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Maplecroft releases four new human rights business dilemmas on joint UNGC forum

18/03/2011

Four new, in-depth examinations of human rights dilemmas facing companies in emerging and developing economies have been released by Maplecroft on the Human Rights and Business Dilemmas Forum.

The dilemmas, which include corruption, living wage, product misuse and stabilisation clauses, offer detailed analysis, case studies and an extensive bank of resources from Maplecroft, the UN and other internationally recognised bodies.

The Human Rights and Business Dilemmas Forum is produced jointly by the United Nations Global Compact and Maplecroft, and is funded by the GE Foundation. It aims to enhance our collective understanding of human rights themes and to stimulate discussion about the dilemmas responsible multi-national companies may face in their efforts to respect and support human rights when operating in emerging economies.

Dilemma – Corruption

"How can a company successfully pursue commercial activities in countries with a history of corruption, whilst at the same time ensuring it does not compromise its own anti-corruption or human rights commitments?"

Most MNCs will already have a range of anti-corruption principles and standards in place to help ensure legal compliance in their longstanding countries of operation, in respect of both home and host governments. As MNCs expand into new and unfamiliar markets characterised by high levels of public and private corruption, these standards are likely to become more difficult to apply in practice, especially in respect of supply chain and other business partners, and may need to be enhanced in order to adapt to local circumstances.

Given the strong competition amongst MNCs trying to gain a foothold in such markets, it is likely that some companies – or at least individuals within those companies – will at some point come under strong pressure to participate in corrupt activities. The challenge for business is that on the one hand, emerging economies are likely to deliver long-term growth potential, whilst on the other, companies may face a range of risk exposures that may include legal, reputational and financial consequences if there are allegations associated with corruption.

See full dilemma and case studies

Dilemma – Living wage

“How does a company ensure that it, and its in-country business partners or suppliers, pay living wages to employees when the host country does not have a statutory minimum wage – or the minimum wage fails to provide for an adequate standard of living for a worker and their family?”

Given a divergence in operating contexts and economic conditions around the world, there is a distinct lack of consensus between business, governments, trade unions and other labour organisations as to what the payment of a ‘living wage’ actually means, how it should be calculated, and how it should be implemented, either generically or for any given economy. This can be particularly challenging when operating in, or procuring from, jurisdictions where there are no recognised industry standards or minimum wage levels to use as benchmarks.

Businesses, looking at it from only the commercial angle, may question the incentives for paying a living wage in a country where they are not legally required to go beyond the baseline duty to pay the statutory minimum wage. Addressing the challenges of a living wage requires not only a knowledge of international law and willingness to respect that over and above national law but also requires a thorough understanding of whether the benefits of paying a living wage (e.g. reduced staff turnover, increased productivity, protection of reputation etc.) outweigh the costs (e.g. ostensible loss of short-term competitiveness, higher wages bills etc.), which may be problematic for the business in some competitive environments.

See full dilemma and case studies

Dilemma – Product misuse

"How do companies that sell products, which can easily be misused to infringe human rights, protect against such misuse, so that that their legitimate sale can continue?"

The globalisation of many multi-national companies' (MNCs) marketing chains means their goods are being sold into an ever-wider spectrum of countries, each with its own political, cultural and human rights context. Whilst this is not necessarily a new phenomenon in itself, MNCs are facing newer challenges in terms of stakeholders (including consumers and investors) increasingly making a link between how these products are used by third parties –and the company itself. This is particularly the case where products are misused to violate human rights.

Where such a link is made, the company could face allegations of complicity in the wrongdoing of third parties due to selling them the product in the knowledge that it might be misused to violate human rights. This can present a particular challenge to some MNCs, as many products have the potential to be misused, making it extremely hard to guarantee they will only be used for ‘legitimate' purposes.

See full dilemma and case studies

Dilemma – Stabilisation clauses

"How does a responsible business address the need for stability when investing in or funding long-term projects, where the inclusion of ‘stabilisation clauses' in investment contracts can discourage host states from applying higher human rights standards?"

In a globalised world multi-national companies (MNCs) increasingly need to make major investments in emerging and developing economies to ensure continued access to natural resources and raw materials – and to access new markets and technology. Companies making such long-term, high value investments need to achieve the highest possible degree of legal predictability and investment stability before they are willing to fully commit themselves to operating contexts that could otherwise see arbitrary changes in law and regulation that compromise their investments.

As investments are subject to a host government's jurisdiction, there is potential for arbitrary state interference at a time when the balance of negotiating power shifts away from investors to states. Some companies choose to protect themselves against such risk by incorporating stabilisation clauses in investments contracts made with host governments or state companies. These clauses are aimed at ‘insulating' companies from changes in law – or the financial implications of such changes. However, sometimes these clauses may be designed to insulate investors from changes to local laws aimed at enhancing human rights standards – particularly where this entails additional project costs.

Therefore the dilemma for a responsible business is how to ensure investment stability, while not undermining the regulatory powers of host states to legislate in the public interest and to improve their standards of human rights protection equally for all.

See full dilemma and case studies

For more information contact dilemmasforum@maplecroft.com or visit http://human-rights.unglobalcompact.org/