How should businesses interact with the rule of law?

Timothy Hansen, Advocates for International Development (A4ID)

The UN Global Compact’s Business for the Rule of Law (B4ROL) initiative should be supported, but requires clearer objectives and transparency.

We’ve recently heard strong arguments in global media to end tax secrecy, based on the rule of law. While the negative impact of tax evasion on the rule of law is being exposed, the UN Global Compact (UNGC) is encouraging business respect and support for this ‘rule of law’ space through the B4ROL framework. 

B4ROL refers to the rule of law as the vehicle for the promotion and protection of human rights. However, it does not clearly define the rule of law, although it does touch on several dimensions that indicate a broad preference for formal legality, while maintaining ‘consistency with international human rights standards and norms’.

As B4ROL expands, it will set new standards for businesses, and increase awareness of the rule of law concept in the business world. It will inevitably take the high ground, set expectations and become a point of comparison. A ‘strong rule of law’ is specified as including clear, fair and predictable laws, protection of investments, contractual rights and legal identity. B4ROL states that its purpose is to support the building and strengthening of legal frameworks and promote more accountable institutions. Clarity around property, including intellectual property and contract rights, are highlighted several times. But whilst these issues are undoubtedly important, they must be weighed against others and they do not encompass the totality of the rule of law.  Notions of individual rights, democracy or broad political participation are notably absent from these top ranking concerns. 

The concept of the rule of law put forward by B4ROL is not the same definition and prioritisation of elements that is often considered necessary for development. More importantly, although the connections between rule of law, democracy and development are becoming clearer, the viability of methods to promote the rule of law remains contested. The entry of business into this swirling mix must be approached with caution.

Business ‘respect’ under the framework includes activities such as ‘complying with tax laws and policies’. This concept of ‘respect’ is similar in many ways to the approach taken by the United Nations Guiding Principles on Business and Human Rights (‘UNGPs’). As with the UNGPs, the role of business is to ‘respect’ rather than ‘protect,’ and the distinction between state and business becomes blurred when private corporations start to provide the ‘traditional’ services of the state such as legal infrastructure, health and education.

Such an approach to respecting the rule of law is challenging, as the constituent elements of the norm are even less tangible than human rights. Human rights under the UNGPs are limited to ‘internationally recognised human rights.’ Under B4ROL, the constituent elements of the rule of law are not clear, leaving participants with plenty of room to manoeuvre.

The B4ROL and UNGP frameworks both contemplate direct causation and linkage as part of ‘respect’ for the rule of law and human rights respectively. In contrast to ’traditional’ labour and environmental violations, many of today’s corporate abuses involve partial contribution to negative net effects. When a corporation engages in tax abuse they are depriving a government of the funds required to fulfil their human rights and rule of law obligations. When a corporation emits climate damaging pollutants, they are contributing to a cumulative net effect that also impacts human rights through displacement and impact on agricultural livelihood. A broader conceptualisation of social impact causation is needed in order to face these challenges.

The ‘support’ aspect focusses on voluntary actions to complement ‘respect’. This leg of the framework outlines support activities that could be undertaken through core business activities, strategic social investment and philanthropy, partnerships and collective action. The framework mentions that businesses could work with others to ‘identify rule of law gaps and needs at the local level, and join forces to take action to help address them in ways that make sense for them.’ Specific actions suggested include:

  • ‘bolstering judicial training’
  • loaning staff to governments to help ‘support the drafting and implementation of law reform proposals.’

Business involvement in building legal frameworks could easily be blurred with business involvement in designing legal frameworks. This intermingling of actors and functions is sufficiently alarming to give pause. The potential for abuse demands that stringent precautions be taken by host governments and businesses themselves. It is difficult to comprehend a business undertaking a legal ‘support’ activity that would act against its own bottom line.

The ability of corporations to assist the struggling legal infrastructure of countries that are short on both cash and expertise should not be dismissed out of hand. Several great initiatives have taken place, mostly through separate non-profits or umbrella organisations. However, such ‘support’ initiatives by businesses must be secondary to business ‘respect’ for the rule of law. Effort would be better expended in enhancing and extending corporate ‘respect’ to payment of fair wages, fair corporate taxes and efforts to align operations with both the letter and spirit of the law. Fair tax revenues could then be used directly and democratically to create required legal infrastructure. The role of business in this regard is to ‘respect’ the social process.

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Contact Tim Hansen on [email protected] or visit Advocates for International Development.

This blog represents the views of the author and does not represent the views of A4ID.