Accounting and human rights

Business

By Ken McPhail CA

In 2005, the ABC’s Four Corners alleged that the Australian mining company Anvil was implicated in the massacre of civilians in the Democratic Republic of the Congo. More recently, The Australian Human Rights Commission criticised Melbourne-based company OceanaGold for its alleged involvement in the illegal demolition of homes in the clearing of land for mining operations in the Didipio region of Northern Philippines in 2008 and 2009, and has advised the Philippine government to revoke OceanaGold’s right to mine in the area. Just a few weeks ago, the federal court found a non-union agreement covering thousands of workers at Rio Tinto was misaligned with labour rights outlined in the Fair Work Act 2009.

Whether it is in relation to the overseas operations of multinational companies, the lending decisions of banks, or corporate employment practices, human rights obligations are increasingly being included within discussions on corporate accountability. The language of human rights is evolving into the predominant way we talk about our collective obligations to each other whether in the Congo, the Philippines, or Australia.

The preamble to the Universal Declaration of Human Rights calls on every organ of society to teach and educate for the promotion of the rights it contains. However, while the accounting profession would generally consider itself to be a globally important organ of society, the issue of human rights has thus far been substantially absent from the professional accounting curricula – discussion of professional ethics, global international financial reporting standards, or the professional bodies research agendas. It is time that changed.

The emerging focus on business and human rights

While international human rights law requires states – not companies – to ratify conventions, protocols and other human rights instruments, there is growing concern over the ability of government to regulate multinational corporations for human rights abuses perpetrated outside of the jurisdictions within which they are headquartered. The growing focus on corporate accountability and human rights reflects the significant increase in the nature and volume of investment by multinational corporations in developing countries, and their power in comparison to the states within which they are investing. These investments are often couched within the terms of bilateral investment treaties and mediated by stabilisation clauses. Stabilisation clauses are used by corporations to protect their investments, but can result in a tension between protecting the corporation’s investment and the protection and fulfilment of human rights.

While the power of corporations has increased, they have simultaneously become more independent of state oversight, despite the fact that many of these foreign direct investment projects are partially funded by home states via export credit agencies. The increasing interest in corporations and human rights is also related to the changing nature of the business/ state relationship. The introduction of new models of public sector management means the relationship between business and the state has become more complex, with corporations now involved in the delivery of public services like health care, immigration and security. The Australian government’s outsourcing of detention centres to Serco in 2009, for example, does not remove its human rights obligations to those receiving services from private sector organisations.

In recognition of these trends, the United Nations appointed professor John Ruggie of Harvard as a special representative of the UN secretary-general on business and human rights in 2005, with the mandate to ‘identify and clarify standards of corporate responsibility and accountability for transnational corporations and other business enterprises with regard to human rights’. In June 2008, the United Nations Human Rights Council explicitly emphasised for the first time that corporations have a responsibility to respect human rights and, in June 2011, the Human Rights Council endorsed professor Ruggies’ Guiding Principles on Business and Human Rights, a framework that seeks to minimise the risks of human rights abuses by corporations. The endorsement of the Guiding Principles represents one of the most significant milestones in the development of corporate social responsibility and a new era in the international law of human rights, which has major financial and ethical implications for business, regardless of size or sector.

In June 2008, the Australian federal parliament indicated its support for the development of international standards and mechanisms aimed at ensuring that all types of corporations respect human rights. It called on the Government to take responsibility for encouraging Australian corporations to respect the rights of member of the communities in which they operate, and to develop effective grievance mechanisms where human rights have been breached. The Australian Human Rights Commission has also called on Australian companies to respect their human rights obligations, and has developed a series of resources for Australian corporations on how to integrate human rights into their business and reporting practices. The Global Compact Network Australia (a local network of the United Nations Global Compact), established a Business and Human Rights Working Group last year.

The business impact of human rights

Despite an obvious reluctance to fully embrace the emerging business and human rights principles, many have begun to articulate their social responsibilities using the language of human rights. For example, according to a 2006 survey of Fortune Global 500 companies, nine out of 10 companies who responded had human rights principles in place. More than half of the FTSE 100 companies had adopted a human rights policy and more than 60 per cent of respondents referenced the Universal Declaration within these policies. Companies are therefore beginning to articulate their social responsibilities in terms of human rights as they are conceived through the Universal Declaration. In 2004 the Business Leaders Initiative on Human Rights would therefore seem correct when it commented: “Increased numbers of businesses [are] willing to talk seriously about human rights responsibilities, perhaps recognising that human rights is the most legitimate and universal framework for determining the social dimensions of business responsibility and issues of corporate governance”.

Human rights has therefore entered the context within which businesses now operate and pressure on corporate performance in relation to human rights is emerging from a number of different sources; primarily in relation to access to consumer markets and access to capital. Pressure is coming in the form of reputational risk. The child labour controversies of retail businesses like Reebok, Nike and Gap, and the protests resulting from Shell’s reluctance to intervene in the execution of Ken Saro-Wiwa during the 1990s, brought human rights to the attention of those concerned with managing a company’s reputational risk. Human rights-related issues are also impinging on debt financing of foreign direct investment through banks. A number of cases of bad publicity – for example for The Royal Bank of Scotland due to allegations of ‘dirty loans’ made to Vedanta – may partially be behind the increasing use of human rights impact assessments by banks when considering debt finance (Amnesty International 2006). Human rights is also becoming an increasingly important factor in relation to government export subsidy through export credit agencies, and access to equity through ethical investment funds and sovereign wealth funds. The Norwegian State pension fund, for example, has excluded Wal-Mart from its pension fund based on its human rights record.

The challenge for the profession

Building a case for incorporating human rights into the professional mindset of accountants doesn’t require much imagination. Traditionally, the idea of a profession has been based on three inter-related notions. Firstly, that members of a profession will be technically proficient within their field of expertise; secondly, that they will have the intellectual capacity to critically engage with developments within their field of expertise; and finally – and perhaps most importantly – their claim to professional status implicitly entails an obligation to have the public interest at heart.

If the accounting profession aims to prepare students to be experts in corporate accountability, rather than mere technicians of accounting standards, and if it undertakes to adequately prepare members for the kinds of issues that will populate their professional life, then it would seem that they should be aware of human rights. As Ratner (2001) comments, “[corporations’] actual recognition of corporate responsibility undercuts any conceivable doctrinal bar to such duties,” and the same argument would also seem to apply to any objections from the accounting profession that human rights falls beyond the scope of business and accounting education. This argument, of course, misses the point that the majority of business and accounting education is already about human rights, namely the property rights of shareholders.

Secondly, there is also a critical argument. If professional education and development were about enabling students to be critically reflective of their area of expertise, then one would imagine that students of accounting should be encouraged to reflect on the emergence of such a prominent and influential discourse on corporate accountability. This includes articulating where the application of a human rights discourse to corporations might be inappropriate. The idea of rights is a political and ideological concept and it would seem that we are entering a critically important period in the ideological construction of rights as they apply to both corporations and individuals. If the notion of rights is going to play an important role in ensuring that human dignity as well as the environment is not sacrificed in the pursuit of economic development, then it is crucial that the issue receives considerably more critical analysis within the accounting and business curricula than it has received to date.

Finally, there is an argument that relates to the profession’s implicit claim to have the public interest at heart. There is little of greater interest to the public than ensuring that human rights are respected, protected, and promoted. If the idea of human rights does potentially represent a valid way of protecting some of the most vulnerable within society from abuse and exploitation, then the accounting profession should be concerned about those “organs in society” that can affect both their promotion and violation.

Over the past decade in particular, there has been a renaissance in professional ethics both within the accounting profession and beyond, and there has also been a significant engagement by the profession with the notion of sustainability. In 2005 the secretary-general, International Commission of Jurists, Nicholas Howen, stated in his speech delivered at the Business and Human Rights Conference that if the discourse of human rights has become the generally accepted way in which human beings talk about how they should be treated, then critical discussion of human rights should become a more prominent part of professional ethics. It is also becoming increasingly apparent that any discussion of sustainability cannot be disassociated from a consideration of human rights.

There is perhaps an even more persuasive case to be made when the status of accounting as a global profession is considered. It is perhaps the global profession. As accounting reporting standards become internationally accepted and the function of accounting in global financial systems becomes more important, the discourse on human rights should inform any subsequent discussion of what contributing to the (global) public interest might mean. It may therefore be apropos for international standard-setting bodies like IASB to not only consider how the idea of human rights might impact on global reporting standards – for example in relation to workplace rights – but also for bodies like IFAC to address how human rights can be incorporated into global professional education standards.

Ken McPhail is professor of accounting at La Trobe University, Victoria.

Article last updated 31 January 2012