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Good stakeholder relationships underpin respect for human rights

Doing business with respect for people’s dignity and equality starts, in many ways, by building good quality relationships with potentially affected workers, communities and consumers. Yet when it comes to evaluating company efforts to respect human rights – ‘tracking’ their performance, in the language of the UN Guiding Principles – there has been little focus on gathering data about how affected stakeholders experience their relationships with the companies that affect their lives.

Through this resource, we seek to provide inspiration for how companies can generate and act on data about dimensions of their relationships with stakeholders that are intangible: such as trust, respect and feelings of agency. The individual case studies and methodologies are instructional in their own right: each setting out the benefits of a distinct approach, the step-by-step process to follow, examples of how data can be visualized and reflections from practitioners.

None of these cases and methods are perfect. But they are all a substantial step in the right direction, and together they signal an emerging body of innovation in how to measure what matters in the field of responsible business conduct.

Why Focus on Relationships?

Bringing stakeholder voice into the assessment of company-stakeholder relationships is important for three, interrelated reasons:

  1. Stakeholder engagement is paramount to each step of the due diligence process, under the UN Guiding Principles. Yet these efforts are too often assessed using metrics about the existence of formal processes, or the frequency and reach of activities through which a company interacts with stakeholders. Robust processes are important. But stopping at process metrics misses the critical signal of how affected stakeholders view the relationships that are created through these processes.
  2. The on-going relationships that a company, its suppliers or other business partners have with potentially affected stakeholders are a product, in good part, of the way those business actors behave in their interactions. Measures about the quality of relationships are a real-time indicator of whether a culture of respect for people is in place in the office, factory, field or operational site. They can tell us about the likelihood of risks to and impacts on people being identified and addressed in ways that are appropriate.
  3. Whether affected stakeholders feel respected, treated fairly and can pursue goals that matter to them in their relationship with companies helps us understand the outcomes companies are delivering in people’s lives. Qualitative data about the quality of relationships is, therefore, an important complement to the more widespread quantitative metrics about diversity, wage levels or numbers of grievances resolved.
GO TO THE RESOURCES

Menu of Red Flags

How to use this resource

There are 24 Business Model Red Flags. Each one is available to read online, by clicking on the word READ, or to download as a PDF. You can also use the purple bar below to filter them by sector or industry. Once you’ve picked the ones you want to download, select them by clicking on the circled number of each Red Flag and choose ‘Download All Selected’. You may also choose to download the full series or to download a high level menu. For support, please contact communications [at] shiftproject [dot] org.

TO SELECT MULTIPLE DOCUMENTS TO DOWNLOAD, CLICK ON THE CIRCLED NUMBER on the left.

Download Menu

Red Flags in
The Value Proposition

WHAT THE COMPANY OFFERS AND TO WHOM THE BUSINESS’S COMMERCIAL SUCCESS SUBSTANTIALLY DEPENDS UPON…

Lowest cost goods or services in ways that put pressure on labor rights. Read

High speed delivery that places pressure on warehouse workers and logistics workers in the “last mile”
Read

Project timelines that undermine consultation with communities
Read

Privatized access to public goods with risks to quality of service
Read

Algorithmic decision- making that can result in discrimination
Read

Providing online platforms with potential for online and offline harm
Read

Financial or advisory services that enable high- risk clients to cause harm
Read

Products that harm when overused
Read

Products that harm when misused
Read

Products that harm when used as intended

i

Note: As a result of the research and consultation process, we decided there was no need to produce a long-form PDF for Red Flag 10. Please reach out to: info [at] shiftproject [dot] org with any questions.

Red Flags in
The Value
Chain

HOW THE COMPANY DELIVERS VALUE THE BUSINESS’S COMMERCIAL SUCCESS SUBSTANTIALLY DEPENDS UPON…

Speed in developing products or services, or delivering projects, with risks to health and safety
Read

Land use in countries where ownership may be contested
Read

Depleting natural resources or public goods such that it undermines access or health
Read

Commodities with unclear provenance and visibility to impacts on workers or communities
Read

Business relationships with limited influence to address risk to people
Read

Using data such that privacy and other rights are undermined
Read

Red Flags in
Cost Structure & Revenue Model

HOW THE BUSINESS MODEL IS PROFITABLE THE BUSINESS’S COMMERCIAL SUCCESS SUBSTANTIALLY DEPENDS UPON…

Using gig workers or other precarious labor
Read

Sourcing low-paid labor from labor providers
Read

Sourcing commodities that are priced independent of farmer income
Read

Shift inventory risk to suppliers with knock-on effects to workers
Read

Automation at speed or scale that leaves workers little chance to adapt
Read

Sales-maximizing incentives that put consumers at risk
Read

Markets where regulations fall below human right standards
Read

Aggressive tax- minimization strategies
Read

About the Indicators

OVERVIEW

This resource provides a menu of indicators of leadership and governance that can help to evaluate a company’s progress towards building a rights-respecting culture. It is not necessary to use all the indicators. ­They are intended as a menu from which organizations can draw as appropriate to their needs and contexts.

The primary intended users of the resource are:

  1. Business leaders seeking to assess the strengths and weaknesses of their company leadership, governance and culture with regard to respect for human rights.
  2. Investors and civil society organizations seeking to strengthen their analysis, strategies and engagement with companies regarding progress towards respect for human rights.

Connecting to Culture

Indicators of leadership and governance typically focus on formal systems – codes of conduct, organizational structures, roles, responsibilities and incentives. Evidence of these can signal how things should happen in an organization. But they miss the profound influence that the actions of governing bodies and senior leaders’ can have on what actually happens, through the day-to-day decisions and behaviours of people across the organization that determine its impact employees, workers, communities and consumers.

The indicators in this resource are grounded in four features of a corporate culture that are central to respect for human rights:

  • Authenticity such that the organization acts in a manner consistent with publicly asserted commitments to respect human rights, including when faced with inevitable tensions between respect for human rights and other business goals.
  • Accountability such that respect for human rights is embraced as the responsibility of people in every part of the business, and key staff are empowered and motivated to embed respect for human rights across the company.
  • Empathy such that everyone in the organization is motivated to know and care about whether and how it might be involved with harm to the human rights of people, including to remote individuals and communities.
  • Organizational Learning such that everyone seeks out and embraces new insights about human rights risks and makes an effort to learn from mistakes as well as successes.
LEARN MORE ABOUT HOW EACH INDICATOR IS STRUCTURED
DOWNLOAD THE ABOUT OVERVIEW

Introduction to Salient Human Rights Issues

This resource was developed in support of the UN Guiding Principles Reporting Framework, developed jointly by Shift and Mazars. The Q&A on this page is an excerpt from a longer Q&A on salient human rights issues — see the full explanation here.

What are salient human rights issues?

Salient human rights issues: The human rights at risk of the most severe negative impact through the company’s activities and business relationships.

A company’s salient human rights issues are those human rights that stand out because they are at risk of the most severe negative impact through the company’s activities or business relationships.

This concept of salience uses the lens of risk to people, not the business, as the starting point, while recognizing that where risks to people’s human rights are greatest, there is strong convergence with risk to the business.

The emphasis of salience lies on those impacts that are:

  • Most severe: based on how grave and how widespread the impact would be and how hard it would be to put right the resulting harm.
  • Potential: meaning those impacts that have some likelihood of occurring in the future, recognizing that these are often, though not limited to, those impacts that have occurred in the past;
  • Negative: placing the focus on the avoidance of harm to human rights rather than unrelated initiatives to support or promote human rights;
  • Impacts on human rights: placing the focus on risk to people, rather than on risk to the business.

Salience therefore focuses the company’s resources on finding information that is necessary for its own ability to manage risks to human rights, and related risks to the business. In this way, it helps companies report on the human rights information that shareholders, investors, governments, customers, consumers, media, civil society organizations and directly affected people want to see.

What is the difference from materiality?

Materiality depends on the choice of a particular audience or goal for which things are then judged more or less important. The audience may be shareholders alone or other stakeholders as well. A goal may be profit-making alone, decisions of an investor more widely, or societal welfare generally. The choice of audience or goal then dictates the selection of material issues.

By contrast, salient human rights issues are not defined in reference to any one audience or goal. Salience puts the focus on those human rights at risk of the most severe negative impact. This provides a consistent, predictable and principled means of identifying the appropriate focus of human rights reporting. At the same time, it gives business an effective tool for understanding how human rights issues connect with risk to the business.

When conducting materiality assessments, many companies discount human rights issues due to common assumptions, such as:

  • Assumption of no risk to human rights: an assumption that the company doesn’t and couldn’t be involved with negative impacts on human rights, based on a limited knowledge of human rights and how they can be affected by business activities and through business relationships;
  • Assumption that risk to human rights doesn’t matter: An untested assumption that impacts on human rights are without substantial risk to the company and are, therefore, not material, ignoring the many ways in which such impacts can lead to tangible and intangible costs and loss of value for the business, particularly in the medium to long term;
  • Assumption that past impact defines future risk: An assumption that looking at past impacts will be sufficient for the identification of forward-looking risks to human rights, ignoring risks that might be identifiable from the experience of others in the industry, from other industries, from an understanding of emerging issues and from scenario planning.

Where materiality processes engage external stakeholders to help inform the company’s understanding of relevant issues for reporting, common pitfalls include:

  • Skewed feedback: Processes that engage with stakeholders based on their expertise in areas the company already assumes are material, such that their feedback reinforces the company’s starting assumptions.
  • Under-informed feedback: Engagement processes where stakeholders are not given sufficient insight into the company’s operations, range of business activities and business relationships in order to provide informed advice of where they most salient issues might lie.

As a result of these common assumptions and pitfalls, many companies’ existing materiality processes fail to adequately reflect human rights issues or to identify those human rights that are at greatest risk and are therefore priorities for management and reporting.

Jump to the complete Q&A resource to see answers to the following questions:

  • Why is this distinction between salience and materiality helpful for companies?
  • Why is this distinction between salience and materiality helpful for investors?
  • Are risks to human rights separate from risks to business?
  • Is materiality still relevant for reporting?
  • How should a company identify its salient human rights issues?

About the Red Flags

GENERAL OVERVIEW

Shift’s Business Model Red Flags is a set of indicators that may be found in dominant or emerging business models in and across a range of sectors. They are not intended to be an exhaustive list but may help spark reflection and enable the identification of additional red flags.

THE BUSINESS MODEL RED FLAGS ARE INTENDED FOR THE USE OF
  • Business leaders seeking to identify and address risks to people that may be embedded in the business model, in order to ensure the resilience of value propositions and strategic decisions.
  • Lenders and Investors scrutinizing their portfolios for human rights risk, engaging with clients and investees and diagnosing whether significant human rights incidents are likely to be repeated by the company concerned or replicated in other parts of their portfolio. And
  • Regulators, analysts and civil society organizations seeking to strengthen their analysis and engagement with companies in order to advance respect for human rights.

There are 24 Business Model Red Flags

(To see an overview chart with all 24 red flags, click here)

The Red Flags are organized around three features of a business model:
HOW EACH RED FLAG IS ORGANIZED

Each red flag is supported by a guidance document, organized into four levels:

Level One: Overview for Leaders

This includes:

  • Higher risk sectors in which the red flag feature is most prevalent;
  • Key questions for leaders to ask or be asked to aid decisions about whether further action is needed.
Level Two: Risk Analysis

This includes:

  • Risks to People: the key human rights risks associated with this red flag, absent appropriate mitigation efforts;
  • Risks to the business: evidence of legal, financial, operational and reputational risks that can arise as a result of companies not addressing the red flag.
Level Three: UNGPs and SDGs analysis

This sets out:

  • What the UNGPs say, with particular reference to how companies might be involved with the adverse human rights impacts associated with the red flag;
  • Possible contributions to the Sustainable Development Goals that can be achieved with effective mitigation or removal of the red flag;
Level Four: Resources for taking action

This includes:

  • Due diligence lines of inquiry for deeper analysis of the company’s impact and how it could effectively mitigate the risks associated with the red flag;
  • Mitigation examples illustrating how companies have in practice sought to reduce the impacts associated with the red flag;
  • Alternative model examples of companies that have either designed or redesigned their business model to function without the risk elements highlighted in the red flag;
  • Additional tools and resources to guide further analysis.
GO TO THE MENU OF RED FLAGS

What Do Human Rights Have to Do With Mergers and Acquisitions?

This resource is based on Shift’s experience working with companies’ M&A teams on practical steps that can be taken as part of the existing M&A due diligence process. For more explanation and discussion of this topic, we also recommend our webinar with the UN Global Compact, Ericsson and Total.

Summary

Buying new companies and selling to other companies often involves inherent human rights risks – meaning the risk of harm to people. Those risks are steadily on the rise, and there is no shortage of examples of M&A transactions that fail, or cost significantly more for a company in the long term, because of a lack of consideration of human rights issues.

These kinds of inherent human rights risks are leading companies to start to integrate consideration for human rights into their M&A processes. Yet little information is publicly available about how they are seeking to do so. Revising due diligence checklists and crafting template representations and warranties alone will not work.

There is no shortage of examples of M&A transactions that fail, or cost significantly more for a company in the long term, because of a lack of consideration of human rights issues. Prominent examples include:

  • Meridian Gold, which acquired Brancote Holdings, the owner of a site in Argentina, for US$320 million. Although legal due diligence did not uncover any issues, Meridian Gold ended up with five years of litigation rising to the Argentinian Supreme Court and lost its entire investment because the surrounding community opposed the use of the land for an open-pit gold mine. The M&A team could have assisted by flagging that the legal title to the land alone may not be sufficient in light of the local dynamics around mining;
  • Nokia, which suffered a significant hit to its reputation when news broke that its products and services had assisted the Iranian government’s efforts to track, imprison and harm political dissidents during the 2009 Iranian elections. In reality, Nokia had divested the business six months prior to the elections to Iran Telecom. But public opinion was that if a company sells a business that can cause harm, the seller should seek to limit the risk of such harm by incorporating restrictions during the sales transaction, or seeking to sell to another buyer;
  • US company American Sugar Refining, which acquired Tate & Lyle Sugars for £211 million in 2010. Subsequent to the transaction, Tate & Lyle Sugars was subject to a £10 million lawsuit in the UK High Court for alleged connection to land grabbing in Cambodia. The M&A team could have assisted by flagging risks associated with Tate & Lyle Sugars’ suppliers and the fact that legal title to land in Cambodia can mask corrupt practices.

Based on work with companies that are at the leading edge of efforts to integrate consideration of human rights into their M&A processes, this article describes the notable differences between a traditional M&A process – one that seeks to identify and address risks to the company – and one that seeks to identify and address risks to people that play out throughout the M&A transaction. It describes the steps companies are taking to add the human rights lens when (i) identifying the issues to address in the course of due diligence, (ii) prioritizing the issues in preparation for contract negotiation and (iii) seeking to address these issues.

Although the article is intended primarily for companies and their in-house M&A teams, it will also be relevant for law firms that are increasingly seeking to advise clients in this area as well as other stakeholders interested in advancing business respect for human rights.

Independent Review and Recommendations for FIFA on Human Rights

Jump to: Press release from announcement of review and report, Dec. 2015  | Report | Press release on report, April 2016

Update: In March 2017 Shift Managing Director and Co-Founder Rachel Davis joined the newly established FIFA Human Rights Advisory Board. We see our participation in this Board as a significant opportunity to push for FIFA’s implementation of the April 2016 report For the Game. For the World. FIFA and Human Rights (link above), authored by John Ruggie with support from Shift. In our participation on this Board, we retain complete independence and do not accept any financial or other compensation for our time.

In December 2015, Shift Chair, Harvard professor and author of the Guiding Principles John Ruggie was asked by the world governing body of football FIFA to develop recommendations for embedding the Guiding Principles into FIFA’s policies and practices. In April 2016, those recommendations were published in an independent public report. The recommendations are based on a comprehensive review of human rights in the context of FIFA’s activities and events including consultations with internal and external stakeholders.

Ruggie was supported by a team from Shift and consulted with a range of internal and external stakeholder to undertake the review and develop his recommendations.

“FIFA’s global reach means that this initiative has the potential to make a difference where it matters most: in the daily lives of people,” said Ruggie. “I fully recognize that there will be challenges and complex change takes time. However, this has the potential to set the bar for other global sports organizations, and place respect for human rights front and center for a broad range of entities involved in global sporting events.”

“This is another important step in our ongoing reform process,” said acting FIFA President Issa Hayatou. “I am proud to see that FIFA is taking the lead among international sports organizations on such an important topic. Football and FIFA have an important role to play in this field; respect for human rights has to be at the core of our sport.”

This initiative builds on FIFA’s commitment to recognizing the relevance of the UN Guiding Principles to its operations, seeking technical support from the Office of the UN High Commissioner for Human Rights, and announcing publicly its plans to make the Guiding Principles part of how it conducts its activities.

How to Do Business With Respect for Children’s Right to Be Free From Child Labour

This guidance was developed with input from companies and other stakeholders participating in the ILO’s Child Labour Platform. | Learn about the collaboration that supported the development of this resource.

For companies concerned about child labor connected to their business operations, particularly in global value chains, this comprehensive guidance walks readers through each step of implementing the Guiding Principles. It features an explanation of what constitutes child labor, foundational explanations of Guiding Principles elements, case studies, discussions about common dilemmas, diagnostic questions and tips about pitfalls to avoid. It builds on prior guidance from the ILO and IOE about how to prevent child labor in a company’s own operations, and focuses on the expectations of the Guiding Principles when it comes to preventing and addressing child labor that is several tiers removed in the supply chain. It includes a series of “hard questions” responding to real challenges that companies face.

Guidance for UK Company Directors on Human Rights

This guidance was published in May 2016. Also see our Viewpoint on this topic and the announcement from the launch of the guidance.

Shift is pleased to have collaborated with the UK’s Equality and Human Rights Commission and Financial Reporting Council to develop guidance for board directors in the UK on human rights disclosure and performance. The guidance was launched in May 2016 — see our links above.

The project’s objectives were to improve UK-quoted company boards’ and investors’ understanding of the corporate responsibility to respect human rights, as well as the quality of companies’ human rights reporting and disclosure.

The project began in September 2015 and had three phases. The first phase included consultations with board directors, investors, advisors to boards and civil society organizations to explore appropriate content for the guidance. This phase included events in London, Manchester and Edinburgh. In the second phase, the project team developed and refined drafts of the guidance for directors on human rights disclosure and performance with input from an expert advisory group, consisting of leading individuals from board, investor and board advisor (including legal) backgrounds. The guidance was launched at a London event in May 2016 featuring speakers from the UK Equality and Human Rights Commission, Barclays, BT Group, Hermes EOS and Shift.