Fundamental Rights and the Legal Obligations of Business

Fundamental Rights and the Legal Obligations of Business Presented by: Prof. Bilchitz Date: March 9, 2022 The Question - The focus of fundamental rights has largely been on the obligations of the state in respect of the individual - Yet, non-state actors such as corporations have the power significantly to affect these rights - Focus on particular non-state actor: the corporation - Question 1: do corporations have obligations flowing from such rights? - Question 2: if they do, how do we determine the substantive content of those obligations? - Question 2 is the focus of the book - To see why it matters, I provide two illustrations Example 1: Free Speech - Increasingly, corporations are worried about the use of social media and how the conduct of employees on their personal account reflects on company - Consider Data net Ltd which includes a provision in a contract with directors, that they may not post personal opinions on their personal accounts without prior approval of the board - Impacts on free speech rights - Raises question of negative obligations of corporations: what obligations do they have not to harm free speech rights of employees? Is such a restriction permissible? Example 2: Herceptin - Start the book with the case of a poor individual (Thandi) in South Africa diagnosed with breast cancer - A drug known as Herceptin produced by Roche is incredibly effective in treating breast cancer that expresses the HER-2 gene - In 2017, retailed at USD 40 000/year - High cost means not available either in public or private sector to Thandi - Similar issues around access to COVID-19 vaccine - Raises question of positive obligations of corporations: Do corporations have obligations actively to ensure the medicines they develop and manufacture are accessible to all who need them? - What must they do in this regard - provide the drug for free; differential pricing etc? The Goal and Presentation Outline - The Goal: to develop a legal analytical framework for determining the substantive content of corporate obligations with respect to FR - Brief overview: • Structure of the argument • Some key arguments from chapters 6 to 8 which outlines the 'multi-factoral approach' to determining corporate obligations Nature of Corporate Agent - If focus is on obligations of corporations, need to understand the nature and purpose of this entity - Focus on two issues: - The relationship between the corporation and individuals underlying it • Develop a 'supervenience model': this means that the legal corporation is not reducible to the individuals underlying it yet remains dependent upon those individuals. - The purpose of the corporation: • Defend a 'socio-liberal' conception of the corporation: an understanding that it has a complex character. On the one hand, I contend that its very raison d'être is to achieve a range of social benefits; yet, on the other hand, it is designed to enable individuals to achieve their economic goals through a structure that is advantageous to them. • Keeping dual dimension in mind is of importance in providing a persuasive view of corporate obligations Part 1: Legal Doctrinal Models - The first part of the book examines a series of legal doctrinal responses adopted both internationally and in domestic courts to address potential impacts corporations have on fundamental rights - Inductive approach: understanding and drawing out how courts have thus far engaged with corporate obligations - Identify four models: • State Duty to Protect Model • Indirect Application Model • Expanding the State Model • Direct Obligations Model Two Important Recognitions - 1. In each of approaches - a number of which deny corporations have direct obligations courts do in fact have to engage with the task of determining their obligations • Unlike most other discussions, I go further than this and analyse the reasoning process of courts when reaching conclusions about FR obligations - 2. That analysis uncovers an interesting convergence in the approach utilized by courts to determine the substantive content of corporate obligations • 2nd part of the book seeks to justify, systematize and develop the contours of this emergent 'multi- factorial approach' The Multi-Factorial Approach - What is a multi-factorial approach? - No single criterion on the basis of which to reach a legal conclusion - No one normative consideration factor that alone determines the obligations of corporations - In other words, we cannot say simply that if X factor is present, then Y obligation flows. - Instead, determining the substantive content of the obligation is a - function of multiple considerations. - Links with idea of principles developed by Dworkin and Alexy: there are several principles at play in determining co obligations - Courts identify features of a situation that are relevant to specifying an obligation where none are determinative - and then utilize a decision procedure such as 'balancing' to arrive at a conclusion. - Such a multi-factorial approach can, of course, result over time in context-sensitive rules: it becomes known in a legal system, for instance, that where there is a particular constellation of factors, particular obligations flow. Justification for a Multi-Factoral Approach - Normative complexity: no one reason which can alone justifiably determine the legal position in the context - surrounding, for instance, obligations or remedies where other reasons operate too. • Example 1: Effect on FR of directors, for instance, versus autonomy of corporation to achieve its goals - Incrementalism: recognizing infancy of work on corporate obligations and MFA allows to take place in an incremental way - Context-sensitivity: Factors have differing relevance in differing contexts - suitable for wide-ranging size, functions, business of corporations - Judgement: Requires judgement on the part of those utilizing it can avoid box-ticking and embedding of thinking around FR in corporation itself Drawbacks of Multi-Factoral Approach - Lack of clarity: factors pull in different directions and too much discretion - Weaken FR: not clear what individuals can claim and allow wide-ranging justifications for abrogating rights - particularly, acute for corporation where pressures of profit will tend to displace interest in FR - Corporate capture: allows corporations - who are primary decision-makers to determine obligations and often place disproportionate emphasis on commercial interests vis-à-vis FR • That can also impact on how reviewing authorities such as courts consider substantive content as well A Strengthened Multi-Factoral Approach - Simple bright-line rules neither possible nor desirable in certain domains: true of FR generally as well as determining corporate obligations - However, must try respond to critiques and strengthen reasoning process to achieve best possible decisions - That involves 5 main elements 5 Elements Of Strengthened Approach - 1. Identifying relevant factors in advance - 2. Understand normative grounding of factors and how they condition obligations: allows for developing presumptive principles • Eg: the larger the capacity of a corporate entity to harm a right, the more extensive will be its obligations to avoid harming the right and the weight attached to the need for it to avoid negative impacts - 3. Develop a clear reasoning process for balancing where factors pull in different directions - allows arriving at final obligations - 4. Given the in eliminability of judgment, we must attend to the decision-makers and their accountability: requires us to consider the institutional and legal reforms necessary to improve decision- making concerning corporate obligations (e.g. company/international law) - 5. The emergence of rules: over time, rules governing an area or cluster of cases social media policy/pharma - will become more firmly established and clearer. Flexible principles will translate into established rules as in other areas of FR Negative Obligations: Beneficiary-Orientated Factors - Beneficiary-orientated factors (concerned with the rights-holder): • Identify Interest affected underlying right and its Urgency (how related it is to the most serious dimensions of individual lives) • Vulnerability: involves understanding relationship between rights-holder and agent and susceptibilities to their exercise of power recognize power relations and focus on relationships (Colombian CC) • Impact on interest: focuses on the effect on interests in concrete situation ad have due regard to degree of harm, nature of agent, relationship between beneficiary and agent Negative Obligations: Agent- Relative Factors - Agent-relative factors (concerned with the agent who must perform obligations) • Capacity: flip-side of vulnerability but focus on power of agent to affect interests  Not every capacity to impact negatively is impermissible - capacity not sufficient  Raises issues such as probability of harm, intention and contributory harm • Function: Public/private nature of entity often used as basis for obligations reject distinction but focus on features of entities  Consider General Function of Corporations: Social/individual dimensions  Specific functions granting particular power to affect rights media and reputation • Autonomy: Pulls in different direction tending to reduce obligations: freedom to realize purposes of corporation  Understand facets of autonomy affected and not over-state  Relates to ability to conduct economic activity, social functions (media) and property rights Proportionality - Capacity may support imposing onerous obligations; autonomy weaken the obligation - Given factors pull in different directions, decision-procedure necessary - Chapter 7 argues in context of negative obligations, proportionality should be used and is apposite - First part of chapter: argue why a notion used in relation to state obligations is applicable to corporate obligations The Justification For Extending Proportionality - It is a general structured reasoning process applicable to practical reasoning where normative conflicts arise - It enhances a culture of justification that should be applied to non-state actors: imagine director requiring employee to count thousands of pages for no reason and the repeat it: requires justification for exercise of power consistent with dignity - Proportionality applied where asymmetric power between state and individual building in a presumption in favor of rights • Asymmetric power also applies between corporation and individuals: amount of power will vary but very act of incorporation increases power of corporation vis-à-vis individuals (through legal advantages created) - 2nd part of chapter focuses on mechanics of applying the test to corporation - cannot deal with for time reasons Positive Obligations: Broad Framework - Often more controversial: consider model that only - recognizes negative obligations on corporations - Worries of strong interference with autonomy - First part of chapter 8 challenge negative obligations model and why positive obligations do and should exist - Focus here on framework for determining content of obligations - Beneficiary-orientated Factors: • Interest - • Vulnerability • Impact Agent-relative Factors • Capacity • Function: General and Specific Function • Autonomy Additional Dimension: Other Actors - Positive obligations require active steps to be taken to realize rights and can be realized by multiple actors - Content question: how does existence of multiple actors (state and other companies) affect obligations of each? Helps reduce burden - Co-ordination: Do not want duplication of efforts (e.g. two parallel roads built in poor country where so much need) Seven-Step Test - Problem of proportionality: difficult to apply to a failure to act e.g. how does one determine purpose of omission? - Suggest seven step test to determining final obligations • Impact: extent to which right of individual is imperiled by lack of action • Action: identify positive actions required to realize interests of beneficiary • State Capacity: Identify whether state capable of addressing need and extent of incapacity and if affected by corporate behaviors (e.g. high price of • drugs) Specific Function: identify corporations that have specific functions to realize fundamental rights - reduce burden on each by considering others with similar functions (e.g. all pharmaceutical companies) • General Obligation: if lack of corporations with specific functions and inability of state, consider all corporations (and other non-state actors) and share burden amongst them • Alternatives: Evaluate impact of alternative courses of action on corporations and rights of beneficiaries: identify course of action that can realize rights of beneficiaries but not affect autonomy of corporation too substantially • Balancing: evaluate justifiability of course of action given benefits to beneficiaries and cost to corporations A Simplified Model to Positive Obligations:India - Complex enquiry which I contend is normatively/legally correct - Can guide determination of positive obligations - Need for simplification to implement practically - Example: Indian company law: large companies must establish Corporate Social Responsibility Committee (with 3 or more directors and one independent director) which develops a Corporate Social Responsibility Policy relating to a specific area where company can make a contribution and monitoring - Specific areas relate broadly to FR Company must spend in every financial year at least 2% of average net profits dedicated to policy - Increased corporate spending on social causes - Multi-factorial approach highlights benefits of scheme and reforms: • Eg. Specific function enquiry suggest best to utilize expertise to benefit FR • Recognition of autonomy built in - 2% potentially too low given focus on netprofit and could be upped to to 5%: should not become a ceiling • Focused only on large companies and all companies should have some obligations • De-centralized approach has benefits of allowing corporate focus on projects they value but also raises co-ordination problems and difficulties of directing expenditure to most- needed projects • Problems of geographical concentration in more heavily industrialized states due to provision that requires preference to projects in local area around company The Institutional Implications of the Approach - The multi-factoral approach, ultimately, requires the exercise of significant judgement in determining the content of corporate obligations. How to ensure it is applied diligently? - It is thus vital to attend to the processes and structures that need to be put in place including reforming existing law and institutional structures - to ensure that any judgments concerning corporate obligations are exercised in a diligent and justifiable manner - Last part of book addresses these questions - Chapter 9: focuses on the institutional structure and framework within which decisions are made by a corporation and these are set by corporate law • Proposes a set of corporate law reforms to embed fundamental rights in corporation and improve decision-making about their content - Chapter 10: focuses on need to move beyond national to international and changes necessary to improve decision-making surrounding corporate obligations as well as to attain clarity on substantive obligations • Most mechanisms are soft should consider multi-factorial model • Need for more authoritative mechanisms and makes various proposals Conclusion - Corporations have always had significant impacts on fundamental rights, yet they have often resisted recognition of their obligations. - The time has come expressly to take their obligations seriously and attend to two critical matters: developing their substantive content and ensuring decision-makers are diligent in the judgements they make concerning them. - In this presentation, I have focused on the analytical framework - the multi-factorial approach that I propose for determining the substantive content of their obligations. - The approach I hope will catalyze more discussion of this vital question and contribute towards strengthening the understanding of corporate obligations both in constitutional and international law and thus contribute to the advancement of fundamental rights of individuals