The Columbia Law School Blog on Corporations and Capital Markets, called the CLS Blue Sky Blog, posted an article about corporate human rights due diligence (HRDD) by Professor David Hess from the University of Michigan’s Stephen M. Ross School of Business. The blog is basically a summary of his excellent analysis The Management and Oversight of Human Rights Due Diligence published in the American Business Law Journal in November. Much of what he discusses about HRDD basis and goals should be familiar to ESG practitioners and those in responsible sourcing, but his main message is: the time has come to get serious about organizational governance of HRDD beyond simply executing HRDD.
It is worth noting that his blog and paper were written before the U.S. Uyghur Forced Labor Prevention Act was signed into law. Now his points are all the more relevant. In David’s view, there is a meaningful difference between how lawyers and compliance officers are likely to manage mandatory HRDD programs:
“If HRDD becomes mandatory or at least strongly encouraged, many believe that lawyers will take responsibility. If that happens, though, critics are concerned that the focus will be on form over substance and on protecting the company rather than the rights holders (as required by HRDD). In the article, I consider whether independent compliance officers would manage HRDD more effectively, and this discussion mirrors the long-running debate on whether compliance responsibilities should be independent from legal ones…
Unlike those in the legal department, compliance officers focus primarily on preventing and detecting violations and ensuring that an infrastructure exists to encourage ethical behavior. In addition, whereas lawyers tend to interpret the law to benefit the client, compliance officers take the perspective of regulators.”
Dangers exist for companies that attempt to implement HRDD without adequate governance structure – what he calls “cosmetically implemented programs.” These
“… can lead a company to perform worse on environmental and social matters. For example, one study found that companies with a poor record on sustainability issues performed even worse after hiring a chief sustainability officer [CSO] with no recognized expertise in the area. Apparently, these companies believed that the appearance of a commitment to sustainability protected them from criticism and allowed them to exercise less care.”
I read that study on chief sustainability officers quite recently. It is called The Influence of Corporate Sustainability Officers on Performance, published in the Journal of Business Ethics in 2019. It isn’t available free of charge so I won’t include a link – although a link is in David’s CLS Blue Sky Blog. The CSO study is rather detailed – but interesting – reading especially concerning the findings that “some firms may still use these [CSO] positions as symbolic attempts. In other words, not every expert appointment necessarily reflects substantive intent.” I am sure some will disagree with this.
What This Means
Regardless of what function in a company has ultimate responsibility for implementing HRDD, there must be a supporting governance structure that enables and empowers the company to take action and demonstrates “substantive intent”. That governance structure and mechanism also plays a critical role in determining the range of possible actions, including as David says “consider[ing] ending the relationship (in a manner that does not cause adverse human rights consequences).” Increased internal awareness and education will be needed to ensure that all involved departments/individuals understand not only their tactical roles in executing HRDD, but also that program execution will monitored/overseen specifically as part of internal governance. That may be a new message to many.
Assuming no major delays occur in the implementation of the Uyghur Forced Labor Prevention Act, we will likely see meaningful changes in organizational governance of HRDD by this June to prevent importation bans of products, goods and materials from China. Companies may need to prepare themselves to execute on difficult decisions – and that can’t happen without an adequate governance foundation in place.