Why Businesses Should Learn to Govern

Many businesses are larger economic entities then most states. Therefore it is important for them to act responsibly in every way. Businesses should in fact learn to govern, not forced by law but by a positive sense of duty
Owain Johnstone
16 February 2012

What are the ethical responsibilities of business? It is a question that resonates powerfully today, and one to which there have been countless answers over the past few decades. The UN Human Rights Council recently added another when it endorsed the Guiding Principles on Business and Human Rights in June 2011. These Guiding Principles were elaborated by John Ruggie, the UN Special Representative on Business and Human Rights, as a guide to the implementation of the broad framework he had produced for the Council in 2008, otherwise known as the Protect, Respect and Remedy framework. In brief, the framework says that it is the responsibility of States to protect human rights and of business to respect human rights (i.e. to avoid infringing upon them), while all victims of rights violations should have access to appropriate remedies. The Guiding Principles recommend a set of actions for States and business to undertake that are necessary in order to fulfil all three elements of the framework. As such, they have been hailed in many quarters as a great leap forwards for the field of business and human rights, and indeed they do mark the first time in history that a UN body has taken a substantive position on the issue. Yet others have offered them a cooler welcome, and for good reason: they do nothing to address the real problem, namely the dangerously large accountability gap that exists when dealing with businesses that operate globally.

Intuitively, we know that there is a vast accountability gap in the regulation of business on the international stage – we read about abuses and exploitation every day, all too often without hope of redress. The Guiding Principles do nothing to address this: individuals and groups have no-one to complain to about violations of its provisions; businesses are under no obligation to report on their actions; and there is certainly no capacity to sanction businesses who refuse to comply. In fact, it is even worse than this. The Guiding Principles only talk of the ‘responsibilities’ of business, not ‘duties’. This is because businesses are not subjects of international law, that is to say they cannot have duties under it. The status of duty-bearer under international law is restricted to States. In fact, the Council’s predecessor – the UN Commission on Human Rights – discussed a set of norms for business and human rights as far back as 2004, but they were not adopted precisely because they would have imposed duties directly upon businesses, something not only unheard of in international law but also anathema to business interests. So it is, then, that the Guiding Principles impose upon businesses no more than a limited set of non-legally-binding ‘responsibilities’.

This is not to dismiss the Guiding Principles, however. They may be only a first step, but they are an important one. They can provide a standard by which businesses can be judged, and they will likely have significant influence on business practice.

But they are not enough. There are two approaches we might take to augment them. The first is to strengthen them by making them legally binding. Nick Howen has argued in favour of this idea. The arguments he presents are important: businesses will not act by themselves because, sadly, respecting human rights is not always good for business; even where they do, voluntary initiatives are not enough; victims need adequate remedy and reparation; and many individual States are unable to regulate business effectively. Given the propensity of businesses to infringe upon human rights, then, and given also the all too prevalent inability of national governments to address the problem, we should establish an international legal regime with real teeth to step in.

Yet imagine how long this could take to achieve. To obtain not only a consensus set of legally binding principles, against the interests of many, but also to agree upon, fund and establish international institutions to hear complaints, enforce accountability and impose sanctions. And, once established, such a system will only ever provide a minimum standard. As important as it is to work towards this goal, it must remain a long term objective. We need something more. What we need is a change in business culture. If we are unable effectively to regulate them, they must begin to regulate themselves. They must begin to take full responsibility for their own actions rather than simply doing whatever they find the relevant law or social pressures allow them to do. They must make active choices in how they run their operations based on the impacts those choices will have on every individual affected by their actions. In short, they must begin to govern.

Some Objections

The objections to this statement are as immediate as they are instinctive. Surely businesses do not govern. Governance is no more than behaviour change. What governments do is attempt to alter, control, restrict or facilitate certain behaviours amongst their population, ideally in the interests of the latter. Democratic governments do this on the basis that a majority of their electorates have ceded them that power. Businesses also change behaviour, whether directly or indirectly, and whether or not they set out intentionally to do so. Every time they affect people’s behaviour, that’s governance. We recognise this, and so national governments regulate business in order to limit their capacity to affect behaviour. That way behaviour is only affected through democratic means.

Businesses aren’t democratic, so surely they shouldn’t be encouraged to govern. If no-one else is able to regulate their activities effectively, and if their activities amount to governance insofar as they impact upon individuals, then it is better that businesses acknowledge this influence openly. This at least implies a degree of transparency, scrutiny and public accountability, because to govern means thinking openly and in detail about impacts, means talking to those affected by your actions, and means making choices about which impacts you want to have.

But businesses just don’t have that kind of power. A recent report by Global Trends found that:

‘Of the world’s 100 largest economic entities in 2009, 44 [were] corporations.  If you look at the top 150 economic entities, the proportion of corporations rises to 59%. The largest in 2009, Wal-Mart Stores, had revenues exceeding the respective GDPs of 174 countries including Sweden, Saudi Arabia and Venezuela and employed over 2 million people, more than the entire population of Qatar. If it was a country, it would be the 22nd largest in the world.’

Nor should we only think in terms of GDP. Consider businesses like Facebook. With over 700 million subscribers, even if the influence Facebook had on the behaviour of each individual user was miniscule (and it would seem apparent that such is not the case), the cumulative impact is colossal. This is another reason why minimum standards are not enough – because they will tend to focus on preventing the worst abuses. In the world of business and human rights, this usually means the extractive industries and issues of land expropriation, pollution and labour rights. As important as these issues are, they are only the most visible impacts businesses have upon people.  

But all this is just a more elaborate way of calling for more corporate social responsibility. A typical definition of CSR consists largely of compliance – first with a business’s profit-making duty, next with the relevant laws, and finally with social expectation (often expressed as reputational cost). It may also include a voluntary component, but this is usually some kind of philanthropic option. What I am calling for is quite different. I want businesses to operate in such a way that they are fully conscious of every impact they have on individuals, and that they actively run their operations with a view to privileging certain of those impacts over others. I want them to take responsibility for all of their actions. I want them to govern.

The current model of business regulation on the international stage is narrow and negative: narrow in that businesses should comply with minimum standards, whether in national or international law; negative in that the focus is on not doing things that would infringe those standards. Given the weakness of the standards and of their enforcement, we need something more. What we need is broad and positive: broad in that businesses should think beyond the minimum standards; positive in that they should focus not just on what they avoid doing, but on what they actively choose to do. It will never be the primary duty of business to act in the interests of all those whom its actions affect, but it should certainly be a duty.

Nick Howen remarks that ‘[p]ower must be constrained by law’. He is absolutely correct, of course, but the law may be unable effectively to constrain that power. Even where it has sufficient capacity, the law is only ever a minimum standard. Power should be constrained by law, certainly, but power must also be exercised responsibly and openly, because only when it is so exercised can it ever truly be held to account.

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