants whose risks in relation to the firm
are virtually non-existent, at least in strict economic terms. The holders of human rights have
invested nothing in the company and so require nothing from managers, while the latter have no
right to exercise their managerial power to meet such third party claims.

In response to such arguments the stakeholder perspective recognises the company as an

institution rather than a bundle of assets, one which has to consider the needs not only of internal
stakeholders, such as the shareholders, managers and employees, but also the external
stakeholders such as customers, suppliers, competitors and other special interest groups.119 Thus
a more socially rooted approach to decision-making is required and more room is offered to

28

ethical concerns. As Wesley Cragg notes, stakeholder theory creates a mechanism and thereby
opens the door to bringing fundamental moral principles to bear on corporate activities.120 This
requires managers of investor-owned corporations to acknowledge that all corporate stakeholders
have, equal moral status and acknowledge that status in all their activities.121 In relation to
actual or potential victims of corporate human rights violations the stakeholder model would
appear to require that the interests of such constituents should be taken into account in the
decision making processes of the firm. The development of due diligence and other corporate
governance mechanisms for furthering these interests would be consistent with a stakeholder
approach. Equally corporate actors may need to engage actively in institution building to ensure
that certain core public interests in the preservation of human rights are met so that they do not
benefit illegitimately from a lack of well ordered institutions, as in the case of weak governance
zones or less developed host countries, or from market failures.122

The stakeholder approach has in turn been the subject of counter criticism. Thus Jensen sees it as
flawed, because it violates the proposition that any organization must have a single-valued
objective as a precursor to purposeful or rational behavior and that the corporation, will be
handicapped in the competition for survival because, as a basis for action, stakeholder theory
politicizes the corporation, and it leaves its managers empowered to exercise their own
preferences in spending the firm's resources.123 Jensen adds that organisations following a
multiple objective policy, as stakeholder theory would require, cannot succeed and that in
corporate life this is especially true if the value of profit maximization is displaced. The result is
the need to make trade-offs between different interests and the handing of unaccountable
discretion to managers.124 The consequence is that, stakeholder theory will reduce social
welfare even as its advocates claim to increase it just as the failed communist and socialist
experiments of the twentieth century.125 Jensen does not however dismiss the need for
stakeholder interests to be ignored and suggests an enlightened value maximization/enlightened
stakeholder theory alternative. This would give managers and employees incentives to resist
maximizing short-term financial performance and instead to devote themselves to long-term
value creation. This is to be achieved by learning from stakeholder theory to think more
generally and creatively about how the organizations policies treat all important constituencies of
the firm.126

29

Jensens ideas appear to be representative of what is actually taking place in corporate law
developments related to stakeholder issues. An enlightened management or enlightened
shareholder value approach to directors duties was noted earlier in relation to several
jurisdictions, including s.172 of the UK Companies Act 2006. The UK Company Law Review
took the robust position that a company, should be run in a way which maximises overall
competitiveness and wealth and welfare for all but that this, should not be done at the expense
of turning company directors from business decision makers into moral, political or economic
arbiters, but by harnessing focused, comprehensive, competitive business decision making within
robust, objective, professional standards and flexible, but pertinent, accountability. 127 In the
light of these concerns the duty to act in the interest of the company was reformed by s.172 of
the Companies Act 2006 to become a duty to promote the success of the company. As noted
above s.172 assumes a stewardship role for directors through the listing of the various other
interests that the director should take into consideration when making decisions. The stewardship
element is present in the assumption that such interests can be taken into account as part of the
process of securing the success of the company. In this sense the enlightened shareholder value
model of corporate governance can allow for some room to make human rights oriented
decisions provided that they do not weaken the success of the company.

Other corporate governance mechanisms conducive to respecting human rights could be

developed from existing models. For example continental European models of corporate
governance often allow for worker participation in corporate affairs whether through works
councils or through the use of co-determination laws that require a certain proportion of the
board to be made up of worker representatives.128 Under the Anglo-American model wider
stakeholder interests can be introduced through the appointment of suitable non-executive
directors to the board.129 Equally the use of social accounting devices may assist.130 However, in
relation to human rights concerns the relevant class of stakeholder is potentially very wide. It
would encompass all those affected by corporate actions whether or not they can impact the
corporation. For example it is highly unlikely that existing devices for widening stakeholder
participation in companies could deal with aboriginal groups whose culture and way of life is
threatened by an investment project.131 The identification of such potential stakeholders or their

30

inclusion in corporate governance structures is hard to determine. Of course local project specific
solutions can be found, such as local community consultation bodies, but these are outside the
mainstream of corporate governance. This is a field ripe for further analysis.

Finally it may be argued that compelling existing firms, founded on a shareholder focused
model, to undertake additional responsibilities might be considered ethically objectionable from
a libertarian perspective.132 From this standpoint it is unclear whether the imposition of new
human rights responsibilities on such firms could be said to have the public support necessary to
justify such incursions into existing and accepted arrangements. The argument continues that if
support for such new types of responsibilities exists, employees, investors, customers and other
persons in contractual relations with firms would be willing to make investments in, or contracts
with, a firm with a high human rights culture, or set up new firms with such a culture as their
focus. In response it may be said that such investments are being made through ethical
investment institutions, shareholder activism, consumer boycotts, or by employee choices as to
where they prefer to work.133 For example, recruitment officers for major companies often stress
the social responsibility of their firm as a reason for seeking employment there.134 Furthermore,
it is only recently that concern for the human rights responsibilities of business has become a
mainstream issue. It may take time for all relevant stakeholders to change their behaviour.
Finally many constituencies that deal with corporations have no choice in the matter of who they
contract with due to their relative economic dependency on the company. The case of employees
or sub-contractors working in a recession comes to mind here.

CONCLUDING REMARKS

This paper has argued that the proposed Framework of the SRSG, through the introduction of a
responsibility to respect human rights and of the due diligence mechanism, may result in certain
reforms of corporate organisation that may lead to significant legal consequences. In particular a
binding duty of care towards foreseeable potential victims of human rights infringements arising
out of investment projects may eventually crystallise. It is inherent in the human rights due

31

diligence concept and there is no reason in principle why existing laws cannot evolve to contain
such a duty. Equally, it seems clear that any move towards operationalising the corporate
responsibility to respect human rights will involve a departure from a shareholder based
corporate governance model towards a more stakeholder based model.

The holder of the human rights in question will be any one of a number of stakeholders in the
company. Most obviously the employees (both of the company and of its suppliers and
distributors) are the closest example as they are most likely to be exposed to violations of
fundamental rights in the workplace. Other holders include the local community that is directly
affected by corporate actions, whether as individuals or as a group. However, it is the involuntary
creditors of the company, those who are injured or otherwise harmed by corporate action, who
represent the most problematic group of external stakeholders in relation to human rights duties
of companies. The introduction of managerial obligations to perform human rights due diligence,
based on a binding legal duty of care under tort law for both management and the corporation,
would be a significant addition to the protection of involuntary creditors and to the recognition
that they have an unanswerable moral claim to consideration in corporate decision-making based
on the established and evolving standards of corporate responsibility, in both national and
international law.

Finally, the development of human rights compliance systems, and managerial structures to
achieve this, might go beyond enlightened shareholder value and become a feature of a
reformed civil corporation.

135

Such a corporation could differ significantly from the

shareholder oriented model, encompassing distinctive value systems that rest upon the view that
business and society are not mutually exclusive or irrelevant to one another and that these values
will be informed by the dominant social discourses of the 21st century such as environmentalism,
feminism and human rights.136 Future research may seek to develop further such a model of the
corporation, building upon the implications of stakeholder theory for the reform of corporate law
and regulation, and upon the role which human rights considerations will play in this process.
Increased interactions between corporate law and business ethics research will be required to
achieve this aim.

32

Comment [GW1]: May is ambiguous

between predicting likelihood (or
possibility) vs. giving permission; I assume
youre talking about a possible future
development, so I changed this to might
(and later could).

ACKNOWLEDGEMENTS

The ideas developed in this paper were first presented at the Expert Multi-Stakeholder
Consultation Closing the Governance Gaps: Application of the UN Protect, Respect, Remedy
Framework, hosted by the German Federal Ministry for Economic Co-operation and
Development, Berlin, 20 January 2010 and at the Canadian Business Ethics Research Framework
Business and Human Rights Symposium 25-28 February 2010 Schulich Business School, York
University Toronto, hosted by Wesley Cragg. My thanks to those who gave me comments and
feedback at these events, particularly John Ruggie, John Bishop and Stepan Wood. Thanks also
to Andrea Schemberg for commenting on my initial draft and to Denis Arnold and Wesley Cragg
for encouraging me to consider the link between moral and legal issues raised by the UN
framework. Finally thanks too to Gary Weaver and the three anonymous referees whose
instructive comments helped me to develop a better interaction between law and business ethics
in this paper.

33

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1

See UN Special Representative of the Secretary General on the Issue of Human Rights and Transnational
Corporations and Other Business Enterprises (SRSG) SRSG Report 2008, SRSG Report 2009, SRSG Report 2010
and SRSG Guiding Principles.
2
See SRSG Corporate Law Project
3
See further Clapham Human Rights Obligations of Non-State Actors ch.6; Muchlinski Multinational Enterprises
514-518; Kinley Civilising Globalisation ch.4, Korbin Private Political Authority and Public Responsibility 351355.
4
See Denis G. Arnold Transnational Corporations.
5
See further Foster Company Law Theory in Comparative Perspective: England and France.
6
See R Edward Freeman The Politics of Stakeholder Theory: Some Future Directions at 417.
7
See further SRSG Corporate Law Project.
8
SRSG Report 2008 at para. 18.
9
SRSG Report 2009 at para.13.
10
SRSG Report 2010 at paras.20-25.
11
SRSG Guiding Principles, Principle1.
12
Ibid, Principles.2-8.
13
Ibid Principles 9-10
14
SRSG Report 2008 at para.53. The reference to organs of society alludes to the use of this phrase in the UN
Universal Declaration on Human Rights.

39

15

For a full explanation of this technical legal issue see Reinisch The Changing International Legal Framework for
Dealing with Non-State Actors and Zerk Multinationals and Corporate Social Responsibility ch.2.
16
SRSG Report 2010 at para.55.
17
However in future corporations could have binding legal duties under international human rights law: see
generally Zerk Multinationals and Corporate Social Responsibility.
18
SRSG Report 2010 at para.66.
19
According to the Commentary to Principle 11 of the SRSGs Guiding Principles, which asserts the responsibility
for business enterprises to respect human rights, The responsibility to respect human rights is a global standard of
expected conduct for all business enterprises wherever they operate. It exists independently of States abilities
and/or willingness to fulfil their own human rights obligations, and does not diminish those obligations. And it
exists over and above compliance with national laws and regulations
protecting human rights..
20
SRSG Commentary to Principle 12 of the Guiding Principles. The instruments listed are: the International Bill of
Human Rights (consisting of the Universal Declaration of Human Rights and the main instruments through which it
has been codified: the International Covenant on Civil and Political Rights and the International Covenant on
Economic, Social and Cultural rights), coupled with the principles concerning fundamental rights in the eight ILO
core conventions, as set out in the Declaration on Fundamental Principles and Rights at Work.
21
Ibid.
22
SRSG Guiding Principles Principle.11.
23
SRSG Report 2010 at paras. 67-78.
24
Ibid at para.80.
25
Ibid at paras. 81-83.
26
SRSG Guiding Principles Principle.17.
27
SRSG Report 2010 at para. 86. According to the Commentary to Principle 17 of the Guiding Principles:
Conducting appropriate human rights due diligence should help business enterprises address the risk of legal claims
against them by showing that they took every reasonable step to avoid involvement with an alleged human rights
abuse. However, business enterprises conducting such due diligence should not assume that, by itself, this will
automatically and fully absolve them from liability for causing or contributing to human rights abuses.
28
SRSG Report 2010 at paras 83-91 and see too SRSG Report 2009 at paras 86-115.
29
SRSG Report 2009 at paras 94-98.
30
SRSG Report 2010 at paras.91-102
31
Ibid at para.101
32
Ibid at paras.109-113.
33
SRSG Guiding Principles at Principles. 25 and 26. The Guiding Principles also consider non-judicial state based
grievance mechanisms (Principle 27) and non-state based grievance mechanisms (Principle 28).
34
See for example Sullivan Rethinking Voluntary Approaches in Environmental Policy; Baldwin and Cave
Understanding Regulation 136-7 and 335-6.
35
By Article 1 ECHR, The High Contracting Parties shall secure to everyone within their jurisdiction the rights and
freedoms defined in Section I of this Convention. See for example Young James and Webster v UK (1981) E.Ct.HR
Series A vol.44; X and Y v The Netherlands (1985) E.Ct.HR Series A vol. 91; Arzte fur das Leben (1988) E Ct.HR
Series A vol.139. See further Application No.36022/97 Hatton and others v United Kingdom Judgment E.Ct.HR 8
July 2003 at http://cmiskp.echr.coe.int (de-regulation of night flights at Heathrow Airport did not violate Article 8,
right to private and family life) see Charles Bourne Im noisy fly me New Law Journal 15 August 2003 p.1262.
See too, on state liability for noise and environmental pollution, Powell and Rayner v United Kingdom E Ct HR
Judgment of 21 February 1990 Series A No.172; Lopez Ostra v Spain E Ct HR Judgment 9 December 1994 Series A
No 303-C; Guerra and others v Italy E Ct HR Reports 1998-I. See generally: Drzemczewski European Human
Rights Convention in Domestic Law ch.8; Andrew Clapham Human Rights Obligations of Non-State Actors 349420; Nicola Jagers Corporate Human Rights Obligations 36-44 and Ch.VI; August Reinisch The Changing
International Legal Framework for Dealing with Non-State Actors 78-82.
36
The following paragraphs draw on Muchlinski Limited Liability
37
Korbin Private Political Authority and Public Responsibility 357.
38
Hansmann and Kraakman Toward Unlimited Shareholder Liability for Corporate Torts, 1920-21.
39
Foreign Direct Liability may be defined as, A new wave of legal actions in the UK, US, Canada and Australia
[that] aims to hold parent companies legally accountable in developed country courts for negative environmental,
health and safety, labour or human rights impacts associated with the operations of members of their corporate

40

family in developing countries. These foreign direct liability claims represent the flip side of foreign direct
investment. They complement campaigners calls for minimum standards for multinational corporations by testing
the boundaries of existing legal principles, rather than by calling for new regulation. Halina Ward Governing
multinationals: the role of foreign direct liability at 1. See further Muchlinski The Provision of Private Law
Remedies against Multinational Enterprises: a Comparative Law Perspective.
40
The SRSGs Corporate Law Project at 9 shows that in all of the 13 jurisdictions surveyed regulators and courts are
extremely reluctant to lift the corporate veil except in cases such as fraud.
41
Mendelson A Control-Based Approach to Shareholder Liability for Corporate Torts 1217-25.
42
Muchlinski Limited Liability at 9.
43
Corporate Responsibility Bill 2003 available http://www.parliament.the-stationeryoffice.co.uk/pa/cm200102/cmbills/145/2002145.pdf.
44
On which see further Muchlinski Multinational Enterprises 314-16
45
On which see R v P&O Ferries (Dover) Ltd (1990) 93 Cr.App.R 72. See generally Kershaw Company Law in
Context 154-59.
46
Corporate Manslaughter and Corporate Homicide Act 2007 s.1(1) and (3).
47
Ibid s.1(2)(a).
48
Ibid s.1(4) (c).
49
Ibid s.1(4) (b).
50
In addition to direct liability of the company indirect liability can in principle be established under the doctrine of
aiding and abetting as is shown by case-law under ATCA see Doe v Unocal Corp. Judgment of 18 September 2002:
2002 U.S. App. LEXIS 19263 (9th Cir 2002); 41 ILM 1367 (2002) but this has been limited to criminal liability by
the US Court of Appeal Second Circuit in the case of Presbytarian Church of Sudan v Talisman Energy Inc 582
F.3d 244 (2d Cir.2009).
51
Hannigan Company Law 73.
52
See further Stevens Vicarious Liability or Vicarious Action? Of course joint and several liability of the
company and its officers is always possible and to be encouraged in cases of personal deceit by the officer: Standard
Chartered Bank v Pakistan National Shipping Corporation (No.2) [2003] 1 BCLC 244 HL.
53
On which see generally Muchlinski Multinational Enterprises ch.4.
54
See Muchlinski ibid at 153-60. See further SRSG Corporate responsibility under international law and issues in
extraterritorial regulation: summary of legal workshops
55
See Amnesty International Ending Impunity: at 13
56
Ibid at 16.
57
See further International Commission of Jurists Corporate Complicity and Accountability 64-66.
58
See further Donovan and Roberts The Emerging Recognition of Universal Civil Jurisdiction.
59
See SRSG Corporate responsibility under international law and issues in extraterritorial regulation at paras 3952.
60
See Steinhardt Corporate Responsibility and the International Law of Human Rights: The New Lex Mercatoria
215.
61
See further Reinisch The Changing International Legal Framework for Dealing with Non-State Actors.
62
Korbin Private Political Authority and Public Responsibility 365.
63
Ibid at 365-369.
64
SRSG Recommendations on Follow-up to The Mandate at 3.
65
Ibid.
66
Ibid.
67
Ibid.
68
See Securities Act 1993 at http://www.sec.gov/about/laws/sa33.pdf and see too Spedding Due Diligence
Handbook 4.
69
Spedding Due Diligence Handbook 3.
70
Ibid at 5-6.
71
See generally ibid chs.4 and 7. For a discussion of the business case for corporate social responsibility see
further Dunning and Lundan Multinational Enterprises and the Global Economy 649-60; Wesley Cragg Human
Rights, Globalisation and the Modern Stakeholder Corporation 126-7.
72
Spedding ibid at 125.
73
SRSG Corporations and human rights: a survey of the scope and patterns of alleged corporate-related human
rights abuse: 100. Finally, based on this sample, corporate failure to respond to allegations of human rights

41

impacts may result in further backlash and recurrence of complaints. A number of complaints that went without
company response were resubmitted. At a minimum, this indicates that it is in a corporations interest to respond to
these allegations without delay. Even though impacts can be complex and easily multiply, it is equally simple.
Managing respect for human rights at the outset of company activities can eliminate or mitigate the unintended
succession of abuses and accompanying risks.
74
See further Trevino and Nelson Managing Business Ethics ch.5 Ethics and Organizational Culture.
75
See further Weaver, Klebe Trevino and Cochran Integrated and Decoupled Corporate Social Performance
76
Joel Bakan argues that the very nature of the corporation as a singularly self interested entity, unable to feel any
genuine concern for others in any context and geared exclusively to the pursuit of profits prevents corporate social
responsibility from being anything more than an instrumental device for legitimating the corporate function. The
Corporation at 56-59 Though perhaps exaggerated, this concern is important in accepting that a measure of
regulatory compulsion may be necessary to ensure responsible corporate behaviour.
77
On which see further Quinn and Jones An Agent Morality View of Business Policy
78
The author is grateful to John Bishop for these points made in discussion at the CBERN Conference Toronto 26
February 2010.
79
On which see R v Sault Ste.Marie (Supreme Court of Canada, [1978] 2 S.C.R. 1299); R v Bata Industires (Ontario
Provincial Court (1992), 70 C.C.C. (3rd) 394); Levis v Tetrault (Supreme Court of Canada, [2006] 1 S.C.R. 420,
2006 SCC 12). See to Industry Canada Corporate Law and Insolvency Policy at chapter 5 (c) (ii) and (iii) available
at http://www.ic.gc.ca/eic/site/cilp-pdci.nsf/eng/cl00425.html
80
The author is grateful to Stepan Wood for making these points and introducing him to the Canadian position in
discussions at the CBERN Conference Toronto, 26 February 2010.
81
See US Federal Sentencing Guidelines Manual
http://www.ussc.gov/Guidelines/2010_guidelines/Manual_PDF/Chapter_8.pdf . See further Trevino and Nelson
Managing Business Ethics 208-209
82
Ibid section 8B 2.1.
83
See Thompson/McNulty/Filip Memorandum Department of Justice 9-28.800 Comment at 14 available at
http://www.justice.gov/opa/documents/corp-charging-guidelines.pdf
84
Ibid at 15.
85
SRSG Corporate Law Tools Survey of the United States at 13
86
SRSG Corporate Law Project 18
87
SRSG Corporate Law Tools Survey of the United States at 13
88
See further Orts Beyond Shareholders: Interpreting Corporate Constituency Statutes; Freeman et.al. Stakeholder
Theory 164-172.
89
American Bar Association Other Constituencies Statutes
90
Millon Redefining Corporate Law.
91
Freeman et.al Stakeholder Theory 170 citing Orts Beyond Shareholders: Interpreting Corporate Constituency
Statutes 44.
92
SRSG Corporate Law Project 14
93
Ibid 16-19 where other countries laws are compared to s.172 of the UK Companies Act 2006 whose contents
found the basis of question 11 of the Corporate Law Project: Question 11: More generally, are directors required or
permitted to consider the companys impacts on nonshareholders, including human rights impacts on the
individuals and communities affected by the companys operations? Is the answer the same where the impacts occur
outside the jurisdiction? Can or must directors consider such impacts by subsidiaries, suppliers and other business
partners, whether occurring inside or outside the jurisdiction? (See e.g. s.172 UK Companies Act 2006).
94
Companies Act 2006 (c46) at http://www.opsi.gov.uk/ACTS/acts2006/pdf/ukpga_20060046_en.pdf
95
SRSG Corporate Law and Human Rights: Opportunities and Challenges of Using Corporate Law to Encourage
Corporations to Respect Human Rights 6.
96
See Kershaw Company Law in Context 350.
97
See Re Barings (No.5) Secretary of State for Trade and Industry v Baker (No5) [1999] 1 BCLC 433 endorsed on
appeal [2000] 1 BCLC 523 at 535 CA.
98
See Hannigan Company Law 211-218. Professor Hannigan ends her useful review of s.172 thus: A respect for
human rights is not likely to be influenced by finely crafted sections of the Companies Act which she describes as,
legislation devoted to constructing the legislative skeleton for the corporate vehicle (at 218). Rather she sees the
answer to human rights and other social claims in, regulation through domestic law on matters such as planning,
environmental and competition law and, in others, to the work of international organisations and treaties (ibid). In

42

South Africa s.7 of the Companies Act of 2008 expressly refers to the South African Bill of Rights and to its
promotion through company law. According to the South Africa Company Law Survey undertaken for the SRSG:
although the Companies Act does not contain provisions analogous to section 172 of the UK Companies Act 2006,
section 7 of the New Companies Act read together with section 76 of the New Companies Act appears to indicate
that directors are required to consider the company's impacts on non-shareholders, which includes, inter alia,
ensuring compliance with the Bill of Rights in the application of company law. Such consideration is subject, it is
submitted by the authors, to the directors acting in the best interests of the company. (para.11.6) Available at
http://www.reports-and-materials.org/Corp-law-tools-So-Africa-Edward-Nathan-Sonnenbergs-for-Ruggie-May2010.pdf
99
OECD Guidelines for Multinational Enterprises, II General Policies 2. The OECD Guidelines are currently under
revision and a new human rights chapter is expected in the revised version.
100
In this connection it may be noted that the UK National Contact Point for the OECD Guidelines has applied the
SRSGs framework in assessing complaints made under the Guidelines against UK companies: see for example
Follow up to Final Statement by the UK National Contact Point for the OECD Guidelines for Multinational
Enterprises Complaint from Survival International against Vedanta Resources plc
12 March 2010 recommending that Vedanta use the due diligence process in the SRSGs framework to deal with the
human rights issues arising out of its investment in a bauxite mine in India.
101
SRSG Guiding Principles Commentary to Principle 18 at 17.
102
Ibid.
103
SRSG Guiding Principle 13 states: The responsibility to respect human rights requires that business enterprises:
(a) Avoid causing or contributing to adverse human rights impacts through their own activities, and address such
impacts when they occur;
(b) Seek to prevent or mitigate adverse human rights impacts that are directly linked to their operations, products or
services by their business relationships, even if they have not contributed to those impacts.
See further Global Compact Network How to do Business with Respect for Human Rights 38.
104
On the relationship between legal and business ethics scholarship see further Hasnas, Prentice and Strudler New
Directions in Legal Scholarship.
105
See Heath The Uses and Abuses of Agency Theory
106
See further Chandler Strategy sand Structure and The Visible Hand.
107
See further Bearle and Means The Modern Corporation and Private Property.
108
See M.C.Jensen and W.H.Meckling Theory of the Firm, Managerial Behaviour, Agency Costs and Ownership
Structure
109
See Williamson The Economic Institutions of Capitalism 304-305.
110
See Boatright Fiduciary Duties and the Shareholder-Management Relation 394-395; Goodplaster Business
Ethics and Stakeholder Analysis 69.
111
Ibid 405.
112
Ibid 404.
113
Schlossberger A New Model of Business: Dial Investor Theory at 461.
114
See Boatright Fiduciary Duties and the Shareholder-Management Relation, 405.
115
See Heath The Uses and Abuses of Agency Theory.
116
Ibid 499-505.
117
Ibid at 506.
118
Ibid at 310. Jensen and Meckling define a legal fiction as the artificial construct under the law which allows
certain organizations to be treated as individuals This definition is meaningless, as corporations are not individuals
but complex collective enterprises, and is at odds with, for example, the organisation liability approach taken under
the English law of corporate manslaughter which clearly establishes the corporate actor as the guilty party not on the
basis of some fictive personality but on the basis of its organisational actions.
119
See Freeman The Politics of Stakeholder Theory: Some Future Directions; Freeman et.al Stakeholder Theory.
120
Cragg Business Ethics and Stakeholder Theory 115.
121
Ibid.
122
See Hsieh Does Global Business Have a Responsibility to Promote Just Institutions? 258
123
Jensen Value Maximization: Stakeholder Theory and the Corporate Objective Function 237.
124
Ibid at 241-2.
125
Ibid 243.
126
Ibid 245.

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127

United Kingdom Company Law Review Modern Company Law for a Competitive Economy: Developing the
Framework at para.2.21. See further Hannigan Company Law 211-218.
128
See Muchlinski Multinational Enterprises at 354-59
129
Ibid at 342-49.
130
Ibid at 375-82 and see further SRSG Corporate Law Project:Overarching Trends and Observations at 26-31.
The SRSGs survey of corporate law concludes on the reporting issue: Most surveys agree that human rights
impacts may in some cases reach the materiality thresholds applicable to ordinary financial reporting, but
there is a lack of guidance for companies on how and when to make these determinations. The
implication is that the absence of this guidance may actually place companies at risk of noncompliance
with reporting obligations, as they may not be reporting material information due to a lack of understanding
of its relevance...The surveys also indicate that only a small number of jurisdictions have created express
[Corporate Social Responsibility] reporting obligations. A greater proportion encourages such reporting through
corporate governance guidelines and listing rules.
131
That author thanks John Bishop for this observation in discussions at the CBERN Conference Toronto 26
February 2010.
132
See Maitland The Morality of the Corporation: An Empirical or Normative Disagreement? 450-51
133
See further on responsible investment Sullivan and MacKenzie Responsible Investment; on consumer boycotts
see the comprehensive lst of current boycotts at Ethical Consumer
http://www.ethicalconsumer.org/Boycotts/currentboycotts.aspx ; on shareholder activism See Dhir Shareholder
Engagement in the Embedded Business Corporation
134
See for example Unilevers Recruitment Brochure for Graduates at
http://www.unilever.co.uk/Images/U%20Brochure%20PDF_tcm28-239726.pdf which stresses at 14: Unilever is a
hungry, driven commercially-minded organisation. But were also a company that wants to do the right thing for our
consumers, our people and the planet. When it comes to working responsibly, we dont follow the crowdWeve
developed a new philosophy Doing well by doing good which means that our ethics are bound up with the
way we do business.
135
On which see further Zadek The Civil Corporation.
136
See further Freeman et.al. Stakeholder Theory 182-192 and ch 7; Wicks Freeman and Gilbert A Feminist
Reinterpretation of the Stakeholder Concept; Hsieh Does Global Business Have a Responsibility to Promote Just
Institutions?

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