AUTHOR: Ozii Obiyo
Some Thoughts for the Boardroom and Classroom on Multinational Corporations and Human Rights
Assume Tagistan is a new Central Asian country of roughly forty-five million people that is the size of California. In 2010, two-hundred Tagistani citizens have sued ten United States Companies doing business in Tagistan in a class action suit in the US District Court in the Southern District of New York. Eight of the defendants are either lending institutions, energy companies, or construction companies. They are alleged to have “aided and abetted” the former Tagistani government, which was overthrown in 2009, of committing human rights violations against them including forced labor, relocation, torture and imprisonment without trial. At the pre-trial stage, it appears that the human rights violations could not have occurred without the direct support, to the government, of eight of the ten companies. The other two companies are a bank that only provided consumer loans and a chain restaurant that sold fast-food to all segments of the Tagistani populace.
1. Consider what law the US multinational corporations can be sued under?
2. Could the “Act of State Doctrine” affect the eventual outcome of this case? What does the term “prudential concerns” mean in this context?
3. Should the two defendants that did not provide direct support to the former Tagaistani government face the same potential liability as the other eight defendants?
4. Do you believe it is ethically defensible for multinational corporations to do business in countries who violate basic principle of human rights? Use two ethical theories to defend your answer.
SOME THOUGHTS
1. The US multinational corporation may be sued under the Alien Tort Claims Act (ATCA). It was adopted in 1789. The act states that “the district courts shall have original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty with the United States.”[1] There is an increasing use of this law with cases that involve human rights violations by foreign governments. One of the earliest uses of the law as a tool for human rights violation was by the family of Joel Filartiga. Joel was tortured and killed in Paraguay. The family sued the Paraguayan police chief responsible for the killing in New York by basing their case on the violation of the ATCA. The court in New York ruled in favor of the family and found the Paraguayan official guilty of violating the “law of nations” according to the ATCA. In addition, in the recent case, Khulumani v. Barclay National Bank, Ltd, the US Court of Appeals inNew York held that a plaintiff may plead a theory of aiding and abetting liability under the ATCA. To conclude, the Tagistani citizens, under the provisions of ATCA, can sue theUS companies for aiding and abetting the former Tagistani government as they committed human rights violations.
2. The “Act of State Doctrine” has little to no affect on the outcome of this case. The doctrine limits the power of the US courts, in special instances, from ruling on the legality of the acts of a sovereign state within that sovereign’s own territory. The doctrine, in essence, is rarely applicable in human rights violation suits. It usually applies to cases that involve expropriation – which occurs when a government seizes a privately owned business or privately owned goods for a proper public purpose and awards just compensation. Based on the facts at hand, there is no mention of expropriation. In addition, the UScompanies would actually be the ones to seek the application of this doctrine in the event of an expropriation by the former Tagistani government. The doctrine also applies to cases of confiscation – when a government seizes private property for an illegal purpose and without just compensation. This doctrine can be used broadly and can sometimes immunize foreign government’s actions, especially, if some of their actions are considered legal within their state. In addition, the burden of proof lies with the party that seeks to apply the doctrine.
Prudential concerns: First, prudential concerns refers to when a defendant (in this scenario, the companies that are being sued) raises the concern that the plaintiff (in this scenario, the people of Tagistan) does not have the authority or stance to sue in a US court by basing their case on ATCA. It is then the responsibility of the court to affirm or dismiss the argument by the defendant. In the case of Khulumani v. Barclay National Bank, Ltd, the Supreme Court declined to affirm the dismissal of the plaintiffs’ ATCA claims on the basis of the prudential concerns raised by the defendants. Given the similarities between this case and Khulumani, it is likely that the same judgment may be applied in this case thereby upholding the use of ATCA.
3. The two defendants should face the same potential liability as the other eight companies. If they were familiar with the acts of the Tagaistani government and continued to do business, then they indirectly aided and abetted the human rights violation by the government officials. Shutting down may hurt the business in the short run but in the long run, they will be respected and be able to maintain a positive global image. The fact is by continuing to do business in the country, they profited from the citizens despite the atrocities that went on. Although the two companies only provided consumer loans and food, it is reasonable to imagine that some of their clients were the government officials that facilitated the human rights violation. As a result, these two companies need to be held accountable for their actions.
4. In discussing if it is ethically defensible for multinational corporations to do business in countries who violate basic principles of human rights, the two theories that might be utilized are the Deontology and Virtue ethics theories. It is important we first determine who the stakeholder is. The key stakeholders here are the victims of the human rights operation. Next, who are the gatekeepers? They are those who are in charge of telling the truth to power, this can be regulators, attorneys, government officials, or anyone who has an authority to act and make a difference.
Deontological Ethics
In the deontological theory, the moral worth of an action is judged by intent of the actor not by consequences because outcomes are uncertain. In essence, it guides what we ought to be doing. And the assumption is that “ought to be doing” is usually doing the right thing. If companies subscribe to this theory, they will have major moral issues, especially the gatekeepers, in conducting business in countries that violate human rights. Others may define the stakeholder as the investor/shareholder in the company and since they demand a return on their investment, it sometimes forces managers to seek growth at all costs even in countries where human rights violations occur. Given that the deontological theory is centered on the actor’s intent, the people that manage the company should be held accountable, not the company as a whole. With this in mind, if for instance a bank manager decides to provide loans to an arms dealer with the intent of just growing the bank’s business but unaware that the ammunition may be used to violate human rights, the intent of the manager can be indirectly linked to the consequence because he aided in the purchase of the arms.
The right thing to do is not always the most profitable thing to do. From a company’s perspective, regardless of the decision, consequences are usually taken into consideration. This is why companies make future projections and base investments on potential incremental cost and revenue. A government is rarely ever in a position to force a foreign company to open up business in the government’s country. The companies that explore strategic growth globally usually undertake multiple analyses before entering a market. If in their analysis they discover that human rights violation may be occurring by the government officials but still decide to enter the market, then the company should be held responsible for the consequences of its actions.
The theory also states that a person should treat everyone as an end in themselves. In essence, our duty is to respect the dignity of each individual human being and not treat each other as a means that exists to serve our purposes. Companies that operate in countries for the sole purpose of increasing earnings per share with no regard to human rights may not be successful in the long run. Furthermore, from a business perspective, it is important for companies to realize that it is profitable for them to operate in a country where all the citizens have access to information and dignity. This will ensure that a company’s market size is sustainable and growth continues. If only a few have access while the rest are oppressed, then the market size is constrained and the company faces the likelihood of stagnation. In essence, it comes back to the argument that in the long run, it is not beneficial for the company, both ethically and financially, to continue to conduct business in a country that consistently violates basic human rights. In addition, even if the company is relatively successful, there is always the growing risk of getting sued by the people whose rights were violated which is not very good public relations.
Virtue Ethics
In regards to virtue ethics, the theory requires we answer this question: “what type of person should I be?” not “what should I do?” This is also applicable to companies. Companies need to ask themselves: “what type of company should we be?” In doing so, the company will realize that continuing to conduct business in a country where there is growing human rights violations is not a virtue the company should be aligning with. In addition, it is bad public relations if the company is dragged into a lawsuit and has to defend its actions in aiding and abetting crimes against humanity. Virtue is something that good managers have as part of their decision-making. Furthermore, a virtue such as honesty or generosity is not just a tendency to do what is honest or generous; it is indeed a character trait.[2] To possess a virtue is to be a certain sort of person with a certain complex mindset.[3] Since managers drive company decisions on whether to conduct business or not conduct business in a country that violates basic human rights, it is crucial for companies to ensure that their managers embody certain character traits in order to pursue the right decisions for the ultimate good of the company and other stakeholders.
There’s a general assumption shared by many economists (and even regular people) that individuals usually act out of self-interest. The same assumption can be applied to companies with “profitability” taking the place of “self-interest.” As a result, decisions by managers are usually made to drive company growth and profitability. And the only stakeholder is the shareholder. This company egoism view can drive companies to seek growth even in countries that violate basic human rights and defend it by saying they are focused on growth and creating value for their shareholders. However, ethics requires us to act in the interest of others.
From the analysis above, it is ethically indefensible for multinational corporations to do business in countries that violate basic human rights. Since companies are not forced by law to continue to operate in the country, then they are violating ethics by continuing their operations. Notably, in the case of Khulumani v. Barclay National Bank, Ltd, the court ruled that the victims of apartheid inSouth Africa do indeed have a viable case under the ATCA against Barclay National, Ltd for aiding and abetting the government during the apartheid regime. What this means is that other companies need to take a note that their actions have consequences whether it directly or indirectly leads to basic human rights violation. Even the boards of directors, who are considered the gatekeepers, are also responsible for ensuring that the company they oversee is heading in the right ethical direction. As leaders of the corporation, they can influence management decision-making and develop contingencies that will motivate managers to enact ethical decisions to benefit the company both in the short term and the long term.
[1] “Global business v. global politics” https://www.pbs.org/now/politics/alientort.html
[2] Virtue Ethics – https://plato.stanford.edu/entries/ethics-virtue/
[3] Ibid
For more information about this month’s blogger, Ozii Obiyo, click here
