27 September 2016
Companies have a responsibility to ensure basic rights are respected across their operations and value chain
It is five years since the adoption of the United Nations’ Guiding Principles on Business and Human Rights created a global standard on human rights. However, understanding and active engagement by boards in this area is still developing.
Recent regulatory developments are accelerating this by throwing a spotlight onto companies’ human rights performance and, in turn, their corporate governance. The Modern Slavery Act 2015 and its requirement for companies operating in the UK to explain the steps they take to ensure their supply chains are free from slavery is the most eye-catching example.
A recent Eversheds survey of companies shows that there is still some way to go to ensure companies demonstrate human rights due diligence. It found that a lack of senior-level commitment and unclear responsibilities for this issue prevail and warned of the potential hazards for companies with supply chains or operations in high-risk human rights contexts.
The Equality and Human Rights Commission’s role is to promote awareness, understanding and protection of human rights, and we strive to help companies operate with respect for these basic rights. Our work has revealed concerns close to home in sectors like meat processing and commercial cleaning but we also know that most companies want to do the right thing.
That is why we recently published ‘Business and human rights: a five-step guide for company boards’, making it easier for boards to understand and engage with their role in making sure human rights are respected throughout their operations.
Human rights are basic rights and freedoms based on dignity, fairness, equality and respect. Companies can affect the enjoyment of people’s human rights positively or negatively. This might be through their own activities or through their business relationships; with negative examples including the use of child labour or forced labour in a supply chain, breaches of individuals’ privacy or restrictions on free speech, poor safety or security practices, or environmental pollution causing harm to people’s health.
Human rights impacts can arise in business operations abroad or here in the UK. Reputational harm, operational delays and an inability to recruit the top talent are just some of the risks to businesses failing to respect human rights.
Last year, George Dallas of the International Corporate Governance Network said that, ‘Directors need to build sensitivity to [human rights] risks in their oversight of company management and ensure they are sufficiently informed of how human rights issues may represent material business and reputational risks or might compromise a company’s own values or standards of behaviour.’
Companies should prioritise human rights on the basis of their severity. In other words, how grave, widespread and hard to remedy they are. The process of identifying those most severe risks not only helps companies to understand where the greatest risks to people lie, but also helps them uncover where risks to the business are likely to be found. The Commission believes that when companies operate with a culture of respect for human rights they become brands, partners, employers and investments of choice.
Since 2013, UK listed companies have been required to include non-financial information in a strategic report. The Act will be revised this year to incorporate provisions of the EU Non-Financial Reporting Directive which require greater disclosure of information relating to human rights, ‘to the extent necessary for an understanding of the [company’s] development, performance, position and impact of its activity’.
During our conversations with boards, advisers and investors about the role of company boards and respect for human rights, the Modern Slavery Act was frequently cited as an issue that is grabbing board attention. It requires companies doing business in the UK − with an annual turnover of £36 million and over − to publish a slavery and human trafficking statement signed by a director.
Regulatory approaches are encouraging companies to disclose information about their human rights policies and due diligence processes and to explain the actions they are taking to manage human rights risks in their operations and business relationships. Furthermore, the Government has made clear that it expects UK companies’ approaches to respect human rights, wherever they operate, and to be guided by the UN Guiding Principles.
In 2013, the UK Government became the first to publish a national action plan for implementing the UN Guiding Principles. The action plan was updated in May 2016, reaffirming Government expectations of business.
Drawing on our consultations with business leaders on what was needed to help companies meet these obligations, the Commission developed a short five step guide for company boards. This will help them to ensure their company:
David Styles’ [Director, Corporate Governance, at the FRC] recent article for Governance and Compliance, The Power of People, discussed the important role of company secretaries in shaping company culture and providing unique and practical insights into what is happening on the ground.
This sits well with a central recommendation of the Commission’s guidance: that a public commitment to respect human rights be the foundation for a culture that makes human rights a consistent part of how a company does business, trains its people, manages risks and reports on its activities.
Company secretaries have a key role in advising boards on how to discharge their responsibilities, overseeing compliance with statutory and regulatory requirements and managing the flow of
Talking to a wide range of stakeholders is vital for companies to accurately identify human rights risks and understand how stakeholders perceive the actions the company takes to manage and mitigate those risks. These insights then need to be integrated into company decision making and practice.
It has been heartening to see the response from investors which confirm that they are increasingly asking companies in which they invest to show how they are managing human rights within the business and its value chain. They also welcome the role the guide plays in facilitating informed and productive discussions with companies. Company secretaries are often at the heart of this engagement with investors.
It is therefore no surprise that five years on, the theme of the latest global forum on business and human rights is ‘leadership and leverage: embedding human rights in the rules and relationships that drive the global economy’. As a former director at BT Group plc, I am personally delighted that one of its non-executive directors, Jasmine Whitbread, will be discussing the role of company boards at the forum in Geneva this November. Jasmine championed the Commission’s guidance at its launch.
Respect for human rights is not just about risk and risk management. It also brings tremendous opportunity not only to reduce harm, but to advance people’s human rights as well. Where companies take action to ensure rights are respected across their operations and value chain, they empower people to understand and claim their rights in other areas of their lives, as well as strengthening business’ social license to operate.
These companies also act as ambassadors and precedent-setters for rights-respecting practices and in doing so, they make significant contributions to people’s lives. Furthermore, just as risk to human rights brings risk to business, respect for them helps make companies more sustainable.
As John Ruggie, author of the Guiding Principles said, it is the strongest and most sustainable companies that demonstrate a tone from the top that clearly states, ‘human rights are a core matter for this company’.
Human rights discussions in companies
Below are some questions that board members may find useful to guide discussions with senior