A. Because, whether you work as an in-house lawyer or for a law firm as external legal counsel, your employer has a responsibility, along with all business enterprises, to respect human rights.
“The responsibility to respect human rights requires that business enterprises: (a) avoid causing or contributing to adverse human rights impacts through their own activities, and address such impacts when they occur; (b) seek to prevent or mitigate adverse human rights impacts that are directly linked to their operations, products or services by their business relationships, even if they have not contributed to those impacts.”
UN Guiding Principles on Business and Human Rights, Guiding Principle 13.
A. Because human rights risks can create legal, commercial, financial and reputational risk for companies.
What are human rights risks?
The term “human rights risks” when used in this handbook refers to the risk of an adverse impact on the ability of people to enjoy their internationally recognised human rights which is either caused by, contributed to, or directly linked to the business activities of a business enterprise.
To find out more about human rights standards click here.
See further OHCHR, ‘The Corporate Responsibility to Respect Human Rights: An Interpretative Guide’
Legal risks will depend on a range of factors, including prevailing regulatory standards, the potential for private law (also referred to as “civil”) claims and the prospect of enforcement.
The level of reputational risk faced by a business enterprise as a result of poor human rights standards or performance may depend on the extent to which the business invests in, maintains and benefits from valuable stakeholder relationships (such as (a) with the public for a “consumer facing” business, or one with a recognisable brand (or brands), or (b) with its investors or financiers).
Serious financial consequences may be connected to legal risk (e.g. in the form of a potential investigation or fine, or damages award or financial outlay to remedy and prevent future harm). Serious financial consequences may also result from reputational damage (e.g. lost future sales and/or business opportunities following adverse press coverage). Business enterprises should also be aware of the potential for access and maintenance of capital and funding to be impacted by human rights risks.
There may also be adverse commercial consequences for a business enterprise, such as:
an adverse impact on the ability of the business enterprise to secure equity financial support or investment from development finance institutions, or multilateral organisations, or sovereign wealth/pension fund investors, especially those with strict environmental, social and governance criteria;
loss of eligibility for government or private procurement contracts; or
difficulties securing support from governments, for example in the form of development finance or export credit guarantees.
As a corporate/M&A lawyer, you have a key role to play in identifying, analysing and addressing human rights risks arising from or connected with your clients’ activities and/or business relationships, both as a business participant yourself, and as trusted advisor to your business clients.
In fulfilling this role, you should bear in mind that human rights issues connected to, or arising from, your clients’ business activities may not be expressed, understood, or analysed by the client in human rights terms. Therefore, as part of your work as a legal practitioner, you should be prepared to explain the linkages between different compliance and risk management activities (both established and proposed) and the management of human rights risks.
For further information see here
A. Because a failure to identify and address human rights risks arising from or linked to the business activities of companies targeted for a merger or acquisition can have serious long term implications for the success of the merger or acquisition.
Anna Triponel, ‘What do Human Rights have to do with Mergers and Acquisitions?’
Steve Coll, Private Empire (Penguin Press, 2012).
A. Because, from the perspective of the UN Guiding Principles on Human Rights, the human rights responsibilities of a seller with respect to the target company, business and/or assets may become those of the buyer upon completion of the merger or acquisition.
Here, it is important to recall the distinction between legal, financial and contractual liabilities of companies (with which lawyers will all be familiar) and the concept of the Corporate Responsibility to Respect human rights which, as explained in the introductory sections to this handbook, is “a global standard of expected conduct for all business enterprises wherever they operate”.
While legal, financial, and commercial risks may be allocated and/or transferred contractually (see further the Practical Resources section below), the buyer’s human rights responsibilities under the UN Guiding Principles on Business and Human Rights cannot. This means that, from the perspective of the UN Guiding Principles on Business and Human Rights, the responsibilities for mitigating and remedying adverse human rights impacts that may have occurred prior to the sale or merger, but which continue or which remain unremedied at the time of completion, become the responsibility of the buyer or, in the case of a merger, the merged company (see for instance discussion exercise 2 below). As explained in the The Corporate Responsibility to Respect Human Rights, an Interpretative Guide.
“ … if an enterprise acquires another enterprise that it identifies as being, or having been, involved in human rights abuses, it acquires the responsibilities of that enterprise to prevent or mitigate their continuation or recurrence. If the enterprise it is acquiring actually caused or contributed to the abuses but has not provided for their remediation, and no other source of effective remedy is accessible, the responsibility to respect human rights requires that the acquiring enterprise should enable effective remediation itself, to the extent of the contribution. Early assessments will be important in bringing such situations to light.”
Extracted from OHCHR, ‘The Corporate Responsibility to Respect Human Rights: An Interpretative Guide’
For this reason, the The Corporate Responsibility to Respect Human Rights, an Interpretative Guide recommends that parties to a prospective sale and merger ensure that human rights due diligence forms part of the due diligence investigations, “beginning with an assessment of any human rights risks it is taking on” (see p. 38).
See further the Commentary to UN Guiding Principles on Business and Human Rights which states that:
“Human rights due diligence should be initiated as early as possible in the development of a new activity or relationship, given that human rights risks can be increased or mitigated already at the stage of structuring contracts or other agreements, and may be inherited through mergers or acquisitions.”
UN Guiding Principles on Business and Human Rights, Guiding Principle 17, Commentary.
For further information about the different ways that contracts can be structured to assist the parties better to identify, prevent, mitigate, manage and remedy human rights risks (and so meet their Corporate Responsibility to Respect Human Rights) see the Resources section below.
“Human rights due diligence” (in the sense used in the UN Guiding Principles) and “transactional legal due diligence” are important concepts in this handbook. For further information about these distinct (though inter-related) concepts see here