Suing corporations should be a last resort

February 23, 2012

On Feb. 28, the U.S. Supreme Court will hear arguments in Kiobel v. Royal Dutch Petroleum. The case is about Shell’s alleged complicity in torture and extrajudicial killings committed by the Nigerian military in the mid-1990s, and is expected to determine whether corporations can be sued in the U.S. for their involvement in human rights abuses abroad.

Corporate lawyers and plaintiffs’ attorneys alike are eagerly awaiting the outcome. If the Supreme Court upholds corporate liability, as federal courts have in the past and the Obama administration is encouraging the High Court to do, other lawsuits will surely follow — against Apple for labor abuses in its Chinese manufacturing base, for example.

But we should not let this case distract us from the fact that lawsuits should be a last resort for people hurt by business. Suing a company is expensive, complicated, and time-consuming, and it rarely makes victims whole. In 2009, after three years of litigation, Shell settled a related case for $15.5 million — to be divided among 10 plaintiffs, their lawyers, and a fund for education and other initiatives in the plaintiffs’ communities. Hardly an ideal outcome where lives have been lost.

Similarly, Chevron’s relentless pursuit of legal absolution for environmental destruction in Ecuador means that the communities harmed by toxic waste will never receive remedy of any kind, as long as their advocates, government, and the company are consumed by the court proceedings.

Instead, we should focus on making sure that companies don’t hurt people in the first place — and when they do, that there are adequate means of redress so that the victims don’t have to end up in protracted legal battles.

The tragic circumstances that led to Kiobel — poor communities ironically left worse off after the discovery of natural resources in their area — are hardly limited to Nigeria or Ecuador. The “resource curse” has affected communities around the world.

Extractive companies increasingly recognize that they can no longer block out the problems that their installations cause for the people who live nearby. Companies are hiring community ombudsmen and establishing grievance mechanisms to resolve disputes before they escalate to levels where serious harm is done.

They’re not doing so out of altruism. Forbes recently reported that Freeport-McMoran spent $28 million in 2010 on security for a single mine in West Papua, and that recent labor strikes, shootings, and sabotage around that asset could lead to a discounted equity sale, which “would be bad for Freeport shareholders.”

The U.N. special representative for business and human rights, John Ruggie (I served as an adviser to him), found that “stakeholder-related risks,” such as labor disputes and community unrest, are one of the main reasons that the time for oil and gas projects to come online has nearly doubled in the past 10 years. One activist in Peru, who led demonstrations against the operations of an American mining company — protests that turned violent — told him: “They wouldn’t listen to us when we came to them with small problems, so we had to create a big one.”

It is simply good business for a company to engage with its surrounding communities. This goes well beyond sponsoring soccer teams or sending employees to a soup kitchen once a year. Rather, companies should assess the impacts of their core business — how products are sourced, made, sold, and used — through consultation with employees, neighbors, contractors, and consumers, with the aim of mitigating or eliminating the negative effects and enhancing the positive ones.

I did such work for BP in Indonesia and China 10 years ago: commissioning studies from international experts; sitting on dirt floors with village elders; consulting with government officials; and setting up partnerships with grassroots organizations, local universities, and development agencies. Energy projects last for decades, so assessing whether the work I did will have the intended effect over the long run evokes what Zhou Enlai was rumored to have said in the 1970s about the impact of the French Revolution: “Too early to say.” But it was clear that we established direct lines of communication between the company and the community, so problems could be addressed promptly. So far, there hasn’t been the kind of social strife around the projects I worked on that the resource curse has inflicted elsewhere.

So why aren’t more companies setting up hotlines and holding town hall meetings? Ruggie suggests that most companies aren’t yet adding up what he calls those “costs of conflict,” which might be dispersed across security, public relations, legal, and operational budgets, and therefore aren’t motivated to act.

Some companies worry that opening up lines of communication will open the floodgates for specious claims. But a Harvard University study concluded that “the mere existence of a quality grievance mechanism can improve a company’s relations with affected stakeholders and thereby reduce grievances, as it signals that the company is ready to be held accountable, to confront, acknowledge and learn from problems.”

Victims must always have access to legal recourse. Where there is criminal activity, the perpetrators must be brought to justice. But most disagreements between companies and individuals or communities don’t start as human rights abuses — and need not escalate to that level.

Workers in factories, communities around large infrastructure projects, and Internet users having their rights to privacy and free expression violated can’t wait for the Supreme Court to decide how to address their problems. These people are in harm’s way today, and need immediate and effective means of being heard.

PHOTO: Security guards walk the steps of the Supreme Court before Justice Elena Kagan’s investiture ceremony in Washington, October 1, 2010. REUTERS/Larry Downing

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