The Grey Chronicles

2009.October.7

Corporate Social Responsibility, A Myth? Part III



Law and Corporate Social Responsibility

Responsibility, obligation and liability; these words are almost synonymous. Yet, when they are affixed to the word: corporation, the debate shifts to whether the present body of laws are applicable. Wells (2000) explains:

“Corporations are legally deemed to be single entities, distinct and separate from all the individuals who compose them. … Corporate law primarily regulates the corporation’s relationship with its own ‘members’, in contrast to those legal duties and responsibilities which regulate its relationship with outsiders. Many of those external duties and responsibilities apply equally to individuals and to incorporated bodies. The civil law of obligations — contract, tort, restitution — applies to corporations as it does to individuals. How responsibility is to be attributed to the corporation in these areas has been regarded as relatively unproblematic, largely because those areas of law do not rely on a notion of fault, or where they do (as in the tort of negligence, for example), it is an objectively assessed fault liability.” [Emphasis added.]

Until recently only two mechanisms for attributing criminal fault to corporations have been recognized: the vicarious principle, simply: an employer or principal is liable for many of the acts of any employee or agent; and the doctrine of identification, i.e., certain key personnel are said to act as the company.

“In general, three different theories for attributing blame to corporations compete for attention. The first is based on the agency principle whereby the company is liable for the wrongful acts of all its employees. United States federal law employs a principle of this type, respondeat superior, while English law limits the application of vicarious liability to certain regulatory offences. The second theory of blame attribution, which English law utilises for all other offences, identifies a limited layer of senior officers within the company as its ‘brains’ and renders the company liable only for their culpable transgressions, not for those of other workers. The third locates corporate blame in the procedures, operating systems or culture of a company.” [Emphasis added.] (Wells, 2000: 3-4).

At the 40th Annual Session of UNCITRAL, Seward Montgomery Cooper, the Chief Counsel for Good Governance of the African Development Bank, points out:

“This Rule of Law deficit … include overall defective legislation; malfunctioning judicial systems burdened by huge case backlogs resulting from, among other things, inadequate physical infrastructure; antiquated laws (both procedural and substantive), including laws on debt collection, insolvencies, and shareholders’ rights; poor terms and conditions of service for judicial and related administrative personnel; weak accountability mechanisms including, and sometimes reflected in, ineffective service by securities regulators and banking supervisory regulators; failure of law enforcement and prosecutorial authorities to pursue claims arising from violations of securities or other financial laws or white collar abuses and crimes; and weak auditing and disclosure laws.” [Emphasis added.] (Cooper, 2007).

In analyzing the Canadian reaction to financial scandals seeking whether they produced changes in law, regulations, or attitudes that had lasting impact, Madelaine Drohan (2005) finds similar reasons why these mistakes are doomed to be repeated in the future.

Governance, International Law & Corporate Social ResponsibilityJean-Claude Javillier, principal advisor of the International Institute for Labour Studies, states:

CSR cannot disregard law, whether national, regional or even international. Nobody can disregard the links, synergies and questions arising from law. However, these various encounters with law are also leading to very different international experiments with regulation. A consensus seems to be emerging, especially a tripartite consensus within the ILO: CSR can contribute to an appropriation of norms on human rights, labour relations and the environment, but should not lead to the privatisation of matters which should remain the normative heritage of humanity, for the simple reason that the enterprise cannot replace states, and cannot claim to create a rule of law through its own initiatives and instruments. Enterprise cannot in particular create a «private» international labour law which conflicts with the law emanating from the legitimate international institution, i.e. the International Labour Organization.” [Emphasis added.] (Javillier, 2008: 61).

Alizon (Jeffrey) Azer used an analogy: CSR is to a code of conduct what democracy is to a constitution, albeit with one critical distinction — constitutions are enforceable whereas codes of conduct are not. Corporations insist that governmental regulation of CSR would stifle progress, quash innovation, and siphon funds from social and environmental programs (2002: 16), yet

“The voluntary nature of corporate codes of conduct, or codes of ethics as they are also called, incites much derision from CSR’s critics. They doubt whether corporations can be trusted to voluntarily self-regulate their compliance to the lofty ideals set out in most codes of conduct. … The weaknesses of CSR — its ambiguity and voluntary nature — are thus exacerbated by the ability of corporations to endorse codes that are not regulated.” (Azer, 2002: 9).

Some companies have made sincere efforts to change their behavior, taking social and environmental impacts seriously and genuinely consulting with local communities. Others, because of the voluntary aspect of CSR, have unfortunately focused their energy and resources in changing public perception of their projects, rather than changing their behavior or actual societal impacts. Using a 15-year panel dataset on nearly 3,000 publicly traded companies, Matthew J. Kotchen & Jon Jungbien Moon’s preliminary empirical investigation (2007) finds:

“[There is] general support for the causal relationship: when companies do more «harm,» they also do more «good.» … when Corporate Social Irresponsibility [CSI] concerns arise about corporate governance, companies seemingly choose to offset with CSR in other dimensions, rather than reform governance itself.”

Bede Nwete (2007: 339) suggests creating a balance, such as:

“… leave the ‘corporate philanthropy’ aspect of CSR to the dictates of Industry driven self-regulation, while core issues of environmental degradation, human rights abuse and corruption should be subjected to the scrutiny of hard law—binding government regulation with penal effect.”

Disclosure of the Impact of Corporations on Society: Current Trends and IssuesMoreover, assessing the impact of corporations on society, UNCTAD (2004) states:

“Society grants all legal entities, including enterprises, a «licence to operate» by spelling out their rights and duties in laws and regulations. Liberalization and globalization have enabled enterprises to extend their business reach, thus putting them in a position to have an even greater impact on society. Despite the existence at the international level of treaties, agreements and conventions, there is no set of international rules to regulate business activities and their impact on society. This means that the increased power of corporations must be balanced by a sense of ethical business practices. In a world where transnational corporations’ economic power compares with that of countries, Governments sometimes find it difficult to balance the need to protect their citizens with the need to attract foreign direct investment.” [Emphasis added.]


Notes:

Azer, Alizon (Jeffrey) (2002). The Ethics of Corporate Social Responsibility: Management Trend of the New Millennium?. Sheldon Chumir Foundation for Ethics in Leadership, June 2002. p. X. back to text.

Cooper, Seward Montgomery (2009). Corporate Governance in Developing Countries: Shortcomings, Challenges & Impact on Credit, Proceedings of 40th Annual Session of UNCITRAL Modern Law for Global Commerce, Vienna. 9-12 July 2007. Vienna: UNCITRAL. back to text.

Drohan, Madelaine (2005). Scandals and their Aftermath: Why We Are Doomed to Repeat Our Mistakes. Sheldon Chumir Foundation for Ethics in Leadership, April 2005. pp. 28—29. back to text.

Javillier, Jean-Claude (2008). Corporate Social Responsibility and law: Synergies are needed for sustainable development, Governance, International Law & Corporate Social Responsibility. Research Series 116. Geneva: International Labour Organization (International Institute for Labour Studies), 2008. p. 61. back to text.

Kotchen, Matthew J. & Moon, Jon Jungbien (2007). Corporate Social Responsibility for Irresponsibility. Santa Barbara, CA: Donald Bren Hall, University of California, Santa Barbara,, 04 September 2007. p. X. back to text.

Nwete, Bede (2007). Corporate Social Responsibility and Transparency in the Development of Energy and Mining Projects in Emerging Markets; Is Soft Law the Answer?. German Law Journal, 08:04. April 2007. pp. 311—340. back to text.

United Nations Conference on Trade and Development [UNCTAD] (2004). Disclosure of the Impact of Corporations on Society: Current Trends and Issues. New York and Geneva: United Nations Conference on Trade and Development [UNCTAD], August 2004. p. 4. back to text.

Wells, Celia (2000). Criminal Responsibility of Legal Persons in Common Law Jurisdictions. Paris: Working Group on Bribery in International Business Transactions, OECD Anti-Corruption Unit, 04 October 2000. 10pp. back to text: 1 | 2.

Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 LicenseDisclaimer: The posts herein do not necessarily represent any organization’s positions, strategies or opinions. Read the full version of self-imposed rules for this blog: A New Year; New Rules. Unless otherwise expressly stated, the posts are licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 License.
Comments are moderated to keep the discussion relevant and civil. Readers are responsible for their own statements.

Next Page »

The Rubric Theme. Blog at WordPress.com.

Follow

Get every new post delivered to your Inbox.

%d bloggers like this: