Kris Douma: An investor question to UN special representative John Ruggie…

What if a company’s business partner is a state that is complicit in human rights violations?

After a trial of 152 days, Otto Ambrus, Walter Dürfeld, Fritz ter Meer, Heinrich Bütefisch and Carl Krauch were sentenced to six to eight years of imprisonment for slavery and mass murder. They were the managers of IG Farben, the German chemical company that produced and delivered the technical means that made the Holocaust technically possible. One of the judges, Paul Herbert, disagreed with the verdict because he thought the defendants were guilty of even more charges, claiming “There is nothing in the record to suggest that Farben ever withheld any energy or initiative to help Hitler in his plans to build a Germany that would be strong enough militarily to master the world.” (Diarmuid Jeffreys: Hell’s Cartel, New York, 2008). The Nuremberg trials presented a very special case in human rights violations and the relations between a company that should respect human rights and its business partner, in this case the Nazi Regime. It is instructive to the current debate about UN special representative John Ruggie’s Report on Business & Human Rights, issued last week. In 2008, the UN appointed Ruggie to further develop the ‘Protect, Respect and Remedy Framework’ (accepted by the UN in 2008) into Guiding Principles for the Implementation of the Framework. The draft Guiding Principles are open for comments. In them, a clear distinction is made between the state’s duty to protect and the company’s duty to respect human rights. Positive elements include a sharp focus on proper due diligence for companies and recommendations for access to remedy. The clear distinction between the responsibilities of states (duty to protect) and companies (duty to respect) seems a very logical one at a first glimpse. However, it tends to obscure one verycomplicated concern and a consistent, problematic dialogue we, and other investors, have with a number of companies operating in so called ‘conflict affected countries’.
The ‘key’ question is what are the responsibilities of a company that has a close relationship and is a business partner of a regime that knowingly violates human rights? Generally, in oil, gas, mining, infrastructure and telecommunications, companies can only operate in (conflict affected) countries as (some kind of) business partner with government. Sometimes the government, through a state owned company, is part of the operating consortia. This poses serious questions to the ability to distinguish between the duties of states and companies, since to some extent they become intertwined. The dialogue responsible investors have had with companies facing this kind of challenge resulted in the development by the United Nations Global Compact (UNGC) and the United Nations Principles for Responsible Investment (UN PRI) of the “Guidance on Responsible Business in High Risk and Conflict Affected Areas” launched at a UNGC-conference in New York last June. It was put together through close cooperation between major companies and investors (available at: Link ).
But what is the right course of action is if a state in which a company operates (or intends to operate) is unable or unwilling to protect human rights, or is itself (considered to be) involved in human rights violations? This is especially relevant when company and state are business partners. Ruggie does not fully address this. The only place in the ‘draft’ that relates to this issue is article 21: Issues of Context. But the only best practices

that are mentioned refer to the conduct of the company and the best practice that the company should ‘honour’ the principles of internationally recognized human rights (my own words) on a best effort basis. Three major questions remain:

1. If it is impossible for a company to respect human rights because of gross misconduct of the state, shouldn’t a company (that maintains some sort of business partnership with that government, or intends to do that) decide to terminate their activities in that country, or are alternatives available?
2. Is it acceptable to enter a business partnership with a state that is complicit in major human rights violations? In other words, can a company sign an agreement with a state to explore/drill oil, construct a dam or build a telecommunications network with Adolf Hitler, Pol Pot or Idi Amin?
3. If it is considered possible to have a business partnership with a government that is complicit in human rights violations (which I personally find hard to believe) should those companies be guided with some best practices about advocacy and state engagement?

The issue is not if a company can operate responsibly in a ‘conflict affected’ country where the state is complicit in human rights violations. The question is whether a company that adheres to responsible business practicescan have a business partnership with such a state/government?! If the answer is yes, how can it prevent indirect complicity? And how can it use its’ influence with that government to end this violation of human rights? Of course, I understand the complexity and delicateness of these debates, especially if the question would be raised about states that currently are complicit in human rights violations and have to agree to the Guidelines that John Ruggie is expected to propose to the UN. But the hygienic distinction between the state’s duty to protect and the company’s duty to respect avoids one of the major dilemmas both companies and investors are facing. It is not yet clear what would have been the result of the Nuremberg trials if the management of IG Farben claimed they had followed the guidelines of John Ruggie. Possibly they would still have been convicted, and rightfully so. But for Ruggie’s ‘Guiding Principles’ to be relevant some kind of direction on this issue is required. Otherwise companies should just put this work of the UN aside as ‘obsolete’ and, together with NGO’s, governments and responsible investors, further develop their own guidance. At present, the joint initiative of the UNGC and UN PRI can provide a more useful and responsible starting point.

Kris Douma, former MP in The Netherlands, is Head of Responsible Investment at Mn Services