Legal Issues In Corporate Citizenship

A new UK report has highlighted how legal issues cut across in the entire corporate citizenship agenda – and throws up the challenges and implications for business management and public policy both here and abroad.

The report’s author is Halina Ward, is the Director of the Program on Corporate Responsibility for Environment and Development (CRED) with the International Institute for Environment and Development (IIED) in London.

IIED is an independent, Not for Profit research institute working in the field of sustainable development. CRED works to highlight where and how corporate responsibility can best contribute to sustainable development, particularly in developing countries, and the kinds of public policy and civil society interventions that are needed to support it.

The paper called “Legal Issues in Corporate Citizenship” is aimed at public policy makers and businesses in the high-income countries of the North. It aims to show how law shapes corporate social responsibility (CSR).

In doing so, the paper addresses one of the basic dividing lines of the CSR agenda in Europe, North America and Australia – a line between people who argue that CSR should be limited to consideration of ‘voluntary’ business activities ‘beyond compliance’ with legal baselines, and those who argue for
a broader starting point, based on an understanding of the total impacts of business in society.

Here is an extract from the Executive Summary:

As the definitional debate rages, the legal baseline for CSR is itself changing.
Legal analysis has the potential to bring valuable insights to both public policy and business management.

Failure to take account of the legal dimensions of corporate social responsibility substantially weakens the chances of making meaningful process in some of the most difficult ‘boundary’ areas about the proper balance between government, business and civil society roles and responsibilities.

Transparency and access to information on social and environmental aspects of company performance are central themes of the CSR agenda. Mandatory legislation on various aspects of business transparency is emerging around the world. It can form part of company law, environmental regulation, or tailored legislation for institutional investors or on social and environmental reporting. Pressure for enhanced public sector accountability has also given rise to calls for company reporting on revenues paid to host government by companies in the extractive industries.

Even voluntary approaches to CSR have a legal context. Laws on misrepresentation or false advertising frame voluntary company reporting, for example. And voluntary approaches such as company codes of conduct can shape the standards of care that are legally expected of businesses.
In the workplace, agreements reached through collective bargaining between employers and trade unions can become legally binding through incorporation in employment contracts.

Litigation is also bringing new light to the CSR agenda. A new wave of legal actions – mostly in US courts, but also in some EU countries – is testing the boundaries of existing legal principles in relation to some of the most difficult issues of the CSR agenda. For example, a series of cases in the US, France and Belgium are testing how fundamental principles of international law – particularly human rights law – apply to parent companies of multinational corporate groups.

Legal actions such as the so-called ‘McLibel’ litigation, or more recently Nestlé’s litigation against the government of Ethiopia, offer examples of a different intersection between litigation and CSR; when litigation proves reputationally unwise. Breaches of minimum legal requirements can also place companies’ reputations as good corporate citizens on the line. For example, action against a cartel that had fixed prices of vitamins around the world drew attention to the CSR implications of basic principles of fair dealing.

CSR also has an international trade law dimension. Voluntary labelling and certification schemes developed in European countries have more than once generated discussion in the World Trade Organisation over potential negative impacts on market access as well as WTO-compatibility – an area of considerable legal uncertainty.

Companies and public policy makers can play important roles in reducing trade tensions by working to shape a CSR agenda that is more sensitive to, and inclusive of, developing country stakeholder needs and interests.

For companies, the connections between law and CSR raise some fundamental management challenges. One clear message concerns the need for businesses to integrate legal risk management with reputational risk management. That means that lawyers will need to become more involved at the same time as learning from the culture of transparency and partnership that informs CSR. It means ‘joining up’ strategies for day-to-day CSR communication with strategies for communicating about litigation and responding to ‘bad practice.’

And integration between lawyers and CSR professionals is also critical to giving meaning in concrete cases to ‘best practice’ (rather than corporate restructuring) as a response to the emerging legal risks of foreign direct liability.

A key challenge is to ensure better integration between national and international policy agendas on good public governance, corporate social responsibility and corporate accountability.

Some tough policy discussions almost certainly lie ahead. For example, the frontier CSR litigation raises substantial question marks over the social and environmental efficiency of limited liability as a mechanism for allocating risk.

And the agenda on environmental and social reporting leads naturally to the potential for a future debate on the role of a right of public access to information held by companies.

However challenging the implications, it is increasingly clear that law and litigation are an important part of the CSR toolkit around the world. It is high time to get beyond the tired dogma of ‘voluntary versus mandatory’ to look at the real challenges of ensuring that economic globalisation is coupled with good environmental and social performance on the part of businesses around the world.

For an electronic version of the full report in PDF format just send us an e-mail to corpnews@probonoaustralia.com.au.