Human rights as an ethical framework for corporate governance

In presenting the Final Report and recommendations of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry in February, Commissioner Kenneth Hayne found that many of the organisations they were called upon to investigate throughout the Commission had failed to meet ‘community standards and expectations’.

One way organisations can meet community expectations of corporate conduct is by ensuring that decision-making is consistent with internationally recognised human rights norms.

Human rights are based in international law, and provide an ethical lens that can transcend national and cultural boundaries. They put people at the centre of decision-making, and can be used to assess and address any unintended harm. They also remove the subjective element from ethics and replace it with internationally agreed standards that are ready to be incorporated into thoughtful governance, corporate decision-making processes and sustainability reporting.

In his Report, Commissioner Hayne summarised ‘community standards and expectations’ through an ethical lens that he felt should inform business conduct, including corporate governance in its widest sense:

• obey the law;
• do not mislead or deceive;
• be fair;
• provide services that are fit for purpose;
• deliver services with reasonable care and skill; and
• when acting for another, act in the best interests of that other.

The Report challenges corporate Australia to rethink the orthodoxy of their corporate governance model by suggesting that the community expects corporate Australia to foster a culture that promotes good leadership, decision-making and ethical behaviour. It also highlights the important role of directors and management in embedding such a culture. Human rights is a well-established ethical framework through which to frame that conversation.

If well implemented, a human rights framework would also contribute to the Report’s recommendation that shareholder interests be considered alongside (but not necessarily in priority of) those of other stakeholders. A human rights framework can provide a value-based underpinning for directors as they try to balance the interests of a number of different stakeholders whose interests in the organisation, direct or indirect, appear to now form part of a director’s statutory and fiduciary obligations.

What does a human rights approach entail?

A human rights approach asks an organisation to consider their business conduct and practices against the legitimate rights of stakeholders and the duties and obligations of the business to respect human rights. Where individuals may be directly affected by decisions, an organisation taking a human rights approach will consider the legal, regulatory, moral and actual rights of those involved and, where practicable, will include affected persons in the decision-making process through communication and consultation.

An organisation that adopts human rights policies and principles will not only ask the question ‘can we?’ but ‘should we?’

When it is done well, a human rights approach to governance can help develop a corporate culture that considers all stakeholders affected by a certain decision. It is a model that, in the language of the Commission, recognises the ‘differences between a short-term and a longer-term view of prospects and events’.

Human rights are good business

Separately from meeting some of Commissioner Hayne’s requirements regarding culture and community expectations, human rights make good business sense.

Organisations that integrate human rights considerations into their core business practices can see decisions as justifiable and in the best interests of the organisation. As the Australian Human Rights Commission sensibly points out, doing so:

• safeguards an organisation’s reputation and brand image;
• highlights human and environmental risks before technical or investment decisions are made;
• reduces cost burdens associated with stakeholder damage control, labour disputes and security issues;
• reduces the risk of costly litigation; and
• improves governance.

In essence, human rights can provide a basis for practical understanding of what is ethical, what is efficient, honest and fair, and what is the ‘right’ thing to do.