42 Pages Posted: 29 Mar 2014
Date Written: December 19, 2013
Faced with less than optimal voluntary initiatives and in the absence of binding legislation, what mechanisms can interested stakeholders use as leverage to force corporations to take a more proactive role in safeguarding human rights, particularly due diligence issues in the supply chain? Can new disclosure and procurement requirements provide enough incentives to have a measurable impact on the behavior of transnational corporations based in the United States?
This Article argues that federal and state governments should take advantage of the fact firms are adapting to more rigorous transparency and due diligence demands from socially responsible investors, international stock exchange listing requirements, and enterprise risk management processes.
Corporations respond to incentives and penalties. Governments can and should require stronger procurement contractual terms for contractors and subcontractors. The contract could require: (1) executive level, Sarbanes-Oxley like attestations regarding human rights policies due diligence on impacts within the supply chain; (2) an audit by certified third parties and (3) suspension or debarment from contracts as well as clawbacks of executive bonuses and a portion of board compensation as penalties for false or misleading attestations.
Companies that do not want to participate in government contracting programs will not have to complete the attestation or due diligence process but the benefits of participating will outweigh the costs. The large number of participating firms will likely lead to the practice becoming an industry standard across sectors, thereby forestalling additional legislation, shareholder resolutions and name and shame campaigns thus eventually leading to benefits for all stakeholders including those most directly affected.
Keywords: human rights, supply chain, Ruggie, UN Guiding Principles, labor, government procurement, due diligence, executive compensation, clawbacks
JEL Classification: K22
Suggested Citation: Suggested Citation
Narine Weldon, Marcia, Living in a Material World - From Naming and Shaming to Knowing and Showing: Will New Disclosure Regimes Finally Drive Corporate Accountability for Human Rights? (December 19, 2013). Available at SSRN: https://ssrn.com/abstract=2416911 or http://dx.doi.org/10.2139/ssrn.2416911