Business and Human Rights: Achievements and Prospects

Nov 7, 2008

UN Special Representative John Ruggie presents his conceptual framework for business and human rights, and his plan to develop practical recommendations for all relevant stakeholders.

IntroductionDEVIN STEWART: Thank you very much for coming, for braving the chilly, rainy day today on October 28th.

I'm Devin Stewart from the Carnegie Council, and today we're talking about "Business and Human Rights: Achievements and Prospects" with UN Special Representative John Ruggie, who will report on his work to date and the next steps for his project going forward. It's really a treat to have John Ruggie here.

Professor Ruggie, thank you so much for coming to the Carnegie Council. We're very excited to have you.

This has been a topic that has been featured here at the Carnegie Council—with people like Joanne Bauer and others in the audience today—talking about the relationship between business and human rights, how businesses can be better actors and still sustainable, still profitable.

Professor John Ruggie completed his first assessment, which was published in the spring, and we featured some of it on Policy Innovations [GPI's online magazine]. There is actually more on Policy Innovations if you're curious, written by Susan Aaronson and our friend Bill Baue.

I'm just going to get right to Professor Ruggie's talk. I know he has a lot to talk about. Essentially, he has been given a mandate to continue his work for an additional three years, maybe more, to investigate some of the frustrations and more work to be done, having governments and companies and civil society work together to create a more clear standard of human rights that can be helpful for all the people and parties involved.

Professor Ruggie, take it away. Thanks so much for coming.

RemarksJOHN RUGGIE: Thanks very much for inviting me.

I just yesterday reported to the General Assembly on an update on my mandate, which I hadn't done before. My usual reporting arrangement is to the Human Rights Council in Geneva, but the Human Rights Council decided, in an attempt to increase the visibility of this issue further beyond simply the Human Rights Council purview, I should also report to the General Assembly, which I did. It was interesting and we had a great discussion.

I have a day job. I teach at Harvard. I teach, at the Kennedy School, courses called global governance, and I have an affiliated appointment at Harvard Law School, issues related to international law.

I have been sort of a global governance junkie all of my life as an academic and as a practitioner. I have taught at Berkeley and at Columbia for many years, and now at Harvard, but I have also worked inside the UN, the most extended period being during Kofi Annan's first term in office, when he asked me to come and join him on a full-time basis to establish something that we ended up calling Strategic Planning, and an assistant secretary generalship for strategic planning was established.

Among other things I ended up working on was UN relations with the business community, which led to the creation of the UN Global Compact. I was responsible for trying to do something substantive with the accident of the millennial change, the year 2000. So we came up with the Millennium Development Goals.

On the principle that no good deed should go unpunished, after I left the UN and Kofi Annan was asked to find a special representative for business and human rights, he called me up, right after I'd had serious surgery and was under the influence of drugs, and said, "I have just the job for you. You need to become my Special Representative for Business and Human Rights." And, not knowing any better, I said yes. That's how I got involved in this.

What is it all about? To put it in very, very general terms, this is an ongoing process of international regime construction, or regime modification if you will. What this is all about is an attempt to strengthen the human rights regime so that it can become more effective in responding to human rights challenges that are posed by companies, not only transnational corporations but all companies—state-owned enterprises, publicly listed companies, national companies, international companies, big ones, small ones. There is no limit to this mandate. It is without bounds.

The sucker lure was "this is a two-year assignment. It's basically desk-based. We want you to do some research on what are the prevailing standards out there, because there is great confusion. And then you'll be on your way."

Well, the two years became three years, and the three years have become six years. But there is a limit of six years. In fact, you can't get reappointed beyond that.

Now, the mandate has a history. Everything has a history. Before my time, while I was still full-time at the UN, a subsidiary body of what was then called the UN Human Rights Commission, the Subcommission on Human Rights, was drafting an instrument, a text that was called "The Norms on Transnational Corporations and Other Business Enterprises with Regard to Human Rights," a document that was intended to someday, if not immediately, become a legally binding document that would impose on companies obligations directly under international law.

The obligations essentially were the same range of duties that states have adopted for themselves in the area of human rights, namely that companies would have the duty to respect, protect, promote, fulfill human rights, just as states do, the difference between the two being that states would have primary duties and companies would have secondary duties. The terms were not defined, and as you can imagine, they can be quite slippery.

Secondly, the corporate duties were supposed to take hold inside something called corporate spheres of influence. So the companies would have these responsibilities within what were called their spheres of influence, also a fairly slippery and elastic concept that I had introduced into the Global Compact when we first started it as a sort of a metaphor to get companies thinking about human rights issues beyond the workplace. I never dreamed that somebody would try to turn this into a basis for imposing legal obligations on companies, and if I had known that I would have jumped in horror then, because the concept is just far too mushy to allow that to happen.

So, in any case, that was a document that had emerged through the UN human rights machinery. The Subcommission on Human Rights reported to the Commission on Human Rights, which didn't quite know what to do with it.

There was vehement opposition from the business community. NGOs were generally in favor, because it promised binding obligations. Governments— this is an exaggeration, but I've described it as they went into hiding. You know, with business on one side and the activist community on the other, what government wants to get caught in between? There wasn't much stomach, if any, for adopting this thing.

But at the same time, a large number of countries, north and south, wanted to make sure that the issue itself stayed on the agenda and were afraid that if they sort of killed it outright that it would take the issue along with it. And so they stalled for a year basically, and then they did what political people often do, they gave the problem to somebody else. They gave it to Kofi, who gave it to me.

The Human Rights Commission said about the norms: "They have no legal status. We didn't ask for them. Thank you very much. Don't anybody act on them. We're now establishing a mandate of a special representative for business and human rights who will sort of begin the process all over again."

So just a little bit by way of context of how all of this started.

Now, in contrast—this was 2005—this June I presented what I called a policy framework to the Human Rights Council for better understanding and advancing the business and human rights agenda.

This policy framework consisted of three core principles, which were fleshed out in the report: the principle of the state's duty to protect against human rights abuses by third parties, including business; corporate responsibility to respect human rights, which essentially means to do no harm; and the need for greater access by victims to remedy, both judicial and nonjudicial. These were, as I say, fleshed out in the report.

In contrast to 2005, the Human Rights Council was unanimous in welcoming this framework and in extending the mandate for another three years, saying, "Now please go operationalize this framework"—that was their word, not mine—"by providing more concrete content and guidance for states and businesses in each of these baskets, or however you want to describe them, under each of these three principles."

The international business associations endorsed the approach, and a number of international human rights organizations have said very nice things about the framework, including Amnesty International in a recent posting. And it is already being invoked by a number of actors, including national governments.

Some of you may know that under the OECD Guidelines on Multinational Corporations you can bring complaints against companies in countries that participate. Each country that participates has something called a national contact point. That's who you bring complaints to.

The U.K. national contact point recently found against a U.K. company—it was a minerals trading company operating in the DRC [Democratic Republic of Congo]—found against the company and used the framework as a basis for its finding against the company. So it has already filtered into ongoing processes without even being operationalized.

I take that as a good sign that, at least in broad terms, a new consensus is forming or has been formed, allowing us to go forward now with the operationalization.

Let me say a couple of words. This I am making up as we're speaking. I haven't thought it through fully. But I am trying to reflect on ways in which to convey why this difference between 2008 and 2005. What was it about this framework? Apart from the fact that it didn't claim or aspire to be legally binding, what was it that led both business and governments and some NGOs to say, "Yes, this is a good way to go"?

I guess I would make three observations about the difference between—and I'll tell you more about exactly what we're doing, but just by way of preface—the difference between the approach that I think I have been pursuing—and I'm only gradually becoming self-conscious about what I'm doing; mostly I've just been doing it—and the alternative approach represented by the norms.

The first requires a piece of visual aid, which is why I asked for this thing. It comes out of an article in the December issue of The American Journal of International Law, by Professor John Knox. He calls it "The Pyramid of Correlative Duties Under the International Human Rights Regime for Private Actors." These are not drawn to scale.

Here is the point that John Knox makes. In the base of the pyramid, in sort of this bottom cell, what you have is the bulk of the international human rights regime as it relates to private actors.

Essentially, what it says is that governments have duties, and insofar as things affect private actors, the treaty instruments expect governments to protect human rights from violation by private actors. But the treaty instruments, or whatever the other instrument is, doesn't specify any private-actor duties, nor is there any international enforcement. So the focus is on governments. Governments have duties, and it is expected that if there is a violation by a private actor of some human right, that the governments will do something about it, but it isn't specified what the government is supposed to do, and there is no international enforcement.

Now, with many of the international human rights treaties, treaty bodies get established that provide commentary on compliance. But they provide commentary on compliance by states. So in this box you would also have treaty bodies over time issuing commentaries about how good a job states are doing at enforcing international human rights treaty obligations that they have taken on for themselves.

Now, the second layer in this pyramid. There are areas of human rights law—it is much smaller than the bottom—in which there are private duties contemplated. They are even specified. Nondiscrimination treaties, the ILO [International Labour Organization] conventions—I mean they basically say what private actors are supposed to do. Or the Convention Combating Discrimination Against Women is actually very specific in some areas about private actors. It even mentions banks in one case, not discriminating against women when they apply for a mortgage, to cite one example.

So you've got some specification of private-actor duties, but the monitoring and the enforcement and all the rest of it is still state business. There may be an international complaints procedure in some instances, but it is basically state-based.

In the third layer up there, there are some areas, although I can't come up with many in business and human rights, where an international instrument places direct duties on private actors. There are a number of antidumping conventions, environmental conventions, that do appear to impose direct duties on companies. Of course, international criminal law imposes direct duties on individuals.

Now, those antidumping conventions on dumping stuff in rivers and the ocean—that's what I'm talking about—the enforcement still takes place nationally, because there is no international navy that goes out and chases people. It still relies on national mechanisms.

Finally, at the top, the example that you would put in there is the International Criminal Court, which, in a sense, has some enforcement power; they can try people. The people have to be delivered to them—they can't go out and hijack them; the authorities have to deliver them. But for certain international crimes, directors and officers of companies are liable under the International Criminal Court statute.

This is what Knox calls the "Pyramid of Correlative Duties."

Now, why am I making a fuss about this? Because you see an interesting inverse relationship between the frequency distribution, if you will. Where is most of the human rights regime today? It's down here. So in terms of frequency, this is where the high is and this is where the low is.

In terms of either specifying private-sector duties or any kind of enforcement mechanism, low to high. So where most of the cases are, the specification and enforcement are the weakest. And where the specification and enforcement are the highest, you find almost no cases.

So, to cut a long story short, one inference I draw from this is getting to here probably isn't easy. You know, it took the human rights regime 60 years to get from here to there, in a fairly narrow area of international crimes. We are not likely to jump from here to there all in one fell swoop when it comes to business and human rights. So that's one inference I draw from this.

Now, you can ignore my famous visual here because I'm going to move on to a second reflection or observation that has shaped my approach to the mandate.

Now, if it's hard to get from here to there, what are the alternatives? The alternatives, of course, are to flesh things out at the bottom more by pushing the treaty bodies and other entities to be more precise about what the obligations are of states to regulate companies and the like. So you populate the bottom cells and try to work from the bottom up, as opposed to trying to, through one leap, reach the top, if you see what I mean.

Now, the second area that merits an observation has a name in legal theory. It's described often there as the "collision of norms."

By and large, the international legal order is not a hierarchical system. You know, it's not like the United States, that has a constitution that governs everything else, and everything else has to be compatible with the Constitution. What you see in the international legal system is a bunch of clusters of law, areas of law. You have investment law; you have commercial law, or trade law; you have intellectual property rights law; you have human rights law. You get these clusters of law. If you observe the reality out there, as opposed to saying what you wish were true, you find that there is no natural hierarchy among them.

Now, human rights people want to believe that human rights law dominates or trumps other areas of law. But it does only in a very narrow number of areas. In the rest, when norms collide they stay collided, if there is such a word. Typically, there is no Supreme Court you can go to and say, "We've got a clash here between two legal norms. You've got to work out which one is right or what the balance between the two should be."

We have looked into a number of these areas that are quite imbalanced and then started to argue on policy grounds—not on legal grounds, because there is no strong legal basis for making the argument—but on policy grounds these things should not be so imbalanced, because it creates severe problems.

So, for example, we have made a big fuss about a case that has been brought to international arbitration against the South African government by an Italian granite mining company challenging the Black Economic Empowerment Act in South Africa. It's under a bilateral investment treaty. There's a body of law. The Italian mining company said, "You are violating the bilateral investment treaty because what you are doing, government of South Africa, by forcing us to hire more blacks and putting more blacks on our boards of directors, and so on and so forth, is equivalent to expropriation." It is takings, as we call it in this country.

The way in which the international investment regime works, if you've signed a bilateral investment treaty, you are subject to international arbitration. The international arbiters are three contract lawyers who don't give a damn about human rights obligations. Their job is to enforce contracts. So it has now gone to a tribunal.

The South African government is arguing: "Well, we were acting on human rights grounds here. We're trying to undo the effects of apartheid." So their claim—you see the norms colliding. You see the investment regime norm colliding with the human rights regime norm.

The South African government probably should have been more careful in the bilateral investment treaties that it signed to make sure that certain issues are fenced off. But nobody understood this when the bilateral investment treaties were being spun out in massive numbers in the 1990s as part of the overseas expansion of international business. There are something like 2,600 bilateral investment treaties in the world now.

The second observation, then: Confronted with this collision of norms, there being no international Supreme Court that you can go to to say "this should trump this, that should trump that," what do you do?

Well, one of the things we are trying to do is, by raising these cases and showing the anomalous consequences that can follow, to try to infiltrate other bodies of law and other related areas of policy with human rights concerns. And they are policy arguments. They're not legal arguments, they're policy arguments, and I'm not ashamed to admit it.

So we go to the export credit agencies, for example, to take another case, and say, "Listen, you guys, you use taxpayers' money." Let's take Export Development Canada. "You use taxpayers' money to promote a Canadian mining company investment in the Democratic Republic of Congo. Now, you guys are smart enough to know that the chances are very high that that investor is going to run into trouble because, remember, there's a civil war going on there. Four million have been killed so far. There are rebel forces all over the place. What kind of oversight are you providing? What kind of due diligence are you requiring from the companies that you invest in?" A policy argument, not a legal argument. "You're using taxpayers' money to support a Canadian company and you know damn well it's going to get into trouble. So aren't you obligated to do more than you would if that investment were going to Denmark?"

And, lo and behold—I didn't pick Export Development Canada by accident—they in fact recently revised their policies and cited our framework as the reason for doing so. What we're hoping is that greater due diligence and oversight will be provided going forward.

A third quick point about the approach that I have been trying to pursue. I don't know whether this is an oxymoron, but I would describe it as the political economy of human rights. What I mean by that is that what I'm trying to do is to identify systemic problems in the nature in which the world political economy is organized, as opposed to trying to identify specific issues of individual company liability for which you can get them into court.

Now, both are equally valid approaches, but the one that I have selected for the purposes of this project is the systemic one. Basically what it means is: Look—this sounds trite to repeat it—but we live in a world where there are huge gaps between the scope of economic forces and actors on the one hand, and the ability of societies to manage the adverse consequences of global economic integration. That's what the market meltdown to some extent is all about.

That's what multinational corporations to some extent are all about. They are not intrinsically bad. Many of them do a lot of good. The problem is that there is a vast misalignment between their scope and their ability to operate globally, their scope and ability to put rules in place to protect their intellectual property rights, to take people to international arbitration, et cetera, and the ability of countries or societies to adapt to this and to manage the adverse consequences.

Now, I call this "governance gaps." Human rights violations to some respect, to some considerable respect, are a byproduct of these governance gaps. The inference I draw from that is we've got to figure out ways to close the governance gaps. In doing so, we will also gradually contain, if not eliminate, the permissive environments for wrongful acts by companies without fear of any kind of consequences by any authority.

There are three ways in which the approach that I have taken to this mandate differs from a classical human rights approach and, I believe, at least in part, accounts for the relative success that we have managed to achieve so far, because it is a set of arguments that governments understand, it is a set of arguments that business understands, and it is a set of arguments that business knows they have to do something about if globalization itself is going to be socially sustainable. They are the major beneficiaries of globalization, and so they have some considerable long-term enlightened self-interest in making it so.

All right. The purpose of the mandate I have briefly described: an attempt to adapt or create a business and human rights regime. I've described the preceding attempt, the norms for transnational corporations, as reflecting very much a traditional human rights approach to how to do this, running into a wall. And I have described this alternative approach that we have been pursuing and some of the assumptions that it rests on.

So where do we go from here and what are some of the next steps?

Well, as I mentioned, the framework that the Human Rights Council has welcomed and has asked me to operationalize consists, as I say, of three core principles, the first being the state duty to protect.

One of the biggest challenges in the conceptual inability of states to protect is the fact that most governments have taken a fairly narrow approach to managing the business and human rights agenda. It has been like a company that says, "Oh, we've got to become socially responsible, and therefore we'll set up a corporate social responsibility office." Governments do exactly the same thing. They establish a business and human rights unit somewhere and believe that that takes care of the problem. Well, a company establishing a CSR [Corporate Social Responsibility] unit doesn't take care of their problem, and establishing a business and human rights unit doesn't take care of the problem on the government side.

So what we are trying to do is figure out ways in which to create horizontal linkages within governments, if you will, by providing useful tools to them, and also critiques of current practices, so that when the next time a South African government signs a bilateral investment treaty, it knows what the consequences can be and it takes into account from the beginning that that may constrain its ability to regulate subject to international arbitration and/or compensation to an investor. And so, knowing that ahead of time, you would assume, all other things being equal, that they are less likely to leave themselves open to that kind of a problem.

The Norwegian government has just drafted a model bilateral investment treaty, the commentary to which I think is brilliant. It's just extraordinary. It says things—and I'm paraphrasing—but it says things like: "Look, Norway is a well-regulated society, but we've just discovered that through the bilateral investment treaties we impose on developing countries we don't allow them to be well-regulated societies because they are so constrained by the investment regime." Okay, we need to fix that, and it can be fixed.

So this is sort of the horizontal driving out of the business and human rights concern within governments into areas of policy that directly affect business practices. So we are looking at the investment regime, we are looking to some extent at commercial policy, we are looking at corporate law tools, disclosure requirements, et cetera, what governments require business to do in order for government to become more effective at what it is supposed to do, which is to protect against human rights abuses not only by the government itself, but by third parties, including business.

So that is the first work stream under the state duty to protect.

The second principle of the framework is the corporate responsibility to respect human rights. Now, I use "duty" when I talk about the duty of states to protect because it is well established in international law. I use "responsibility" when I talk about companies because I don't believe that under current international law there is a general requirement for companies to respect human rights.

What this is based in is what we call a company's social license to operate, or prevailing social expectations. Now, companies typically will tell you that they respect human rights. I have never come across a company that says, "We don't respect human rights. Put it up on my Web site here."

The responsibility to respect human rights is enshrined in a bunch of soft law instruments, like the ILO and the OECD declarations, and so on and so forth, and it is mentioned in every voluntary initiative any company has ever launched or participates in.

The question that we raise to companies is: Fine, that's great. We're glad that you respect human rights and that you say so. But how do you know? How do you know that you respect human rights? Do you have systems in place that would allow you to support that claim satisfactorily to yourself, let alone anybody else?

We have done enough research on enough companies now to know that most companies don't. That doesn't mean they are lying. They want to respect human rights and they say they respect human rights, but they haven't put systems in place that would actually demonstrate that they do.

So what we are doing is we've suggested what you need to have is an adequate and appropriate due diligence system. That would begin with human rights impact assessments that would involve community engagement if you're a large-footprint company—a mining operation or something—that would systematically include community engagement in the assessment of potential human rights impacts and what to do about them. And then you can say that you have the systems in place and you can claim to respect human rights.

Now, one tricky thing here is that much of the preceding debate focused on which individual rights ought to be included in an instrument that would govern companies. So yes, labor standards should be in there, certain community rights should be in there, and so on and so forth, and you end up with a list of 27 or 42. Some companies say that's too many, and some other actors say that's too few.

We try to sidestep that altogether. We did that by analyzing 400 public charges against companies and then coding what human rights were allegedly being violated. The obvious inference that the research shows is that companies are capable of violating any human right, even the right to jury trial, by interfering with a jury trial, or bribing a judge or bribing a lawyer or bribing a juror.

There are no intrinsic limits to what human rights companies can adversely impact. So the statement that we say is: "Look, if you're going to do due diligence, it's got to be in relation to all internationally recognized rights. Some will be more important in some circumstances than others. If you're a mining operation, you better pay more attention to community impact than if you produce sneakers. In the sneaker case, the workplace issues are going to be the more important."

So there are obvious ways in which some rights become more important for some actors than others, but in principle there is no intrinsic reason to argue that there is a finite number of rights that companies should be held responsible for. They should be held responsible for them all because they can impact them all.

So that's the second category, the corporate responsibility to respect.

The third is remedy, and then I'll shut up. Remedy is, obviously, the toughest part, particularly the judicial remedy element, for the simple reason that where the need is greatest, access to judicial remedy is the most problematic. The need is greatest in the DRC. There is no obvious solution to how to beef up an independent judiciary in the DRC between now and next Tuesday.

So one of the things we are doing is, in cooperation with some NGO work, trying to do a serious mapping of what are the different obstacles to access to justice in different jurisdictions, and then with those findings engage in a series of brainstorming sessions with various stakeholders to see whether anybody can come up with any good ideas about how to overcome them. So that's what we are doing on the judicial front.

On the non-judicial front, we are doing a number of fairly practical things. I'll just give you two examples.

One, I have challenged the International Chamber of Commerce and the International Organization of Employers to identify a group of companies in different industry sectors who would be willing to establish alternative grievance mechanisms at the local site level. So, to go back to the mining example, in Yanacocha [a gold mine in Peru], Newmont Mining would agree to establish a legitimate alternative grievance mechanism that would help reduce the incidence of disagreements and conflicts and build confidence between the community and the company.

I was in Yanacocha a couple of years ago and, among other things, met with one of the community organizers who had closed down the only access road to the mine because he couldn't get the mine's attention any other way. He said to me, "You know, they didn't respond to small problems, so I created a big one." The mining company couldn't get at their own mine for the better part of a week.

So, you know, alternative dispute resolution techniques aren't going to resolve everything, but nothing is going to resolve everything. This is a way to get them to listen to certain grievances and, hopefully, deal with them. That's one sort of practical approach that we are doing.

The other is—this should be done by early next year—we are constructing a Wiki. It, like any Wiki, will become governed and will evolve by the contributions of the community of users. This Wiki will answer the question: If you have problem X with a company, where can you go to deal with this problem? Where is it not a good idea to go? Which remedies are effective and which ones aren't? What's a waste of time and don't bother? That sort of thing.

We are doing this together with the International Finance Corporation, and the International Bar Association is also engaged. Hopefully, it will be up and running, at least the beta version, by early next year, and it will become a permanent feature of the remedy landscape.

I'm sorry I've gone on for a long time.

The very first time I ever made any remarks on this mandate I was asked to describe my approach to this, and I called it principled pragmatism. It is driven by principle, the principle that we need to strengthen the human rights regime to better respond to corporate-related human rights challenges and respond more effectively to the needs of victims. But it is utterly pragmatic in how to get from here to there. The determinant for choosing alternative paths is which ones provide the best mix of effectiveness and feasibility. That is what we have been trying to do with this mandate since 2005.

Questions and AnswersDEVIN STEWART: Thank you so much, John. That's fantastic. I think we just witnessed a classic business and human rights lecture right here at the Carnegie Council. Thank you very much, Professor Ruggie.

I don't know if you got into the bilateral investment treaties themselves, but we have an event happening next week, a political event. The presidential election is coming up.

JOHN RUGGIE: Yes, I heard about that.

DEVIN STEWART: There could be a new regime coming up in the United States that might look at free trade agreements, economic partnership agreements, and bilateral investment treaties.

Does your work apply to those types of policy instruments and do you have advice for the next administration?

JOHN RUGGIE: You know, UN special representatives aren't in the business of advising presidential candidates, although we get to send checks.

I would expect on the trade side, obviously, given everything that has happened, the notion of fair trade, as opposed to free trade, will become more dominant, if you will, although we need to be careful that we don't slip over into a protectionist mode, which the Congress is perfectly capable of doing—they have done it in the past. One of my main concerns there would be not to hurt the development chances of developing countries. But there is no doubt in my mind that something resembling what has been described as fair trade will become more prevalent going forward, both in terms of bilateral trade agreements and also at the multilateral level.

On the regulatory side in general, I certainly believe that the financial sector is going to be more heavily regulated going forward. The sort of shadow banking activities that have gotten us into deep trouble, hopefully, will be brought under better control, and that may have some positive spillover effect into other related policy areas.

I think the most important consequence of all of this horrible experience we've had the last few months of the meltdown is that the American public's attitude toward government may change in an important way.

For the last quarter-century we have been harangued with slogans about government being the problem and not the solution, and all of a sudden we are discovering that in fact there are things that we cannot do for ourselves, and should not try to do for ourselves, and certainly shouldn't let others with our money do for themselves. And so I think the pendulum that really took off—it began during the Reagan years and then took off in the 1990s, with neoliberal Washington consensus type of stuff—I think that has swung to an end.

Not that it is going to bounce back in exactly the opposite direction, because we've all learned from regulatory mistakes in the past—that's why you hear everybody talking about not more regulation but smart regulation. I think that certainly, if the Democrats get elected and they also have a significant majority in the Congress, we will see much more of that than we have in recent years.

DEVIN STEWART: Thank you, Professor.

PARTICIPANT: I'd like to make a comment about the bilateral investment treaties. I think most people in the room would assume, but would assume incorrectly, that the United States is in the forefront of establishing this. It has been around for 220-some-odd years. We have all these relations with all these countries and embassies all around the world.

But the fact of the matter is that, while we have a number of multilateral instruments that are in effect, bilaterally we are practically in last place. The number of bilateral investment treaties America has with the rest of the world is very, very, very small compared to what you would expect it to be, speaking as the former Minister of Foreign Investment of Macedonia, where I tried to establish one with America and found it was literally impossible to do it. So I just want to point out that on a bilateral basis many other countries are far ahead of America with respect to establishing these BITs around the world.

DEVIN STEWART: That is more of a comment. Thank you.

PARTICIPANT: I would just point out that the perception is probably that America is in the lead on this, and that is not the case.

DEVIN STEWART: Professor, do you want to respond to that?

JOHN RUGGIE: No. That's right.

DEVIN STEWART: Before we get to your question, Professor Ruggie, I'm sure you've experienced this. There's all of a sudden a huge demand in the world for ethical capitalism. In fact, our motto has become incredibly salient to a lot of people around the world, and I'm sure people in this audience know what we're talking about. Everyone wants to understand what "ethics in business" really means.

A lot of the themes of the conferences that I have been invited to in the past few weeks and in the future few months is this notion of a new framework, a new paradigm, for capitalism. Is there such a thing as ethical financial capitalism?

At the same time, there is this paradoxical element to it. That is, we don't have time for this. We don't have time to reflect too much. Even though ethics is about reflection and thought, because that's what being moral allows us to do—you know, take care of your needs and then you can try to be a good person—there are so many crises, including the financial crisis, the environmental crisis, climate crisis, and some people say the food crisis, there's no time to construct some new ideology from scratch.

In fact, one of the conferences that I am going to be speaking at is simply called "Be Bold About Sustainability." Another one is called "Is Ethical Capitalism Possible?"

What would you say to these questions and to these demands? Do we need a new framework, or should we just look at our past, our own ethical traditions? Is there something that we can grasp at hand, something historical? How would you go about that? I'm sort of getting the cheat sheet here so I can talk about what John Ruggie said at the conferences.

JOHN RUGGIE: Gosh, that's a big question.

Is ethical capitalism possible? Sure. But it isn't likely to occur in the face of incentives and regulatory structures that lean in the opposite direction. You can't provide the kinds of incentives that have been provided for Wall Street, for example, in the last few years and then expect ethics to counterbalance that. It just doesn't happen. People don't work that way.

So where ethics, it seems to me, comes in is as a basis for developing the incentive structures and for developing the regulatory frameworks, not counting on—I've always had this fight with people in the Harvard Business School and other places. They teach corporate ethics. And that's fine. I think that's great. They ought to be teaching corporate ethics. But they teach it in a totally decontextualized way: "Be honest and act with integrity." I think that's great. That should be the motto of every individual.

But if I am then facing an incentive structure that says, "You're going to get a $40 million bonus next year if you create these financial instruments and then get rid of them as soon as possible so you're not left holding them when the music stops," that's too strong a force for ethics alone to withstand in large numbers. Now, there may be individuals who are capable of doing that, but I don't want to build a social system that rests entirely on the good-naturedness and the personal ethics of individuals.

I think we need to worry about what kind of incentive structures we have in place and what kinds of regulatory systems we have in place. And they should reflect ethics, yes.

DEVIN STEWART: Excellent answer. Thank you so much.

QUESTION: Devin, in response to your question, and doing a little advertising for the moment, there is a book going to be out next month, called Sustainable Investing: The Art of Long-Term Performance, edited by Nick Robins and Cary Krosinsky, that tries to address this in a series of essays. I try to address it in one essay therein on fiduciary duty I'd be happy to share with you.

But going back, John, your idea of horizontal integration is wonderful. But having worked at the United Nations for a period of time, I wish you well in terms of long-term projects.

What led me to think about that particularly was the fact that there is the UN Compact which you already mentioned, but there is also the UN Principles for Responsible Investment. While I know that the Principles involved human rights investing and what have you, I suspect also that most of the investors who signed up in good conscience are not paying much attention to that, partially—and it goes back to the incentives and the nature of the system—that we don't have the material data, the data that show the materiality. We know about reputation risk and a few things like that, but the question of over time and the fact that workers work better if they are treated well is just not something that we have been able to figure out.

A number of us have worked on the private actor versus private actor, or with private actor in the form of the investor community, trying to push this issue. There is a lot of stuff on supply chain, on rights for gays, lesbians, bisexuals, transsexuals, that we can't even get through here in this country, let alone internationally—and even if you get the policy, we're not getting the monitoring and the implementation.

Do you see within your program that private-to-private activity as an essential part of moving up your pyramid?

JOHN RUGGIE: I think getting the investors, the asset owners, the asset managers, and others involved in this is, of course, a positive development. I mean, the more players that are involved and are thinking about this and are developing strategies around it, the better off we'll be.

But with regard to human rights specifically, it is harder to do the materiality bit than it is for other areas, for example the environment. I can do the risk part easily. We just need to look back at all the horrible things that have happened in the Niger delta and how that has adversely impacted Shell—obviously the communities, but even Shell. If they had done better risk management all along, both the communities and Shell would be better off. So the risk management side I think is easy to demonstrate.

What is hard to demonstrate is the opportunity side in materiality terms. You can do it in the environmental area, because there are lots of cost savings and there are opportunities from new technologies.

A company like Wal-Mart can become green without changing its business model. But they can't become human rights compliant without changing their business model, because their business model depends on squeezing out costs to the nth degree. So they would have to change their business model to become more human rights compliant.

So that makes it harder in the human rights field, and we have a tougher job than do the environmentalists, for example, if the argument is on materiality grounds.

Now, there are other arguments, but there is just no way to demonstrate them in materiality—yes, there's less turnover, people are happier on the job, they're more productive. That's all anecdotal. You can't crunch numbers on that, which is what would be required to facilitate the kind of analysis that you are suggesting. So we have a harder time in the human rights area.

QUESTION: A question to somebody of your background and the things you're doing is always going to sound sort of superficial, but let me take a stab at it, reflecting that today the American public indicated that they have a crisis of confidence. In August the confidence rating was 63 percent. The pundits thought it was going to come out at 51 now. It came out at 38.

When you talk about whether globalization is socially sustainable, what is your confidence in that, if you were to put a percentage on it, from, say, 2005, when I think you described that it was too mushy to try to get regulations in place, and yet that is sort of exactly what happened with the financial issue, that we didn't have regulation and we expected the markets to go through? But sticking with a number, if you will, a metric, as somebody who is in the position that you are in, what is your confidence that globalization is in fact socially sustainable?

JOHN RUGGIE: I don't have the foggiest idea. I don't suspect it's terribly high. You know, I follow some of the same polls that you were referring to. I keep wondering. You know, 78 percent of the public thinks the country is heading in the wrong direction. Who the hell are the other 22 percent? Where have they been? I have no idea. I can't put a number on that.

It also depends on what you mean by globalization. There are always going to be mining companies looking for resources overseas and that sort of thing.

But if we are talking about a well-ordered international economy that has adequate social pillars and all the rest of it, I think things look challenging at the moment.

But I wouldn't even pretend to put a number to this.

QUESTIONER: And just one follow-up to that. When you look at areas of the world, where do you see leadership in that area coming from? Is it coming from America, the city on the hill? Is it the Far East? Is it Qatar, where the oil was better at $140 than it is at $67? Where do you see the leadership on a global level coming from to get some of these questions answered?

JOHN RUGGIE: Well, we in this country have always believed that the United States was the leader that everybody turned to in order to overcome collective action problems among countries. That has gotten harder and harder to sustain, for obvious reasons, one of which is our own policies and behavior; but the other is that there are emerging powers that aren't all that interested in following our leadership, unless things are so bad that an emergency action is required, which is what we have seen in the last couple of weeks. Everybody realizes that this thing will actually go down the toilet unless we do something fast about infusing capital back into the banking systems and the like. So there collaboration takes place.

But on many other issues—even climate change is still a huge touch-and-go issue. There the UN actually managed to get back into the game and play a constructive role. This is one of the areas that this Secretary General has made a signature priority, and, having been totally sidelined and the issue of post-Kyoto being off the agenda, has managed to get it back on the agenda.

But I think at the moment I would be hard pressed to say that there is a sort of system-wide leader that clearly has the confidence of the rest of the system to the extent that the rest of the system is prepared to follow.

QUESTION: I want to come back to your diagram, which I think is interesting, and see how we can link it up a little bit.

First, I want to repeat a couple of observations you made, which I think are quite important, sort of showcasing the international human rights regime, and that it is built up over time, that things don't happen overnight, but over the course of 60 years that pyramid has come into play. I would just tag onto that that the top of the pyramid, which you identified as the International Criminal Court, is something that was inconceivable to a lot of people not very long ago and now is something that we can take for granted. So this pyramid is going to continue to develop and we hope move in further directions into the future.

You also pointed out that the specificity and enforcement get weaker in opposite directions, which is an important piece of developing this pyramid in the next phase. Can you talk to us about how you envision your mandate in relation to enhancing specificity and enforcement with regard to business and human rights, and maybe some of the pieces of your work plan going forward, how those connect to that goal and to the different pieces of the pyramid?

JOHN RUGGIE: Thank you.

To some extent, just about everything we have done is intended to enhance specificity. The original mandate asked us to identify and clarify. It was that sort of a mandate. When we work with companies on what should be the due diligence requirements so that you know that you are respecting human rights, that's specificity. Companies never thought of respecting human rights as requiring a due diligence process. Now we are working on what exactly should the components of that due diligence process be, what should it look like, where should it be embedded within the company, et cetera. So that's specificity.

We have worked very closely with the UN treaty bodies, with regional human rights bodies. Just last week I was at the Inter-American Commission on Human Rights trying to get them—you know, they get an avalanche of cases presented to them—trying to get them to be more sensitive to what are the issues that really need to be clarified, where do we need greater specificity. We spent at least an hour last week talking about what are the extraterritorial implications of the state duty to protect. You know, this isn't something that they have dealt with as an issue as such. Yeah, it comes up in individual cases and there's a comment here, there's a comment there, but it has never been the focus of their attention.

The state duty to protect requires states to take all necessary steps to prevent human rights abuses. What exactly does that entail? No state has ever prevented murder from occurring in their society, so is the state doing a bad job if a murder occurs, or is the state doing a bad job only if it hasn't done everything possible to prevent murders? Where are those boundaries, where are the thresholds?

Those are the kinds of questions that we are working on with the treaty bodies and the human rights bodies on enhancing specificity. My assumption is that as greater specificity develops, when they are confronted with a new case, they are going to be asking more focused questions and they are going to be demanding more focused responses from the governments. So there is another example of how specificity is, as I say, part of virtually everything that we do.

In terms of enforcement, we have had back and forth about the virtues of an international treaty instrument at this point in time. This area, like all the others that are on this white board, obviously will become subject to international legal rules, or some parts of it will at some points in time. I think one of the things that we need to figure out is which ones are most ripe, which ones are most likely to produce positive effects, which one is likely to enjoy some sort of a consensus in the medium term, which ones are likely to be the most effective.

What body of law should be involved? We can think about adopting a treaty telling governments that they should do X, Y, and Z, but would it be better if we had some sense of whether they should be doing that through corporate law or through some other body of law? In order for us to make that recommendation, we need to understand better how corporate law relates to all of this. So again, greater specificity with regard to potential enforcement down the road.

I don't quite know what else to say. With regard to remedies, as I said in my opening remarks, I keep coming across, in my travels and my site visits to companies, so many issues that could be dealt with so easily, that don't have to escalate into campaigns or into lawsuits. So why not get rid of those, get them off the table? Deal with them. Take care of problems and build trust between communities and companies. And then, when a really egregious violation comes up, you'll know it when you see it and you'll know then what does require a more robust or a more legal response and what the nature of that response should be.

So we're back to principled pragmatism here.

DEVIN STEWART: We'll take one or two more questions before we get to the other question related to your comment.

Professor, I'm sure you get this question a lot, so bear with me. The role of corporate governance: What is the role of shareholders, and is there a way to put communities, employees, the world on a more equal footing with shareholders, and should they? Is this a tool that you have investigated?

JOHN RUGGIE: As part of the operationalization phase that we are just starting, we have I think it's eight or so, maybe nine, major international law firms working with us on corporate governance issues and corporate law generally. What they are doing is they are mapping how these things are done in different jurisdictions. On the basis of that, we hope to have some brainstormings about possible recommendations to make, whether we can draw some general principles out of this.

For example, there is a new U.K. Companies Bill that was adopted a couple of years ago. One of the provisions addresses the duties of directors, and in fulfilling their fiduciary responsibility to the company they are now also required to take into account the impact of the company on the community and the environment. We don't know yet what difference that is going to make. There's a whole bunch of unknowns because it has just been put in place. But that is an interesting development.

Ultimately the fiduciary duty is still owed to the company—that's what corporations are all about—but in executing their fiduciary responsibilities the directors are required to take into account the impact on the community and the environment.

Now, among other things, that means they've got to see what the impact is, which creates a process inside the company, saying, "Well, look, if I'm going to be signing off on a legal document as a director that we are in compliance with this, I have to know what we're doing and I have to know what the impact is. So let's get systems in place"—which reinforces the due diligence stuff that we have been talking about.

DEVIN STEWART: Given the primacy of the state in your analysis, does the modification of the fiduciary duty come from the state, or is it more with the actual corporate constitution or mission?

JOHN RUGGIE: A Companies Bill has to be adopted by a national parliament.

QUESTION: I have think that was diluted, that actual clause was enacted and then diluted, but I'm not 100 percent on that, in terms of the Companies Bill itself.

My question is regarding sectoral best practice. You mentioned the International Chamber of Commerce looking at remedies, in particular, and there was some industry sector guidance which was helpful. I'm thinking also about the second aspect of corporate responsibility. The Berkman Center has been very advanced with working with the technology sector, looking at a code, following what happened in China. That's all well and good.

But my question is: Will this potentially end up with some kind of lumpy playing field, in terms of some areas it's very good, some areas it's bad? I appreciate that there are some learning practices that could be developed from that. But in terms of that lumpy field, is this still part of your pragmatic principles, and what are the implications potentially of that lumpiness?

JOHN RUGGIE: Gee. Is it okay if it's level but lumpy, lumpy level?


PARTICIPANT: That's life, right?


On the U.K. Companies Bill, my understanding is that initially it was understood that the duty extended to the community and the environment. The revision made it clear that the duty was still to the company, but in exercising that duty you need to take into account impact on community.

JOHN RUGGIE: On the lumpy playing field, I'm not quite sure what to say about that. All playing fields in this domain are lumpy. They're lumpy domestically. New Jersey and Idaho have different practices and different standards, even though they are in the same country, subject to the same judicial system. So lumpiness is part of differences in legal systems, in where you live and where you work, and whatnot.

I guess my objective would be that there would be greater uniformity of principle underlying the lumpiness.

QUESTIONER [off-microphone]: Sure. That's what I'm trying to get at. If we're thinking of elevating up, then [inaudible] there can be some learning from certain practices within industry sectors.


QUESTIONER [off-microphone]: So the question is [inaudible] those implications how do we push it up [inaudible]?

JOHN RUGGIE: By increasing specificity and clarity, by increasing demand for more effective rules and for clearer rules. The solution to this has to be a dynamic one. There is no static solution to this issue. You need to think about setting things in train that will over time have certain consequences.

I think that's sort of what we are trying to do—a silly example again, spending a few hours with the Inter-American Commission on Human Rights last week. The Inter-American Court initially came up with this notion that the state duty to protect is essentially a duty of process, not of result. No one has ever bothered to ask more about what the threshold requirements are. Okay. So let's talk about what the threshold requirements are so that next time a case comes up we are better equipped to push and to get more detailed responses of what people ought to be doing.

PARTICIPANT: You were instrumental in formulating the Global Compact. In terms of what you are doing now, would you possibly rewrite, revise, or bend this, or is this a logical consequence of what was done at that time?

JOHN RUGGIE: Well, they are different.

QUESTIONER [inaudible]: Yes, I know they are different, but I wanted to see the connection and [inaudible].

JOHN RUGGIE: The Global Compact was never intended, as you well know, as a regulatory instrument.

QUESTIONER [off-microphone]: The principles, of course, [inaudible].

JOHN RUGGIE: The principles were taken from various international instruments. But the purpose of the Global Compact was really twofold, it seems to me: One was to try to put the relationship between the UN and the international business community on a better footing, because it had been horrible; and (2) the recognition by Kofi Annan and those of us who worked with him that there was a fundamental difference between being global and being international. The UN is an international organization. It is constrained by the fact that it is an organization of governments.

We looked at the private sector and said, "Gee, these folks really are global. We would like to piggyback onto them and become more global ourselves and drive the principles into workplaces, not by working through the Third Committee of the General Assembly, but going directly to the employers and, furthermore, while we're at it, having them contribute to the realization of the Millennium Development Goals, or what have you."

So it was an attempt, as I say, by the UN to—I guess piggyback is as good an expression as any—onto truly global actors. This went in parallel, by the way, with Kofi Annan's embrace of civil society organizations, for exactly the same reason: Help get us out of the straitjacket of intergovernmentalism and help us get out there into the world of global forces and actors where the action is.

And the General Assembly, as you well know, was very dubious about the Global Compact at the time for exactly that reason—you know, "Come back. We want to control you."

DEVIN STEWART: Professor Ruggie, thank you for an excellent presentation. Thank you so much.

JOHN RUGGIE: Thank you.

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