Compliance is complex for charting human rights concerns

By Michael R. Malone

Compliance is complex for charting human rights concerns

By Michael R. Malone
University of Miami law and business experts highlight the impact of human rights audits and other reputational and operational factors that are driving a new geopolitical corporate responsibility.

In mid-July, Meta released its first Human Rights Audit. The report, conducted by the tech conglomerate’s law firm Foley Hoag, summarized the business operation, but glossed over details of how Meta’s Facebook platform was rife with online abuse that fueled violence—especially in India, the company’s largest global market. Amazon’s recent human rights audit has been likewise criticized for omitting details about workplace discrimination, challenging conditions, and other irregularities. 

Tensions between commerce and human rights have existed since the beginning of time, yet human rights audits are relatively new to the business field. These compliance indicators will continue to gain in importance as companies navigate the complex geopolitical terrain and are influenced by environmental, social and governance (ESG), according to Marcia Narine Weldon, a lecturer in the University of Miami School of Law, and Valeria Alterman, assistant professor of management in the Miami Herbert Business School. 

Weldon, a compliance specialist, highlighted that the absence of laws requiring these types of audits and specific guidelines dictating what must be disclosed create a minefield of complications. 

“Companies are required under various rules and regulations set by the government, their board of directors, accounting standards, the Securities and Exchange Commission, etc., to conduct financial audits that comply with accounting principles,” explained Weldon, also faculty coordinator of the Business Compliance and sustainability director of the Transactional Skills Program. 

She noted that companies conduct a range of other audits to prevent against bribery and corruption or to ensure that proper working conditions such as pay are being met within employment law.

“Yet then there are audits, such as for human rights, that companies will do on their own so that if they are in trouble with the government, they can prove that they did the due diligence to know if something was wrong and to right it if something was found,” she added. 

In addition to external factors increasingly influenced by geopolitics—for example the many companies that have distanced themselves from Russia because of the invasion of Ukraine—employees are increasingly perceptive of their company’s performance as it relates to human rights, the climate crisis, economic inequality, racial justice, and other social issues, according to Alterman, whose research explores what firms do voluntarily to help older workers continue working. 

“It’s not just compliance. But also if there’s a lack of compliance or coming short of a goal, employees want to know that their company is going to do something about it,” said Alterman. 

She highlighted that many workers closely identify with their companies. 

“When we say who we work for as an organization, it carries a lot of weight,” Alterman said. “Younger workers particularly want to be aligned with their personal attitudes toward a topic like ESG corporate governance and human rights compliance. 

“And if we work for a company that is not ethical, that is not meeting those goals, that is coming up short of what they said they’d do, it’s a sense of embarrassment for us and it creates this dissonance—how am I going to present myself as such a ‘proper person’ if I work for a company that is in the news every other week?” she asked. 

Weldon said that global business operations are especially complicated in terms of audits and compliance. 

“The problem is that there are no requirements, only guidelines and disclosure requirements from certain governments, some of which just say, ‘let us know if you’re doing an audit and if not, let us know why,’ ” she explained. 

The U.S. government requires human rights due diligence regarding human trafficking, forced labor, and other areas. The problem with this “comply and explain” approach for companies, Weldon pointed out, is that different countries have different rules about what’s mandatory. And these rules can often conflict. 

Another complexity is how and to whom these reports are communicated. 

“If you’re mining for certain minerals, for example, and you disclose [aspects of the operation], the question is: who’s reading the disclosures?” Weldon noted. 

Often the reports are designed to inform the investors and the public about what the companies are doing, but the public doesn’t even know [the reports] exist and most of the time doesn’t even read them if they do,” she said. 

Attention to human rights audits increased dramatically beginning in June 2011 when the United Nations Council ratified the UN Guiding Principles (UNGP) on Business and Human Rights guidelines for States (nation states) and companies, she added. 

In 2016, the Obama administration initiated the original U.S. framework and response to the principles as they relate to foreign policy. And the Biden administration is currently reassessing the U.S. national action plan, according to Weldon. 

She highlighted that many in the U.S. have an overly narrow perspective of human rights, believing that they solely concern issues of child slave labor in Botswana or some other remote sphere in the world. 

“Human rights are not just conditions overseas, but include how you pay your employees, how you treat your diverse employees, what diversity do you have on your board, how do you handle harassment complaints, are you anti-union, and, when COVID-19 came around, what kind of protective equipment did you provide?” Weldon pointed out. “That’s all human rights—it’s about what’s happening in the coal mines in Appalachia, too.” 

While the area of human rights audits is fraught with difficulty and complexities, Weldon suggested that they will become increasingly important in the years to come. 

“Companies now do a lot more in terms of human rights due diligence because of UNGP, even though they’re not necessarily required because it’s just good business,” she maintained. 

“You want to know if there are major issues going on at a business location or with your supply chain in another country,” Weldon said. “Human rights issues could lead to reputational issues or to attempts to sabotage your business, and that would lead to financial losses—that’s an enterprise risk that investors want to know about.”