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Legal Due Diligence and Human Rights: The Role of Companies and M&A Lawyers 

by Bárbara Godinho Correia, Rita Albuquerque

Published: May, 2021

Submission: May, 2021

 



Legal due diligence processes are widely known in the context ofmergers and acquisitions (M&A) and corporate reorganisation projects. Their aim is to analyse the operations and organisation ofcompanies to identify their degree of compliance with applicable legal and contractual regulations, the level of risk of non-compliance, and the potential sources of legal and contractual liability.


But, these days, is it still enough to adopt a purely legal and financial approach in M&A due diligence processes?


Everything leads us to conclude that no, it is no longer enough.


We live in a world where corporate social responsibility and the economic, social and environmental sustainability of businesses take centre stage, and one of the pillars of this new paradigm is respect for and protection ofhumanrights.


All companies, regardless of the sector in which they operate, their size or geographic location, are increasingly required to do business in a way that respects human rights. They are also required to be proactive in promoting environmental and social causes. In this context, there is an enormous pressure, perhaps even a demand, for companies to act in compliance with the main internationally recognised soft law instruments. These include the Universal Declaration of Human Rights, the International Covenant on Civil and Political Rights, the International Covenant on Economic, Social and Cultural Rights and the International Labour Organisation Declaration on Fundamental Principles and Rights at Work. Theyalso include other instruments whose relevance may be greater or lesser depending on the area in which the company operates. We would also highlight the United Nations Convention on the Rights of the Child and the United Nations Convention on the Rights of Women.


These instruments were joined in 2011 by the United Nations Guiding Principles on Business and Human Rights, which expressly and clearly established obligations for companies in terms of human rights. Among the measures that companies should adopt, Guiding Principle 17sets out the duty to carry out human rights due diligence processes.


In this movement, some countries have gone further and created pieces of legislation that impose obligation on businesses to monitor and implement human rights due diligence programmes. Examples include the French Corporate Duty of Vigilance Law, theTransparency in Supply Chains Act applicable in California since 2010, the Australian Modern Slavery Act 2018, and the UK Modern Slavery Act 2015.


The issue of human rights has thus appeared on the radar of companies, both in the context of their business activities and in the commercial relationships they establish, where there is also a more general duty of due diligence, and in the M&A deals they consider.


It has become inevitable and necessary for due diligence processes in M&A projects to take into consideration this new corporate duty. Asa result, there is a new lens to assess companies and their impact on society has emerged, the lens ofhumanrights.


At this point, the following questions arise: How should we structure and organise human rights due diligence processes in an M&A transaction? How can an M&A lawyer contribute to this cause? How can we guide clients on this issue?


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