John Morrison on How Business Leaders Can Step Up for Human Rights During a Global Crisis

More and more is expected of business in societies all around the world. Put simply, every board of directors needs to understand how their company relates to wider society both in terms of positive and negative impacts. Last month at the World Economic Forum in Davos, we launched a Guidance Note for Boards on emerging director duties relating to expected stakeholders . In contexts such as the Russian invasion of Ukraine, it is even more important that company directors take this perspective, not just in OECD member countries but in emerging economies too: SMEs as well as major international companies. John Morrison's presentation at the MIM Business School, Kyiv, makes the case for a business' "social licence to operate" as a modern interpretation of social contract theory. He looks at the issue of economic sanctions as one of these key issues, and within this the provision of 'public goods' (e.g. food, water, health) and essential services (e.g. security, agriculture, healthcare, energy, finance, internet). This is both an issue of enhanced human rights due diligence (as understood under the United Nations Guiding Principles on Business and Human Rights) as well as the culture in the boardroom. 

 

"How Business Leaders Can Step Up for Human Rights During a Global Crisis"

13 July 2022, MIM Business School, Kyiv

 

I would like to thank the MIM Business School in Kyiv for the opportunity of joining your “Reinforce Ukraine” speaker series. As future business leaders you are looking forward into a world with multiple systemic challenges – the illegal invasion of Ukraine, other conflicts and military coups, economic shocks, climate change and biodiversity depletion. Companies will need executives and board members who understand these challenges and who can operate with ethical principles and a sense of moral clarity. You will face very difficult decisions in your careers – balancing the needs of people and planet, of business profit and wider societal welfare, and the need to fight all forms of corruption, discrimination, and worst of all inaction in the face of crimes and abuses. You won’t always get it right, but the business leaders of the future need to be equipped to do the best they can.

I will focus today on the issue of the role of business during the current global crisis. But to look forward, we must first briefly look back to a previous global crisis.

Let’s start with the fourth largest company in the world in the late 1920s. It was a diversified company providing many of the commodities and products needed to drive the European economy – such as Oil, Benzol, Sulphur, Nickel, Iodine, Rubber, Chromium, Tungsten, Nitrogen and Phosphates.  It was then seen as a progressive employer, with good working conditions for its employees and (for the standards of the time) a diverse work force. In fact when the National Socialists (the Nazis) came to power a few years later, they criticised the company for employing so many Jews and at senior management positions. It has several Nobel Prize winning chemists amongst its staff.

The company was I.G. Farben (a merger of BASF, Bayer, Agfa and several other companies) and the question was then, and remains now, how within the space of just over ten years could this company move into deep complicity with the Nazi regime, making use of forced labour from prison camps and concentration camps, and yes of course supplying the Zyklon B gas for mass murder during the Holocaust. During the Nuremberg Tribunals after the war, the IG Farben executives seemed to be in a state of denial that their great company should have fallen so far.

As the historian Peter Hayes put it in the 1980s:

“ To depict the actions of I.G. Farben’s managers as products of these processes is not to relieve them of their responsibility. It is, to compact their world with ours. Any society or part of one that ceases to grapple with the old preoccupation with history and philosophy, the problem of power and its proper use, and succumbs to an amoral, fatalistic historicism, as did the leaders of the firm here described, will surely end as they did – momentarily prosperous and ultimately discredited.”

The drivers for deep corporate complicity of IG Farben and many other companies in the abuse of human rights is still a question for today given the many incidents of complicity in breaches of international law over the past 80 years. When going through all the records of IG Farben, Peter Hayes concluded that actions taken were  in part driven by fear – by the mid 1930s Germany did not have any independent rule of law; rather, it was a country governed by law, except that the laws were profoundly discriminatory and violated human rights, and the Nazi government as well as its various arms, such as the youth wing, could commit crimes with impunity, because some of those crimes (such as confiscating Jewish-owned businesses) were sanctioned by the law. But other factors too drove the company to do what it did – not least the ability for the company to make significant profits from the military and other public contracts that came their way – both in Germany and then increasingly in occupied territories. But the biggest factor of all in the eyes of the author was the process the company prized the most – that of competition. The Nazis knew they could control the boardrooms of most companies by maintaining a competitive market for grace and favours – if you did not collude with the government then your competitors would.

World War II created a benchmark that today makes it possible  to assess  what behaviour is totally unacceptable. The tribunals in Nuremberg and Tokyo saw the prosecution of several business executives, of manufacturing companies as well as financial institutions, some of whom faced punishment. The architecture of human rights that followed - starting with the 1948 Universal Declaration of Human Rights and everything since, should help us consider what the ‘red lines’ might be for companies to be aware of, so that they guard themselves against any future corporate complicity in international crimes. And yet, we know that in the decades since there have continued to be  cases involving business executives and their companies who were  complicit in grave crimes, in Rwanda, Syria, and elsewhere. For me, business stepping up during times of global crisis comes in two parts – helping with solutions, yes, but also ensuring you are not part of the problem. The Norwegian think tank Fafo and the British peacebuilding organization International Alert  produced definitive guidance – called Red Flags – which identified nine instances in which companies run the risk of exposure to complicity in zones of conflict: forced labour, forced expulsions, asset misappropriation, illicit payments to governments or armed groups, ties with abusive security forces, trading in violation of sanctions, aiding and abetting violence, letting warring parties use company facilities, and providing financial or logistical support to an armed group or military which is abusive.

So there are a number of lessons that history teaches us.

First, business has an interest in an independent rule of law. Business leaders all too easily fall into less than perfect relationships with officials, whether elected or not – the risk of corruption never goes away. But business is better served by adhering to and not undermining the rule of law. Law also serves to make human rights a pre-competitive issue for cooperation and not risk ‘race to the bottom’ strategies, where competition drives companies to cut corners and impose social costs on workers and communities.

Second, business must embrace the need for whistleblowers and whistleblower protections. This includes voices from within the company and outside, such as human rights defenders who can hold companies to account, from within or without, as well as governments. A free civil society is an essential protection against repression, however annoying business might find their criticism to be. It is all too easy for businesses to benefit from the apparent ease of doing business in non-democratic countries where human rights defenders are intimidated or persecuted – this, as we know from history, is the first step towards the risk of collusion. It is worth noting that as early as in 2001, Amnesty International published a report called Doing Business in the Russian Federation, highlighting the human rights risks companies faced while operating in the country. One of my colleagues cowrote the report, and when he presented it  at the World Economic Forum in Davos, two leading businessmen prominent in Russia made light of the concern. One of them spent several years in jail subsequently and now lives in exile; the other is also in exile and fighting the good fight for human rights in Russia. 

Linked to this point is the next one, concerning the importance of free speech and freedom of expression. Workplaces are microcosms of society and free debate, free from fear, is important for business – of course, not speech that can be legally defined as hate speech or which incites violence. There are many employees in workplaces all over the world who are fearful of speaking up because of their status – they are from an ethnic minority, speak a minority language, are women, or because of their faith, sexual orientation, or class. 

Next is the issue of worker rights and collective bargaining. The core conventions of the International Labour Organisation remain critical in protecting these rights and some of these instruments go back to the1920s and 1930s. Unfortunately forced labour still remains a global concern.

I have already mentioned corruption in the context of the rule of law, but corruption is no friend of human rights – in fact it is often the grease that enables the wheels of human rights abuse to turn. Corruption leads to suboptimal or odious choices which undermine fair play and diverts resources away from development needs.

And now that I’ve set out these core rights issues that apply to all businesses, we can turn  to the  second part of the question – how is it that business can be part of the solution and not just part of the problem? How do we develop a global corporate culture that is based on dignity and respect, one that respects human rights and which is reflected in the boardroom of the company and not just as an issue of ‘CSR’, ‘ESG’ or legal compliance? Finally, the issue of sanctions – do they help or hinder a rights-respecting corporate culture?  I’ll offer a few reflections on these questions in the remainder of my lecture, and hopefully they can serve as the basis for our discussion. To be sure, these are global concerns, but have come into focus again in light of the Russian invasion of Ukraine.

First, we need to keep proper focus on the role of government. As governments have the primary obligation to protect human rights, we need to look to government to ensure that human rights are seen as a pre-competitive issue for business – that they are an issue of legal compliance and not voluntarism. The UN Guiding Principles on Business and Human Rights say as much, that the state has the legal duty  to protect human rights and all businesses have the responsibility to respect human rights, which they do through undertaking ongoing human rights due diligence across their operations and supply chains. Of course, no government will admit to being part of the problem, in fact all governments legitimize their actions in terms of defending the rights of someone – ‘the Aryan race’ in Hitler’s time, believers in specific religious orthodoxies in parts of Eastern Europe, linguistic groups in certain parts of Asia, and so on. Slobodan Milosevic was claiming to champion  the rights of Serbs when his remarks unleashed the war in the Balkans. Buddhist monks in Sri Lanka and Myanmar likewise claimed to be speaking for Sinhala or Burmese rights but the consequence of their actions were attacks on Tamils and Muslims in the first instance, and Rohingyas in the case of Myanmar. But if a government is not protecting the rights of everyone, including minorities that many in the country resent, then it is not protecting the human rights of anyone. 

The human rights performance of European Union member states is far from perfect, but universal rights are at least a shared endeavour and subject to free discussion in most parts of the EU. Therefore, it is also important that laws are brought in to make the corporate responsibility to respect human rights mandatory and not an issue of choice. The Corporate Human Rights Benchmark, an initiative we at IHRB are proud to have helped  develop six years ago, provides a data set for this. The Benchmark now measures the performance of 330 of the world’s largest companies based on publicly available information. It has shown how the performance of companies has plateaued – only about one third of those under assessment are making steady progress. Legislation is important to move the other two thirds of companies and to stop competition being a drag anchor against business doing the right thing – the way it was in the 1930s. The UN Guiding Principles, to which I just referred, were unanimously agreed by the UN Human Rights Council in 2011, and are the foundation for this process within the EU, OECD and other bodies around the world including the Council of Europe and OSCE supporting it. We are pleased that the EU is bringing forward mandatory human rights and environmental due diligence for 11,000 of its largest companies as well as 3,000 non-EU companies trading in the region. This is an important step towards making human rights and business a pre-competitive issue.

How then should a business think about meeting global challenges? As mentioned earlier, complying with human rights laws when they exist is a first step but is never sufficient – we need to see leadership beyond this. For me this is an issue of modern social contract theory – or as it might be called – the “social license to operate”. Unlike a legal license, you can never see a social license but you know when it has been lost – through worker, community or societal opposition. Three factors are critical – “trust”, “legitimacy” and “consent” – they are the basis for any social license. If we consider the  climate crisis as well as global insecurity and conflict, then there are many transitions ahead that will disrupt how business gets done, including in the energy sector, and relating to production and distribution of food  and global infrastructure, among others. Business needs to be much better at explaining these changes to all affected stakeholders and to manage its relationships not just with governments but society at large. I wrote a book on this a few years ago following disasters in the oil, gas and mining sectors.

So a ‘social license’ sits alongside a ‘political license’ and a ‘legal license’ – business increasingly needs all three. It is not enough to just please political elites or to think about complying with local law and ignoring international law – including that relating to human rights. Even in non-democratic countries, the ‘social license’ still matters albeit is often distorted by propaganda and misinformation. A legitimate social license is one that meets local expectations whilst still operating in accordance with international norms such as human rights.

Leadership also matters, and I am aware that concern for human rights has  yet to permeate the boardroom on a regular basis, with a number of significant exceptions. If the IG Farben case teaches us anything, it is that the leadership lacked any ethical yardstick to measure its own actions and inactions vis a vis the government  – it was very much like the frog in warm water, which does not jump out as the water gets hotter and hotter. Boardrooms need a series of mechanisms to measure their social impact – and in particular their company’s impact over ‘affected stakeholders’. This was the basis of work  we launched at the World Economic Forum in Davos in May.  We hope  the Guidance Note for Boards that our expert group developed might be translated into Ukrainian shortly. Some American companies have shown leadership in recent years, by stepping up to the plate and supporting same sex marriage, the Black Lives Matter movement, and more recently, supporting their women employees’ reproductive health and right to choose. 

So for some final thoughts. I know you wanted me to reflect on the issue of sanctions. We have long supported Bill Browder’s work to encourage targeted sanctions against individuals and companies based on clear human rights criteria. That work draws on earlier smart sanctions that emerged out of the Stockholm Process, which enabled the targeting of specific individuals or commodities that enabled or fueled conflict. The so-called “Magnitsky sanctions” were a response to the impunity of protected individuals within Russia but it has been an approach extended to other countries such as Myanmar, the Xinjiang Province of China, and Saudi Arabia  following the brutal murder of Jamal Khashoggi. The Magnitsky approach still matters and perhaps will get sharpened. The EU and the US have categories of specific designated individuals against whom sanctions have been imposed for several years. But even such sanctions are not seen as sufficient following the Russian invasion of Ukraine. The push for broad-based sanctions on the financial and energy sectors, as well as wider boycotts of goods and services, might be better understood as part of de facto economic warfare – where few rules apply beyond the Geneva Conventions. Business and human rights in the context of economic warfare is poorly understood and is giving my own organization and many others much food for thought over recent weeks. But within this broader discourse there are some concrete and urgent facets. 

For example, Professor Olena Uvarova‘s work on business in relation to the provision of essential services is notable, and I would add the broader international issue of food given the blockade of Ukrainian ports. The theft of Ukrainian grain by the invading forces is unconscionable – it constitutes ‘plunder and pillage’ under international law, and it is a challenge if such trade can be sanctioned, because its cost would be borne by poor countries in Africa and Asia which will suffer from food shortages. The solution possibly lies in somehow securing the trade so that revenues do not fuel the Russian military-industrial complex. The European Convention on Human Rights is relevant here as it does recognize some of the ‘state-like’ functions business can play and the corresponding responsibilities that come with this. So too the carve-outs from US and other sanction regimes relating to agriculture, medicines etc. There is also an international body of work on the issue of business within occupied territories as well as conflict areas very relevant to the current situation.

I used to start my lectures on business and human rights by focusing on 1948 as the moment of first significance and what was built onwards from the Universal Declaration. The current crisis has forced many of us to think even further back to the 1920s or 1930s when considering the contemporary European context and the roles and responsibilities of business. Academic freedoms including during times of conflict are paramount, and I congratulate you for hosting this lecture series.  I look forward to any questions or reflections that might now follow.

Thank you.