Multinational Corporations and Human Rights Compliance

Introduction: Human Rights in the Global Business Environment

Human rights have quickly become a polarizing and contentious issue in many developing countries. Elements such as working conditions, hours, benefits, and wages are now being highly scrutinized relative to global standards. A growing number of corporations have exploited lax rules and regulations in an effort to increase profitability at the expense of their workers. Both small and large companies have been found to exploit these legal loopholes for their own gain — from well-established brands such as Google to lesser-known companies such as Roche. In each instance, widespread abuse has resulted in the exploitation of workers, primarily in developing countries.

To mitigate these occurrences, a growing number of plaintiffs are filing foreign direct liability cases in the country in which the multinational is domiciled. Unfortunately, a vast majority of these cases have been dismissed. However, in each instance the company has adjusted its human rights policies to better reflect the higher standards of its country of domicile. As a compliance officer, I would ask the Board of Directors to adopt the human rights standards of their country of origin in order to avoid conflicts of interest and the temptation to adopt lesser standards to exploit workers elsewhere (Alston, 2005).

Globalization and Labor Exploitation in Developing Countries

As the Schrempf-Stirling and Wettstein article indicates, human rights violations are a byproduct of globalization. Many developing countries are seeking to open their markets to competition, foreign direct investment, and joint ventures. Countries including China, India, and Brazil are attractive to multinationals due to their large and growing middle classes. Currently, individuals in these economies earn very low incomes relative to their counterparts in developed countries — certain areas of India and Brazil see annual earnings of less than $5,000, and in parts of Africa and South America the figures are even lower.

As a means of growing their middle classes, developing countries have allowed businesses to invest within their borders in exchange for hiring native-born citizens (U.N. Centre for Human Rights, 2004). This arrangement has worked well for multinationals seeking to penetrate attractive new markets, while the host country gains access to products, goods, and services. In the case of China, the government has required foreign entrants to establish a Chinese joint-venture partnership. This was particularly advantageous for China, as it was able to acquire the product know-how needed to develop similar goods domestically. In certain instances, businesses have been known to outright steal the intellectual property of foreign companies with little to no repercussion.

Due to this wave of globalization, multinational companies sought to employ citizens within developing countries. These citizens — most of whom lived in poverty — were eager to accept low wages because those wages were still higher than what they could earn elsewhere in the local labor force (Brysk, 2009). Although the wages were higher by Chinese and Indian standards, they remained far below developed-world norms. This is essentially the crux of the human rights problem as it relates to multinational operations: the juxtaposition of developed-world labor standards with those of the developing world, and how that variance will be reconciled.

In countries such as India and China, workers receive wages that are stable and livable by local standards. Both cultures also have a strong propensity to save earnings, which has allowed many millions of citizens to enter the middle class and access high-quality goods and services from well-recognized multinational brands. On the surface, this appears to be an adequate trade-off. However, what has occurred in practice is the exploitation of workers in the pursuit of western profit ideals. As the Schrempf-Stirling article indicates, many companies that violate human rights standards are never found guilty but do ultimately change their policies. Nike is a prominent example of this dynamic at work.

Conclusion and Compliance Recommendations

BP, the oil and gas company, provides another instructive example. The company employed a large number of low-skilled foreign workers to boost profits and reduce wage costs, and it failed to adhere to safety and governance protocols, resulting in faulty equipment. The combination of inadequately trained cheap labor and defective equipment contributed to one of the largest oil spills in modern history, destroying surrounding ocean areas, coastlines, and the broader ecosystem. The damage to the brand and the environment has been lasting. Since the spill in 2010, BP's stock price has never fully recovered — trading near $60 before the disaster and around $20 in subsequent years — reflecting a sustained loss of confidence among investors, society, and the public at large. This same fate can befall any company that fails to maintain strong human rights protections.

In conclusion, the recommendation to the Board of Directors is for the corporation to leverage its expertise to establish a minimum standard of employment across all global operations. Adopting the human rights standards of the company's country of origin as a universal baseline will help ensure that violations are avoided and that the brand does not suffer the consequences described above. The Nike and BP cases both demonstrate how human rights failures can negatively impact a company's reputation, stock price, and long-term viability. Supported by the academic literature and the case analysis presented here, the establishment of firm-wide minimum standards is both an ethical imperative and a sound business strategy. For further context on international human rights frameworks relevant to corporate conduct, see the UN Office of the High Commissioner for Human Rights guidance on business and human rights.

Alston, Philip, ed. Non-State Actors and Human Rights. Oxford University Press, 2005.

Alston, Philip, and Frédéric Mégret, eds. The United Nations and Human Rights: A Critical Appraisal. Second Edition. Oxford University Press, 2014.

Bornstein, Erica, and Peter Redfield, eds. Forces of Compassion: Humanitarianism Between Ethics and Politics. SAR Press, 2011.

Brysk, Alison. Global Good Samaritans: Human Rights as Foreign Policy. Oxford University Press, 2009.

U.N. Centre for Human Rights. Human Rights: A Compilation of International Instruments. U.N. Doc. ST/HR/1/Rev.5, U.N. Sales No. E.94.XIV.1, 1994.