DUE DILIGENCE AS A DEFENSE TO CORPORATE LIABILITY PURSUANT TO THE ALIEN TORT STATUTE Lucien J. Dhooge* INTRODUCTION .............................................................................................. 456 I. THE FRAMEWORK FOR BUSINESS AND HUMAN RIGHTS ..................... 460 A. Overview ..................................................................................... 460 B. The Corporate Responsibility to Respect Human Rights ........... 465 II. RECOGNIZING AND FORMULATING A DUE DILIGENCE DEFENSE TO ATS LIABILITY ................................................................................... 469 A. Recognizing Due Diligence as a Defense ................................... 469 B. Formulating a Due Diligence Defense ...................................... 476 C. The Benefits of Recognizing a Due Diligence Defense .............. 482 CONCLUSION .................................................................................................. 496 * Sue and John Staton Professor of Law, College of Management, Georgia Institute of Technology. 456 EMORY INTERNATIONAL LAW REVIEW [Vol. 22 The business and human rights debate currently lacks an authoritative focal point. Claims and counter-claims proliferate, initiatives abound, and yet no effort reaches significant scale. Amid this confusing mix, laggards—States as well as companies—continue 1 to fly below the radar. INTRODUCTION On April 7, 2008, John Ruggie, the Special Representative of the United Nations’ Secretary-General on the issue of human rights and transnational corporations, issued a report entitled “Protect, Respect and Remedy: A Framework for Business and Human Rights” (Framework).2 The Framework was the product of a three-year research and consultative process commissioned in July 2005 by the Secretary-General.3 Special Representative 1 Special Representative of the Secretary-General on the issue of human rights and transnational corporations and other business enterprises [Special Representative], Promotion and Protection of All Human Rights, Civil, Political, Economic, Social and Cultural Rights, Including the Right to Development: Protect, Respect and Remedy, A Framework for Business and Human Rights, ¶ 5, delivered to the Human Rights Council and the General Assembly, U.N. Doc. A/HRC/8/5 (Apr. 7, 2008) [hereinafter Framework]. 2 Id. at 1. The Framework was preceded and accompanied by several interim reports, studies, and addenda. See, e.g., Special Representative, Promotion and Protection of All Human Rights, Civil, Political, Economic, Social and Cultural Rights, Including the Right to Development, Addendum, Corporations and Human Rights: A Survey of the Scope and Patterns of Alleged Corporate-Related Human Rights Abuse, delivered to the Human Rights Council and the General Assembly, U.N. Doc. A/HRC/8/5/Add.2 (May 23, 2008) [hereinafter Survey]; Special Representative, Promotion and Protection of All Human Rights, Civil, Political, Economic, Social and Cultural Rights, Including the Right to Development: Clarifying the Concepts of “Sphere of Influence” and “Complicity,” delivered to the Human Rights Council and the General Assembly, U.N. Doc. A/HRC/8/16 (May 15, 2008) [hereinafter Clarification]; Special Representative, Promotion and Protection of All Human Rights, Civil, Political, Economic, Social and Cultural Rights, Including the Right to Development, Addendum, Summary of Five Multi-Stakeholder Consultations, delivered to the Human Rights Council and the General Assembly, U.N. Doc. A/HRC/8/5 Add.1 (Apr. 23, 2008) [hereinafter Consultations]; Special Representative, Implementation of General Assembly Resolution 60/251 of 15 March 2006 Entitled “Human Rights Council,” Business and Human Rights: Mapping International Standards of Responsibility and Accountability for Corporate Acts, delivered to the Human Rights Council and the General Assembly, U.N. Doc. A/HRC/4/35 (Feb. 19, 2007) [hereinafter Mapping]; Special Representative, Implementation of General Assembly Resolution 60/251 of 15 March 2006 Entitled “Human Rights Council,” Human Rights Impact Assessments—Resolving Key Methodological Questions, delivered to the Human Rights Council and the General Assembly, U.N. Doc. A/HRC/4/74 (Feb. 5, 2007) [hereinafter Assessment]; Special Representative, Promotion and Protection of Human Rights, Interim Report, delivered to the Commission on Human Rights and the Economic and Social Council, U.N. Doc. E/CN.4/2006/97 (Feb. 21, 2006) [hereinafter Interim Report]. 3 JENS MARTENS, GLOBAL POLICY FORUM EUROPE, PROBLEMATIC PRAGMATISM: THE RUGGIE REPORT 2008: BACKGROUND, ANALYSIS AND PERSPECTIVES 1 (Elisabeth Strohscheidt, Misereor, ed., 2008). The request arose from the Human Rights Commission’s rejection of the Norms on the Responsibilities of 2008] DUE DILIGENCE AS A DEFENSE 457 Ruggie’s mandate included “identify[ing] and clarify[ing] standards of corporate responsibility and accountability for transnational corporations . . . with regard to human rights . . . [and] compil[ing] a compendium of best practices of States and transnational corporations.”4 The Framework identified labor rights and non-labor rights, which included rights relating to personal welfare and environmental protection, as impacted by transnational corporations.5 However, unlike its predecessor, the “Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with regard to Human Rights” (Norms), the Framework concluded that the business and human rights debate could not be resolved by merely listing rights that transnational corporations ignored at their peril.6 Rather, the “root cause of the business and human rights predicament” was “governance gaps” between economic forces and actors and the ability of the societies in which they operated to manage adverse consequences.7 These governance gaps could be addressed through a framework comprising three core principles, specifically, “the State duty to protect against human rights abuses by third parties, including business; the corporate responsibility to respect human rights; and the need for more effective access to remedies.”8 The Framework was designed to serve as a conceptual and policy basis for achievement of “more effective protection to individuals and communities against corporate- related human rights harm.”9 The three principles were intended to form “a complementary whole in that each supports the others in achieving sustainable progress” on the issue of human rights and business.10 The United Nations Transnational Corporations and Other Business Enterprises with regard to Human Rights in April 2005. See Hum. Rts. Comm’n Res. 69, U.N. Doc. E/CN.4/RES/2005/69 (Apr. 20, 2005). 4 See Hum. Rts. Comm’n Res. 69, supra note 3, ¶ 1. 5 Framework, supra note 1, ¶ 52. 6 Framework, supra note 1, ¶¶ 104–07. See U.N. Econ. & Soc. Council [ECOSOC], Sub-Comm’n on the Promotion & Prot. of Human Rights, Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights, U.N. Doc. E/CN.4/Sub.2/2003/12/Rev.2 (Aug. 26, 2003) [hereinafter Norms]. 7 Framework, supra note 1, ¶ 3. 8 Id. Summary. 9 Id. ¶ 1. 10 Id. ¶ 9; see also Geoffrey Chandler, Ruggie Report—Finally Let the Real Work Begin, ETHICAL CORP., June 2, 2008, available at http://www.ethicalcorp.com/content.asp?ContentID=5928 (praising the objective of the Framework as the marriage of “the most effective economic mechanism the world has so far known—the competitive market economy—with the internationally agreed values of society”). 458 EMORY INTERNATIONAL LAW REVIEW [Vol. 22 Human Rights Council approved the Framework in June 2008, which was the first time that the Council had endorsed a substantive statement on this topic.11 The responsibility to respect human rights serves as “the baseline expectation for all companies in all situations.”12 Corporate decision-making bodies could discharge this duty by engaging in due diligence “to become aware of, prevent and address adverse human rights impacts.”13 The Framework concluded that transnational corporations could satisfy procedural aspects of due diligence by analyzing the country context in which their activities occurred and by determining their human rights impacts and whether such activities might contribute to abuses.14 Corporations could derive substantive guidance from the International Bill of Rights as well as the core conventions of the International Labor Organization (ILO).15 11 H.R.C. Res. 8/7, § 4(a), U.N. HRC, 8th Sess., U.N. Doc. A/HRC/RES/8/7 (June 18, 2008) (noting that the Human Rights Council approved the Framework and extended Ruggie’s mandate for an additional period of three years in order to “provide views and concrete and practical recommendations on ways to strengthen the fulfillment of the duty of the State to protect all human rights from abuses by or involving transnational corporations and other business enterprises”); see also Beyond the “genocide Olympics,” ECONOMIST, Apr. 24, 2008, at 94 (noting that the endorsement of the Framework by the U.N. Human Rights Council would be “the first time that the U.N. human-rights machinery has taken a substantive position on companies’ responsibilities”); Frances Williams, Human Rights Duty for Business, FIN. TIMES, June 6, 2008, http://www. ft.com/cms/s/0/30fee3aa-3312-11dd-8a25-0000779fd2ac.html (characterizing the endorsement of the Framework as “the first time [the United Nations has made] clear the duty of companies to comply with international human rights obligations in their own operations”). 12 Framework, supra note 1, ¶ 24. 13 Id. ¶ 56. 14 Id. ¶ 57. 15 Id. ¶ 58. The International Bill of Rights consists of the Universal Declaration of Human Rights (UDHR) and the International Covenants on Civil and Political Rights (ICCPR) and Economic, Social and Cultural Rights (ICESCR). Office of the High Commissioner of Human Rights, Fact Sheet No. 2 (Rev. 1), The International Bill of Human Rights (June 1996), available at http://www.unhchr.ch/html/menu6/2/fs2.htm. See UDHR, G.A. Res. 217A, U.N. GAOR, 3d Sess., 1st plen. mtg., U.N. Doc. A/810 (Dec. 12, 1948); ICCPR, opened for signature, Dec. 16, 1966, 999 U.N.T.S. 171, 6 I.L.M. 371; ICESCR, opened for signature, Dec. 16, 1966, 993 U.N.T.S. 3. The core conventions of the International Labor Organization (ILO) address forced labor, freedom of association and organization, collective bargaining, equal remuneration, employment discrimination, and child labor. See Convention concerning the Prohibition and Immediate Action for the Elimination of the Worst Forms of Child Labour, June 17, 1999, S. TREATY DOC. NO. 106-5 (1999), ILO No. 182; Convention concerning Minimum Age for Admission to Employment, June 26, 1973, 1015 U.N.T.S. 297; Convention concerning Discrimination in Respect of Employment and Occupation, June 25, 1960, 362 U.N.T.S. 31; Convention concerning the Abolition of Forced Labour, June 25, 1957, S. EXEC. DOC. 102-7 (1991), 320 U.N.T.S. 291; Convention concerning Equal Remuneration for Men and Women Workers for Work of Equal Value, June 29, 1951, 165 U.N.T.S. 303; Convention concerning the Application of the Right to Organise and to Bargain Collectively, July 1, 1949, 96 U.N.T.S. 257; Convention concerning Freedom of Association and Protection of the Right to Organize, July 19, 1950, 68 U.N.T.S. 17; Convention concerning Forced or Compulsory Labour, June 28, 1930, 39 U.N.T.S. 55. 2008] DUE DILIGENCE AS A DEFENSE 459 In the United States, human rights and the operations of transnational corporations have intersected through litigation filed pursuant to the Alien Tort Statute (ATS). The ATS provides that “[t]he district courts shall have original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States.”16 Largely dormant from the time of its inclusion by the U.S. Congress in the Judiciary Act of 1789, the ATS has proven contentious since its reinvigoration as a tool by which alien plaintiffs seek to hold foreign government officials liable in the United States for human rights violations.17 Its more recent utilization against transnational corporations for alleged complicity in human rights abuses associated with their foreign investment activities has proven even more controversial.18 16 Alien Tort Statute, 28 U.S.C. § 1350 (2006). The Alien Tort Statute (ATS) is also known as the Alien Tort Claims Act (ATCA). 17 See, e.g., Kadic v. Karadzic, 70 F.3d 232 (2d Cir. 1995); Hilao v. Estate of Marcos (In re Estate of Ferdinand E. Marcos Human Rights Litigation), 25 F.3d 1467 (9th Cir. 1994); Filartiga v. Peña-Irala, 630 F.2d 876 (2d Cir. 1980). 18 ATS litigation against transnational corporations has consisted of three distinct types of claims. These claims are identical to the human rights identified in the Framework. For recent examples of ATS litigation alleging violations of human rights relating to personal welfare, see Khulumani v. Barclay National Bank, Ltd., 504 F.3d 254 (2d Cir. 2007) (numerous complaints filed on behalf of three separate groups of plaintiffs alleging genocide, unlawful detention, extrajudicial killings, torture, cruel and degrading treatment, sexual assault, systematic racial discrimination, forced relocation, war crimes, and crimes against humanity against transnational corporations arising from their alleged collaboration with the South African government during the apartheid era from 1948 through the early 1990s); Presbyterian Church of Sudan v. Talisman Energy, Inc., 453 F. Supp.2d 633 (S.D.N.Y. 2006) (claims by non-Muslim residents of southern Sudan alleging Talisman collaborated with the Sudanese government in committing extrajudicial killings, forcible displacement, war crimes, confiscation and destruction of property, kidnapping, and rape); Bowoto v. Chevron Corp., No. C 99- 02506 SI, 2006 U.S. Dist. LEXIS 63209 (N.D. Cal. Aug. 22, 2006) (claims alleging ChevronTexaco collaborated with the Nigerian government in the commission of extrajudicial killing, crimes against humanity, torture, cruel, inhuman and degrading treatment, and violations of the rights to life, liberty, and security during attacks upon villages); Doe v. Exxon Mobil Corp., 393 F. Supp. 2d 20 (D.D.C. 2005) (claims by villagers of extrajudicial killing, torture, and crimes against humanity arising from the utilization of the Indonesian military to provide security for a natural gas facility); and Mujica v. Occidental Petroleum Corp., 381 F. Supp. 2d 1134 (C.D. Cal. 2005) (claims alleging extrajudicial killing, torture, crimes against humanity, cruel, inhuman and degrading treatment, and war crimes arising from the aerial bombing of Colombia by Occidental’s private security contractor). For recent examples of ATS litigation alleging violations of labor rights, see Aldana v. Del Monte Fresh Produce, Inc., 416 F.3d 1242 (11th Cir. 2005) (claims of torture, cruel, inhuman and degrading treatment, arbitrary detention, and crimes against humanity arising from the abduction of union officials by paramilitaries at a banana plantation operated by Bandegua, a wholly-owned subsidiary of Del Monte, in Guatemala); and Sinaltrainal v. Coca-Cola Co., 256 F. Supp. 2d 1345 (S.D. Fla. 2003) (claims of war crimes and extrajudicial killing as a result of the murder of a union official by paramilitaries at a bottling facility in Colombia). For recent examples of ATS litigation alleging complicity in environmental degradation, see Abagninin v. AMVAC Chemical Corp., 545 F.3d 733 (9th Cir. 2008) (claims of genocide and crimes against humanity arising from the use of the agricultural pesticide Dibromo Chloropropane at banana 460 EMORY INTERNATIONAL LAW REVIEW [Vol. 22 This Article advocates the creation of a defense to ATS claims derived from a combination of the due diligence approach set forth in the Framework and the business judgment rule from corporate law. The Article contends that business decisions should be immunized from ATS liability if they are the product of the exercise of due diligence. The Article concludes that if transnational corporations are not accountable for human rights violations occurring despite the exercise of due diligence, such a standard should also serve as a defense to attempts to enforce international norms in a domestic context as provided by the ATS. I. THE FRAMEWORK FOR BUSINESS AND HUMAN RIGHTS A. Overview The Framework developed as a result of perceived shortcomings in the legal environment regarding the relationship between transnational corporations and human rights, including three efforts undertaken in the 1990s by the Sub-Commission on the Prevention of Discrimination and Protection of Human Rights.19 These efforts initially led to the drafting of the Norms in 2003.20 The Human Rights Commission rejected the Norms in April 2005, and requested that the Secretary-General appoint a special representative to undertake a new effort to address the human rights impacts of transnational business activity.21 This representative received a five-part mandate for an and pineapple plantations in Côte d’Ivoire); Flores v. Southern Peru Copper Corp., 343 F.3d 140 (2d Cir. 2003), aff’g 253 F. Supp. 2d 510 (S.D.N.Y. 2002) (claims of violations of the rights to life, health and sustainable development arising from the operation of a copper mine and refinery in Peru); and Arias v. Dyncorp, 517 F. Supp. 2d 221 (D.D.C. 2007) (claims by Ecuadorian citizens alleging physical harm and property damage arising from Dyncorp’s contract with the U.S. government to eradicate cocaine and heroin production facilities in Colombia through aerial spraying of pesticides). 19 The Sub-Commission on Prevention of Discrimination and Protection of Human Rights was a subsidiary body of the U.N. Human Rights Commission. Sub-Commission on the Promotion and Protection of Human Rights, http://www.unhchr.ch/html/menu2/2/sc.htm (last visited Jan. 24, 2009). For a history of the reports issued by the Sub-Commission, see MARTENS, supra note 3, at 2. 20 See Norms, supra note 6. For a comprehensive history and analysis of the Norms, see Larry Cáta Backer, Multinational Corporations, Transnational Law: The United Nations’ Norms on the Responsibilities of Transnational Corporations as a Harbinger of Corporate Social Responsibility in International Law, 37 COLUM. HUM. RTS. L. REV. 287 (2006). 21 Hum. Rts. Comm’n Res. 69, supra note 3, ¶ 1. 2008] DUE DILIGENCE AS A DEFENSE 461 initial period of two years.22 Secretary-General Kofi Annan appointed John Ruggie as Special Representative in July 2005.23 Ruggie conducted numerous consultations and research projects and received voluminous submissions.24 In addition, Ruggie filed three reports with the Human Rights Commission. In his first report filed in February 2006, Ruggie echoed the Commission’s rejection of the Norms. Ruggie characterized the Norms as “engulfed by its own doctrinal excess . . . [resulting in] the highly contentious though largely symbolic proposal to monitor firms and provide reparation payments to victims.”25 This proposal was based on “exaggerated legal claims and conceptual ambiguities [that] created confusion and doubt even among many mainstream international lawyers and other impartial observers.”26 The assertion that human rights principles traditionally applicable only to states were now immediately applicable to transnational corporations lacked sufficient authoritative basis in international law.27 Additionally, the Norms suffered from a lack of precision in delineating state and corporate responsibilities and “obscure[d] rather than illuminate[d] 22 Id. The Special Representative’s mandate consists of the following activities: (a) To identify and clarify standards of corporate responsibility and accountability for transnational corporations and other business enterprises with regard to human rights; (b) To elaborate on the role of States in effectively regulating and adjudicating the role of transnational corporations and other business enterprises with regard to human rights, including through international cooperation; (c) To research and clarify the implications for transnational corporations and other business enterprises of concepts such as “complicity” and “sphere of influence”; (d) To develop materials and methodologies for undertaking human rights impact assessments of the activities of transnational corporations and other business enterprises; [and] (e) To compile a compendium of best practices of States and transnational corporations and other business enterprises. Id. 23 Press Release, United Nations, Secretary-General Appoints John Ruggie of United States Special Representative on Issue of Human Rights, Transnational Corporations, Other Business Enterprises, U.N. Doc. SG/A/934 (July 28, 2005). Ruggie previously served as Assistant Secretary-General and Chief Advisor for Strategic Planning to Secretary-General Annan from 1997 to 2001 and currently serves as the Evron and Jeanne Kirkpatrick Professor of International Affairs and Director of the Kennedy’s School’s Mossavar- Rahmani Center for Business and Government at Harvard University. See MARTENS, supra note 3, at 3. 24 Framework, supra note 1, ¶ 4 (describing Ruggie’s activities as consisting of “14 multi-stakeholder consultations on five continents,” two dozen research projects, the production of more than 1,000 pages of documents, and review of 20 submissions). 25 Interim Report, supra note 2, ¶ 59. 26 Id. 27 Id. ¶ 60 (stating that to “take existing State-based human rights instruments and simply assert that many of their provisions now are binding on corporations . . . has little authoritative basis in international law—hard, soft or otherwise”). 462 EMORY INTERNATIONAL LAW REVIEW [Vol. 22 promising areas of consensus and cooperation among business, civil society, governments and international institutions with respect to human rights.”28 Issued in February 2007, Ruggie’s second report discussed current trends in corporate liability for human rights abuses. These trends included “the gradual extension of liability to companies for international crimes, under domestic jurisdiction but reflecting international standards.”29 Most notable in this regard was the utilization of the ATS against transnational corporations in the United States. The report predicted an increase in future ATS litigation and noted that “[t]he risk environment for companies is expanding slowly but steadily, as are remedial options for victims.”30 Despite these trends, states had demonstrated an unwillingness to adopt binding international human rights standards for transnational corporations.31 This unwillingness was offset by the efforts of such corporations and non-governmental organizations to work together to establish soft law initiatives such as the Organization for Economic Cooperation and Development (OECD) Guidelines and the Extractive Industries Transparency Initiative.32 The report concluded that these instruments and similar initiatives would play “a key role in any future development of defining corporate responsibility for human rights.”33 Ruggie’s proposals for addressing the relationship between transnational corporations and human rights were contained in the Framework issued in April 2008. While praising the freer markets resulting from globalization for increased investment, job creation, and efficiency in resource allocation, the Framework found that markets as currently structured pose significant risks to society as “their scope and power far exceed the reach of the institutional underpinnings that allow them to function smoothly and ensure their political sustainability.”34 Ruggie characterized the disparities between the scope and impact of economic forces and the capacity of societies to manage such forces through their national governments as “governance gaps,” which resulted in an 28 Id. ¶¶ 66, 69. 29 Mapping, supra note 2, ¶ 84. 30 Id. ¶ 27. 31 Id. ¶ 44. 32 Id. ¶¶ 44, 48, 52 (referencing Organisation for Econ. Cooperation and Dev. [OECD], The OECD Guidelines for Multinational Enterprises (2000), available at http://www.oecd.org/dataoecd/56/36/ 1922428.pdf; Extractive Industries Transparency Initiative [EITI], Statement of Principles and Agreed Actions (2003), available at http://www2.dfid.gov.uk/pubs/files/eitidraftreportstatement.pdf). 33 Mapping, supra note 2, ¶ 44. 34 Framework, supra note 1, ¶ 2. Ruggie described the increasing number of corporate-related human rights abuses as “the canary in the coal mine, signaling that all is not well.” Id. 2008] DUE DILIGENCE AS A DEFENSE 463 increasing number of corporate-related human rights abuses.35 The inability of national governments to manage the social impact of globalization effectively left the business and human rights discussion without “an authoritative focal point.”36 As a result, Ruggie concluded that “the legal framework regulating transnational corporations operates much as it did long before the recent wave of globalization.”37 The Framework also continued the criticism of previous international efforts in this area. It effectively eviscerated the Norms to the extent they remained relevant. The Norms’ focus on specific human rights obligations emphasized “precisely the wrong side of the equation: defining a limited list of rights linked to imprecise and expansive responsibilities, rather than defining the specific responsibilities of companies with regard to all rights.”38 This approach failed to recognize that businesses could impact virtually all internationally recognized human rights.39 It also improperly equated states’ duties to protect internationally recognized human rights with the duty of transnational corporations to respect such rights.40 35 Id. ¶ 3. Ruggie attributed these “governance gaps” to many causes, including the lack of institutional capacity by national governments to enact and enforce laws; restraints upon the extraterritorial application of national regulation; the desire of states to attract investments and promote exports through unduly permissive business regulation; and challenges such as poverty, war and other conflicts, and corruption. Id. ¶¶ 14–16. Ruggie noted that the failure of national governments in this regard was across-the-board. See John G. Ruggie, U.N. Special Representative for Business and Human Rights, Remarks at the Royal Institute of International Affairs: Next Steps in Business and Human Rights 2 (May 22, 2008) (stating that “no region has a monopoly on corporate abuses; all have been implicated”). 36 Framework, supra note 1, ¶ 5. 37 Id. ¶ 13. 38 Id. ¶ 51; see also Clarification, supra note 2, ¶ 10 (criticizing the Norms for “imprecision and ambiguity” and utilizing the concept of spheres of influence “as though it were a functional equivalent to a State’s jurisdiction”). As a result, Ruggie concluded that compiling lists of human rights obligations that transnational corporations should respect was “an inherently fruitless exercise.” Survey, supra note 2, ¶ 110. 39 Survey, supra note 2, ¶ 16. The Survey identified labor and non-labor rights as the types of rights most commonly impacted by transnational corporations. Id. ¶¶ 17–28. Ruggie found that the most commonly impacted labor rights were the right to work (34%); the right to a safe work environment (31%); the right to just and favorable remuneration (30%); and the right to rest and leisure (25%). Id. ¶ 19. He also found that the non-labor rights most commonly impacted by transnational corporations were the right to physical and mental health (75%); the right to be free from torture or cruel, inhuman and degrading treatment (57%); the right to life, liberty and security of the person (44%); and the right to an adequate standard of living (40%). Id. ¶¶ 24– 25. Additionally, nearly one-third of cases alleging environmental harm had corresponding impacts on human rights. Id. ¶ 27. 40 Framework, supra note 1, ¶ 55. Ruggie noted that corporations are “specialized economic organs, not democratic public interest institutions . . . [and] [a]s such, their responsibilities cannot and should not simply mirror the duties of States.” Id. ¶ 53. In an article published in Ethical Corporation one month after release of the Framework, Ruggie offered three additional criticisms of the Norms. These were: (1) the “painfully slow” treaty-making process necessary to make the Norms binding upon states for which victims of human rights 464 EMORY INTERNATIONAL LAW REVIEW [Vol. 22 The Framework also criticized the U.N. Global Compact, specifically Principles One and Two relating to spheres of influence and complicity.41 The sphere of influence model lacked rigor and improperly held transnational corporations responsible for human rights abuses of any entity over which they exercised some influence.42 Transnational corporations were thus motivated to act in such circumstances even if such action was not a desirable response.43 Furthermore, the Compact improperly correlated responsibility for human rights impacts associated with a transnational corporation’s business activities with leverage to alleviate such impacts.44 Additionally, the focus of the sphere of influence on proximity failed to recognize that activities of transnational corporations could have an impact on people far removed from the source.45 With respect to complicity, the Framework stated that it “is not possible to specify definitive tests for what constitutes complicity in any given context.”46 abuses could not wait; (2) the potential for undermining of effective short-term measures to raise business standards caused by the treaty-making process; and (3) the likely inability of states to reach agreement on how human rights obligations are to be enforced against corporate violators. See John G. Ruggie, Treaty Road Not Travelled, ETHICAL CORP., May 6, 2008, at 42. 41 On its website, the U.N. Global Compact describes itself as “a strategic policy initiative for businesses that are committed to aligning their operations and strategies with ten universally accepted principles in the areas of human rights, labour, environment and anti-corruption.” U.N. Global Compact, Overview of the UN Global Compact, http://www.unglobalcompact.org/AboutTheGC/index.html (last visited Jan. 24, 2009). Principle One of the Global Compact provides, in part, that “the business community has a responsibility to uphold human rights both in the workplace and more broadly within its sphere of influence.” U.N. Global Compact, Principle One, http://www.unglobalcompact.org/AboutTheGC/TheTenPrinciples/principle1.html (last visited Jan. 24, 2009). The sphere of influence model has been described as “a set of concentric circles, mapping stakeholders in a company’s value chain: with employees in the innermost circle, then moving outward to suppliers, the marketplace, the community, and governments.” Clarification, supra note 2, ¶ 8. The model is based on the assumption that corporate influence, and thus responsibility for human rights abuses, is diluted the further the actors are from the center. Id. Conversely, the closer the human rights violator is to the center of the sphere, the more influence transnational corporations are able to exercise and thus the greater the responsibility to act. Principle Two instructs businesses to avoid knowing assistance to states violating human rights (direct complicity), deriving benefits directly from human rights abuses committed by states (beneficial complicity), or failing to object to systematic or continuous human rights violations by their host governments (implicit complicity). U.N. Global Compact, Principle Two, http://www.unglobalcompact.org/AboutTheGC/TheTenPrinciples/Principle2.html (last visited Jan. 24, 2009); see also Clarification, supra note 2, ¶¶ 30, 36–44. 42 Framework, supra note 1, ¶¶ 67, 69. 43 Id. ¶ 69; see also Clarification, supra note 2, ¶ 13 (criticizing the Norms and the Compact to the extent they require that “can implies ought” with respect to the exercise of influence over host governments). 44 Clarification, supra note 2, ¶¶ 12–13 (differentiating “influence” and “leverage” and concluding that “[a]sking companies to support human rights voluntarily where they have leverage is one thing; but attributing responsibility to them on that basis alone is quite another”). 45 Framework, supra note 1, ¶ 71. An example is an internet service provider whose violation of user privacy rights endangers distant end-users. 46 Id. ¶ 76. 2008] DUE DILIGENCE AS A DEFENSE 465 Mere presence in a country, the payment of taxes, silence in the face of abuses by a national government, and deriving benefits from abuses were unlikely to result in liability, but there were no guarantees in this regard.47 Generally speaking, liability should not be imposed in the absence of knowledge. However, the degree of knowledge required, be it actual or constructive, varies between jurisdictions.48 The Framework further concluded that the definition of complicity was constantly evolving and lacked uniformity.49 Transnational corporations were thus required to navigate a “messy reality” when confronting possible complicity issues in their foreign investment activities.50 As a result, a new international approach to business and human rights was necessary. The Framework set forth this approach with three core principles: “the State duty to protect against human rights abuses by third parties, including business; the corporate responsibility to respect human rights; and the need for more effective access to remedies.”51 According to the Framework, together these three principles form “a complementary whole” in attaining the goal of sustainable progress in resolving the transnational business and human rights dynamic.52 B. The Corporate Responsibility to Respect Human Rights The corporate responsibility to respect human rights is a baseline expectation for all transnational corporations in all circumstances deriving from numerous soft law instruments as well as public assertions of such 47 Id. ¶¶ 77–78. 48 Id. ¶¶ 79–80. 49 Clarification, supra note 2, ¶ 70. 50 Id. Ruggie’s blunt critique surprised many observers given his status as “one of the spiritual fathers of the Global Compact.” MARTENS, supra note 3, at 3. 51 Framework, supra note 1, ¶ 9. Detailed discussion of the state duty to protect against human rights abuses by third parties and the need for more effective access to remedies are beyond the scope of this Article. With respect to states, the Framework proposed the adoption of sustainability reporting requirements; utilization of evolving corporate culture as a means of imposing criminal liability and punishment upon corporate transgressors; incorporation of human rights protections in bilateral investment treaties and host government agreements; promotion of transparency in international commercial dispute resolution procedures involving human rights; and revision of the OECD Guidelines for Multinational Enterprises. Id. ¶¶ 30–31, 34, 37, 46. With respect to fostering greater access to remedies, the Framework proposed review of judicial, non- judicial, and company-level grievance mechanisms as well as greater collaboration among multi-stakeholder and private industry initiatives. Id. ¶¶ 88–101. 52 Id. ¶ 9. 466 EMORY INTERNATIONAL LAW REVIEW [Vol. 22 respect by transnational corporations themselves.53 The Framework defines respect for human rights as simply “to do no harm.”54 However, the Framework poses the question: how do transnational corporations know that they are respecting human rights and not causing harm as a result of their foreign business activities?55 The answer lies in the requirement of due diligence, which the Framework defines as “a process whereby companies not only ensure compliance with national laws but also manage the risk of human rights harm with a view to avoiding it.”56 This process requires proactive conduct by transnational corporations in three specific areas. First, transnational corporations must examine the context within which their activities take place in order to “highlight any specific human rights challenges they may pose.”57 Transnational corporations should consult numerous sources, including information provided by labor organizations, non-governmental organizations, national governments, and international agencies.58 In addition, transnational corporations should carefully analyze national laws and international standards relating to human rights, with particular emphasis upon gaps between such laws and standards.59 Second, due diligence requires assessment of the potential and actual human rights impacts of a proposed business activity given the previously referenced context in which it occurs and the corporation’s status as a producer, manufacturer, service provider, supplier, or employer.60 The Framework lists numerous business activities that may negatively impact human rights, including production processes, the type of product or service provided, labor and employment practices, the provision of security for personnel, and assets and political activities within the host state.61 Impact 53 Id. ¶¶ 23–24, 54 (citing OECD, The OECD Guidelines for Multinational Enterprises (2000), available at http://www.oecd.org/dataoecd/56/36/1922428.pdf; Int’l Labour Org. [ILO], Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy, 83 OFFICIAL BULL., Ser. A, No. 3 (2000)). 54 Framework, supra note 1, ¶ 24. 55 Id. ¶ 25. 56 Id. The Framework further defines due diligence as “the steps a company must take to become aware of, prevent and address adverse human rights impacts.” Id. ¶ 56. The Framework also cites the definition of due diligence set forth in Black’s Law Dictionary: “the diligence reasonably expected from, and ordinarily exercised by, a person who seeks to satisfy a legal requirement or discharge an obligation.” Id. (quoting BLACK’S LAW DICTIONARY 502 (8th ed. 2004)). 57 Framework, supra note 1, ¶ 57; see also Clarification, supra note 2, ¶ 19. 58 Clarification, supra note 2, ¶ 20. 59 Id. 60 Framework, supra note 1, ¶ 57; see also Clarification, supra note 2, ¶¶ 19, 21. 61 Clarification, supra note 2, ¶ 21. 2008] DUE DILIGENCE AS A DEFENSE 467 assessment must occur as early as possible, and ideally before the decision process has been completed, to allow for modifications to location, timing, design, costing, and other specific features of the activity.62 Finally, due diligence requires transnational corporations to determine whether their relationships within a specific state contribute to human rights abuses. Of particular relevance in this regard are relationships with business partners, suppliers, and government agencies.63 Transnational corporations should ensure that they are not implicated in human rights abuses because of such relationships.64 A transnational corporation contemplating a new foreign undertaking must research all parties with whom it may have relationships in order “to assess whether it might contribute to or be associated with harm caused by entities with which it conducts, or is considering conducting business or other activities.”65 Three important points arise from the third element of due diligence. First, the scope of inquiry—and thus due diligence—are not defined by the sphere of influence concept contained within the U.N. Global Compact. The Framework rejects equating these concepts on the basis of the previously-noted criticisms.66 Second, an essential element of due diligence is the avoidance of complicity, regardless of how that is defined in national legal systems and international law.67 Despite definitional difficulties, the Framework concluded that avoiding complicity remained important to due diligence “because it describes a subset of the indirect ways in which companies can have an adverse effect on rights through their relationships.”68 A properly performed due diligence process will assist transnational corporations in managing complicity risks in human rights abuses.69 Finally, the Framework sets forth a reasonableness test for determining if business relationships within a specific state contribute to human rights abuses.70 This test poses the question of whether “a reasonable person [would] have appreciated that there was a risk of contributing to abuse and have 62 See Consultations, supra note 2, ¶ 121. 63 Framework, supra note 1, ¶ 57; see also Clarification, supra note 2, ¶ 19. 64 Clarification, supra note 2, ¶ 22. 65 Id. 66 Id. ¶ 4; see also supra notes 42–45 and accompanying text. 67 Clarification, supra note 2, ¶ 26; see also supra notes 46–50 and accompanying text. 68 Clarification, supra note 2, ¶ 4. 69 Id. 70 Framework, supra note 1, ¶ 19. 468 EMORY INTERNATIONAL LAW REVIEW [Vol. 22 changed their behaviour to avoid the risk.”71 The Framework is careful to delineate this test not as a knowledge-based standard but rather as an issue of whether a transnational corporation acted in accordance with applicable standards of care.72 The standard of care in any given circumstance may be determined from requirements of the legal system of the transnational corporation’s home state, corporate and industry-wide codes of conduct, best practices within the particular industry, and internal manuals and policies.73 This final point is particularly important to the extent that it delinks corporate human rights obligations from compliance with substantive norms. Rather, the Framework equates such obligations with traditional concepts of corporate governance, such as due diligence and the exercise of reasonable care in the decision-making process.74 The Framework equates the exercise of due diligence and reasonable care with four separate undertakings. Initially, transnational corporations must adopt a human rights policy.75 This policy may contain aspirational language to describe the commitment to human rights but must provide “detailed guidance in specific functional areas” to give meaning to the commitment and provide adequate direction for employees charged with implementation.76 Second, transnational corporations must proactively address the human rights implications of their activities by conducting an impact assessment prior to undertaking action.77 The specific inquiries constituting an adequate pre- investment impact assessment depend heavily on the industry and location of the proposed business activity.78 Additionally, although such assessment may be linked with other pre-investment inquiries such as risk and environmental impact, due diligence requires “explicit references to internationally recognized human rights.”79 Information gleaned from this assessment should be considered in the planning and implementation processes and may require modifications to proposed and ongoing commercial activities.80 71 Clarification, supra note 2, ¶ 53. 72 Id. 73 Id. ¶ 53 n.43. 74 Framework, supra note 1, ¶ 25. 75 Id. ¶ 60. 76 Id. 77 Id. ¶ 61. 78 Id. 79 Id. 80 Id. 2008] DUE DILIGENCE AS A DEFENSE 469 The Framework also requires transnational corporations to integrate human rights policies throughout their organizations.81 The Framework discourages isolation of human rights issues within a specific department in order to avoid inconsistent or contradictory actions.82 Instead, due diligence requires cross- departmental awareness of human rights issues. Such awareness may best be fostered through leadership at all levels and a continuing education and training process for employees.83 The Framework also encourages a flexible decision-making process to address unforeseen situations.84 The final element of due diligence is the establishment of internal monitoring and auditing processes to track current events within the host state and corporate responses thereto.85 The Framework does not identify requisite features of these processes, instead leaving their details to each transnational corporation and the sectors in which they operate.86 The only uniform aspects of such processes are their regular performance and the utilization of resultant information in continuing improvement efforts.87 II. RECOGNIZING AND FORMULATING A DUE DILIGENCE DEFENSE TO ATS LIABILITY A. Recognizing Due Diligence as a Defense There are several reasons for recognizing compliance with the Framework’s due diligence standard as a defense to ATS claims. First, the language of the Framework transforms the discussion of transnational corporations and human rights from one of normative compliance to one of corporate governance consistent with U.S. domestic legal requirements, business practices, and globalization. Second, there is a demonstrable need for the recognition of such a defense. The due diligence standard is transformative to the extent that it rejects previous efforts focusing on compliance with substantive norms. Gone is the 81 Id. ¶ 62. The Framework describes integration as “the biggest challenge in fulfilling the corporate responsibility to respect.” Id. 82 Id. 83 Id. 84 Id. 85 Id. ¶ 63. 86 Id. 87 Id. 470 EMORY INTERNATIONAL LAW REVIEW [Vol. 22 Norms’ list of components of the International Bill of Rights to which transnational corporations must conform.88 In its place, the Framework substitutes the language of corporate governance as exemplified by due diligence.89 While directors and executives may know little about the substance of human rights law, corporate leadership understands the concept of due diligence. The sources of this understanding arise in part from domestic legal requirements. For example, state law imposes upon directors a duty to exercise ordinary care and act in good faith to serve the best interests of the shareholders and the corporation.90 These duties include oversight of operations in order to ensure they are undertaken in a legal and ethical 88 See Norms, supra note 6, ¶¶ 2–14. 89 Framework, supra note 1, ¶ 25. 90 See, e.g., MODEL BUS. CORP. ACT [MBCA] § 8.31(a)(1)–(2) (2005). This section of the MBCA provides that: (a) A director shall not be liable to the corporation or its shareholders for any decision to take or not to take action, or any failure to take any action, as a director, unless the party asserting liability in a proceeding establishes that: (1) no defense interposed by the director based on (i) any provision in the articles of incorporation . . . precludes liability; and (2) the challenged conduct consisted or was the result of: (i) action not in good faith; or (ii) a decision (A) which the director did not reasonably believe to be in the best interests of the corporation, or (B) as to which the director was not informed to an extent the director reasonably believed appropriate in the circumstances; or (iii) a lack of objectivity due to the director’s familial, financial or business relationship with, or a lack of independence due to the director’s domination or control by, another person having a material interest in the challenged conduct . . .; or (iv) a sustained failure of the director to devote attention to ongoing oversight of the business and affairs of the corporation, or a failure to devote timely attention, by making (or causing to be made) appropriate inquiry, when particular facts and circumstances of significant concern materialize that would alert a reasonably attentive director to the need therefore; or (v) receipt of a financial benefit to which the director was not entitled or any other breach of the director’s duties to deal fairly with the corporation and its shareholders that is actionable under applicable law. Id. In addition, the MBCA requires claimants to prove harm to the corporation or its shareholders and proximate causation in order to recover money damages. Id. § 8.31(b)(1)(i)–(ii); see also Consultations, supra note 2, ¶ 112 (summarizing the understanding of due diligence by the participants in the multi-stakeholder consultation as consisting of “steps taken by directors to discharge fiduciary duties of care and loyalty”). 2008] DUE DILIGENCE AS A DEFENSE 471 manner.91 Oversight includes the collection and utilization of information, risk assessment, reasonable decision-making procedures, monitoring, reporting, and adjustments in corporate policy when and where necessary.92 Domestic legal sources for the understanding of due diligence also derive from federal law. Material foreseeable risks must be disclosed by publicly traded corporations in public filings and offering documents pursuant to federal securities laws.93 Therefore, to the extent that human rights issues create risks for public corporations, they must be disclosed. Discovery of these risks requires the exercise of due diligence by corporate management. Failure to discover and disclose such risks is punishable by civil and criminal penalties through enforcement actions by regulators as well as private citizens.94 Such disclosure requirements are also prescribed by state securities laws.95 These 91 See, e.g., Stone v. Ritter, 911 A.2d 362, 370 (Del. 2006) (holding that directors fail to exercise appropriate oversight of corporate affairs only if they “utterly failed to implement any reporting or information system or controls [or] having implemented such a system or controls, consciously failed to monitor or oversee its operations thus disabling themselves from being informed of risks or problems requiring their attention”); see also Consultations, supra note 2, ¶ 112 (summarizing the understanding of the duties of care and loyalty by the participants in the multi-stakeholder consultation as consisting of oversight of corporate operations in order to ensure that they are acting legally and ethically, which requires steps to identify and address risks). 92 Memorandum from Ira M. Millstein et al., Weil, Gotshal & Manges, LLP, Corporate Social Responsibility for Human Rights: Comments on the U.N. Special Representative’s Report Entitled “Protect, Respect and Remedy: A Framework for Business and Human Rights” 3 (May 22, 2008), available at http://220.127.116.11/Weil-Gotshal-legal-commentary-on-Ruggie-report-22-May-2008.pdf [hereinafter Weil Memorandum]. 93 See, e.g., Reg. S-K, 17 C.F.R. §§ 229.101, 229.103, 229.303, 229.503 (2008) (providing for disclosure of material foreseeable risks by public corporations in public filings and securities offering documents). The U.S. Supreme Court has defined the disclosure requirement as follows: “An omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote.” TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 439 (1976). The Court offered an additional test to determine whether disclosure was required: “Put another way, there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available.” Id. at 449. 94 See, e.g., 15 U.S.C. § 77q(a)(2) (2006) (providing that it shall be unlawful “to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading” in the offer or sale of any security by use of interstate commerce). This prohibition is enforceable through the issuance of cease and desist orders by the Securities and Exchange Commission as well as the imposition of civil and criminal liability. Id. §§ 77h-1, k, t, x, z-1. 95 See, e.g., UNIFORM SECURITIES ACT § 501(2) (2002) (prohibiting the making of an untrue statement of a material fact or omission of a material fact in connection with the offer, sale, or purchase of a security). The Uniform Securities Act, a model statute, provides criminal penalties and civil liability for violation of section 501 as well as civil and administrative enforcement actions. Id. §§ 508–09, 603–04; see also UNIFORM SECURITIES ACT § 101(2) (1956) (prohibiting the making of an untrue statement of a material fact or omission of a material fact in connection with the offer, sale, or purchase of a security). The Uniform Securities Act as revised had been adopted by 14 states and the U.S. Virgin Islands at the time of publication. Uniform 472 EMORY INTERNATIONAL LAW REVIEW [Vol. 22 disclosure regimes place “significant ‘market pressures on companies to respect rights’” in conformity with the stated objectives of the Framework.96 Another federal source for understanding due diligence is the U.S. Sentencing Guidelines.97 The Guidelines grant a reduction in the amount of fines payable by a corporation found guilty of a federal crime if the corporation had an “effective compliance and ethics program” in place prior to the commission of the crime.98 An “effective compliance and ethics program” requires, in part, the “exercise [of] due diligence to prevent and detect criminal conduct.”99 An understanding of actions that constitute due diligence also may come from sources other than state and federal law.100 In any event, the Framework clearly enumerates those actions that constitute due diligence for human rights purposes should other sources fail to offer adequate guidance.101 These federal definitions and the Framework share a common origin in principles of corporate governance.102 As such, the concept of due diligence will undoubtedly resonate with corporate decision-makers to a greater extent Securities Act, USA Enactments, http://www.uniformsecuritiesact.org/usa/DesktopDefault.aspx?tabindex=3& tabid=69 (last visited Jan. 24, 2009). The Uniform Securities Act of 1956 was adopted by 37 jurisdictions prior to its amendment in 2002. Richard B. Smith, A New Uniform Securities Act, WALL STREET LAW., Feb. 2003, at 8, available at http://www.uniformsecuritiesact.org/usa/DesktopDefault.aspx?tabindex=7& tabid=51 (last visited Jan. 24, 2009). 96 Weil Memorandum, supra note 92, at 4 (quoting the Framework, supra note 1, ¶ 30). 97 See U.S. SENTENCING GUIDELINES MANUAL (2007). 98 Id. § 8B2.1(a). 99 Id. § 8B2.1(a)(1). Due diligence requires the establishment of standards to detect criminal conduct, knowledge and oversight of the program by senior level management, the delegation of daily operational responsibility for the program to a specific individual, and integration throughout all levels of the organization through communication and training. Id. § 8B2.1(b)(1)–(4). The Guidelines also require regular monitoring and auditing, periodic evaluation to determine continued effectiveness, and consistent promotion and enforcement throughout the organization. Id. § 8B2.1(b)(5), (c). 100 For example, see AM. LAW INST., PRINCIPLES OF CORPORATE GOVERNANCE § 4.01(c) (1994), which provides, in part: A director or officer who makes a business judgment in good faith fulfills the duty [of care] . . . if the director or officer: (1) is not interested . . . in the subject of the business judgment; (2) is informed with respect to the subject of the business judgment to the extent the director or officer reasonably believes to be appropriate under the circumstances; and (3) rationally believes that the business judgment is in the best interests of the corporation. Id. 101 See supra notes 75-87 and accompanying text (discussing the Framework’s requirements of adoption of a human rights policy and its integration throughout the organization, completion of a pre-investment human rights impact assessment, and establishment of internal monitoring and auditing processes). 102 See Framework, supra note 1, ¶ 25 (explaining that due diligence is needed to solve corporate governance problems in regard to human rights). 2008] DUE DILIGENCE AS A DEFENSE 473 than compliance with lists of ill-defined norms derived from international human rights instruments with still uncertain applicability to transnational business activities.103 It has been aptly noted that “[t]raditional American corporate law speaks the language of economics and perhaps politics. It generally does not speak the language of human rights.”104 The readily understandable concept of due diligence is far more useful in determining successful integration of human rights into corporate practices than compliance with a normative checklist. The application of the due diligence standard in the context of ATS claims is clear through explicit reference to such claims in the body of the instruments constituting the Framework.105 The issue of ATS claims appeared in the Special Representative’s report entitled “Mapping International Standards of Responsibility and Accountability for Corporate Acts,” which summarized current trends in corporate responsibility for human rights abuses.106 Later references to ATS claims are contained in the Framework itself as well as in another report by the Special Representative, entitled “Promotion and Protection of All Human Rights, Civil, Political, Economic, Social and Cultural Rights, Including the Right to Development: Clarifying the Concepts of ‘Sphere of Influence’ and ‘Complicity’” (Clarification).107 These references are not incidental. The Clarification describes ATS cases as “the largest body of domestic jurisprudence regarding corporate responsibility for violations of international law.”108 It further states that many of these claims 103 See Sosa v. Alvarez-Machain, 542 U.S. 692, 732 n.20 (2004) (“A related consideration is whether international law extends the scope of liability for a violation of a given norm to the perpetrator being sued, if the defendant is a private actor such as a corporation or individual.”). 104 Backer, supra note 20, at 306–07; see also Paul Redmond, Transnational Enterprise and Human Rights Options for Standard Setting and Compliance, 37 INT’L LAW. 69, 73 (2003) (“Corporate law does not explicitly address the problem of corporate compliance with human rights standards; indeed, its systemic orientation aggravates the problem of standard setting and compliance.”). But see Franklin A. Gevurtz, The Historical and Political Origins of the Corporate Board of Directors, 33 HOFSTRA L. REV. 89, 172 (2004) (“To dismiss the goal of political legitimacy is to ignore the history of the corporation and of the board of directors.”). 105 See generally Clarification, supra note 2. 106 Mapping, supra note 2, ¶¶ 27, 84 (“By far the most consequential legal development [in corporate responsibility] is the gradual extension of liability to companies for international crimes, under domestic jurisdiction but reflecting international standards.”). 107 See Framework, supra note 1, ¶¶ 88–90 (describing difficulties associated with human rights claims against transnational corporations, including those asserted pursuant to the ATS, such as political and economic considerations, costs, standing, statutes of limitation, and abstention doctrines such as forum non conveniens and the act of state doctrine); Clarification, supra note 2, ¶¶ 29–32 (describing difficulties associated with complicity claims, including those asserted pursuant to the ATS). 108 Clarification, supra note 2, ¶ 29. 474 EMORY INTERNATIONAL LAW REVIEW [Vol. 22 arise from purported complicity in abuses, which could be avoided through due diligence.109 The underlying message conveyed by these references is clear: attempts to impose substantive human rights standards on transnational corporations have been largely unsuccessful.110 As a result, such attempts will likely continue without reframing the relationship between corporations and human rights.111 The Framework’s preference for a due diligence approach is applicable to ATS litigation to the extent such litigation is included within the efforts to impose substantive human rights standards on transnational corporations.112 The utilization of the Framework to transform the emphasis of ATS claims from substantive compliance to due diligence is also consistent with practices required by the global regulatory environment113 and those voluntarily adopted by transnational corporations for the purposes of improving performance, enhancing corporate image, and reducing risk.114 Fifty percent of Global 500 109 Id. ¶ 32. 110 Framework, supra note 1, ¶¶ 105–07. 111 Id. 112 The Clarification explains, “The parameters of how [the ATS] can be used with respect to companies are still being defined.” Clarification, supra note 2, ¶ 50. However, the Clarification also notes that ATS claims have tended to be complicity claims. Id. As the Framework suggests that complicity issues may be dealt with through due diligence, due diligence may thus be useful in dealing with ATS claims. Framework, supra note 1, ¶ 73. 113 See, e.g., Companies Act, 2006, c. 46, § 172(1) (Eng.) (redefining the fiduciary duty of directors to include having “regard” for “the impact of the company’s operations on the community and the environment”); Law No. 2001-420 of May 15, 2001, Journal Officiel de la République Française [J.O.] [Official Gazette of France], May 16, 2001, p. 7776, 7798 (requiring all French corporations listed on the premier marché to report annually on the social and environmental impact of their activities commencing in 2003). See also THE DANISH GOVERNMENT, ACTION PLAN FOR CORPORATE SOCIAL RESPONSIBILITY 7, 21 (2008) (Den.) (proposing mandatory reporting of corporate social responsibility policies and implementation for “major businesses, institutional investors and unit trusts”). 114 See Rachel Cherington, Securities Laws and Corporate Social Responsibility: Toward an Expanded Use of Rule 10b-5, 25 U. PA. J. INT’L ECON. L. 1439, 1441–42 (2004) (“Although the SEC does not require disclosure of information related to human rights, overseas labor, and related social issues, [transnational corporations] have already been voluntarily releasing such information, primarily in an effort to improve public relations and attract consumers and investors.”). See also BUSINESS LEADERS INITIATIVE ON HUMAN RIGHTS [BLIHR] ET AL., GUIDE FOR INTEGRATING HUMAN RIGHTS INTO BUSINESS MANAGEMENT 5 (2005), available at http://www.blihr.org/Reports/GIHRBM.pdf [hereinafter BLIHR GUIDE]. The Guide is a joint product of the Business Leaders’ Initiative on Human Rights, the U.N. Global Compact Office, and the Office of the U.N. High Commissioner for Human Rights and describes a “Global Compact Performance Model” intended to “help any company integrate practices consistent with human rights standards into an existing management system.” Id. at 5. Although it is an attempt to implement the Global Compact rather than the Framework, the Guide nevertheless offers considerable instruction with respect to due diligence through its focus on incorporation of human rights considerations in strategy, policy formulation, corporate procedures and processes, communications, training, auditing, and reporting. Id. at 11. The Guide also contains a matrix 2008] DUE DILIGENCE AS A DEFENSE 475 companies include social and environmental issues in their annual reports, and most have created corporate responsibility officers or departments.115 Such requirements and voluntary initiatives are widely accepted as they are phrased in the language of corporate governance and do not unduly interfere with globalization’s core norms of markets and contracts.116 Finally, there is a recognized need for a due diligence defense to ATS claims. The Framework has been criticized for imposing responsibility to “vindicate the broad-textured guarantees of international human rights instruments” on transnational corporations, which do not have the power and legitimacy accorded to national governments.117 As a result, transnational corporations will be exposed to “enormous liability” as a result of the “difficult and subjective exercise” of conducting human rights impact assessments.118 Liability could result from numerous other factors, including “erroneous predictions of possible human rights outcomes, a board’s decision not to follow every recommendation in an impact assessment’s management plan, or a company’s ‘prioritization’ of human rights challenges and corresponding project designs.”119 A due diligence defense serves to remedy concerns that transnational corporations will be required to compensate individuals for the political, civil, economic, and social deficiencies of the states in which they transact business.120 Such a defense addresses society’s growing expectations of business with respect to corporate social responsibility in general, and human rights in particular, in a manner that is manageable and consistent with transnational practices, and in a language readily understandable to the setting forth methods by which transnational corporations may ensure compliance with specific human rights contained within the International Bill of Rights and core conventions of the ILO. Id. at 14–16. 115 See Cynthia A. Williams & John M. Conley, An Emerging Third Way?: The Erosion of the Anglo- American Shareholder Value Construct, 38 CORNELL INT’L L.J. 493, 544 (2005) (surveying social and environmental reporting practices of Global 500 companies); Cynthia A. Williams & John M. Conley, Is There an Emerging Fiduciary Duty to Consider Human Rights?, 74 U. CIN. L. REV. 75, 81 (2005). The Global 500 is a listing of the world’s 500 largest companies in terms of revenue. Fortune, Global 500, http://money.cnn. com/magazines/fortune/global500/2008/ (last visited Jan. 24, 2009). 116 Backer, supra note 20, at 309. 117 Memorandum from Martin Lipton & Kevin S. Schwartz of Wachtell, Lipton, Rosen & Katz, A United Nations Proposal Defining Corporate Social Responsibility for Human Rights 3 (May 1, 2008), available at http://amlawdaily.typepad.com/amlawdaily/files/wachtell_lipton_memo_on_global_business_human_rights. pdf [hereinafter Wachtell Memorandum]. 118 Id. 119 Id. 120 Id. 476 EMORY INTERNATIONAL LAW REVIEW [Vol. 22 international business community.121 If the above-referenced criticisms are to be given any credence, transnational corporations that expend the time and resources to conduct thorough evaluations should be rewarded for their efforts, with a defense to liability if human rights violations occur despite the corporations’ best efforts to determine their likelihood and prevent or minimize their occurrence. By contrast, corporations failing to adopt appropriate investigative measures risk the imposition of liability when violations that could have been discovered or prevented in the exercise of due diligence occur.122 Furthermore, the due diligence defense is not likely to immunize transnational corporations that merely adopt procedures relating to human rights impact assessment without conducting substantive analysis.123 Additionally, corporations should adopt procedures that are created in good faith and reasonably designed to identify, assess, and address negative human rights impacts; and then they should implement them fully. B. Formulating a Due Diligence Defense A due diligence defense to ATS liability should start with the business judgment rule—“a cornerstone doctrine”124 and “the foundation of [U.S.] corporation law”125—and its focus on procedural due care.126 The rule 121 For a discussion of society’s enhanced expectations of business with respect to corporate social responsibility, see Williams & Conley, Is There an Emerging Fiduciary Duty to Consider Human Rights?, supra note 115, at 78–81. 122 See Watchell Memorandum, supra note 117, at 1 (arguing that under the Framework, companies will assume broad responsibility in countries in which they conduct business). 123 See Framework, supra note 1, ¶¶ 56–81 (discussing the scope of due diligence). 124 Gregory Scott Crespi, Should the Business Judgment Rule Apply to Corporate Officers, and Does It Matter?, 31 OKLA. CITY U. L. REV. 237, 238 (2006). 125 Sarah Helene Duggin & Stephen M. Goldman, Restoring Trust in Corporate Directors: The Disney Standard and the “New” Good Faith, 56 AM. U. L. REV. 211, 225 (2006) (quoting E. Norman Veasey & Christine T. DiGuglielmo, What Happened in Delaware Corporate Law and Governance from 1992–2004? A Retrospective on Some Key Developments, 153 U. PA. L. REV. 1399, 1442 (2005)). 126 The business judgment rule has been the subject matter of innumerable commentaries in law review articles. See, e.g., Stephen M. Bainbridge, The Business Judgment Rule as Abstention Doctrine, 57 VAND. L. REV. 83 (2004); Crespi, supra note 124; Duggin & Goldman, supra note 125; Melvin A. Eisenberg, The Duty of Good Faith in Corporate Law, 31 DEL. J. CORP. L. 1 (2006); Andrew S. Gold, A Decision Theory Approach to the Business Judgment Rule: Reflections on Disney, Good Faith, and Judicial Uncertainty, 66 MD. L. REV. 398 (2007); Lyman P.Q. Johnson, Corporate Officers and the Business Judgment Rule, 60 BUS. LAW. 439 (2005); Dana M. Muir & Cindy A. Schipani, Fiduciary Constraints: Correlating Obligation with Liability, 42 WAKE FOREST L. REV. 697 (2007); Elizabeth A. Nowicki, A Director’s Good Faith, 55 BUFFALO L. REV. 457 (2007); David Rosenberg, Galactic Stupidity and the Business Judgment Rule, 32 J. CORP. L. 301 (2007); Celia R. Taylor, The Inadequacy of Fiduciary Duty Doctrine: Why Corporate Managers Have Little to Fear and 2008] DUE DILIGENCE AS A DEFENSE 477 provides that “the business judgment of the directors will not be challenged or overturned by courts or shareholders, and the directors will not be held liable for the consequences of their exercise of business judgment—even for the judgments that appear to have been clear mistakes.”127 The rule creates a presumption that in making the decision in question, the directors “acted on an informed basis in good faith and in the honest belief that the action was taken in the best interests of the company.”128 The substance of the information is not as important as the procedures utilized by the directors to educate themselves regarding the choices confronting them.129 The best interests of the company do not necessarily need to align with the shareholders’ primary interest in profit maximization, but the directors may take the interests of other stakeholders into account.130 An individual who challenges a board decision What Might Be Done About It, 85 OR. L. REV. 993 (2006); D.A. Jeremy Telman, The Business Judgment Rule, Disclosure, and Executive Compensation, 81 TUL. L. REV. 829 (2007); Fred W. Triem, Judicial Schizophrenia in Corporate Law: Confusing the Standard of Care with the Business Judgment Rule, 24 ALASKA L. REV. 23 (2007); E. Norman Veasey, Counseling Directors in the New Corporate Culture, 59 BUS. LAW. 1447 (2004). Some of this commentary has discussed the business judgment rule in the context of corporate social responsibility in general and human rights in particular. See, e.g., Eric Engle, What You Don’t Know Can Hurt You: Human Rights, Shareholder Activism and SEC Reporting Requirements, 57 SYRACUSE L. REV. 63 (2006); Kent Greenfield & D. Gordon Smith, Saving the World with Corporate Law?, 57 EMORY L.J. 947 (2008); Janet E. Kerr, Sustainability Meets Profitability: The Convenient Truth of How the Business Judgment Rule Protects a Board’s Decision to Engage in Social Entrepreneurship, 29 CARDOZO L. REV. 623 (2007); Williams & Conley, Is There an Emerging Fiduciary Duty to Consider Human Rights?, supra note 115; Veronica Besmer, Note, The Legal Character of Private Codes of Conduct: More than Just a Pseudo-Formal Gloss on Corporate Social Responsibility, 2 HASTINGS BUS. L.J. 279 (2006). 127 Triem, supra note 126, at 27–28 (quoting ROBERT CHARLES CLARK, CORPORATE LAW § 3.4 (1986)); see also United Artists Theater Co. v. Walton, 315 F.3d 217 (3d Cir. 2003); Joy v. North, 692 F.2d 880 (2d Cir. 1982); Fin. Indus. Fund, Inc. v. McDonnell Douglas Corp., 474 F.2d 514 (10th Cir. 1973); Barkan v. Amsted Indus., Inc., 567 A.2d 1279, 1286 (Del. 1989); Aronson v. Lewis, 473 A.2d 805 (Del. 1984), overruled by Brehm v. Eisner, 746 A.2d 244 (Del. 2000); In re Gaylord Container Corp. Shareholders Litig., 753 A.2d 462 (Del. Ch. 2000); In re Caremark Int’l Inc. Derivative Litig., 698 A.2d 959 (Del. Ch. 1996); Willmschen v. Trinity Lakes Improvement Ass’n, 840 N.E.2d 1275 (Ill. App. Ct. 2005); Shlensky v. Wrigley, 237 N.E.2d 776 (Ill. App. Ct. 1968). Chancellor Chandler of the Delaware Chancery Court summarized the rule as a refusal to “hold fiduciaries liable for a failure to comply with the aspirational ideal of best practices.” In re The Walt Disney Derivative Litig., 907 A.2d 693, 697 (Del. Ch. 2005); see also AM. LAW INST., supra note 100, § 4.01(c). 128 Aronson, 473 A.2d at 812 (citing Kaplan v. Centex Corp., 284 A.2d 119, 124 (Del. Ch. 1971)); see also Panter v. Marshall Field & Co., 646 F.2d 271, 293 (7th Cir. 1981); Treadway Cos. v. Care Corp., 638 F.2d 357, 382 (2d Cir. 1980); Johnson v. Trueblood, 629 F.2d 287, 292 (3d Cir. 1980); Cinerama, Inc. v. Technicolor, 663 A.2d 1156, 1164 (Del. 1995); In re Caremark Int’l Derivative Litig., 698 A.2d at 967; Ferris Elevator Co. v. Neffco, Inc., 674 N.E.2d 449, 453 (Ill. App. Ct. 1996); Auerbach v. Bennett, 393 N.E.2d 994, 1000 (N.Y. 1979). 129 See Walt Disney, 907 A.2d at 476–77 (holding that the business judgment rule is not a substantive rule and establishing a presumption only that the decision be grounded in a business purpose). 130 See, e.g., Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946, 955 (Del. 1985) (discussing how boards of directors should consider the interests of employees, suppliers, customers, creditors, and the community in 478 EMORY INTERNATIONAL LAW REVIEW [Vol. 22 bears the burden of overcoming the business judgment presumption by demonstrating fraud, self-dealing, waste, illegality, or other dereliction of duty.131 Similarly, a due diligence defense to ATS liability would create a presumption that in making a foreign business decision, a transnational corporation acted on an informed basis and in the honest belief that its decision was taken in the best interests of the corporation. This presumption would arise if the transnational corporation engaged in due diligence prior to undertaking the activity in question. Transnational corporations would be shielded from liability for decisions and actions that ultimately resulted in human rights abuses as long as the decision-making process included a due diligence element designed to identify and avoid such abuses. Though relevant, the substance of the information known at the time of the decision would not be as important as the procedures utilized by the transnational the context of deployment of defensive measures); Shlensky, 237 N.E.2d at 779–80 (refusing to require the owner of Wrigley Field to install lights in order to permit the Chicago Cubs to play night games due to the potential negative impact upon residents in the surrounding neighborhood); Margaret M. Blair & Lynn A. Stout, A Team Production Theory of Corporate Law, 85 VA. L. REV. 247, 287–88 (1999) (contending that directors must serve the corporation as a whole, and that the corporation’s interests are broader than the profit motive of shareholders). But see Greenfield & Smith, supra note 126, at 961 (contending that the business judgment rule does not give directors broad latitude to elevate the interests of other stakeholders above those of the shareholders in profit maximization); see also Kent Greenfield, Reclaiming Corporate Law in a New Gilded Age, 2 HARV. L. & POL’Y REV. 1, 8, 14–16 (2008). 131 See, e.g., Joy, 692 F.2d at 886 (refusing to shield the directors of a bank from liability to shareholders for losses attributable to loans to a real estate developer with a personal relationship to the bank’s chief executive officer, on the basis that the rule does not apply in circumstances where “the corporate decision lacks a business purpose, is tainted by a conflict of interest, is so egregious as to amount to a no-win decision, or results from an obvious and prolonged failure to exercise oversight or supervision” (citations omitted)); Brehm v. Eisner, 746 A.2d 244, 264 n.66 (Del. 2000) (refusing to substitute the court’s judgment for that of the directors in the absence of conflict of interest, lack of good faith or rational business purpose, or the presence of gross negligence); Cinerama, Inc., 663 A.2d at 1164 (refusing to overturn the business judgment presumption in the absence of bad faith, conflict of interest or breach of the duty of due care); Aronson, 473 A.2d at 812 (citing conflict of interest, lack of good faith, and gross negligence as reasons for ignoring the business judgment rule); Shlensky, 237 N.E.2d at 781 (refusing to overturn the business judgment presumption in the absence of fraud, illegality, conflict of interest, or other “clear showing of dereliction of duty”); Rosenberg, supra note 126, at 304 (characterizing the business judgment rule as shielding directors from liability despite the conclusion in hindsight that their decisions were “pretty dumb,” “substantively wrong,” “stupid,” “egregious,” or “irrational”); Telman, supra note 126, at 841 (describing the business judgment rule as serving to protect corporate assets from dissipation through litigation by limiting judicial review to circumstances involving fraud, self-dealing, or behavior so irrational as to only be described as waste). However, the waste exception has been characterized as “so rare as to be possibly nonexistent.” LUCIAN BEBCHUK & JESSE FRIED, PAY WITHOUT PERFORMANCE: THE UNFULFILLED PROMISE OF EXECUTIVE COMPENSATION 46 (2004); see also MBCA, supra note 90, § 8.31(a)(1)–(2), (b)(1)(i)–(ii) (immunizing directors from liability in the absence of bad faith, lack of information, conflict of interest, and dereliction of duty). 2008] DUE DILIGENCE AS A DEFENSE 479 corporation to determine the human rights implications of the decisions confronting it. There is support within the Framework for a procedural rather than substantive focus in judging the consistency of corporate practices with human rights standards. An earlier U.N. report, “Human Rights Impact Assessments—Resolving Key Methodological Questions” (Assessment) concluded that “[t]he process of carrying out [a human rights impact assessment] can be as or even more important than a final report.”132 In reaching this conclusion, the Assessment emphasized the value of the process in serving as “a convening mechanism to bring representatives of the company, community, and government together in dialogue.”133 The Assessment further rejected utilization of substantive norms due to the absence of a global consensus about corporate obligations with respect to international human rights standards.134 The absence of such consensus and the Framework’s preference for process over substance prevents mandated compliance with any specific human rights impact assessment framework in order to utilize the due diligence defense. The Assessment identified numerous characteristics of a well-conceived human rights impact framework.135 Many widely respected and influential frameworks share one or more of these characteristics.136 However, the 132 Assessment, supra note 2, ¶ 20. 133 Id. 134 Id. ¶ 26. 135 Id. ¶¶ 11–22. These characteristics include: (1) a description of the proposed business activity throughout its life cycle; (2) a description of all applicable legal, regulatory, and administrative standards; (3) a description of human rights conditions in the area in which the activity is to occur; (4) a description of changes to the area as a result of the business activity; (5) a prioritization of human rights risks presented by the proposed business activity; (6) creation of a management plan including provisions for monitoring and periodic review; (7) regular consultation with affected parties; (8) incorporation of best industry practices where practicable; (9) involvement of industry and human rights experts; (10) full publication of the resulting assessment document; and (11) utilization of the UDHR, ICCPR, and ICESCR as bases for determining assessment of impacted rights. Id.; see also Mapping, supra note 2, ¶¶ 57, 77. 136 See, e.g., U.S. DEP’T OF STATE, VOLUNTARY PRINCIPLES ON SECURITY AND HUMAN RIGHTS 1–3 (2001) (including a description of human rights conditions in the area in which the activity is to occur, a description of changes to the area as a result of the business activity, regular consultation with affected parties, incorporation of best industry practices where practicable, communication of human rights policies to contractors, employee training and education, and the reporting and recording of violations); BLIHR GUIDE, supra note 114, at 4, 11, 17 (including a description of all applicable legal, regulatory, and administrative standards; a description of changes to the surrounding area as a result of the business activity; a prioritization of human rights risks presented by the proposed business activity; regular consultation with affected parties; utilization of the UDHR, ICCPR, and ICESCR as the basis for determining assessment of impacted rights; communication of human rights policies to contractors, employee training, and education; the reporting and 480 EMORY INTERNATIONAL LAW REVIEW [Vol. 22 Assessment identified several other frameworks as equally meritorious.137 The identification of numerous alternatives and the shared characteristics of these frameworks prevent mandated compliance with any single framework as a condition to utilization of the due diligence defense.138 The importance of each assessment or reporting format is its perceived credibility and its effectiveness.139 Furthermore, these standards and other similar efforts do not address a uniform set of human rights impacts resulting from business activity. Rather, they assess a group of impacts specific to a particular set of circumstances that may be positive or negative, direct or indirect, singular or cumulative, and may possess multiple interrelated factors.140 Additionally, there are no universally accepted criteria by which to assess the effectiveness of these standards given their relative novelty.141 As such, absent agreement upon standard assessment criteria, utilization of any framework by which transnational corporations evaluate the human rights impact of their activities should be sufficient to satisfy the requirements of due diligence. A plaintiff seeking to impose liability utilizing the ATS carries the burden of overcoming the presumption of compliance resulting from the due diligence process. He or she could do this by demonstrating the underlying illegality of the decision or action, direct participation by the transnational corporation in the alleged abuse, or some other dereliction of duty.142 The protection afforded recording of violations; the adoption of corporate-wide human rights policies; and the designation of a senior management official as a human rights officer); GLOBAL REPORTING INITIATIVE, SUSTAINABILITY REPORTING GUIDELINES 32, 37–38 (2006) (including regular consultation with affected parties; incorporation of best industry practices where practicable; full publication of the resulting assessment document; utilization of the UDHR, ICCPR, and ICESCR as bases for determining assessment of impacted rights; employee training and education; the adoption of corporate-wide human rights policies; and the designation of a senior management official as a human rights officer); INT’L FIN. CORP., GUIDE TO HUMAN RIGHTS IMPACT ASSESSMENT AND MANAGEMENT 17–59 (2007) (including a description of changes to the area as a result of the business activity; regular consultation with affected parties; incorporation of best industry practices where practicable; utilization of the UDHR, ICCPR, and ICESCR as bases for determining assessment of impacted rights; and the reporting and recording of violations). 137 Assessment, supra note 2, ¶¶ 31–36 (listing the human rights impact assessment tools created by the International Business Leaders Forum; the International Finance Corporation; the U.N. Global Compact; and various non-governmental organizations, such as Rights and Democracy, International Alert, the Danish Institute for Human Rights and the Humanist Committee on Human Rights). 138 See id. ¶ 26. 139 See Mapping, supra note 2, ¶ 56. 140 Id. ¶ 1. 141 Id. ¶ 56. 142 One commentator describes this burden as “very heavy” in the context of the business judgment rule. Bainbridge, supra note 126, at 87. 2008] DUE DILIGENCE AS A DEFENSE 481 by the due diligence defense would also be forfeited where the decision “is so blatantly imprudent that it is inexplicable, in the sense that no well-motivated and minimally informed person could have made it.”143 Furthermore, in a manner similar to the business judgment rule, and made all the more necessary by the human rights focus of the due diligence process, the best interests of the company do not need to align with the shareholders’ primary interest in profit maximization.144 Rather, the corporation’s decision may take into account the interests of other stakeholders, such as customers, labor, and the community.145 In the absence of an extenuating circumstance, courts must refuse to review decisions in which transnational corporations engaged in due diligence, but where human rights violations nevertheless occurred.146 This approach, which has been described in the context of the business judgment rule as “an almost- reflexive refusal” by courts to review directors’ decisions, presumes non- interference based upon limitations on the scope of judicial power and expertise.147 The issue presented by this approach asks which institution or set of institutions is best suited to make business decisions.148 The costs and benefits of the corporate decision-making process would almost always result in the selection of the board of directors or the shareholders, rather than the courts, as the final arbiter.149 Challenges to the substance of the business 143 William T. Allen, Realigning the Standard of Review of Director Due Care with Delaware Public Policy: A Critique of Van Gorkom and Its Progeny as a Standard of Review Problem, 96 NW. U. L. REV. 449, 452 (2002). 144 See supra note 130 and accompanying text. 145 See supra note 130 and accompanying text. 146 See supra notes 127, 131 and accompanying text. 147 Rosenberg, supra note 126, at 307, n.8; see also Bainbridge, supra note 126, at 87 (describing the business judgment rule as an abstention doctrine “pursuant to which courts in fact refrain from reviewing board decisions unless exacting preconditions for review are satisfied”); Lyman P.Q. Johnson, The Modest Business Judgment Rule, 55 BUS. LAW. 625, 625 (2000) (characterizing the business judgment rule as a “narrow-gauged policy of non-review”); Telman, supra note 126, at 830 (proposing that the rule be “aggressively conceived as a doctrine of abstention, pursuant to which courts refrain from substantive review of a board’s decisions as long as the decision-making process was proper”). 148 See, e.g., Stephen M. Bainbridge, Director Primacy: The Means and Ends of Corporate Governance, 97 NW. U. L. REV. 547, 602 (2003) (describing boards of directors as corporations’ “central and final decisionmaker”); Gold, supra note 126, at 448 (asserting that “[b]usiness judgment rule protections can be assessed in terms of which institution, or set of institutions, is best suited to making the decisions at issue”); Wayne O. Hanewicz, Director Primacy, Omnicare, and the Function of Corporate Law, 71 TENN. L. REV. 511, 511 (2004) (stating that “corporate law does and should allocate decision-making authority to various institutions, such as the board, the shareholders, and the judiciary, and that this decision-making authority ought to be allocated so as to most efficiently advance the ultimate goal of corporate law”). 149 Gold, supra note 126, at 449. 482 EMORY INTERNATIONAL LAW REVIEW [Vol. 22 decision would be short-circuited, and the transnational corporation spared the expense of defending a decision properly within its management’s purview.150 C. The Benefits of Recognizing a Due Diligence Defense There are numerous benefits to recognizing a due diligence defense to ATS liability. Transnational corporations would be the primary beneficiaries of the defense. First, the defense recognizes the reality noted in the Framework, specifically that all human rights are relevant to transnational business activities.151 Although lists of rights most likely to be impacted by business activities may be useful in fostering awareness and formulating strategies in specific circumstances, the duty of transnational corporations to respect human rights should not be so limited. Instead, transnational corporations should consider all human rights impacts in their strategies and activities.152 These impacts may go beyond the corporation’s direct actions and implicate members of its supply chain, security personnel, and the community at large.153 An approach focusing on compliance with a designated list of rights encourages a “check the box” mentality that fails to encompass the expansive thinking needed to accurately assess the complete impact of the investment or business activity.154 A due diligence approach emphasizing respect for all human rights is a more effective means by which to foster greater corporate awareness of the broad range of rights directly, indirectly, and potentially affected by a specific investment or business activity.155 Such an exercise provides an efficient, effective, and understandable means by which to bring to the attention of management its obligation to respect human rights.156 The expanded analysis required by due diligence also benefits stakeholders. Enumerated rights most likely to be impacted by transnational corporations do not differentiate between stakeholders.157 As a result, stakeholder interests are weighed equally regardless of the potentially inequitable impact upon them.158 150 Bainbridge, supra note 126, at 128; see also Franklin A. Gevurtz, The Business Judgment Rule: Meaningless Verbiage or Misguided Notion?, 67 S. CAL. L. REV. 287, 306 (1994) (commenting on the expense to corporations of defending business decisions); Telman, supra note 126, at 833. 151 Framework, supra note 1, ¶ 52. 152 See BLIHR GUIDE, supra note 114, at 11. 153 Id. at 14. 154 See Framework, supra note 1, ¶ 6. 155 See Clarification, supra note 2, ¶ 25. 156 Id. ¶ 71. 157 Id. ¶ 11. 158 Id. 2008] DUE DILIGENCE AS A DEFENSE 483 This imperfect balance also disregards the difference between those stakeholders whom a business activity may negatively impact and those over whom the corporation in question exercises some degree of control, such as national governments and members of the supply chain.159 Equating these interests fails to differentiate between impact—“where the company’s activities or relationships are causing human rights harm”—and leverage— where the company has direct or indirect influence over actors that may serve to prevent or minimize harm.160 Additionally, this treatment of stakeholder interests equates proximity with impact by failing to give sufficient weight to remote stakeholders who may nonetheless be significantly affected by a particular course of conduct.161 The utilization of a due diligence approach requires a transnational corporation to identify both stakeholder interests arising directly from its activities and those implicated by the company’s “web of activities and relationships.”162 Once identified, due diligence requires differentiating between these respective interests, determining how the activity in question will impact these interests, and assessing whether such impact may be alleviated through the exercise of appropriate leverage.163 Another benefit resulting from recognizing a due diligence defense is the differentiation of state obligations from those of transnational corporations.164 Although the Framework recognizes transnational corporations as “organs of society,” it also notes that they are “specialized economic organs, not democratic public interest institutions.”165 The state defines human rights duties and the methods by which they are to be enforced.166 By contrast, transnational corporations lack the power and legitimacy of states to “vindicate the broad-textured guarantees of international human rights instruments.”167 Corporate responsibility should not mirror the state’s duty to establish, elucidate, and protect human rights. These differences, as well as the reality that business decisions are often made on the basis of imperfect information, should also remove transnational corporations as the guarantors of the human 159 Id. 160 Id. ¶ 12. 161 Id. ¶ 15. 162 Id. 163 See Framework, supra note 1, ¶¶ 67–68. 164 Id. ¶ 70. 165 Id. ¶ 53. 166 See Weil Memorandum, supra note 92, at 1–3. 167 Wachtell Memorandum, supra note 117, at 3. 484 EMORY INTERNATIONAL LAW REVIEW [Vol. 22 rights responsibilities of their sovereign hosts.168 A contrary conclusion would inextricably tie “a corporate activity’s human rights impact . . . to deficiencies in the political, civil, economic, or social conditions left unaddressed by the [host] State.”169 Regrettably, ATS cases filed to date have called upon courts to determine the applicability of a multitude of human rights obligations to transnational corporations without distinguishing between sovereign responsibilities and corporate duties.170 This problem has been compounded by the U.S. Supreme Court’s opinion in Sosa v. Alvarez-Machain, which failed to resolve the issue of the applicability of the ATS to private activity, but nevertheless recognized civil actions based upon “a norm of international character accepted by the civilized world and defined with a specificity comparable to the features of the 18th-century paradigms.”171 This focus on identifying specific, universal, and obligatory norms is misplaced to the extent that it confuses state responsibility and the corporate duty to respect human rights. A due diligence approach recognizes the distinction between foreign sovereigns and transnational corporations. The due diligence defense inquires whether the transnational corporation undertook sufficient action pursuant to established procedures to adequately inform itself of the consequences of its actions on international human rights, and thereafter acted to minimize such impact.172 The definition of which rights, if any, are subject to protection, how such rights may best be protected, and the responsibility for ensuring their inviolability are rightfully left to the state rather than imposed on transnational corporations on what to date has been an ad hoc basis. A defense based on due diligence also largely eliminates any corporate incentive to interfere in the internal political affairs of host states. Transnational corporations might be tempted to interfere in internal political matters if their responsibility to respect human rights is equated with sovereign responsibility to protect such rights.173 Such interference presents a minimal 168 For a related discussion of the role of imperfect information as a basis for the business judgment rule, see Allen, supra note 143, at 451–52; Duggin & Goldman, supra note 125, at 231; and Gold, supra note 126, at 445. 169 Wachtell Memorandum, supra note 117, at 3. 170 See supra note 18 and accompanying text. 171 Sosa v. Alvarez-Machain, 542 U.S. 692, 725 (2004). 172 Framework, supra note 1, ¶ 56. 173 See Wachtell Memorandum, supra note 117, at 3. 2008] DUE DILIGENCE AS A DEFENSE 485 risk to business but may have a substantial benefit should it result in a change in governmental policies that reduces or eliminates abuses, thereby minimizing potential corporate liability.174 This approach is problematic because it assumes transnational corporations can exercise influence over their sovereign hosts and, assuming such ability, should do so. However, “can” does not imply “ought.”175 Transnational corporations should not be held responsible for the human rights shortcomings of their sovereign hosts, even if they possess leverage, nor is it desirable for such entities to act whenever and wherever they possess influence.176 This is particularly the case given the previously noted differences between national governments and corporations.177 As noted in the Framework, “[a]sking companies to support human rights voluntarily where they have leverage is one thing; but attributing responsibility to them on that basis alone is quite another.”178 A due diligence approach eliminates the perceived necessity of exercising influence over sovereign hosts for the sole reason of limiting potential corporate liability for human rights violations. Additionally, the elimination of interference in the political affairs of host states is consistent with many corporate codes of conduct.179 A due diligence approach also provides greater certainty to transnational corporations. The occurrence of human rights violations and the resulting possibility of ATS liability constitute material risks for transnational corporations. These risks are exacerbated by the fact that applicable corporate norms are fraught with uncertainty, and the power to define them is fragmented 174 Id. 175 Clarification, supra note 2, ¶ 13. 176 Framework, supra note 1, ¶ 69 (concluding that transnational corporations “cannot be held responsible for the human rights impacts of every entity over which they may have some influence . . . [n]or is it desirable to have companies act whenever they have influence, particularly over governments”). 177 See supra notes 165–68 and accompanying text. 178 Clarification, supra note 2, ¶ 13. 179 A well-known example in this regard was Unocal Corporation’s Statement on International Political Neutrality, which provided that the company’s participation in “any international energy development project is based on resource potential, business economics and technical expertise—not political motivations. Our commitment is to the people of a host country, not a particular party or political group.” Lucien J. Dhooge, Creating Case Studies for the International Business Law Classroom: An Example Utilizing Foreign Investment and Human Rights, 18 J. LEGAL STUD. IN EDUC. 83, 83 (2000) (quoting UNOCAL CORPORATION, STATEMENT ON INTERNATIONAL POLITICAL NEUTRALITY 1 (1997)). Ultimately, this statement was inadequate to prevent a federal court from denying Unocal’s motion to dismiss an ATS complaint arising from its utilization of the Myanma military to provide security for a natural gas pipeline in which Unocal was a participant. See Doe v. Unocal Corp., 963 F. Supp. 880 (C.D. Cal. 1997). 486 EMORY INTERNATIONAL LAW REVIEW [Vol. 22 among many constituencies.180 Boards of directors may be unwilling to undertake projects that present such risks, despite the fact that shareholders would otherwise approve of risk-taking in the interest of profit maximization.181 A conservative decision-making strategy focused on liability concerns rather than profits is a disservice to shareholders, who are thereby denied the full measure of return on their investment.182 In a manner similar to the business judgment rule, a due diligence defense alleviates risk to the extent it provides greater certainty to boards of directors that their decisions will not form the basis of ATS litigation if they can demonstrate that they undertook appropriate steps to identify and address potential abuses.183 Boards would be willing to undertake appropriate risks, safe in the knowledge that there is no legal recourse regardless of the outcome, unless they fail to adequately inform themselves of the human rights consequences of their actions through resort to an established investigative protocol.184 By minimizing the potential for ATS litigation, the due diligence defense recognizes that risk-taking is a desirable part of every business decision.185 Recognition of a due diligence defense simply acknowledges that, 180 See, e.g., Weil Memorandum, supra note 92, at 2 (characterizing the language utilized in human rights instruments as “undefined, imprecise and subject to varied interpretations”); Williams & Conley, Is There an Emerging Fiduciary Duty to Consider Human Rights?, supra note 115, at 101 (stating that the “power to define acceptable [corporate social responsibility] practices (including human rights practices) is fragmented, held in varying proportions by employees, unions, consumers, investors, top management, governments, and [non-governmental organizations], in addition to companies”). 181 See Allen, supra note 143, at 455 (contending that “[a] standard of review that imposes liability on a board of directors for making an ‘unreasonable’ (as opposed to an ‘irrational’) decision could result in discouraging riskier yet socially desirable economic decisions”). 182 See, e.g., In re Caremark Int’l Derivative Litig., 698 A.2d 959, 967 (Del. Ch. 1996) (holding that “[t]o employ a different rule—one that permitted an ‘objective’ evaluation of the decision—would expose directors to substantive second guessing by ill-equipped judges or juries, which would, in the long-run, be injurious to investor interests”); FRANK H. EASTERBROOK & DANIEL R. FISCHEL, THE ECONOMIC STRUCTURE OF CORPORATE LAW 93 (1991) (stating that “investors’ wealth would be lower if managers’ decisions were routinely subjected to strict judicial review”); Allen, supra note 143, at 455 (stating that “[b]ecause the expected value of a risky business decision may be greater than that of a less risky decision, directors may be acting in the best interest of the shareholders when they choose the riskier alternative”). 183 See Kerr, supra note 126, at 636 (listing the encouragement of appropriate risk taking as an underlying justification for the business judgment rule). 184 See Rosenberg, supra note 126, at 301 (describing the incentive to undertake appropriate risk created by the business judgment rule). 185 Id. at 312–13 (noting that “[i]n the corporate marketplace . . . risk-taking is an inherent part of virtually every decision a director makes—and we want it that way”). 2008] DUE DILIGENCE AS A DEFENSE 487 unlike other areas of law, “the circumstances of a corporation call for very different standards of risk taking, uncertainty, and tolerance for failure.”186 The increased certainty and minimization of risk will result in a more efficient allocation of corporate resources. As noted in the Framework, the primary means by which transnational corporations address human rights abuses are through litigation and countering negative publicity, both of which are “at best optimistic risk management.”187 Litigation costs in particular can be severe, even if the claims ultimately prove non-meritorious. Direct costs include those associated with retaining legal representation, responding to exhaustive discovery requests, and appearing at judicial proceedings.188 Litigation may also harm corporate interests through indirect costs, such as the disruption of normal corporate functions, the disclosure of sensitive information, and the damage to reputation.189 Corporations would incur further litigation and additional costs to the extent that any one claim was successful. Adaptation to a consistently changing legal regime, given the “undefined, imprecise and . . . varied interpretations” characterizing human rights norms, will result in additional transition costs for the affected corporation and similarly-situated companies.190 Transnational corporations may avoid these costs through devoting time and resources to concealing activities that could result in the filing of ATS claims.191 This is hardly an 186 Id. at 313 (contrasting traffic safety laws, which discourage risk taking due to the absence of social utility, with the business judgment rule, which encourages risk due to the social utility—specifically, the enrichment of shareholders—produced as a result). 187 Framework, supra note 1, ¶ 93. 188 Gold, supra note 126, at 467. 189 Id. (noting that “[e]ven where claims are dubious, discovery may disrupt normal corporate functions, create disastrous public relations consequences, and force corporations to reveal their prospective business plans”). Adrian Vermeule has described direct and indirect costs arising from litigation as follows: “Decision costs” is a broad rubric that might encompass the direct (out-of-pocket) costs of litigation to litigants and the judicial bureaucracy, including the costs of supplying judges with information needed to decide the case at hand and formulate doctrines to govern future cases; the opportunity costs of litigation to litigants and judges (that is, the time spent on a case that could more profitably be spent on other cases); and the costs to lower courts of implementing and applying doctrines developed at higher levels. ADRIAN VERMEULE, JUDGING UNDER UNCERTAINTY: AN INSTITUTIONAL THEORY OF LEGAL INTERPRETATION 166–67 (2006). 190 Weil Memorandum, supra note 92, at 2; see also Gold, supra note 126, at 468 (noting that “legal transition costs would be a near certainty under a regime of enhanced judicial review, as the various actors would have to adjust their behavior to respond to the new legal doctrine”). For a detailed discussion of legal transition costs, see Michael P. Van Alstine, The Costs of Legal Change, 49 UCLA L. REV. 789 (2002). 191 Gold, supra note 126, at 469. 488 EMORY INTERNATIONAL LAW REVIEW [Vol. 22 efficient allocation of resources or a desirable result in a field that would benefit from greater transparency. By contrast, recognition of a due diligence defense would result in transnational corporations incurring costs to “alter their decisions about location, timing, design, and costing, and thus the investment’s overall viability, based on the impact assessment.”192 Corporations would incur these costs earlier than litigation costs, and they would be significantly smaller.193 To the extent that due diligence serves as an abstention doctrine and terminates litigation at an early stage in the proceedings, litigation costs largely would disappear.194 Transnational corporations could protect themselves from the dissipation of resources and reputational harm that could occur should ATS litigation proceed through extended motion practice, discovery, trial, and appeal.195 Subsequent changes in corporate behavior would minimize an additional risk. Currently, a change in corporate behavior to address a human rights abuse could be interpreted as an acknowledgement of the abuse and possibly an admission of complicity.196 Transnational corporations ignore ongoing abuses or formulate defenses to liability rather than address such abuses in a meaningful manner.197 Recognition of a due diligence defense alleviates this concern due to the defense’s focus on pre-investment procedures rather than corporate knowledge of abuses after the investment decision has been made and implemented.198 Thus, transnational corporations would address human rights abuses that come to their attention from post-investment monitoring largely free from the concern that remedial measures could be an admission against interest in subsequent ATS litigation. 192 Consultations, supra note 2, ¶ 121. 193 See id.; Curtis A. Bradley, The Costs of International Human Rights Litigation, 2 CHI. J. INT’L L. 457, 460–73 (2001) (noting the high and continuously expanding cost of human rights litigation both for parties to the litigation and to the legislative and judicial processes). 194 Telman, supra note 126, at 839. 195 Id. 196 See, e.g., Claire Morre Dickertson, Human Rights: The Emerging Norm of Corporate Social Responsibility, 76 TUL. L. REV. 1431, 1455 (2002) (noting that changes in corporate practice regarding setting minimum standards for workers in developing countries have been interpreted as acknowledging past human rights concerns). 197 See id.; Ronen Shamir, Between Self-Regulation and the Alien Tort Claims Act: On the Contested Concept of Corporate Social Responsibility, 38 LAW & SOC’Y REV. 635, 661 (2004) (arguing that Sosa and other recent developments have forced corporations to reflect upon human rights-related issues). 198 See Consultations, supra note 2, ¶ 121 (advocating pre-investment impact assessment procedures). 2008] DUE DILIGENCE AS A DEFENSE 489 Transnational corporations would also benefit from the creation of baseline standards that would level competition between companies and across industries.199 The due diligence defense would apply to all companies— private as well as publicly-owned, small, medium-sized and large corporations, and national and transnational enterprises.200 This broad application promotes equity between competitors as well as between divergent industries. This equity will benefit U.S. companies to the extent that it places the responsibility to adhere to similar pre-investment inquiries on foreign transnational corporations.201 This result is particularly desirable as the U.S. legal environment in this area has advanced beyond the requirements of most other legal systems.202 Such a defense, however, also retains flexibility by allowing corporations and industries to select among a wide range of due diligence protocols and determine which human rights risks are material to their businesses.203 Furthermore, a due diligence defense would benefit the recognition and protection of human rights in future transnational business activities.204 The cause of human rights would benefit from increased corporate awareness and vigilance required by a due diligence defense.205 The defense would facilitate the elimination of decision-making processes that ignore human rights or fail to assess the impact of business on such rights.206 Additionally, the methods 199 See Press Release, Business Leaders Initiative on Human Rights [BLIHR], Initial Statement by the BLIHR in Response to the 2008 Report of the U.N. Special Representative on Business and Human Rights 1 (May 14, 2008), available at http://www.blihr.org/Reports/BLIHR-statement-Ruggie-2008.pdf (characterizing the responsibility to respect through the exercise of due diligence as “a very useful baseline for any business wishing to engage on human rights”). 200 Press Release, Int’l Org. of Employers, Joint Initial Views of the International Organization of Employers, the International Chamber of Commerce and the Business and Industry Advisory Committee to the OECD to the Third Report of the Special Representative of the U.N. Secretary-General on Business and Human Rights 2 (May 2008), available at http://www.reports-and-materials.org/Letter-IOE-ICC-BIAC-re- Ruggie-report-May-2008.pdf (praising the Framework for its applicability to all companies regardless of ownership, size, or scope of operations). 201 Weil Memorandum, supra note 92, at 1 (praising the Framework on the basis that, if “taken seriously by foreign governments and foreign companies, it will benefit U.S. corporations by leveling the playing field in placing on foreign boards and management the responsibilities to adhere to many of the same fiduciary and binding legal obligations presently applicable to U.S. companies”). 202 Id. at 6. 203 Id. at 2. 204 See Shamir, supra note 197, at 660–61 (arguing that human rights will benefit from increased corporate awareness of human rights-related issues). 205 Id. 206 See Carolyn A. D’Amore, Note, Sosa v. Alvarez-Machain and the Alien Tort Statute: How Wide Has the Door to Human Rights Litigation Been Left Open?, 39 AKRON L. REV. 593, 629 n.189 (2006) (arguing that 490 EMORY INTERNATIONAL LAW REVIEW [Vol. 22 by which due diligence are conducted are not static. These methods will become more sophisticated and require greater investment of corporate resources as the amount of available information continues to grow.207 This ever-increasing need to discover and consider more information will encourage transnational corporations to think more broadly about human rights in general, and the actual and potential impacts of decisions in particular. Areas of inquiry would include activities with a direct impact, such as production processes, the products and services provided by the company, and labor and employment practices.208 However, inquiry would not be limited to these activities. Due diligence would include examination of relationships with third parties that could impact human rights, such as contracts for the provision of goods and services.209 The increasing breadth of inquiry required to adequately conduct due diligence would bring additional attention to the potential impact of corporate activities upon stakeholders, including those other than shareholders.210 The consideration of the interests of these stakeholders is crucial in conducting due diligence.211 All stakeholders and their interests must be identified, and the likelihood and severity of the potential impact of the proposed business activity must be thoroughly examined to ensure the preparation of an analysis that meets the requirements of the due diligence format selected by the corporation.212 Corporate legitimacy provides another reason for careful identification and consideration of all stakeholder interests. One commentator notes that “[c]orporate privilege can only be legitimate if the corporation serves the community from which the factors of production of its wealth are derived.”213 corporations should “create walls” to separate the business from decision-making processes that ignore human rights). 207 See Kerr, supra note 126, at 659 (noting that the board of directors’ duty to inform itself pursuant to the business judgment rule becomes more comprehensive as the amount of information by which social and financial impacts may be assessed increases). 208 Clarification, supra note 2, ¶ 21. 209 Id. ¶ 22. 210 See Backer, supra note 20, at 301–02, 339–40 (arguing that service to the community may include a “broadening of the constituencies to which the corporation must be responsible”). 211 Id. at 339–40. 212 Id. 213 Id. at 301; see also Daniel P. Sullivan & Donald E. Conlon, Crisis and Transition in Corporate Governance Paradigms: The Role of the Chancery Court of Delaware, 31 LAW & SOC’Y REV. 713, 716 (1997) (“Corporations are chartered with a quasi-public obligation to satisfy general community needs . . . .”). 2008] DUE DILIGENCE AS A DEFENSE 491 Service to the community includes broadening the constituencies to which the corporation may be responsible.214 In the context of due diligence, service to the community includes the adoption of an impact assessment framework that goes beyond traditional shareholder concerns and addresses a much larger pool of stakeholders.215 A properly drafted and implemented due diligence policy brings attention to the interests of all stakeholders. In so doing, such a policy increases collaboration between transnational corporations and stakeholders.216 A due diligence defense also would encourage greater collaboration between transnational corporations and non-governmental organizations committed to the protection of human rights.217 The increasing complexity of due diligence processes and the growing amount of information to be considered will necessitate greater cooperation between transnational corporations and non-governmental organizations.218 Transnational corporations will need to increasingly rely on such organizations for information necessary to conduct adequate due diligence.219 In turn, non- governmental organizations should welcome such consultation as a means by which to facilitate the protection of human rights in transnational business activities and as a means of furthering their own agendas.220 Finally, the federal judiciary would benefit from recognition of a due diligence defense. Recognition of a due diligence defense would remove the burden of determining which rights, if any, fit within Justice Souter’s criteria set forth in Sosa v. Alvarez-Machain,221 which resulted in insufficient guidance to the business community.222 A due diligence defense substitutes a standard 214 Backer, supra note 20, at 301. 215 Id. at 301–02. 216 Id. at 301–02, 339–40. 217 Id. at 339–40 (arguing that corporate legitimacy calls for corporations to consider non-governmental organizations as affected stakeholders). 218 Id. at 387–88 (examining interrelations between transnational corporations and non-governmental organizations). 219 Id. 220 Id. 221 See Sosa v. Alvarez-Machain, 542 U.S. 692, 732 (2004); see also Framework, supra note 1, ¶ 51 (stating that the identification of specific rights for which transnational corporations bear responsibility “emphasizes precisely the wrong side of the equation: defining a limited list of rights linked to imprecise and expansive responsibilities, rather than defining the specific responsibilities of companies with regard to all rights”). 222 See supra note 170–71 and accompanying text. Although federal courts have largely rejected ATS claims arising from environmental damage and the alleged violation of labor rights, recent cases have presented the risk of liability and imposed considerable litigation-related costs on transnational corporations. 492 EMORY INTERNATIONAL LAW REVIEW [Vol. 22 for Sosa’s vague instruction to ascertain specific, universal, and obligatory norms, which may or may not then be applied to transnational business activities. The result would not only discontinue the perpetual quest for such norms, but would also eliminate related and equally troubling concepts associated with their application. Although it is unlikely that liability could be imposed upon transnational corporations for their mere presence in states with poor human rights protections or solely for deriving benefits from human rights abuses, the possibility nevertheless exists.223 Furthermore, outcomes may vary among courts depending on the degree of presence or amount of the benefit received.224 More importantly, a due diligence defense would eliminate the troubling concepts of “sphere of influence” and “complicity” from further judicial consideration in the context of the ATS. As noted in the Framework, “sphere of influence” is a deeply flawed concept that, by itself, is an inappropriate basis for assessing corporate liability for human rights violations.225 The focus on procedure rather than substance that forms the basis of the due diligence defense also eliminates the possibility of judicial confusion regarding assessment of liability on the equally flawed basis of complicity.226 Although individual complicity has been defined and enforced in the international criminal context, corporate complicity in a purely civil context remains a dubious proposition that defies definition.227 As a result, there is considerable confusion as to the existence of civil liability for corporate complicity in human rights abuses in the context of the ATS and, if such liability in fact exists, whether its basis should be grounded in domestic law or international See, e.g., Khulumani v. Barclay Nat’l Bank, 504 F.3d 254 (2d Cir. 2007); Sarei v. Rio Tinto, 487 F.3d 1193 (9th Cir. 2007). 223 See Framework, supra note 1, ¶¶ 77–78; Clarification, supra note 2, ¶¶ 39, 41. 224 See Framework, supra note 1, ¶ 77 (concluding that “acts of omission in narrow contexts have led to legal liability of individuals when the omission legitimized or encouraged the abuse [in the context of international criminal law]”); Clarification, supra note 2, ¶ 39 (stating that mere presence may result in civil liability if “the company’s silence amounted to a substantial contribution to . . . [a] crime, such as legitimizing or encouraging the crime, and that the company provided such encouragement knowingly”). 225 See supra notes 41–45 and accompanying text. 226 See supra notes 46–50 and accompanying text. 227 See Framework, supra note 1, ¶ 76 (“Owing to the relatively limited case history, especially in relation to companies rather than individuals, and given the substantial variations in definitions of complicity within and between the legal and non-legal spheres, it is not possible to specify definitive tests for what constitutes complicity in any given context.”); Clarification, supra note 2, ¶¶ 33, 70 (concluding that it is “not possible to specify exacting tests for what constitutes complicity even within the legal sphere” and that the state of the law in this area is “not uniform, nor is it static”). 2008] DUE DILIGENCE AS A DEFENSE 493 criminal law principles.228 In eliminating this issue from further judicial inquiry, a due diligence defense eases the decisional burden upon courts and provides greater guidance to transnational corporations with respect to their responsibilities. 228 See, e.g., Khulumani v. Barclay Nat’l Bank, 504 F.3d 254 (2d Cir. 2007) (per curiam). In Khulumani, the Second Circuit addressed the issue of whether transnational corporations could be held liable in damages for human rights abuses resulting from their alleged collaboration with the South African government during the apartheid era from 1948 through the early 1990s. Id. at 257. The three-judge panel reached three different conclusions. One member of the court concluded that the ATS permitted courts to exercise subject matter jurisdiction over claims alleging civil liability for aiding and abetting human rights violations and that the applicable standards were provided by international criminal law. Id. at 270–82 (Katzmann, J., concurring). A second member of the panel concurred in the issue of subject matter jurisdiction but concluded that the applicable standard was provided for by domestic law. Id. at 284–88 (Hall, J., concurring). A third member of the panel rejected civil liability for aiding and abetting pursuant to the ATS. Id. at 317–37 (Korman, J., concurring in part and dissenting in part). The U.S. Supreme Court failed to grant certiorari to consider the Second Circuit’s fractured opinions given the absence of a six-justice quorum. See Robert Barnes, Investment Conflicts for High Court, WASH. POST, May 13, 2008, at A3 (discussing the disqualification of Chief Justice John G. Roberts, Jr. and Associate Justices Samuel A. Alito, Jr. and Stephen G. Breyer due to their holdings in some of the defendant companies and the disqualification of Associate Justice Anthony M. Kennedy on the basis of his son’s employment by defendant Credit Suisse Group). Other courts have concluded that the ATS permits the imposition of civil aiding and abetting liability. See, e.g., Kiobel v. Royal Dutch Petroleum Co., 456 F. Supp. 2d 457, 463–64 (S.D.N.Y. 2006) (concluding that although it is “a close question . . . where a cause of action for violation of an international norm is viable under the ATS, claims for aiding and abetting that violation are viable as well”); Presbyterian Church of Sudan v. Talisman Energy, Inc., 453 F. Supp. 2d 633, 668 (S.D.N.Y. 2006) (holding that “[a]iding and abetting liability is a specifically defined norm of international law character that is properly applied as the law of nations for purposes of the ATS”); Mujica v. Occidental Petroleum Corp., 381 F. Supp. 2d 1134, 1173 n.6 (C.D. Cal. 2005) (stating in dicta that “there is aiding and abetting liability under the ATS”). But see Carmichael v. United Technologies Corp., 835 F.2d 109, 113–14 (5th Cir. 1988) (assuming, but expressly failing, to decide that the ATS confers jurisdiction over claims alleging aiding and abetting of human rights violations by private parties); Bowoto v. Chevron Corp., No. C 99-02506 SI, 2006 U.S. Dist. LEXIS 63209, at *17–18, 33 (N.D. Cal. Aug. 22, 2006) (concluding that aiding and abetting liability may be imposed for international law norms applicable to private actors such as crimes against humanity but not with respect to human rights violations that could only be committed by state officials); Corrie v. Caterpillar, Inc., 403 F. Supp. 2d 1019, 1027 (W.D. Wash. 2005) (holding that mere sellers cannot be aiders and abettors as their fortunes do not rise and fall with the venture accused of engaging in human rights violations “even if the seller knows that the buyer is likely to use the goods unlawfully”), aff’d, 503 F.3d 974 (9th Cir. 2007); Doe v. Exxon Mobil Corp., 393 F. Supp. 2d 20, 24 (D.D.C. 2005) (rejecting aiding and abetting liability as an innovative interpretation of the ATS bound to result in unwelcome collateral consequences and foreign policy repercussions and based on the “at best uncertain” nature of aiding and abetting in a civil context (quoting Central Bank of Denver v. First Interstate Bank of Denver, 511 U.S. 164, 181–82 (1994))); In re Agent Orange Prod. Liab. Litig., 373 F. Supp. 2d 7, 52–53 (E.D.N.Y. 2005) (deeming the issue of whether transnational corporations could be liable for aiding and abetting pursuant to the ATS irrelevant as “defendants are charged in their corporate capacity with themselves violating international law”). For a detailed analysis of the opinions in Khulumani and the state of ATS jurisprudence regarding aiding and abetting liability, see Lucien J. Dhooge, Accessorial Liability of Transnational Corporations Pursuant to the Alien Tort Statute: The South African Apartheid Litigation and the Lessons of Central Bank, 18 TRANSNAT’L L. & CONTEMP. PROBS. 102–49 (2009). 494 EMORY INTERNATIONAL LAW REVIEW [Vol. 22 Judicial hindsight bias would also be eliminated in a due diligence defense to ATS liability.229 Application of the defense preserves the directors’ primary role in the corporate decision-making process to the extent it recognizes that substantive judicial review of board decisions supplants the directors’ decision- making authority.230 The imposition of intrusive judicial oversight into the substance of corporate decisions in the absence of a compelling need may render the directors hamstrung and unable to act decisively to take advantage of corporate opportunities.231 This potential inability to exploit corporate opportunities may include a reluctance to take appropriate risks in favor of conservative but ultimately less profitable courses of action.232 It has been noted that “[w]ealth is maximized when corporations are run by directors who know that their decisions will be reviewed by investors, by analysts, by stockholders, and by business partners—but not by the courts.”233 A due diligence defense acknowledges the limited expertise of courts in the business decision-making process. As noted by the Michigan Supreme Court eighty-nine years ago, “judges are not business experts.”234 This lack of expertise leaves courts “ill-equipped to second-guess the business decisions made by directors who are acting in good faith.”235 Additionally, as directors 229 Judicial hindsight bias comes from psychologists’ terminology for the tendency to “overstate the predictability of past events.” Jeffrey J. Rachlinski, A Positive Psychological Theory of Judging in Hindsight, 65 U. CHI. L. REV. 571, 571 (1998). For a discussion of the elimination of judicial hindsight bias as a primary benefit of the business judgment rule, see Crespi, supra note 124, at 244 (concluding that the business judgment rule is justified in order to prevent judges from exhibiting “hindsight bias that [gives] insufficient weight to the cognitive and informational limitations facing directors during decision making . . . [that might lead to] inappropriately harsh results”). 230 Bainbridge, supra note 126, at 108 (noting that courts supplant the board’s decision-making authority to the extent that they hold the directors accountable for the consequences of such decisions); Duggin & Goldman, supra note 125, at 225 n.96 (noting one justification for the rule as “preservation of the board’s role in governing corporations”). 231 Eric Engle, What You Don’t Know Can Hurt You: Human Rights, Shareholder Activism and SEC Reporting Requirements, 57 SYRACUSE L. REV. 63, 73 (2006–07). 232 See supra notes 181–85 and accompanying text. 233 Rosenberg, supra note 126, at 303. 234 Dodge v. Ford Motor Co., 170 N.W. 668, 684 (Mich. 1919); see also Alaska Plastics, Inc. v. Coppock, 621 P.2d 270, 278 (Alaska 1980) (identifying the lack of judicial business expertise as one of the policy bases for the business judgment rule); Kamin v. Am. Express Co., 383 N.Y.S.2d 807, 810–11 (N.Y. Sup. Ct. 1976) (noting that “[t]he directors’ room rather than the courtroom is the appropriate forum for thrashing out purely business questions”), aff’d, 54 A.D.2d 654 (N.Y. App. Div. 1976). But see Eric A. Posner, A Theory of Contract Law Under Conditions of Radical Judicial Error, 94 NW. U. L. REV. 749, 754, 758 (2000) (stating that the basis for the rule is judicial eagerness to avoid cases posing business questions because many judges are “radically incompetent” and “have trouble understanding the simplest of business relationships” (emphasis omitted)). 235 Nowicki, supra note 126, at 468; see also In re J.P. Stevens & Co. Shareholders Litig., 542 A.2d 770, 783 (Del. Ch. 1988) (declining to entertain a challenge to a board of directors’ failure to accept the highest 2008] DUE DILIGENCE AS A DEFENSE 495 must often reach decisions with limited information, courts evaluating these decisions also operate with incomplete information.236 The information presented to courts and serving as the basis for their decisions is, in fact, less complete than the information on which the directors based the challenged decision, as it has been filtered by the parties as the result of discovery rules, time constraints, and argumentation.237 Courts are thus precluded from conducting an exhaustive analysis of the circumstances confronting the directors at the time of the decision.238 As a result, courts are unable to place the decision within its proper context and assign appropriate weight to the variables that contributed to the outcome.239 This is a clear invitation to judicial error. The due diligence defense does not give transnational corporations a free pass with respect to their obligation to respect human rights. Although it eliminates one line of attack based on the ATS, there are other remedies available against corporations that fail to adequately address human rights concerns in business planning and operations.240 Such corporations would not receive the benefit of the defense. Board decisions tainted by fraud, illegality, self-dealing, or other dereliction of duty would also be denied access to the defense, as would corporate actions constituting direct and knowing participation in human rights abuses.241 Recognition of a due diligence defense would not interfere with the ability of shareholders to remedy poor management by electing new directors.242 Shareholders dissatisfied with the corporation’s approach to human rights could divest themselves of their shares. In addition to sales by individual shareholders, transnational corporations risk divestment by large institutional and public investors, such as state and local government pension funds, and garner negative reputations with socially responsible investment programs.243 price available in a tender offer on the basis that “[t]hese are precisely the sort of debatable questions that are beyond the expertise of courts and which the business judgment rule generally protects from substantive review for wisdom”); E. Norman Veasey, Access to Justice: The Social Responsibility of Lawyers, 12 WASH. U. J.L. & POL’Y 1, 6 (2003). 236 Adrian Vermeule has described courts as suffering from a “lack of information . . . and bounded rationality.” VERMEULE, supra note 189, at 155. 237 Id. 238 Id. 239 Id. at 155. 240 See supra text accompanying notes 123–24. 241 See supra note 109 and accompanying text. 242 Gold, supra note 126, at 445. 243 For example, according to the Sudan Divestment Task Force, 26 states have adopted legislation mandating some form of divestment of public funds from companies doing business in or maintaining 496 EMORY INTERNATIONAL LAW REVIEW [Vol. 22 The potential damage to reputational interests should not be underestimated.244 All businesses rely on their credibility with stakeholders, including the government, consumers, other members of the supply chain, and the community at large.245 The cultivation of a positive reputation requires considerable investment of time and capital. However, a carefully crafted reputation can be indelibly stained in an increasingly short period of time. The exponential growth of global business and mass communications creates “greater risks than ever before from negative revelations.”246 The Internet in particular poses a unique threat to corporate reputation through the instantaneous posting of negative information and its widespread availability to anyone with a computer and a connection.247 The power of these remedies, in combination with a transparent due diligence process, the results of which are disseminated to the general public, should not be discounted. CONCLUSION The Framework represents an important development in the effort to ascertain the proper relationship between transnational corporations and human rights. For the first time, approaches emphasizing corporate compliance with lists of designated rights have been rejected in favor of a process emphasizing due diligence as implemented through impact assessment. The focus of the Framework on due diligence transforms the debate from one of normative compliance to one of corporate governance. This change offers considerably greater guidance to boards of directors and officers of transnational corporations and is consistent with U.S. legal requirements, existing business practices, and globalization. The recognition of a due diligence defense is a logical extension of the corporate governance approach favored by the Framework. Domestic standards requiring compliance with substantive norms should not be imposed on transnational corporations if the internationally-recognized standard is the exercise of due diligence. A due diligence defense is further warranted if the ATS is to be interpreted as enforcing international norms in a domestic legal context. To the extent that transnational corporations comply with an commercial ties with the Sudan. See Welcome to the Sudan Divestment Task Force, Interactive State of Divestment Map, http://www.sudandivestment.org/home.asp (last visited Jan. 24, 2009). 244 Weil Memorandum, supra note 92, at 5. 245 Id. 246 Id. 247 Id. 2008] DUE DILIGENCE AS A DEFENSE 497 internationally recognized due diligence standard, they have also complied with any national legislation purporting to implement such a standard. Once asserted, the defense should create a presumption that a transnational corporation acted on an informed basis in good faith and in the honest belief that the decision was made in the best interests of the corporation, if it conducted a human rights impact assessment. Plaintiffs would carry the burden of overcoming this presumption by demonstrating illegality, fraud, conflict of interest, direct participation in the alleged abuse, or other dereliction of duty. In the absence of such circumstances, courts must decline to review decisions in which transnational corporations engaged in due diligence but human rights violations nevertheless occurred. A due diligence defense provides important benefits for transnational corporations. The defense remedies concerns that corporations will be required to compensate individuals for the political, civil, economic, and social deficiencies of the states in which they transact business, while simultaneously addressing growing expectations with respect to corporate social responsibility in general and human rights in particular. Due diligence eliminates the perceived necessity of exercising influence over sovereign hosts for the sole reason of limiting potential corporate liability for human rights violations. In a manner similar to the treatment of ordinary decisions pursuant to the business judgment rule, a due diligence defense preserves the board’s primary role in the corporate decision-making process and alleviates risk to the extent that it provides greater certainty to directors that their decisions will not form the basis of ATS litigation. Corporate resources would be more efficiently allocated as a result of the avoidance of costs associated with litigation. Transnational corporations would not be penalized for post-investment efforts to address human rights abuses and would benefit from the creation of baseline standards applicable to competitors and other industries. The defense would only be available to corporations adopting and implementing due diligence processes whose resultant decisions are not otherwise tainted by misconduct. It does not preempt other remedies, such as election of new corporate management by shareholders, divestiture, and harm to corporate reputation resulting from publicity arising from human rights abuses. However, the benefits of a due diligence defense are not exclusively reserved for transnational corporations. Human rights also benefit to the extent that a due diligence defense recognizes that all rights are relevant to transnational business activities. This approach is an effective means by which 498 EMORY INTERNATIONAL LAW REVIEW [Vol. 22 to foster greater corporate awareness of human rights and would encourage greater collaboration between transnational corporations and non- governmental organizations. Stakeholders would also benefit through differentiation of their interests and consideration of remote stakeholders who otherwise may be overlooked. Finally, the recognition of a due diligence defense would benefit the federal judiciary by substituting a standard with which every federal court is familiar, for the perpetual quest to ascertain specific, universal, and obligatory norms, which may or may not be applicable to transnational corporations. The defense would eliminate the equally vague and discredited concepts of “sphere of influence” and “complicity.” A due diligence defense also acknowledges the limited expertise of courts in the business decision-making process and eliminates any concern regarding the ability of the judiciary to view business decisions in their proper context.
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