Should a Parent Company Take a Hands-Off Approach to the Human Rights Risks of Its Subsidiaries?

By Sherman, John F. | Business Law International, January 2018 | Go to article overview

Should a Parent Company Take a Hands-Off Approach to the Human Rights Risks of Its Subsidiaries?


Sherman, John F., Business Law International


There is a global expectation that business should respect human rights. This expectation applies to all business enterprises, however structured, and wherever located. It includes groups of companies that operate as single economic units through legally separate parent companies and their subsidiaries located in different countries. One challenge for corporate counsel is to align this expectation with the separate legal status of parents and their subsidiaries.

In this context, corporate counsel for such groups are sometimes asked this question: how involved should a parent company become in the operations of a subsidiary that may pose a risk to human rights? Answering the question requires appreciating the full context of all the risks that may flow from taking such a position. In most cases, taking account of all circumstances, the legal and non-legal risks of taking a hands-off approach are likely to outweigh any benefit. To the extent that residual human rights risks remain, company lawyers can take positive steps to avoid or mitigate them by helping their clients reduce the likelihood of involvement human rights harm.

UN Guiding Principles on Business and Human Rights

To provide background, one first must understand the role that human rights risks now play in contemporary business decision-making. In 2011, the UN Human Rights Council unanimously endorsed the UN Guiding Principles on Business and Human Rights (the 'Guiding Principles'), following six years of multi-stakeholder consultation, pilot projects and research.1 The Guiding Principles have become the global standard on business and human rights. They provide 'a blueprint for the steps all states and business should take to uphold human rights'.2

The Guiding Principles comprise 31 principles, each with detailed commentary, based on three interdependent pillars: the state duty to protect human rights against abuse by third parties; the corporate responsibility to respect human rights throughout their operations and relationships; and the right of victims to effective state and non-state remedy.

Pillar I, the state duty to protect human rights, is grounded in the legal duty of states under international treaties and instruments through effective policies, legislation and adjudication.

Pillar II, the corporate responsibility to respect human rights, expects that companies will adopt and embed public human rights policies, will conduct human rights due diligence to identify and address their involvement in human rights harm and will remedy harm that they have caused or contributed to. This does not, by itself, create legal duties for companies; rather, it is based on an expectation of global society. Nevertheless, the responsibility to respect does not exist in a law-free zone, and even before the Guiding Principles it was reflected to varying degrees in the laws of most countries.

Pillar III, the need for access to effective remedy, recognises that both states and companies have a role to play in providing remedy for human rights harm. The state role is foundational; states are expected to reduce barriers to accessing remedy, including through both judicial and non-judicial mechanisms.

The uptake of the Guiding Principles has been swift and widespread.3 They are reflected or incorporated in laws and regulations, government policy developments, international standard-setting bodies, public commitments by businesses to abide by the Guiding Principles and the increasing use of the Guiding Principles in judicial and public advocacy by civil society. A recent example among many is the 8 July 2017 reference by the G20 leaders to the Guiding Principles as a core standard to be used in achieving sustainable global supply chains.4

Companies can adversely affect all human rights. Examples include infringements of the right to education (when children work in the field all day), the right to water (when community water supply is polluted), the right to decent work conditions (when workers are exposed to excessive heat or hazardous chemicals) and the right to be free from non-discrimination (when women workers are harassed), to name a few. …

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