Pillar II. The Corporate Responsibility to Respect

Due Diligence [pages 35-36]

The Government of the Czech Republic recommends that businesses consider introducing an internal due diligence mechanism to spot and eliminate human rights risks, or incorporate human rights risks – as another evaluation criterion – into their existing due diligence mechanisms.

The term “due diligence” is broadly known in the business community and denotes in-depth reviews into businesses and or the transactions they are preparing. The UN Working Group on Business and Human Rights defines human rights due diligence as a process to identify and evaluate human rights risks, a series of steps to understand how a company’s activities can affect human rights. It must also include appropriate responses to the findings. A fundamental difference between financial risk and human rights risk is that, while financial audits and financial due diligence explore the ramifications for the business itself, human rights due diligence examines the effects on third parties – the holders of human rights (customers and people living in the vicinity of a business or who are affected by its operations).

The search for and eradication of human rights risks should form part of all major commercial operations, not just because any violations of human rights that are exposed could lead to hefty financial losses (compensation, loss of customers, a tarnished reputation), but mainly because – unlike economic loss – human rights loss cannot be fixed so easily.

An effective due diligence mechanism should meet the following criteria:

  • Consider the internal risks (stemming from the business’s own operations) and external risks (particularly in relation to business partners and other entities with which the business works).
  • Identify existing risks (with a view to eliminating them) and potential risks (with a view to preventing any loss or damage).
  • Adapt the mechanism to the size of the business, the nature of its operations and specific local factors.
  • Implement the mechanism in the internal management system.
  • Regularly update the mechanism to reflect evolving conditions.
  • Leverage the experience and knowledge of independent experts who operate externally or maintain a high degree of personal independence.
  • Engage employees, as they should have the opportunity to draw attention to risks and provide assistance in the removal thereof.
  • Engage the public directly concerned, stakeholders in the community and vulnerable groups in the formation of the mechanism.

Public engagement can take many forms. First of all, this may entail consultations with those affected by businesses’ operations (holders of human rights) because these people are best placed to highlight the problems looming over them. Likewise, employees should be involved as they need to know how to deal with the knowledge they accrue in their work. Finally, public engagement may comprise external expert opinions, opposing views, etc.

Most companies have already introduced control mechanisms that can be tweaked so that they also apply to human rights risks. These tend to be compliance mechanisms, used by businesses to keep track of requirements imposed by legislation, regulators, investors and capital markets (the conditions for participating on the stock exchange etc.). Businesses should view the obligation to respect human rights as a legal compliance matter. Even if the duty to comply with human rights in the course of business operations may not derive directly from a particular country’s legal system, businesses should act as though this were the case and attribute the weight of the law to moral and ethical rules in their internal decision-making. This will enable them to incorporate human rights protection into existing mechanisms used to run checks on legal obligations. As a result, businesses will comply with their duty to respect human rights and take due care at minimum extra cost, thereby making big savings.

Human rights auditing should extend beyond the actual business to some extent and touch on the activities of external entities, such as those in the supply chains. Businesses could have a hand in violations of human rights through their own negligence, including via their subsidiaries and suppliers. Such conduct, despite not being wilful or intentional, does not relieve a business of liability as it could be viewed – by the courts and the public – as a form of negligence or failure to engage in appropriate supervision.

Although it is impossible for a business to carry out due diligence at an external entity to the same extent as internal due diligence, those areas that are most at risk should be identified, someone should be singled out as liable for infringements of rights and, where possible and feasible, specific steps to eliminate these risks should be demanded. If external risks identified, businesses should exercise any influence they have to stave off those risks, for example by sharing good practices and their own experience. Businesses lacking such influence should leverage their links with other entities (customers, suppliers, business associations, trade unions and bodies of public administration). If they have no way of influencing such conduct, they should weigh up the option of terminating cooperation.

Businesses who decide to publish the results of due diligence should:

  • Choose a form that the general public can readily understand. Besides conventional reports, they might consider personal meetings, online discussions and public hearings.
  • Choose a scope and frequency that enables them to pass on all necessary information without overwhelming the reader.
  • Publish not only the risks that have been identified, but also the steps to tackle them.
  • Withhold information that could encroach on the privacy or other legitimate interests of employees and other persons, and refrain from disclosing business secrets.

Documents and sources of information

The Office of the Government of the Czech Republic collects model documents, guidelines and materials intended for businesses to improve the performance of tasks in this chapter, and posts them on the National Corporate Social Responsibility Portal: http://narodniportal.cz/