Student: Advisor:

Doha Filfil Matthew Haigh

Student No. 282677 Department of Business Studies

A discussion on the development of the C.S.R.

phenomenon and corporate engagement

How to operationalize Human Rights in TNCs extraterritorialy?

Aarhus School of Business, May 2010

AbstractThe focal point of this assignment is to examine an academic debate concerning how the

international human rights regime is expanded to include non-state actors, specifically transnational

Human Rights

TNC NGO

State

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corporations(TNCs). The fundamental premise in the debate is how the state, corporations and other

institutions interact to develop and implement human rights in TNCs.The study is done through the

analysis of three United Nations (UN) initiatives on businesses and human rights. The first is the

‘Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with

Regard to Human Rights’, which involves a set of standards meant to have a legally binding effect

on TNCs. The Norms was welcomed by non-governmental organizations (NGOs) but apposed by

key governments including the US and the UK. Based on that the UN Human Rights Commission

asked the Office of the High Commissioner for Human Rights to examine the issue further without

adopting the Norms. After examining the subsequent report the Commission asked the UN

Secretary-General, Kofi Annan, to appoint a special representative to clarify and elaborate on the

roles and responsibilities of TNCs in relation to human rights. Professor John Ruggie was therefore

appointed to the post. Professor Ruggie was also one of the key figures in the development of

another UN initiative called the Global Compact, which is voluntary in nature and is based on the

notion of Corporate Citizenship (CC).

The analysis shows that the international human rights regime is still settled on the notion of the

state as the main institutional enactor of human rights obligations. This contrasts the concept of CC,

which argues that the state has failed its obligations and that corporations have become the new key

actors in providing social rights.

Although it is evident from the analysis that the literature on CC is silent on the issue of human

rights, it still shows the need to include corporations in the decision making process for norms to be

adopted. Furthermore, the literature points out several reasons for the inefficiencies of the UN

initiatives and what might be needed before any consensus can be reached.

Table of contents

1 Introduction........................................................................................................................................... 5

1.1 Problem formulation................................................................................................................................... 7

2

1.1.1 Primary objective......................................................................................................................................................8

1.1.2 Secondary objective.................................................................................................................................................8

1.2 Structure of the dissertation...................................................................................................................... 9

1.3 Delimitation................................................................................................................................................. 10

2 Literature Review.............................................................................................................................. 11

2.1 Global actors............................................................................................................................................... 12

2.2 The human rights regime......................................................................................................................... 16

2.3 Corporate Social Responsibility.............................................................................................................18

2.3.1 Criticism on CSR...................................................................................................................................................19

2.3.2 Development of CSR............................................................................................................................................20

2.4 Human Rights............................................................................................................................................. 21

2.4.1 Generations of rights.............................................................................................................................................23

2.4.2 Discretionary versus non-discretionary duties.............................................................................................24

2.4.3 Human rights instruments...................................................................................................................................24

2.5 Corporate Citizenship.............................................................................................................................. 26

2.5.1 CC in the real world..............................................................................................................................................28

2.5.2 Trust balance............................................................................................................................................................29

2.5.3 Survey........................................................................................................................................................................ 30

2.5.4 Criticism on CC......................................................................................................................................................30

3 Method.................................................................................................................................................. 31

3.1 Delimitation................................................................................................................................................. 33

4 Analysis................................................................................................................................................ 33

4.1 The Norms................................................................................................................................................... 33

4.1.1 Outcome....................................................................................................................................................................34

4.1.2 Criticism....................................................................................................................................................................35

4.2 The Secretary-General’s Global Compact...........................................................................................36

4.2.1 Outcome....................................................................................................................................................................38

4.2.2 Criticism....................................................................................................................................................................38

4.2.3 Empirical Analysis on the Global Compact..................................................................................................40

4.3 Ruggie Report 2008................................................................................................................................... 41

4.3.1 ‘State’s duty to protect human rights’.............................................................................................................43

4.3.2 ‘Corporate responsibility to respect human rights’....................................................................................44

4.3.3 ‘Access to remedy’................................................................................................................................................45

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4.3.4 Criticism....................................................................................................................................................................45

4.4 Findings....................................................................................................................................................... 47

4.4.1 Theory of Justice and Natural Law..................................................................................................................49

4.5 Interview...................................................................................................................................................... 50

5 Discussion............................................................................................................................................. 52

6 Policy recommendations and conclusion....................................................................................... 53

7 Conclusion........................................................................................................................................... 58

8 Bibliography........................................................................................................................................ 60

9 Appendix.............................................................................................................................................. 65

1 Introduction

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The concept of globalization is a controversial topic in the academic discourse. Literary review

yields numerous definitions and explanations on globalization. Various characteristics have been

associated with globalization such as ‘internationalization’, ‘universalization’, ‘westernization’ etc.

Globalization is defined as;

“… the progressive eroding of the relevance of territorial bases for social, economic and

political activities, processes and relations”1

What is evident is that the process of globalization hascreated a vacuum due to the decrease of the

nation states’ capability to govern. This governance gap has been covered by transnational

corporations (TNCs) and non-governmental organizations (NGOs).

The power TNCs posses in world economy has made them the most important actors in

globalization. The strong growth of TNCs has resulted from deregulations and the withdrawal of the

state from the economy.

TNCs’ worldwide operations have been based on different modes of controlled and coordinated

transactions within geographical dispersed production networks (Pawel, 2006:1).The rapid growth

of TNCs can be illustrated by the outward stock of FDI worldwide, running from US$112.3 billion

in 1967 to US$10,671.9 billion in 2005 (Whelan, 2009:368).

The largest TNCs enjoy total annual sales that either equal or exceed most countries’ GDP. For

instance, the aggregate sales of Mitsui and General Motors are greater than the GDPs of Portugal,

Denmark, and Turkey combined, while Royal Dutch/Shells equal Iran’s GDP.

Sixty percent of worldwide sales are in the hands of five car and truck manufacturers, while the top

five oil majors are responsible for over forty percent of their industry’s global market share. (Greer

and Singh, 2000)

The United Nations Conference on Trade and Development’s (UNCTAD) research in2006 shows

that the worlds largest TNCs maintain a presence in 40 countries on average. With approximately

77,000 TNCs in the world, generating 16percent of total estimated foreign sales, only a 100 of them

play a key role in the global economy. In 2004 TNCs topping the list were General Electric,

Vodafone and Ford, holding an accumulated $877 billion in foreign assets, corresponding to almost

25 percent of total foreign assets of the largest 100 TNCs.2 The main locations of the 85 of the top

100 TNCs’ headquarters are in the Triad-the US, the EU, and Japan. The US leads with the highest 1 Crane and Matten (2007:17) 2 http://www.stwr.org/multinational-corporations/key-facts.html

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number of TNCs-that is 25 entries while the 25 EU countries has 53 TNCs and Japan has 7 entries.

According to the location intensity3, the developed countries attract the largest 100 TNCs with

theUS ranking highest as the top destination, followed by the UK and the Netherlands. (see

appendix 1)

The process of globalization affects the corporations by giving the economically strong preference,

while eliminating the weaker ones. In effect, the most competitive enterprises, in terms of

efficiency, reap the greatest benefits. The disproportionate high benefits which the key actors in

globalization enjoy gives rise to controversy (Pawel, 2006:3).

A quote from David C. Korten’s (2001, cited in Jan-Erik, 2008:5) When Corporations Rule the

World, explains the TNCs chase for profits to the extreme, enabled by the trade liberalization which

eventually create callous greed:

“From Asia, Latin America, Western and Eastern Europe, Africa, and North America the

reports are all much the same. Civilization is being dismantled as a trade barrier and the

commons is for sale to the highest bidder. Social and environmental standards are being

rolled back. Safety nets for the poor are being phased out in favor of increased welfare for

dependent global corporations. Small farms, shops, and factories continue to be displaced by

global corporations subsidized imports”

According to Crane and Matten (2007:15), the controversy over globalization plays a crucial role.

On the one hand, globalization drives the demand for TNCs in terms of corporate citizenship (CC)

to provide protection in areas such as human rights and the environments where governments are

either reluctant, unable or undemocratic. On the other hand, CC allows TNCs to overtake power and

autonomy of governments, provided that TNCs are socially responsible and capable of replacing

government functions as an institution for meting out justice and advancing social welfare. But with

the primary motive of corporations being to maximize profits, the situation looks different in

developing countries especially in times of troubled economy. This is evident in TNCs’ ‘race to the

bottom’4 practices in the global economic arena, which ishighly criticized by the public especially

with the “few checks against [corporations] operating as unjust institutions that promote global

3 Defines the total number of TNCs, which have at least one affiliate in a host country.4 This terms describes the process in which TNCs pitch developing countries against each other by allocating FDI in the country that offers the least regulated conditions for TNCs. (Crane and Matten, 2007:15)

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anarchy or corporate autocracy, violating liberty, and corrupting the market system”. (Ludescher,

2009)

It is interesting and relevant to see how TNCs being self-interested and profit oriented pursueto

taking overgovernment functions provided that they are better capable of providing rights than

government. It seems puzzling and suspicious especially when large corporations such as Nike,

Proctor and Gamble, and Shell prove records of abusing human rights, labor laws, and the

environment in other countries. This type of privatization of the government is alarming and

since TNCs make up such a major part of the global economy the lack of regulations allows them to

neglect/abuse human rights(Salman, 2009). Status quo remains that there are no extraterritorial

regulations on corporate nationals, making it easy for entities to bypass national laws by relocating

their operations in locations where human rights regulations are lax (McCorquodale, 2009, p. 389).

With that said, it seems crucial to investigate the legal measures set out to regulate TNCs and to

investigate the approach used to hold TNCs responsible for their abuses. It apparent that the

deregulation mindset prevails in the academic discussion based on neoclassical economic theory5

and is more focused on government failurethan on how to regain government effectiveness or

success(Balleisen and Moss, 2010:1). Evidently there is though a shift towards a more regulatory

mindset.

1.1 Problem formulation

In accordance with the above introduction, the purpose of this dissertation is to examine TNC’s

triangular relationship with the State and the NGOs in relation to the international human rights

regime. The primary research question is;

How to operationalize human rights in TNCsextraterritorialy?

1.1.1 Primary objective

The thesis’ primary objective is to explain how the international human rights regime is being

expanded to include non-state actors, based on two schools of thought. The first advocates the need

for legal measures for human rights based on the principle of ‘natural law’while the second is CC 5 The term refers to the rejection of government intervention in markets. http://www.neoclassic.com/

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concept, based on Rawls ‘theory of justice’ and which is voluntary in nature. The study is done

through the analysis of three United Nations (UN) initiatives on businesses and human rights. The

first is the ‘Norms on the Responsibilities of Transnational Corporations and Other Business

Enterprises with Regard to Human Rights’ (the Norms), which involves a set of standards meant to

have a legally binding effect on TNCs. The Norms was welcomed by NGOs but apposed by key

governments including the US and the UK. Based on that the UN Human Rights Commission asked

the Office of the High Commissioner for Human Rights to examine the issue further without

adopting the Norms. After examining the subsequent report the Commission asked the UN

Secretary-General to appoint a special representative to clarify and elaborate on the roles and

responsibilities of TNCs in relation to human rights. Professor John Ruggie was appointed to the

post. Professor Ruggie was also one of the key figures in the development of another UN initiative

called the Global Compact, which is voluntary in nature and based on the notion of CC. The Global

Compact was launched in 1999. It comprises of 10 principles, with the two first regarding human

rights. The principles are derived from international treaties and declarations covering areas such as,

human rights, labor standards, the environment and anti-corruption. The Global Compact is non-

binding and encourages human rights through direct interactions with business leaders via tools

provided such as web-based information sharing, policy dialogue, and local network creation and

support for the promotion of human rights.

The comprehensive body of literature will elicit the different initiatives made by the UN - whether

meant as voluntary or legally binding mechanisms – and examine the blurred lines between the

legal and the non-legal dimensions.

1.1.2 Secondary objective

An illustrative grounding section will provide rich and nuanced foundation for the above analysis

by explaining the background and role of the tripartite, namely, TNCs, the State and NGOs in

particular the United Nations.

In order to get a comprehensive overview of the current situation, a delineation of the global

governance issue in addition to the judicial status of states, NGOs and TNCs and the issues related

will be provided.

A brief presentation shall be made on Corporate Social Responsibility (CSR) and the historic

development of it in terms of the three CSR generations and how they are operationalized in

corporations. A historical and theoretical background of human rights is also provided.

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Since the most eclectic field on this topic in literature is to whether apply regulations on TNCs or let

them be self-regulated. The focus will be on these two areas of the discussion.

Following the two principal themes that the literary review reflects, the broad context of CC and all

it entails will be examined. In so doing, an investigation ofCC’s standpoint and contribution to the

ongoing debate of how to operationalize human rights in TNCs extraterritorially will be provided.

This will provide a theoretical research question, which will be attempted to beanswerby

scrutinizing the Global Compact in contrast to Corporate Citizenship (CC), with support of an

empirical analysis provided in the literature.

It is hoped that the topic of human rights regulation will be shown to be more nuanced than a simple

dichotomy between ‘legal’ versus ‘voluntary’ regulation as the literature indicates.

1.2 Structure of the dissertation

The first part of the thesis is Chapter 2, which is the literature review. This part is divided into five

subsections.

Section 2.1 will introduce the reader to the theoretical foundation of the judicial triangular

relationship between the State, TNCs and NGOs .

Section 2.2 will be an explanation on the judicial status of TNCs in the human rights regime.

Section 2.3 includes a brief explanation of CSR and its developments with a review of the, for and

against arguments on social responsibility.

Section 2.4 will be about human rights, the history behind it and the development of the rights. The

role of the United Nations its initiatives and standards will be discussed in terms of their

effectiveness and legal status.

Section 2.5 of the literature review identifies a broader theory, namely corporate citizenship. The

theory is delineated and explained in relation to it real world contributions. A survey conducted in

the literature will support the explanation. Criticism on CC will be provided.

Chapter 3 comprises of two methods. The first is an archival discourse analysis and the second is an

interview with scholar.

Chapter 4 of the thesis is the analysis. The I three human rights instruments, which is the Norms in

section 4.1, the Global Compact in section 4.2, and the Ruggie Report in section 4.3. will be

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presented. The three initiatives will be examined in terms of the recent debate on human rights and

TNCs. The outcome and criticism each UN initiatives will be provided.

Section 4.4 will elicit the finding by comparing all three human rights initiatives and presenting the

common issues. An explanations and comparison of the underlying theories in terms of CC will be

provided.

Section 4.5 is the interview. The debate in terms of CC will be constructed based on the arguments

elicited from the previous sections and the response from scholars.

In Chapter 5, the finding from the survey used in subsection 4.2 will be discussed in terms of the

Global compact.

The final Chapter 6 will be the Policy recommendation. The issues mentioned in the literature will

be revisited and followed by policy recommendations.

The final Chapter 7 will be conclusion, in which the main findings will be delineated and a final

suggestion will be made.

1.3 Delimitation

The field of human rights is broad and it can be addressed and examined from many different

perspectives. Therefore the consequent delimitation must be selective. It is inevitable not to touch

upon several other concepts due to the interrelated nature of the concepts.

CSR definitions and the great proliferation of theories are legion, but due to the scarce space in the

thesis I have chosen to exclude, legal theory, political theory, social contract theory etc.

The focus of this thesis is chosen based on the collective issue addressed in recent articles.

Therefore the dissertation concerns the TNCs based in the US, which operate in developing

countries, where regulations regarding human rights are lax. As the thesis is conducted on the

international human rights regime, the focus on US corporations is limited and the issues in the

thesis primarily address TNCs in general. Although there is a range of human rights instruments,

the focus is only given to the three initiatives by the UN. The reason is that these initiatives have

generated tremendous amount of discussion. Furthermore, the directions which I have chosen for

this assignment are the ‘legal’ which the Norms support and the ‘voluntary’ which the Global

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Compact advocates for. Many of the issues discussed in the literature on both instruments are

explained by the third UN initiative- the Ruggie Report.

My choice of location comes as a result of the fact that USA has strongly contributed in terms of

literature, authors, and conceptualizations to the debated concept of CSR6, in addition to that the US

is the number one, developed country, hosting the largest number of TNCs, and plays a major role

in their regulation. I have chosen to limit the empirical research to the possible reasons behind the

lack of extraterritorial regulation on TNCs with regards to human rights.

2 Literature Review

In this chapter I will demonstrate literature that is relevant to the issue and complexity of the state,

TNCs and NGOs. This will highlight the issue on the lack of regulation on TNCs and give readers a

reason why this research is necessary. In review of the literature on TNCs’ responsibilities, there are

evidently two schools of thought with respect to the matter of human rights. The question of legal

obligations on TNCs for human rights is highly controversial and the system is nonetheless

voluntary. Many scholars such as Mayer, McCorquodale, Nolan etc., argue that voluntary standards

need to be complemented by mandate. On the contrary, academics such as Crane and Matten,

Moon, and Waddock support the notion of Corporate Citizenship, which propounds the idea of

social obligations as voluntary but fails to address the issue of TNCs’ human rights responsibility.

Literature also suggests that the legal and non-legal categories on human rights provided for TNCs

lack consensus for several reasons. Furthermore, empirical evidence proves that without legal

instruments on human rights, TNCs are given no incentive to abide by the human rights

requirements.

The literature discusses the issues behind the lack of consensus, the different views on the

obligations of TNCs with regards to human rights. In addition to that, the literature also delineates

issues in the global governance gap and the unregulated power, which TNCs have obtained.

2.1 Global actors

6 Crane and Matten, (2007:51)

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The United Nations (UN) Special Representative of the Secretary General (SRSG) on human rights

and businesses, John Ruggie (2003, cited in Hamann et al., 2009:454) proclaims that:

“The root cause of the business and human rights predicament today lies in the governance

gaps created by globalization – between the scope and impact of economic forces and

actors, and the capacity of societies to manage their adverse consequences. These

governance gaps provide the permissive environment for wrongful acts by companies of all

kinds without adequate sanctioning or reparation. How to narrow and ultimately bridge the

gaps in relation to human rights is our fundamental challenge.”

According to Whelan et al. (2009:369), TNCs are able to challenge the control of a state in

equivocal matters, ultimately creating governance gaps and governance failures.

Korbin (2009:354) argues that the core issue is not simply the emergence of powerful transnational

actors namely, TNCs but it is the power exercised by these non-state actors ultimately perceived as

legitimate in fields traditionally thought to be within the authority and domain of sovereign states.

The UN Secretary General Kofi Annan, recognizes in his ‘Global Compact’ initiative, the change of

roles and emphasizes the need for TNCs ‘to cooperate in the realization and promotion of human

rights, better working conditions and protection of the environment’. (Cited in Karl et al., 2007:4)

Seeing that, the capacity and resources of TNCs are much greater than the governments, the

practice of human rights according to Mayer (2009:569) should be shifted to TNCs while the

system of human rights should remain incumbent on governments. Notwithstanding the logic in the

shift, Mayer yet calls for a persuasive theoretical basis for making this shift.

Although the concept of CC might seem to answer Mayers prayers, the concept is nonetheless silent

on the issue of human rights as will be unveiled below.

Due to government failure or the political restrictions on governance, governments have found an

alternative mechanism for coordination, in the form of international or regional organizations such

as the UN, WB, IMF, EU, NAFTA, ASEAN and MERCOSUR.7 In this way governments maintain

their position to act bilateral. Governments can therefore participate in the creation and enforcement

7 WB (World Bank), IMF (International Monetary Fund), EU (European Union), NAFTA (North American Free Trade Agreement), ASEAN (Association of Southeast Asian Nations), and MERCOSUR –regional trade block for South American countries.

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of regulations, through institutionalization and universalization, which makes it applicable to all

members (Jan-Erik, 2008:110-111).

Although, states are major institutional actors within the global domain, they only have jurisdiction

over their own nationals, and can rarely enforce this jurisdiction in another state’s territory.

Therefore states have a variety of approaches for dealing with corporations that can utilize their

legal structure in order to avoid state regulations. Some states have chosen to allow possible liability

on the parent company with the argument according to Meeran (1999, cited in McCorquodale,

2009:390) that;

“[If a TNC is regarded as] a conglomerate of units of a single entity, each unit performing a

specific function, the function of the parent company being to provide expertise, technology,

supervision and finance…[then if] injuries result from negligence in respect of the parent

company functions, then the parent should be held liable”

Although it is argued that any attempt to impose human rights obligations on TNCs through home

country headquarters can run the risk of clashing with the host government’s policies, considering it

as enforcing human rights obligations on foreign territory (Korbin, 2009:357-358). One aspect of

the government’s reluctance to apply national law extraterritorially is that it may have political

effects. This can be seen, according to Muchlinski (1999, cited in Seppala, 2009:410), as ‘a

violation of state sovereignty or an attempt to impose policies upon other countries’, basically

causing diplomatic conflict and retaliation. Furthermore, states rarely prioritize human rights over

economic and security interest in their foreign policy (ibid.).

Nonetheless, it has been proven that while home countries (the US in particular) have been reluctant

to sanction parent corporations for human rights violations of their subsidiaries, they have been

willing to use that power to reach extraterritorially in other matters such as national security. Kobrin

argues that the selective use of extraterritoriality proves that the TNC is an actual entity under the

managerial control, and in that light the territory should not be used as a barrier to hold TNCs as a

whole responsible for human rights abuses by any of its subsidiaries. (Korbin, 2009:357-358)

In order to understand the complexity of TNCs, we try to understand their physical structure and

legal status.

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The entities of the TNCs are linked, either by ownership or otherwise. The entities can exercise

significant influence over each other in terms of knowledge sharing, resource and responsibility. An

enterprise can also be associated with more than one TNC8. The parent company, located in the

TNC’s country of origin, is identified by the highest percentage ownership. The parent controls the

subsidiaries in other countries, either directly if it is private or, by owning some or all of the share,

if it is public. For instance, the US-based Union Carbide Corporation has subsidiary in India called

United Carbide India Ltd. The style of relationship, in terms of how control is exercised, can be

formal, centralized control which is typical for the US. Whereas, the relationship is less formal and

centralized in European corporations compared to that of the Japanese TNCs. (Greer and Singh,

2000)

The diversity of TNCs being active in more than one industry adds to its complexity. For example,

the US food processing company H.J. Heinz cover six continents, while US’s largest grain company

operate in 54 countries. The Swiss electric engineering giant ABB has facilities in 140 countries,

while Royal Dutch/Shell’s exploring facilities are located in 50 countries, refineries in 34, and has

markets in 100 countries. (Greer and Singh, 2000)

McCorquodale (2009:387), Nolan and Taylor (2009:437), and Korbin (2009:351) signify that

human rights supervisory bodies have held states to have obligations under human rights treaties

and can therefore be held responsible for human rights violations extraterritorially by any one

within the power, control or authority of that state in addition to areas which are within effective

control of that state. For example, the Inter-American Commission on Human Rights assessed the

legal status of US Guantanamo Bay detainees, and concluded that although they were outside the

territory of the US, they were still under its jurisdiction as they were within the authority and

control of US government.

States that support their national corporations through aids or abets can incur international

responsibility in relation to the extraterritorial corporate activities in the case of human rights

violations. If there is lack of evidence of home state control over corporate extraterritorial activities,

states are prohibited from causing harm in other countries and therefore have the duty to prevent

such harm. States can be seen as facilitating extraterritorial harm when home states enter bilateral

investment treaty (BIT) with a developing country. BIT treaties include restrictive repudiation

clauses, which can restrict host state’s ability to control foreign investors. The US and Canada

8 http://www.unctad.org/templates/Page.asp?intItemID=3159&lang=1

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negotiate the BIT treaties to include non-discriminatory rights which precludes the host state from

screening prospective foreign investors and investments in effect limits the host states ability to

ensure that these investments will benefit the host state’s development and protect human rights. In

addition to that, such treaties do not oblige foreign investors to respect human rights in the host state

but merely oblige them to comply with domestic law which in most cases lack effective

mechanisms to ensure that foreign investors do not abuse human right of the inhabitants.

McCorquodale criticizes that the states that facilitate such agreements are fully aware that national

corporations are unregulated and unrestricted in addition to that, the states fail to exercise due

diligence, to prevent harm by its corporate nationals. (McCorquodale, 2009:101)

The theory of realism9 explains the priorities of a state in an anarchic international system where

national interest and security takes precedence over moral concerns. In light of this, realism posits

that states only respond to international legal norms that can maximize their political power.

Realism thus advocates “voluntary restraints, moderation, and the underlying assumption of

possible harmony among national interest”. (Hoffmann, 1959:354)

The economic power, the TNCs hold over developing countries, provided by the free-market

neoliberal capitalism, gives them the ability to relocate their operations in search for higher profits.

Developing countries that wish to attract foreign direct investment (FDI) – including factories and

plants – allow TNCs to operate with unfettered discretion, taking advantage of the lower wage rate

and thereby exploiting the workers (Beck, 2000:2). NGOs have managed to expose many

companies, such as Nike, Apple, IBM, and the Gap taking advantage of slave labor in Burma,

wages below minimum in East Asia in addition to violations that have direct effect on living

standards such as environmental damages and explosions as in Nigeria and Bhopal in India

(McCorquodale, 2002:384).

2.2 The human rights regime

“After more than a generation of deregulation and a presidential declaration that the ‘era of big

government is over,’ the political pendulum has apparently begun to swing back towards

regulation” (Balleisen and Moss, 2010:1)

9 also called political realism

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The international human rights standards and law have been conceptualized on the basis of regime

theory. Regime theory builds on converging a set of norms and principle and implementing it

through a variety of actors. International regimes functions as an international cooperation and are

established in terms of areas or issue areas such as environmental issues, trade, collective security,

nuclear proliferation etc. Regime theory seeks to explain how order is transpired in what might be

considered an anarchic world of states (incl. corporations), in which self-interested actors come

together to agree on norms that might limit their behavior. Regime theory is traditionally based on

the role of the state to implement the regime through legislation and other measures. The United

Nations is the main venue for the human rights regime. (Seppala, 2009:402).

Scholars differ over how much of a role international institution should play and how the

enforcement of the regime should occur. Nonetheless, the support for legal regulation of TNCs is

echoed in most of the literature. This is exemplified by the theory of law enforcement, which posits

that global legal norms require institutionalization (Deflem, 2008:227) “because regulation without

law and legal compliance mechanisms is rarely effective as a means of long-term social, economic

or public behavioral change” (McCorquodale, 2009:385). Although there have been several attempt

on the national, regional, and international level to regulate corporate behavior in relation to human

rights through mechanisms such as the ECOSOC Norms, 2003: OECD, 2000, notwithstanding,

these attempts have largely failed due to the lack of political support by states or due to strong

resistance by corporations (ibid.).

Mayer (2009:562) suggests that “[t]he harm caused to vulnerable populations in poor countries by

unregulated globalization could be assessed as unacceptable from several standpoints.” She adds in

light of the international human rights law “… that allowing TNCs to act in destructive or

exploitative ways in poor countries clashed with human rights principles.” Mayer considers the idea

of expanding the coverage of international human rights law to include TNCs as a plausible tack.

Whether corporations have human rights obligations is described as ‘hoary’ debate justified in that

“international and national laws have long recognized that non-state actors, including individuals,

corporations qua individuals and international organizations, are subject of international laws and

bearers of responsibilities as well as rights”. Nolan and Taylor support the claim with the

Nuremberg trials although it has not yet been involved in the prosecution of corporations but is the

authority to do so at the international level. Nolan and Taylor (2009) add that the obligations should

16

“supplement and not replace State obligations; in such a situation corporations and States can and

should assume a responsibility to protect, not simply respect, human rights”. (Nolan and Taylor,

2009:433, 444)

Korbin (2009:355) and McCorquodale (2002:387) suggest that rights go hand in hand with duties.

Since TNCs function with private political authority in international politics and have been granted

significant rights under international law, they are, according to Cutler (2001, cited in Korbin,

2009:355), “increasingly functioning as participants in the direct creation, application and

enforcement of transnational law”. Korbin argues for symmetry “that power, authority and rights

should imply duties, obligations and liabilities” and adds that there should be direct obligations on

TNCs with regard to human rights law.

Karp (2009:108) suggests an expansion of international human rights mechanisms, which officially

at this point only holds states obligated for human rights violations, to hold non-state actors

accountable by way of the International Criminal Court (ICC) for human right violations in such a

way identifying that TNCs are a unique kind of violators, instead of the dichotomous identification

of human rights violators, being either the state or an individual. Karp (2009:110) also suggests an

alternative to the extraterritorial application of human rights standards to either include a new

international institution such as the ICC, or arbitration tribunals, in order to make the consequences

transparent for TNCs for human rights violations.

According to Marrewijk (2003:96) the debate and the lack of action is due to the lack of an all-

embracing definition of Corporate Social Responsibility (CSR) in addition to the “subsequent

diversity and overlap in terminology, definitions and conceptual models [which] hampers academic

debate and ongoing research”.

2.3 Corporate Social Responsibility

The question of CSR has been debated since the second half of the twentieth century and numerous

definitions have been developed in an attempt to express the concept. The field of CSR is now an

ocean containing a vast proliferation of theories, approaches and terminologies. Some of the terms

used to describe the CSR phenomenon are corporate accountability, stakeholder management,

social issue management, society and business, public policy and business, etc. A renewed interest

17

for the notion of CSR has given rise to the proposition of new alternative concepts, such as

Corporate Citizenship (CC) and Corporate Sustainability (CS). (Garriga and Melé, 2004:51)

Votaw (1972, cited in Garriga and Melé, 2004:51) described the core issue of the great variety in

definitions and theories, thirty years ago as: “corporate social responsibility means something, but

not always the same thing to everybody. To some it conveys the idea of legal responsibility or

liability; to others it means socially responsible behavior in the ethical sense; to still others, the

meaning transmitted is that of ‘responsible for’ in a causal mode; many simply equate it with a

charitable contribution; some take it to mean socially conscious; many of those who embrace it

most fervently see it is a mere synonym for legitimacy in the context of belonging or being proper

or valid; few see a sort of fiduciary duty imposing higher standards of behavior on businessmen

than on citizens at large”.

There is a large consensus according to Wood (1991, cited in T. Jones, 1999:164) on “the basic idea

of corporate social responsibility [which] is that business and society are interwoven rather than

distinct entities; therefore, society has certain expectations for appropriate business behavior and

outcomes”; however, what are the determinants of the institutionalization?

One of the most prestigious scholars in this discipline, Archie Carroll, regards CSR as a multi-

layered concept, which is divided into four inter-related aspects in terms of corporate responsibility.

Namely; economic, legal, ethical, and philanthropic responsibilities. The different responsibilities

are presented in a pyramid with a successive order (see figure 1)

Figure # 1 Carroll’s pyramid of corporate social responsibility.

Source: Crane and Matten (2007:49)

Carroll and Buchholtz (2000, cited in Crane and Matten, 2007:49) define CSR as follows:

Philanthropic responsibilit

yEthical

responsibility

Legal responsibility

Economic responsibility

18

Corporate Social Responsibility encompasses the economic, legal, ethical, and philanthropic

expectations places on organizations by society at a given point in time.

2.3.1 Criticism on CSR

The argument on CSR is two-fold. Proponents of CSR commence from an ethical and instrumental

rationale, whereas opponents base their arguments on institutional function or property rights

perspective. Ethicists justify their arguments from religious, principle, philosophical, or prevailing

social norm perspective. Ethicists view the firm’s duty to behave in a socially acceptable manner as

morally correct. Ethicists advocate social responsibility even in cases of unproductive resource

expenditure for the corporation. From an instrumental perspective, it is argued that socially

responsible businesses will ultimately benefit. Opponent’s arguments are derived from Parsonian

pluralism, claiming that social responsibility is an institutional function, meaning that governments,

churches, civic organizations and labor unions have to perform that function, and not businesses. It

also argues that the tremendous responsibility cannot be traced back to an empowered management

unlike democratically elected politicians and therefore, can become a dangerous authority without

accountability. The property right argument is derived from classic capitalism and demands that

management has one responsibility, namely, a fiduciary one, otherwise it constitutes a legal

violation on behalf of the shareholders. (T. Jones, 1999:164-165)

CSR from an ethicist’s perspective seems therefore to contradict the purpose of a self-interested

profit-maximizing corporation. Meaning that corporations would have to tradeoff profit for

normative morality. And according to the Economist (2005, cited in Amaeshi ad Adi, 2006:2)

“when commercial interest and broader social welfare collide, profit comes first”

Waddock (2008:30) emphasizes that CSR is a narrow conception, which is what some critics call

“window dressing”, in which corporations undertake philanthropic, collaborative, or voluntary

initiatives to disguise their corporate misconducts such as employee mistreatment, unsafe or

wasteful production etc, which their supply chain policies permit.

McCorquodale (2009:391) emphasizes that CSR is management-driven which is set to design and

assist the corporation’s business, while in contrast human rights protections are person-oriented and

have legitimate compliance mechanisms which makes “[h]uman rights are not voluntary”.

19

According to Crane and Matten, the US strongly focuses on profitability of companies, and

therefore, only prioritizes the responsibility to shareholders. Korbin (2009:356) adds that the US

does not recognize human rights obligations on the part of private individuals and corporations.

The Anglo-American worldview regards legal responsibility on corporate governance as an

interference with private liberty. The social legitimacy and philanthropic responsibility in the US

have less impact on the corporate agenda as opposed to Europe. In Europe discretionary duties are

made compulsory via the legal framework whereas in the US, such philanthropic responsibility is

expected from successful corporations or rich capitalists. (Crane & Matten, 2007:51-52)

2.3.2 Development of CSR

“The increased interdependence associated with globalization dynamics such as

environmental crises and exposés of workplaces abuse have resulted in new forms of

organizing, novel types of organizational constraints and opportunities, and increased global

interest in corporate social responsibility (CSR) and business ethics”(Stohl, et al., 2009:607)

A fundamental indicator of CSR is the application of Codes of Ethics on corporations. Codes of

Ethics is a public statement, which formally express the governing of practices and relations in

terms of corporate principles and rules of conduct.

It signals the corporations’ recognition of, the need for and commitment towards ethical behavior.

Studies conducted in 1990s show that there is a regional and national difference in the adoption of

Codes of Ethics. The percentage of US corporations that had Codes of Ethics was 90 percent,

whereas UK only had 57 percent, and Germany had 51 percent, last was France with the lowest

percentage of 30. (Stohl, et al., 2009:609)

TNCs have opposed attempts to hold the corporations legally bound in terms of human rights, and

are dismissive of whether their codes of conduct explicitly mention human rights. Although human

rights in principle relate to international human rights law, compliance and adherence is meant as

voluntary and serves no legal grounding. Mayer (2009:567) explains this being due to the lack of

distinction between the legal and non-legal dimensions.

Mayer (2009:563) suggest that “[n]o consensus about the foundations of human rights has yet

emerged” and adds that “[w]hether human rights are to be viewed as divine, moral, or legal

entitlements; whether they are to be validated by intuition, culture, custom, social contract theory,

20

principles of distributive justice, or as prerequisites for happiness; whether they are to be

understood as irrevocable or partially revocable … these kindred issues are matters of ongoing

debate and likely will remain so as long as there exist contending approaches to public order and

scarcities among resources.”

2.4 Human Rights

The first marking of human rights in history took place in 539 B.C. when the first king of Persia,

Cyrus the Great, conquered the city of Babylon with his army. Cyrus the Great, announced the

freedom of all slaves and that all people had the freedom to choose their own religion in addition to

the establishment of racial equality. These decrees among others were documented on what is

known today as the Cyrus cylinder. Human rights were born and quickly spread to India, Greece,

and eventually Rome. The Roman human rights law was then based on the concept of “natural

law”, derived from the observation that people naturally followed certain unwritten laws in their

lives. Since then, many covenants codifying individual rights were launched, from the Magna Carta

(1215), to the Petition of Right (1628), the US Constitution (1787), the French Declaration of

Rights of Man of the Citizen (1789), on to the US Bill of Rights (1791) etc. (Dhall, 2009: 4)

Despite the efforts, human rights were merely applicable in the western civilization, and the rest of

world suffered colonization by Europe’s massive empires. In the aftermath of the Second World

War, and as a response to the Holocaust, the countries of the world created the United Nation (UN)

in 1945 with the purpose (Article 1; 3);

‘To achieve international cooperation in solving international problems of an economic,

social, cultural, or humanitarian character, and in promoting and encouraging respect for

human rights and for fundamental freedoms for all without distinction as to race, sex,

language, or religion.’10

The question remained on what human rights were. In 1948, the Universal Declaration of Human

Rights (UDHR) referred to as the International Bill of Human Right, was adopted and proclaimed

by the General Assembly of the UN.11 The UDHR compiles 30 articles of human rights and is, due

to the ratification of the declaration, considered a universal agreement. (Crane and Matten,

2007:100)

10 http://www1.umn.edu/humanrts/instree/chapter1.html11 http://www.humanrights.com/#/humanitarian/history-of-human-rights-new

21

However, the declaration is non-binding and lacks global ratification of the International

Convention on Civil and Political Rights (ICCPR), and the International Covenant on Economic,

Social and Cultural Rights (ICESCR). The UN adopted these documents in 1966 in order to make

the UDHR binding on all states that have signed the treaty, consequently creating human rights law.

This non-binding effect issue is evident in China, which has only ratified the ICESCR and not the

ICCPR, and the US has engaged in the opposite, by ratifying the ICCPR but not the ICESCR. As a

result, it is difficult to talk about a universal agreement on human rights when 25 percent of the

worlds population live under states which have not ratified either one of the two major ‘binding’

human rights covenants. (Whelan et al., 2009:370)

Academics with a law background or lawyers claim that human rights have a legal grounding as

they are incorporated in the UN system of international law since 1945. Mayer also admits that

although it might seem “fair to treat human rights as falling within the ambit of international law,

lawyers have to concede that human rights spill over into domains like philosophy, ethics, theology,

intellectual history, anthropology, political science, and public policy.”(Mayer, 2009:563)

It is argued that the soft foundation of human rights is due to weak epistemological bedrock, which

creates the issue of a universally applicable human rights regime (Dhall, 2009:6).

2.4.1 Generations of rights

According to Stohl et al. (2009:610-611) human rights were divided into three generations, with the

first generation developed with the Magna Carta and then further developed through the English

Bill of Rights in 1989.

The first generation of CSR thinking is consistent with the classic capitalism, which Friedman

(1970) depicts about CSR. It constitutes the ethics about the management’s fiduciary responsibility,

whichshould be consistent with the law. The corporation is required as the state to refrain from

improper behavior or the violation of its national laws (ibid.).

The second generation of CSR is based on the state urging corporations to provide adequate

compensation, working conditions and the right to fair and equitable wages. Basically, this

generation requires the state to exert its power on behalf of claimants.

Most Western countries have first and second generation of rights embedded in the law of the

country. Therefore, in countries where that is the case, corporations include these rights implicitly,

22

in contrast to countries where these rights are not a part of the labor law, and therefore require

explicit appearance (ibid.)

The third generation of rights regards proactive and positive responsibilities. The rights are focused

on humanity and what is considered the common heritage of all people in terms of the right to live

in a peaceful and healthy environment.

The third generation contradicts the first generation, which is there for the protection of individuals

in the country of the corporations headquarter, i.e. where the corporation is under the jurisdiction of

that particular state. The second generation, although more proactive, still only protects individuals

within the national borders, and therefore, individuals and cases which fall outside the scope of the

state’s mandate, are under no protection from these generations of rights. (Stohl, et al., 2009:612)

The incorporation of the third generation of rights in Codes of Ethics, takes an aspirational course.

Despite that, according to a study conducted by Stohl, et al. (2009:619) shows that 87 percent of

European corporations included third generation thinking in their Codes of Ethics, whereas US

corporation only amounted to 6 percent.

2.4.2 Discretionary versus non-discretionary duties

Waddock (2004:315) proposes that “[t]he proliferation of standards, principles reporting initiatives,

and codes threatens confusion and continued lack of implementation unless there is a common set

of principles”, this creates a gap between the growing public expectations from various stakeholders

and actual performance by the company. Waddock suggests a need for foundational or fundamental

principles, which she describes as being the “floor” and not the “ceiling” for responsible practice.

Donaldson and Dunfee (1994:265) have coined such foundational principles as ‘hypernorms’ and

define to “entail principles so fundamental to human existence that they serve as a guide in

evaluating lower level moral norms”. Waddock (2004:315) opine that such ‘hypernorms’ can help

corporations avoid information overload with the proliferation of initiatives as well as the growing

disparities between developed and developing countries.

What is evident from the above CSR and human rights discussion is that there are a variety of

definitions of CSR policies, which are voluntary in nature whereas human rights have a legal

grounding and are not voluntary, and therefore require a clear distinction in the form of protection

policies and practices. (McCorquodale 2009:391)

23

Karp (2009:97) tries to distinguish between voluntary and non-voluntary duties as discretionary and

non-discretionary. Discretionary duties are duties such as charity and in this category, the moral

agent can rely on own judgment. Non-discretionary duties on the other hand are various kinds of

moral duties, which can be classified as legal duties when they are institutionalized in accordance

with legal principles. Karp (2009:106) considers CSR as discretionary duties whereas he considers

human rights to be non-discretionary.

Karp (2009:111) establishes that the ‘entire idea behind non-discretionary duties is that judgment

about what is ‘avoidable’ or ‘unnecessary’ is and ought to be removed from particular decision-

making agents and placed in the hands of an external authority. This leads us back to our primary

question raised in this paper: how to operationalize human rights in TNCs extraterritorially?

2.4.3 Human rights instruments

International institutions such as the United Nations (UN), the Organization for Economic Co-

operation and Development (OECD) and the International Labour Organization (ILO) have during

the last decades deployed human rights as numerous initiatives and instruments that would regulate

and guide corporations. (Voiculescu, 2009:420)

The chronicles of UN initiatives were set out in the 2005 report by the Office of the United Nations

High Commissioner for Human Rights (OHCHR) to assess the legal status and scope of existing

initiatives and standards. (see Appendix 2)

The initiatives are International Instruments such as treaties and declarations addressing the states

with regards to business or nationally based standards, which are legally binding standards

including constitutional provisions, national law, and national regulations with regards to business

activities. Additionally there are the Certification Schemes, which are programs with a set of

standards developed by an organization, group or network, requiring adherence. These schemes

require support and are then monitored independently in order to ensure compliance.

Furthermore, Voluntary Initiatives are adopted by businesses as the name indicates on a voluntary

basis. These consist of codes of conduct, directives, policies, third-party and self-reporting

initiatives established by individual companies, groups of companies, intergovernmental

organizations or civil society groups in addition to mainstream financial indices, whichare used to

monitor companies based on an objective criteria tracking them for social and environmental

activities, in order to change the nature of business activities through investors and markets, and

tools, meetings and other initiatives, which seek to promote a broad understanding in terms of

24

human rights by undertaking human rights impact assessments, management tools, workshops,

public-private partnerships, training manuals etc. (OHCHR)

The main focus of the literature surrounds three initiatives set out by the UN on businesses and

human rights12.

One obvious criticism, also found in the literature (see Mayer, 2009 : Hamann, 2009 : Seppala,

2009), is the lack of standardized and limited scope of the human rights coverage. As an example,

the OECD Guidelines on Multinational Enterprises only refers to human rights in general terms,

where as the ILO Tripartite Declaration is more specific in its reference to workers rights.

All of the above initiatives on human rights are categorized as non-binding on businesses outside

national borders.

Nolan and Taylor (2009:434) suggest that the continuous use of soft law mechanisms indicate that

there is no ‘silver bullet’ mechanism to hold corporations accountable for human right violations.

Mayer (2009:567) as noted earlier suggests a need for a persuasive and broadly supported theory

justifying whether international human rights law does govern TNCs as a prerequisite before any

affirmative steps can be taken.

2.5 Corporate Citizenship

The intensive international debates surrounding the social role of businesses with focus on labor and

human rights have been an important driver of the corporate citizenship (CC) movement in the last

two decades (Hamann et al., 2009:456).

CC theory and multiple other theories were produced to define the role of companies,which were

struggling to cope with the demands placed on them for responsibility, accountability, and

transparency.

The usage of the term CC by practitioners and academia has been far from consistent. The language

of CC is simply a new terminology for existing concepts. There are three different perspectives on

12 This will be elaborated on in section 4

25

the term CC, two of which are largely conventional views based on CSR, while the third extended

perspective goes beyond existing conceptions of CSR . (Matten et al. 2003:112)

According to Matten et al. (2003) The Limited view of CC equates CC with philanthropy, which

implied voluntary responsibility such as charitable donations. Carroll connoted this discretionary

corporate practice with the fourth level of CSR in his CSR pyramid- namely, philanthropy.

Academics and practitioners commonly refer to this understanding of the term CC (ibid.).

The second perspective on CC is the Equivalent view of CC, which is essentially a conflation of CC

with existing concepts of CSR. Two decades later after the first introduction of CC, Carroll

described CC in a paper as “The four faces of corporate citizenship” where he rebrands CSR exactly

as CC. This caused a good deal of skepticism about the term and a new Extended view of CC was

developed to signify the notion of ‘citizenship’. According to Marsden (2000, cited in Matten et al.,

2003:114) CC signified that corporations are “legal entities with rights and duties, in effect,

‘citizens’ of states within they operate”.

A common understanding of citizenship is based on the liberal tradition of three different aspects of

entitlement: civil rights, social rights and political rights. Social rights provide the right to freely

participate in society. Civil rights provide freedom from abuses and interference by third party.

Political rights include the active participation in society, which is the process of governance

beyond the sphere of own privacy. Citizenship is not confined to only rights but also includes

duties. Corporations have become the ‘counterpart’ of citizenship by taking over functions which

previously were regarded in the governments domain, such as the protection, facilitation and

enablement of citizen’s rights. In the traditional sense, the rights that are embodied in the concept of

citizenship are linked to the state, which is sovereign within its own territory. The notion of

deterritorialization came as a result of globalization, which also seems to have triggered the

heightened attention to CC (see figure 2).

26

Figure # 2 Number of citations for Corporate Citizenship

Source: Waddock (2008:31)

Crane and Matten (2007:77) define the extended view on CC as:

“Corporate citizenship describes the corporate function for governing citizenship rights for

individuals”.

Matten et al. (2003:117) emphasize that corporations do not share the status of citizenship as

individuals but that they have gradually assumed the responsibility for the protection and

facilitation of social, civil, and political rights. The argument of power in this relation is dismissed

with a counter-argument that corporations are economic institutions, which are reliant on citizens

but cannot be categorized as citizen in the traditional way.

According to Waddock (2008:37) transparency is considered one possible solution to the issue of

power, but another concern about legitimacy is raised in relation to the complex structure of TNCs.

Another issue is if TNCs taker over government functions, they should be held equally accountable,

as is demanded by governments in modern societies. But such accountability mechanisms do not

exist for corporations. (Matten et al., 2003:117)

Critics argue that the issue of legitimacy and accountability in the power equation cannot be dealt

with no matter the amount of transparency, or change in rhetoric as long as corporations continue to

take over fundamental government duties. They therefore call for more mandatory measures rather

than voluntary ways of holding TNCs accountable for their actions as CC suggests. (Waddock,

2008:37)

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2.5.1 CC in the real world

The present situation is that corporations progressively have picked up on CC although there are yet

many corporations that only practice CSR on a philanthropic level. (Waddock, 2008:31)

The situation looks quite different in developing countries where governments have failed to protect

human rights. Waddock (2008:36) suggests that the relative rootlessness of TNCs give rise to

concerns about their commitment to any given society.

The pressure from NGOs and social activists has led many corporations such as Levi Strauss, Nike,

and Reebok to reform their labor and human rights abuses in their supply chains (Waddock,

2004:315).

Matten et al. (2003:116), claim that TNCs such as Nike, Shell, Levi Strauss and others have

engaged under the banner CC in improving working conditions in sweatshops, ensuring employees

a living wage, providing schools, roads, medical centers, or even providing financial assistance for

schooling of child laborers.

Supporters of CC argue that most of the human rights violations are perpetrated by state agents, and

in such situations the prevailing wisdom of international management is to emphasize integration by

pursuing positive engagement instead of going head to head with the oppressive regime. It is argued

that corporations should only concentrate on issues where they can have direct impact on, such as

wages, work conditions, access to health and education. TNCs choose instead to become involved

in community development projects (CDP), within their area of operations. (Theobald and Arkani,

2007:39)

Seppala (2009:410) argue that corporations are faced with a perplex situation when they operate

abroad. As corporations are expected to abide by the standards of the home state, local corporations

and TNCs on the other hand, from countries such as China and Malaysia only have to comply with

the local legislation, which have lower and thereby less expensive standards and corporate behavior.

In effect, companies can suffer competition if they comply with human rights standards (ibid.).

2.5.2 Trust balance

The balance of trust has shifted tremendously over the past two decades due to human right abuses

and environmental degradation primarily instigated by corporations, which were revealed by NGOs

(Waddock , 2004:314).

Theses various successes have established NGOs as credible and legitimate contributors to human

rights and environmental matters than corporations (see figure 3).

28

Figure # 3 Perceived

credibility of NGOs and

corporations regarding

specific issues.

Source: Crane and Matten (2007:410)

A survey conducted on the level of trust in NGOs in contrast to corporations in Europe and the US

show for example, that44% of opinion leaders in the US trust businesses to do the right thing over

governments (27%) and NGOs (26%), while in Europe, trust was given to NGOs (44%) over

government (36%) or businesses (32%)13. (Crane and Matten, 2007:409).

The decline in trust in businesses is due to the lack of credibility of companies in their reports on

responsibility. As a response, many corporations began to bring in external groups to study their

internal and supply chain practices. Companies started to produce reports verifying their

compliance with their codes of conduct. This aspect of CC is almost entirely voluntary, although

some countries have enforced certain requirements for reporting and disclosure by law. It is argued

that the companies’ activities regarding issue related to health and education form a bridge into the

public policy arena, which previously was reserved for governments. (Waddock, 2008:26)

Matten et al.(2003:115) add that the boundaries between government and corporation responsibility

associated with CC have become less clear. In effect the notion of CC being voluntary in certain

aspects has shifted due to the institutional failure to unavoidable demands.

13 The survey is not consistent between particular organizations and between particular countries in Europe (Matten and Crane, 2007:410).

29

2.5.3 Survey

Hamann et al. (2009:455) found that although there has been large prominence on human rights in

the form of guidelines, standards and frameworks, the question on the extent to which corporate

decision makers recognize and respond to human rights has hardly been researched except for two

surveys conducted by SRSG- Ruggie.

The first survey was based on a questionnaire that was sent out to the Fortune Global 500

companies, from which 120 responded. The response rate was low and it was likely that companies

with no human rights policies where among the companies that did not respond. In addition to that,

there was no appropriate point of contacts identified, and not the least among companies in Asia.

The second survey examined the public reports of 300 companies from around the world in addition

to eight collective initiatives and five socially responsible investment funds. The conclusion found

by Ruggie (cited in Hamann et al., 2009:456) was that:

“In short, leading business players recognize human rights and adopt means to ensure basic

accountability. Yet even among the leaders, certain weaknesses of voluntarism are evident.

Companies do not necessarily recognize those rights on which they may have the greatest impact.

And while the rights they do recognize typically draw on international instruments, the language is

rarely identical. Some interpretations are so elastic that the standards lose meaning, making it

difficult for the company itself, let alone the public, to assess performance against commitments”.

2.5.4 Criticism on CC

Jones and Haigh (2006:55) point out four main problems with the CC concept.

1. It has no theoretical grounding, in terms of the business firm and its institutional function in

contemporary capitalist society in relation to CSR and the corporation’s fiduciary

obligations.

2. The selective use of recent developments in citizenship theory with an economistic

orientation rather than a political capacity, in addition to the selective use of political science

literature.

3. It neglects important recent institutional developments in the global political economy of

corporations moving away from the concept of CC in terms of maximizing rights and

minimizing responsibilities by channeling power to private sectors without justifications (eg.

Shift of provisions of social protection and social services to private retirement pensions).

30

4. The CC concept does not contribute to how it can be applied at the national level and to

TNCs. Matten et al. explain that the question of how to operationalize the concept at this

point is beyond the scope of its development.

T. Jones and Haigh (2006:62) argue that the CC concept does not contribute to the ‘real world’

issue of TNCs’ practices in developing countries and add that the operationalization of CC “would

exacerbate the negative implications of globalization”. They also suggest that a well functioning of

CC will require a strong state to authorize necessary punitive system.

Hamann et al. (2009:454) argues that as the concept of human rights is closely linked to a strong

tradition of international and national law, the voluntary nature of the concept CC is therefore silent

on the discussion of human rights and businesses. Hamann et al. (ibid.) adds that the issue is not

merely to identify human rights as a “moral framework for voluntary corporate citizenship” but the

discussion is rather how to extend international and national human rights law to include

corporations.

3 Method

The focal point of this assignment is to examine how the international human rights regime is

expanded to include non-state actors, specifically TNCs. The fundamental premise in the debate is

how the state, corporations and other institutions interact to develop and implement human rights in

TNCs. I have used a mixed method approach. The first section will demonstrate a comprehensive

archival discourse analysis of the three UN initiatives, namely;

1. The Norms on the responsibility of transnational corporations and other business enterprises

with regard to human rights

2. The Secretary- General’s Global Compact

3. The Ruggie Report

The three initiatives will be examined in terms of the recent debate on human rights and TNCs. The

method is based on Nina Seppala’s article: “Business and the International Human Right Regime: A

Comparison of UN Initatives”.

The analysis will provide us with an understanding of the differences in the initiatives, their

purpose, their actual influence (on extraterritorial jurisdiction), their legitimacy (enforceability), and

31

their interrelated connection. The characteristics of the first UN initiative (the Norms) used in this

analysis advocates the proposed mandate regulation in contrast to the second initiative (the Global

Compact) which supports voluntary regulation of TNCs. The third most acknowledged initiative

(Ruggie report) clarifies and delineates the relationship of the state and the TNCs in relation to

human rights obligations. A report on the operationalization of the report is anticipated.

The objective of this analysis is to show the international human rights regime is still settled on the

notion of the state being the main institutional manifest of human rights obligations. This contrasts

the notion of corporate citizenship, which argues that the state has failed its obligations and that

corporations have become the new key actors in providing social rights. The analysis will elicit the

implications of legal regulation in contrast to CC on human rights.

The most evident and agreed part in this topic is the need for a way to regulate TNCs’ behavior

beyond the boundaries of their states. Much of the literature discusses how this issue should be

approached with regard to the numerous suggestions that have been introduced over the last two

decades.

The analysis will highlight the intentions behind the initiatives and their outcomes based on the

academic literature, which also points out several reasons for the inefficiencies of the instruments.

Furthermore, it highlights what might be needed before any consensus can be reached. A

preliminary conclusion will compare the scope and legal status of the three initiatives.

The second method used in the analysis is an interview and discussion conducted through emails

with scholar on both side of the debate. I have chosen to interview Andrew Crane, Dirk Matten,

Anne Elizabeth Mayer, and Marc T. Jones. The interview is based on the theoretical question

elicited from the literature review, namely why CC is silent on the issue of human rights. The

discussion was built on precedent arguments.

The interview turned out to be fruitful, giving a chance for proponent of CC to clarify their

objectives and a chance for opponents to debunk the concept. The last part of the interview gave an

interesting twist to the discussion leading us to a new perspective on the topic.

3.1 Delimitation

Although the discussion takes many directions, I have chosen the two most significant directions to

the theories presented. Furthermore, I have chosen these three initiatives specifically given their

32

relevance to the ongoing debate. I have chosen to limit the choice of initiatives due to scarcity of

space in the thesis. (see appendix 2)14

In terms of the interview, the questions were sent to a couple of other scholar used in the thesis but

there was unfortunately no response. I also sent professor Ruggie an email asking about his

upcoming report on the operationalization of his framework with no response either.

4 Analysis

4.1 The Norms

In 1999 the United Nations Sub-Commission for the Promotion and Protection of Human Rights

initiated the “Norms on the Responsibilities of Transnational Corporations and Other Business

Enterprises with regard to Human Rights”15(the Norms), which was approved on 13 August 2003

(Seppala, 2009:403)

The document constitutes a preamble to an extensive list of international human rights law

instruments for corporations. The objective was not to introduce new obligations for businesses but

rather reaffirm and reinforce the existing declarations on human rights responsibilities such as the

OECD-guidelines on multinational enterprises etc (Karl-Heinz, 2005:1).

The Norms is considered to be more legally oriented as it was prepared under the auspices of the

UN Commission on Human Rights16, and it was referred to international human rights law, in

addition to the legal background of the team behind the initiative (Mayer, 2009:573).

The Norms consist of 19 operative regulations, laid out in a format normally associated with

international treaties, which are relatively specific in terms of the TNCs direct accountability for

human rights standards (Mayer, 2009:573; Seppala, 2009: 403). Each operative regulation included

a commentary,the document also contained four closing provisions, which explained the key terms

used in the document (the Norms, Karl-Heinz, 2005:2).

14 Appendix 2 compares the legal scope of all the UN initiatives.15 http://www.unhchr.ch/huridocda/huridoca.nsf/%28Symbol%29/E.CN.4.Sub.2.2003.12.Rev.2.En16 The UN Commission on Human Rights was later renamed to the UN Human Rights Council

33

The Norms with the interpretative Commentary17, was the first comprehensive set of international

human rights norms aimed at TNCs and other business enterprises. The Norms was seen as an

authoritative guide, setting out the responsibilities for TNCs with regard to human rights, labor

rights, and guidelines for companies in conflict zones. (Hillemans, 2003:1065)

A section in the Norms is dedicated to the general provisions for implementation. The team behind

the Norms had an ambitious vision to enforce the Norms by implementing it through national

legislation (para. 17). Furthermore, companies were expected to adopt internal policies to

implement the Norms. Additionally, provisions for internal and external monitoring and reporting

of compliance for the Norms were required by the UN (para. 16). The companies had to incorporate

the Norms into their business contracts and provide remedies for victims of human rights abuses

(para. 15 and 18). (The Norms, Seppala, 2009:411).

According to Seppala (2009: 403), although the Norms does not have any legal grounding, it is

considered to be “soft law” similar to the UN declarations, Guidelines, standards, principles which

use existing law without imposing any obligations on companies. The intention of the Norms and

the actual perception seem to contradict. Seppala views the Norms as a process of consensus

building that eventually could result as an institutionalized treaty. The Norms was intended to put

direct responsibility on companies withincreased power privilege that gave them an international

reach, and in many cases allowing for their relative autonomy, independent of national regulation.

(The Norms, Hillemans, 2003:1067).

4.1.1 Outcome

There was large dispute over the legal character of the Norms. All the norms, which were

provisioned in the document, were meant as mandatory. Evidently from the preparatory statement

in the Norms, TNCs were proclaimed to have a broad range of human rights responsibilities.

Principle 1 ambitiously and without limitation asserts that “[w]ithin their respective sphere of

activity and influence, transnational corporations and other business enterprises have the obligation

to promote, secure the fulfillment of, respect, ensure respect of and protect human rights recognized

17 Sub-Commission on the Promotion and Protection of Human Rights, Fifty-fifth session, Commentary on the Norms on the responsibilities of transnational corporations and other business enterprises with regard to human rights, E/CN.4/Sub.2/2003/38/Rev.2 of 26 August 2003, available at: http://www.unhchr.ch/Huridocda/Huridoca.nsf/TestFrame/293378ff2003ceb0c1256d7900310d90?Ope ndocument.

34

in international as well as national law..”. The Norms implicitly declared TNCs to have expansive

human rights obligations. (the Norms, Mayer, 2009:537 ; Whelan, 2009:368).

The content of the Norms was intended to be as authoritative recommendations that had to be

incorporated in the internal rules of corporate operation, which meant that host country rules would

become irrelevant. Mayer argues that even if the host country’s legal system failed to address

human rights, TNCs would be legally bound according to the Norms.

The lack of consensus on the Norms legal character meant the Norms received immense amount of

resistance (Mayer, 2009:574), while the UN Human Rights Commission was considering it in April

2004. Certain groups of businesses such as the International Chamber of Commerce and the

International Organization of Employers in addition to certain national governments intensely

lobbied against the Norms (Voiculescu, 2009:422).

There was also little agreement amongst human right groups too, based on the fact that the Norms

selectively excluded a number of principles from the overall universe of human rights standards,

which Ruggie (2008, cited in Seppala, 2009:403) explained that “any limited list will almost

certainly miss one or more rights that may turn out to be significant in a particular instance, thereby,

providing misleading guidance”. NGOs still explicitly urged the need to reinforce ‘hard’ national

and international mechanisms to hold TNCs accountable for their transgressions (Whelan,

2009:368).

An oral statement sponsored by more than 200 NGOs, and human rights advocates, pleaded for the

Norms, at the 60th session of the Commission, to be given a chance to be reviewed by all

stakeholders before it would get prematurely discarded. Despite the request, the Commission

discarded the draft for not having any legal standing (Voiculescu, 2009:422)..

4.1.2 Criticism

The International Chamber of Commerce and the International Organization of Employers viewed

“the essential problem with the Norms is that it privatizes human rights by making private persons

(natural and legal) the duty-bearers” and added that “privatization leaves the real duty-bearer-the

State- out of the picture” (cited in Seppala, 2009:403). The Norms lacked a distinction between the

level of responsibility between the corporations and the state, and in some cases placed heavier duty

on corporations compared to the state. Nonetheless, a counterargument defended the Norms by

arguing that the preliminary statement proclaimed the main responsibility belong to the state.

(ibid.).

35

The Norms was also condemned by the US as being part of the “anti-business agenda”18 pursued by

the UN, and that theinternational human rights law is only applicable to states and not to non-state

actors. This follows the ideology of the free market espoused by the George W. Bush administration

(Mayer, 2009:574).

Professor John Ruggie (2007, cited in Mayer, 2009:574), had to investigate the legal status of the

Norms andafter reviewing relevant international human rights instruments he concluded that

although the Norms assume to “reflect and restate existing international law” and that they

“attributed the entire spectrum of State duties under the treaties – to respect, protect, promote, and

fulfill rights – to corporations within their sphere of influence” - notwithstanding, the Norms could

not impose direct legal obligations on corporations.

4.2 The Secretary-General’s Global Compact

The previous Secretary-General of the UN, Kofi Annan, launched the Global Compact in 1999. The

Compact is composed of 10 principles, with the two first regarding human rights. The principles are

derived from international treaties and declarations covering areas such as, human rights, labor

standards, the environment and anti-corruption. The Global Compact is a non-binding, voluntary

initiative, which encourages human rights via direct interactions with business leaders.

Additionally, the Compact provides a variety of tools such as web-based information sharing,

policy dialogue, and local network creation and support for the promotion of human rights (Seppala,

2009:404).

The Global Compact is based on a liberal, free market ideology. The backgrounds of the most

prominent figures that produced the Global Compact were all in fields other than law, such as

governance, economics, and management. The Global Compact was construed in cooperation with

the world’s most influential business leaders, in an attempt to address the deficiencies of global

capitalism (Mayer, 2009:565 ;Seppala, 2009:409). Unlike the Norms, the Global Compact

successfully engaged business leaders and raised awareness on the norms of the international

human rights regime from the beginning through direct contacts (Seppala, 2009: 408). Annan urged

the business leaders to cross the line and undertake what had conventionally been anticipated as

governmental responsibility. With that said, the Global Compact took a different approach to the

18 This might be due to the growing emergence of tension between developing/developed countries (eg BRIC vs USA/EU) particularly over the disparity in influence over the UNs actions that each side has. (UN = USA rubberstamp)

36

issue and although Annan (cited in Mayer, 2009:565) realized that it is first and foremost the

responsibility of the government to ensure the protection of human rights, he also acknowledged the

inefficiencies of the government saying: “certainly, there is much that governments can and must

do…However, more and more business leaders are realizing that they do not have to wait for

governments to do the right thing and indeed they cannot afford to. In many cases, governments

only find the courage and resources to do the right thing when business leaders take the lead”.

(Mayer, 2009:565)

The Global Compact was developed in order to create an international corporate citizenship

network with the purpose of encouraging the private sector to collaborate with social actors

(Hancock, 2006:22). The companies were asked to embrace, support and enact a set of core

principles, two of which were on human rights.

The first principle proclaims that : “Business should support and respect the protection of

internationally proclaimed human rights”and the second principle continues that businesses

should“make sure that they are not complicit in human rights abuses” (Global Compact).

Although the principles are claimed to be derived from the UDHR, the Global Compact does not

serve as a regulatory framework or Codes of Conduct for companies, “but rather a voluntary

initiative that relies on public accountability, transparency and disclosure to complement regulation

and to provide a space for innovation” (UN Global Compact ; Mayer, 2009:571).

The purpose of the instrument is not linked to the issue on the reach of international law, instead,

the aim was to establish a network that was exclusively voluntary and extra-legal (Mayer,

2009:571). Companies found it easier to engage with Global Compact as it served as a progressive

learning nest unlike the Norms, which required direct compliance with principles and failed to

involve stakeholders in its decision making process (Seppala, 2009: 408).

4.2.1 Outcome

According to Mayer (2009:561), the tenets of the Global Compact can be understood in a variety of

ways. Annan’s approach to the Global Compact seemed to be based on the obvious failure of the

governments to respond to the crisis of globalization, in effect having TNCs by default take up a

leading “social policy” role. Mayer (2009:571) argues that the non-law approach to the initiative

reflects different significance to the terms used than lawyers would do, which in effect results in the

blurred lines between legal and non-legal categories. Furthermore, the explicit reference to

37

international human rights law in principle 1 and 2 would be assumed to be endorsing the

proposition that TNCs are obliged to adhere to international human rights law. These speculations

are derived from the fact that the authors had no intentions of creating a legal framework but rather

a learning network, whilst the Global Compact website claim that its principles in the areas of

human rights “enjoy universal consensus”. This adds to the controversial question of whether TNCs

are governed by international human rights law at all, additionally, this also asserts the underlying

perceptual differences in terms of the claimed superficial consensus (ibid.).

Despite the popularity of the Compact due to the non-binding nature and flexibility of the initiative,

many corporations in North America have seen little advantage in being associated with the UN and

are cautious with any initiative that might be used as a basis for litigation.The fate of this and other

projects similar to it are directly impaired by the popular lackluster perception of the UN as a body

capable of tangible action (Seppala, 2009:404)

4.2.2 Criticism

Mayer (2009:572) argues that the principles claimed to be derived from UDHR, go well beyond

anything that is explicitly stated in the UDHR, meaning that UDHR never confirmed TNCs

responsibility in terms of human rights. It is questionable how the authors derived the principles

from UDHR, as the second principle deals with the issue of ‘complicity’ which the UDHR has

never dealt with. Principle 2 could be explained as a response to the numerous cases involving

TNCs being affiliated with governments, which have violated human rights in the course of

pursuing business projects19. (Mayer, 2009: 572-573)

Seppala (2009:404), suggests that the clarity and definite scope of the principles on labor compared

to the ones on human rights explain why companies report to have established more definite

policies and practices on labor in comparison to the selective set of human rights. Furthermore, the

lack of a time-frame for human rights compliance indicate a weakness in the Compact. (Hancock,

2006:24).

The Global Compact differed significantly in contrast to the other UN initiatives’ structure, which

were state-centric in nature embodying decisions on the international human rights regime (Seppala,

2009:409).

The absence of State involvement in the Global Compact is somehow unusual considering the

previous UN initiatives, which were developed with the State having the central role. Due to the

19 An example is the Unocol in Burma (see section 5 ATCA).

38

structure, this can be considered as an innovative solution breaking out of the conventional

agreement, while on the contrary, the Global Compact might be disregarded from the usual decision

making process as it serves no basis for actors that are used to the traditional agreement, in addition

to the suspicious support it serves to businesses (Seppala, 2009:409).

Although the approach of the Compact is considered novel in the sense that it engages a set of non-

state actors outside the traditional mechanism of the human rights regime (Seppala, 2009:404). The

Compact has received considerable criticism from NGOs in terms of it voluntary status seemingly

“lacking teeth” and furthermore perceived as a mechanism for “bluewashing” corporations that

benefitted from the association with the UN in terms of projecting a socially responsible image

(Utting et al., 2009:47 ;Seppala, 2009:408). Human rights groups realized that these benefits were

received even without the need for compliance with human rights standards, in effect questioning

the actual benefits of the Global Compact and therefore appealing to a binding regulation in order to

extend the reach of the international human rights regime to all corporations (ibid.)

Waddock (2004) suggest that companies try to demonstrate their commitment to CC by joining the

Global Compact in addition to other principles and standards. Criticism is notable on the slow

progress of the Compact. In 2003 there were only a 1,00020 members out of the 70,000 transnational

corporations (Waddock, 2004:324).

The corporate engagement with the UN known as UN-business partnerships has been a target for

considerable criticism too in terms of corporate influence in UN affairs. Substantial resistance from

leading activists, advocacy and research NGOs from around the world has resulted in the formation

of a Corporate-Free UN alliance. NGOs also joined the Global Compact in an attempt to reform the

Compact from within, but with no luck. This group of NGOs and high profile advocacy21 went

public with their concern in the form of a letter to the UN Deputy Secretary-General. Their concern

regarded the weakening of accountability mechanisms, limited evidence of progress and lack of

consequential specifications on TNCs that are in breach of the principles. Furthermore, the letter

emphasized the need for closer monitoring of corporations and greater participation of NGOs and

trade unions in the process of operationalizing then Compact. NGOs also denounced corporations

that use the Global Compact as a marketing tool and called for a more result-oriented approach.

(Utting, 2008:47-48).

20 According to a statement on the Global Compact, the no. of corporation participants in 2009 is more than 5,000 . The no. is still small out of 70,000 corporations.21 Human Rights Watch, Amnesty International, Oxfam International and Lawyers Committee for Human Rights.

39

The question remains whether these voluntary initiatives in addition to continued activism and

public pressure would create more accountable corporations that meet basic standards of practice.

(Waddock, 2004: 325)

4.2.3 Empirical Analysis on the Global Compact

An empirical analysis was conducted by Hamann et al. (2009) based on the increase prominence of

human right as a business issue. Hamann et al. (2009) analyzed the content of the public reports of

the top 100 companies listed on the Johannesburg Stock Exchange (JSE) in relation to hypothesis of

companies’ demonstration of human rights due diligence based on assumptions and findings of the

SRGR. Hamann’s et al. (2009) choice of South Africa is due to the historical 22 and institutional

context in addition to the international leadership role of South African companies in terms of social

responsibility reporting. The hypotheses stipulated in the analysis attempt to investigate, inter alia,

whether the role of sector, company size, government regulation, leadership commitment, and what

is most relevant to our discussion, whether the membership in the Global Compactand JSE Socially

Responsible Investemnt (SRI) Index play a role in the demonstration of human rights due diligence.

The results showed that the first hypothesis on whether certain sectors that were more exposed to

human rights challenges would devote greater efforts to corporate responsibility was not supported.

The second hypothesis suggested that the size of the corporation played a role in terms of showing

greater human rights due diligence. Their results showed that company size played no significant

role in matters related to human rights. The third hypothesis23 postulated that companies would

show more due diligence on human rights that are represented in government regulations. The

findings indicated that companies did show high due diligence on human rights that were present in

the governments regulations. This supports the prominent argument that states do play a crucial role

in creating institutional pressure for increased corporate responsibility.

The fourth hypothesis stipulated that corporations with explicit leadership commitment on human

rights would be related to the corporation’s positive performance on human rights issues. The result

showed that leadership commitment was a good indicator of performance. In effect, the result

22 The apartheid legacy which is still relevant in current corporate social responsibility practices in addition to the current government’s policies in South Africa. (see Hamann et al., 2009:456) 23 This hypothesis is based on specific labor rights and human rights in the Black Economic Empowerment (BEE) policies in South Africa (Hamann et al., 2009:457)

40

contradicted the criticism that corporations received, stating that corporate policy statements did not

mean actual performance24.

The fifth hypothesis suggested that companies that are members of the JSE SRI Index would show

greater due diligence on human rights than others. The result contradicted the underlying

assumption that such members would have more rigorous management systems and therefore

perform better on social and environmental issues.

This leads us to the sixth and most relevant hypothesis that members of the Global Compact showed

greater due diligence on human rights. The result completely contradicted the underlying

assumption in the hypothesis and in addition to that showed that Global Compact members

performed worse on average25. The results also support critics of Global Compact and related

initiatives, who criticize the voluntary nature of the Compact and the “blue-washing” effect on

corporate image due to their association with the UN. Hamann et al. (2009) suggest that there is a

noteworthy difference between companies with explicit human rights support expressed by their

corporate leaders and the participation in external initiatives, which according to their results show

no significant relation to actual performance.

4.3 Ruggie Report 2008

Professor John Ruggie, who is an international political theorist, was appointed in 2005 by the UN

as a Special Representative on the issue of TNCs and human rights (Nolan, 2009: 434).

The Special Representative of the Secretary-General (SRSG) of the United Nations (UN) on the

Issue of Human Rights and Transnational Corporations and Other Business Enterprises(the Ruggie

Report 2008). The Report is a tripartite framework called ‘Protect, Respect, and Remedy’ which

deals with the state’s duty to protect against human rights violations, the corporations responsibility

to respect human rights, and the need for more effective access to remedies.The framework is of

importance to both governments and corporations. (McCorquodale, 2009:385).

Ruggie justifies the framework stating that

Each principle is an essential component of the framework: the State duty to protect because

it lies at the very core of international human rights regime; thecorporate responsibility to

respect because it is the basic expectation society has of business; and access to remedy,

24 See section 2.4.125 Members performed worse on average on specific human rights issues.

41

because even the most concerted efforts cannot prevent all abuses, while access to judicial

redress is often problematic, and non-judicial means are limited in number, scope and

effectiveness. The three principles form a complementary whole in that each supports the

others in achieving sustainable progress. (Ruggie, 2008, para. 9)

The mandate for the Report came as a response to the disagreement on the Norms that prevented the

adoption of the draft (Voiculescu, 2009:420).

The Commission requested Ruggie to examine and clarify the issue by identifying the standards of

corporate responsibility and accountability regarding human rights; elaborate on the states role

regulating and adjudicating corporate activities; to clarify and elaborate concepts such as

“complicity” and “sphere of influence”; to develop material and methodologies for undertaking

human rights impact assessments and consider state and corporate best practices (Ruggie, 2009,

Intro by SP ; McCorquodale, 2009:386).

As described by Ruggie, the purpose of the framework was initiated as “a conceptual and policy

framework to anchor the business and human rights debate, and to help guide all relevant actors”

(Ruggie, 2008).

Unlike the approach in the Norms and the Global Compact, which basically sets out a list of

principles or standards, the Ruggie Report reviews existing policies and practices with respect to

business and human rights and identifies the deficiencies in the current system. The deficiencies,

according to Ruggie, came as a result of ‘governance gap’, which has increased the flexibility of

companies to operate globally without authority to regulate their behavior (Seppala, 2009:404).

Although the scope of the SRSG’s mandate is considered ambitious, the narrowness of the report

which focuses on mapping the corporate responsibility with respect to human rights deemed it to be

less controversial than if it had sought to develop a new set of legal norms addressing the complex

issue of expanding the human rights responsibilities onto TNCs. Another aspect, which has

supported the Report was that the approach was based on a legal grounding in terms of TNCs’

responsibility towards human rights, rather than mere ethics. But instead of addressing the obvious

issue of the legal standpoint of the corporate responsibility in terms of human rights violations, the

report proposes a CSR framework which appears to dilute the legal aspect of corporate

responsibility (Voiculescu, 2009:420).

42

4.3.1 ‘State’s duty to protect human rights’

The first part in the Ruggie’s framework involves the ‘state’s duty to protect human rights’. Under

international law, every state has a legal obligation to protect against human rights abuses as every

state in the world has ratified at least one of the human rights declarations. In effect the first part

recognizes the central role of the state in maintaining the international regime of human rights. The

level of human rights protection vary amongst states depending on which treaty they have signed,

but nevertheless, international human rights law binds all states. The obligation includes the

protection of human rights against actions by non-state actors such as corporations that are within

their territory. States have been found to be in breach of their obligations to protect human rights in

terms of corporate activities such as the dismissal of employees in corporations for joining a trade

union, or where the activities of a corporation have polluted the environment, etc. The state is held

liable for the corporation’s actions based on the lack of positive action in responding to or

preventing the human right violation by the corporation. Even in cases where the corporation is

economically more powerful than the government of the state, such as the example of BHP26, the

established obligations of a state extend beyond economic inequalities (McCorquodale,2009:387).

Since a state’s obligations in general are not limited to territory but rather extend to cover all those

within its jurisdiction. The Inter-American Commission on Human Rights clarified the difference

between ‘jurisdiction’ and ‘territory’ stating that:

[The Commission] does not believe…that the term “jurisdiction”…is limited to or merely

coextensive with national territory. Rather, the Commission is of the view that a state …

may be responsible under certain circumstances for the acts and omissions of its agents,

which produce effect or are undertaken outside that state’s territory.

In effect, corporations are considered ‘within the jurisdiction’ of a state even when operating

extraterritorially, therefore a state can be found to be in violation of its human rights obligations if

the corporation abuses human rights outside the state’s territory (McCorquodale, 2009:387-388).

The issue of states’ extraterritorial control on corporations is complex, as corporations are usually

not attributed to a state. The International Law Commission (ILC) has identified four key situations

in which corporations (and other non-state actors) can be attributed to the state.

First, the state holds responsibility if the corporation violating human rights was empowered by law

in order to pursue governmental activities. Second, the state is also responsible for acts by

26 BHP is an Australian-based corporation with strong influence over the government of Papua New Guinea and its foreign currency income. The government passed laws to protect BHP from legal prosecutions on its activities despite the severe effects it had on the locals.

43

corporations that are under the instruction or control of the state. Third, a state can be held

responsible if the act by a corporation is either adopted or acknowledged by the state as its own.

Lastly, a state may incur responsibility for either being complicit or failing to exercise due diligence

in order to prevent the consequences of corporate activities (ibid.).

The main reason behind the state’s international responsibility comes as result of the active support

that the governments provide for their corporations, through financing, in terms of the provision of

export credits and political risk insurance, in addition to entering into bilateral investment treaties27

that assist them, etc (ibid.).

Therefore in relation to the first principle, there is a growing consensus on the responsibility of the

state for the activities of its corporate nationals and therefore it is the states duty to regulate and

prevent human rights violation by their corporate nationals. This responsibility cannot be limited to

territory without extraterritorial regulations, as corporations will easily bypass national laws by

relocating (McCorquodale, 2009:389).

4.3.2 ‘Corporate responsibility to respect human rights’

The second part of the framework, is regarding corporate responsibility to respect human rights.

The difference in the terms used to describe the duties of the state and the corporation is due to the

different roles played by these actors (Seppala,2009:405).

Although the following statement on corporate responsibility is supported by key business

organizations and is defined as:

[The corporate] responsibility to respect is defined by social expectations – as part of what is

sometimes called a company’s social license to operate … [and] “doing no harm” is not

merely a passive responsibility for firms but may entail positive steps. To discharge the

responsibility to respect requires due diligence. This concept describes the steps a company

must take to become aware of, prevent and address adverse human rights impacts. (Ruggie,

2008, paras. 54-61)

Ruggie argues that corporations should carry due diligence to implement their human rights

responsibilities. Human right groups have raised their concern towards the voluntary nature and the

weak ‘black sheep’ consequence of the framework, but seem to be waiting with the corporations on

the second part of the report to see which direction it take (Seppala,2009:405).

27 See McCorqudale’s (2009) criticism on BIT p. 15

44

The above statement is supported by corporations which is based on the view that the legal

obligations of corporations differ compared to the states’ in terms of international law, and that

most corporations operating outside their national borders have some sort CSR policy that deals

with social, environmental, and ethical issues. Although CSR policies are obviously not equivalent

to the protection of human rights, many corporations view them as being compliant with human

rights norms (McCorquodale, 2009:391).

4.3.3 ‘Access to remedy’

The third principle in the framework pertains the access to remedy for those whose human rights

have been violated. Ruggie recognizes the limited relief measures in the system and necessitates the

need for new measures. NGOs have asked Ruggie to consider how human rights abuses can be

investigated and sanctioned, especially in situations when remedies for victims are inaccessible.

(Seppala,2009:405).

This last element of access to remedy in the framework proves to have errors due to the serious

flaws in the terminology used for the second element. As the access to remedy from a corporation

requires the corporation to have a legal obligation and since corporations only have ‘responsibility

to respect’, which proclaims no legal obligations.(McCorquodale,2009:395). Due to that, the debate

on redress has been taken further, with corporations calling for national legislation, while human

rights groups push for supranational mechanisms (Seppala,2009:405).

4.3.4 Criticism

In the statement ‘[The corporate] responsibility to respect is defined by social expectations …’

(Ruggie, 2008, paras. 54-61) (see full statement above) Ruggie defines corporate ‘responsibility’ by

‘social expectation’, which is difficult to determine, and even if that was possible to discern through

empirical evidence, what sets the standards for which ideal society is relevant to determine the

expectations and which sets of human rights are to be included. Therefore the definition and

standard of ‘social expectations’ can be manipulated to serve the corporation and with the lack of

corporate transparency on these matters, it would be difficult to measure the corporation’s

compliance with human rights. (McCorquodale,2009:391).

45

Therefore, the part of the report dedicated to the responsibility of corporations to respect human

rights is derived from insufficiently specified legal or ethical content (Voiculescu, 2009:422).

The notion of ‘due diligence’ appears to be entwined with human rights obligations in relation to

actions of corporations. The type of obligation is also not clarified as the obligation of ‘due

diligence’ under international law is on the state as it is responsible for the actions of its corporate

nationals, which demands considerable resources in terms of investigations and to provide redress.

In contrast, corporations also undertake ‘due diligence’ in the form of auditing, which has a large

impact on the business if neglected, therefore Ruggie’s choice of including ‘due diligence’ in the

framework as a legal obligation is puzzling. This can be explained as a requirement of the corporate

responsibility to enable positive actions and not merely a requirement not to do harm

(McCorquodale, 2009:392)

What is worrisome in this relation is that although Ruggie attempts to distinguish between legal and

social expectations on corporations in terms of human rights, this distinction is based on the lack of

direct legal obligations on corporations under international human rights law, which might prove to

be a tedious and severe problem when it is operationalized. This is based on the confusing ‘duty’

and ‘responsibility’ terminology used in the framework, which muddles the corporations’ use of

‘due diligence’ and the diluted notion of ‘social expectations’. This is compounded with the blurred

concept of CSR and human rights when each of them serves a distinct purpose. McCorquodale

(2009:393), urges for a clear distinction and clarification of these terms and concepts before moving

on to the operationalization step.

The highly controversial question of whether the state’s obligations to protect human rights extend

to the extra-territorial activities of corporations is not considered sufficiently in the Report. (ibid.)

The operational link between business and human rights is yet to be established in the subsequent

report promised by Ruggie. The big challenge that the promised report faces is to maintain the

consensus it has built while at the same time answer to social expectations (Voiculescu, 2009:421-

422).

Despite the criticism it has received, the framework was adopted by the UN Human Rights Council

Resolution 8/7 (2008) as a way forward (McCorquodale, 2009:386).

4.4 Findings

46

It is evident that support for the different initiatives has varied. The Norms enjoyed great support by

NGOs, and was seen to provide the necessary standards and practices for corporate behavior, while

the business community opposed to it, as the Norms asserted that companies could be held directly

responsible in the international arena for human rights violations. These responsibilities that

previously were assumed by states were now the corporations’ liability. Although, international law

has progressively recognized the responsibility of corporations in the human rights regime, which

means direct responsibility is possible, but the issues of politics and pragmatics reach far beyond

(Nolan et al., 2009:445).

The Global Compact was set to clarify and promote the standards for corporate behavior in terms of

human rights. The Compact attracted many corporations, and relied on the exposure of public

pressure as a compliance mechanism. The Global Compact lacked a systematic compliance

monitoring mechanism and it mostly attracted corporations, which had already decided to adhere to

human rights standard. The Global Compact also received substantial criticism by human rights

groups at the Human Rights Council due to its voluntary nature (Seppala, 2009:412).

The Ruggie Report clarified many aspects of human rights and the responsibilities in relation to

international law with the state in central. The Report still lacked clear specifications due to the

terminology used. A subsequent report is anticipated, which should take the debate to the next level

in terms of operationalization of human rights in TNCs. The surviving UN initiatives, namely the

Global Compact and the Ruggie Report, still have not resolved the issue of human rights and

businesses but are seen as a step forward. At the moment, governments have not yet set up binding

responsibilities on companies. Countries such as the UK and the US have resisted binding

approaches, while developing countries have shown their concerns in terms of the cost of such

measures (Seppala, 2009:413-414).

The approach, which Ruggie pursued, was to minimize the distinction between law and ethics. In

the absence of ‘hard law’ regulating corporations, the notion of ‘soft law hybrids’ has emerged in

the form of Codes of Conduct, guidelines, ethical principles etc. (Nolan et al., 2009:437). Ruggie

(2007, cited in Mayer, 2009:575) admits that even after seven years after the Global Compact, he

still doesn’t have the answer, stating that:

“disputes between Governments and businesses over just where the boundaries of their respective

responsibilities lie are ending up in courts. The soft law hybrids have made a singular contribution

by acknowledging that for some purposes the most sensible solution is to base initiatives on the

notion of “shared responsibility”. This is a conclusion some moral philosophers have also reached

47

with regard to global structural inequities that cannot be solved by individual liability regimes

alone. This critical nexus requires greater clarification”

The blurred lines between the moral and legal responsibilities are vexed and as Ruggie noted, there

is a need for clarifications on the “critical nexus”. He also acknowledges that the lines separating

the human rights responsibilities of states and corporations are blurred and therefore encourages the

notion of “shared responsibility” (Mayer, 2009:575).

A part of this issue is what Ruggie has strived to clarify, which is the controversial concept of

“sphere of influence” in relation to when the governmental responsibilities end and when those of

corporations begin. This concept refers to the corporations impact and was mentioned in the Global

Compact asking businesses to ‘support and respect the protection of internationally proclaimed

human rights within their sphere of influence’ and in the Norms positing that although states have

the responsibility to protect rights, the corporations also have an obligation to protect ‘within their

sphere of activity and influence’. Both instruments lacked an elaborate definition of the concept,

which is why Ruggie was specifically asked in his mandate to clarify the concept. Ruggie, being

dissatisfied with the terminology explained the concept as a ‘useful metaphor for companies in

thinking about their human rights impacts beyond the workplace and in identifying opportunities to

support human rights’ but preferred the concept of ‘due diligence’ in his framework which instead

defines the parameters of a corporation’s responsibility to respect (Ruggie, 2008, para. 67). (Nolan

et al., 2009:437).

Predominantly, a majority of NGOs agree with Ruggie that there is a need for guidance, constraint,

encouragement, and pressure on TNCs to ensure that they do not undermine human rights. But

concerns arise from Ruggie’s suggestion that states have duty to respect while corporations

voluntarily (as apposed to mandatorily) have the responsibility to respect. The concern is related to

the ‘soft law hybrids’ which ultimately questions the actual outcome of these initiatives in relation

to the ungovernable extraterritorial activities of TNCs (Whelan et al.,2009:376). Literature clearly

suggests the need for some sort of legally binding international convention in order to overcome the

human rights violations, but in order to do that, scholars call for a foundational theory or normative

framework to be able to clarify the blurred lines between moral and legal obligations (Whelan et al.,

2009:376 ; Mayer, 2009:576)

48

4.4.1 Theory of Justice and Natural Law

Crane and Matten (2007:107) use the ‘theory of justice’ by John Rawls (1971) to justify the TNCs’

exploitation of low wages and poor conditions in less developed countries under certain conditions.

The CDPs which TNCs are involved in provide leverage for them to take advantage of lower wages

while at the same time, according to Crane and Matten, they provide a “system of basic liberties

compatible with similar system of liberty for all” and thus creating “conditions of fair equality of

opportunity” in effect the resulting inequalities are still “to the greatest benefit to the least

advantaged”. Justifying that local people would be worse of without the manufacturing plant, facing

greater poverty and less opportunity for development.

Although Crane and Matten (2007:299) agree that human rights violations are ethically

unacceptable, they argue that ethical considerations beyond that in terms of treatment of employees

on a global level are not “necessarily ethically wrong per se but depend on the relative economic

development of the country in which the practice is taking place”.

Human rights have become a social expectation based on the notion of ‘natural rights’ or moral

claims. Understood that all humans are entitled to these rights and are expected to be respected and

protected (which is the states function). In terms of ethical theory this means that these rights

typically result in the duty of others actors to respect them. The concept of CC in this respect claims

that corporations facilitate social rights. (Crane and Matten, 2007:100)

But as Friedman contested, “only people can have responsibilities” and with executives having

contractual obligations to shareholders to maximize profit. The issues of justice become therefore

prominent when in the hands of self-interested and supposedly ‘socially responsible’ corporations.

Therefore in light of Rawls theory of justice and CC, corporations cannot take up a state-like role in

terms of facilitating social rights specifically human rights while on the other hand, deprive others

from their natural rights in the pursue of profit. (Ludescher, 2009)

4.5 Interview

The question on why CC is silent on the issue of human rights based on precedent arguments was

sent to Andrew Crane, Dirk Matten, Anne Elizabeth Mayer, Marc T. Jones.

The arguments were based on Hamann et al. (2009:454) statement that the voluntary nature of CC

does not contribute to the international human rights regime, which originates in a strong tradition

49

of international and national law. Furthermore, the argument made by T. Jones and Haigh on CC

that if it were to be operationalized it would then “exacerbate the negative implications of

globalization” and therefore suggest that a well functioning CC would require a strong state to

design and administer necessary sanctions.

The debate on whether TNCs should be regulated or not is evidently very controversial. It is clear

from the literature that the opinion varies extremely and there are many problems identified in both

cases (see Korbin, 2009). Marc T. Jones reflected on the issue of CC and explained that the old

adage that ‘self regulation is no regulation’ has been confirmed during the current economic and

financial crisis28. This in his opinion could be applied to the idea of having TNCs voluntarily define,

measure and report on their impact on human rights in countries where they employ people and do

business explaining that “having all three of these processes left entirely to TNCs would be the most

extreme form of self-regulation”. Furthermore, Andrew Crane and Dirk Matten explain that their

CC theory does not ‘support’ voluntary regulation but rather describes what is currently happening

by identifying the shift in some of the responsibilities for protecting the rights of citizens from

government to business. Jones points out that “it is dangerous for host governments and other key

societal stakeholders to have TNCs engage with human rights in a voluntary manner as some

corporate citizenship scholars would have them do” explaining that “the manner of their

engagement would be more erratic than steady over time, as it would depend on the 'business case'

impact of a particular engagement strategy (which may fluctuate) along with the internal support for

the strategy - which may depend on a very small number of executives/managers, all of whom will

be rotated to other positions in other countries within a few years” this means that “the ability of a

TNC to maintain a consistent voluntary engagement with human rights in a given operating

environment depends on the maintenance of a delicate 'balance of forces' with the subsidiary

organization, as well as with respect to its relationship to its parent (regional or global headquarters)

organization”.

This can be reflected on the epistemology of CC in which Jones argumentatively proves that

initiatives such as the Global Compact, which is supported by CC, ultimately give corporations

leverage to avoid external regulation. Although Matten explain “that descriptively corporations are

players in the arena of liberal citizenship , for better or for worse and as such, they become involved

in administering citizenship rights, which include a lot of human rights”. It is the rationalization of

28 see also McCorquodale 2009

50

CC that is worrisome because it can turn out to have tremendous effects on the international human

rights regime.

Jones also argues that “even the proposition of government regulation of human rights without TNC

influence is a dangerous delusion in weak, corrupt or failed states where 'strong' TNCs are present

(typically, but not only, for resource extraction purposes). This has been true for western TNCs for

many years; it will also be the case, although perhaps in different ways, as Chinese TNCs make

their presence felt in Africa and elsewhere”

Despite these strong arguments against CC it is unfair to disregard it as the concept has contributed

via the Global Compact and other voluntary initiatives (Waddock, 2004), and through leadership

commitment (Hamann et al. (2009), in addition to the public and corporate pressure (Mayer, 2009)

which CC exerts. Waddock (2004: 325) suggest that although there are no voluntary nor mandated

assurances in today’s world, the fact that corporations are active in implementing core principles

indicates that CC is being realized rather than just being mere rhetoric and should therefore be

honed further.

The findings from Hamann et al. (2009) and from Ruggie’sframwork (2008) and Seppala (2009)

confirm that the state is and ought to be the central decision making authority in the human rights

regime, Crane who also agrees that strong states are important, explaining that that unfortunately is

not the case in the real worldespecially in developing countries or in the context of transnational

problems. Crane argues that, “states now often opt for "softer" more participative forms of

regulation than "harder" forms”. Either way he agrees with Jones and Haigh that, sanctions (as well

as incentives) are crucial – but adds that “getting the right mix of carrots and sticks is a key problem

in the design of any decent governance system”.

Mayer echoes the assessment in Larry Cata Backer (2006)29 article, which points out the important

points in the Norms. Mayer believes that the Norms is a good step30 in which it alters the debate on

CSR. The Norms assume that corporations should serve not merely traditional stakeholders, but the

state and the international community, as well. Mayer cites Backers argument that “The Norms 29 Larry Cata Backer, Multinational Corporations, Transnational Law: The United Nations’ Norms on the Responsibilities of Transnational corporations as a Harbinger of Corporate Social Responsibility in International Law, 37 Colum. Human Rights L. Rev. 287 (2006)30 This opinion is doubted by many scholar see Seppala (2009)

51

reduce the ability of states to resist emerging international law norms. Because the Norms are based

on a number of international instruments that have not been ratified by all states, they use

transnational corporations as a means of end-running states, and in the process create the basis for

the articulation of customary international law principles that will apply to states. Most importantly

for the future, the Norms suggest the ways that the governance norms for states and non-state

entities are converging in theory and in fact”.

It can be argued that Mayer accepts the ideology behind CC to a certain extent but nonetheless

insist on a more legally based regulation. Matten shares the same argument as Mayers (2009) that

although it is evident and logical to shift duties on to corporations there is still a need for a powerful

normative starting point to delineate rights and duties of corporations.

5 Discussion

The findings from Hamann’s et al. (2009:469) analysis31 provide us with an insight on the actual

benefits of the Global Compact in relation to CC. They argue that the debates on the issue of human

rights in relation to corporations play a crucial role in advancing and focusing on the role of

corporations in today’s society. Their results contradicted numerous assumptions prevalent in the

academic literature and in the public and private sector. Their most relevant findings were that the

participation in the Global Compact and other initiatives had no significant impact on the

performance of the companies or in relation to their due diligence on human rights. This contradicts

the arguments by Kofi Annan that the participation in the Global Compact would serve as a learning

nest and lead to peer pressure. The results support the argument that the participation in the Global

Compact benefits the corporations in terms of the association with the UN known as “blue-

washing” without actual proactive impact on human rights. Hamann et al. (2009), also suggest that

due diligence was only apparent on human rights that were embedded in government policies in

effect attracting most attention. This finding shows that institutional pressure is crucial for

companies to proactively consider human rights. Furthermore, the findings confirm that company

policy and corporate commitment play a crucial role and therefore deserve greater attention from

researchers and policy makers.

Hamann et al., therefore conclude that due to the lack of impact by the Global Compact and such

voluntary initiatives in addition to the evident important role played by external regulatory

31 see section 4.2.3

52

institutions, special attention should be given to the divers role of the state to mandate or encourage

human rights due diligence.

6 Policy recommendationsand conclusion

There has been a proliferation of lawsuits in US courts alleging human rights abuses against TNC32.

This can create tremendous threat for corporations that would be faced with indirect costs such as

substantial potential liability and mammoth legal expenses in addition to the negative publicity,

disrupt operations, and the harmful effects left on future businesses. (Drimmer and Dyck, 2009:26)

A predominant number of cases are based on the Alien Tort Claims Act (ATCA) of 1789, which is

a US statute that provides jurisdiction to US Federal Courts for aliens to file a tort claim, if it

‘violates the law of nations or a treaty of the United States’. The Supreme Court has confirmed the

ability to apply ATCA on court cases where there is an infringement of a ‘narrow set’ of human

rights based on violations of customary international law. (Nolan and Taylor, 2009:439,440).

There have been attempts to file suits against corporations outside the US using ATCA. An example

of a case was Exxon Mobil’s activities in Indonesia alleging human rights violations by security

forces employed by Exxon. Another case was in Colombia, where paramilitary death squads were

targeting trade union leaders at Coca-Cola’s plant. Numerous other cases were alleging human

rights violations by corporations such as Shell, Chevron, Dyncorp and Rio Tinto. The only case,

which has prompted both antagonism by the business community and enthusiasm by the human

rights community, has been the case of Unocol in Burma. The case was about the US

companyUnocol being complicit with the Burmese government in the ruthless execution of a

pipeline project, leading to egregious violations of international human rights. In 2005 Unocol

agreed to compensate Burmese villagers for the cases brought on behalf of the villagers. (Betton,

2008, p. 21; Mayer, 2009, p.573)

Most federal districts now allow suits against TNCs for similar types of human rights violations as

those brought against individuals. (Koppel, 2009)

Given the potential hazardous effects of these litigation and the growing number of lawsuits in UN

courts, corporations are increasingly realizing the paramount need for proactive steps to protect

against potential human rights issues. (Drimmer and Dyck, 2009:26)

32 The extraction industry has been a primary target for litigations.

53

In response to that, policy recommendations have been constructed. The recommendations are

inexpensive, easy-to-implement steps designed for TNCs to integrate sustainable, legal, and

communication resources to address the issue of human rights directly and to avoid being litigated.

These suggestions do not solve the issue on human rights but can serve as a significant part in the

operationalization of the international human rights regime. The diversity in public debate on the

governance of human rights is obviously more nuanced than simple dichotomy between ‘legal’

versus ‘voluntary’ regulation.

Evidently from the literature review and from the analysis of the UN initiatives, the issue of

consensus is largely due to the confusing terminology used especially in relation to ‘respect’,

‘protect’ and ‘responsibility’ etc. (Mayer, 2009) and McCorquodale (2009) highly criticized the

terminology used to describe obligations and responsibilities of TNCs which in effect interfere in

the progress of the debate on TNCs’ human rights due diligence. This issue was also addressed by

business leaders who participated in the Human Rights Impact Assessment (HRIA) 2009 online

discussion33 lead by Christine Bader, advisor to Professor Ruggie.

This issue can be reflected on, by having TNCs communicate with stakeholders in order to set as

clear boundaries as possible (Koster, 2010) and create a separate code of conduct that cover human

rights (Drimmer and Dyck, 2009:27).

Evidently from Hamann et al.’s (2009) analysis, the commitment by CEOs and other board

members to the issue of human rights provided best results. It is therefore, recommended to have a

clear and strong commitment by members of the executive board to actively monitor and challenge

the company in relation to human rights. This can be accomplished through strategic engagement

with key international stakeholders (Koster, 2010).

Its is very clear from the literature that the notion of CSR and human rights is constantly being

mixed up and there should therefore be a clear distinction between what a violation of human rights

is and what philanthropic contribution to human rights is.

Although Matten et al. (2003) discuss the three views on CC and emphasize on the extended view,

moving away from the notion of equating CSR with CC, Waddock (2008) argue that many

companies still simply practice CSR. 33 Participant in the sessions were 40 company representatives in addition to 30 other stakeholders. The participants were given anonymous identities in order to foster an open and honest discussion. The discussion provided the challenges in assessing human rights in terms of the human rights language and provisions that needed to be made more accessible and comprehensible for companies

54

CSR can therefore be useful in the sense that there should be a "floor" of human rights (Waddock,

2004) or as Donaldson and Dunfee (1994) call it 'hypernorms', which have a clear legal grounding.

These hypernorms can be worked into Carrolls CSR model in the legal dimension, and what ever

additional voluntary work (such as CDP) which corporations engage in, whether out of self-interest

or actual philanthropic intentions, then that could obviously be placed in the fourth dimension-

philanthropy (see figure 4).

Figure # 4 Modified Carroll’s Pyramid with suggestions

From a corporations perspective, this can be seen as to have minimum requirements which should

be adhered to across all operations (Koster, 2010).

Waddock (2004:324) suggest for corporations with long supply chains to employ minimum

requirements on all of their suppliers. This in effect would create a chain reaction.

Crane and Matten (2007:298) justify that wages and labor condition are related to the economic

development of the country in question. This as previously noted have led to human rights abuses. It

is therefore crucial for the minimum requirements to be sufficiently differentiated on a local level.

This can be reached by having open dialogues with internal and external stakeholders. In addition to

a provision of practical and detailed guidelines for subsidiaries, which should be implemented and

internalized at the discretion of the subsidiary through communication and training. Tools for

implementation should be provided for subsidiaries to pick from and adapt locally. (Koster, 2010)

Philanthropi

c responsibilit

yEthical responsibility

Legal responsibility

Economic responsibility

hypernorms

CDP and donations etc.

55

Human rights should be put on the agenda, by having an open dialogue and a follow up with

managers of the subsidiaries. This will bring up the question of human right assessment in relation

to international stakeholders and their expectations. Furthermore, stakeholder perspectives should

be exposed to as many line managers as possible. The adherence to human rights principles can be

promoted via reward systems.It is crucial that employees are also made aware of their human rights

and how it is linked to their daily work. (Koster, 2010)

It is clear from HRIA’s online discussion that an issue in human rights violations can be caused

from the difference in local legislation and international human rights treaties.

Potential risk of human rights violation can be assessed by building a legal capacity internally or by

working with human rights expert institutions and thereby assess the anticipated risks. (Koster,

2010)

TNCs are recommended to be involved in multi-stakeholder initiatives, where corporations,

governments and NGOs address human rights concerns. Dilemmas and issues can be discussed

from different perspectives and corporations can work together with peers in the same industry to

level out the playing field by sharing experiences. (Koster, 2010)

The issue of government agents being the actual violators of human rights was brought up by

Theobald and Arkani (2007). Meaning that for corporations that have no choice but to rely on

foreign governments to provide various services that can create human right concerns, corporations

should strive to enter in contractual agreements that include human right principles. The contracts

should also be clear on the respective roles and responsibilities especially in areas where the

corporation lacks direct control, should be made explicit. (Drimmer and Dyck, 2009)

This recommendation would clarify the corporation’s role and partially resolve the issue of

‘complicity’ mentioned by McCorquodale (2009) on corporations’ knowing compliance with

government violations such as the case with Unocol in Burma.

Drimmer and Dyck (2009) suggest for corporations to be prepared for immediate response when an

issue is discovered in an early stage in order to minimize potential exposure.

A key problem with the above recommendations is that they all are voluntary. They lack

compliance mechanisms and are driven by self-interest.

It is therefore crucial to ensure compliance, illustrated by the watchdog model, whereby the

government polices private enterprise, is obsolete in the globalised context, and the only way is to

56

link the degree of complicity with human rights guidelines to the company's revenue by informing

consumers directly and transparently on how well companies are implementing measures.

Keith Slack (2006) identifies two areas, which are crucial for corporate profitability. The link

identified between corporate performance and CSR issues is the access to capital and markets.

The focus could be on the private banks that finance TNCs. Banks can incorporate the hypernorms

for human rights in contracts with TNCs, which in effect become legally binding. The capital can be

cut off as a consequence for serious human right violations. The World Bank previously used this

approach but was later discarded. But increased financial risk involved in human right violations by

TNCs can be an incentive for banks to start reusing the disinvestment approach.

Another area, which can be used to pressure TNCs that violate human right, is by denying markets

for them. This can be achieved through pressure that can be exerted by large institutions such as

public utilities, pension funds, universities and corporations that consume significant volumes.

These institutions can adopt legally binding contracts that consequently due to human rights

violations can discontinue stock purchases from such corporations. Similar to product quality, this

approach can force corporations to pay more attentions to human right aspects.

This would help utilize market forces as companies would compete to gain better ratings, which

could also lead them getting more preferential treatment from national authorities (in terms of

licensing, tax etc..)

7 Conclusion

One might say that the mindset of deregulation based on neoclassical approach was exacerbated by

globalization. As a result according to Whelan et al. (2009:374) TNCs’ rights and capacities “have

far outpaced the construction of regulative frameworks that might control them”. The lack of

regulation has led to various egregious activities by TNCs in developing countries, which are

ethically unacceptable. There has therefore been a shift in the mindset towards more legally

oriented approaches to hold TNCs accountable. There seems to be no doubt that the descriptive

concept of CC is occurring in today’s world. The justifications in CC to take over government

functions have caused controversy amongst academics in relation to the prominent profit-

57

maximizing purpose of businesses in contrast to the government’s purpose to promote and protect

social welfare. Evidently the findings witnessed in the thesis support CC critics’ demand for the

human rights regime to be settled on the state as the main institution to implement the regime

through relevant regulation.

The analysis also illustrated that the notion of human rights is more nuanced that simple dichotomy

between ‘voluntary’ and ‘legal’ regulation.

Ruggie also confirmed in his report that the human rights regime is not only settled on the state to

institutionalize human rights but that there is also a need for TNCs’ collaboration and involvement

in the regime. Ruggie supported his argument by his many years of work on distinguishing

government and TNCs responsibilities, which he admits constantly seem to overlap. So the question

remains: How can the human rights be operationalized in TNCs extraterritorially?

There is still a lack of consensus on how this problem might be approached. Literature identified

several issues that might be the core problems in the debate in terms of unclear terminology, lack of

theoretical foundation and so on.

This has caused a proliferation of initiatives, guidelines, approaches etc. based on different

ideologies on how to deal with the issue of human rights and TNCs.

This as Waddock (2004) argued has created a gap between the increasing social expectations and

the actual performance by corporations.

Seeing that there are many useful grounded propositions to the problem -whether being the concept

of CC, the Norms, Global Compact, Ruggie report etc.-, it is suggested that policy makers and

academics from various disciplines come together to clarify the blurred lines between legal and

non-legal categories.

With that said, it is suggested that academics and policy makers stop adding more water to a filled

cup by creating more initiatives and as a result spilling over and gaining nothing. Instead it seems

wise to use the already existing knowledge and propositions to hone and refine a powerful initiative

with an agreed foundation for the operationalization of the human rights regime in TNCs.

58

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9 Appendix

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