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Inherited Human Rights Risk - The Importance of Human Rights Due Diligence in M&A Transactions

Bendixen Kettis, Astrid LU (2018) LAGF03 20182
Department of Law
Faculty of Law
Abstract
To date, there is no international ‘hard law’ instrument creating legally binding obligations for corporations. Instead, corporate activity is regulated by domestic law and ‘soft law’ standards on corporate responsibility and human rights. Increased pressure from various stakeholders combined with new regulatory developments illustrate that this might however, be changing. As increasing trends of globalization allow companies to operate transnationally, the concept of human rights risk has started to gain traction. New case-law in several jurisdictions has illustrated that the shield of limited liability that traditionally has served as a safety net for parent companies may no longer be as efficient, and that parent companies may in fact... (More)
To date, there is no international ‘hard law’ instrument creating legally binding obligations for corporations. Instead, corporate activity is regulated by domestic law and ‘soft law’ standards on corporate responsibility and human rights. Increased pressure from various stakeholders combined with new regulatory developments illustrate that this might however, be changing. As increasing trends of globalization allow companies to operate transnationally, the concept of human rights risk has started to gain traction. New case-law in several jurisdictions has illustrated that the shield of limited liability that traditionally has served as a safety net for parent companies may no longer be as efficient, and that parent companies may in fact soon be facing responsibility for the human rights impacts of their foreign subsidiaries. It is therefore vital that companies seeking to undertake a merger or an acquisition integrate human rights aspects in their initial due diligence to avoid assuming human rights issues that might be embedded in the target company’s operations.

Although the purchaser in M&A transactions can seek contractual protection against risk through incorporating warranties and indemnities, these are often limited to financial and legal risks, and may not always prove sufficient in the case of human rights complications. As reflected in the United Nations Guiding Principles on Business and Human Rights (UNGPs), companies should therefore conduct a thorough human rights due diligence to avoid becoming accountable for unwarranted liabilities. This will allow the purchaser to identify potential risks connected to human rights impacts that may expose the purchaser to severe financial, legal, commercial and reputational damage. (Less)
Abstract (Swedish)
I dagsläget saknas bindande internationell eller mellanstatlig lagstiftning för företag motsvarande "hard law". Regelverk för företag har istället utvecklats genom nationell lagstiftning och "soft law" i form av icke-bindande principer och normer för mänskliga rättigheter och företagsansvar. Genom påtryckningar från olika intressenter samt genom utvecklingen av ny reglering, kan detta dock komma att ändras. Växande globalisering gör att företag idag kan verka över hela världen, vilket även har resulterat i ett ökat fokus på företagsansvar och mänskliga rättigheter. Ny rättspraxis på området i flera olika länder belyser även att det begränsade ansvar som tidigare skyddat moderbolag i förhållande till deras dotterbolag, kanske inte längre... (More)
I dagsläget saknas bindande internationell eller mellanstatlig lagstiftning för företag motsvarande "hard law". Regelverk för företag har istället utvecklats genom nationell lagstiftning och "soft law" i form av icke-bindande principer och normer för mänskliga rättigheter och företagsansvar. Genom påtryckningar från olika intressenter samt genom utvecklingen av ny reglering, kan detta dock komma att ändras. Växande globalisering gör att företag idag kan verka över hela världen, vilket även har resulterat i ett ökat fokus på företagsansvar och mänskliga rättigheter. Ny rättspraxis på området i flera olika länder belyser även att det begränsade ansvar som tidigare skyddat moderbolag i förhållande till deras dotterbolag, kanske inte längre har samma effekt, och att moderbolag inom snar framtid kan komma att bli ansvariga för ett dotterbolags påverkan på mänskliga rättigheter. Det är därför av stor vikt att ett företag som planerar att genomföra ett företagsförvärv integrerar frågor om mänskliga rättigheter i sin företagsbesiktning (en så kallad "due diligence") innan de förvärvar målföretaget.

Även om köparen i viss mån genom avtal kan skydda sig i form av garantier och skadeslöshetsvillkor, gäller dessa oftast uteslutande finansiella och legala risker, och ger inte alltid ett adekvat skydd mot problem förknippade med mänskliga rättigheter. Företag bör därför i enlighet med FN:s vägledande principer om företag och mänskliga rättigheter genomföra en "human rights due diligence" för att undvika oönskat ansvar. Detta gör att köparen kan identifiera potentiella risker förknippade med mänskliga rättigheter, som i sin tur kan medföra finansiella, juridiska och kommersiella risker för det köpande företaget, samt påverka företagets rykte. (Less)
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author
Bendixen Kettis, Astrid LU
supervisor
organization
course
LAGF03 20182
year
type
M2 - Bachelor Degree
subject
keywords
Public International Law, M&A, Human Rights
language
English
id
8965857
date added to LUP
2019-03-10 13:55:09
date last changed
2019-03-10 13:55:09
@misc{8965857,
  abstract     = {To date, there is no international ‘hard law’ instrument creating legally binding obligations for corporations. Instead, corporate activity is regulated by domestic law and ‘soft law’ standards on corporate responsibility and human rights. Increased pressure from various stakeholders combined with new regulatory developments illustrate that this might however, be changing. As increasing trends of globalization allow companies to operate transnationally, the concept of human rights risk has started to gain traction. New case-law in several jurisdictions has illustrated that the shield of limited liability that traditionally has served as a safety net for parent companies may no longer be as efficient, and that parent companies may in fact soon be facing responsibility for the human rights impacts of their foreign subsidiaries. It is therefore vital that companies seeking to undertake a merger or an acquisition integrate human rights aspects in their initial due diligence to avoid assuming human rights issues that might be embedded in the target company’s operations. 

Although the purchaser in M&A transactions can seek contractual protection against risk through incorporating warranties and indemnities, these are often limited to financial and legal risks, and may not always prove sufficient in the case of human rights complications. As reflected in the United Nations Guiding Principles on Business and Human Rights (UNGPs), companies should therefore conduct a thorough human rights due diligence to avoid becoming accountable for unwarranted liabilities. This will allow the purchaser to identify potential risks connected to human rights impacts that may expose the purchaser to severe financial, legal, commercial and reputational damage.},
  author       = {Bendixen Kettis, Astrid},
  keyword      = {Public International Law,M&A,Human Rights},
  language     = {eng},
  note         = {Student Paper},
  title        = {Inherited Human Rights Risk - The Importance of Human Rights Due Diligence in M&A Transactions},
  year         = {2018},
}