Human Rights and the Ethics of Transnational Corporations

In The Ethics of Global Business, Denis Arnold offers a normative account of the responsibilities that ought to govern the global operations of transnational corporations. For two decades, Arnold has been a pivotal figure in debates on questions of international business ethics, offering influential arguments regarding sweatshops and labor exploitation, climate change, and global poverty. This book grounds these concerns in a more general theory of corporate human rights obligations that will be of interest to scholars of business ethics as well as those less familiar with these debates.

Arnold distinguishes his account from two broad competing schools. Against those who would see corporate obligation in strategic terms—as something that is to be done because it is beneficial for the business—Arnold contends that a business’s duties to respect human rights are deontic and basic, principled side constraints that it is obliged to respect regardless of the impact on its bottom line. However, Arnold also distinguishes this theory of basic human rights from a political approach to corporate responsibility, which grounds the obligations of transnational corporations in facts about states and their specific claims to legitimacy. In contrast to both accounts, Arnold offers an account of cosmopolitan human rights that sees the obligations that businesses have as both basic and nonvoluntary (contra the strategic approach) and distinctively ethical (contra the political approach).

On Arnold’s account, corporations are agents of justice with obligations to respect—that is, to avoid violating—human rights, full stop. This obligation is grounded in two claims. First, human rights claims are intrinsic to, and pragmatically necessary for achieving, self-governance. Second, these claims to human rights impose duties upon those with whom we stand in relationship. Therefore, it is not only states or their created international bodies that are addressees of human rights claims, but all agents capable of undermining our rights. Consequently, the people with whom transnational corporations interact—employees, customers, and communities affected by their supply chains—have the same human rights claims as anybody else, and transnational corporations have obligations to ensure their activities do not constitute a violation of such rights.

For Arnold, because human rights obligations are grounded in relationships, the political accounts of transnational corporations get normativity precisely backward. The moral obligations do not flow from our political institutions; it is our political institutions that are justified (or not) by an overarching and general set of norms. Thus, human rights claims can form the basis for critiquing our social and political institutions, whether transnational or domestic. Whatever else accountability consists of for transnational corporations, and however we go about doing it, this commitment to protecting and respecting human rights must be seen as both categorical (that is, not negotiable or conditional) and ethical (that is, not done because or to the extent that it achieves some other prudential goal).

In a central chapter of the book, Arnold uses this theory to critically assess the work of the United Nations in articulating the human rights obligations of corporations. He emphasizes three key developments. First, the UN Global Compact, introduced in 2000 by Kofi Annan, articulated ten guiding principles for corporate conduct with respect to human rights. Though significant in its assertion of the human rights obligations of transnational corporations, Arnold claims the compact failed to articulate precisely the scope of corporations’ actions that are subject to the compact’s strictures (such as what counts as a company being “complicit” in human rights abuses, or how far-reaching its “sphere of influence” is [p. 46]) and did not give guidance on how corporations (or those overseeing them) could measure and report on their compliance with the principles. Thus, the principles specified neither what corporate activities they applied to nor what efforts would count as complying with them.

Second, Arnold discusses how the Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights (Draft Norms), presented by the UN in 2003, were meant to address these deficiencies. Drawing on and integrating a wide range of human rights documents, the Draft Norms attempted to articulate a more robust account of what human rights demand of businesses. This inductive and comprehensive approach, though ambitious, presented an overly aspirational set of guidelines ill-tailored for the actors it was meant to govern as binding law. This constituted a grave overreach, which proved to be fatal to the norms’ adoption. The Draft Norms, on Arnold’s account, exemplify what Onora O’Neill once famously referred to as the “dark side of human rights”—a tendency for us to multiply the number and maximize the reach of human rights without specifying the assignment of corresponding obligations, making compliance with them so difficult and costly that they are unable to be effectively implemented and enforce basic modes of conduct.Footnote ¹ As Arnold puts it, the lesson to be learned from the Draft Norms is that ensuring corporations help fulfill basic human rights requires that the duties imposed on them be “plausible and defensible” (p. 51).

The third development that Arnold examines is the work of John Ruggie in developing the “tripartite framework,” as special representative of the secretary-general (SRSG) on human rights and transnational corporations and other business enterprises. The framework distinguishes between the protecting, respecting, and remediation of human rights, and specifies to which parties such obligations attach. This was accepted by the United Nations Human Rights Council in 2011 as part of the United Nations Guiding Principles on Business and Human Rights. On Arnold’s account, this framework, which was subsequently endorsed and adopted by other international bodies, succeeds where the Draft Norms fail. The framework’s basic contention is that, on the one hand, states have a primary duty to protect people against human rights abuses from third parties (and to provide remedy when they fail to do so), and that, on the other, corporations have a duty to respect human rights. This draws a distinction between what states and corporations owe, taking seriously that a corporation has duties but that these duties are specific to what type of actor it is. This allows the framework’s guidelines to be more pragmatic and less idealistic than those of the Draft Norms, which is part of why it succeeded in being adopted.

Arnold’s main critique of the tripartite framework is its vagueness with respect to what counts as a corporate duty to “respect” human rights. One interpretation is that companies ought to respect human rights, lest they be blamed or punished (whether legally or reputationally) by other parties—states, but also NGOs and international organizations. In such an interpretation, the duty to respect is merely the assertion of an expectation, which companies can be blamed by others for not abiding by. Against this, Arnold argues that the tripartite framework makes most sense as a specification of human rights cosmopolitanism, where “human rights duties are derived from ethical norms that are binding on all agents . . . . In this view, transnational corporations must meet basic human rights obligations in all of their operations regardless of whether such duties are recognized by host nation laws or whether host nations enforce such laws, because they are comprised of agents on whom human rights duties are binding” (p. 60). Corporations must take care not to violate people’s human rights as a matter of moral obligation, not because of prudential worries about blame and standing.

The Ethics of Global Business not only presents a powerful argument for limiting corporate conduct to the range of actions respectful of human rights; it also offers a strong argument in favor of emphasizing moral norms and principles over political agreements when thinking about corporate accountability. This is made stronger in its analysis of such agreements, showing that the articulation of moral commitments need not succumb to utopian naivete. Yet in the process of making this claim, one wonders whether Arnold does not concede something crucial to the politically minded critic. As noted, for Arnold human rights duties must be deontic and basic, yes, but also prudential and plausible, and not overly onerous or demanding in their strictures. But what counts as onerous or plausible is not something that can be specified at the level of cosmopolitan principle. It will unavoidably be determined through politics. Which parties, informed by which disparities in resources, get to determine what appears “plausible”?

It is worth noting, on this score, two important aspects of the tripartite framework emphasized by Arnold (p. 53). First, the corporate duty to respect human rights as specified by the SRSG entails a duty of “due diligence” to assess one’s potential human rights impact and efficacy in complying with human rights obligations. Second, the state duty to protect human rights entails implementing policy regulations that apply to corporations even when they operate outside their country of incorporation’s territory—that is, a certain presumption in favor of extraterritoriality with regard to state regulation. As I outline below, Human Rights Due Diligence and Labour Governance and Corporate Crime and Punishment detail the significant political processes underlying how corporate due diligence and state exterritoriality, respectively, are understood and enacted.

Human Rights Due Diligence

Ingrid Landau’s Human Rights Due Diligence and Labour Governance is an extremely well-researched and historically sensitive account of human rights due diligence (HRDD), detailing its rise and uptake. HRDD is a “process through which an enterprise assesses actual and potential human rights impacts, integrates and acts upon the findings, tracks the effectiveness of responses, and communicates externally on these efforts” (p. 2). Landau’s primary interest in HRDD is its role in international labor governance, as a tool advanced by many labor groups to establish workers’ rights and workplace standards at a global level. On Landau’s account, such efforts have been achieved in form—HRDD has been adopted by many international and national bodies—but not in substance, as HRDD has largely been watered down as a tool of labor governance, weakened in the demands it makes of corporations.

For Landau, the work of the SRSG is important for understanding this outcome. Like Arnold, Landau understands Ruggie’s work as informed by the failures of the Draft Norms that preceded it. However, in contrast to Arnold, Landau argues that the Draft Norms were not a failure in concept; they were roundly celebrated by labor groups and NGOs, who saw them as an important tool for disciplining and restraining corporate conduct. Rather, argues Landau, the failure of the Draft Norms was political, defeated by business groups that saw them as too demanding and contrary to corporate interests (pp. 34–35). The “principled pragmatism” of Ruggie, then, was less of a principled concern with avoiding the dark side of human rights, and more of a (quite shrewd) prudential commitment to develop a document that would satisfy both groups that were representing corporate interests and those that were seeking to restrain such interests. While this attempt was ultimately successful, on Landau’s account, this success was predicated on “strategic ambiguities,” instances where language was purposefully left open to interpretation so that competing sides could look at a common thing and agree to it, based on their own interpretations.

Crucially, an important aspect of these strategic ambiguities was reframing HRDD in terms of risk management—that is, as less concerned with respecting rights and more concerned with mitigating corporate moral (and reputational) risk. This inherently made the concept more palatable and intelligible to businesses, for which risk management is a common and normal part of corporate management. Yet, as Landau convincingly argues, this ambiguity is not merely a strategic branding, but a fundamental shift in the conception of what human rights are. If human rights can be approached in terms of risk management, they cease to be deontic and basic (as Arnold rightly notes they must be), and become something prudential and telic, an end we ought to be striving for, among other ends, which can be subject to balancing and prioritization. Because what constitutes an acceptable level of risk is rarely stipulated, companies can “explain away” human rights violations by appealing to their own subjective risk appetites, and then bewildering potential critics with the technical language and instruments of risk management discourse (pp. 47–48). The ability to decide on their own risk profile and prioritize those risks accordingly thus provides companies with “a seemingly rational and objective basis upon which to defend” various rights-violating decisions, and makes it more difficult for such decisions to be scrutinized. As Landau puts it, “The prioritization process may render it more difficult for outsiders to challenge company inaction in this area as the company may assure them that these less salient risks will be addressed by the company through its due diligence processes at some point in the future” (p. 49). Human rights compliance thus becomes a technical input into how corporations go about deciding what to pursue, as opposed to a categorical constraint on such pursuits. Ruggie’s pragmatism, then, does not merely avoid the “dark side” of human rights by limiting their scope, but changes their normative character in substantive ways.

By virtue of being included in the tripartite framework when it was accepted by the UN, HRDD became an important tool in human rights discourse and policy going forward. However, because of the ambiguities involved, the matter was not settled, as HRDD implementation could now be pursued according to a logic of “transnational labor rights,” where HRDD emphasizes the regulation of corporations and the rights of workers, or a “business logic,” emphasizing risk management, managerial discretion, and corporate self-regulation (pp. 62–67). While the story of how these logics get developed and promoted is complicated, Landau tells a simplified version of it, focusing on the Organisation for Co-operation and Development (OECD) and the International Labour Organization (ILO), with the former promoting the business logic and the latter promoting transnational labor rights interpretations. On Landau’s account, the OECD’s interpretation wins over the ILO’s, largely due to organizational factors that made the former more effective in promulgating its favored interpretation. Consequently, the business logic and risk-management interpretations get emphasized in global discourse, becoming the template by which various jurisdictions implement HRDD.

On Landau’s reading, then, HRDD teaches us that the pragmatism at the heart of Arnold’s concern about the dark side of human rights, meant to protect their realization, in fact leads to their dilution. While Landau also makes clear that the proliferation of HRDD is not all bad—it still, at its heart, seeks to bring accountability to transnational corporations—the story is fundamentally a pessimistic one about the role politics inevitably plays in our attempts to realize thoroughgoing ethical ideals.

Extraterritorial Regulation

As noted earlier, while a duty to respect rights is assigned to corporations, the duty to protect rights is assigned to states, with a crucial component of the latter being the importance of “extraterritoriality”—the development of regulation that applies to corporate conduct outside some particular territory or jurisdiction. Yet what this looks like—what gets applied outside of states’ territories, and to whom—is also affected by political processes. This is detailed in Cornelia Woll’s Corporate Crime and Punishment. Woll’s project is not the same as Landau’s or Arnold’s—the focus is mainly on state institutions (not international bodies or principles) and human rights only come up occasionally. Still her book is fundamentally about the manner and degree to which corporations are held accountable and, importantly, how this accountability is affected by both normative and political concerns.

Woll’s focus is on the rise of “negotiated corporate justice”—made possible by legal and regulatory instruments, such as plea bargains and deferred prosecution agreements, that “provide for the administrative resolutions of corporate liability questions rather than trying them in court” (p. 7) and largely result in financial penalties but not criminal convictions. On Woll’s telling, its global rise is intimately connected to American projects of legal extraterritoriality, yet her story is smartly resistant to a purely optimistic account of this project (where American efforts are valorized as a project of ending corporate impunity) or a pessimistic account (where such extraterritoriality is the project of American imperialism foisting its legal practices upon the world). Instead, this interdisciplinary book contends that the development of negotiated justice was, in its own ways, an accident, and gets taken up over the world only in part due to American expansionist interests.

Though often criticized as an example of regulatory leniency and corporate impunity, the story that Woll offers about negotiated corporate justice, and how it developed, is fascinatingly subtle and counterintuitive. It begins with a memo from Eric Holder in 1999 that directs the U.S. Department of Justice to pursue prosecutions of corporate criminals. However, prosecutors were immediately faced with the problem of obtaining the information necessary to prove the guilt of individuals who act within the organizational complexity of the modern corporation. Prosecutors were empowered to offer deals in the form of negotiated justice to incentivize corporate actors to cooperate and offer testimony that might be used to prosecute executives. This power was enhanced in 2003, when prosecutors were given the option not merely to trade fines for trials but also to demand structural and governance changes in the corporation. As winning convictions against individuals became more and more difficult, negotiated settlements were used less as means to a conviction, and more as an end in themselves, producing record-breaking fines assessed to corporations (both in numbers and in dollars), though fewer convictions and less prison time for individuals.

Foreign companies become an easy target for this regulatory tool, allowing prosecutors to demonstrate their willingness to go after corporations without having to deal with the political influence of domestic corporations. Given the United States’ stature in world markets and the volume of business that occurs using U.S. currency and economic infrastructure, ample opportunities exist to go after foreign companies whose operations are otherwise not really involved with U.S. territory or citizens. Threats of potential prosecution give rise to the use of negotiated justice against foreign corporations. Thus, negotiated justice becomes a tool of extraterritorial expansion.

On one reading, such a development is another data point in favor of the political reading of transnational corporate accountability—merely another example of America projecting its influence and interests across the world—what Woll and others refer to as “lawfare” (p. 20). And indeed, Woll does not deny that reading, noting how such extraterritorial regulation is used by the United States to affect its geopolitical rivals by targeting their businesses, whether through denial of access to markets or through monitoring and data collection (pp. 87–88). On this reading, seeing such efforts as merely attempts at transnational corporate accountability would be naive, focusing on the normative gloss instead of the imperial projection of power it is hiding.

Yet, importantly for the present discussion, Woll contends that lawfare is not the whole story. Law is never only an instrument of power; it is also a normative claim, inviting questions of legitimacy and appropriate expectations. When law is extended into markets and sectors with their own internal logics and sets of actors, it creates expectations and equilibria that are self-reinforcing or, at least, sustained independently of their initial instrumental motivations, often by the various jurisdictions participating in these sectors. Here, the threads of negotiated justice and extraterritoriality get tied together: Projecting this particular tool of corporate accountability beyond U.S. territorial bounds has created normative expectations in other jurisdictions of corporate punishment. To meet these expectations, other states have developed their own versions of negotiated justice instruments, like the convention judiciaire d’intérêt public (“judicial agreements in the public interest”) in France (p. 124), or the Clean Company Act in Brazil (pp. 128–31). In short, negotiated justice was created for reasons largely idiosyncratic to the American justice system, projected onto the world for instrumental reasons of international power politics, and then taken up by the rest of the world because the transnational quality of modern markets introduces conflicts of normative expectations and demands that must be addressed.

Woll’s account, though interesting in its own right as a chronicling of a legal instrument’s development and evolution, is useful as a way of parsing the different versions of human rights and transnational corporations offered by Arnold and Landau. Arnold’s ethical account of human rights requires a political story of how such rights are made both actionable and feasible, which can undermine their integrity, as Landau’s description of HRDD shows. Yet this does not mean corporate accountability need be power politics all the way down. Woll’s book shows that while the specific forms of corporate accountability and their uptake reflect power dynamics, they are not mere vehicles of such politics either. Normative ideas that underpin cooperative endeavors can take on a life of their own, independent of their instrumental and political genealogies.

Meso-Level Institutions: Mediators of Normativity and Power?

What all this suggests is that the method with which and the extent to which we hold transnational corporations accountable must neither be blind to politics and power imbalances nor be reduced to such things. The trick is finding the channels and mechanisms through which the norms that transcend their political origins can gain standing, legitimacy, and influence. While not always explicitly put this way, these three books recommend two meso-level channels that help hash out the normative content of such practices.

One, which Woll emphasizes, is transnational sectors or industries. These systems of cooperation are, of course, shot through with power and interest seeking—corporations seeking to tilt the rules in their favor, countries seeking to advance their national businesses’ interests, and so on. Yet, by virtue of entailing various actors in cooperative relations with each other—such as corporations, states, and NGOs—these sectors also produce rationalities and expectations that are not commensurate with other systems and institutions, giving them power in their own right. Thus, a corporation or a state that dictates the way financial markets work may still find itself abiding by rules it does not fully agree with in order to remain in such networks and markets. These expectations can function as “irritants” that alter adjacent institutions and orders (p. 136), as Woll contends negotiated justice did in foreign legal orders.

Within such sectors is another, more specific mechanism for normative power: organizations. Organizations are, of course, both vehicles and fora for power politics: the WTO affects world politics on behalf of its own interests; the UN Security Council reflects the imbalances of power among its member states, many of which pursue their own agendas through the organization. Still, organizations, by virtue of both participating in broader sectors and systems and entailing organizational ends that bring together diverse groups under one umbrella, can normatively discipline or delimit the power dynamics at play. Landau’s discussion of the effects that the OECD and the ILO had on the implementation of HRDD is instructive here. On her account, the OECD’s interpretation of HRDD wins out not because of raw coercion or monetary muscle, but because organizationally it was far more streamlined and efficient than that of the ILO. This bolstered the legitimacy of what Landau refers to as its “interpretive authority” (pp. 58–60)—the perception that the OECD’s interpretation of something is authoritative and ought to be adopted—enabling its conception of HRDD to win out via technical guidance, and to be implemented at national levels.

Of course, such sectors and organizations raise their own questions of power and interests; I do not at all mean to imply that meso-level institutions provide ideal speech situations where norms can be hashed out and legitimated free from politics. But we require spaces and concepts where and through which we can try to criticize corporate behavior and legitimate strictures on such behavior, if only in imperfect and piecemeal fashion. Ethical self-restraint, international agreements, and state law are, as each of these books makes clear, important parts of this. Meso-level institutions are spaces where these different elements can interact in distinctive ways, creating unique possibilities for normative accountability of transnational corporations. Given how difficult they have proven to be to pin down, all tools and spaces, no matter their imperfections, ought to be considered.