THE SILENT CONTRACT: CORPORATE DUTY AND THE HUMAN RIGHTS MANDATE

ABSTRACT

This paper looks at the broad spectrum of fallouts that firms befall as they breach corporate responsibility and human rights policies. In a time that marks the steady vigilance of governing bodies and being the socially conscious citizens, non-compliance thwarts the efficiency of a company and also destroys the reputation, financial performance of its growth prospects as well as the long-term sustainability. The focus is on the three main areas of concern: legal liability, financial and reputational consequences as well as regulatory sanctions.

The main and the most significant threat of any legal nature is likely to derive from the fact that companies are open to be sued by people who have got damaged, communities or even the government. These legal measures can also cost a business a lot of money by making them bear the costs of compensating and penalizing the affected individuals. Similarly, a legal suit through which the companies have to spend a great deal of money and time has thus been added to the list of the consequences. The paper sheds light on the fact that by showing human rights flaws such as poor protection from forced labour and lousy work conditions you can invite a flood of lawsuits that go beyond the organization’s economic capacity and lead to long-term damage of its reputation.

Also, the report tackles the financial and reputational aspect of the human rights violations. In today’s world where consumer regulation and investor faith are the dominant factors, announcements about breaches can cause huge and devastating effects to any business. The investigation underlines the fact that such losses can, in turn, be further exacerbated by the more lasting reputational damage, which is more elusive to fix.

Finally, the paper is delving into the subject of regulatory sanctions, which the governments of the countries globally are seen to have implemented stricter measures for the enforcement. It is likely that companies that do not adhere to their human rights commitments are going to suffer penalties if fines or operational restrictions are imposed or they are banned from key markets.

KEYWORDS

Human Rights, Corporate Governance, Legal Liability, Reputational Impact, Regulatory Sanctions, Compliance, Financial Penalties, Sustainability, Risk Management, Stakeholder Engagement.

INTRODUCTION

In the contemporary landscape of corporate operations, the intersection of human rights and corporate governance has become increasingly pertinent. Companies today operate under a range of legal obligations that demand adherence to both human rights principles and governance standards. These obligations are not only essential for ethical operations but also play a crucial role in risk management, corporate reputation, compliance, and social responsibility.

The relevance of this topic has grown as businesses face heightened scrutiny from stakeholders, including investors, regulators, consumers, and civil society. Globalization has expanded corporate influence and responsibilities, pushing companies beyond profit-making to addressing social and environmental impacts. High-profile scandals and increasing awareness of corporate complicity in human rights abuses have underscored the necessity for robust governance frameworks that embed human rights considerations.

Furthermore, legislative developments such as the United Nations Guiding Principles on Business and Human Rights (UNGPs) and mandatory due diligence laws in several jurisdictions have solidified the imperative for companies to respect human rights throughout their operations and supply chains. With climate change, labour rights, and digital privacy emerging as critical areas of concern, the relevance of integrating human rights into corporate governance cannot be overstated.

This article explores the legal frameworks governing these obligations, their implications for corporate governance, and the consequences of non-compliance, highlighting the growing significance of human rights in the corporate world. Companies that fail to align their practices with these standards risk legal penalties, reputational damage, and the erosion of stakeholder trust, while those that embrace these obligations can unlock long-term value and sustainable growth.

UNDERSTANDING HUMAN RIGHTS IN BUSINESS

Human rights are a collection of broad freedoms and entitlements that belong inherently to each person. These rights include the right to life and security, the prohibition of torture and inhumane treatment, the right to work under fair and equitable conditions, the right to privacy and family life, and the right to freedom of expression and assembly. These basic principles are essential to the dignity and well-being of individuals and have increasingly become central to the operational frameworks of businesses around the world.

The interconnected nature of modern business operations has amplified the potential impact companies can have on human rights. For example, labour practices directly affect the rights of employees, especially in relation to workplace safety, equitable remuneration, and non-discriminatory environments. Similar risks of human rights abuses arise in supply chain management: for example, working conditions or exploitative labour practices in supplier operations. Moreover, how businesses interact with customers and the communities in which they operate can significantly affect rights related to privacy, access to resources, and environmental justice.[1]

The intersections between these are recognized, and the United Nations Guiding Principles on Business and Human Rights adopted in 2011 have emerged as the backbone of responsible enterprise in this terrain. The “Protect, Respect, and Remedy” frame of principles is a guiding light and standards for the businesses operating worldwide.[2]The framework clearly outlines the roles and responsibilities: states are responsible for protecting individuals from human rights violations, businesses are responsible for respecting these rights, and both have a responsibility to provide remedies when violations occur.

In that sense, corporate responsibility to respect under the UNGPs demands that the operations of the businesses do not infringe the rights of individuals or communities either directly or through the chains of supply. The process thus is proactive: carrying out human right’s due diligence in an attempt to identify, prevent, mitigate, and account for actual and potential adverse impacts on people. Due diligence, in such contexts, refers to interactions with the concerned stakeholders in identifying risks and monitoring practices followed as well as applying remedial actions wherever appropriate.

The importance of mainstreaming human rights considerations within corporate governance cannot be understated. Many cases of high-profile corporate involvement in human rights violations, ranging from forced labor in supply chains to privacy violations on digital platforms, demonstrate a critical imperative to ensure such strong governance mechanisms which are truly people-centered. More importantly, the companies failing in these aspects will not only have to deal with heavy penalties, both financially and legally, but will also lose face in the world, losing all trust from its stakeholders.

Integrating human rights into business practices is no longer just a legal or ethical obligation but rather a strategic imperative in today’s interconnected and socially conscious world. By aligning operations with the UNGPs and other international standards, companies can build trust, improve their reputation, and contribute to sustainable development. This way, they become leaders in responsible business conduct, ensuring long-term value for their stakeholders and the communities they serve.

LEGAL FRAMEWORKS AND REGULATIONS

International Instruments

Several international treaties and conventions establish the basis of human rights obligations. These acts serve as fundamental documents that provide the basis of influence for both corporate governance and regulatory frameworks all over the world. One of the most fundamental instruments is the Universal Declaration of Human Rights adopted by the United Nations General Assembly in 1948. The declaration provides fundamental human rights that ought to be universally protected, giving rise to international standards on global human rights standards.

Another important instrument is the International Covenant on Civil and Political Rights (ICCPR). This covenant obligates signatory countries to respect and ensure respect for the civil and political rights of individuals, which is an important aspect of these rights in the conduct of business.[3] Similarly, the International Covenant on Economic, Social and Cultural Rights (ICESCR) focuses on rights concerning health, education, and standard living, which are essential considerations for corporate governance.[4]

Sector-specific frameworks, such as the International Labor Organization (ILO) Conventions, emphasize labor rights issues, including forced labor, child labor, and workplace discrimination. Such conventions are particularly important for companies with more complex supply chains or operations in regions with less robust labor protection. Together, these instruments provide a robust foundation for holding corporations accountable for respecting human rights.

Such frameworks become all the more significant in the wake of landmark cases, which establish growing accountability on the part of businesses under international regulations. The case of Shell Nigeria Case 2020 by the Dutch Supreme Court against Shell serves as a classic example of holding the parent entity liable for environmental damage caused by the subsidiary in Nigeria.[5] This principle, extraterritorial accountability, focuses on the accountability of corporations regarding human rights violations outside their immediate jurisdictions.

Likewise, France’s Duty of Vigilance Law of 2017 has created tremendous legal problems for multinational firms. Notable case in point is the case of TotalEnergies, which was sued for failing to prevent human rights and environmental harm as part of its foreign operations. The law requires that companies inculcate due diligence practices that flow from a larger push towards the enforcement of corporate accountability for human rights and environmental effects.[6]

In any case, what these shows are that corporations turning a blind eye to their obligation about human rights also face significant negative reputational consequences and heavy monetary losses in legal terms. Hence, regulatory shifts make alignment with international standards crucial for businesses regarding sustainable and socially responsible practices of business.

National Legislation

In India, corporate accountability for human rights is mainly guided by various national laws and policies that align with global human rights principles. The Companies Act, 2013, mandates that certain companies spend a percentage of their profits on Corporate Social Responsibility (CSR) activities, many of which are aimed at addressing social and environmental issues. This has resulted in a formalized process through which enterprises can support the well-being of societies by ensuring that their activities meet wider human rights requirements.[7]

Not least, Indian labor laws of the Factories Act, 1948, and the Minimum Wages Act, 1948, see to the companies’ compliance with regulation mainly related to worker safety, adequate compensation, and no less, fair treatment. These laws promote effective safety and security for workers, observing standards and equality of opportunity.

India’s Child Labor (Prohibition and Regulation) Amendment Act, 2016, further reflects its commitment to human rights, particularly the prohibition of the exploitation of children in the workforce. Businesses operating in India are expected to ensure compliance with these regulations to prevent child labor in their operations and supply chains.[8]

Another aspect of responsible business practices that the government emphasizes is the National Guidelines on Responsible Business Conduct, which serves as a framework for companies to integrate social, environmental, and governance (ESG) considerations into their strategies. This encourages businesses to respect and promote human rights and, through due diligence, identify and mitigate risks related to human rights.[9]

High-profile cases such as the violations of tribal rights by mining companies in India focus attention on how important it is to have the right mechanisms in place for corporate governance. For instance, companies are being scrutinized concerning their operations around Odisha and Chhattisgarh with regard to displacing indigenous communities and seeking free, prior, and informed consent (FPIC). Thus, business activities need to conform to human rights principles to avoid being penalized on legal and reputation grounds.

Industry-Specific Regulations

Specific regulations in the extractives, textiles and agribusiness sectors have to be handled differently by industry by providing the necessary oversight to eliminate the human rights and environmental risks. These sectors frequently encounter problems such as land conflicts, labour exploitation, and ecological damage, so the only way to solve the problem with rigorous due diligence, transparent reporting, and stakeholder engagement. One of the international standards that includes the OECD Guidelines, the UN Guiding Principles, and ILO conventions that give a detailed way that the business should be responsible and conduct itself. Organizations are supposed to create self-reliant risk assessments and the third parties should audit, producing timely evidence of correct behaviour and balances between financial pressures and long-term sustainability. The said rules by the authority’s institute accountability, protect the vulnerable communities, and promote sustainability, thus bringing about faster and ethical practices in such industries.

CORPORATE GOVERNANCE PRINCIPLES

Corporate governance is the system by which companies are managed and directed, ensuring a good balance between the interests of shareholders, management, and other stakeholders. It implies the creation of policies, practices, and standards of responsibility which would encourage the transparency, ethical conduct, and also effective control. A well-established good corporate governance system guarantees responsible and sustainable company operation as well as protecting the interests of stakeholders.

Board Responsibilities

The duty of care and diligence is one of the key responsibilities that companies have under the corporate governance frameworks of the corporation, and they are owed to it, and to its stakeholders as well. The board of directors is the governing body that is responsible for oversight of the company’s operations and ensures that the decisions are in accordance with its long-term goals and values. In addition, this duty extends to the protection of the company’s reputation, the management of risks, and the upholding of ethical standards.

Over the last decade, there has been an increasing trend of including human rights perspectives in governance frameworks as part of the directors’ new responsibilities. The process incorporates assurance that the company applies policy measures and good practices to protect human rights and to avoid their abuse. Directors are obliged to realize the effect that human rights abuses may have on the company’s operations, reputation, and its relationship with stakeholders, and thus, to confront these issues head-on becomes the matter of utmost importance.

Human rights due diligence should be increasingly integrated into the risk assessment processes of the directors. This means the identification of risks in supply chains, operations, and markets where the company operates. For example, such a company would have to conduct probing examinations of suppliers along with setting stringent value-based criteria to thereby prevent or even eradicate fatal exploitation from occurring, e.g., by putting sufficient labour in place, by making the working environment clean and safe, and by avoiding the displacement of communities. Thus, the board’s move to develop human rights policy-making and operational procedures ensures that these considerations become the focus of the company’s activities and strategy.

POLICY DEVELOPMENT AND IMPLEMENTATION

Companies are increasingly recognizing the importance of developing and implementing policies that reflect their commitment to human rights. These policies not only demonstrate ethical leadership but also help manage risks, build trust, and comply with international standards. Effective human rights policies serve as a framework for ensuring that all business activities align with ethical and legal expectations.

Human Rights Due Diligence

The establishment of human rights due diligence is a key factor when it comes to the proper execution of policies. The latter is a set of regulated methods to identify, prevent, control or account for potential or actual human rights risks the company can be met during its operations and supply chains. Also, they need to take part in the process of impact assessments to observe the different outcomes that shall be caused by the business gesture in case of workers, communities, and other stakeholders. Mitigating potential threats and addressing issues before they escalate is the parallel effect of the company to prevent negative consequences, liabilities, and to keep the flexibility of the operations. It is the openness factor in this set of courses that includes the example of performance, especially when these are reported to the public and the details are published about the steps that have been taken as well, and the accountability becomes visible.

Training and Education

To successfully execute this policy, companies need to provide employees with the requisite knowledge and tools so that they should all be able to be accountable refuting human rights violations. It is normal for most businesses to the top to the bottom to stick to the company’s commitments that are taking care of human rights and their responsibilities. These programs often prove to be role-playing games that allow employees to become aware of and respond to likely human rights issues among other things. Training has the added benefit of putting in place a culture of responsibility that lends a hand in making ethical practices a shared value within the organization.

Stakeholder Engagement

To interact with the stakeholders, and above all those who are perhaps directly affected by the operations of the company, is a very important goal of policy-making as the policies will be then, both informed and impactful. To do this, pickup discussions with the community members, employees, suppliers, or the human rights societies can help to identify the problems and get different views. In this respect, the active conversation points out that a policy not only meets the international standards but also fits the local conditions and the specialization of the risks. Also, it adds trust with the community and thus seems the company has a social license to operate. When taking input from these dialogues is added to the policy-making and application, a recurrent leap of progress is made, this is to ensure that the policies still provide essential assistance and are still fruitful.

Reporting and Transparency

Reporting mechanisms have become integral to corporate governance. Stakeholders—ranging from consumers to investors—now demand transparency regarding how companies address human rights issues. Reporting frameworks, such as the Global Reporting Initiative (GRI) and Sustainability Accounting Standards Board (SASB), help companies disclose their human rights impacts and governance practices. Moreover, several stock exchanges now require listed companies to disclose their human rights policies and practices, thereby increasing accountability.

Consequences of Non-Compliance

Companies can suffer devastating effects when they do not observe human rights and corporate governance standards. These negative consequences are not restricted to merely economic penalties but include the image of the company, relations with stakeholders, and finally, the company’s existence itself. With increased vigilance among stakeholders and regulators, non-compliance poses a tremendous danger.

Legal Liability

Non-compliance with human rights standards may have legal consequences for companies. Mostly, affected individuals, communities, or public authorities can sue the companies that either do not recognize human rights abuses or do not take necessary measures to eliminate them. In such instances, companies can be enforced with substantial monetary fines, which could include payments to the victims or be imposed on them as punishment, as well as legal fees. Contingent to supply chain misdeeds such as the employment of forced labour or the presence of disgraceful working conditions class actions can be filed or the local authorities can prosecute the corporate entities in question. Besides financial implications, companies’ liability to lawsuits usually attracts a lot of media attention, resulting in reputational damage.

Financial and Reputational Impact

A company’s reputation could be seriously damaged as a result of their breaching human rights, which can be an irreparable act. In today’s open-minded world, the different people such as buyers, investors, and the other involved parties are showing a keen awareness of the ethical implementation of the business. The news of the incident of breaking the law can be followed by a loss of customers’ trust and an investor’s withdrawal which would directly affect the company’s revenues and share value. These social media events increase awareness across a broader audience, with the resulting backlash being swift. Such companies fail to resolve these problems quickly, which means that they face the risk of huge customer loss and as a result, may also lose their share of the market.

Regulatory Sanctions

Today governments and regulatory bodies from most countries have become more proactive in executing the human rights laws. Companies which do not meet the set requirements may be subject to sanctions, which is different than fines, e.g. on operations through designation or exclusion from the participation in public procurement or designated markets. One of the laws that the UK Modern Slavery Act or the EU Directive on Corporate Sustainability Due Diligence, for example may apply strict requirements on companies to identify and deal with human rights risks. Disobedience of such laws may bring not only penalties but possibly drive away from the business after disrupting normal procedures due to, for instance, the solidarity of a company being unable to operate in various regions.[10]

Broader Implications

CONCLUSION

The legal obligations of companies regarding human rights and corporate governance are evolving as social expectations shift, regulatory frameworks develop, and stakeholder demands intensify. As businesses navigate this complex landscape, they must prioritize human rights as an integral component of their governance structures. By embracing their responsibilities, companies can enhance their operational integrity, protect their reputation, and contribute to a more sustainable and just global economy. The convergence of legal requirements, ethical imperatives, and stakeholder interests underscores the importance of integrating human rights into all facets of corporate governance. In doing so, companies can position themselves not only as better corporate citizens but also as resilient and forward-thinking entities poised for long-term success.

REFERENCES

Legal Vidhiya, LEGAL OBLIGATIONS OF COMPANIES REGARDING HUMAN RIGHTS AND CORPORATE GOVERNANCE, https://legalvidhiya.com, January 30, 2025
CII, CII Advisory on Business and Human Rights, https://www.cii.in, January 31, 2025
United Nations Global Compact, The Ten Principles of the UN Global Compact, https://unglobalcompact.org, January 30, 2025
Tax Guru, Legal requirements & Ethical obligations in Corporate Social Responsibility, https://taxguru.in, January 30, 2025
42 Lawyers, Corporate Governance and Human Rights: Ensuring Ethical Business Practices, https://42lawyers.com, January 31, 2025
mondaq, Human Rights Obligations of Companies: International Regulation and Shifts in Focus, https://www.mondaq.com, January 31, 2025

[1] SOURCE INTELLIGENCE, Human Rights Regulations and Their Business Impact, https://blog.sourceintelligence.com, January 27, 2025

[2] United Nations Development Programme, United Nations Guiding Principles on Business and Human Rights, https://www.undp.org, January 28, 2025

[3] OHCHR, International Covenant on Civil and Political Rights, https://www.ohchr.org, January 29, 2025

[4] OHCHR, International Covenant on Economic, Social and Cultural Rights, https://www.ohchr.org, January 29, 2025

[5] CNN, Shell escaped liability for oil spills in Nigeria for years, https://edition.cnn.com, January 29, 2025

[6] Business & Human Rights Resource Centre, France: Landmark ‘duty of vigilance’ case against TotalEnergies over human & environmental rights impacts of EACOP dismissed on procedural grounds, https://www.business-humanrights.org, January 30, 2025

[7] Tax Guru, Applicability of Corporate Social Responsibility – Companies Act 2013, https://taxguru.in/company-law, January 30, 2025

[8] S & P, Child Labour (Prohibition and Regulation) Amendment Act, 2016 of India, https://singhania.in/blog, January 30, 2025

[9] India Fillings, National Guidelines on Responsible Business Conduct, https://www.indiafilings.com, January 30, 2025

[10] Sedex, How to Comply with the UK Modern Slavery Act: Requirements for Businesses, https://www.sedex.com, January 29, 2025

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