2009: Top Ten Business Social Risks

02/05/2009 05:12 am ET | Updated May 25, 2011

The year 2008 saw the worst financial crisis since the 1930s. Global stock exchanges, housing markets, banks have collapsed and the cost of fuel, feed, and food have risen greatly. We have seen unprecedented nationalization of entire industries by free-market governments. Yes, from homeowners to workers to bankers, 2008 was certainly a year many would like to forget.

In addition, 2008 brought enormous social risk for multi-national corporations. Our blue-chip high-tech firms were reprimanded for complicity with censorship and privacy violations by regimes with weak traditions of free speech rights, like China; a number of Alien Tort cases ended up in trial, leaving oil and gas companies reeling; child labor in cotton fields in Uzbekistan embarrassed major retailers; major construction companies were exposed for their failure to address human rights issues in war zones from Iraq to Afghanistan; the mining industry was held to account for the rights of indigenous land owners, and countries from Guatemala to Ecuador have levied serious punishment and delays; land-use issues surrounding manufacturers in India have angered farmers and local workers leaving projects abandoned and one manager murdered; and international corruption cases have risen with record fines levied by US and EU bodies.

Often, in moments of economic slowdown there is less tolerance for infractions and more stringent examination of public funding. So, for companies looking to take advantage of the economic downturn in 2009 -- managing social as well as economic risk will be paramount. Corporations must move beyond the multi-national status quo ante. Below is a top ten list of social risks business must mitigate to create a sustainable work environment that respects the rights of human beings while maintaining economic viability in 2009 and beyond.

1. Human Rights

Businesses are increasingly recognizing that they have the responsibility of protecting and respecting the rights of individuals, and that by doing so business flourishes... Because the abuse of human rights continues to occur, through the actions of governments and other actors, businesses find themselves negotiating human rights concerns with multiple actors within complex environments. Companies must engage in comprehensive human rights impact assessments to identify, evaluate, and manage their operation's human rights consequences and vulnerabilities. This task cannot be an afterthought; when protection of human rights is addressed early in business planning, businesses can rest confident that their financial analysis and business decisions rest on firm social footing.

2. Rule of Law

In order to develop and implement a realistic plan for social risk mitigation, it is essential to understand the context of the local government's level of social control, and commitment to social and human rights. It is also critical to develop a working understanding of the local political dynamics and power-holders. Political uncertainty, like economic volatility, is challenging for business growth, and a proactive approach to government relations and support for the rule of law can be an ethical virtue as well as good business sense.

3. Corruption

Corruption, including bribery, preferential government procurement, or other inappropriate relationships, can damage reputation and legal standing, and the ability to maintain a license to operate. Management must include explicit ethical conditions and integrity pacts in government approvals and contracts, and be informed about the traditions and risks everywhere it operates.

4. Security

Whether the State, contractors or in-house security forces provide security, there is a risk that security personnel will fail to adhere to the firm's human rights codes and policies. Companies must assess the practices of local security forces, determine an appropriate security strategy for their facilities, and ensure training and clear expectations for security personnel, whether in-house or contracted.

5. Land

Land use and ownership are often contentious. From corruption, environmental concerns, or matters relating to political, legal, financial, or even indigenous rights, Corporations must ensure the right to purchase and/or use land is achieved free and clear prior to investment, and address any concerns raised by community or other stakeholders through a transparent and consistent acquisition process.

6. Environment

Proactive management of environmental impact is vital to manage the reputational, regulatory and financial risks relating to the natural environment. Prevention of environmental damage is more cost-effective than remediation after damage has occurred. Research and development of environmentally sustainable production methods can yield long-term benefits and efficiencies.

7. Public health

Health problems can pose a range of business risks including absenteeism and low morale, costs of health care and other community expectations with regard to health and safety services. Companies must assess the local public health environment and level of access to health care in all operating locations, and incorporate health concerns into business planning.

8. Indigenous rights

Indigenous populations are among the most vulnerable populations to most forms of human rights abuses. Therefore, most social risk analyses place a particular emphasis on this group to ensure that even while dealing with governments and official stakeholder representatives, special effort is made to reach out to indigenous and other underrepresented groups.

9. Working Conditions

Unsafe working conditions lead to decreased productivity, lowered morale and employee retention, reputational risk and can be in conflict with local or international labor standards. In a period of economic downturn, suppliers and managers may be under pressure to reduce operating costs, and businesses must hold firm standards to ensure that worker safety is never compromised.

10. Supply chain

Even with a strong internal process for managing social risk, companies may face indirect risk exposure through suppliers and investees. Companies should develop and include standard wording regarding human rights and labor standards in contracts and with major suppliers (and major investments, as applicable for the business unit under analysis). In certain high-risk industries, additional due diligence may be worthwhile.