Corporate Due Diligence as a Tool to Respect Human Rights
| Date | 01 September 2010 |
| DOI | 10.1177/016934411002800304 |
| Published date | 01 September 2010 |
| Subject Matter | Part A: Article |
Netherlands Q uarterly of Human R ights, Vol. 28/3, 404–44 8, 2010.
404 © Netherlands Ins titute of Human Rig hts (SIM), Printed in the Net herlands.
CORPORATE DUE DILIGENCE AS A
TOOL TO RESPECT HUMAN RIGHTS
T L*
Abstract
is ar ticle aspires to assist companies and human rights analysts to dete rmine why,
when and how human rights impact assessments can be integrated into existing corporate
due diligence processes . It elaborates on the approa ch proposed by Professo r Ruggie,
the U N Special Representative on human rights and business. His policy framework
relies, amongst others, on ‘the corporate responsibility to respect hum an rights’, that is
to act with ‘ due diligence’ to avoid infring ing on the rights of others. In this article, the
corporate and human rights law origin s and application of ‘due diligence’ are explored.
Subsequently, the concept of due diligence as catered for in the Ruggie policy framework
is discussed, and suggestion s are oered as to how this can be prac tically applied in
business transac tions. Dilemmas are identied.
From Individual R ights to Common Responsibilit ies1
(Ruud Lubbers in Inspiration for G lobal Governance)
1. INTRODUCTION
Human rights doctrine has long foc ussed upon what States should do to furt her
promote the enforcement of human rights standa rds. In this article, the attention will
shi to the role of business. e work of Professor John Ruggie2 – who rst served with
the UN Global Compact and was appointed in 2005 as the Special Representative of the
UN Secret ary-General on the issue of hu man rights and transnational cor porations
* Ph.D. candidate Leyden Univers ity, the Netherl ands (Legal Aspects of Corpor ate Social
Responsibilit y) and lecturer at Utrecht University Law School. Trai ned as a legal practitioner wit h
focus area’s: mergers and acquisitions , capita l market tran sactions, due di ligence pr ocesses and
joint venture s. e researc h for this article ended on 19 May 2010. A ll website add resses were la st
visited on 12/13 August 2 010.
1 Lubbers, R., Van Genugten, W. and La mbooy, T.E., Inspiration for Global Governance – e
Universal Declarat ion of Human Rights and the Ear th Charter, Kluwer, Deventer, 2008, p. 89.
2 John Ruggie is a Professor at Har vard John F. Kennedy School of Gover nment, US.
Corporate Due Di ligence as a Tool to Respect Huma n Rights
Netherlands Q uarterly of Human R ights, Vol. 28/3 (2010) 405
and other business enter prises – is pertinent in th is regard. e establishment of thi s
position shows the wide recognition of the relevance of business in the advancement
of human rights.3
In April 2008, Ru ggie proposed a policy framework ‘Protect, Respe ct, Remedy’ to
the UN Hu man Rights Council (Ruggie Report or Repor t).4 e framework re sts on
three pillars: (i) the State duty to protect against human rights abuses by third parties ,
including business; (ii) t he corporate resp onsibility to respect human rights, wh ich
means – according to Ruggie – to act w ith ‘due diligence’ to avoid infring ing on the
rights of others; and (iii) greater access by v ictims to an eective remedy, judicial and
non-judicial. It was unanimously welcomed by t he Council members. e su ggested
policy framework has fu rthermore been widely appreciated: governments have
referred to th is framework in new policy documents, lea ding business organisat ions
have endorsed the framework, and civil society organisations have expressed support.
Ruggie’s mandate has been extended for three years to operationalise his framework.5
is marks the rst time in 60 years that the Council6 and the international community
have taken a substantive polic y position on business and human rights.
e Report addresses the complex question of t he scope of corporate social
responsibility. is ar ticle wil l explore the second pillar of the Ruggie framework:
in which way can corporate due diligence contribute to achieving human rights
compliance? It will be contended that Ruggie – by using the term ‘due diligence’, a
concept commonly used in corporate law pract ice – established a link between two
areas of law, that is hu man rights law and corporate l aw, which were long considered
unrelated. e main focus of this a rticle is to further a rm this l ink. Both areas of
law have long been familiar with ‘due diligence’, each in a dierent way. It w ill be
interesting to investigate t he setti ng in which the f ramework proposed by Ruggie
landed.
Section 2 of this article will address t he history and prac tice of ‘due dil igence’ as
this concept ha s been used in secu rities law practice (that is t he law applicable to the
trading of sh ares and debt paper). is will be followed in section 3 by a n account of
the process and the timing of corporate due diligence investigations performed as
part of preparing a private t ransaction or a capital market tran saction. Attention will
thereby be paid to t he legal reasons for performing t his type of corporate a ssessment
as well as other reasons for doing so. It will also be evaluated whether the subject
of huma n rights can t into the present practice . Although the centra l perspective
3 See, for an introduction on this subject, Van Genug ten, W. and Lambooy, T.E. , ‘e Universal
Declaration of Hu man Rights: Cat alyst for Development of Huma n Rights Standa rds’, in: Lubbers,
Van Genugten and La mbooy, op.cit. (note 1), pp. 55–66, espec ially para. 14.
4 UNHRC GA, Report of 7 April 20 08; UN Doc. A/H RC/8/5.
5 UNHRC GA, Repor t 18 June 20 08; UN Doc A/HRC/Res/8/7, para s 1 and 4 ; UNHRC GA , Report
of 22 Apri l 200 9; UN Doc. A/HRC/11/13. See also Shell (w ww.shell.com/); Akzo Nobel (www.
akzonobel .com/); and Amnest y International (www.a mnesty.org/).
6 And its predecessor, the UN Comm ission on Human Right s (UNCHR).
Tineke Lambooy
406 Intersentia
of sec tions 2 and 3 is grounded in international tra nsactions, t he legal base of the
argumentation can be found in Dutch law.7 Section 4 will then attend to ‘due diligence’
as utilised in international law, thereby especial ly focussing on how to determine the
content of the State duty to protect its citizens from human rights violations infringed
upon by private actors. Since the Ruggie Report does not contain clear references to
existing corporate and human rights law, it is important to examine what is meant
when Ruggie us es the term ‘due di ligence’. Section 5 will therefore elaborate on this.
Subsequently, to establish a concrete bridge between the ory and practice, sect ion 6
will mention existing ‘human rights impact assessment’ (HRI A) tools and evaluate
how they can provide guidance to comply with the corporate responsibilit y to respect
human rights. L egal and practical di lemmas will be hig hlighted in section 7. e last
section w ill conclude with a summary of the previous se ctions and integrates them,
thereby suggest ing how HRIAs can become part of existing c orporate due diligence
processes.
2. CORPORATE PRACTICE HISTORY ‘DUE DILIGENCE’
Due di ligence is not a new concept. For corporate lawyers, the term ‘due diligence’
stems from America n securities law. When a company w ishes to attract capita l from
the public at large – that is by issuing shares or notes, i n general: secu rities – it has
to involve a bank . e ba nk can oer the new securit ies to t he public a nd arrange
for t he listing thereof at a s tock exchange (the so-cal led ‘lead manager’). A er the
initial public sa le of the secu rities, the Initial Public Oering (IPO), the secur ities
can be resold t hrough the stock exchange trading sys tems. For the listing, the lead
manager – usually jointly with the company that issues the securities (the issuer) – has
to prepare a ‘prospectus’, that is a brochure which introduces the issuing company and
the sec urities to be oered to the public. e lead manager acts as an intermediar y
between the issuer and the investors who are buying the shares. e prospectus itself
is ‘an oer to sell’; hence it is a legal document stat ing the purpose of the se curity
issue. It contains a description of t he business of the company, t he product groups,
the geographical regions where it operates, the principal ocers, the securities oered
and how they can be purchased, the nancial results and prospects, such as the return
on the i nvestment: the expected annual dividend. e prospectus also contains a
chapter on business ri sks. Investors will bas e their decision to buy the new s ecurities
on the prospectus; hence the lead manager has to careful ly dra the content of the
prospectus.
7 For a US law perspect ive, reference is mad e to the interest ing paper of Joh n Sherman III and Amy
Lehr on t he same topic. Sherman III, J. and Lehr, A., ‘Human right s due diligence : is it too r isky?,
Corporate Soc ial Responsibilit y’, Initiative Working Paper No. 55, Febru ary 2010, John F. Kennedy
School of Government, Harvard University, C ambridge (ww w.hks.harva rd.edu/m-rcbg/CSRI/
publications/work ingpaper_55_ shermanle hr.pdf).
To continue reading
Request your trial