Forouzan Marzbani
PhD Student in Political sociology, Razi University
Introduction
In the contemporary landscape of globalization, multinational corporations (MNCs) have emerged as actors with unprecedented levels of power and influence. Their economic activities, which in many cases exceed the economic capacity of host states, together with their complex and transnational supply chains, have transformed these corporations into influential forces in shaping economic, social, and environmental realities across the world. However, the expansion of this economic power has been accompanied by a profound asymmetry in the field of accountability. While the activities and interests of these corporations have acquired a global character, existing legal mechanisms for ensuring their accountability for human rights violations remain largely confined to fragmented national frameworks and, in many cases, prove insufficient.
This situation has created a fundamental gap between the transnational power of multinational corporations and the available legal capacities to regulate and hold them accountable. In other words, the central challenge is not merely the occurrence of human rights violations by corporations; rather, it concerns the absence of an effective framework capable of imposing responsibility at a level proportionate to the global nature of their economic activities. This reflects the governance gaps that John Ruggie identified in his analysis of the relationship between globalization, markets, and states’ regulatory capacities: a situation in which economic power has transcended national borders, while legal and social responsibility has remained largely within the confines of domestic systems. Accordingly, this note focuses on this accountability gap by examining the developments, limitations, and existing challenges surrounding corporate accountability, and analyzes the gradual transition from voluntary models of corporate social responsibility toward the establishment of binding legal obligations in the field of business and human rights.
The Asymmetrical Architecture of Accountability: Why Has Global Economic Power Outpaced Legal Responsibility?
The roots of the accountability gap concerning multinational corporations must be traced to the dual architecture of contemporary international law. On the one hand, classical (Westphalian) international law defined human rights primarily within the framework of states’ obligations toward their citizens and treated corporations, as private actors, as entities outside the scope of direct human rights obligations. On the other hand, and simultaneously, international economic law—particularly after the 1980s and the rise of neoliberalism—rapidly evolved to grant corporations extensive and binding rights.
Through a dense network of thousands of bilateral investment treaties (BITs), multinational corporations acquired the right to directly challenge host states before transnational arbitral tribunals, including through mechanisms such as Investor–State Dispute Settlement (ISDS). These mechanisms may require states to pay compensation where violations of investment treaty obligations are established, including breaches of standards such as fair and equitable treatment (FET) or protection against indirect expropriation (Deva, 2013).
In contrast to this powerful system of investor protection, there is no comparable binding international mechanism that provides victims with direct access to justice against corporations. Individuals and communities whose lands have been appropriated, whose water resources have been contaminated, or whose labour rights have been violated cannot bring the parent company before an international court. This asymmetry has resulted in investment protection mechanisms, in many cases, becoming more developed and enforceable than binding human rights accountability mechanisms.
This situation is not merely an accidental legal gap; rather, it is the consequence of a conscious political choice in designing the architecture of global governance—one that has prioritized the interests of transnational capital over the protection of fundamental human rights.
From Voluntary Responsibility to a Normative Framework: An Analysis of Limitations
In response to growing pressure from civil society and reputational crises resulting from the exposure of severe violations (such as the Bhopal gas tragedy, the conditions in Nike’s factories in the 1990s, or Shell’s cooperation with the Nigerian military regime), the first wave of corporate accountability emerged in the form of Corporate Social Responsibility (CSR).
At its core, CSR represents a model of self-regulation and voluntarism based on the logic of the “business case” for human rights. This logic argues that respect for human rights and environmental standards is ultimately beneficial for business because it enhances brand reputation, attracts talent, reduces operational risks, and strengthens customer loyalty.
However, a deeper analysis reveals that CSR, rather than functioning as an accountability mechanism, primarily operates as a strategy for risk management and public relations. The analytical problem with this approach lies in the fact that if human rights violations—for example, the use of cheap labour under exploitative conditions in a country with weak oversight, or environmental destruction undertaken to reduce costs—are more profitable than compliance with human rights standards, the logic of the business case simply collapses.
Due to its voluntary nature, non-binding character, and lack of independent monitoring mechanisms, corporate social responsibility has often transformed, rather than created genuine accountability, into a tool for “bluewashing” or “greenwashing” (Shamir, 2004: 675).
Corporations publish glossy sustainability reports and emphasize peripheral philanthropic projects (such as building schools) in order to divert attention from the harms caused by the core activities of their businesses. In organizational theory, this phenomenon is known as “decoupling”—a situation in which organizations adopt symbolic structures and rhetoric (such as ethical codes) to gain legitimacy without these structures having a meaningful impact on internal operational processes and profit-driven decision-making.
A conceptual turning point in this field was the adoption of the United Nations Guiding Principles on Business and Human Rights (UNGPs) in 2011. Developed by John Ruggie, these principles represented an attempt to move beyond voluntary corporate social responsibility and establish a global normative framework (United Nations, 2011).
The framework is based on three pillars:
- The State Duty to Protect: This pillar reaffirms the classical obligation of states to protect human rights against abuses by third parties, including corporations, through legislation, regulation, and effective enforcement.
- The Corporate Responsibility to Respect: This pillar constituted the most innovative aspect of the framework. For the first time, it established a global normative framework emphasizing the independent responsibility of corporations to respect human rights. The primary instrument for fulfilling this responsibility is human rights due diligence—a continuous process through which companies identify, prevent, mitigate, and account for the human rights impacts of their activities.
- Access to Remedy: This pillar emphasizes the necessity of ensuring victims’ access to effective remedial mechanisms, both judicial (courts) and non-judicial (such as company-level grievance mechanisms or National Contact Points (NCPs) under the OECD Guidelines for Multinational Enterprises).
Despite the normative significance of the Guiding Principles in creating a common language and shifting the discourse from “voluntariness” to “responsibility,” a deeper analysis reveals their structural and practical limitations.
First, these principles constitute soft law; meaning that they are not legally binding and lack any international enforcement mechanism. Second, the first pillar (the state duty to protect) fails precisely where it is most needed: in weak, corrupt, or investment-dependent host states that actively participate in a race to the bottom to attract foreign direct investment (FDI). These states often themselves become facilitators of human rights violations by establishing export processing zones (EPZs), where labour and environmental regulations are deliberately suspended or weakened.
Third, the second pillar (the responsibility to respect) and the central concept of human rights due diligence have also been subject to significant analytical criticism. Due diligence constitutes a standard of conduct, rather than a standard of result. This means that the focus is placed on the process undertaken by the corporation, rather than necessarily on the outcome (i.e., the absence of violations). A company that has conducted due diligence, identified the risk of forced labour in the third tier of its supply chain, but due to the complexity or high costs of intervention merely refers to this issue in its report, may technically claim that it has fulfilled its responsibility to respect (Wettstein, 2012b).
This challenge is particularly evident in modern supply chains, which are highly complex, multi-layered, and opaque. Corporations may monitor their first-tier suppliers, while serious violations frequently occur at lower levels of the supply chain, beyond the direct visibility of the parent company.
Judicial Barriers and the Move Toward Binding Obligations: An Analysis of the Remedy Process
A fundamental challenge in implementing the third pillar—remedy—lies in the substantial judicial barriers that victims face when attempting to bring multinational corporations before competent courts. At this point, legal analysis moves beyond normative description and reveals how existing legal structures have, in systematic ways, operated to shield corporations from accountability.
The first and most fundamental obstacle is the legal structure of the multinational corporation itself. The principle of separate legal personality, established in the classic English case of Salomon v. Salomon & Co. Ltd. (1897), together with the related doctrine of the corporate veil, allows a parent company—typically headquartered in a developed country in the Global North—to argue that it bears no direct responsibility for the conduct of its subsidiary where the latter has committed violations in the Global South.
Even where the parent company owns 100 percent of the subsidiary, exercises strategic control over it, and benefits from the profits generated by its operations, the two entities are legally regarded as separate persons (Muchlinski, 2012: 155).
Courts in home states generally set a very high threshold for “piercing the corporate veil,” making it extremely difficult for victims to satisfy the relevant requirements. Nevertheless, recent judicial developments in certain jurisdictions have strengthened the possibility of establishing the direct liability of parent companies under specific circumstances. Corporations have strategically used this legal structure to insulate the centre of capital and decision-making from legal liabilities arising from high-risk operations at the periphery.
The second obstacle concerns procedural barriers before the courts of the home state. Even where victims succeed in overcoming the corporate veil or bringing a claim based on the parent company’s direct liability, corporations often invoke the doctrine of forum non conveniens (FNC). This doctrine [which exists primarily in common-law jurisdictions] allows a court, even where it has jurisdiction, to decline to hear a case on the ground that a court in the host state constitutes a more appropriate forum (Zerk, 2014: 40–45).
This is despite the fact that the judicial system of the host state may be precisely the system that is corrupt, institutionally weak, subject to political or economic influence by the corporation itself, or otherwise unable to deliver effective justice. The Bhopal disaster litigation in India became a prominent example of this form of judicial deflection: U.S. courts referred the case to India, and the outcome was only limited compensation for the victims.
In addition, practical barriers—including the enormous costs of litigation in the Global North, the lack of access of impoverished victims to specialized legal counsel, linguistic and cultural barriers, and fear of retaliation in their home countries—turn access to justice into an exhausting marathon.
The case of Kiobel v. Royal Dutch Petroleum in the United States, in which the Supreme Court sharply restricted the use of the Alien Tort Statute (ATS) for human rights violations committed outside U.S. territory, constituted another example of the narrowing of judicial avenues available to victims.
Nevertheless, in recent years, in response to the deadlock resulting from voluntary models and judicial barriers, there has been a movement toward the “hardening” of soft-law norms. This transformation is taking place along two main fronts.
The first front is the emergence of national laws requiring mandatory human rights due diligence in home states. The French Duty of Vigilance Act (2017) represented a significant breakthrough in this regard. The law requires large French companies to develop and implement a vigilance plan aimed at identifying and preventing human rights and environmental violations throughout their supply chains, including those involving subsidiaries and contractors. More importantly, the law establishes direct civil liability for damages resulting from failure to implement such a plan (Savourey & Brabant, 2021).
The German Supply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz – LkSG), adopted in 2021, also took a similar step, although its primary focus is on regulatory obligations and administrative sanctions rather than direct civil remedies for victims.
The European Union Corporate Sustainability Due Diligence Directive (CSDDD), adopted in 2024, further strengthened this trend at the regional level, although its scope and enforcement requirements were subsequently subject to revisions. This development reflects a gradual transition from the predominantly voluntary model of the United Nations Guiding Principles on Business and Human Rights (UNGPs) toward legally binding regulatory regimes at the national and regional levels; however, the scope, intensity, and enforcement mechanisms of these obligations remain subjects of debate.
The second and more radical front is the effort to establish a UN Legally Binding Instrument on Business and Human Rights. This process, which began in 2014 within the United Nations Human Rights Council (UNHRC) and has been largely driven by countries of the Global South (such as Ecuador and South Africa), seeks to explore the possibility of creating an internationally binding framework in the field of business and human rights, with the aim of strengthening the accountability of corporations and states.
Draft versions of this treaty attempt to overcome traditional judicial barriers, for example, by requiring states to recognize the responsibility of parent companies for subsidiaries under their control, eliminating the doctrine of forum non conveniens (FNC) in human rights cases, and establishing an international fund for victims (Lopez, 2018).
As expected, this process has encountered strong political resistance from developed countries [which host parent companies] and powerful business lobbies. They argue that such a treaty would discourage investment and interfere with the “successful” framework of the UN Guiding Principles on Business and Human Rights (UNGPs). This resistance itself reflects the profound conflict of interests at the heart of this debate: the tension between protecting transnational capital and protecting universal human rights.
Conclusion
An analysis of the challenge of multinational corporations’ accountability for human rights violations demonstrates that this issue is not merely a technical or legal problem that can be resolved through improved codes of ethics or more transparent sustainability reports; rather, it constitutes a deeply political and structural problem concerning the imbalance of power within global governance.
The current structure of the global economy enables multinational corporations to benefit from the advantages of an integrated global system—including free trade, capital flows, and investment protection—while avoiding its costs, including human rights responsibilities, environmental obligations, and tax obligations, by taking advantage of the fragmentation and weakness of national legal systems.
Corporate Social Responsibility (CSR), although it has contributed to the development of behavioural standards and increased corporate attention to the social impacts of economic activities, has been unable, due to its predominantly voluntary nature, to establish an effective accountability mechanism on its own.
Deep-rooted judicial barriers, ranging from the corporate veil to Forum Non Conveniens, demonstrate how existing legal structures, originally designed to protect capital, can function as obstacles to justice.
The emerging movement toward mandatory human rights due diligence laws at the national level and efforts to develop a binding international treaty indicate a growing recognition that voluntary compliance can never substitute for legal obligations. Therefore, as long as the fundamental asymmetry persists between binding, enforceable, and transnational rights available to investors on the one hand, and predominantly voluntary, soft, and national responsibilities imposed on corporations regarding human rights on the other, human rights violations will continue to remain an acceptable externalized cost within the global business model, and genuine accountability will remain beyond reach.
References
- Bonfanti, A. (2021). Access to Justice for Human Rights Violations in the Workplace along the Global Value Chain: Recent Developments from the Perspective of Private International Law and Procedural Law. Journal of Labor Law and Industrial Relations. 43(171), 369–390. https://dx.doi.org/10.3280/GDL2021-171001
- Deva, S. (2013). Prospects for an Integrated Approach. In T. Treves, F. Seatzu, & S. Trevisanut (Eds.), Foreign Investment, International Law and Common Concerns (pp. 318-339). London: Routledge.
- Lopez, C. (2018, October 17). Toward an International Convention on Business and Human Rights. Investment Treaty News (IISD). From: https://www.iisd.org/itn/2018/10/17/toward-an-international-convention-on-business-and-human-rights-carlos-lopez/
- Muchlinski, P. (2012). Implementing the New UN Corporate Human Rights Framework: Implications for Corporate Law, Governance, and Regulation. Business Ethics Quarterly, 22(1), 145–177. https://doi.org/10.5840/beq20122218
- Savourey, E., & Brabant, S. (2021). The French Law on the Duty of Vigilance: Theoretical and Practical Challenges Since its Adoption. Business and Human Rights Journal, 6(1), 141–152. https://doi.org/10.1017/bhj.2020.30
- Shamir, R. (2004). The De-Radicalization of Corporate Social Responsibility. Critical Sociology, 30(3), 669–689. DOI: 10.1163/1569163042119831
- United Nations. (2011). Guiding Principles on Business and Human Rights: Implementing the United Nations “Protect, Respect and Remedy” Framework. (UN Document HR/PUB/11/04). New York and Geneva: United Nations. From: https://www.ohchr.org/sites/default/files/documents/publications/guidingprinciplesbusinesshr_en.pdf
- Wettstein, F. (2012a). Silence as Complicity: Elements of a Corporate Duty to Speak Out Against the Violation of Human Rights. Business Ethics Quarterly, 22(1), 37–61. DOI:10.5840/beq20122214
- Wettstein, F. (2012b). CSR and the Debate on Business and Human Rights: Bridging the Great Divide. Business Ethics Quarterly, 22(4), 739–770. DOI:10.5840/beq201222446
- Zerk, J. A. (2014). Corporate Liability for Gross Human Rights Abuses: Towards a fairer and more effective system of domestic law remedies. United Nations Office of the High Commissioner for Human Rights (OHCHR). From: https://www.ohchr.org/sites/default/files/Documents/Issues/Business/DomesticLawRemedies/StudyDomesticeLawRemedies.pdf
