Corporate Accountability 101


Businesses have been integrating wellness strategies into the workplace for years but throw in an unanticipated pandemic and companies are being forced to accelerate their efforts exponentially. Coming soon to the EU, on the heels of COVID, companies can no longer just say they care about their staff – they will need to prove it.

If the European Commission gets its say, businesses that don't demonstrate care for the wellbeing of their employees will face legal consequences. The proposed European ESG Due Diligence law 1 aims to make companies responsible for employee health and working conditions throughout their global supply chain, reshaping the dialogue around what it means to do business 2.

Going the Extra Mile

With the pandemic triggering the restructuring of global business supply chains, and shining a light on the extremities of inequality and abuse, there’s a pressing need to do things better.

The proposed European ESG Due Diligence law is an ambitious proposal calling for mandatory EU-wide regulation compelling companies to address and clean up the environmental, social and governance (ESG) risks in their global supply chains. It would strengthen efforts to stop dangerous or illegal practices such as child labor, cruel working conditions (verbal abuse and threats by employers), low pay, gender discrimination and anti-trade union practices, as well as target broader social and environmental issues 3. The draft proposal was approved by a landslide vote (504-79) in March and, the European Commission is finalizing the wording now.

Of course, the idea of holding businesses accountable for doing harm is nothing new. But no international legal standard exists for enforcing human rights standards and obligations for businesses and their activities. While companies are encouraged to, and often do, voluntarily self-regulate their supply chains – as with supporting the UN Guiding Principles of Business and Human Rights 4 – it’s not enough. For example, 70% of European businesses support having such standards, yet only one in three takes action 3.

Getting companies to go the extra mile is problematic. In the 2019 Corporate Human Rights Benchmark report on the 200 largest companies in high-risk sectors, half failed to meet any of the five basic human rights criteria – this alone, the report stated, should ‘alarm governments and investors’ 5.

The Swiss Experiment

Last autumn, Switzerland tried to pass the Responsible Business Initiative 6 (RBI) calling for Swiss companies to be held accountable for human rights and environmental violations committed by their subsidiaries, suppliers or business partners. Mining company Glencore, and its links to water pollution and labor abuses in the Congo, was one of several powerful multinational headquarters that made Switzerland the perfect testing grounds.

But the government and business leaders strongly opposed the plan, calling it ‘a gigantic absurdity’ 7. Companies such as Novartis and Nestlé claimed it would result in a flood of crippling lawsuits, a spokesperson for industrial giant ABB said the wording created ‘substantial legal uncertainty’ 7, and Swiss banks paid for newspaper ads warning of terrible consequences. Businesses kicked up such a fuss that politician Christa Markwalder claimed it was ‘the most aggressive voting campaign’ she had ever witnessed.

While more than 50% of voters approved the initiative last November, it failed to pass, as it lacked support from the majority of Swiss states (which was necessary for it to succeed). The Swiss government created a moderate alternative, now in effect, calling for companies to increase their reporting on environmental and social issues.

What's in Store for the EU?

Although the EU proposal is in its initial stages, some corporate lobby groups have started rallying against its widespread repercussions. According to Politico, executives are panicking, fearing the law might lead to abuses and unnecessary litigation. Many are reluctant to comment, though, ‘wary of the toxic PR associated with trying to water down corporate liability rules’ 8.

Siemens told Politico it wanted to see the rules covering ‘at least European or G20 states level,’ and Bosch, Airbus and Shell responded by saying it was too early to comment 8. It might be early, but companies will need to find substantive answers to the question: How are we going to redefine our policies and practices to comply effectively?

They’ll need to do it fast. The shift toward tougher mandatory laws is already gaining momentum. In 2017, France enacted its Corporate Duty of Vigilance Law 9, thereby holding companies responsible for human rights abuses throughout their supply chains. In 2019, a Dutch law 10 (to take effect next year), states that any company breaking child labor laws will face fines and its executives prison time.

Despite Switzerland’s failure to adopt RBI, public support is growing. Grief, income loss and fear have become part of the current work equation globally, underlining the huge need to consider people and their wellbeing at work – because without them, businesses won’t function. University of St. Gallen business ethics professor Florian Wettstein put it,

"This should send a clear message to companies that they need to get their act together." 11

Growing Pains

The European proposal will bolster articles 23, 24 and 25 of the UN Declaration of Human Rights, addressing equal pay and just and favorable working conditions, reasonable working hours and the right to security in light of unemployment and sickness – particularly apt given the pandemic.

The proposal is based on a simple idea: If companies know they will face lengthy and expensive legal battles for harm they cause, anywhere in their supply chain, they will take steps to prevent that harm.

Many companies will face growing pains knowing their supply chains aren’t up to scratch and will scramble to not be held liable. One such company is Paris-based Teleperformance, the outsourcing company that vets customer requests for Apple, Uber and Amazon. Teleperformance was formally warned 12 for failing to adhere to French Vigilance Law. Its Spanish-speaking division in Colombia was accused of failing to protect employee wages and rights, including forcing female employees to take pregnancy tests.

Or there’s the behemoth Amazon, which is receiving an increasing amount of flak for its anti-union practices 13, high injury rates 14 and tendency to make local warehouse wages fall 15 wherever it sets up shop. Organizations like UNI Global Union, IndustriaALL, Oxfam and Greenpeace have protested in 12 countries alongside Amazon workers under the #Make Amazon Pay 16 banner, calling for Amazon to act responsibly.

And it’s not only workers’ health and wellness at stake – many investors see due diligence and ESG as the future of doing business. According to McKinsey, ESG-oriented investing has risen 68% since 2014 to USD 30 trillion today 17.

Just as with the EU’s General Data Protection Regulation in 2016, which obliged companies to make their data policies public, ESG Due Diligence could be a game changer.

"If the proposal becomes law, it could lead to a sustainable, new normal for doing business that will benefit employees – and therefore businesses – throughout the entire supply chain."

There is growing expectation about business's role in society on a global basis and it is no longer about empty gestures.

Picture of Dara Colwell

Dara Colwell

Dara Colwell is a freelance journalist, content editor, and writing instructor with 20 years’ experience writing about culture, the environment, politics, relationships, and the arts. She teaches professional writing and storytelling techniques at the University of Groningen, where she has developed the curriculum for several classes. She seeks to provide insightful content with an observant eye.


Share this article and let us know what you think. We're here to help and answer any questions you might have. Any suggestions or feedback? Let us know what you think and we will use your input for the future improvements.

Contact us

Join us

The return to journalism, the pursuit of truth and the utmost respect for solid, peer-reviewed science. You're just one click away from receiving the best of The Habtic Standard straight to your inbox. Subscribe to our monthly newsletter now and keep up to date with the latest corporate wellbeing insights from our experts around the globe.