Parent company liability: Could discussions around a treaty prompt States to do what they have so far resisted?

Gabriela Quijano, Business and Human Rights Legal Adviser, Amnesty International

Supreme court

A treaty could force States to do what they will otherwise not do unilaterally; place an express duty of care on parent companies and reverse the burden of proof.

This blog is part of the debate blog series on the proposed treaty and its complementarity with the UN Guiding Principles. We believe that an inclusive and open debate is crucial to make sure these initiatives deliver for everyone, and that the business & human rights movement continues its 'unity in diversity'.

Of the many themes that came up for discussion at the first session of the Open Ended Intergovernmental Working Group to elaborate a legally binding instrument on business and human rights (the IGWG) in Geneva last month, I was particularly pleased to hear parent company liability raised numerous times.

The IGWG has come about partly as the result of calls from civil society organisations from around the world frustrated with the lack of tangible progress on corporate accountability. While the international endorsement of the UN Guiding Principles on Business and Human Rights (UNGPs) in 2011 was a major milestone in the long struggle to ensure that businesses respect human rights, very little has been achieved since, despite widespread acceptance and commitment by States to implement these principles. In particular, they have done little to embed concepts such as human rights due diligence in national legislation, or take measures to remove the existing, and now well-known, barriers to remedy.

One of these well-known barriers - which Amnesty International detailed in its 2014 publication Injustice Incorporated: corporate abuses and the human right to remedy - is the doctrine of “separate legal personality” or, as is more commonly known, the “corporate veil”.  As a result of this doctrine, a parent company who might own the majority or totality of shares in a subsidiary and have the ability to control it, cannot in principle be held liable for the harm caused by the operations of that subsidiary. If it could (or could more easily) be held liable, the threat of effective legal action would act as a powerful incentive for parent companies to put measures in place to prevent human rights abuses throughout their global operations.

It was encouraging that this issue was the subject of such interest during the IGWG’s deliberations, not only from some panellists and civil society groups but also from some States. Let’s hope this increased attention will help drive progress on the key reforms which States should implement to address the problem.

Firstly, parent companies should be placed under an express legal duty of care toward those affected by their global operations, the effect of which would require companies to undertake due diligence in respect of those operations. Additionally, in certain circumstances, there should be a rebuttable presumption that the parent company is legally responsible for the harm caused. If the alleged victims can prove the harm they have suffered, it should then be down to the parent company to prove that, in the particular case, it should not be liable. Unreasonable? Not at all. It would be entirely reasonable and fair to place on the party most able to obtain and present the relevant information the burden of doing so in order to demonstrate that it should not be held liable.

These issues have gained in prominence in the last few years and importantly, they have been the subject of two unprecedented legislative initiatives this year.

In March the French National Assembly adopted, on first reading, a bill imposing environmental and human rights due diligence obligations on large French companies with regard to the activities of their subsidiaries and subcontractors.

Once the law is in effect, judges will be able to require these companies to publish their due diligence plans and to report on how they have implemented them, and impose fines for non-compliance.  Victims of serious human rights violations in the value chain will also be able to bring civil claims against French parent companies in French courts, and obtain a remedy if they can prove that the injury they suffered is linked to the company’s lack of vigilance. The scope of the law was narrowed significantly during negotiations over the draft but it is the first of its kind and we hope one that will mark the way ahead for other States.

The same month, the Swiss lower chamber of parliament came very close to accepting a parliamentary proposal to introduce mandatory human rights and environmental due diligence for Swiss parent corporations. The motion was initially accepted by one vote, but later rejected in a second vote requested under pressure from conservative business groups. Still, the large number of votes in favour of introducing mandatory human rights due diligence for Swiss parent companies demonstrates that this approach is gaining acceptance among key decision-makers and politicians.

So there is some evidence that the ball is rolling in the right direction and that it may be only a matter of time before parent and controlling companies of multinational corporate groups across the board begin having to accept legal responsibility for the negative human rights impacts of their global operations.  The question is, how long will this take? Or rather, how long can victims afford to wait?

Amnesty International has years of experience calling on States to regulate companies operating in or from their territory and to hold them accountable when they commit abuses. Some limited measures to address the immediate harm are sometimes achieved. However, reforms in law and regulation that would secure long-term systemic change are rare. Host states resist acting, either because they lack the capacity to do so or for fear that doing so will make them lose sorely needed foreign investment. Home states will not act because they fear that doing so might place their own multinational companies at a competitive disadvantage.

We all know the treaty process is only in its infancy. In the meantime, States must get serious about implementing the UNGPs. 

The National Action Plans (NAPs) to implement the UNGPs, though a good initiative in principle, have been slow in coming and even those that exist are highly selective in what they address, the vast majority concentrating on voluntary or market-based measures, awareness raising and capacity building. There are no signs that anything will dramatically change in the future.

This is the context which gave rise to and justifies the call for an international binding instrument. A treaty could force States to do what they will otherwise not do unilaterally. A provision that required States to pass legislation that placed parent or controlling companies under an express duty of care, together with a reversal of the burden of proof in certain serious cases would indeed be one (if not the most) significant contribution a treaty could make.

But we all know the treaty process is only in its infancy. In the meantime, States must get serious about implementing the UNGPs. States that support the treaty process must practise what they preach by taking action now to regulate the activities of companies (both national and transnational) acting within their borders. States that do not currently support the treaty process carry the additional responsibility and burden to prove that meaningful progress can still be made through the so far disappointing NAPs.  

Initiatives such as those in France and Switzerland on parent company duty of care must be promoted, strengthened, and replicated elsewhere. Either through national parliaments today, through an international treaty one day, and ideally through both, the international community must make parent or controlling companies responsible for ensuring no human rights abuses occur in the context of their global operations, and hold them liable when, as a consequence of their due diligence failures, abuses to human rights do occur.