This is a guest blog by Bjorn Fasterling, a Business Ethics Professor at EDHEC, a leading business school in France.
In February, the French Parliament adopted a law that obligates French companies to take serious human rights challenges into account. It is called ‘Loi relative au devoir de vigilance des sociétés mères et des entrprises donneuses d’ordre’ (“law about the duty of due diligence of parent companies and main contractors”). It came into force after the French Constitutional Council’s decision on March 28. This new law goes beyond disclosure obligations such as the UK Modern Slavery Act or the Californian Transparency in Supply Chains Act. It requires large French companies to implement an effective 'vigilance' or due diligence plan that directly and practically addresses environmental, health and security, and business-related human rights risks. The scope of the law scope extends to all French companies that have more than 5,000 employees domestically or employ 10,000 employees worldwide.
This law was adopted after an extensive and lengthy parliamentary debate which surfaced fears that French exceptionalism would result in competitive disadvantages for French businesses.
The ‘vigilance’ obligation requires French companies to map the risks throughout their supply chains and with all of the companies that they directly or indirectly control. Companies must, in particular, deal with risks related to their suppliers and sub-contractors with whom the company has an established business relationship. The vigilance plan comprises (a) taking reasonable measures to prevent or mitigate such risks (b) establishing an internal whistleblowing procedure, (c) follow-up and evaluation of measures taken, and (d) public communication of the implementation of the plan. This new French law makes the due diligence responsibilities of companies obligatory and legally binding. The question now are how will this obligation be interpreted and how will it be enforced? The ultimate test of the effectiveness of this new law will be whether it actually changes the behavior of companies and results in greater protections for those who are the potential victims of business related human rights violations. hen assessing the implementation of the law by companies, it will be important to focus on two issues that could impede positive effects of the law, namely, whether it goes beyond merely a bureaucratic focus on compliance, and its low liability risk.
Compliance over culture
It is not difficult to imagine that companies will seek only to satisfy the legal requirements, and they will retain a number of advisors to make business ‘vigilance-proof.’ The law clearly offers business opportunities to the compliance industry, but may fail in providing tangible relief to victims.
Too often laws related to compliance with social standards require elaborate management processes often do not succeed in realizing their stated objectives. The effectiveness of formal management processes depends on supportive organizational cultures. In this case, the French law will be helpful, but only if large French business enterprises have organizational cultures in which shareholders, board directors, managers and employees are committed to compliance. This will mean that the company is willing, when carrying out operations, including through subsidiaries or business partners, to prevent and mitigate risks other than to the company itself. The ability of hard law to influence organizational cultures and individual perceptions is often limited. In many instances, legislation can have unintended and consequences, particularly when employees realize a disconnect between a company's formal compliance program and its informal management routines. For example, if employees realize that measures taken are at best symbolic and do nothing to improve the situation on the ground, they might develop a cynical attitude towards human rights management. This would impede the development of an organizational culture favorable to corporate human rights respect.
Zero liability risk
Many will ask then if the law will, at a basic level, surface liability risks faced by French companies creating incentives to prevent business-related human rights violations. Simply put, is it possible that the legal liability created by this law will make human rights risks and business risks converge? Unfortunately the answer appears to be no. The law refers to general fault liability of the parent company and explicitly excludes liability for other people’s actions. Therefore, a victim will have to prove that a loss was suffered due to the absence of an effective vigilance plan drawn up in a corporate headquarters. In other words, a victim would have to demonstrate the hypothetical effectiveness of 'vigilance plans' with regard to the victim's individual case. Supposedly, a plaintiff would need a sitting-duck case, a good deal of inside information from the defendant, and a genius of a lawyer to be successful. And in all likelihood, litigation would never even get to questions as intricate as the effectiveness of 'vigilance' plans. Companies that comply with the wording of the law will in fact be given safe haven against liability. Any possible liability claim could be conveniently rebutted by the argument that the company - after all - complied with the law's 'vigilance' requirements. And so, companies are indeed well advised to comply with the law, but they need not bother, if the required vigilance measures do anything to improve the situation for potential victims.
Positive Signal?
Similarly it is hard to tell if the law is a positive signal and as a step in the right direction. Given the new compliance demands even those managers who were trying to meaningfully implement the UNGPs due diligence provision, might deviate their attention and budgets to satisfying compliance rather than focusing on effective human rights risk management on the ground. If this is the case, the French law would not do much more than unite large corporate groups in sophisticated box-ticking and erudite corporate communications about how much they respect human rights and the environment. Carrying out ‘vigilance’ according to the letter of the law, will satisfy a public that is content with symbolic law that merely appears to be hard. While the Swiss Responsible Business Initiative somewhat resembles the French law in many aspects, it promotes a stricter liability standard as companies can become liable for actions of companies under their factual control. A real liability risk, ironically, could however become precisely one of the reasons why the Swiss (concerned about the competitiveness of their businesses) might eventually vote against the initiative.