Business Model Red Flags

Starting with the BIG picture

Companies spend a lot of time thinking about how to increase value for customers in ways that increase profits for the company: in essence, their business model. Yet few of them consider how the ways in which they do so can carry inherent risks for people’s rights. Failing to see the big picture, they risk wasting time and valuable resources on efforts to address issues at an operational level when the reality is they are wired for trouble.

Our Business Model Red Flags work focuses on human rights risks that are integral to specific features of a company’s business model. It aims to provide business leaders, boards and investors, as well as civil society, with the tools to identify these risks and assess if the company is addressing them.

“Our aim with these Red Flags is to help companies strive towards sustainable business models that are economically viable but also integrate respect for people into the core of how they deliver value.”


What are Business Model Red Flag Indicators?

The Red Flag Indicators (in their current BETA version) help businesses and their stakeholders identify human rights risks associated with their business models. We’ve developed a non-exhaustive list that draws from a wide range of business models, and complemented them with examples of how they show up in different industries.

For each red flag, we are currently developing supporting resources, including 3-4 questions for top managers or investors to ask; background on the nature of the risks, and how to understand their implications for a company’s responsibilities; and deeper due diligence questions and supporting resources on ways to mitigate the risk.

At this stage, we are testing this evolving draft with stakeholders and aim to then work with partners to pilot different use cases for the indicators and further refine them based on what we learn.

You are welcome to browse through the working documents and initial outputs below to learn more about where we are in the process.

Leadership, Governance, & Culture

What is it that defines your company’s culture?

Think about the moment when a new employee joins a company. She comes in on her first day and is immediately handed a handbook with dozens of pages describing the company culture and its policies. There’s probably hours upon hours of work that have gone into discussing, writing and fine-tuning what each of those documents says. Yet, if we were to come back to that same employee a few months later and ask to describe what the company culture is like, they’d probably describe somewhat of a different reality.

When it comes to respecting human rights, it is no different. A lot of attention is often given to the policies and processes that companies need to have in place. Yet policies and processes are only part of the picture. They set out what people in an organization are supposed to do. But to evaluate respect for human rights, we need to look at what actually happens; that is, the organizational culture. There, senior leaders have a crucial role to play.

“We’ve been looking into the governance arrangements and processes that senior leaders put in place, but equally at how those senior leaders act. Because, what they put in place helps shape practice, but the way they behave inspires cultural transformations.”


Leadership and governance indicators

We delved into the practices and behaviors that help foster business respect for human rights, and drafted a set of indicators that are grounded in four features of corporate culture:

  • The Authenticity of Commitment: the organization acts in a manner consistent with its publicly asserted commitment, including when faced with inevitable tensions between respect for human rights and other business goals.
  • Responsibility and accountability: 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.
  • Respect and empathy: 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: the organization seeks out and embraces new insights about human rights risks and makes an effort to learn from its mistakes as well as successes.

The indicators look first at formal governance arrangements and processes that support these features; then at key behaviors of senior leaders that exemplify and reinforce the features; and finally at the perspectives and behaviors that should be observable in the workforce where the right governance and leadership is in place. 

The indicators are intended as a menu from which organizations can draw as appropriate. Yet they will be most robust when used in careful combinations. We are developing some supporting materials to assist in their application.

We aim to continue to refine these indicators, and to work with partners to pilot different use cases for the indicators and further refine them based on what we learn.

You are welcome to browse through the working documents and initial outputs below to learn more about where we are in the process.

Accounting for Respect

Does ‘respect for human rights’ have a place on the balance sheet?

More and more, investors are looking for signs that show that businesses are accounting for their environmental and social impacts. There is growing pressure for companies to demonstrate that as they create financial value, they also consider the effect that they have on the planet and on people.

Yet, traditional financial accounts are not designed to accommodate the value of respect for human rights. The closest we have is environmental, social and governance (ESG) indicators, which are a good start but -for the most part- still have a long way to go. Negative impacts -that is, the most serious ways in which a company can impact people- are rarely and barely dealt with in how social performance is measured.

Is there a better way? Can we offer investors improved tools to understand whether a company is truly improving its human rights record? Can businesses have more effective tools to go beyond profit-driven balance sheets, to account for people’s dignity?

Modeling human rights issues in accounting terms

We are exploring the fundamental change that is needed in the field of accounting in order to reflect the value for society and companies of business conduct that respects human rights. We aim to contribute to progress in accounting for the value of business respect for human rights in measurable and generally applicable ways.

We aim to identify human rights issues that could be modeled in accounting terms, on which further efforts could then build. Two leading candidates for this approach are living wages and land tenure.

We are conducting research and expert consultations to identify what kind of process might best enable an informed, inclusive and productive conversation that could start to develop such a model for living wages.

Please browse our outputs and discussion papers below to learn more about this area of work.

Tool for Indicator Design

How can you tell whether a company’s human rights program or intervention is successful?

That is a question that we often get asked. And certainly not an easy one to answer. It usually comes from human rights champions within companies, working hard to make a difference, but often lacking indicators to know whether their programs on paper are leading to meaningful action in real life; senior leaders, who struggle to know which human rights initiatives they should allocate resources to; investors, who seek to set the ‘good companies’, doing meaningful work, apart from those with initiatives that are poorly designed or implemented; civil society organizations, seeking to evaluate whether a company is taking meaningful steps to address a human rights issue.

The truth is, there is no single way to evaluate human rights programs; nor is there a magical number that can tell us whether an initiative is improving life for people or not. But certainly, the indicators and data that stakeholders usually do have at hand, are not the right ones:

  • The number of people they have trained on a particular topic
  • The number of or suppliers that have been audited
  • The ratio of grievances processed to grievances received
  • A checklist of the policies and processes that they have put in place

All of these metrics focus on inputs, activities and outputs. But they don’t really tell us what the actual outcomes are for the business, and most importantly, for people.

So, how do we get to outcomes?

Human rights interventions vary widely, depending on the impact they are seeking to prevent or address, the context in which the impact may occur, and the level of complexity of the business’ operations and value chain.

However, there is something that all initiatives have in common: they are built to address an issue that has been identified or is believed to exist, by allocating certain resources to actions or processes.

This simple link between cause and effect has been the subject matter of study of the theory of change model (ToC) in the field of development for many years. ToC aims to find whether the assumptions that we are making when we put in place an action are the correct ones, and whether we have enough data to make an informed decision. Learn more about ToC here.

Theory of Change…with a twist!

Following early consultations, we took the classic ‘theory of change’ model and adapted it to fit the particularities of evaluating business respect for human rights.

  • We distinguished outcomes for people from outcomes for the business. 
  • We separated the outputs that shape intended behaviors and practices from indicators of companies’ actual behaviors and practices.
  • We then developed a beta tool that can be applied by companies and their partners to evaluate an intervention that addresses risks to human rights.
  • We are in the process of piloting the tool with a number of companies to learn from the process and further improve and simplify it. This process of piloting will continue in the months to come.

To learn more about where we are at in our research, browse the documents below:

Behavior change

What can behavioral science teach us about advancing behaviors that enable respect for human rights?

Behavioral science combines economics, social psychology, judgment, decision-making and neuroscience to better understand what triggers, shapes or impedes specific behavior. Over the years, it has helped revolutionize approaches to public policy in healthcare, education, crime reduction, energy efficiency, taxation, savings, political participation and more. The private sector has also used behavioral insights for decades to help influence economic behavior, particularly in marketing and sales. Yet, in the business and human rights space, the powerful tools of behavioral science have remained underutilized.

Thinking of business and human rights in behavioral terms

For years there has been a great deal of attention to the policies and processes that companies need to have in place in order to implement respect for human rights. Yet, policies and processes are only a means to the end of improved outcomes. They set out what an organization is supposed to do. But companies need to evaluate whether they inform what people actually do if they are to achieve positive outcomes.

Companies are increasingly recruiting behavioral scientists to meet corporate objectives; making use of existing resources to also address business and human rights issues would therefore not seem foreign. However, businesses need to have better clarity of what they seek to evaluate. In other words, to understand what are the critical behaviors needed within companies to respect people’s rights.

What we are doing in this area of work

In 2019, we held an expert consultation with companies and behavior science experts to explore the intersection between behavioral science and business and human rights. Since then, we’ve worked to identify some distinct challenges that may benefit from behavioral intervention.

We are now in the process of designing some specific interventions and engaging with companies to test our thinking. Below you will find our latest thought pieces, resources and outputs.

Quality of Relationships

Assessing respect, empathy and agency in company-stakeholder relationships

Good relationships underpin business respect for human rights. Doing business with respect for people’s dignity and equality starts, in many ways, by building good quality relationships with affected workers, communities and consumers. Yet, when it comes to evaluating company efforts to respect human rights  – ‘tracking’ in the language of the UN GUIDING PRINCIPLES – there has been little focus on gathering data about how affected stakeholders experience their relationship with the companies that affect their lives. Bringing stakeholder voice into the assessment of company-stakeholder relationships is important for three, interrelated reasons:

  • First, 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.
  • Second, 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 appropriate ways.
  • Third, whether affected stakeholders feel respected, treated fairly and can freely exercise agency 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 other the more widespread quantitative metrics about diversity, wage levels or numbers of grievances resolved.

“From the outset of the Valuing Respect project we’ve explored how to put people’s experience at the core of evaluation; to recognize that if we start with the people directly affected, then that will ultimately lead to better data and insight. As we uncovered more innovations that placed affected stakeholder voice at the centre of evaluating company programs and activities, we spotted a pattern. These efforts were uncovering previously hidden realities about the quality of relationships between companies and affected workers. And, what is great, is that companies have been able to act on these findings in very clear ways.”

Jana Mudronova, Shift Advisor
What we are doing in this area of work

We have been engaging with companies and organizations they partner with who have been piloting ways to  measure the quality of their relationships with affected stakeholders. As a result, we’ll soon be publishing a number of case studies ; and, a series of “method notes” about their work. .Our aim is to use practical examples and methodologies to inspire companies and their partners to adopt or draw on our findings to kick off a cycle of creative new thinking and practice in this area. Our work will:

  • Profile the evaluation of company-stakeholder relationships in diverse industry sectors and geographies.
  • Demonstrate a range of methodologies available to companies to design indicators or otherwise assess relationships. 
  • Signpost to a growing number of organizations leading the way in this area of practice.