Friday, February 19, 2010

Business and Human Rights Part XVIII--Issues: Supply Chain

This Blog Essay site devotes every February to a series of integrated but short essays on a single theme.  The Ruminations Series in 2009 produced a month long series of aphoristic (ἀφορισμός) essays, meant to provoke thought rather than explain it. The hope was that, built up on each other, the series would provide a matrix of thoughts that together might lead the reader in new directions. 
For 2010, this site introduces a new series--Business and Human Rights.  The series takes as its starting point the issues and questions raised by John Ruggie, the United Nations Special Representative of the Secretary-General (SRSG) on business and human rights, in a global online forum 
The U.N. "Protect, Respect, Remedy" framework is made up of three 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 greater access by victims to effective remedy, judicial and non-judicial.  The forum is currently focused on the corporate responsibility to respect human rights, the second pillar of the framework. The forum is divided into sections, each of which contains multiple topics with space for discussion and comment.
New Online Forum for U.N. Business and Human Rights Mandate, United Nations Press Release, New York and Geneva, Dec. 1, 2009. Each of the Essays will consider one of the topics raised in the online consultation.  My hope is to help generate discussion and to encourage further discussion of the issues within the framework fo the consultation  framework. 

Part XVIII: Human Rights Due Diligence--Issues: Supply Chains.

One of the most potentially transformative issues both for the governance of multinational corporations and for the management of the governance of the human rights responsibilities of corporations is the issue of supply chains.  Supply chains provide a quite potent example of the great distinction between the legal obligations of corporations--the principal subject of the Pillar One state obligation to protect human rights--and the social obligations of corporations to respect human rights that serves as the foundation of Pillar Two obligations.

As a matter of corporate law in virtually every jurisdiction, the essence of legal personality, and the autonomy of separately chartered corporations, serve as the bedrock any approach to the obligations of corporations to monitor and control the behavior of others.  In essence, legal obligations extends to some extent to entities with respect to which a corporation owns a controlling interest.  It extends in much more diluted form to entities with respect to which a corporation has a financial stake.  It does not extend to entities with respect to which corporations merely have a contractual relationship.  The policy objective supporting this approach is a strong one--the need to preserve the autonomy of corporate legal personality.  Salomon v. Salomon & Co. Ltd. [1897] AC 22.  

However, from an operations perspective, it has long been understood that a corporation has relationships with a large number of entities, including controlling or governance relationships, that are substantially broader than control afforded under the bare rules of law. In particular, the notion of "supply chain" has been used increasingly to refer to the cluster of those relationships extending throughout the operations of an enterprise that together account for the operations of an enterprise from production to sale to ultimate customers.  Within this ordering framework, legal distinction give way to economic constructions.  Thus, for example, the Supply Chain Council, "a global non-profit association whose methodology, diagnostic and benchmarking tools help nearly a thousand organizations make dramatic and rapid improvements in supply chain processes," (Supply Chain Council, Overview) has developed a
Supply Chain Operations Reference-model (SCOR) is a process reference model that has been developed and endorsed by the Supply Chain Council as the cross-industry standard diagnostic tool for supply chain management. SCOR enables users to address, improve and communicate supply chain management practices within and between all interested parties. SCOR is a management tool. It is a process reference model for supply chain management, spanning from the supplier's supplier to the customer's customer.
Supply Chain Council, SCOR Framework.

The SRSG, in line with his emphasis on the social obligations of corporations, has taken a broad view of the governance obligations of corporations under the Second Pillar with regard to supply chain relationships.
Despite the fact that suppliers are also companies, and therefore bound by the same responsibility to respect human rights as their buyers, companies face supply chain challenges around the world.  The scope of a company's responsibility to respect human rights includes its relationships; therefore, part of human rights due diligence is examining, preventing, and mitigating potential infringements on human rights through suppliers and partners.
United Nations Special Representative of the Secretary-General on Business & Human Rights, Issues: Supply Chains. This approach is well in line with the fundamental policy of the Second Pillar.

Still, the issue of a company's obligation to engage with host states to improve systemic conditions is a sensitive one.  On the one hand, companies are in essence at the front line of operationalization, not merely of international and social norms, but also of the domestic law of host states.  On the other hand,  the long history of foreign multinational corporation's interference in the internal affairs of smaller and weaker host states, especially states recently emerging from colonialism might raise significant suspicions about motives.  In addition, some substantial work might have to be done in some host states to convince local elites that, for example, multinational corporations are not the unofficial tools of their home states.  With some sensitivity to these realities perhaps it can be possible to engage companies in this worthwhile role.  For that purpose it might be useful to stress good behaviors--for example transparency, engagement not only with states but with directly affected stakeholders and procedures that enhance the appearance of sensitivity to local sovereignty.

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