PURPOSE, INC.

‍Participants:

Michael Young

Caroline Rees, President and Co-Founder, Shift.

https://www.shiftproject.org/

Show Resources and Links

Shift's Valuing Respect: https://valuingrespect.org/what-we-do/valuing-respect/

A video showing how respect for human rights is the single most significant way that most companies can contribute to the ‘people part’ of the SDGs: https://www.shiftproject.org/sdgs

Valuing Respect project, setting out why we need to do better at evaluating what’s making a difference in people’s lives. https://www.shiftproject.org/resources/viewpoints/business-social-performance-measurement-not-working/

Business model red flags: https://valuingrespect.org/val-respect-focus-area/business-model-red-flags/

http://www.ethicalcorp.com/gross-inequality-tragedy-commons-we-must-face-2019

Michael Young:

Welcome to the Purpose, Inc., the podcast where we discuss corporate purpose and stakeholder capitalism. I'm your host, Michael Young.

Everywhere you look in corporate sustainability reporting whether that's an annual report or a standalone sustainability document, companies reference how they address human rights within their own operations, the communities where they do business and among their supply chain partners.

And I realized I should really get an expert on to talk about this topic and today I do. I'm speaking with Caroline Rees, the president and co-founder of New York-based Shift, an independent nonprofit center for business and human rights practice. Caroline is a leading voice on the need for a deeper understanding on how business should think about and act upon human rights. In fact, Caroline was part of the team that helped formulate and draft the UN Guiding Principles. She spent 14 years as a diplomat in the British Foreign and Commonwealth Office and led the UK's Human Rights negotiating team at the UN to establish the mandate for the Special Representative. And Caroline was later a senior advisor to Professor John Ruggie who became that representative. She was deeply involved in the drafting of the UN Guiding Principles on Business and Human Rights and from 2007 to ’11, Caroline was the director in the Corporate Responsibility Initiative at the Harvard Kennedy School with oversight on research related to non-judicial grievance mechanisms, company/community conflict management, supply chain risk management and other aspects of the business and human rights agenda. Caroline holds a Bachelor of Arts with honors from Oxford University and a Master's of art in Law and Diplomacy from the Fletcher School at Tufts University.

Today, Caroline and I talk about the ways in which companies can and should respect human rights. We talk a lot about why sustainability reporting often doesn't tell you very much about a company's impact on human rights. We get into why business models and human rights protections cannot be separated or disconnected but they often are. We talk about the need to focus on the most vulnerable communities and populations when thinking about corporate action or inaction as it relates to human rights. Of course, we talk about COVID and corporate conduct now and gig economy workers broadly. Very grateful to Caroline for coming on the podcast. And so, without further ado, my conversation with Caroline Rees of Shift. Caroline, thank you for coming on the podcast.

Caroline Rees:

It's a pleasure to be with you, Michael.

Michael Young:

Thank you. So, I have to admit that when I think about human rights, my thoughts do tend toward the domain of governments and diplomats and treaties. Within the business community, what are some of the misconceptions broadly about human rights?

Caroline Rees:

Yeah. There are definitely a number. I think one indeed starts there that this is a rather arcane and complicated and legalistic topic, a rather niche topic. And I think what's really important is to grasp that essentially what we're talking about here is impact on people. And what human rights as a framing helps us to see is that we're looking and we need to be prioritizing attention on people who are most severely impacted by how business gets done. Right? And that threshold is what human rights gives us, that we get to the point where people's basic dignity and equality is being affected. That's the threshold of human rights. But really it isn’t just about impact on people. Human rights helps us to understand where are they greatest, where they most acute and give us the way of focusing attention on those people that are indeed most vulnerable.

Michael Young:

And Caroline, just kind of highlight some of the harms that companies can do in human rights and why is this the most significant way to understand the people part of the UN SDGs.

Caroline Rees:

Yeah. I mean we're looking at a whole range of things when we think about how people are affected and how who is most acutely affected, most severely affected. I mean we're thinking about those parts of the workforce that are in the most vulnerable positions and goodness, we see this in COVID-19 coming into sharp relief, the people who are on hourly wages who have insecure jobs, short-term contracts, who are lacking benefits, access to Social Security, health and so forth. These are the people who are most severely impacted. How do we see that? Because their access to adequate healthcare, their access to decent work and fair wages is a human rights concept. We can go into the supply chain and see the same. It can become even more acute there, poverty wages, pressures to outsource to people using child labor or working in industries where child labor is endemic like cocoa, like sugar. And forced labor, of course, in so many industries, agriculture, supply chains, electronics and so forth. And not just overseas but in our own countries as we look at particularly migrant labor and the ways in which that can become bonded and indebted labor.

But then we also look at communities that are impacted, those that are displaced by infrastructure projects, by mining and extraction, by big agriculture, pushed off lands they rely on for basic livelihoods. Again, these are severe impacts on people’s basic ability to feed themselves, sustain their families, remain healthy. They're human rights impacts. What's really critical then as we think about this is it doesn't work to think about it as a compliance exercise. It's not like oh, we've got to tick the box, we've got to show that we’ve complied with a law, complied with in this case human rights. It simply doesn't work because this is about the human ecosystem, the dynamic societies that we live in. And as coronavirus is really bringing to the fore, everything's connected with everything and when one set of affects happens, another can often follow. And so, it's an ongoing challenge to say where are people most at risk today based on what we're doing, the local context, the other things that are unfolding around us. How do we go about tackling those?

And the more systemic the challenges, the more shared they are across businesses, across industries, across societies, the more we need collaborative endeavors to resolve them, the more we need collective action, the more we need real innovation. And that's where the powerful transformative potential of this whole area really reveals itself. This is not about saying how do I do no harm. If you know you've got forced labor in your electronic supply chain or child labor in your own supply chain and you're saying how do I come together with others in the industry and the suppliers themselves and the local governments or the international organizations that can help us systemically transform the realities that make this so. The companies that are doing that and there are more and more of them coming together around problem specific to beans, to tea, to copper, to manufacturing in country X or country Y, coming together to find the solutions is way beyond doing no harm. It's got no relationship to mere compliance. It really is about finding my people are most vulnerable in our value chains and looking at how to fundamentally change that reality. And that's where we see how this is central to how any company contributes to sustainable development going forward.

Michael Young:

I agree on the tick the box approach. And that, I was reading a company’s ESG report and human rights are mentioned and SDG's are mentioned throughout and yet there seemed to be this broad disconnect and you're really saying that we need to start with the most vulnerable and use that as our as our threshold for the starting point of the business strategy. Correct?

Caroline Rees:

Absolutely. I mean ultimately when the SDGs talk as they do so centrally about people, the language that’s often used is leave no one behind. Well, who's at most risk of being left behind? The poorest, the most vulnerable, the most marginalized, those whose human rights are at risk or not being enjoyed. So, that is critically important to how this needs to happen and that's why that compliance lens really fails us. But that mentality and that's what it is. It's a mindset. It's a way of thinking. It's almost an organizational culture to say how are people most affected, how do we change that. And that's what I think is really interesting in this context of coronavirus. Right? The business human rights conversation has long been sort of saying look, find where people are most vulnerable and prioritize solutions there. And this term, this concept of vulnerability has suddenly leapt into prominence in discussions about what is an appropriate response by government, yes, but by business as well, financial sectors too in the COVID-19 context.

So, we see that the top executives need to take the pay cut so that the most vulnerable lowest wage workers can have their jobs protected. Whether we see it's the companies that are saying we are going to pay suppliers for orders already made, not just delivered but in process. We're going to prioritize paying our smallest and most fragile suppliers first so that they can protect their workers because we know that's where the vulnerability sits. We see it, of course, in the customer base looking at how retail stores can create those protections for older people who are more vulnerable from a health perspective. This language and understanding of the relevance of vulnerability, of the need to prioritize in our responses those who are most vulnerable has become intuitive and those that aren't doing that are facing severe pushback, backlash from the media, from regulators, from investors increasingly. And that's the mindset that we're talking about here and that we need to perpetuate as we as we go forward beyond let us hope sooner rather than later this near-term crisis.

Michael Young:

And COVID has really brought that to your point, to the fore and we were sharing some news articles recently, you and I, about the gig economy companies that are—and not just gig economy companies but they seem to be emblematic of workforce precarity. How do you think post-COVID some of this will shake out? Asking for some thoughts and some predictions about that.

Caroline Rees:

Right. And of course as always in these situations, there's no shortage of predictions and they range from the optimistic to the dire. The reality is it could go either way. Right? You could find in a situation where so many companies that are going to be struggling that the default is to say well, you know what? We protect ourselves most by making sure that the minimal part of our workforce is structured in such a way that they have job security and have access to benefits and so on and so forth. And we protect ourselves most as a company if we keep people on short-term contracts, hourly basis, keep these constructs of people being nominally self-employed even while they essentially are our workforce because we externalize the risks to people that that brings onto those individuals rather than onto us financially. That is a credible trajectory out of this but I think we also very much see the potential for the opposite trajectory. Going back to what I was saying about that lens of vulnerability, that maybe there is a potential here for us to see change in thinking to say that not just at this time but going forward, we need to say these models that exacerbate vulnerability, that deliberately create vulnerabilities in the name of business interests are not the ones that we want to build our society on. They're not the ones that investors are going to see as the ones that are sustainable and that they want to be supporting. They're not ones that the regulators are going to think it's okay to allow for without protections in place for those individuals.

That alternative vision is one where we learn out of this and it goes in some degree to the question of business models because what we're describing there as we look at some of these ways that business has worked being that they have embedded into their business models how they create value, the idea that they do so at the expense of people and critically some of the most vulnerable people by externalizing these costs on to them, by taking them off payroll and benefits in creating these other structures in vastly disproportionate manners beyond what seasonality may require in agricultural support and externalize those costs. And they've made that part of the business models so it’s no good at that point to say to a social compliance team please go and fix this or run a project or a pilot that could see if we could reduce the risk to people because you've built it into how your business is meant to run. And I think in this more optimistic prognosis for what we could construct post COVID,-19 we have the opportunity to say that there are certain features of business model that we simply don't think a viable. We simply don't want to reward or incentivize through our markets, through our regulatory systems and we are going to look at those through the lens of vulnerability and say that they have to change.

Michael Young:

And this is a large point about business models and I want to get into that more deeply. But my first question, Caroline, is how can that be changed if exploitation of labor is endemic to capitalism and it's maybe baked in in certain parts of business models? Can businesses change from within? What is the mechanism for change? How can this happen in your view?

Caroline Rees:

I don't think it's endemic to capitalism. I think we were already in a really interesting moment before the coronavirus of people saying it's about the form of capitalism. It's about how capitalism is allowed to evolve. Right? And it's actually relatively short term since arguably the 1970s that we have allowed/promoted a form of capitalism that is indeed one that's enabled the externalization of costs onto the environment and onto people, vulnerable ecosystems, workers and communities. That's not the form of capitalism. It’s a form of capitalism. And of course, it's not just happened through business alone. It's happened in a construct where it's been about deregulation around business, about the expansion of how this can happen across national boundaries through international trade and investment regimes. But without the protections at the national level to say people are going to be losers in this as well as winners and part of the job of government is to counteract that through protections both through social security networks as a governmental role and through regulatory frameworks that put parameters around what is seen as legitimate business practice and what is not. We've been in this 50 years now of removing those constraints on business and in some societies lowering or not putting in place the protections for people who lose out.

Prior to the COVID-19, there was already this insurgent moment of saying we need a different form of capitalism and the label being put on that was stakeholder capitalism that says it isn't just shareholders and short-term returns which have been such a driver of this externalization of cost onto the vulnerable but there are other stakeholders that are equally legitimate stakeholders in business and who an interest needs to be taken account of and reflected in how business gets done who already had that proposition. And we had it because of two crises: the climate change crisis, right? The externalization of costs on to the vulnerable ecosystems we live within and the inequalities crisis. So, those very things that have highlighted the vulnerability lens in the context of COVID-19 were already there in the conversation about the gross inequalities that have been allowed to emerge in our society, how vulnerable people once vulnerable find that vulnerability compounded as they get ever further disadvantaged by these systems.

So, there's nothing inherent of capitalism. It’s the form of capitalism. It's how we have allowed it to evolve where we've said it's okay for people to be pushed into these ever compounding forms of vulnerability. And we have ever power to change that but we have to do so with great care and simply relabeling something and calling it stakeholder capitalism doesn't make it so. It needs to be a very deliberate approach that says yes, employees but let's focus on the most vulnerable ones. And guess what? There are people who work for us who don't even get categorized as employees and are particularly vulnerable. So, we need to focus on them. We need we say yes, suppliers or stakeholder in this new stakeholder capitalism but we don't need to focus equally on every supplier. There are the large robust strategic suppliers. There are those smaller, more remote suppliers who lack liquidity whose workers are most vulnerable and we need to focus on them. We need to not just think about communities as recipients of philanthropy to burnish brand and reputation. We need to think about who is vulnerable in communities to the ways that we do business, to pollution effects, to displacement effects, to livelihood effects. So, we need a really deliberate approach to capitalism. That then needs to come yes, as far as we can from within business and goodness, there are all of the wrong things that are happening. So many businesses that have been embracing this, have been demonstrating what this can look like from within business but we structurally need the governments and the financial systems to be driving that as well. That means incentivizing those that are not thinking in these ways and will not think about these ways after coronavirus but also rewarding those that do think in those ways, advantaging them within our system so that that becomes the driver for what the new normal will look like.

Michael Young:

And we are seeing capital in the markets broadly beginning to pressure businesses. You make a point about institutions and governments and we are we are seeing a relaunch of national, not nationalist but state intervention obviously and that is probably going to be a requirement for change. As we move along this this journey, I want to talk a little bit about reporting and you've got I think some strong views. I want to unpack what you think is amiss with some of the reporting frameworks and methodologies and you alluded to kind of checking the box. What needs to really change in the way that businesses think about social impact reporting so that they can be recognized but also that they can hold themselves accountable, hold their feet to the fire? How does that need to evolve?

Caroline Rees:

Yeah. So, I mean it's so important, isn't it, this conversation about reporting and transparency because as we know, markets work on information. If there’s no information about what companies are or aren't doing, they can't reward or incentivize the goods that we want to see. So, the push for disclosure is critically important from that perspective. It's also really important for the internal dynamics within companies and we see that consistently in our work where you start to have intelligent conversations internally about what you're going to disclose about what you're trying to do with regard to impact on people in this instance. It's all these conversations and interrogation that simply don't happen otherwise. In other words, the process of reporting can create really positive dynamics around the process of addressing the issues themselves, actually advancing practices and advancing performance in those regards. So, it has these really important catalytic roles to play both in society and for markets but also internally within the company.

I think what's happened over the years as this sort of ESG, environmental, social, governance reporting movement has expanded, we've seen regulation in the European arena, in the North American arena and so forth around more ESG reporting is it there's just been a real struggle around what's in the S. It's become this sort of amorphous dumping ground for things that aren't clearly environmental or clearly governance related and can mean everything from philanthropy and community volunteering through to supply chain management and specific issues like child labor and so forth. Now what I think we need is more clarity around what the focus needs to be here and it needs to be about how money gets made, not how money is spent. So, philanthropy by all means, tell us about it if you want but that's not what we most need to hear. That’s not what markets need to know to know who is thinking the right way about impact on people.

I think the other dynamic that's happened here is people have struggled to get their hands around what is this, what do we need to know, what information should we as companies put out or we as investors asked for is that there's been a rush to metrics or types of information that are readily available. So, we've seen far too much going into the frameworks and models that's around numbers of hours of training on human rights, numbers of grievances received, the numbers of social audits done in factories. None of this actually tells us much about how the company is understanding where the risk to people is greatest and what it's doing to address them. We also then see other types of information prioritized such as do you have a policy on this or does your policy on human rights include this phrase or that phrase or this concept or that concept. Do you have a process called human rights impact assessment or human rights due diligence? Well, again, these aren't really indicative of very much at all right. Ironically, I think maybe 10 years ago, it was indicative of something if a company had a human rights policy but these days it's so widely called for but it’s quickly written, quickly put on a website and doesn't actually necessarily give much insight into the seriousness as a company about addressing these issues.

So, this rush to sort to easy, low-hanging information and quick metrics because somehow we feel that it's most important to be able to compare companies. Right? If you tell me you have this many incidents of child labor, I can compare you with that company that has found that many incidents of child labor in their supply chain. But that's not even remotely a comparison without understanding the context. What are your sourcing environments like? Are you part of a movement toward reducing that child labor or incentivizing that child labor? The number doesn't enable a good comparison at all. So, these have been the dynamics that have led to the wrong kinds of stuff being disclosed. We're sort of focused in two phases on this. We took a first phase where we worked globally with a lot of different and stakeholders across business, investment, civil society to say what are the questions you should have answers to as a company. So, let’s drop metrics for a while. What should about how a company is thinking about human rights and responding to these issues?

And so, we devised out of that something we call the UN Guiding Principles Reporting Framework which is simply a set of questions and what we've seen a lot in the usage of those questions is their utility actually internally in just saying why don't we have an answer to these questions. If we don't, do we have a problem with something we're not managing quite apart from whether you then disclose what the answer to that question may be. Right? So, what do you need to have answers to to know whether you're understanding this problem set and addressing it? And then after that development of that framework which is now increasingly embedded in a lot of other products that others are producing and frameworks and so forth, we then started to say let's look more at the metrics or at least if they're not always metrics, how you're going to know what's working and that's the work we're doing through an initiative called The Value and Respect Project to say well, what do we really need to do and look at to know what is an indicator of a company that's thinking the right ways, doing the right things. If I'm inside a company, how do I develop the indicators and know what the metrics are to know if what we're trying to change in practice is really changing in practice?

Michael Young:

Fantastic. Could you just talk a little bit more about building internal capacity within organizations? And you do this work at Shift. What does that process look like? How long does it take? What needs to change? And maybe broadly through that work, how optimistic are you about the progress that we have made and potentially could be making?

Caroline Rees:

Yeah. So, I come back to that point about mindsets and cultures, not compliance. It's certainly possible for companies to pull in their legal counsel and say what do we need to have in place. Nothing will really change. Maybe they'll get a bit of cover from it. Maybe that cover will serve them well and maybe it will fairly quickly be shown not to be very deep. What really matters is that way of thinking. So, as we work with companies, first of all, the companies we work with, we're looking for that predisposition to look at how they're thinking and to really interrogate this in those ways. Secondly, it means that you've got to co-create. You can't come in with the plug-and-play because an organization is an organism. And so, you've got to co-create. So, we're always bringing our knowledge and expertise to combine with the knowledge and expertise of those inside the company to work out what this is going to need to look like for them so that it can embed into culture, embed into how people think, make sense within their frame of reference and connect with just who they are as people. Right? Because back to we're talking here about things that are very much connected to our human empathy and typically people want to do the right things. Do they have the headspace to think about it day to day? Are they given the information to understand the ramifications of certain decisions? Very often, not. But they want to connect most typically how they work in the workplace with who they are as human beings.

And so, co-creating what's needed in indeed processed terms but then the implementation of that, the application of it in different settings around the world, different country offices around different human rights challenges and engaging people's imagination, empowering them with ways of approaching the problems as they arise and feeling and able to play a part in addressing them is really how we see this. And we will also critically look in companies for the leadership component. It does require that. Culture always requires the leadership component. Is this supported from the top, not just seen as a compliance issue? Are leaders themselves ready to invest time and energy and effort in making this part of how business is done, not treating this as a siloed thing that one function within the company is going to sort out when the human rights risks and the places where vulnerability occurs are the domains of very, very different functions and business units? And they all need to be in that conversation and in the co-creating process. So, that's really critical to how we work with companies and I think individually but also some of those collective engagements as companies come together around the more systemic challenges.

That's really critical because I mean we're a small organization. There are others that do good work. Going company by company is not going to get us there. So, I think one critical point to progress is the growth we already see and the further growth we need in collaborative approaches involving multiple companies. But also, back to that point involving government, central government, local government in their critical roles in addressing vulnerability, involving investors and financiers, involving critically civil society organizations. These collaborative initiatives are needed. And then finally, in terms of progress, I'll come back to that point. We have an opportunity as we turn the corner, when we turn the corner out of this pandemic to go to scale much more compellingly, to learn the lessons and recognize how important the length of vulnerability was in response to this crisis and seeing this as something that must go beyond those that already get the need for it to the many who have not yet done so and leveraging our way into that better future.

Michael Young:

Right. The disconnect and the conflict between intention, action, incentives, business models and then impact on human beings has never been more starkly painted as within COVID.

Caroline Rees:

Absolutely.

Michael Young:

Caroline, we're going to have to leave it there. There is so much here. I am so grateful for your time and your insights today and thank you for coming on the podcast. I really hope to have you back again.

Caroline Rees:

It's been a pleasure talking with you, Michael. Thanks for the opportunity.

Michael Young:

Thank you. The Purpose, Inc. Podcast is a production of Actual Agency, helping innovators communicate in a changing world. More at www.Actual.Agency.

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