Doing Business in Authoritarian States: Tackling Dilemmas While Preserving Integrity

The report outlines dilemmas facing international companies that operate in authoritarian states or states with weak institutions and low level of popular trust. They may react to such dilemmas in different ways, either by withdrawing or staying while making efforts to respect human rights as far as possible. If they choose to stay, there is a range of risks such as negative regime reactions, protests from democracy activists who think the company should signal disapproval of the regime’s dismal human rights records by leaving or working harder to promote human rights, or dissatisfied staff that either thinks the company is doing too much or too little for human rights.

The report describes the current international consensus on the responsibilities of business companies to respect human rights, based on the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights. A recent Norwegian law, the Act Relating to Enterprises' Transparency and Work on Fundamental Human Rights and Decent Working Conditions (Transparency Act), is also presented.¹ The Act went into force on 1 July 2022, making it mandatory for larger companies which are resident or pay tax in Norway to conduct due diligence. It also provides a right for any person to have information from enterprises regarding how they address “actual and potential adverse impacts” of their operations.

The report provides examples of dilemmas facing (or previously facing) Norwegian companies operating in authoritarian or otherwise ethically, legally, and politically difficult circumstances, such as Yara in Belarus, Hydro in Brazil, and Telenor in Myanmar.

While business enterprises must respect human rights, states have much broader responsibilities. Under international law, they must respect, protect, and fulfil human rights within their borders. Human rights are of genuine international concern, so they cannot turn a blind eye to systematic, widespread, or gross human rights violations in other countries.

The report, therefore, argues that decisions by companies operating in authoritarian states on how to address moral dilemmas should not be seen in isolation from what international organisations (such as the UN) and individual states or groups of states are doing to strengthen respect for human rights and address human rights issues in authoritarian states.

It looks at the complex relationship between decisions by the UN, the EU, the US, or groups of like-minded states to pass targeted sanctions against those who are responsible for or perform human rights violations in authoritarian states where Western companies are struggling to find a moral way to conduct business. Human rights sanctions, or Magnitsky sanctions as they are called, may become an essential part of comprehensive approaches to dealing with human rights crises in authoritarian states.²

Such sanctions, if well designed, can work in concert with the efforts of international non-governmental organisations, domestic activists, and the numerous tools at the disposal of democratic governments wishing to influence an unacceptable, repressive, and often violent situation in authoritarian states. Business companies, including Norwegian ones, who are invested in authoritarian states may play essential roles along with such actors within their spheres of influence.

While walking out may send a strong moral message from business companies, leaving a challenging situation may not always be the best option if the goal is to strengthen human rights. Company measures to ensure respect for human rights throughout its sphere of influence accompanied by targeted sanctions by democratic states against those responsible for the same human rights violations the company aims to address may prove more effective than leaving.

Another hindrance to leaving is that some high-demand natural resources tend to be found only in authoritarian states. A Western company leaving may only mean that a non-Western company without a principled approach to human rights will take over. Developing coordinated and comprehensive strategies to enhance human rights and democratic principles by business actors and democratic states may offer practical and realistic new ways of responding to authoritarianism and grave human rights violations.

However, in some circumstances, withdrawing is necessary to avoid compromising the company’s principles and adherence to international norms.