Often overlooked, the relationship between human rights and risk analysis has become increasingly important. A guest post by Nicolas Tenzer, Chairman of the Paris-based Centre for Study and Research for Political Decision (CERAP).
It’s a common refrain that human rights issues have nothing to do with risk analysis, which is supposedly only about economic uncertainties, geopolitical threats, and political adventurism. But taking a coherent, realistic view requires us to give human rights a pivotal place in assessing the business risks in a country or region. Disrespect for human rights often goes hand in hand with limited economic freedoms, feeble courts of justice, poor compliance with the rule of law and fair trial, endemic corruption, and disrespect for contracts.
Human rights and reputational risk
Business has often been able to navigate around undemocratic practices, accepting to pay bribes while turning a blind eye to the suffering of political prisoners and exploited workers.
However, as the concept of corporate social responsibility has become more widely accepted, Western companies are increasingly committed to respecting some basic anti-corruption laws, reporting money-laundering, and promoting good labor practices. There is, of course, still room for improvement, but many states and international organizations have started to pay more attention to the behavior of companies.
The consequences of non-compliance can include harsh fines, or being blacklisted from tenders lists (World Bank, UNDP, some regional development banks). It is now part of the game of international business for some competitors to denounce their rivals to the legal authorities. Moreover, the wide reach and rapid spread of information on the web means that whistle-blowers, investigative journalists, and NGOs are able to publicize negative practices and campaign against collusion with authoritarian or criminal regimes. This creates genuine reputational issues for firms.
This focus on ethical business conduct does not always extend to non-Western businesses. However, particularly for multinationals, the trend will be for companies to be held accountable at home before the courts and the public for their deeds abroad – and the same will be true for dangerous environmental practices.
Human rights and legal risk
Human rights abuses go hand in hand with a lack of judicial independence. In many authoritarian regimes, the latter is correlated with government actors’ support for illegal activities – as the Panama Papers recently highlighted with regards to Assad in Syria – and sometimes even the sponsorship of terrorist activities.
For investors and business partners, this raises a series of legal concerns, as the courts may be used as a tool of the state in favour of domestic competitors, and arbitration outcomes may be anything but fair.
Human rights and geopolitical risk
Human rights violations at home are also a good predictor of aggressive behavior abroad.
Lack of transparency, assaults against free media, and repression of investigative journalists – these are often symptomatic of regimes that suffer from unsustainable and unbalanced development, and natural resource dependence. When their economies struggle, they espouse nationalist sentiments and divert the public from their daily misfortune in military operations abroad.
In turn, a state that allocates too great a share of GDP to defense expenditures generates budget and default risks. Cost-cutting in economic development and welfare undermines future investments and the growth of consumption.
Foreign companies that work closely with state-owned or state-sponsored companies may become de facto hostages of the state, and inadvertently implicated in its actions abroad. Thus, some investors in Russia’s energy sector have found themselves impacted both reputationally and financially by sanctions.
Human rights and political instability
Political risk analysis should not ignore the bigger picture: the evolution of societies throughout the world. Human rights and freedoms are becoming a genuine universal claim, not just from a theoretical point of view, but also a pragmatic one. Across the world, more people are standing up for their liberty and dignity, as the Arab Spring showed – despite its mixed outcomes.
This creates upheaval, but it is fundamentally a positive development: no dictator has the certainty of staying in office. From an analytical standpoint, it means that we can expect human rights offenses to raise political instability. States or companies who cozy up to strongmen face a risk of retaliation when the population revolts.
The numerous dimensions of political life are interconnected, and cannot be reduced to standalone issues as traditional analysis attempts to do. A crackdown on human rights is not only a symptom of poor governance, but also an indicator of future political and social discontent and sometimes popular upheavals. It darkens the prospects of all business, cultural, and social activity.
Nicolas Tenzer is Chairman of the Paris-based Centre for Study and Research for Political Decision (CERAP). In addition, he is also editor of the journal Le Banquet, author of three official reports to the government, including two on international strategy, and has published 21 books, including Le monde à l’horizon 2030. La règle et le désordre, Perrin, 2011 and La France a besoin des autres, Paris, Plon, 2012.
