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Corporate law & corporate governance

The State responsibility to foster a corporate culture respectful of human rights both at home and abroad is a key element of the first pillar of the UN Guiding Principles on Business and Human Rights, the state duty to protect. Corporate law dictates the formation and the activities of corporations, while corporate governance regulates the balancing of interests among a business’s different stakeholders. Corporate law and governance therefore directly shapes what businesses do and how they do it. However, their connection to human rights remains poorly understood, as they are often viewed as distinct legal and policy spheres, populated by different communities of practice. (Report on Human Rights and Corporate Law). Some of the key concepts and characteristics of corporate law such as legal personality, limited liability, liability within corporate groups, and delegated management have been obstacles to the legal accountability of transnational companies for human rights-related abuses by their subsidiaries and business partners. On the other hand, several aspects of corporate law and governance such as rules on company disclosure, non-financial reporting, directors duties and stakeholder engagement are important for the protection of human rights and remediation of any harms.

The UN Guiding Principles recognise the key role of corporate law and governance in the protection of human rights. According to Guiding Principle 3, in meeting their duty to protect, States are urged to:

“(a) Enforce laws that are aimed at, or have the effect of, requiring business enterprises to respect human rights, and periodically to assess the adequacy of such laws and address any gaps;

(b) Ensure that other laws and policies governing the creation and ongoing operation of business enterprises, such as corporate law, do not constrain but enable business respect for human rights

(c) Provide effective guidance to business enterprises on how to respect human rights throughout their operations;

(d) Encourage, and where appropriate require, business enterprises to communicate how they address their human rights impacts.”

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What National Action Plans say on Corporate law & corporate governance