Erin Lyon
Vice President, Sustainability Consulting, ELEVATE

Published: 29 January 2021

Published: 29 January 2021

Erin Lyon - Vice President, Sustainability Consulting, ELEVATE

Directors and human rights – ‘brand purpose’ doesn’t cover it, this is about you…

In recent months I feel as though there has been a groundswell of opinion that having a brand with purpose is the only way forward – so many reflections about the future of brands and how ‘brand purpose’ is the new must-have.  For board directors who are nervous about defining that purpose, the honest reflection is that it’s too late for that now anyway.  The window for demonstrating that ‘brands’ can deliver purpose has shut, that horse has left the stable, that chick has flown the nest… you get my drift – you are too late to the purpose party. Ironically that’s because the purpose party got started years ago in the less ‘sexy’ area called corporate governance.  The purpose is about running your business effectively and there is a neglected framework already in place – purpose will come down to the actions of company directors, not the ‘brand’ – the way it was intended all along.   

The ultimate responsibility for company purpose sits with company directors – it’s called fiduciary duty – each and every director has a fiduciary duty to ‘promote the success of the company and whilst doing so have regard to  the impact of the company’s operations on the community and the environment.’ (UK Companies Act 2006, Section 172).  The fiduciary duties of directors of US corporations[1] require directors to take into account ESG factors, both when making decisions where those ESG factors involved are directly material to the corporation, or when those ESG factors bear on material legal and compliance issues. They also permit directors to take ESG factors into account as long as they are rationally related to stockholder interests.

The perception of that ‘regard’ or ‘taking factors into account’ is evolving – human rights due diligence legislation emerging across the world requires that directors are liable for the failure of companies to meet the duty to respect human rights in their supply chain.  That failure means that they are also failing to promote the success of the company as they failed to have regard to the company’s operations on the community and the environment. Put bluntly, they are failing to do their job and should be held accountable. 

Directors should do three things:

  1. Make sure that you understand the requirements of the Companies Act or relevant national legislation and that you are reporting against s172 or other requirements thoroughly not superficially
  2. Make sure you understand the human rights risks in your business and critically in your supply chain because you will be held accountable for managing them
  3. Implement a plan to manage those risks and report transparently on your progress at each and every board meeting.     

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These blogs are written by ELEVATE staff members or associates and the views and opinions expressed are not necessarily those of ELEVATE.

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