Corporations and Human Rights: Need for Regulatory Compliance

Author : – Nitish Nayan



Multinational corporations (MNCs) have become one of the prominent actors on the world stage, and only one of several non-state entities seeking participatory role in the international law. The international body has come to recognize the role of MNCs in the international politics because of the power they wield, both in the political and the economic sphere. This political clout and economic power of MNCs have led them to expand their wings in the territory of the major markets in the world.

Emergence of Corporations in different part of the world have ensued the debate: whether Corporations which are free to exercise unfettered power in furtherance of narrow economic interest should be held accountable to internationally agreed upon norms of human rights.[i] This debate has arisen mainly in view of emerging problems from the corporate activities that range from environment to violation of labour and human rights. This is not just an abstract debate. The integration of world economy followed by liberalization of trade economy has left the developing country particularly vulnerable to the corporate activities. The acute problem of poverty in the developing countries has been identified as a main reason for this vulnerability which presents numerous opportunities for corporation in form of labour exploitation, environmental pollution and other economic as well as social issues.[ii]

These facts together with the inability of the local government to devise regulatory mechanism have put corporations doing business, particularly in the third world countries, in the questionable position. The failure of local government to devise proper regulatory framework have been led due to various factors such as political instability in the country, effort of the government to create liberalized trade environment or pressure from MNCs itself.

As a direct consequence of the effort to manage the problems generated by the transnational challenges of corporate groups, human rights issue have assumed great significance in the corporate affairs. Under pressure to be more accountable, many corporations have taken up the banner of Corporate Social Responsibility (CSR), adopting various voluntary initiatives. However, there has been little or no call from the international community to devise an international mechanism presenting binding norms for the conduct of corporations nor has much attention been devoted to remedying the presumed shortcomings in developing country regulatory systems that thwart effective remedies for these social harms. Instead the international opinion has focused on giving piecemeal remedy by calling for non- binding code of conduct for the corporations.

The reluctance of the international community to formulate binding conduct on the corporation centres on the policy debate. It has been contended by some that corporation is a private property of shareholders and that the sole purpose of the corporation is to maximize profits. Thus, the sole obligation of the corporation is to “make as much money for its stock- holder as possible”[iii].  Even, it has been argued once by noted entrepreneur that “CSR undermines the very foundation of our free society.”[iv] This theory reduces the ability of the corporations in obeying the law, abiding by prevalent ethical customs, and promoting good public relations, as these thematic principles might come in their way to maximise profits.

However, others believe that corporation has a social responsibility other than constituents. This theory mainly rests on the assertion that corporations are not just private property of the individuals but are social institutions that come into existence with the permission and support of the state. The state allows them to exploit vast resources, to which the state hold only as the trustee on behalf of the whole mankind. Therefore the corporate purpose should include the state’s interest of promoting general welfare. The proponents of this diametrically theory, therefore, urge that a regulatory framework should be evolved to reflect the said purpose in the corporation’s behaviour. The largely voluntary measures associated with corporate social responsibility should be augmented by legal means to promote important social values.[v]

The constant shift of position from that of the philanthropic attitude of the corporation to that of responsibility and accountability towards the society has led up to demands for international regulatory framework for the conduct of corporations. It has been argued that voluntary philanthropic attitude of corporations allow the corporations to operate without being bound by the definite standard and any way such charity have not yet helped in containing the human rights abuses. The proven corporate misconducts, such as exploitation of workers, harming the fragile environment, marginalization of vulnerable populations and producing other negative social consequences have only the buttressed the claim for stricter scrutiny of corporate behaviour, thus, pressing the need for regulation of corporate social responsibility by evolving suitable mechanism- both at regional as well as international level. However, a host of institutional, political, and historical forces have thus far inhibited the emergence of an international and municipal human rights legal framework that can bind corporate entities.


Development of Regulatory Regime for Corporate social Responsibility
Corporate activities that harm the environment, violate labour and human rights, and undermine the state institutions remain problems in all market economies. Nowhere are these problems more acute than in developing countries. While domestic regulatory systems can help in of protecting the environment and worker rights and the judiciary can ensure that human rights are upheld and corporate misconduct prosecuted, yet the general view is that, whether due to inadequate resources or ineptitude, the same expectations do not hold for developing countries, particularly the nations which fare badly on Human Index scenario. As evidence of corporate transgressions has mounted, it is noteworthy that there have been very few calls from the international regulators to oversee these matters, nor has much attention been paid in strengthening the regulatory system of the developing countries that may check human rights abuses. Instead, policy makers and many activists have focused on voluntary corporate social responsibility (CSR) measures.[vi]

Corporate Social Responsibility is an umbrella term that refers to a variety of initiatives in the areas of social concern, for example- labour rights, environmental standards, etc. As the operations of the corporations in the present times are increasingly venturing out of borders of the home state, these initiatives look to international law for their normative authority, intending to apply sometimes international legal prescriptions directly to corporations.[vii]

The primary actors in promoting and protecting the rights of all individuals always have been intergovernmental organizations, such as the United Nations, as well as individual governments. Recently these international and national bodies have turned their attention towards scrutinizing the corporate practices on the revelation of wide spread human rights abuses. Some corporations have also responded by creating their own policies regarding human rights violations in the countries where they operate. In this context, it would be not out of place to highlight the international documents which aim at improving compliance of corporations with human rights and see how far these international goes in ensuring practice of corporations in conformity to the established human rights norms. However, before that it is equally imperative to define what practices comprise international human rights which the corporations are expected to promote and protect.


1.1  Defining- International Human Rights

Before a corporation may be expected to promote and protect international human rights, it is necessary that there must be some consensual definition among the different stake- holders as to what these rights constitutes. While the rights that accrue to individuals vis-a-vis governments are generally defined in the constitutional document of governance, determining what specific rights should be the concern of corporation is not as straightforward an exercise. Of guidance, however, are several international documents, ratified by and binding upon the international community of states, containing specific international human rights guarantees. The most definitive interpretation of human rights obligations at the international level is contained in the International Bill of Human Rights.[viii] It is composed of the Universal Declaration of Human Rights (Universal Declaration or UDHR), the International Covenant on Economic, Social and Cultural Rights (ICESCR Covenant), and the International Covenant on Civil and Political Rights (ICCPR Covenant), and the Optional Protocol to the International Covenant on Civil and Political Rights.[ix] These documents constitute the basic definitions of human rights and identify the responsibilities of nations and individuals to respect those rights.

The Universal Declaration is accepted as the definitive interpretation of the human rights to which all member states are bound as parties to the United Nations Charter.[x] Several of the articles of the Universal Declaration are incorporated into customary international law which is binding on all states. The UDHR contains thirty articles that cover civil and political rights, as well as some fundamental economic rights. These rights may be described broadly as rights to control one’s own body and actions, and rights to be free from discriminatory or persecutorial state interference. Some particular rights include the right to human dignity and non-discrimination on a variety of bases: life, liberty and personal security; freedom from slavery; the right to work and for equal pay for equal work; the right to equal protection; marriage rights; and the right to own property. Corporations often find themselves faced directly and indirectly with issues involving the human rights defined in the UDHR.

In an ever-changing political and social context, the rights contained in Universal Declaration assume great significance even for the corporate bodies. Corporations may be presumed to be faced with labour issues, such as those involving equal pay, the ability to form and join labour unions, and paid leisure time. Prohibitions against forced labour, torture, interference in religious and political beliefs are also all rights protected by the UDHR and are issues that many of today’s corporations are facing.

The rights contained in the UDHR and the U.N. Covenants are universal. Recent international conferences including the U.N. World Conference on Human Rights held in Vienna in 1993 the U.N. Fourth World Conference on Women, held in Beijing in 1995[xi], reaffirmed the principle of universality over calls for some religious or cultural interpretation of those norms.[xii]


1.2 International Regulatory Regime for Corporations

Several international and national bodies, as well as private corporations themselves, have enacted or attempted to enact schemes for regulating the activities of these MNCs. As the report of human rights abuses became frequent, human rights NGOs, International organizations and national governments turned their attention to contain these abuses and hold MNCs accountable for violations. A range of options have been proposed, from developing national laws to establish international and regional treaties or guidelines.[xiii] In addition, some kind of arrangements in form of voluntary non- binding codes has been suggested such as individual codes of conduct.


1.2.a Corporate Code of Conduct

The “Code of Conduct” is a written policy or kind of statement of principles, intended to serve as the basis for a commitment to particular enterprise conduct.[xiv] These codes have been developed on the model framework by organizations such as ILO and OECD.[xv] It is interesting to note that the code arrangements of both the organization is characterized as voluntarily arrangements and sets out a range of non- binding commitments.[xvi] MNCs usually enter in to a code varying it with suitable need of national laws and international standards. The content of the code also vary depending upon the sector in which the corporation is engaged. The OECD has identified eight broad areas of conduct to be covered under the code. Among these labour rights, environmental standards, consumer protection, information disclosure are some of the notable entries. However, these codes have termed as insufficient by its critique, as may be seen from case studies followed in next chapter, because there is no formal role of any external agencies in monitoring and reporting on code compliance.

1.2.b United Nations Norms on Protection of Human Rights

The UN Sub- Commission for the Promotion and Protection of Human Rights has adopted the draft norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights (“the Norms). The Norms set out a comprehensive guidelines aimed at improving the compliance of MNCs with human rights.[xvii] The Norms begins with the Preamble, reflecting international standard on human rights as adopted under various UN documents. The norms imposes obligation on the corporations with reference to rights which they are suppose to uphold. These norms include imposing collection of rights, ranging from environmental and consumer protection to non- discrimination and the workers’ rights.

The UN norms came in to existence as a result of previous failed attempt to produce standardized corporate human rights obligations, such as the UN Code of Conduct for Transnational Corporations (UNCTC) and also in order to address the many of the shortcomings of a voluntary approach to the corporate responsibility.[xviii] The norms are yet to be adopted by the UN human Rights Council. The Norms have till not became binding, many political commentator already believe that there will be considerable pressure on the MNCs to comply with it. Many commentators have also touted the Norms as having the potential to find their ways in the multilateral treaties.



Approaches to Corporate Responsibility in the Context of Human Rights
2.1 Overview of the Debate

The debate on two approaches viz. voluntarist approach and state centred – primarily revolve around the effectiveness and desirability of interference by the state in the operations of the corporations. The business and industry commentators see these voluntary codes of conduct as the most effective means of ensuring that the corporations take human rights in to the account.[xix] It is argued by them that consumer pressure provides an incentive for a corporation to voluntarily adopt a code of conduct because consumers will boycott goods produced by a corporation whose practices violate basic human rights standards. Even if the real offender is the host country and not the corporation, consumers may react negatively toward the corporation.[xx]

However, at the other end of spectrum, many analysts who have examined the voluntary code of conduct framed on the model of OECD and ILO draft statement believe that such codes have proven ineffective mechanism in the protection of the human rights. They have pointed out that these codes have been marred by lack of enforceable standards, lacunae in the definition of human rights and the way these are articulated are some of the major deficiencies amongst the others.[xxi]


2.2 Critique of Voluntary Code of Conduct

Codes of conduct serve as a strategy to preserve human rights. This voluntary system of regulation, however, proves insufficient.[xxii] First, codes lack accountability for compliance with international law because corporation develop their own codes. Even if the corporations comply with the basic international human rights norms, many corporations’ codes lack express responsibilities, especially in situations where these corporations confront government violations and experience conflict as to corporate duties.[xxiii] Furthermore, most corporations with codes utilize self-regulation, a standard that does not assure compliance or resolution because the codes lack the necessary accountability to a third party. Concurrently, the argument that some corporation adopt codes of conduct merely to defend corporate presence and limit liability remains valid because many corporations remain complacent about improving human rights violations while realizing excessive profits from the exploitation of labourers. Additionally, the premise that countries exhibit a reluctance to impose standards proves sound because some corporations assess standards as economically unviable when compared to other competing trade countries without standards.[xxiv] Finally, the inadequacies of this voluntary private system of regulation, although an admirable effort to fill the void between existing norms and international law, severely compromise human rights standards because it lacks accountability.


Proposal for Strengthening the Regulations
After having considered the merits of voluntary code of conduct and the role of the state in developing responses towards human rights and the extent towards these regulations govern the corporate social responsibilities, this chapter outlines the proposal for better techniques which could strengthen the existing dispensation in compliance with these rights.


3.1 The Need for International Legal Framework

The current scope of the international human rights law of MNCs is wide but scattered evenly. It encompasses examples of codes, guidelines and compact which have been termed as soft law by some analysts.[xxv] The actual legal cover these initiatives provide is in reality non-existent. The legal duties imposed on corporations have some potential authority, but as yet they remain ill-defined and ineffective. The United Nations Development Program (UNDP) report explains that “there are no mechanisms for making ethical standards and human rights binding for corporations.”[xxvi] Aside from the lack of international procedures, it has been usually reported that the resort to national laws is often frustrated by the “corporate veil” of business structures, official corruption, the lack of effective procedures, or the unavailability of counsel or resources to aggrieved parties.[xxvii]

As a result, growing number of policy institutes, legal experts and development specialists have been urging that efforts toward CSR be augmented with legally-binding obligations, including the elaboration of an international framework or treaty. The legal, practical, and political difficulties associated with the development and implementation of a binding normative framework for corporations is known to everyone. However, any effort on reaching such multilateral agreements must address the issue relating to challenge of establishing a system of implementation and enforcement, including corporate disclosure and reporting requirements; monitoring, investigation and complaint mechanisms as most of the countries in developing world lack ability and means to ensure compliances.[xxviii] Apart from this, such treaty should also identify and establish some kind of oversight body to ensure fixing of direct liability on the corporations in the reported instances of human rights violations by MNCs.


3.2 Need for Imposing Criminal liability on the Corporations

Human Rights abuses by the corporation are not only limited to violation of workers’ rights, impairing environmental sustainability, but extended to perpetrating war crimes. The instance of Dutch company- Royal Shell which has used the help of corrupt and repressive military regime of Nigeria against ethnic minority Ognoi for opposing its operation is well known.[xxix]

To curb such practices it is necessary to evolve a mechanism imposing criminal liability to the corporations for its complicity in the war crimes. The issue of possible extension of the jurisdiction of the International Criminal Court (ICC) may be considered by the international forum.[xxx] The trial of criminal action of the corporation by the international body becomes all the more important because usually the host country has little or no control over such business enterprises as most of the corporations are rooted in the developed world.

The concept of criminal liability of the corporation is already finding its way both in national and international legislation. Although the current dispensation is mainly restricted to the issues of terrorism and financial criminality, the human rights issue may be recognized in the near future.


3.3 Developing National Legislation

While international initiatives related to corporate accountability continue to occupy centre stage, nonetheless it is important to note that these initiatives recognize that the primary responsibility to promote, secure and protect human rights remains with the national government. A large range of substantive national laws relate directly to issues of corporate social responsibility, such as labour standards, health and safety regulations, consumer protection, factory emission requirements, anti-trust provisions, product liability, and many others. While the terminology may not expressly refer to human rights, these laws are a vital element of corporate social responsibility.

Such substantive laws, as well as procedures for implementation and redress, vary dramatically from country to country. In situations where national laws are weak, companies may be able to engage in objectionable conduct with impunity. Even where legal standards do exist, governments may be unwilling or unable to enforce them. Given their relatively disadvantageous position, the governments of developing countries may be under particular pressure to avoid confrontation rather than risk losing the benefits associated with foreign investment.[xxxi] Official corruption, reportedly widespread in many countries, aggravates this problem. Since, many of these problems are particular to the underdeveloped nations, some analyst have called upon the developed world to enact legislation for binding code of conduct on the MNCs operating in the poor host countries.

For emerging economies, such as India, the review of companies’ law may be considered seeking new standards in the areas of reporting, duty of care, and liability to ensure that companies meet their environmental, social, and economic and human rights responsibilities.


3.4 Human Rights Impact Assessment

Human rights impact assessment is the process of predicting the potential consequences of a proposed policy, program or project on the enjoyment of human rights. The objective of the assessment is to inform decision-makers and the people likely to be affected so that they can improve the proposal to reduce potential negative effects and increase positive ones.[xxxii] Human rights impact assessment is a relatively recent concept. Other assessment programmes like environmental impact assessment and economic impact assessment are taken on regular basis as the policy issues while beginning any project.

It may be noted that almost every states is a party to one human rights treaty or another. To comply with its international human rights obligations, a State must ensure, before it adopts any proposed law, policy, program or project that it is consistent with its human rights, as well as other, legal obligations flowing from such treaty. From the corporation point of view, human right impact assessment incorporates taking of the preliminary view of the implications of corporate action including investment project on the human rights. Such assessment should be taken both in the state where regulatory dispensation is in shape and even in the rogue state.[xxxiii] The requirement of such assessment may be even more necessary in the disturbed nations. It should be made mandatory for the corporation to assess whether their investment in the repressive state would worsen the human rights situation, benefitting the insensitive government. In such state, for such assessment to be carried out, it is necessary to establish oversight monitory body to verify the report submitted by the corporation. In the other states the monitoring may be done by the independent authority appointed by the national government.


The increasing power of the corporations and the impact of corporate decisions on international law prove that corporations should be hold more accountable and responsible for its actions, while international law accommodates the norms to enforce the accountability. Corporations’ conduct directly influences human rights because large corporation possess immense power obligating them to protect workers’ rights while influencing government standards. Given the predominance of market economies in today’s world, improving regulation must be a priority. Voluntary measures can only play a role if states establish basic regulatory frameworks.


The governments’ effective regulation of human rights proves essential because enforcing issues confer standards and encourages international law to accommodate economic and political reality. Corporations in developing world, as well as those in other industrialized nations, should uphold human rights standards in accordance with international law. The increasing responsibility of the corporations, and their fundamental role, necessitates the imposition of a mandatory and regulated global human rights enforcement mechanism. The implementation of such mechanism across the international spectrum with effective regulation protects individuals because it detects violations, promotes standards, encourages responsibility, and advances accountability in accordance with human rights law. At the same time, empowering domestic regulators is an essential component of this mechanism, since primary responsibility to protect human rights, under the international treaty, is that of a state. Until this happens, the corporations and governments will profit at the expense of human rights and will remain exempt from liability.




[i] The Challenge of Imposing Human Rights Norms on Corporate Actors, Schutter Olivier, Transnational Corporations and Human Rights, 2006, ed. Schutter Olivier, p. 2
[ii] Dr. Sheikh Saleem, Corporate Social Responsibilities: Law and practice, 1996, p. 23
[iii] This line of argument was propose put forward by noted economist Milton Freidman in his book capitalism and Freedom, as noted in Corporate Social Responsibility Frank Lopez in Global Economy after September 11: Profits, Freedom and Human Rights, 55 Mercer L. Rev., 739
[iv] ibid
[v] Dodge v. Ford Motors Ltd, 170 N.W. 668 (Mich 1919). In this case the debate as to role of corporations ensued between Henry Ford and Dodge Brothers.
[vi] These voluntary initiatives have been adopted on the model draft prepared by some International Organizations, such as Global Compact; Global Reporting Initiative; OECD Guidelines for Multinational Enterprises.
[vii] B Hepple, ‘The importance of Law, Guidelines and Codes of Conduct in monitoring corporate behaviour’ in Corporate Code of Conduct, Mc Leay, Transnational Corporations and Human Rights, Schutter O, ed; 2006, p. 220.
[viii] The drafting of International Bill of Human Rights was of the first amongst the many tasks that UN has taken soon after its establishment in 1945.
[ix] Basic facts about the UN, UN Department of Public Information, New York, 2004, p. 223
[x] ‘The Universal Declaration remains the primary source of global human rights standards, and its recognition as a source of rights and law by states throughout the world distinguishes it from conventional obligations
[xi] The World Conference on Women recognized the universality of the human rights norms by calling upon the corporations and other employers to resolve the issue of international mandate of non- discrimination against female work force at the work place.
[xii] While the rights recognized under the International Covenants are universal, but it calls upon the states and individuals including the corporations to maintain fine line between upholding universal norms and not imposing culturally insensitive practices in the workplace.
[xiii] Mc Leay, Corporate Code of Conduct, Transnational Corporations and Human Rights, Schutter O, ed; 2006, pp. 219-  220.
[xiv] Ibid, p. 222
[xv] OECD defines the code as ‘commitments made voluntarily by the companies and other similar entities, which put forth standard and principles for the conduct of business activities in the market place’. See, Bunn I, Global Advocacy for Corporate Accountability: Translantic Perspectives from the NGO community, 19 AMUILR, 2004
[xvi] Supra note # 13.
[xvii] Gelfand J, The Lack of Enforcement in the UN Draft Norms, Transnational Corporations and Human Rights, Schutter O, ed; 2006, p. 313
[xviii] Carolin Hillemanns, UN Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with regard to Human Rights, 4 German Law Journal No. 10 (1 October 2003) – European & International Law
[xix] Ibid;
[xx] See, Su-Ping Lu, Corporate Codes of Conduct and the FTC: Advancing Human Rights through Deceptive Advertising Law, 38 Colum. J. Transnat’l L. 603, 606 (2000)
[xxi]Mc Leay, Corporate Code of Conduct, Transnational Corporations and Human Rights, Schutter O, ed; 2006, pp. 222-223.
[xxii] Ibid
[xxiii] Lopez Rene, Corporate Social Responsibility in a Global Economy, 55 Merc Law Review 739, (2004)
[xxiv] See below, the case studies on adidas code of conduct in China
[xxv] Dr. Sheikh Saleem, Corporate Social Responsibilities: Law and Practice, 1996, p. 185
[xxvi] United Nations Development Program, Human Development Report, 1999 available at http://hdr.undp.- org /reports/global/1999/en/pdf/hdr_1999_full.pdf
[xxvii] International Council on Human Rights Policy, Beyond Voluntarism: Human Rights and the Developing International Legal Obligations of Companies (2002) at
[xxviii] Ibid
[xxix] For details on the instance, See, Cassel Douglas, Corporate Initiatives: A Second Human Rights Revolution, 19 Fordham Int’l L. J 1963, (1996)
[xxx] However, the such extension of Jurisdiction may require complete overview of the ICC Statute, See, Chiomenti Cristina, Corporation and the International Criminal Court, Transnational Corporations and Human Rights, Schutter O, ed; 2006, p 287.
[xxxi]Supra note # 26, In the case study of Adidas operation in China, the unwillingness of the national authorities may be seen in extending regulations to the private corporations.
[xxxii] Professor Paul Hunt, Impact Assessments, Poverty and Human Rights, Submitted to UNESCO
[xxxiii] Supra note # 25