Raise the topic of due diligence in a room of corporate lawyers and you might expect the conversation to turn to a discussion of mergers and acquisitions or environmental site assessments. Increasingly, however, corporate counsel are being asked to help clients develop due diligence strategies and systems to identify the human rights concerns that may be associated with their existing, or potential, operations.
Corporate stakeholders, including both legislators and shareholders, are requesting that companies demonstrate that they have due diligence mechanisms in place to assess, and respond to, human rights concerns in their supply chains and operating areas.
Recent legislative developments in this area include:
- Section 1502 of the new Dodd-Frank financial reform legislation requires companies using minerals originating in the Democratic Republic of Congo (“DRC”), or adjoining countries, to report on their “due diligence measures” regarding the source and chain of custody of those minerals. This provision, meant to address concerns that the purchase of “conflict minerals” is fueling conflict in the DRC, could impact companies in a wide range of industries depending on the final language of implementing regulations.
- The new California Transparency in Supply Chains Act of 2010 asks retailers and manufacturers operating in California to disclose their efforts to “evaluate and address" the risks of human trafficking and slavery in their product supply chains.
Compliance with these requirements will not be straight-forward. It is frequently hard to identify consistently reliable sources of information regarding, for example, the source of specific minerals or the veracity of supplier assurances regarding the status of certain workers. What is clear is that these new requirements reflect a desire on the part of corporate stakeholders to ensure that corporate commitments to human rights go beyond short policy statements. Stakeholders increasingly expect companies to demonstrate that they have systems in place to assess, avoid, and mitigate the adverse impacts of their activities on human rights.
In the 2010 proxy season, socially responsible investors filed resolutions with a number of companies, including Caterpillar, Hewlett-Packard, Motorola, and KBR, asking for the adoption of comprehensive human rights policies and assessment mechanisms. The resolutions filed with Motorola and Hewlett-Packard urged these companies to develop policies sufficient to provide assurance that their “products and services are not used in human rights violations.” The resolution filed with KBR asked the company to report on the extent to which the company’s “contractors and suppliers are implementing human rights policies in their operations, including monitoring, training, [and] addressing issues of non-compliance[.]”
The legislative provisions and shareholder resolutions cited above are consistent with the recommendation put forward by the U.N. Special Representative for Business and Human Rights that companies carry out “human rights due diligence” in order to discharge their responsibility to respect human rights. As framed by the Special Representative (.pdf), human rights due diligence involves the implementation of policies, assessment mechanisms, and internal oversight and control systems to identify, prevent, and address the actual and potential adverse human rights impacts associated with a company's operations.
With the recent emergence of human rights due diligence as a mechanism to ensure accountability for the adverse human rights impacts associated with corporate activity, companies, and their counsel, should evaluate the extent to which they have developed policies and oversight mechanisms sufficient to address stakeholder concerns and expectations.