Social Audits as a Defense Against ATS Litigation

Owen Pell at White & Case has a chapter in our book Holocaust Restitution entitled, “Historical Reparation Claims: A Defense Perspective.” The chapter in essence argues that a company that wishes to defend against historical reparation claims must have detailed knowledge about its company history. He writes, “A crucial lesson of the Holocaust asset cases is that companies must invest heavily in historical research so that they will have control and an intimate understanding of the facts.” (p. 331-32).

Pell’s advice is sound for historical reparation claims. But if that is the approach corporations should take to address claims of historical misdeeds, what should corporations do to prevent claims of human rights or environmental abuses today? In short, with globalization and outsourcing, how can a multinational corporation avoid the risk of corporate ATS litigation? If I were advising corporate counsel, one of the most important steps I would recommend is to invest heavily in research on what actually is occurring on the ground in the manufacture of their products.

One of the most innovative approaches to such research is the use of independent “social audits.” The idea of social audits is that a multinational can be a better corporate citizen and avoid international human rights litigation if it takes preventive action through independent social auditors.

A U.S.-based NGO by the name of Verité is at the forefront of this new approach to curtailing human rights abuses abroad. This NGO works with corporations to research what is occurring in their factories abroad. Verité has conducted social audits in 60 countries for clients such as Wal-Mart, Timberland, Tommy Hilfiger, Nike, Gap, Reebok, Adidas, and Disney. Verité has performed over 1,300 social audits to assess factory compliance with local and international labor, health, safety and environmental regulations, company codes and industry best practices. It provides factory management with specific recommendations to remedy problems, as well as capacity-building training for factory management, manufacturer representatives, and workers. Verité’s factory audits cover the full range of labor standards outlined by the International Labor Organization and national law.

In recognition of its efforts, Verité recently was honored by Fast Company magazine as one of 25 groups that are changing the world. The company was founded by Heather White, who taught at MIT’s Sloan School of Management. The genesis of the idea came from a class she led on Asian economic growth, where a guest speaker shared stories of conditions in Asian factories: forced pregnancy tests for women, beatings, child labor, and harassment. But the students were unmoved. “Their attitude was, ‘This happens in every country. Any jobs are better than no jobs.’ ” White said she was “was disturbed that we were producing business leaders who didn’t feel corporations had responsibility for labor practices in their factories.” So she founded Verité in the hope that with constructive prodding, companies could wield their influence to change workers’ lives.

Social audits are good for corporations, not only in helping them to become better citizens, but also to avoid the risks associated with ATS litigation based on their global supply chain practices.