Doing Business in Authoritarian States: Tackling Dilemmas While Preserving Integrity

As shown above, significant developments have taken place in the last two decades at the international level, leading to the adoption of comprehensive and consequential human rights principles for business enterprises. The UN and other governmental and non-governmental organisations also offer a range of meeting places and services for enterprises that want to increase their capacity and competence in dealing with human rights issues. A growing number of states have enacted action plans and/or legislation to promote enterprises' respect for fundamental human rights.

Initially, these developments were based on the realisation that global trade, cross-border supply chains, and the increasing role of large multinational enterprises in influencing and shaping the lives of people around the globe required stronger norms and regimes to ensure respect for human rights, the environment, and decent working conditions.

The breakdown of communism and the end of the Cold War around 1990 completely altered the world economy. The supply chains of supermarkets and consumer goods industries spread deeply into Asia, Africa, and South America. Oil, mining, and financial companies invested heavily in countries that were previously denied to them by political or ideological barriers. Multinational telecom and IT companies engage everywhere.⁶¹

While companies have seized the opportunities presented by globalisation, they have often been utterly unprepared for the risks presented by their headlong rush into these new markets. Companies have found themselves and their business partners operating in countries where corruption, injustice, internal conflict, and human rights violations are rife. An increasingly alert and critical world has acted as a watchdog, highlighting corporate malpractice and the links between corporations and repressive regimes.

Media revelations of business abuse of workers or pollution of the local environment added weight to those who argued that globalised business operations often produced more misery than benefits for many individuals and societies.

In such a perspective, therefore, the new norms about business and human rights represent significant progress in the global struggle for human rights, even though implementation of the norms varies. However, during the same period as these norms were increasingly endorsed, numerous states experienced a significant decline in democratic governance and human rights. The so-called US-led liberal international order organised around “market exchanges and private property; the protection of political, civil and human rights; the normative superiority of representative democracy; and formally equal sovereign states often working through multilateral institutions” seems to have failed in advancing democracy. Instead, authoritarian governments use the liberal order to propagate authoritarian governance and illiberalism.⁶²

According to Freedom House, a human rights think tank, 2020 “marked the 15th consecutive year of decline in global freedom … The impact of the long-term democratic decline has become increasingly global in nature, broad enough to be felt by those living under the cruellest dictatorships and by citizens of long-standing democracies. Nearly 75 per cent of the world’s population lived in a country that faced deterioration last year.” The trend continued in 2021.⁶³

The war in Ukraine started in 2014 and escalated dramatically from 24 February 2022 with a massive Russian invasion aimed at seizing Ukraine’s capital Kyiv and other major cities and replacing its Western-oriented government. While not achieving its goals, the attack illustrated the dangers of a world where big powers, led by authoritarian governments, disregard international law. The war created enormous challenges for Western companies invested in Russia due to sanctions and pressure from consumers and investors that they should exit the country.⁶⁴

These developments require more reflection on how multinational enterprises should prepare for and engage in business operations in increasingly authoritarian contexts. The OECD Guidelines and the UNGP effectively state the norms enterprises should abide by but give limited guidance on operating in such contexts. Much is left for the enterprises themselves to decide on.

Multinational enterprises that want to prevent or mitigate adverse human rights impacts of operations, products, or services through their business relationships in authoritarian contexts may face a range of complex scenarios. Many of them are linked to the fact that in authoritarian states, Pillar 1 of the UNGP is hardly or not at all implemented. State authorities do not play a protective role regarding human rights, ensuring that business enterprises respect human rights through legislation and other means.

Another critical factor is that authoritarian rulers tend to become more repressive over time, leading to playing fields becoming increasingly tilted against companies that strive to uphold respect for human rights throughout their supply chains. There are several reasons for this negative trajectory.

Autocratic rulers often come to power by promising to remove the elite’s power, root out corruption, create stability, and improve the people’s economic situation. When they fail to deliver on these promises and their popularity drops, restrictions on civil and political rights are a ‘logical’ step to stay in power. They need to control media, judiciary, election administration, and civil society to ensure their rule is positively portrayed, supported by court decisions, affirmed in 'elections', and hailed by loyal ‘popular’ movements and groups. Control, ensuring loyalty, and denying the growth of alternative political movements are among the critical components of autocratic governance, eroding respect and protection of human rights.

In the post-Soviet space, many leaders that came to power during the 1990s and the early 2000s were shaped by education and experiences during the previous years of communist dictatorship. In Russia, many of those close to President Vladimir Putin have a background in KGB or FSB, its successor security service. They adhere to specific ideas, habits, and emotions; what has been framed as ‘the code of Putinism’ by political scientist Brian D. Taylor.⁶⁵ Its main ideas are ‘statism, including ‘great power statism’, ‘anti-Westernism’, ‘anti-Americanism’, and conservatism/antiliberalism. Its main habits and values are control, order, unity, loyalty and hypermasculinity, and it is influenced by emotions such as respect/disrespect and humiliation, resentment, and vulnerability/fear.

It is not hard to understand that by deciding on significant political, economic, and societal issues influenced by this code Putin and his aides were led to undermining democratic governance. The democratic experiments of the 1990s lost to increasingly authoritarian laws and policies. The point is, however, that the authoritarian turn in Russia and some other post-Soviet states should not be interpreted as the inevitable result of authoritarian cultures and traditions in these countries, favouring strong man authoritarian rule. Opinion research indicates, on the contrary, that contemporary Russians are not favouring authoritarianism. Instead, they want democracy and a “strong hand”, supporting many democratic rights and freedoms.⁶⁶

Suppose this is true for Russia and other post-Soviet autocracies; it has important implications for enterprises that want to ensure respect for human rights throughout their sphere of influence. They may find fertile ground locally, receiving support from workers and local communities who wish human rights to be respected. At the same time, central authorities will guard every step that could embolden people, trade unions, and civil society organisations to demand change.

Another implication of the trend of increased repression is that an assessment at an early stage in the authoritarian cycle may conclude that the enterprise will be able to ensure respect for human rights to a sufficient degree. Still, after a while, the pressure from an increasingly repressive state gradually diminishes its leverage.

The enterprises may find themselves in a situation like multinational enterprise Yara in Belarus. It achieved significant results in efforts to improve the work safety and conditions of workers of its business partner (Belaruskali) while being criticised by political opposition and civil society groups through the same business relationships to finance the increasingly repressive regime of Alexander Lukashenko.⁶⁷

The centralised ownership structure in many authoritarian states, making business part of the survival machinery of the regime, may also result in business partners of multinational enterprises being under orders not to respect certain human rights. This may result in situations where the foreign enterprise meets resistance and lacks cooperation from the leadership of their business partners, while workers are conducive to change. This creates dilemmas:

• How far can a foreign company align itself with workers against the leadership of its business partners?
• If the management of a partner company is the extended arm of a repressive regime, should it take on a protective role related to workers and trade union representatives?

The fundamental authoritarian dilemma for foreign enterprises may precisely be its dual role as a local protector and promotor of human rights, while at the same time, the regime uses its presence and the money generated from its business operations for repressive purposes:

• How to balance human rights gains achieved in the enterprise's sphere of influence against claims and realities that it is indirectly supporting repression by continuing business relations with companies controlled and/or owned by the regime?

Today, most countries hold regular elections. Democracy does not end with a military coup or a fascist or communist violent takeover; Myanmar is a recent exception. “Since the end of the Cold War, most democratic breakdowns have been caused not by generals and soldiers but by elected government themselves. Like Chávez in Venezuela, elected leaders have subverted democratic institutions in Georgia, Hungary, Nicaragua, Peru, the Philippines, Poland, Russia, Sri Lanka, and Turkey. Democratic backsliding today begins at the ballot box.”⁶⁸

Populist rulers, who may be seen as the modern autocratic ruler in spe, came to power by making promises of reclaiming and strengthening democracy by ridding it of corrupt elites. Step by step, he weakens democratic institutions, removes checks and balances, and puts measures in place to pressure and control people to remain loyal. Work-place democracy, deliberations as a method of agreeing on wage levels and other issues, and independent trade unions may all be seen to conflict with this script.

Therefore, trade unions and civil society organisations are restricted and controlled to ensure they do not become fertile ground for developing political alternatives, the nightmare of any autocratic leader. Workers of state-owned or controlled companies may be ordered to vote for the incumbent to avoid losing their job. Their peaceful protests against low wages and dangerous working conditions may be portrayed as a threat to the state’s Constitutional order, extremism and even terrorism.

The 2011 shooting of protesting workers in the Kazakh oil industry in Zhanaozen may serve as an example of how far authoritarian governments are willing to go to end protests that may grow into existential threats to the regime. The brutalisation of work-related conflicts creates additional dilemmas for multinational enterprises.

On 16 December 2011, police opened fire on unarmed citizens of Zhanaozen in Western Kazakhstan. The victims included oil workers who had been on strike for seven-eight months and innocent passers-by. Authorities claimed that police had begun shooting in self-defence, but videos appeared on the internet showing how people ran from armed men in uniform, who were shooting to kill.⁶⁹

According to official data, 16 people died, and roughly 100 were injured. Zhanaozen residents and human rights defenders said the number of victims may have been several times greater. A state of emergency was immediately declared in the city, making communication and information sharing almost impossible. Reportedly, hundreds of men of all ages were detained and beaten by police. Subsequently, 37 people, including participants in the oil workers’ strike, were tried and sentenced to time in jail or suspended sentences. Five police officers, and the director of the detention centre where people were tortured, were also tried for exceeding their legal powers.⁷⁰

Foreign enterprises having representatives present in such situations may face serious issues. Their priorities focus on the security of its staff and its business interests, but how to delineate the scope of liability:

• Should foreign enterprises remain silent to protect their interests, or should they be vocal in condemning serious human rights violations committed in front of their eyes in broad daylight and contribute to exposing the truth about the violations?⁷¹

According to human rights organisations, Kazakhstani authorities did everything to prevent independent reporting and investigations after the massacre. The official account that the protesters had attacked police was only disputed when private videos and testimonies started to appear online 7-8 days after the killings. It is clear from the videos that no one was threatening the police, that a police unit came onto the square and started shooting.

According to the Norwegian Helsinki Committee, “Investigations following the incident bear signs of determining scapegoats rather than addressing the conflict’s core issues. Since the Zhanaozen events, the pressure on independent voices in Kazakhstan has intensified; activists are imprisoned, demonstrations hindered, and independent media outlets closed or involved in court cases.”⁷²

In situations with serious deterioration of human rights, the fundamental question for foreign enterprises may be whether they should stay or go. The UNGP is clear that “there are situations in which the enterprise lacks the leverage to prevent or mitigate adverse impacts and is unable to increase its leverage. Here, the enterprise should consider ending the relationship, taking into account credible assessments of potential adverse human rights impacts of doing so.”⁷³

Even in complicated human rights settings, a foreign enterprise may be able to promote human rights and achieve significant results with its business partners. It may achieve substantial progress in its supply chain but is simultaneously asked to leave by political opposition and human rights groups.

The resulting dilemma is undoubtedly one of the most difficult:

• Should I go to save my reputation and ensure that the authoritarian and repressive regime cannot profit from my presence and business, or should I stay with colleagues and trade union representatives who ask me not to abandon them?