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Opinion

How to eradicate human rights abuses? Change the corporate model

This article is part of our Rethinking Corporate Governance blog series

Over recent decades the human rights community has exerted itself trying to reduce and remediate corporate human rights abuses: negotiating binding treaties, litigation, pushing for transparent supply chains, and so on.  

But despite some progress, corporate human rights violations continue. Could part of the problem be that, in all our efforts, we haven’t yet tried to change the heart of the problem: The corporation itself?

Until we recognize that corporate governance and ownership, as dry as they might sound, are critical human rights issues, I fear we will remain in an exhausting ‘whack-a-mole’ situation: endlessly responding to abuses, but never addressing the incentives and decision-making structures that cause them. If we really want businesses to operate equitably, then they need to be governed and owned equitably.

Right now the small proportion of the world’s population who either hold significant shares in large corporations or sit on their boards are completely divorced from the on-the-ground environmental and human rights consequences of a company’s decisions.

The toxic chemicals from a manufacturing plant pouring into a town’s river, or discrimination against migrant workers in the factories of their suppliers, are issues these stakeholders may never witness or experience. They do not feel the human or environmental toll of squeezing margins or producing faster, cheaper, more.

This, combined with the fact that boards are generally legally prohibited from placing community or societal interests above shareholders, means a corporation’s decision-makers are not well-situated to consider the human rights impacts of their business operations on affected communities.

Instead, companies are incentivized—and often obligated—to make whatever decisions will maximize shareholder profits, without sharing those returns with workers or affected communities. This has caused extreme economic inequality (a human rights problem in itself)  between those who own or run companies and those who do not.

But what if a company was legally accountable to the people and communities who are affected by its decisions, as it is to shareholders? What if a business shared its profits with those who help generate them, or with those who are impacted by its activities? What if workers could democratically vote for the corporate leadership they believed would respect labour rights and provide sufficient economic returns for them?

For too long, companies have been called ‘ethical’, ‘fair’ or ‘responsible’ simply for taking steps to address a particular issue: sourcing responsibly or becoming carbon neutral. But these efforts, while laudable, are only piecemeal. Nor does the rising rhetoric around the “purpose of the corporation” offer the deep structural reform needed to redress today’s unequal society.

We need a different framework, one that doesn’t ask whether a company’s practice or products are ‘ethical’, but whether its governance and ownership are ‘equitable’.  This could be determined by two criteria:

1. Whether the company is legally and operationally accountable to the workers, communities and other stakeholders who are affected by its decisions.

For example, through democratizing workplaces so that workers elect their boards or governing bodies, and by changing fiduciary duties to include responsibilities to affected communities; and

2. Whether the company shares its ownership and benefits with the people who create corporate value or who absorb the impacts of corporate behavior, such as workers and local communities.

The ideas behind these two criteria - which are at the heart of ‘Equitable Entities’, my Open Society Fellowship project - might be unfamiliar, but they are not new. They draw on the principles underlying co-operativism, which date back more than 250 years.

Alternative economic paradigms such as the Just Transition, Solidarity Economy, new economy and localism have also been nurturing community-based economic entities that start with and transcend these criteria.

Examples include Mondragon, a €12 billion operation in Spain that has 75,000 workers; the acclaimed Evergreen Cooperative Initiative model and the 2,000-person Cooperative Home Care Associates in the United States; and countless thriving cooperatives in the Global South.

But what would be new is if human rights advocates (both inside and outside of companies) also pushed for more equitable entities. What if litigation or negotiation around allegations of corporate abuse included lawyers collaborating with communities to understand if they prefer ownership or governance stakes in the entity, rather than defaulting to seeking damages?

If companies invited workers or community trustees onto their boards or local governance committees, and directly shared profits with them? If we called on socially responsible investment funds to put these governance and ownership principles at the center of their investment criteria? If we advocated for legislative reform that incentivized or mandated these models?

Such change will not be easy. There are deep hurdles: legislative barriers, access to capital, lack of awareness or education around alternative models, the need for more research and innovation, and for us to listen to communities and those with lived experience about how to make these changes work.

But if we do not soon join these movements in promoting alternative economic governance and ownership models, we may find ourselves complicit in perpetuating the root cause of corporate abuse.

For more visit: www.equitableentities.org