No Longer Business as Usual: France Passes Law Holding Parent Companies Responsible for Human Rights Violations
The French National Assembly adopted a law on February 21 making French parent companies liable for the human rights violations of their subsidiaries, subcontractors, and suppliers located abroad. The move follows the 2013 collapse of Rana Plaza, a factory in Dhaka, Bangladesh where subcontractors were manufacturing major international clothing brands. More than 1,100 textile workers were killed in the collapse, and an additional 2,000 workers were injured.
Among the rubble and devastation were labels for French clothing brand In Extenso by Auchan. Auchan denied accusations that the company had any business relationship with the manufacturers in Rana Plaza, and a complaint filed against the company was dismissed in January 2015. To its credit, Auchan did contribute to a donor trust fund established for the victims and their families, but French laws at the time allowed Auchan to escape justice in the courts.
The new law seeks to prevent human rights violations, along with grave bodily and environmental harms. Under the law, French parent companies with at least 5,000 employees in France are responsible for conducting reasonable diligence to identify risks and prevent serious violations of human rights and harm to the health and safety of persons and the environment. Parent companies must establish procedures to assess the practices of their subsidiaries, subcontractors, and suppliers, and they must take actions to mitigate risks and prevent serious harm. Parent companies must also monitor and evaluate their compliance policies and report their efforts. Violators may face civil penalties, in proportion to the seriousness of the breach, not to exceed EUR 10 million (USD 10.8 million).
The law, which was previously rejected by the Senate, has now been approved by the National Assembly with overwhelming support and after extensive efforts to broker a compromise. Ultimately, the law was adopted with 94 votes in favor, four against, and five abstaining. There is evidence that French civilians would support the law as well. According to a poll conducted in January 2015, 91% believe that the clothing brands that produced clothing in Rana Plaza should be required to compensate the victims and their families. The same poll revealed that 95% believe that this kind of human and environmental disaster could have been avoided if multinational companies took more preventative measures. Notably, 76% of French individuals believe multinationals should be held responsible for serious harm caused by their subsidiaries and suppliers.
Despite public support for corporate responsibility, conservative lawmakers have criticized the law, viewing the law as punitive for French companies. They have indicated that they might refer the matter to the Constitutional Council for its review. Some French companies have also expressed concern that the law will distort competition on the basis that only French companies will be held to the standard set by the new law. Companies point to the practical hurdles associated with controlling the actions of subsidiaries, subcontractors, and suppliers, particularly ones that operate abroad.
Meanwhile, proponents of corporate responsibility have commented that the due diligence approach adopted by the law might allow companies to manipulate the system. Compliance officers might simply check off boxes without adopting meaningful reforms.
While it may have flaws, the new law marks a positive step for social corporate responsibility. The law provides justice for those who might be harmed by a company’s policies and practices. It also advances the interests of companies, which will gain reputational benefits and attract socially conscious consumers. Additionally, parent companies are in a better position to redress human rights violations, particularly when subsidiaries, subcontractors, and suppliers operate in countries with weak laws and judicial institutions. Even where victims are successful in obtaining a judgment, they might face obstacles in enforcing the judgment if the subsidiary, subcontractor, or supplier is underfunded or bankrupt. Parent companies benefit from the operations of their subsidiaries, subcontractors, and suppliers, and correspondingly should bear the costs of their operations.
France’s move is part of a growing effort to hold businesses accountable for human rights violations. In 2011, the United Nations established the Guiding Principles on Business and Human Rights, setting forth guidelines for companies to ensure that their activities, including those within their supply chains, do not adversely impact human rights. Several countries have developed national action plans on corporate responsibility and several other countries are in the process of developing plans or have committed to developing plans.
With this move, France has become a leader and other countries should be inspired to follow in its steps. Carole Peychaud, of the NGO CCFD-Terre Solidaire, said that the law makes France the first to adopt such ambitious regulation. There are indications that other countries will soon follow. In Germany, the government plans to reexamine its legislation on corporate responsibility as a consequence of the National Action Plan on Business and Human Rights that the country developed in 2016. In Switzerland, the association Initiative Pour Des Multinationales Responsables launched a program on corporate social responsibility, and the Federal Council plans to draft a report on victims’ access to remedies for corporate human rights violations. Hopefully, these and other countries will take France’s lead in holding parent companies liable for failing to prevent human rights violations of their subsidiaries.