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We have reported on North Korea’s stated interest in attracting foreign direct investment. But an equally important question is what responsibilities investors have given the abysmal human and labor rights record of the country.
Our reflection on this question was triggered by running into John Ruggie at a recent conference at Wharton. Ruggie, a Professor at the Kennedy School at Harvard, has spent the last six years working on an ambitious UN effort to define a set of Guiding Principles for Business and Human Rights that were released in March. Coming to a consensus on these principles was a Herculean task and a major accomplishment for Ruggie personally and the human rights community more generally.
But the focus of the exercise was largely on the risks that companies would be directly involved in rights abuses. The first foundational principle is worth quoting in full: “States must protect against human rights abuse within their territory and/or jurisdiction by third parties, including business enterprises. This requires taking appropriate steps to prevent, investigate, punish and redress such abuse through effective policies, legislation, regulations and adjudication.”
The Principles end up walking a fine legal line on the question of corporate complicity in the abuses of governments. In the commentary on Principle 17, which deals with “human rights due diligence,” the report notes that complicity has a non-legal and legal meaning. “As a non-legal matter, business enterprises may be perceived as being “complicit” in the acts of another party where…they are seen to benefit from an abuse committed by that party.” The organization of labor at the Kaesong Industrial Complex would fall under this definition of complicity, as would companies operating in many countries where labor is effectively repressed.
But as Ruggie pointed out in a subsequent correspondence, under international and most domestic law, investing in a country and paying taxes to a government that violates human rights is not itself an offense unless the company contributes materially to the violation. Only then can the company be deemed complicit in the violation itself, the core of the “aiding and abetting” standard.
Advocates of engagement could argue that investing in countries with weak human rights and labor standards could even be a plus if those companies adopt standards that promote the rights of workers and the communities in which they operate. Although the new Principles hint at such an obligation, it is never stated outright; the responsibility to exercise due diligence centers primarily on the activities of the firm itself, not the host government.
The OECD Guidelines for Multinational Enterprises—published in 2000 and now being updated in part to incorporate the UN work on Principles—states that firms should “respect the human rights of those affected by their activities consistent with the host government’s international obligations and commitments.” This formulation, if taken at face value, would require firms to uphold the government’s obligations and commitments even if the government didn’t.
But a closer reading of Chapter IV on Employment and Industrial Relations suggests an important catch. The chapter lists a host of obligations firms have, including respect for rights to representation by unions and collective bargaining and a commitment not to use their mobility to enhance bargaining power vis-à-vis labor. But these commitments are undertaken “within the framework of applicable law, regulations and prevailing labour relations and employment practices.” South Korean firms in Kaesong would be in compliance with this norm; they are operating within the bounds of North Korean law. South Korea (or other investor home countries) could, however, choose to extend their own laws to the KIC on an extra-territorial basis. This possibility could be important—indeed, politically necessary—were South Korea to seek duty-free treatment for good produced in the KIC under the the KORUS free trade agreement. Currently, as we noted in a recent post, this is very low-probability event.
Which brings us finally to the Sullivan Principles, which we suggest in Witness to Transformation is probably the most progressive model. In 1971, the Reverend Leon Sullivan joined the GM Board of Directors and became the first African-American on the board of a major corporation. At the time, General Motors was the largest employer of non-whites in South Africa and Sullivan used his position to advocate for social and ultimately political change. The 1977 Principles were initially aimed at segregation and discrimination in the workplace. But in response to agitation from anti-apartheid activists, Reagan Administration non-action, and a lack of apparent progress in South Africa, 1984 Sullivan added a seventh injunction: “working to eliminate laws and customs that impede social, economic, and political justice.” Frustrated with the lack of progress on the part of the apartheid regime, Sullivan ultimately mobilized companies to leave the country altogether.
Sullivan and United Nations Secretary General Kofi Annan subsequently launched the Global Sullivan Principles of Corporate Social Responsibility in 1999—a direct precursor of the Ruggie effort. These expanded principles call for multinational companies to play a much more proactive role in the advancement of human rights and social justice, particularly by calling on firms to actually advocate for universal human rights and the rights of their employees. Nor do the Global Sullivan Principles have the waffling language of the OECD guidelines, which open the giant loophole of operating within the constraints of national law.
Work on the social responsibilities of investors is unlikely to stop at the Sullivan Principles or the UN’s work. Building on Pope Benedict XVI’s 2009 social encyclical, Caritas in Veritate, which contained extensive commentary on economics and globalization, a working group in the Pontifical Council for Justice and Peace is drafting a similar set of principles. If the pontifical letter is any indication, this effort is likely to push the envelope beyond the Sullivan Principles and the UN’s work.
As we say so frequently with respect to things North Korean, don’t hold your breath. But this time, it is the Chinese, South Korean, Egyptian and other companies doing business in North Korea that are falling short.
The Global Sullivan Principles (1999)
“As a company which endorses the Global Sullivan Principles we will respect the law, and as a responsible member of society we will apply these Principles with integrity consistent with the legitimate role of business. We will develop and implement company policies, procedures, training and internal reporting structures to ensure commitment to these principles throughout our organization. We believe the application of these Principles will achieve greater tolerance and better understanding among peoples, and advance the culture of peace.
Accordingly, we will:
- Express our support for universal human rights and, particularly, those of our employees, the communities within which we operate, and parties with whom we do business.
- Promote equal opportunity for our employees at all levels of the company with respect to issues such as color, race, gender, age, ethnicity or religious beliefs, and operate without unacceptable worker treatment such as the exploitation of children, physical punishment, female abuse, involuntary servitude, or other forms of abuse.
- Respect our employees’ voluntary freedom of association.
- Compensate our employees to enable them to meet at least their basic needs and provide the opportunity to improve their skill and capability in order to raise their social and economic opportunities.
- Provide a safe and healthy workplace; protect human health and the environment; and promote sustainable development.
- Promote fair competition including respect for intellectual and other property rights, and not offer, pay or accept bribes.
- Work with governments and communities in which we do business to improve the quality of life in those communities – their educational, cultural, economic and social well-being – and seek to provide training and opportunities for workers from disadvantaged backgrounds.
- Promote the application of these principles by those with whom we do business.
We will be transparent in our implementation of these principles and provide information which demonstrates publicly our commitment to them.”
