Legalizing human rights due diligence and the separation of entities principle

Abstract:
The chapter discusses the principle of legal separation of entities and its ramifications in the transnational human rights context. There have been calls to hold multinational enterprises accountable for human rights infringements in their global value chains. Some argue that lead firms should be subjected to a legal obligation of due diligence that would compel them to oversee subsidiaries and contractors and create remedies for victims, and thus rid value chains of abuses. This paper explains why such regulatory proposals are problematic, and what an alternative way forward would look like. The sources for this analysis are corporate accountability literature, as well as recent judicial, regulatory and policy developments bearing on the governance of global value chains.
The explanation points to the compliance choice a lead firm has if subjected to a due diligence obligation and emphasizes three foundational principles specific to the transnational business context: corporate law, international law and human rights law. This pinpoints the staying power of the legal separation principle and its ramifications in a globally integrated economy. The way forward is a two-track, multi-channel regulatory model. It is two-track because it keeps separate a company’s direct or indirect involvement with the harm. It is multi-channel because it accounts for six transnational policy channels that have a bearing on global value chains. It speaks of regulation in a way that valorizes less coercive legalization forms as well as non-legal forces and does not create unmanageable frictions in other legal orders. The chapters offers a disaggregated picture of business and human rights to dispel the attraction of defaulting prematurely on coercive regulations.