7.8 Summary and concluding remarks

In this chapter, it has been contended that the Ruggie Report offers a valid and interesting contribution to the discussion on the responsibilities and practice concerning the role of business in the field of human rights. Ruggie s approach aligns with the tradition of human rights law and it fits into the current practices of businesses. The recommendations concerning the performance of a due diligence assessment correspond with the standards applicable to the conduct of business partners when they engage in a business transaction. The aim of the chapter was to demonstrate that by using the term 'due diligence', Ruggie established a link between two areas of law, i.e. human rights law and corporate law, which were long considered to be unrelated. This seems a valuable step which will ultimately benefit both business actors and human rights promoters.

As an introduction to current corporate practice, the second and third sections of this chapter discussed the legal basis for and the practice of due diligence in a securities and contract law context. Securities law generally obliges a company that intends to issue securities (the issuer) and the bank that assists the issuer in selling the securities (the lead manager) to prepare a prospectus. Since this document needs to contain facts about the securities to be issued, the company s business and risks that could occur, the issuer and the lead manager have to conduct a full investigation to collect the information. In corporate practice this is called a due diligence investigation. Enforcement takes place, partly preventively, i.e. authorities have to approve the prospectus before publication, and partly curatively, i.e. parties who suffered damages because of false information in the prospectus can claim damages from the issuer and the lead manager on the basis of tort law. Prospectus liability is generally based on the doctrine of misleading advertisements, a species of tort.

In respect of a private transaction, e.g. a merger, business acquisition or finance transaction, the law commonly does not explicitly require parties to carry out a full due diligence investigation. Often, however, legal doctrine states that parties to a private transaction have a duty to communicate on the material aspects of the transaction in order to avoid that any of the parties enters into the transaction guided by false presumptions. Under Dutch law, it is explicitly prescribed that the selling party has a duty to inform the buyer of any material issues, and that the buying party has a duty to investigate the object of the transaction to ascertain that it complies with his expectations (onderzoeksplicht en mededelingsplicht). In other jurisdictions similar rules can be distilled from the case law. In general, it can be concluded that the parties to a private transaction are free to decide on the scope of their due diligence research. Due diligence benefits the party performing the investigation, hence he has an interest in an analysis with a scope and depth which is suited to the intended transaction. If he does not practice due diligence, his legal options could be limited. For example, under Dutch law it will be more difficult for him to demand a rescission of the agreement on the basis of the doctrine of mistake (dwaling), or to claim damages under contractual guarantees (ABP v. Hoog Catherijne).

This chapter has also analysed whether, and in which way, the subject of human rights can be integrated into common corporate due diligence practice. As regards securities transactions, it has been noted that the EU Prospectus Directive of 2003 explicitly states that it observes the fundamental rights and principles recognised in the 2000 EU Charter of Fundamental Rights. Apparently, the EU considers human rights compliance also to be important in the context of capital market regulation on business transactions. Consequently, when human rights issues play a role in a certain business sector, supply chain or geographical area, it is recommendable to incorporate an HRIA in the due diligence process and to include the outcome in the prospectus. Moreover, when any human rights issues would emerge in respect of the issuer, it is certainly at risk of reputational damage, which could also impact share value. From a business perspective, it appears rational to prevent this by conducting an adequate due diligence assessment. Being 'human rights compliant' also facilitates becoming qualified for capital markets sustainability indices.

Concerning private transactions such as mergers and acquisitions, it has been argued that it is in the spirit and goal of performing a due diligence investigation to reveal any and all material issues regarding the target company and its worldwide business activities. Just like any other material subject, such as environmental pollution, difficulties in attracting loans, currency risks, fraud or corruption, so is the subject of human rights. An HRIA could assist. This seems especially important if the company that intends to acquire or finance the target company considers itself a socially responsible company that has underwritten human rights in its policies or codes of conduct. For a responsible company it is important to avoid a situation whereby the newly acquired target company damages the acquirer s good reputation. Besides looking at reputation risks in acquisition situations, for any company that is practicing corporate social responsibility, making use of HRIAs will contribute to materialising intentions.

The practical side of this is not too difficult: for a long time, international organisations, scientific institutions and NGOs have been preparing and testing HRIA tools which can be used to evaluate a company s business activities in the context of human rights compliance. Some companies have even actively cooperated with HRIA developers to test these instruments in practice.

Although the focus of this chapter was on how the corporate community can contribute to reducing human rights abuses by applying due diligence, the fourth section of this chapter elaborated on the meaning of 'due diligence' as used in international law. Various international treaties and declarations impose on States the obligation to apply due diligence to protect their citizens from human rights abuses. Accordingly, the due diligence standard presents a method for measuring whether a State has fulfilled its obligations to prevent and respond to human rights abuses. Case law, starting with the landmark decision in Velasquez, showed that the duty to exercise due diligence directs the owner of that duty to employ all means at his disposal to prevent human rights violations. The Inter-American Court of Human Rights concluded that Honduras had not practised due diligence to prevent that the human right to life of Mr Velasquez was violated. 'All means at his disposal' implies that all strategies, instruments and tools should be utilised, as became clear by the type of actions that the English authorities had employed to avoid abuse against Mr Osman and his son. The authorities investigated the complaints, visited locations and studied a psychiatric report to establish whether they were at risk. In that case the European Court of Human Rights judged that the authorities had employed due diligence. The same Court noted in this and other cases that "measures taken to provide effective protection for vulnerable persons should include reasonable steps to prevent ill treatment of which the authorities had or ought to have had knowledge". [Emphasis added]. The Nahide Opuz and Georgia cases made it clear that "even in the absence of an express complaint, an investigation should be undertaken if there are other sufficiently clear indications that [serious violations] might have occurred." This should be understood in a context which is particularly opaque and where victims are often reluctant to report violence. These cases displayed that a particularly high degree of vigilance is required of the State when human rights are at stake, also when there is a threat that third parties may abuse them.

Although these standards were recorded in cases pertinent to a State s legal duty to respect human rights, they can be regarded as a relevant line of thought when reflecting on the moral duty of companies to practice due diligence as set out in the Ruggie Report.

The Ruggie framework can be regarded as a continuation of the work of the former Sub-Commission on Promotion and Protection of Human Rights. Many viewpoints exposed in the UN Draft Norms, developed by this Commission, have been elaborated on in the Ruggie framework. The manner in which this framework emphasised the need for global governance, thereby attributing an important role to companies (alongside with States and civil society), made the framework acceptable for the corporate community.

Section 7.5 elaborated on situations identified by Ruggie in which companies should be alert to avoiding corporate-related human rights abuses and are expected to employ due diligence. Evidently, three sets of factors need to be considered in performing a due diligence investigation: (i) the country context in which the corporate activities take place; (ii) the human rights impacts that the activities may have within such a context; (iii) whether the company might contribute to abuse through external relationships connected to its activities. As has been concluded before, these three factors are also relevant from a company perspective when preparing for a capital market transaction or a private transaction. Consequently, Ruggie s model aligns well with current corporate practice. The main issue is to start using HRIAs and making them part of normal business operations, preferably on an on-going basis. As human rights situations are dynamic and pre-existing conditions will change with the entry of a high impact business operation, Ruggie recommends that the assessment of impacts take place regularly throughout the life of a project or activity, whether triggered by project milestones, regular cycles (e.g. periodic performance reviews), or changes in any of the issues related to the scope of a company s responsibility to respect human rights: context, activities, and relationships.1

In practice, especially when complaints about corporate activities are being made by individuals or civil society organisations, it makes sense for a company to inspect these seriously. Drawing a parallel with the international law duty of States, the company can be expected to invest sufficient effort to find out what really happened, and - if this reveals an abuse - to determine how to respond. Can the situation be remedied? Can the victim or victims be helped or compensated? What does it mean for the future practices of the company? Do internal corrective measures have to be taken, or new policies drafted and implemented? A complicated situation occurs when a civil society organisation does not want to identify specific victims, while putting forward the argument that the victims are afraid of repercussions by the company or the State.2 Or there might be a situation in which individual victims cannot be identified because the local State s practice is particularly hard on all citizens as is the case in Myanmar. If we follow the line of the human rights case law, also in those situations it can be expected of a company that it commences an investigation into any potential human rights risks related to its business activities in such a State with a view to preventing them from occurring. Another difficult situation develops when a company is interested in doing business in a failed state or conflict zone. Its activities may positively impact citizens, although negative effects are also imaginable. Hence, Ruggie s clear recommendations: in failed states and conflict zones, business should act very proactively or stay away.

Concluding, ' corporate due diligence and human rights is definitely a developing area. Due diligence can contribute substantially to CSR, and hence to the protection, respect and fulfilment of individual human rights. As Ruud Lubbers, the former prime-minister of the Netherlands, has said this: "From Individual Rights to Common Responsibilities".3 The responsibility of companies is considered in a moral context, although there are some instances where legal considerations also play a role. Translating this responsibility into tools which can be used in daily practice, a number of HRIA instruments have been identified in section 7.6. These tools can already be applied. Since different concerns per geographical area and industry play a role, best practices developed by frontrunners are worth examining, such as those mentioned regarding pharmaceutical companies.

In the Ruggie approach, the private sector plays a prominent role in contemporary thinking on the UN and the way in which it can achieve its many different tasks, including those in the field of human rights. As Kofi Annan emphasised in his 2005 report entitled "In larger freedom: towards development, security and human rights for all": "States [...] cannot do the job alone [...] we need an active civil society and a dynamic private sector" and "the [UN] goals [. ] will not be achieved without their full engagement."4 The author believes in this 'partnership approach . Businesses need to engage and can play a better role in respecting human rights when they are prepared. Due diligence investigations can assist in all kinds of situations.