The Best Due Diligence Defence is a Good Offense
This is a repost of the original posted on this site's predecessor, Right2Respect .com
According to the authors of “Due Diligence for Human Rights: A Risk-Based Approach”[i], the concept of “due diligence” has its origins as a legal defence in U.S. securities law – under the U.S. Securities Act of 1933, stockbrokers were entitled to assert a “due diligence defence” that they had conducted a good faith search for all relevant information, against shareholders’ claims that they failed to make full disclosure. However, the authors go on to emphasize that, at the heart of the due diligence doctrine, and the ability to successfully raise it as a legal defence, is the principle that the defendant undertook a good faith and “duly diligent” process for the purpose of preventing the alleged harm – in other words, in order to use due diligence “defensively” against legal liability, a defendant must first have employed it “offensively and proactively” to prevent the harm that, despite his good faith and duly diligent efforts, nevertheless occurred.
It is in this latter sense that Special Representative for Business and Human Rights, John Ruggie, has framed the concept of “human rights due diligence”. He has defined it as the steps a company takes to become aware of the direct and indirect adverse human rights impacts of its business activities and employee, contractor, supply-chain and other relationships, with the aim of preventing, mitigating and remedying them.
In his Guiding Principles for the Implementation of the Protect, Respect and Remedy Framework[ii], he sets out a four-step due diligence process that companies should follow in order to discharge their corporate responsibility to respect human rights – including elaboration of a corporate policy commitment and management procedures to respect human rights, a human rights impact identification and risk assessment process, internal operational integration of impact identification and assessment findings, and an ongoing compliance monitoring and performance reporting process. According to Mr. Ruggie, this will allow companies to “change the game from naming and shaming to knowing and showing” – that is, rather than reactively responding to civil society allegations of human rights infringements, to proactively identify and address adverse human rights impacts and demonstrate to their stakeholders their good faith and duly diligent efforts to respect human rights.
The whole purpose of human rights due diligence is to identify potential and actual adverse human rights impacts, and prevent those that haven’t yet occurred or mitigate and remedy those that have, in order to avoid allegations of human rights infringements in the first place.
Mr. Ruggie notes that concern was expressed by some stakeholders that implementation of the due diligence process could expose corporations to legal liability by divulging information regarding potential or actual adverse human rights impacts that would otherwise not be publicly available. As Mr. Ruggie emphasizes, this concern misses the point. The whole purpose of human rights due diligence is to identify potential and actual adverse human rights impacts, and prevent those that haven’t yet occurred or mitigate and remedy those that have, in order to avoid allegations of human rights infringements in the first place. In Mr. Ruggie’s view, it is only by ignoring or misrepresenting findings of adverse impacts that conducting human rights due diligence can increase a company’s potential for legal liability. He emphasizes that, if adequately conducted, 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.”[iii]
While this all sounds good, in principle, the devil is in the details.
Human rights due diligence, Mr. Ruggie points out, is an “inherently dialogical process that involves engagement and communication.” It requires meaningful engagement and dialogue by companies with rights-holders in order to identify human rights impacts, as well as transparency and accessibility to all stakeholders to demonstrate that all reasonable steps are being taken to prevent, mitigate and remedy adverse impacts.[iv]
In order for human rights due diligence to be a “game changer” from naming and shaming to knowing and showing, it will require building of trust between the parties that it will be carried out in good faith – that is, trust by rights-holders and civil society stakeholders that companies are engaging with them meaningfully, transparently and accessibly, and trust by business that their transparency and accessibility will not increase its legal liability. It remains to be seen whether the parties believe the rewards of human rights due diligence outweigh the risks.
[i]https://www.hks.harvard.edu/sites/default/files/centers/mrcbg/programs/cri/files/workingpaper_53_taylor_etal.pdf, at p.2. [ii] Report of the Special Representative of the Secretary-General on the issue of human rights and transnational corporations and other business enterprises, John Ruggie, “Guiding Principles on Business and Human Rights: Implementing the United Nations ‘Protect, Respect and Remedy’ Framework”, A/HRC/17/31, 21 March 2011. [iii] Ibid., p. 17 at para.17. However, he cautions that “by itself, [human rights due diligence] will [not] automatically and fully absolve companies from liability for causing or contributing to human rights abuses.” [iv] Report of the Special Representative of the Secretary-General on the issue of human rights and transnational corporations and other business enterprises, John Ruggie, “Business and Human Rights: Further steps toward the operationalization of the ‘protect, respect and remedy’ framework”, A/HRC/14/27, 9 April 2010, p. 17 at paras. 84-85.