11
FEB
2016

MNCs are moving to greater accountability – are business schools meeting the demand?

global businessBusiness school programs are designed to produce skilled managers who can lead enterprises and maximize stakeholder value both now and in the future. Core business disciplines such as entrepreneurship, marketing, cost accounting, finance, and program management remain constant to a manager’s professional education, but MBA programs must always adapt to the changing business conditions. For example, after the fall of the Berlin Wall, business education curriculum rapidly evolved in response to growing globalization with the opening up of new markets and international businesses opportunities facilitated by new transportation and communication technologies.

Today, however, multinational corporations (MNCs) must manage and operate with greater accountability and expectations in a hyper-globalized economy.  MNCs have increasingly complex global supply chains that reach into states with weak governance, instability, and at times active conflict. In such areas, states may not be able to fulfill their obligations to protect against human rights abuses by third parties, to include private actors such as businesses.

As a result, companies are increasingly adopting policies and practices to meet new business and human rights standards and disclosure requirements to identify and address adverse impacts on human rights caused by their business activities or supply chain relationships anywhere in the word, and regardless if the host state is able or willing to meet its human rights obligations.  The scale of this shift in company operating requirements for MNCs has created new management needs for business schools to consider. Are they doing all they can do to prepare future managers to lead in these companies?

Increasing international and state mandates for business and human rights

International framework initiatives for human rights due diligence and good management practices have been gathering momentum since the 1990s. The 2011 United Nations Guiding Principles on Business and Human Rights (UNGPs) require companies to identify, prevent, mitigate and address adverse impacts on human rights caused by either their own activities or as a result of their business relationships. Several industry sector-specific initiatives are also in place, to include frameworks for the apparel manufacturing, extractives, private security, and information technology industries.

The number of business and human rights-related mandatory disclosure requirements for MNCs is also increasing. From 2013 to 2015, a number of non-discretionary company disclosure requirements involving human rights and business activities and/or supply chains abroad have been implemented at the state level, to include the United States and the United Kingdom.

Another example is the California Transparency in Supply Chains Act of 2010 (CA-TISCA), the first of its kind in the United States.  Every retail seller and manufacturer doing business in California with annual revenues exceeding $100 million is now required to release an annual statement detailing efforts to eliminate slavery and human trafficking from their direct supply chains. California’s positon as the largest state economy in the U.S. and the world’s 8th largest economy makes this recent legislation particularly relevant.

Beginning in 2014, Section 1502 of the Dodd-Frank Act required public company “conflict mineral” disclosures to the SEC to disclose whether certain minerals used in the manufacture of various products is sourced from the Democratic Republic of the Congo or neighboring countries.

Likewise, in 2013 the U.S. Government stipulated that any U.S. person who invests $500,000 or more in Burma (Myanmar), or invests in Burma’s oil and gas sector, is required to complete and submit Department of State reporting requirements as set forth in the Department of State’s Reporting Requirements on Responsible Investment in Burma.

MNCs are also paying close attention to recently released relevant National Action Plans on Business and Human Rights.  Since 2013, 10 states have developed national action plans on business and human rights as part of the state responsibility to disseminate and implement the UNGPs. Nineteen other states, to include the United States, have national action plans currently under development. The U.S government is expected to publish its National Action Plan on Responsible Business Conduct in 2016.  The plan is expected to detail efforts to implement the U.S. government’s commitment to the UNGPs.

The corporate challenge – moving from commitment to practice in business operations and relationships  

It’s not only that states are increasing business disclosure requirements, MNCs themselves have increasingly committed to business and human rights principles.

Over 8000 company chief executives (part of 12,000 + total signatories in 170 countries worldwide) have signed Letters of Commitment expressing their commitment to the United Nations Global Compact Ten Principles on human rights, labor, environment and anti-corruption. Principle 2 states that businesses should make sure that they are not complicit in human rights abuses.

Many MNCs have also endorsed the UNGPs, the first authoritative global framework to establish the responsibility to identify and address human rights risks related to business activities, and the OECD Guidelines for Multinational Enterprises which, while non-binding,  provide principles and standards for responsible business conduct in a global context, to include how corporate due diligence should be observed in a conflict region. The OECD Guidelines were updated to comport with the UNGPs.

The adoption rate of management practices to implement business and human rights policies differ by industry sector and risk exposure – companies with previous human rights incidents or that operated in a high risk industry were the earliest adopters. Many of these early adopters participated in  multi-stakeholder initiatives involving academics, civil society, governments, industry, and international organizations to develop business and human rights frameworks specific to their industry, to include the Voluntary Principles on Security and Human Rights for the extractive sector, the International Code of Conduct for Private Security Providers for the international security sector, the Fair Labor Association for the apparel sector, and the  Global Network Initiative for the information technology sector.

Individual companies have also demonstrated their commitment to business and human rights practices when investing in new markets.  When Ball Corporation, a U.S.-based can and tin company decided to enter Burma (Myanmar) to manufacture beverage cans for locally produced Coca Cola products, they conducted due diligence on how their products would impact local populations.  In Ball’s July 2015 Responsible Investment in Burma report, they described their approach to stakeholder engagement which was further elaborated on during an interview with company leadership on National Public Radio.

However, while companies are increasingly showing the commitment to adopting business and human rights policies and practices, it is far more difficult to translate these same corporate commitments to actual management practices and metrics at the operational and supply chain levels.

Consider the recent  article by Harvard Business Review (HBR) on an Amnesty International report on major global technology and automobile brands with reported human rights abuses in their extensive global cobalt supply chains. The Harvard article concludes that the implicated global brands cited in the report do want to make their supply chains more ethical and would not willingly tolerate human rights abuses in their supply chains. Instead, HBR points out that failure to address ongoing abuses may more revolve around “willful ignorance”.  Meaning that while companies do care about the ethics of their operations, they’re not actively investigating their supply chains to seek out this information. HBR feels that a reason for this may be that company decision makers may be wired or have “psychological mechanisms” to make them want to avoid difficult issues, such as initiating internal investigations.

Recent first hand reports such as this suggests that even the most respected of MNCs can still unknowingly fall short of their responsibility to respect human rights within their supply chains, regardless of the commitment of the company. Accordingly, MNCs need business managers familiar with business and human rights standards and able to identify and rectify gaps in their human rights management practices as it applies to their specific business operations and supplies chains throughout the world.

The global business environment has changed. The business school mission to prepare future business leaders has not.

It is not yet clear if business schools, with some notable exceptions, are sufficiently adapting their own programs to prepare future business leaders to apply and integrate human rights management practices into company operations sufficiently to responsibly lead and grow their businesses in today’s far more globalized and connected business environment.

The establishment of the Center for Business and Human Rights (CBHR) at New York University’s Stern School of Business in 2013 is certainly one indicator that business schools are adapting their programs to prepare MBA candidates for the human rights in business needs of MNCs in the 21st century. NYU Stern is the first business school to establish a specific center for business and human rights and sets the example for other business schools to follow.

However, several other indicators suggest that there is still a very long way to go for professional business education to sufficiently adapt to fully preparing future managers for the changing needs and challenges of companies operating in today’s global market.

The UN Global Compact Office and the Secretariat of the UN Principles for Responsible Management Education (PRME) maintains an open letter to academic institutions to make the case that demand for multidisciplinary business and human rights education is growing worldwide and that companies are looking to hire graduates with the skills to manage the human rights risks and opportunities of business activities and relationships.

In 2014, the Financial Times published an Op-ed by Professor Ken McPhail detailing his view that business schools are ignoring the emergent role of companies in modern society, rightly pointing out that the power relationship between states and MNCs has shifted dramatically over the past 40 years.  In 2016, Professor Dorothée Baumann-Pauly of NYU Stern and HEC Lausanne, expanded on the view that business schools could be more innovative when she  articulated a number of current challenges of teaching business and human rights at a business school.

Business schools must be responsive to the needs of businesses operating in a hyperglobal economy where both conditions and stakeholder expectations have evolved significantly.  Business schools can, and should, prepare their MBA candidates to integrate human rights due diligence and good management practices into company operations and supply chain relationships. Not doing so fails to support the full development of management talent now required for multinational firms to competitively operate.

Until this happens, companies are well advised to seek outside human rights management expertise as needed to meet their human rights due diligence requirements.  There are cost-savings and efficiencies in drawing on such expertise to identify means to mitigate potential reputational, legal, operational, and financial liabilities.  An outside perspective can provide a valuable independent, critical analysis of companies’ existing policies and practices.  Furthermore, the expertise of third parties with experience in assisting companies in meeting their human rights commitments can be leveraged to assist with developing the needed in-house capacities.

Business schools have played a crucial role in preparing leaders to maximize value in their organizations for nearly two hundred years. It is no less essential that they continue to do so in the 21st century.

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