Archives: Resources

Advising the International Council of Toy Industries on Alignment with the Guiding Principles

The International Council of Toy Industries (ICTI) CARE Process is a program to promote ethical manufacturing in the toy industry supply chain. Its mission is to enable the worldwide toy industry to ensure that its products are manufactured in safe and humane workplace conditions for factory workers, by providing education and training to key actors in the supply chain, and enforcing a thorough and consistent assurance and factory monitoring. Its initial focus is in China, where 80 percent of the world’s toy volume is manufactured. Its intent is to provide a single, fair, thorough and consistent program to monitor toy factories’ compliance with ICTI’s Code of Business Practices

In 2012, the ICTI Care Process (ICP) asked Shift to help it assess the implications of the Guiding Principles for its work. Through a combination of desk-based research and interviews with representatives of key stakeholder groups, including in China, Shift conducted a high-level gap analysis designed to review and assess the general strengths and weaknesses of the ICP’s processes against the Guiding Principles. Through this review and assessment, Shift developed concrete conclusions and recommendations for consideration by the management and Board of the ICP, with particular attention to education and capacity-building needs required to meet the ICP’s objectives.

Advising the Peruvian Financial Regulator on Improved Corporate Management of Social Conflict

Also see: Overview of our work with financial institutions on implementation of the Guiding Principles | Our report on the cost of corporate-community conflict

From 2012-2015, Shift was pleased to support the Superintendency of Banks, Insurers and Private Pension Funds (SBS) in Peru in the development and implementation of a new regulation to strengthen due diligence in the Peruvian financial sector. The regulation is available in Spanish (official) and English (unofficial) here.

Shift provided advisory support to the SBS regarding the development of a new regulation aimed at mitigating social conflict related to large investment projects in Peru. This initiative responded to the evidence that such conflict can increase credit risk and reduce the creditworthiness of projects and/or their primary suppliers that are directly or indirectly affected by social conflicts. | Jump to our report on the cost of conflict in the extractives sector

In recent years there has been considerable social conflict in Peru around major commercial projects, particularly in the extractive industries and forestry. This has in part resulted from local communities’ concerns about the impacts these projects may have on their livelihoods, welfare and human rights. These conflicts are seen to have implications for the credit risk of individual Peruvian banks, the stability of the Peruvian financial system, and the reputation of Peru as an investment location.

Shift worked with the SBS to look at how the elements of due diligence set out in the Guiding Principles could provide a useful reference point for the planned regulation. This advice focused on the role of effective community dialogue and engagement and grievance handling processes in ensuring that due diligence processes are effective in mitigating risks of social conflict.

The SBS has now issued the new regulation, which requires banks to pursue social and environmental risk management in relation to certain advisory services and loans for particular projects in Peru, including natural resource extraction projects. While the new regulation is framed in terms of social and environmental due diligence in general and emphasizes reduction of systemic risk, its greatest innovation lies in the human rights lens it brings to the requirements of banks, and in turn of their clients, including the assessment of the quality of client companies’ processes for engaging directly with potentially impacted communities and providing channels for them to raise grievances. In this regard, it reflects important features of human rights due diligence emphasized in the Guiding Principles.

During the development of the regulation, Shift was pleased to provide additional support to the SBS including delivering collaborative capacity building workshops for key SBS staff, joint with the Association of Banking Supervisors of the Americas (ASBA), as well as training for representatives from Peruvian banks that are subject to the new regulation.

Respecting Human Rights Through Global Supply Chains

Summary

The UN Guiding Principles state that companies may be involved with adverse human rights impacts either through their own activities or as a result of their business relationships. ‘Business Relationships’ are understood to include relationships with “entities in [the company’s] value chain.” As part of their corporate responsibility to respect human rights, companies are expected not only to avoid causing or contributing to adverse human rights impacts, but also to address, “human rights impacts that are directly linked to their operations, products or services by their business relationships, even if they have not contributed to those impacts.”

Adverse human rights impacts can occur at any level of a supply chain – from the first tier of direct or strategic suppliers, all the way down via multiple layers of sub-suppliers and sub-contractors, to those providing the raw material inputs. For some companies, relationships with suppliers are held by their licensees, or may be intermediated by vendors or other agents, creating yet more complex structures. To meet their responsibility to respect human rights, companies need to understand human rights risks at all levels of their supply chain – not only in the first tier.

This resource examines how companies can work to implement the Guiding Principles across their business relationships through the following activity areas:

  • Identifying risks: mapping and prioritizing within the supply chain;
  • Leveraging and incentivizing sustainable change in suppliers;
  • Applying these approaches in sensitive, high-risk contexts;
  • Achieving internal alignment within and across the business;
  • Supporting grievance mechanisms with respect to supply chains.

Identifying Risks: Mapping and Prioritizing Within the Supply Chain

The corporate responsibility to respect human rights requires companies to conduct human rights due diligence to identify, address and mitigate adverse human rights impacts with which they may be involved through their business relationships. However, in most cases, it is simply not feasible for a company to conduct due diligence for the entirety of its supply chain – particularly where supply chain relationships may number into the thousands, tens of thousands, or more. Companies therefore often need to prioritize those business relationships for which it is most critical to conduct human rights due diligence. However, as a first step, they need to know who is in their supply chains.

Many companies have established, or are in the process of establishing, centralized systems for tracking the “moving target” of their supply chains. While these systems can be housed centrally, the inputs into that system must come from a variety of decentralized sources. Company leaders note the need for internal and external buy-in for a collaborative approach to mapping the supply chain. Internally, this means engaging across the different business functions that might interact directly with the supply chain. Externally, this requires the authentic engagement of one’s own suppliers in the mapping exercise. In developing that buy-in, company leaders emphasize the critical importance of spending as much time on the “why” as on the “how” – conveying an underlying rationale for the importance of mapping the supply chain that resonates for key audiences. Specifically, they have found that simply contractually obligating suppliers to disclose their supply chains, while necessary, has proven ineffective and inadequate.

Prioritizing Relationships for Due Diligence

Given the sheer scale of many companies’ supply chains, those with responsibility for managing human rights issues within supply chains can face a daunting task. The pressing question for many company leaders is simply: Where do I begin?

As a practical reality, most large companies will almost certainly need to prioritize the management of human rights risks within their supply chain. That prioritization may take place at several levels, including prioritizing which areas of the supply chain to map, which business relationships may need to be prioritized for a more detailed assessment of potential human rights risks, and which adverse human rights impacts may need to be prioritized for prevention and mitigation.

In prioritizing which business relationships and which adverse impacts to address, prevalent company practices focus first and foremost on risks to the business. Many companies define their supply chain due diligence priorities based on their “top spend” suppliers or their top tier, strategic suppliers, or other factors that suggest their leverage with the supplier is greatest. Others focus on relationships that pose greatest risk to their own reputation, such as suppliers of products carrying their own brand, or issues where public pressure and mobilization are greatest.

While this can make intuitive business sense, applying a human rights lens to due diligence requires a different set of calculations, instead of, or in addition to, approaches based on business risk. When assessing human rights risk, companies should start by assessing risk from the perspective of potentially affected stakeholders, based on the severity and likelihood of potential impacts. These adverse impacts – the most severe and most likely – may not be occurring among a company’s top tier suppliers, where a company has more leverage to compel mitigation measures, but may be deeper within the supply chain, even several steps removed from a direct relationship with the company, and where leverage is lacking. Learn more about how to identify the most severe potential impacts on people in this video about salient human rights issues.

Managing Human Rights Risks in Supply Chains: Leverage and Sustainable Change

Once potential human rights risks in the supply chain are identified, all companies face challenges in figuring out, simply put, “what works?”. An initial challenge may arise in generating sufficient leverage with suppliers to influence their practices.

Finding and Increasing Leverage

Where a company has identified that it may be linked to an adverse human rights impact through its supply chain and that it has leverage over the supplier in question, the Guiding Principles require a company to exercise that leverage to prevent or mitigate the adverse impact. Where it lacks the leverage, the company should look to increase its leverage in order to be in a position to prevent or mitigate the impact.

Read more on leverage on p.13 in the resource, or check out our dedicated resource on the topic of leverage.

Beyond Compliance Auditing and Towards Sustainable Improvement – What Works?

For many years, companies attempted to manage human rights performance in their supply chains through compliance auditing. However, research points to the clear conclusion that compliance auditing alone is insufficient to promote sustainable improvements on issues of social performance.

This is not to suggest that compliance audits do not have an appropriate role to play in managing human rights performance in supply chains. Audits can serve as a tool for identifying current shortfalls in standards. But they are only ever a snapshot in time. As one company representative summarized, his message to suppliers is: “It’s what happens after the audit that matters. If you improve, there will be continued and expanding commercial opportunities with us. If you don’t improve, then you will not continue to be our supplier.”

Other companies have shifted their emphasis away from a reliance on compliance auditing towards more collaborative approaches, working with suppliers to assess gaps, build capacity, and incentivize sustainable improvements. One company pointed to more extensive “systems gap analysis” audits conducted by some firms, in which the company and the supplier share the cost of the audit.

Read more about going beyond auditing in our dedicated resource on this topic.

Managing Supply Chains in High-Risk Contexts

Multinational companies frequently find that commercial interests make it desirable to initiate or expand operations in high-risk contexts. For extractive companies that have to locate themselves where the natural resources are, operating in such contexts is increasingly unavoidable. High-risk contexts typically include conflict-affected zones, where security issues are prevalent, the state is unable to fulfill its duty to protect, and the rule of law is weak. They also include other contexts with clear and severe risks to the fulfillment of human rights, which may be denied either in law or in practice.

While the same principles for managing human rights risks in supply chains more generally apply also in these contexts, the costs of not getting it right can be much higher – not only in terms of the reputational risk to the company, but also in terms of the potential severity (scale, scope and irremediability) of adverse human rights impacts on individuals.

Learn more about human rights due diligence in high-risk circumstances in our dedicated resource on this topic.

Internal Alignment Within and Across a Business Enterprise

While discussions of human rights challenges in supply chains often focus on the suppliers themselves, there are important dimensions internal to the buying company that can increase or reduce human rights risks. Central to these are the company’s own purchasing practices. There may in some instances be inherent tensions between the commercial interests that guide buying decisions and the avoidance of human rights harms. If left unreconciled, these can place the company in a situation of actively contributing to human rights impacts by its suppliers.

Examples may include making late changes to the design of a product or to the volume or an order without taking into account the consequences for the supplier in terms of time and costs, which may mean the company could contribute to any resulting adverse impacts such as excess hours, unpaid overtime or illegal sub-contracting. Or, for an extractive company sourcing security services, poor decisions or misleading messages with regard to the treatment of local communities that it expects from the external security providers may leave the company in the position of contributing to any adverse human rights impacts that result.

Embedding the Responsibility with Those Who Make Purchasing Decisions

In the experience of many companies, reconciling the internal tensions that can exist between commercial drivers for procurement decisions and the company’s responsibility to respect human rights can only occur if that responsibility to respect is embedded with those who make procurement decisions.

Some consumer goods companies – in which purchasing departments play a central role in creating value for the company – have chosen to locate the human rights function within those departments, or have allocated specific human resources to those departments to address these issues from within. In another such company, the human rights function reviews all purchase orders after they have been submitted and compares them against a rating system. If it determines that the order might be inconsistent with the company’s human rights commitments it has the authority to cancel or reroute the order.

Ultimately, however, the successful integration of human rights considerations comes down to individual buyers making individual decisions that need to incorporate this added human rights dimension into the business formula.

Read more about strategies to embed respect for human rights in procurement functions on page 20 of this resource.

The Role for Grievance Mechanisms with Respect to Supply Chains

A basic requirement of the Guiding Principles is that companies engage actively in ensuring access to effective remedy for adverse human rights impacts they cause or to which they contribute. Many companies, industry- and multistakeholder initiatives require that grievance processes are available at the level of suppliers as well. However, by their own admission, these efforts have not generally included practical guidance to suppliers; nor conveyed the value of effective complaints processes; nor ensured that their quality is sufficient.

Read more about the business case for suppliers to have effective grievance mechanisms, as the case for companies to support supplier-level grievance mechanisms, on page 25 of the resource, or our dedicated resource on grievance mechanisms.

Are There Risks in Knowing and Showing?

This speech by Shift General Counsel John Sherman was delivered to the BSR human rights working group on October 22, 2012.

As some of you know, I was a member of John Ruggie’s UN mandate team. We helped him draft the UN Guiding Principles on Business and Human Rights. I was a former in house counsel for 30 years. I retired in 2008 as deputy general counsel of National Grid, a large US/UK utility. I was a jack-of-all-trades as a lawyer, but my day job was litigation. My job on the UN mandate team was to speak the voice of the corporate lawyer. I’m now with Shift, a nonprofit 501(c)3 organization that John Ruggie chairs. It’s staffed with people who helped him draft and shape the UNGPs. We’re dedicated to implementing the Guiding Principles.

Our goal in the mandate was both principled and pragmatic—to craft a management system to enable companies to respect human rights, but not to create something so foreign that it would activate the immune systems of companies, which otherwise would send out antibodies to destroy the alien object.

Tonight, I’ve been asked to talk about the risks of a core component of the business responsibility to respect human rights—human rights due diligence. Specifically, I’m gong to talk about the risks that— by knowing their human rights impacts, and by showing what they’re doing to address them— companies may actually increase their legal liability profile, rather than reduce them.

In a nutshell, I think that potential concerns about conducting human rights due diligence can be managed, and that they are more than offset by the benefits of doing it. To explain, I need to review the concept of human rights due diligence and place it in context.

Recap of the Guiding Principles

To review, the Guiding Principles rest upon three independent but interrelated pillars: the state duty to protect against human rights abuses by third parties, including business; the corporate responsibility to respect human rights, which means to avoid infringing on the rights of others and to address negative impacts with which a company is involved; and the need for greater access to effective remedy.

I’m going to focus on the second pillar—the corporate responsibility to respect human rights. It requires businesses to know and show that they are respecting human rights through the following:

First, companies should have a high level policy commitment to respect human rights, supported by operational level policies, training and incentive structures that embed the company’s commitment from the top of the organization to the bottom. (Guiding Principle 16) | See the entire text of the Guiding Principles

Second, companies should have human rights due diligence processes (Guiding Principle 17), consisting of: assessing actual and potential impacts on human rights arising from the company’s own activities and through its business relationships, including assessing them from the perspective of affected stakeholders as well as the company (Guiding Principle 18); integrating the findings from such assessments and taking action to ensure that the company is addressing its impacts coherently, across corporate silos. (Guiding Principle 19); tracking the effectiveness of efforts to address human rights impacts, including through operational level grievance mechanisms (Guiding Principle 20), and communicating these efforts to affected stakeholders, and where appropriate, reporting on them publicly, such as where impacts are or may be severe. (Guiding Principle 21)

Finally, companies should cooperate in legitimate state-based and non-state-based grievance mechanisms to remediate human rights harms that the company caused or contributed to, including by establishing or participating in effective operational level grievance mechanisms. (Guiding Principles 22, 29 and 31)

Concerns About Knowing and Showing

What may concern some is the “knowing and showing” part of the human rights due diligence process, which is at the process at the heart of the corporate responsibility to respect human rights. The perceived risk is that this requires businesses to gather and disclose information for the benefit of their adversaries—in court and in public campaigns. So let’s look at this in some detail.

The two key Guiding Principles are GP 18—Risk Assessment—and GP 21—Communication.

Guiding Principle 18 requires a company to assess the actual and potential adverse human rights impacts with which it may be involved—through its own operations, and also, through its business relationships, such as its supply chain. Assessing risks is of course nothing new for businesses; it is a fundamental requirement of proper corporate governance, because a company cannot properly manage risks that it does not know exist. And getting involved in human rights problems is a risk for companies, even when measured by the company’s bottom line. Guiding Principle 18 does require businesses to assess their human rights impacts through “meaningful consultation with potentially affected groups and other relevant stakeholders.” However, it does not mandate making the entire risk assessment public. Moreover, it does not require the company “to assess the human rights record of every entity with which they have a relationship.” Rather, it requires them to assess, “the risk that those entities may harm human rights, when acting in connection with the enterprise’s own operations, products or services.” (See Interpretive Guide section 7.8.)

Guiding Principle 21 provides that businesses should communicate how they are addressing their human rights impacts, particularly when stakeholders raise concerns. It requires companies to report formally, but only on the risks of severe human rights impacts—i.e., those that are large scale, large scope, or are irremediable.

Here are the requirements for a communication: It should be in a form and frequency that reflects the severity of the impacts. It should be accessible to its intended audiences. It should provide sufficient information to enable a reader assess the adequacy of the company’s response. And most significant for my talk tonight, the communication should “not pose risks to affected stakeholders, personnel or to legitimate requirements of commercial confidentiality.” (Emphasis added).

This language recognizes that businesses have a proper interest in keeping certain matters confidential. To explain this, the Interpretive Guide, prepared by the UN Office of the High Commissioner of Human Rights in December 2011, with Prof. Ruggie’s approval, says, “The legitimate requirements of commercial confidentiality would … include information legally protected against disclosure to third parties.” (See Interpretive Guide section 10.7.)

This recognizes that businesses need a confidential space in which to investigate difficult problems, to evaluate them candidly and realistically, and to communicate them internally, in order to address those problems. GP 21 does not close that space.

Legal Protections

Under US law, this space is protected by doctrines of legal privilege and the work product rule (See (Upjohn v. United States, 339 US 383 [1981]). So I need to give a primer on that, for the non-lawyers in the room. Legal privilege protects communications between an attorney and a client from discovery and use at trial, unless the client waives the privilege. The privilege applies only to the confidential communication itself, but not to the underlying facts. The work product rule provides more limited protection to investigative reports conducted by or for lawyers. It can be overcome by a showing of need by adversaries, such as their inability to get the information in any other reasonable way.

These protections are not boundless. They cannot be abused to, “allow a corporation to funnel its papers and documents into the hands of its lawyers for custodial purposes and thereby avoid disclosure.” (See Radiant Burners, Inc. v. American Gas Association, 320 F.2d 314, 324 [7th Cir., 1963]). One of the things that John Ruggie is fond of saying is that although the Guiding Principles do not impose legal duties on companies, they don’t not exist in a law free zone, either. Existing law requires companies to respect many human rights, such as rights relating to safety, the workplace, and antidiscrimination. In addition, the process requirements of the Guiding Principles are starting to influence the law.

Here are some examples from the US: The US Department of State has published a draft regulation requiring companies who make new investments in Burma—which has recently emerged from decades of military dictatorship—to report on their policies and procedures with respect to human rights, using the Guiding Principles and concepts of human rights due diligence as a reference point. 31 C.F.R. § 537.321. Section 1502 of the Dodd-Frank Act requires companies to conduct due diligence on their supply chain for products containing certain minerals from the Democratic Republic of the Congo, where mining has fueled armed conflict resulting in the deaths of millions. Section 1502 in turn has spawned California legislation regulating state procurement of products containing conflict minerals from companies in violation of Section 1502. And the California Transparency in Supply Chains Act of 2010 requires large retail and manufacturing companies doing business in California to disclose the efforts they have taken to eliminate slavery and human trafficking from their supply chains.

And then, last but not least, there’s the potential for complicity in gross human rights abuses. That requires some focused attention, because it’s the subject of a separate Guiding Principle. Guiding Principle 23(c) says that companies should treat the risk of causing or contributing to gross human rights abuses—e.g., torture, death, slavery—as a legal compliance issue wherever they operate, even if the applicable legal standards may be unclear.

In other words, a company should act on the prudent assumption that it may legally liable if it causes or contributes to such abuses, in some court somewhere in the world. Kiobel v. Shell is such a case. It was argued before the US Supreme Court twice, in March and October, 2012. Plaintiffs alleged that in the early 1990s, the defendant oil companies had enlisted the support of the Nigerian government to suppress environmental protests by residents against defendants’ oil and gas exploration and production activities in the Ogoni Region of Nigeria. They alleged that members of the Nigerian military “shot and killed Ogoni residents and attacked Ogoni villages—beating, raping, and arresting residents and destroying or looting property—all with the assistance of defendants.”(See Kiobel v. Shell, 621 F.3d 111, 2010 U.S. App. LEXIS 19382, 28M29 (2d Cir. 2010).

The case was argued before the US Supreme Court on March 7, 2012, on the question of whether corporations—as distinct from their directors, officers, and employees—could be sued in US Courts under the Alien Tort Statute, or “ATS” (codified at 28 U.S.C. § 1350) for their involvement in gross human rights abuses outside the US. Afterwards, the Court requested additional briefing and argument on the Statute’s extraterritorial reach and a second round of argument was heard on October 1, 2012 (See Kiobel v. Shell, ___S. Ct. ___ , 2012 U.S. LEXIS 1998 (2012)).

The ATS has been a significant legal tool for victims seeking to hold international companies legally accountable for gross human rights abuses; a discussion of the merits of the issues before the Court in Kiobel is beyond the scope of this paper. However, the ATS is not the only game in town. For example, in 2007, the SRSG’s identified an “expanding web of potential corporate liability for international crimes – imposed through national courts.” (See Business and Human Rights: Mapping International Standards of Responsibility and Accountability for Corporate Acts, UN Doc. A/HRC/4035 (February 9, 2007), para 22). Countries forming part of this “emerging web” include the United Kingdom and The Netherlands. In those countries, the interaction between their domestic law, and their ratification of the Statute of the International Criminal Court, leads to the potential imposition on corporate actors of criminal liability for genocide, crimes against humanity, and war crimes.

“In this fluid setting,” Prof. Ruggie wrote, “simple laws of probability alone suggest that corporations will be subject to increased liability for international crimes in the future.”

The Role of Lawyers

So what’s a company to do, given the potential risks of legal liability for failing to respect human rights? I think that it would be highly prudent for companies to call on its lawyers for help where it suspects that it has been involved, or has a risk of becoming involved, in gross human rights abuses, in order to take appropriate action. Indeed, Guiding Principle 23 compels such an approach. In such a case, appropriate assertion of legal privilege and work product would not be incompatible with human rights due diligence. Those protections do not apply to underlying facts communicated, and even investigations subject to the attorney work product rule may be disclosed upon an appropriate showing of need.

Caveats

But I’d like to add some caveats. First, I do not want to suggest that a company’s responsibility for respecting all human rights should be vested in a company’s legal department and made a matter solely of legal compliance and legal risk. Under the Guiding Principles, the challenge for companies is also about improving relationships and changing ways of doing business. Guiding Principle 23(c) simply recognizes that, regardless of the uncertainty of the law in particular jurisdictions, a company’s involvement in gross human rights abuses would be such an egregious calamity for the company and society that its lawyers should be proactively engaged in preventing it, as they would be engaged in the prevention of any serious corporate crime.

Second, even where assertion of legal protection is justified, a reflexive resort to it, wherever possible, is not a good thing. It may be in tension with the need to head off or reduce problems by building relationships with external stakeholders based on mutual trust. Building trust between companies and stakeholders is the purpose of Guiding Principle 21—and indeed—underpins the corporate responsibility to respect. This requires being candid and open about problems and taking responsibility when things go wrong (See Susskind and Field, Dealing with an Angry Public: The Mutual Gains Approach to Resolving Disputes (Free Press, 1996), pp. 160-177). In the end, the decision to assert legal privilege with respect to assessments of a company’s human rights performance should not be reduced to a simple “on or off” switch—where the default is “on.”

Finally, as one who has spent some time in court defending companies, if the facts demonstrate that one of your own people, or your business partners, is involved in unethical activity, you’re far better off being able to demonstrate that you acted proactively to discover the facts yourself, and tried to deal with it, rather than to be named and shamed afterwards. As John Ruggie said, “Conducting due diligence enables companies to identify and prevent adverse human rights impacts. Doing so also should provide corporate boards with strong protection against mismanagement claims by shareholders. In Alien Tort Statute and similar suits, proof that the company took every reasonable step to avoid involvement in the alleged violation can only count in its favour.”

Thank you.

Bringing A Human Rights Lens to Corporate Water Stewardship

In 2015 we published with our partners guidance for companies on respecting the human rights to water and sanitation | See the announcement about the guidance

In 2010, the UN Human Rights Council and UN General Assembly formally recognized the human rights to water and sanitation (HRWS). With the subsequent endorsement of the Guiding Principles in 2011, companies that endorsed the UN Global Compact CEO Water Mandate saw an opportune moment for the development of practical guidance on how business can meet its responsibility to respect the HRWS. In particular, guidance was needed to help companies understand the implications of bringing a human rights lens to their evolving corporate water stewardship practices.

To meet this need, the CEO Water Mandate, together with project partners Shift and the Pacific Institute, and with input from Oxfam America, developed practical guidance for businesses on implementing their responsibility to respect the human rights to water and sanitation. The project benefitted from inputs from a multistakeholder Technical Expert Group.

Initial findings were published in 2012, and the full guidance was published in 2015 (see link above). The first exploratory phase of the project involved identifying international and national legal trends relating to the HRWS, illustrating some of the current challenges businesses face in respecting these rights, as well as the perspectives of potentially affected communities, and lastly identifying areas of potential synergy with companies’ existing water stewardship efforts. The second phase involved development of the guidance, with significant input from companies that endorse the CEO Water Mandate as well as expert stakeholders, on how to implement respect for the HRWS in practice.

Corporate Culture and Conflict Management in the Extractive Industries: A Study in Peru

This summary is excerpted from the resource.

Summary

This report aims to build knowledge about how corporate cultures in mining companies influence how well those companies manage conflict with local communities. It is the product of a joint research project undertaken by the Corporate Responsibility Initiative at Harvard Kennedy School and the Centre for Social Responsibility in Mining at the Sustainable Minerals Institute of The University of Queensland in Australia. The research project recognized that factors external to mining companies can have a significant influence on the success of conflict management efforts; however, it started from a working assumption that the culture within a company also plays a substantial role. The project sought to test this assumption by identifying some general lessons that might be of use to mining and other extractive companies.

The research was conducted in two phases. Phase One engaged with experts in the extractive industries at the global level to identify aspects of corporate culture that appear critical to the effective management of conflict with communities. This report focuses on the results of Phase Two of the research, which took those global-level findings and tested them within the more focused context of the mining industry in Peru. Peru was selected since it is both a major center of mining and a country in which the lack of socio-economic advancement for mine-affected communities has led to protest, destruction of property and suspended mine development. The project involved a combination of desk-based research and interviews involving five participating mine sites: Antamina, La Granja, Pierina, Tintaya and Yanacocha/Conga. Interviewees included individuals from senior management, technical departments (exploration/construction/operations), procurement, government relations/ communications, legal, human resources, security, social/community relations and social development.

From the interviews, a number of factors emerged that appeared to be leading determinants of the participating sites’ ability to manage conflict with communities effectively. These factors, or themes, generally corroborated findings from Phase One of the research. These included:

  • Company attitudes to community relationships and conflict management
  • Modes of engagement with communities
  • The internal influence of Community Relations staff
  • Corporate structures and hierarchy
  • Staff attitudes: hiring and training
  • The role of formal processes
  • Assessing social performance
  • The role of the Legal function

There was a strong recognition across all five sites of the importance of good community relationships and the effective management of conflict for success in mining in Peru. In some instances, this view had been informed by experiences of major conflict at the sites in question; in others, by the broader reality of frequent social conflict related to mining in Peru. This recognition was apparent across different functions and departments, and up to the most senior levels. However, there were real differences in how this recognition affected company practices.

Most sites had elevated the leadership level of the Community Relations function or were about to do so; evidence from the research underlined that this elevation in formal status is but one step. The fundamental shift in approaches — and progress in managing conflict — only really occurred when both senior management and technical staff were prepared to act on advice coming from Community Relations. This required an ability on the part of the Community Relations team to ‘translate’ the rationale for addressing community needs into terms that made sense to senior management and technical staff. It also required the Community Relations staff to build trust in their skills and judgment within the company, much as they had to do with communities. As such, it showed the task of stakeholder engagement to be as much inward-facing as outward-facing.

The various sites included in this report used a broad range of approaches to building relationships and trust with communities through engagement. Some approaches were focused on ‘educating’ communities on technical ‘facts,’ while others were built around two-way dialogue or shared, participatory processes. Based on interviewees’ own perceptions of what was proving successful, the optimal approaches appeared to be those that were least ‘owned’ by the company alone, and least ‘transactional’ in their objectives (that is, not timed around or predicated primarily on a desire by the company to extract an agreement from a community).

While the model of “dialogue tables” was challenged by some interviewees, it became apparent that they used the term to denote bilateral engagements established by the company to negotiate a solution to a problem with a community. In contrast, interviewees who reported success with dialogue tables viewed them as platforms co-owned with communities and other stakeholders, and facilitated (at least at key points) by a neutral third party trusted by all involved. See our related video looking at a specific community in Peru impacted by activities at a copper mine, and how they used dialogue tables to resolve conflict.

The research also highlighted the need for any mining company to have not only the right people and management processes in place, but to understand how the two interact. Without good processes to retain institutional knowledge, keep track of commitments to communities, and regularize successful methods for engagement, the success of a company in managing community relationships could become dependent on individual staff and change rapidly if those staff left. That said, the possibility for bureaucratic processes to exacerbate tensions and conflict with communities was also apparent. In a context where the time in which communities want responses on significant issues is frequently shorter than the time desired by any large company to consider the issues properly, the interviews highlighted a need for innovative procedural approaches that can narrow or offset that disconnect.

The interviews confirmed wider research evidence that companies in the industry do not generally measure and aggregate the actual costs they incur as a result of conflict with communities. While some ‘headline’ costs may be apparent, they are also often viewed as unlikely to occur. Meanwhile, more routine costs are overlooked, including management time, poor staff morale and retention, or harm to the company’s reputation that seeds future crises or affects the chances of gaining future contracts, permits and partnerships. This underappreciation of costs was seen to raise the risk of undervaluing the role, skills and contribution of Community Relations staff. Subsequent to this report, extensive research was conducted on the cost of conflict with communities in the extractives sector; see that report and its findings in our library.

There was limited evidence from this research of the extent to which corporate structures and hierarchy might have an effect on efforts to build a corporate culture at site level that enables effective conflict management. However, there appeared to be some degree of trade-off between a mine with a strongly hierarchical structure on the one hand and strong cross-functional collaboration to manage community relationships on the other. To learn more about the importance of cross-functional management, see our resources on embedding as part of implementing the Guiding Principles for companies.

When it came to the role of the Legal function, findings from the first phase of the project – that in-house counsel could be quick to take a defensive or confrontational approach when faced with escalating conflict from communities – were not corroborated by the evidence in Peru. In general, legal personnel themselves took the strong view that almost any outcome was better than a lawsuit, and tended to be actively supportive of strong community relations functions and dialogue-based approaches to dispute resolution. 

Implications of the Guiding Principles for the Fair Labor Association

Since this analysis was published in 2012, the FLA has made a number of changes to its standards and processes. | Also see our Collaborations page on this work

Summary

Following the adoption of the Guiding Principles in 2011, the Fair Labor Association (FLA) asked Shift to conduct a review of the implications of the Guiding Principles for its own work. Established in 1999, the FLA is a collaborative effort of universities, civil society organizations and socially responsible companies dedicated to protecting workers’ rights around the world.

The review was conducted through a high-level desk-based analysis of the FLA’s written policies and procedures, its programs, complaints mechanism, governance structures, and information on its website portal to identify correlations, strengths and weaknesses with regard to the Guiding Principles.

The review focused on the second pillar of the Guiding Principles – the corporate responsibility to respect human rights. This focuses on the kinds of policies and processes that a business needs to have in place in order to ensure that it avoids infringing on human rights and addresses any adverse impacts with which it is involved.

This review is not an assessment of the impact of the FLA’s work on the lives of workers; nor is it an assessment of how far company participants in the FLA meet the Guiding Principles. Rather, it focuses on what the FLA itself requires of its Participating Companies and how it knows and shows whether they meet those requirements in practice. The review sought to take into account new developments in the FLA’s evolving approach to the improvement of labor standards.

There are many ways in which the FLA’s policies, processes and practices are well aligned with the Guiding Principles. The revised Workplace Code of Conduct provides a clear set of labor rights outcomes, in line with international standards, and the Principles of Fair Labor and Responsible Sourcing closely parallel the Guiding Principles’ six core requirements regarding a policy commitment, four due diligence steps and remediation processes. The inclusion in the Principles of Fair Labor and Responsible Sourcing of key aspects of purchasing/sourcing practices is notable in filling a previous gap with regard to embedding respect for human rights across all relevant company departments.

Also noteworthy is the FLA’s recent move away from pure compliance auditing towards the incorporation of more root cause analysis and capacity building approaches, aimed at more effective and sustainable mitigation of risks to workers’ rights. The FLA has strong verification and reporting practices with regard to Participating Companies’ suppliers, and provides considerable transparency through the publication of its independent monitoring/assessment reports. Transparency has also been a strong feature of the FLA’s Third Party Complaints mechanism, which has achieved some notable remediations of complex labor rights impacts over the years. The FLA also has a strong set of commitments and practices regarding stakeholder engagement.

In order to achieve further alignment with the Guiding Principles, Shift recommends that the FLA:

  • improve its ability to track the performance of Participating Companies with regard to the Principles of Fair Labor and Responsible Sourcing, including by helping Participating Companies develop the capacity to know and show that their own activities (including sourcing/purchasing decisions) are consistent with respect for human rights.
  • pay particular attention to the role that performance incentives for staff making purchasing decisions play in driving respect for labor rights compliance in the supply chain. Participating Companies could be requested to include information on this in their annual reporting to the FLA.
  • define a process for coming into line with its own Charter commitments with regard to reporting on the performance of Participating Companies, and keep external stakeholders appraised of its plans and progress in this regard.
  • clarify the grievance mechanism requirements in the Workplace Code, including with regard to what makes for an effective grievance mechanism. This might be elaborated in supporting materials to the Code and based on Guiding Principle 31.
  • provide greater clarity on what Participating Companies should themselves provide by way of grievance reporting channels for workers, with due allowance for their varying resources and capacities.
  • ensure a full description of the FLA’s Third Party Complaints process is again made available on its website in key languages, pending the completion of the current review process.
  • ensure that the FLA Charter is updated to be consistent with revised FLA policies and principles, and keep stakeholders appraised via its website and other communications of current or future FLA reforms.

The FLA might also consider:

  • Discussing with Participating Companies the extent to which they apply the same standards to their corporate employees as they expect their suppliers to apply to workers, and the implications of any discrepancies for the FLA’s mission.
  • Using the move to its new Sustainable Compliance program to promote more explicitly the development of human rights due diligence processes at the suppliers of Participating Companies, and sharing the learning about how to achieve this in a small factory setting.
  • Providing clearer timelines and pathways for smaller licensees to meet the full range of FLA standards in a manner appropriate to their resources and human rights impacts, to avoid the risk of these companies having de facto exemptions from provisions that are integral to the Guiding Principles.

Embedding Respect for Human Rights Within a Company’s Operations

This resource was developed as part of the first workshop with Shift’s Business Learning program participant companies.

What are key factors for success in embedding respect for human rights into a company’s DNA – the way it gets business done on an everyday basis?

This resource captures and distills company reflections on what it takes to embed respect for human rights into corporate culture, focused on the following key areas:

  • “Tone from the top”: commitment from leadership;
  • Appropriately setting up the human rights function in the company;
  • Creating the space for human rights amongst competing priorities;
  • Effectively communicating the relevance of human rights at an operational level and with supply chain partners;
  • Finding the appropriate balance between clarity and flexibility in policies and processes.

Embedding the Corporate Responsibility to Respect Human Rights Within Company Culture

Summary

A company’s ability to carry out human rights due diligence depends on the extent to which respect for human rights is embedded in company culture. Company personnel should be:

  • aware of the human rights risks related to their functional responsibilities;
  • empowered and incentivized to conduct their work in a manner that respects human rights.

The challenge of embedding new values within company culture is not exclusive to human rights. The field of change management and environmental, health, and safety management processes both seek to transform corporate cultures that are insufficiently responsive to issues that inhibit improved business performance.

Based on twelve interviews with company representatives and corporate sustainability advisors spanning four continents, this study identifies four common gaps in progress towards embedding respect for human rights in corporate culture:

  1. Abstract language used to frame human rights: Although the International Bill of Human Rights and the ILO’s Declaration on Fundamental Principles and Rights at Work enumerate internationally recognized human rights and can be an important reference point for corporate-level policies, personnel’s national and professional cultures shape their understanding of how human rights relate to their business activities. If human rights issues are not described in a manner that is consistent with their national and professional background, people fail to appreciate the scope of applicable human rights and the scale of individuals and communities that can be affected by their work. Consequently, corporate-level commitments will not be incorporated into operational practices.
  2. Excessive “happy talk”: Companies publicize their positive human rights performance and community leadership internally. Yet, employees are only exposed to potential and actual human rights impacts through such happy talk. The geographic distance of desk-based staff from vulnerable individuals and the narrow functional responsibilities of operational-level staff prevent adequate recognition of the human rights risks linked to their professional conduct. Without explicit guidance, training, or incentives to consider the connection between business practices and human rights, internal happy talk fosters a culture of complacency regarding human rights risks.
  3. Delegating ownership of impacts to those who can’t fix them directly: While human rights specialists are needed to provide expertise, the responsibility for human rights compliance is rarely shared between specialists and the appropriate functions or business units. The dependence of both business unit managers and operational-level staff on such specialists separates the responsibility for exercising due diligence from the actual function or business unit associated with the risk. When this responsibility is delegated almost entirely to specialists, the effectiveness of human rights due diligence processes depends on their ability to convince business functions to modify their conduct. Yet, they often lack the necessary seniority and influence internally to do so.
  4. Toothless cross-functional committees: Cross-functional working groups are intended to facilitate the coordinated implementation of human rights commitments but several company representatives reported no involvement by business unit management. The participation of business units provides such committees with the influence, credibility, and expertise needed to change operational-level conduct.

An in-depth analysis of change management literature, and environmental, health, and safety consultancy guidelines reveals processes that have been successful in promoting the shared ownership of other forms of due diligence. Companies can apply the following five lessons on embedding to more effectively exercise human rights due diligence:

  1. Consistently communicate human rights in accessible terms.
  2. “Seeing is believing”: expose relevant personnel to the realities of the company’s impact on human rights, and its management of those impacts.
  3. Tailor guidance on human rights risk management for specific functions, to make human rights risk management more tangible and actionable on a day-to-day basis.
  4. Develop leading human rights indicators: Leading indicators focus peoples’ attention on the consequences of their own decisions and practices.
  5. Create broad-based performance evaluation criteria for exercising due diligence: Peoples’ sense of professional responsibility is reinforced by explicit incentive and accountability measures.

These lessons demonstrate that the successful embedding of human rights occurs neither unintentionally nor as the result of a single incident. Rather, embedding involves a deliberate set of processes that incrementally foster a company culture that respects human rights.

Corporate-Community Dialogue: Documentary Series

Corporate-Community Dialogue: An Introduction from ACCESS Facility on Vimeo.

About the Series

This documentary series looks at how companies and communities have resolved disputes over corporate activities on three specific projects in Nigeria, Peru and the Philippines. The series includes one overview film of all the stories, and one film per story. These films tell the story of what happened on the ground in the words of the people who experienced it – the local community, the company and the dialogue facilitators that were asked to help.

In all three films, we hear stories from companies and communities that have found themselves in varying degrees of conflict and looked for a way out through dialogue. In each instance, the parties in conflict used a neutral third-party mediator to help them craft a process through which they could address concerns and progressively resolve their core conflicts.

Each film is about 40 minutes and they are hosted by ACCESS Facility. The individual films share the following stories:

Company-Community Dialogue: An Introduction: provides an overview of all three stories and finds common themes. Click embedded video above or follow this link to view directly on Vimeo.

Making Monkey Business: Building Company/Community Dialogue in the Philippines shares the story of a dispute resolution process with communities that were impacted by the building of the Ambuklao and Binga hydroelectric power plants in the Benguet Province of the Philippines. The mediated dialogue was facilitated by the Compliance Advisor/Ombudsmanof the World Bank Group and the mediation was conducted by the Conflict Resolution Group in the Philippines. Click embedded video below or follow this link to view directly on Vimeo.

Putting Ourselves in their Shoes: The Dialogue Table of Tintaya tells of the rising resentments among indigenous community members about a copper mine in the Peruvian Andes initially owned by the government and then owned by BHP Billiton (and now by Glencore Xstrata). It relates the process by which non-governmental organizations such as Oxfam Australia, Oxfam America, CooperAccion and Corecami entered the picture, and the important roles they played in helping give birth to the process and supporting the communities’ ability to engage effectively. Click embedded video below or follow this link to view directly on Vimeo.

The Only Government We See: Building Company-Community Dialogue in Nigeria tells the story of the negotiation of General Memoranda of Understanding (GMOUs) between Chevron and communities in the Niger Delta around its facilities. The process began after violent conflict in the region in 2003 led to the withdrawal of the company and the destruction of property, including schools and hospitals the company had built for communities. The film relates the role played by the head of the New Nigeria Foundation, a local NGO that came in to mediate the dialogue and help build the foundations for increased trust between those involved and addresses how and why the communities decided to engage in the dialogue, what progress and challenges emerged along the way, and the outcomes that have been achieved. Click embedded video below or follow this link to view directly on Vimeo.

These films were produced by the Corporate Responsibility Initiative at the Harvard Kennedy School on behalf of the mandate of the former Special Representative of the UN Secretary-General for Business and Human Rights, Professor John Ruggie. The films were produced with the generous support of the Government of Norway, the Compliance Advisor/Ombudsman of the World Bank Group, the International Bar Association and the Government of Germany. The films are MATCH productions.

In November 2012 the series won “best communication or publication” award at the biennial Centre for Effective Dispute Resolutions awards ceremony held in London.