02 Apr COVID-19 Symposium: A Time to Kill ‘Business as Usual’–Centring Human Rights in a Frustrated Economy (Part 1)
[Tara Van Ho is a Lecturer at the School of Law at the University of Essex.]
COVID-19 has upended modern capitalist life. States have instituted a variety of measures that have curbed business activity in an effort to limit the pandemic’s spread. Swedish industrialist Jacob Wallenberg has argued for returning to the status quo quickly. Explicitly, the presidents of the United States and Brazil, the Prime Minister of Sweden, and seemingly the Prime Minister of the United Kingdom are rushing to promote ‘business as usual’ as quickly as possible. But now is not the time for that; instead, we should reflect on the lessons of COVID-19. One of those lessons is that ‘business as usual’ is not only broken but poses a fundamental threat to public health and wellbeing. In this post, I consider how dominant approaches to business activities impact on our preparedness to fight pandemics, shifting the burden of pandemics onto society’s most vulnerable. In Part 2, I examine how existing expectations in the field of ‘business and human rights,’ alongside other structural reforms to international law, can offer a different path forward.
The Culpability of ‘Business as Usual’
The current business model is based on ‘shareholder primacy,’ the notion that a business’s primary purpose, legally and socially, is to financially benefit its shareholders. While some states have begun to introduce requirements that businesses exercise due care for their human rights impacts, or consider the interest of company employees, partners, suppliers, communities, and the environment, enforcement of these measures remains limited. Many business schools continue to teach their students that their decisions should always be aimed at maximizing the company’s value for shareholders, both by profiting enough to provide lucrative dividends and by increasing the value of the shares themselves.
There have been numerous relevant and necessary critiques of the ‘shareholder primacy rule,’ and its dominant implementation. Yet, even where states reject the shareholder primacy rule on a domestic scale, market forces generally encourage business leaders to follow the same trends and decisions when competing globally. As a result, while there are exceptions to any generalized discussion of business impacts on human rights, the exceptions are not the rule specifically because of global economic forces, including the focus on shareholder value maximization.
The shareholder primacy rule is at the heart of two significant COVID-19 developments. First, corporations have, almost en masse, used cash reserves to engage in stock buybacks, which are a quick and easy way to increase the value of shares; the fewer shares available for public trading, the more those shares are worth even if the profit margin of the company remains unchanged. Since many Chief Executive Officers and other top managers receive significantly more compensation via stocks and stock options than their base salary, the buybacks provided these managers a personal financial benefit while depriving companies of the cushion necessary to survive a significant economic downturn.
The general danger of the shift to buybacks was articulated in the Harvard Business Review in January, before the threat of COVID-19 was widely understood. In light of the current pandemic, many companies who engaged in significant buybacks are now often seeking bailouts from their governments, asking taxpayers to provide monetary support, which, through steadied and increased stock prices that comprise a significant part of their compensation, will directly benefit the managers whose poor decisions deprived the company of the financial reserves necessary to weather this downturn in the first place. In the meantime, many of those companies are laying off staff, threatening to lay off staff, or reducing the hours of their most vulnerable employees (those that are at-will or on casual/zero-hour contracts). Of course, those taxes are generally paid for by the salaries of the threatened employees, creating a vicious cycle that places the financial burden on employees, who make on average 1/287 of their CEO. These business practices are harming the rights of employees to work and to adequate compensation, and as a consequence their rights to housing, food, water, (often) health, and a myriad of other fundamental economic and social rights.
Second, the shareholder primacy rule has fostered a business culture that seeks to limit costs in any way possible. This has led businesses to attack unions, fight increased minimum wages and expanded sick pay, and seek and develop complex supply chains that minimize the company’s direct costs by outsourcing labour to areas with lower minimum wages. NGOs, scholars, and the media have long documented the negative human rights impacts that result from such choices. These business practices also play a role in the growing global economic inequality that allows the world’s 2,153 billionaires to hold more wealth than the combined wealth of 4.6 billion people.
Economic inequality is proving to be an impediment to the fight against COVID-19 in the (for lack of a better term) so-called ‘Global North.’ Low-wage employees are often going to work even when they have legitimate fears of coronavirus, either because they are not guaranteed paid sick leave or because the lost wages, even with government assistance, is financially devastating. Where they serve in crucial roles—care homes, grocery stores, and food or parcel delivery—low-wage workers are likely to interact with dozens of other people. Lack of universal health care in the US worsens this reality. Discrimination, both economically and in the provision of healthcare, means that the burden falls disproportionately on persons with disabilities, women, migrants, and persons in ethnic or racial minority groups. By embracing an economic system built on shareholder primacy (coupled with a general culture that disregards the skills and significance of low-wage workers), businesses place at risk the fundamental rights of low-wage workers to housing, healthcare, and food. Low-wage employees are therefore bearing the burden of the virus and the responsibility to stop its spread to one another and to clients. Corporate legal codes facilitate this burden-shifting.
As devastating as this is in the ‘Global North’, the coronavirus will likely prove worse in many developing and emerging economies, even if the virus itself remains relatively contained. When businesses take action that reduces employment down their supply chain, the businesses take no responsibility for those cuts. They do not report them as job losses or layoffs. As a result, businesses tend to feel no obligation to factor their suppliers’ employees into their decision-making process. (Notably, at least one UK University appears to have adopted the same approach for fixed-term and casual employees.)
Companies like Primark, whose ‘fast fashion’ raises significant concerns about sustainability and ethics, are disavowing their contractual obligations to the garment manufacturers at the bottom of their supply chain. European companies have cut $1.5 billion USD in orders from 1,089 garment factories in Bangladesh alone. The 1.2 million workers impacted are some of the most precariously employed in the world. While Bangladesh’ public health infrastructure does not yet report significant viral infections, the combination of ‘business as usual’ and COVID-19 means that the choices of European businesses will significantly undermine the human rights of these workers. This is even before we factor in the likelihood of a widespread outbreak within these states, which will exacerbate all of these concerns.
As further discussed in part 2 of this blog post, it’s time for a new approach.