7.5.6 Third party relationships

The third factor concerns third-party relationships. The issue here is to examine whether the company might contribute to human rights abuse through any external relationships connected with its activities. The Ruggie Report recommends analysing the track records of third parties - with which the company intends to do business - in respect of the use of violence and corruption. The question is whether the company might be associated with harm caused by such entities.1 Third parties include new joint venture partners, subcontractors, agents, suppliers and local authorities. Most business transactions involve cooperation with local partners. The fact that Ruggie mentions third-party conduct as part of the corporate due diligence investigation reflects a wide view of the scope of the responsibility of the business actor. Based on this view, a company cannot discharge its responsibility to respect human rights by hiring agents to perform, or by subcontracting to local parties, any 'painful or difficult ' parts of the operations, i.e. those activities that may be at risk of human rights abuses. For example, standard business practice is to hire external (local) security forces to protect company assets such as installations or buildings. If an investigation would reveal that such a security firm has a violent track record, the company should reconsider if this is the right firm to hire. There might be others with a better track record.

Another situation in which a company deals with third parties is the supply chain. Following Ruggie s line of reasoning, a buyer of raw materials or products is supposed to ascertain that these have been produced without violating human rights. This can be done by executing a due diligence assessment into critical stages of the product chain.2 In addition, what can be done is to make these concerns part of the contractual agreements. Interesting corporate best practices are those introduced by Philips, G-Star, Nike and Wal-Mart.3 These companies have included explicit People and Planet considerations in their suppliers contracts. Human rights violations will then qualify as an ' event of default which, if not solved, can lead to the termination of the business relationship. Mainstream banks such as the Dutch RABO and British Barclays Bank impose on borrowers the obligation that they guarantee a non-violation of human rights by their business activities. In case of default, ultimately, the loan can be withdrawn.4 An interesting decision on supply-chain issues has been rendered by the UK NCP in the Afrimex case. An English-Congolese raw material trader was questioned about allegations that child labour was used by its suppliers. The trader, or its supplier, was also said to have paid monies ('taxes') to rebel groups that controlled the area of the mines. The NCP came to the conclusion that the trader had not applied "sufficient due diligence to the supply chain and failed to take adequate steps to contribute to the abolition of child and forced labour in the mines or to take steps to influence the conditions of the mines". Applying the due diligence recommendations of Ruggie, the NCP stated that the trader had not investigated the complaints in depth.5

A third category of ' third-party relationships concerns a company s ties with the local authorities. In section 7.5.4, examples were given of human rights violations by local authorities in connection with (future) corporate activities. E.g. ' cleaning up the land often implies forced relocation and violating local people s rights to shelter and food. Even so, if a State does not effectively impose on companies measures to avoid pollution, this can violate people srightto health.6 This category appears the most difficult one to put into practice. The reason is that it is difficult to determine how far back in time a company should go in investigating the acts conducted by local authorities, or how many links of a supply chain should be investigated. The answer to these questions depends on the type of product and industry. Best practices will develop and change over time as opinions on these issues sharpen. Ruggie has explored whether concepts such as ' sphere of influence and ' complicity can assist in answering these questions. He issued a detailed report thereon.7 As regards 'complicity,' he indicated that this "remains an important concept because it describes a subset of the indirect ways in which companies can have an adverse effect on rights through their relationships. A proper process of due diligence helps companies to manage risks of complicity in human rights abuses." Ruggie thus linked 'complicity' to the third factor of a due diligence process. In respect of 'sphere of influence,' Ruggie declared that this "is too broad and ambiguous a concept to define the scope of due diligence with any rigour."8 He pointed at the fact that there are two very different meanings of ' influence : "One is ' impact , where the company s activities or relationships are causing human rights harm. The other is whatever 'leverage' a company may have over actors that are causing harm or could prevent harm." According to Ruggie "impact falls squarely within the responsibility to respect; leverage may only do so

in particular circumstances."9