Political Risk Latin America Blog @PolRiskLatam

Whose Risk Is It? Corporate Catastrophe and Human Rights

Posted in Political Risk by politicalrisklatam on August 14, 2010

by John Ruggie for The Kennedy School of Government and The Harvard Law School, August 14th, 2010.

Assuring the existence of internal systems for effective risk management is a core component of corporate governance, embedded in best practice and the laws of many countries. [1] Yet the global recession caused by the financial meltdown and the runaway Deepwater Horizon leak in the Gulf of Mexico show, yet again, that the consequences of a business failure to anticipate and plan for catastrophic risks can devastate companies, society, communities, and the environment.

In light of disasters like these, companies must take a hard look at the effectiveness of their own risk management systems. Unless they incorporate more effectively the interests of external stakeholders who may be harmed if and when the worst occurs, however, companies may still get it wrong. Building on the concept of “human rights due diligence,” factoring those views into company risk management requires the company to understand and address the adverse impacts of their activities on all stakeholders, internal and external to the company.

The collapse of the global banking system in 2007, and the Deepwater Horizon disaster in 2010, came as complete surprises to the companies involved. Although individual banks thought they were acting rationally in their own self-interest by selling highly risky financial instruments, they did not anticipate that these risks would combine systemically to result in a freeze of liquidity, which triggered the financial collapse and the recession. [2] And while the causes of the Gulf disaster are still under investigation, it appears that BP, like other deepwater drillers, believed that the likelihood of a runaway deepwater drilling leak was too tiny to plan for. [3] (continue reading… )


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