Merging Human Rights with Corporate Restructuring Transactions

Photo by Sean Pollock on Unsplash

Nandini Shenai and Miheer Jain*

I. Introduction

All corporations, irrespective of the industry, scale, or country, are increasingly expected to operate in a manner that upholds human rights.[1] They must also participate actively in advancing ecological concerns.[2] Corporations are under great pressure, maybe even a social requirement, to behave in accordance with the major globally recognised standards in the human rights context. The Universal Declaration of Human Rights (UDHR),[3] the International Covenant on Civil and Political Rights (ICCPR),[4] the International Covenant on Economic, Social, and Cultural Rights (ICESCR),[5] and the International Labour Organization’s Declaration on Fundamental Principles and Rights at Work[6] are among these standards.

In pursuance of the same, the United Nations Human Rights Council approved the “Guiding Principles on Business and Human Rights”[7] (UNGPs) in 2011 establishing that corporations have a commitment to human rights. Notably, it establishes an obligation for corporations to conduct human rights due diligence. Some nations have gone even further, enacting laws that require corporations to oversee and execute human rights due diligence practices.[8] The dilemma of human rights has therefore emerged on the radar of corporations, both in the scope of their operations and the partnerships they form. Consequently, corporations have a responsibility to conduct human rights due diligence in the Corporate Restructuring transactions they undertake.

This article will first outline the UNGP’s guiding principles and the background law governing corporate human rights due diligence. Then, this article will identify the most common hurdles that corporations face when accounting for human rights while undergoing corporate restructuring. Finally, this article offers solutions to those hurdles and proposes a path forward.

II. United Nations Guiding Principles on Business and Human Rights

The UNGPs’ approval was a watershed moment in the history of commerce and human rights. There have been numerous unsuccessful efforts to establish international norms to combat unfavourable human rights abuses by multinational companies over several decades prior to 2011. For example, the “[n]orms on the responsibilities of transnational corporations and other business enterprises with regard to human rights”[9] attempted to argue that state-based human rights treaties were binding on corporations. That argument proved to be contentious.[10] As a result, the UN Commission on Human Rights did not pay heed to the Draft Norms, claiming that they lacked “legal validity and enforcement.”[11]

Nevertheless, given high-profile examples like the Bhopal Gas Tragedy, the topic of multinational companies’ and linked commercial entities’ human rights obligations became a prominent concern.[12] The Bhopal Gas Leak is known as one of the world’s worst industrial disasters where a methane leak from the Union Carbide Corporation left more than 15,000 people dead and whose effects can be seen even today, 38 years later.[13] The UNGPs were proposed as the solution to this issue, and both governments[14] and companies[15] enthusiastically embraced them. While many Non-Governmental Organizations applauded the UNGPs’ “protect, respect, and remedy” approach, there was criticism that the UNGPs were only “soft” legislation and did not go far enough to curtail violations.

The declaration has three pillars: (1) the governmental obligation to “protect workers rights,” (2) the corporate obligation to “respect human rights,” and (3) worker’s rights to “claim remedy.” In terms of the second pillar, GP 11 states that all private entities, including corporations, have an obligation to “honour” human rights, admonishing that the company “must not infringe on the human rights of its employees and should resolve and minimise detrimental human rights effects of the deals that they undertake.”[16] Corporations can have a negative influence on human rights in a variety of ways, including through their own activities or by activities of their subsidiaries, and the GP 11 seeks to curb that.

GP 22 continues on to say that businesses should compensate victims if their actions have led to injury. Companies should have internal “systems and laws applicable to their magnitude and conditions” in place to define if and how they are engaged in an existing or perceived detrimental human rights violation. If violations occur, the companies must correct their actions and recognise, avert, reduce, and ultimately be held responsible for how they remedy such violation.

III. Background and Status Under Existing Law

The state where a company is located has primary responsibility under international human rights law, and the UNGPs do not impose any additional international liability. As a result, the UNGPs are frequently referred to as “soft” laws. This title, though, might be deceiving. A company that violates human rights implicates itself (and, in some cases, its employees) to possible legal responsibility, negative publicity, and the threat of backlash and disengagement.[17] Therefore, although soft “law,” these practical considerations might place non-legal pressure on corporations to respect human rights.

A corporation’s obligation under international law will almost always spring up under the national law of a country or the region where the human rights violation occurs.[18] This might be a violation of specific human rights legislation or a violation of a law that does not explicitly relate to human rights, such as non-discrimination rules in labour law, data protection laws, workplace safety law, or common tort law. As an attempt to ensure people get access to a recourse, some nations will assume extraterritorial jurisdiction over specific detrimental human rights violations.[19] The best example of this is Lungowe v. Vedanta and Konkola.[20] There, the United Kingdom Court of Appeal imposed liability on the parent companies (UK-based Vedanta) alongside their non-UK subsidiaries (Zambian-based KCM) for adverse human rights violations occurring abroad such as releasing harmful effluents into drinking water and pollution of the surrounding environment.

Despite the guidance on the international level and market and legal liability on the individual nation-state level, corporations still face hurdles when incorporating human rights and ecological due diligence into their standard corporate restructuring practices. Consideration of those hurdles is where this article now turns.

IV. Hurdles Faced by Companies While Undergoing Restructuring

Corporate restructuring is an activity performed by a company to fundamentally alter its financial performance or operational processes.[21] In effect, an entity searches for a variation in the business’ ownership model, meaning that companies sometimes try to alter their structure and ownership model. Sometimes while undertaking such transactions, companies tend to violate the human rights of their employees or other individuals involved.[22] These violations could range from gender pay-gaps,[23] to non-compensated working hours,[24] to breach of privacy and data.[25] Human rights abuses are also possible through the selling or acquisition of businesses and assets as a contingency. For example, when companies undergo acquisitions or acquihires, private details of their employees may be exposed, and their rights violated as collateral damage.

A few key hurdles and issues exist to incorporating a respect for human rights into corporate restructuring transactions. First, it is difficult to measure the magnitude of human rights threats, and hence they are often overlooked. Second, due to the rushed nature of restructuring transactions and the need for confidentiality, dedicating additional time to thoroughly analyse human rights concerns is especially difficult. Third, a corporation may be unaware of the human rights repercussions and consequences of its actions. Fourth, there is an absence of specialised teams to conduct these processes. Finally, there is minimal emphasis during due diligence on non-legal concerns, especially labour and human rights. If corporations wish to integrate pro-human rights strategies to their restructuring transactions, they need to recognise and capitalize on these core issues.

To better uphold the declaration’s vision and protect human rights, businesses must collect accurate data and ensure that due diligence involves the detection of possible threats and prospective breaches in human rights.[26]  These procedures should also offer (precautionary and/or restorative) remedies to the problems that have been discovered. As a result, data must be gathered, and businesses must be committed to providing complete transparency on these issues. This would include details on how they run their business, treat their workers, influence the society around them, plan to participate in building a more sustainable future, and ensure that their associations, customers, and vendors follow the same values.

In a due diligence procedure, these concerns should be examined not just for the corporation’s own activities and initiatives, but also for those of its subsidiary companies, which may be situated in jurisdictions with less stringent regulations on these matters.[27] This international component is yet another reason why international law and the declaration ought to play more of a role in respecting human rights through corporate restructuring. It must also consider the corporation’s interactions with private entities, such as vendors, staff engaged in distribution, and clients.

As a result of this heightened awareness, there has been an increase in cases filed against businesses for alleged past human rights abuses, including those that occurred under the company’s supervision.[28] Last year, the Supreme Court of the United States heard a case against Nestle USA and Cargill on account of human right abuses in the Ivory Coast.[29] Regardless of the ultimate Court judgement, human rights-related legal proceedings can have an influence on a company’s financial status, shares, and brand, as well as inflict injury to a company’s creditworthiness.[30] These cases and their detrimental impact on business or image serve as stark reminders of why accounting for human rights in corporate restructuring is in the best interests of all—even the corporations themselves.

V. Suggestions and Conclusion

Corporations of all sizes, including those of a relatively small scale or situated in less dynamic geographical regions, must be mindful of human rights concerns through corporate responsibility for the welfare of the region in which they function. Corporations must be required to collect and disclose accurate information on any labour or human rights-based concerns that arise. Corporations will feel obligated to deliberate on this notion, examine their previous practises, and establish future procedures in a swift and equitable fashion as a result.

A deeper knowledge of the corporation’s prospective business plan will allow them to adjust their strategy and concentrate on the areas where the concerns are highest. However, human rights expertise is not required from corporations. They must, nevertheless, have adequate knowledge to identify when human rights concerns are a significant concern for the corporation to address. For instance, in India, this exact proposal has been put forth by the Ministry of Corporate affairs by way of the National Guidelines on Responsible Business Conduct.[31] Corporations either have in-house legal teams or outsource this job to law firms so that they can be advised of any ongoing or potential human rights violations that take place. All companies should do this going forward.

Several departments may have excellent perspectives into possible exposures, but they aren’t called on in time to give those observations before a transaction is closed. Depending on information and material gathered from their strengthened due diligence process, the corporation may make a high-level evaluation of the threats and decide where to go inside their own organization for more due diligence assistance if required. All companies should ensure that possible violations can be identified and addressed before a transaction is closed.

After all, transaction-specific due diligence and contractual compliance has a limited ambit once the deal is closed. With such a due diligence, the advantage over the opposing side is gone. After a business is bought, a particular team inside the acquiring firm will be in charge of dealing with the human rights implications. This is precisely why it makes sense to account for human rights and ecological due diligence on the front end, rather than after the fact. Finally, the strength of a firm’s wider human rights due diligence strategy, as well as how it is implemented across the whole organisation, is critical in ensuring that the company can fulfill present and future regulatory obligations, as well as international and nation-state standards to respect the human rights of all.


* Nandini and Miheer are 4th year BBA. LLB (Hons) Student at NMIMS School of Law, Mumbai. They can be reached at nandini.shenai49@nmims.edu.in and miheer.jain19@nmims.edu.in respectively.

[1] National Action Plan on Business and Human Rights, Ministry of Corporate Affairs (December 10, 2018), available at National Action Plan on Business & Human Rights. – MCAhttp://www.mca.gov.in › ZeroDraft_11032020

[2] The Investor Revolution, Harvard Business Review (June 2019), available at https://hbr.org/2019/05/the-investor-revolution

[3] The Universal Declaration of Human Rights, United Nations (December 10, 1948), available at https://www.ohchr.org/en/udhr/documents/udhr_translations/eng.pdf

[4] International Covenant on Civil and Political Rights, United Nations (March 23, 1976), available at https://www.ohchr.org/documents/professionalinterest/ccpr.pdf

[5] International Covenant on Economic, Social, and Cultural Rights, United Nations (January 03, 1976), available at https://www.ohchr.org/documents/professionalinterest/cescr.pdf

[6] Declaration on Fundamental Principles and Rights at Work, International Labour Organization (June 18, 1998), available at https://www.ilo.org/wcmsp5/groups/public/—ed_norm/—declaration/documents/normativeinstrument/wcms_716594.pdf

[7] Guiding Principles on Business and Human Rights, United Nations (June 16, 2011), available at https://www.ohchr.org/documents/publications/guidingprinciplesbusinesshr_en.pdf

[8] Nicolas Bueno, “Teaching Note:  Mandatory Human Rights Due Diligence Legislation” in Teaching Business and Human Rights Handbook, Teaching Business and Human Rights Forum (2019), https://teachbhr.org/resources/teaching-bhr-handbook/mandatory-human-rights-due-diligence/

[9] Norms on the responsibilities of transnational corporations and other business enterprises with regard to human rights, United Nations (August 26, 2003), available at Norms on the Responsibilities of Transnational Corporations …https://digitallibrary.un.org › record

[10] Julianne Hughes-Jennett, et. al., A binding treaty on business and human rights? Still a way to go., Hogen Lovells Focus on Regulation (Nov. 2, 2017), available at https://www.hlregulation.com/2017/11/02/a-binding-treaty-on-business-and-human-rights-still-a-way-to-go/.

[11] Suzanne Prochazka, Did you expect corporations to have conscience?, Queen Mary University of London, available at https://www.qmul.ac.uk/law/humanrights/media/humanrights/news/hrlr/2015/Prochazka-2015-2-QMHRR-84.pdf

[12] Framing Corporate Social Responsibility in the Chemical Industry, Lund University, available at https://lup.lub.lu.se/luur/download?func=downloadFile&recordOId=3357948&fileOId=3409046

[13] 37 years on, children not then born scarred forever by Bhopal gas leak, The Hindu (Dec. 3, 2021), available at https://www.thehindu.com/news/national/other-states/37-years-on-children-not-then-born-scarred-forever-by-bhopal-gas-leak/article37818031.ece

[14] Sam Eastwood, et.al., Germany passes mandatory Human Rights Due Diligence Law, Mondaq (June 22, 2021), available at https://www.mondaq.com/germany/human-rights/1081300/business-and-human-rights-germany-passes-mandatory-human-rights-due-diligence-law

[15] Business & Human Rights Centre, Tata Group, available at https://www.business-humanrights.org/en/companies/tata-group/

[16] Guiding Principle 11, Global Naps, available at https://globalnaps.org/ungp/guiding-principle-11/

[17] Global Problems Global Solutions, World Trade Organization, available at https://www.wto.org/english/res_e/booksp_e/public_forum09_e.pdf

[18] Corporate Social Responsibility, United Nations Industrial Development Organization, available at https://www.unido.org/our-focus/advancing-economic-competitiveness/competitive-trade-capacities-and-corporate-responsibility/corporate-social-responsibility-market-integration/what-csr

[19] Zerk, Jennifer A. 2010. “Extraterritorial jurisdiction: lessons for the business and human rights sphere from six regulatory areas.” Corporate Social Responsibility Initiative Working Paper No. 59.  Harvard University, available at https://www.hks.harvard.edu/sites/default/files/centers/mrcbg/programs/cri/files/workingpaper_59_zerk.pdf

[20] Lungowe and Ors. v Vedanta Resources Plc and Konkola Copper Mines Plc (2017) EWCA Civ 1528

[21] What is Corporate Restructuring?, ClearTax (July 28, 2021) available at https://cleartax.in/s/corporate-restructuring

[22] William Sullivan, Matthew Oresman, and Fabio Leonardi, Retroactive Corporate Liability for Human Rights Abuses, Pillsbury Law (July 12, 2017), available at Retroactive Corporate Liability for Human Rights Abuseshttps://www.pillsburylaw.com › news-and-insights › ret…

[23] Joel Rosenblatt, 10,800 women suing Google over gender pay disparity win class-action status, Business Standard (May 28, 2021), available at https://www.business-standard.com/article/international/10-800-women-suing-google-over-gender-pay-disparity-win-class-action-status-121052800121_1.html

[24] Charles Chau, 13.5% of workers in Taiwan not given overtime pay, hrmasia (Feb. 28, 2022), available at https://hrmasia.com/13-5-of-workers-in-taiwan-not-given-overtime-pay/

[25] Shaun Nichols, Metaverse rollout brings new security risks, challenges, (Feb. 7, 2022), available at https://www.techtarget.com/searchsecurity/news/252513072/Metaverse-rollout-brings-new-security-risks-challenges

[26] Taylor, Mark B., Luc Zandvliet and Mitra Forouhar, 2009, “Due Diligence for Human Rights: A Risk-Based Approach.” Corporate Social Responsibility Initiative Working Paper No. 53, Harvard University, available at https://www.hks.harvard.edu/sites/default/files/centers/mrcbg/programs/cri/files/workingpaper_53_taylor_etal.pdf

[27] Corporate Due Diligence and Corporate Accountability, European Parliamentary Research Service (October, 2020), available at https://www.europarl.europa.eu/RegData/etudes/STUD/2020/654191/EPRS_STU(2020)654191_EN.pdf

[28] Holding Companies Accountable, Human Rights Watch, available at https://www.hrw.org/world-report/2020/country-chapters/global-2#

[29] Supreme Court limits Human Rights Abuses against Corporations, New York Times, https://www.nytimes.com/2021/06/17/us/supreme-court-human-rights-nestle.html

[30] Firms linked to Human Rights abuses see their stocks drop, Promarket (February 16, 2021), available at https://promarket.org/2021/02/16/assassinations-environmental-activists-stocks-drop-company-reputation-shame/

[31] National Guidelines on Responsible Business Conduct, Ministry of Corporate Affairs (December 10, 2018), available at NatioNal GuideliNes oN respoNsible busiNess coNduct – MCAhttps://www.mca.gov.in › Ministry › pdf › Nation…