Does Your Business Need a Human Rights Strategy?

Swedish fashion giant H&M’s commitment to “operating with respect to human rights across the value chain” recently cost the company $74 million and the wrath of its third-biggest — and fastest-growing — market.

In late 2020, H&M, along with other well-known fashion brands, publicly announced that it was no longer sourcing cotton from China’s Xinjiang region due to concerns over the use of forced labor among the country’s minority Uyghur population. When a website highlighted the announcement in March 2021, the Chinese consumer backlash was fierce. The company’s brands disappeared from Chinese e-commerce sites, landlords in parts of China forced many of the brand’s stores to close, and Chinese customs officials issued a warning alleging that H&M’s cotton dresses contained “dyes or harmful substances” that could endanger a child’s health.1 By the time the company’s quarterly results were announced in July, there was little surprise that sales had fallen by 23% from March to May.2 At the time, chief executive Helena Helmersson said the situation remained “complex” and expressed H&M’s commitment to regaining the trust of its customers and partners in China.3

H&M was hit hard by the Chinese reaction. However, with customers, employees, and activists paying increased attention to human rights, businesses that turn a blind eye to violations that occur in their sphere of operations face the risk of being exposed as morally complicit as well as vulnerable to legal action and reputational harm. That’s why it’s critical for companies to have a human rights strategy and proactively consider when and how to take the action needed to fulfill their moral obligations; meet shareholder, customer, and employee expectations; and keep other stakeholders satisfied.

Drawing on our research in business ethics and sustainability — including discussions with managers and human rights groups, and a close examination of how businesses have addressed these issues in the past — we’ve created a framework to help companies develop a business and human rights strategy that is applicable to their situations. The framework we provide offers tools to help companies gauge their vulnerabilities and identify approaches and tactics that will assist them in meeting their social and commercial responsibilities.

Three Categories of Human Rights Violations

In our research, we observed three broad areas where human rights issues arise in relation to business and that companies must consider when developing a business and human rights strategy.

1. Abuse in the way a company’s products or services are made and delivered. This includes abuse by suppliers or contractors or within a company’s own operations. Managing human rights risks in the supply chain is becoming increasingly complicated as geopolitical environments change, supply chains become more complex, and human rights defenders leverage digital media to highlight abuses occurring right under our noses in areas that were previously unseen. Sometimes a job — picking tomatoes, making clothes, or working on a construction site — may appear to be normal. What might not be seen is the way people are being controlled through intimidation, inescapable debt, the removal of passports, or threats of deportation. A 2019 investigation in the U.K. revealed a slave ring involving more than 400 trafficked Polish workers who were being held in appalling conditions. The laborers were receiving a pittance to work on farms and in factories that supplied major supermarket and building supply chains, including Tesco, Waitrose, Sainsbury’s, Homebase, Travis Perkins, Argos, and Wickes.4

Unsurprisingly, the companies were unaware of the conditions their suppliers’ workers were subjected to. In fact, most companies today are vocal in announcing policies to weed out forced labor in their value chains. However, the prevalence of modern slavery in global supply chains has become so entrenched, most multinational companies benefit from it somewhere, often very far down the chain, where they have little visibility or leverage.5

2. Abuse in the way a company’s products or services are used. While companies may not knowingly create products that violate human rights, they could find themselves complicit when customers employ their products or services to do so — if not legally complicit, then at least guilty in the court of public opinion. Caterpillar, a long-standing supplier of heavy machinery to the Israeli army, found its reputation at risk when evidence of its equipment being used to demolish Palestinian houses and orchards emerged.6 Demonstrations against the company gained momentum after an army-driven Caterpillar bulldozer crushed and killed American peace activist Rachel Corrie. More recently, research by Amnesty International made headlines with the findings that digital surveillance systems made by European companies were being sold to Chinese security agencies and used to implement a mass surveillance program against minority groups.7

3. Abuse by regimes where the company operates. It is difficult to identify a country where human rights abuses of one kind or another do not take place, whether in the form of forced labor; suppression of free speech; racial, cultural, or gender discrimination; or unlawful incarceration. The issue is nuanced, and countries differ in their views on what constitutes basic human rights. Recently, Russia has been accused of using a military-grade nerve agent to poison opposition leader and anti-corruption activist Alexander Navalny. In 2017, the U.S. was admonished by Amnesty International for the rendition, torture, and indefinite detention of prisoners at Guantanamo Bay without trial following the 9/11 attacks. Meanwhile, Australia’s mandatory detention and offshore processing of asylum seekers has been robustly criticized. And investigations into the 2018 murder of journalist Jamal Khashoggi surfaced evidence pointing to the involvement of Saudi Arabia’s Crown Prince Mohammed bin Salman.8

Companies can benefit from working closely with governments, but when a regime violates human rights, they can get embroiled in the scandal. International consultancy McKinsey & Co. found itself in such a position over its contract to assist in the organizational transformation of the U.S. Immigration and Customs Enforcement agency. Media reports suggested that the consultancy had been redirected to assist in former President Donald Trump’s clampdown on illegal immigration and was responsible for money-saving recommendations that included cuts in funding for food, medical care, and the supervision of detainees.9 McKinsey global managing partner Kevin Sneader insisted that the company would not, “under any circumstances, engage in work … that advances or assists policies that are at odds with our values.” However, the incident gave weight to commentators who have accused the company of nurturing cozy relationships with various regimes where violations of human rights are regularly reported.10

Moral and Legal Obligations to Address Human Rights

Historically, responsibility for protecting human rights has fallen primarily to governments — but there are situations where governments are unable, or unwilling, to do so. In this environment, companies can take responsibility for engaging as corporate citizens with often significant influence. There are four reasons why a company should consider human rights a priority and why it can be important to act:

1. Moral reasons. Businesses need to accept that they can no longer be corporate bystanders; there are moral duties that call for action. Inaction could be perceived as silent complicity.11

2. Legal considerations. Many countries have enacted laws that require organizations to act in ways that protect and promote human rights.

3. Compliance with soft laws. When human rights are not directly supported by laws, other standards may come into play, such as the United Nations’ Guiding Principles on Business and Human Rights. This document provides a set of guidelines based on the U.N.’s “Protect, Respect, and Remedy” framework. Key elements of it have been adopted by the Organisation for Economic Co-operation and Development, the European Union, the International Organization for Standardization (in ISO 26000), and the International Finance Corp.

4. Reputation. With social media in particular bringing attention to areas that had been inconspicuous in the past, companies are increasingly vulnerable to being accused of complicity with human rights abuses.

What’s Your Organization’s Exposure?

Business leaders seeking to formulate a clear plan for handling these difficult issues need to start by better understanding their organizations’ moral obligation to act, as well as their potential vulnerability. To that end, we have identified some key factors driving corporate human rights strategies and used them to create an exposure matrix. (See “Exposure to Human Rights Issues.”) This tool captures both the moral intensity and the potential influence of a company in a specific situation. Knowing where a company sits in the matrix can help focus managerial discussion and decision-making in terms of its response.

Moral Intensity

First described in 1991 by Thomas M. Jones, moral intensity captures the degree to which people see a situation as unethical and demanding of action.12 Empirical research has confirmed that when circumstances are high in moral intensity, people are more likely to intend to act ethically.13 According to Jones, the following factors influence the moral intensity of a particular issue:

• The magnitude of consequences. What is the extent of the harm likely to result? Are lives at stake, or is freedom of speech at risk, for example?
• Social consensus. What is the extent to which people in society are in agreement on the moral rights and wrongs of an issue? The internationally accepted norms laid out in the U.N.’s Guiding Principles on Business and Human Rights and its Universal Declaration of Human Rights are often considered key sources of guidance (though it must be noted that not all countries are signatories to the declaration, and some assert that it has a Western bias).
• Probability of effect. How likely is harm to happen?
• Temporal immediacy. How urgent is the issue? Is fast action required to prevent harm?
• Proximity. How close is your organization to the issue?
• Concentration of effect. What is the proportion of people in a given community affected by the issue?

Take the example of supermarket chains, such as Walmart, Carrefour, and Tesco, that have been criticized for sourcing frozen shrimp from Thailand, the third-largest exporter of seafood in the world.14 Research conducted by Human Rights Watch found the use of forced labor in the Thai fishing industry to be “pervasive.” Boats were found to be crewed with Burmese and Cambodian men sold as slaves and forced to work for years at sea without ever seeing shore.15

Using our tool, managers in the supermarket chains could conclude that the level of moral intensity was high based on five of the six drivers: (1) There were severe consequences from the abuse, with evidence of considerable suffering; (2) there was broad social consensus pushing for the abolition of forced labor; (3) the abuse was already happening and seemed likely to continue; (4) the urgency of the matter remained high for the affected fishermen; and, finally, (5) the harm was highly concentrated on the enslaved fishermen. However, given that the abuse occurred far from their home markets, and that the supermarkets sourced the product through third parties, the managers would likely assess their proximity as low. This would moderate the moral intensity for the supermarkets — though not for their suppliers.

Influence

An organization’s influence is not always easy to gauge. It may be the case that a large and seemingly powerful company wields little influence on the perpetrators of human rights abuses. Take the example of Shell’s oil operations in the Niger Delta in the 1990s.16 Given that Shell was the largest multinational in the country and a joint partner in oil production with the government, it might be presumed that the company held great sway over the Nigerian government. However, when the company became embroiled in demands for political rights and oil revenues by the local Ogoni people, and protests resulted in nine activists being arrested, convicted, and subsequently executed, Shell’s calls for a fair trial and appeals for clemency carried little weight. The fact that other oil corporations were eager to take its place in the Niger Delta further diluted Shell’s influence. Despite global condemnation of Shell, it is far from evident that the company could have prevented the executions.17 Nevertheless, the company’s reputation suffered, and in 2009 Shell paid $15.5 million to settle a court case over its alleged complicity in human rights abuses.18

To account for these nuances when considering an organization’s influence, we suggest that business leaders assess the following:

• Institutional factors. What are the formal and informal rules and values that shape the environment, including willingness — or pressure — to conform?
• Industry specifics. How is influence affected by factors such as the complexity of supply chains, the geographic location of where vital products are sourced, or the degree of concentration or fragmentation of the industry? For instance, the difficulty in tracing cocoa beans to specific producers makes eliminating child labor hugely difficult for chocolate and cocoa companies such as Barry Callebaut.
• Firm resources. What can the organization bring to bear to influence the issue? This includes tangible resources, such as funds, inventory, land, and buildings; and intangible ones, such as networks, skills, and knowledge.
• Embeddedness. How closely and on how many levels is the company entangled with the perpetrators of abuse?

Returning to our Thai seafood example, the supermarkets have potential influence by virtue of firm resources — their size and buying power — and the institutional factor of established practices whereby multistakeholder initiatives are used to improve supplier practices (such as the Marine Stewardship Council). However, when it comes to embeddedness, they are not directly involved with the perpetrators using slave labor, and the industry specifics of an opaque supply chain mean that their influence is diminished because traceability is low. Considering these influence factors in combination with our assessment of moral intensity, the supermarkets would likely place themselves toward the middle on the exposure matrix. In contrast, Thai Union Group, a Thailand-based global seafood company with familiar brands such as John West, has considerably greater influence by virtue of its embeddedness, resources, and dominance in the supply chain.19 It would likely be judged to be in the upper-right quadrant of the exposure matrix.

Three Key Decisions for Your Human Rights Strategy

The insights gleaned while assessing a company’s exposure to human rights issues can also be used during the development and execution of its response strategy. To help business leaders work through this, we’ve created a decision tree that highlights the key choices that could be made and their potential consequences. (See “Choosing the Best Course of Action.”)

Decision 1: Exit, Voice, or Silence? The first decision a company must make is whether to get involved. Based on the conclusions reached using the exposure matrix, business leaders must decide whether the issue requires further attention and, possibly, action. Is it serious enough to warrant divesting operations and/or possibly leaving the country? If not, what other options are available?

To borrow from Albert Hirschman’s famous treatise, Exit, Voice, and Loyalty, businesses have the options of leaving the environment where abuse is being committed, taking action to help change the situation, or maintaining business as usual while continuing to monitor the situation and the company’s exposure.20 Deciding on the best option is not always straightforward, nor is flight always the most appropriate action: Pulling out of a country can not only seriously impact a business’s bottom line but also harm the communities in which it operates, such as by eliminating local jobs or ending prosocial initiatives the company has taken. This was the argument businesses often made against exiting apartheid South Africa: that they should stay and pursue constructive engagement.21

If a business makes the choice to continue operating and to work to address systemic human rights abuses within its environment, it needs to develop a nuanced strategy and be very deliberate about how and with whom it interacts.

Decision 2: A Collective or Individual Approach? This brings us to the second decision, regarding the approach. If a company chooses to stay and take action, it must decide whether the issue is best addressed by the company individually or should be undertaken collectively with other organizations or stakeholders.

An individual approach can be most effective when companies are influential and when time is of the essence. In 2010, Microsoft became aware that Russian government agencies were using allegations of software piracy as an excuse to search the offices of nongovernmental organizations and harass political activists and journalists. It eliminated that pretext by offering free software to NGOs and independent journalists.22

As a large company with vast resources, Microsoft had the power to take individual action. Less-powerful companies, or those reacting to a situation where the abuse is widespread, the protagonist too dominant, or the sense of urgency low, may choose to act collectively, teaming up with other organizations and/or stakeholders.

The reaction of companies in the garment sector after the 2012 Rana Plaza tragedy in Bangladesh offers an example of collective action.23 More than 1,100 factory workers died when the eight-story building collapsed. The disaster highlighted the problem of unsafe working environments that was systemic across the country. Companies in the sector worked together to introduce the Accord on Fire and Building Safety in Bangladesh, an independent, legally binding agreement formed among global brands, retailers, and trade unions. Since the accord’s creation, engineers have inspected more than 2,000 garment factories, addressed more than 150,000 safety hazards, and helped set up safety training programs that have educated more than 1.4 million workers in proper workplace safety practices.

Decision 3: Which Actions and Tactics Should Be Chosen? Having decided on a collective or individual approach, companies are faced with the question of whether to take direct action to stop human rights violations or whether more can be done by indirectly influencing the institutional settings in which they operate.

In Bangladesh, the adoption of the Accord on Fire and Building Safety was an indirect strategy through which businesses were able to create new industry standards. However, if the situation had been different — for example, if ready-made garment brands had become aware that a particular factory presented an extreme and urgent threat to life — they may have instead chosen to take direct action, such as putting pressure on politicians or legal enforcement agencies to close or force repairs to the building.

Having made a choice about whether to act directly or indirectly, organizations have an array of tactics at their disposal. The tactics they choose should take into consideration the influence drivers identified in the exposure matrix.

Direct Tactics

• Offering direct aid. In this case, a company uses its core business to protect and promote human rights, as Microsoft did when providing software to the Russian NGOs.
• Providing information. This includes companies using their research and communication resources to provide background analyses, develop position papers, testify as expert witnesses, or even directly lobby for human rights. The large German supermarket chain Edeka protested xenophobia by taking products made outside Germany off its store’s shelves and replacing them with signs bearing anti-racism messages.
• Granting or withdrawing financial aid. Companies may choose to provide financial support to organizations, politicians, or political parties that promote human rights. In the wake of the George Floyd protests and the Black Lives Matter movement in the U.S., many major companies, including Apple, Amazon, and Facebook, endorsed the movement and pledged millions of dollars to fight racism. Alternatively, companies may withdraw financial aid if they feel that human rights are being abused. Denmark’s Danske Bank has an exclusion list that publicly identifies 27 companies it refuses to do business with for moral reasons.
• Disengaging or rejecting unjust rules. This may include declining to participate in business events, engaging in civil disobedience, or, in extreme cases, discontinuing some business operations in a particular country. Google’s refusal to provide the Chinese government access to user data and its partial withdrawal from the country falls into this category. Companies protesting apartheid in South Africa chose to house workers of different races in common facilities in defiance of provisions of the Group Areas Act. Merck CEO Ken Frazier used this tactic when he very publicly broke with President Trump. Frazier resigned from the administration’s manufacturing council after the former president proved unwilling to hold white supremacists to account for the violence that accompanied their August 2017 protests in Charlottesville, Virginia.

Indirect Tactics

When companies feel that they are too small or not in a position to make a difference through direct action, or if the violations are widespread, they may opt to pursue indirect engagement strategies that influence the institutional setting in which the offenders operate. This is an area in which partnering with other organizations can be particularly effective.

Indirect engagement strategies include tactics such as the following:

• Protecting and enhancing institutions. This tactic is focused on the support, establishment, or enforcement of well-ordered institutions. A good example is the Norwegian oil company Statoil (now Equinor), which provided human rights law training to judges in Venezuela from 1999 to 2004.24
• Norm-taking. Organizations may voluntarily sign on to, and comply with, nonlegal norms and standards that go beyond legal requirements, such as the U.N. Global Compact or ISO 26000. This is a particularly strong tactic when adopted by an industry leader with the influence to encourage other power players in the sector.
• Norm-making. This takes the norm-taking tactic a step further with the development, or codevelopment, of new standards that supplement hard law. By acting collectively or alongside other multistakeholder initiatives, organizations can individually create rules of the game that define guardrails for corporate behavior. One example is the Fair Labor Association, a collaborative initiative convened in 1996 to improve working conditions in the apparel and footwear industries.

Deciding which of the possible tactics to employ is often not as clear-cut as it may appear from the examples provided. Businesses should explore these options but exercise judgment regarding how well they apply to the specifics of their own situations.

In some cases, the best way forward is to develop an innovative approach. Amsterdam-based smartphone manufacturer Fairphone was faced with a human rights dilemma when it came to sourcing cobalt (a vital mineral for producing phone batteries). Around 60% of the world’s cobalt comes from the Democratic Republic of the Congo, where child labor and poor working conditions present huge human rights challenges. Rather than looking elsewhere to source its cobalt (leaving the country’s small-scale miners with no source of income), Fairphone created an alliance linking small-scale mining operations with the global electronics and automotive supply chain. At the same time, it established control and monitoring mechanisms to ensure that children were kept out of the mines and enrolled in local schools.25

When Leaving Is the Best Option

There may be times when, in balancing the tension between the moral and business imperative, leaders feel that the best — or only — choice is for a company to leave, be it a problematic supply chain, a market where its products are implicated in human rights abuses, or even an entire country. The decision then will be whether to take the high road and exit with fanfare to publicly signal why the company is leaving — as Netherlands-based company Hendriks Graszoden did when it announced that it would not be supplying grass for the 2022 FIFA soccer World Cup in Qatar. A spokeswoman explaining the company’s withdrawal cited the harshness of labor conditions observed at the new stadium work sites, as well as the many worker deaths that had been reported during construction.26 Alternatively, but with less potential impact on addressing human rights abuses, a company’s leadership might decide to withdraw gradually and quietly, protecting company assets and communicating the move as a change of direction for the organization.

Whatever approach and form of engagement a company chooses, if the evaluation on the exposure matrix suggests that there is high moral intensity, and the company has some power to influence the situation, our analysis indicates that indifference toward and inaction on addressing human rights abuses is no longer an option.

Companies are increasingly expected to assume political responsibilities. Doing nothing when there is an arsenal of options available might easily be interpreted as — at minimum — silent complicity with human rights violations.