Legal Approaches and Corporate Social Responsibility

Towards a Llewellyn's Law-Jobs Approach

Adaeze Okoye

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781317560531
• Edition: 1
• Topic: Droit
• Subtopic: Droit des compagnies

From the late 20 th Century, a catalogue of high profile disasters and controversies has drawn attention to the changing relationship between corporations and society. This is taking place against the context of globalisation and this change has become the driving force for demands that corporations become socially responsible. Corporate social responsibility (CSR) has therefore emerged as a concept which attempts to encapsulate these demands for social responsibility. Yet at the heart of CSR is the debate about the role and relevance of law.

This book will explore the proposition that CSR is a valid legal enquiry and will suggest a law-jobs approach which offers a potential general analytical perspective for examining such fluid concepts such as CSR in law. This approach is innovative because of the insistence of some users of CSR on placing law outside the parameters of CSR or giving it a very limited role; however, Okoye argues here that the very nature of CSR as seeking legitimacy for corporate power pushes to the fore the question of what role law can play. Law is an essential and important aspect of legitimacy and thus this work explores a legal theoretical approach that holds potential for a legal framework of CSR.

This interdisciplinary book will be of great interest to students and scholars of corporate law and business studies in general.

1
Introduction – viewing corporate social responsibility through a legal lens?

What kind of institutional or legal arrangements will best promote the assumption by businessmen of their social responsibilities? … On one thing we can be definite. The unrivalled freedom of economic decision-making for millions of private businessmen which characterizes our free enterprise system, can be justified not if it is good merely for the owners and managers of enterprises, but only if it is good for our entire society.¹

1.1 Introduction

In the late twentieth and early twenty-first century, a catalogue of high-profile disasters and controversies has drawn attention to the problematic nature of the relationship between large corporations and society. The list would include: the Shell Brent, Spar incident.² the Shell crisis in Nigeria,³ the Bhopal chemical spill,⁴ the Exxon Valdez oil spill,⁵ the use of slave labour in Burma and the controversial working conditions in Asian factories,⁶ the baby milk scandals,⁷ the conflicts between indigenous peoples, mining communities and mining companies in South American countries, Papua New Guinea and other areas,⁸ the pharmaceutical industry and the anti-retroviral drugs crisis,⁹ the Enron collapse,¹⁰ the banking crisis of 2008,¹¹ the BP-Gulf of Mexico oil spill¹², the Rana-Plaza building collapse in Bangladesh¹³ and the VW emissions scandal¹⁴ to mention but a few. These incidents and crises have thrown open questions about the impact of corporations, especially multinational corporations, on various aspects and actors within society. Freeland observes that:

the Gulf oil spill and the financial crisis have taught us, rather brutally, that the heart of the relationship between business and society doesn’t lie with the charitable deeds companies do in their off-hours but whether they are doing in their day jobs in ways that help – or hurt – the rest of us.¹⁵

Therefore the changing nature of the relationship between large corporations and society in this period has become the driving force for renewed demands that corporations become ‘socially responsible’. These demands have come from several sectors of society including non-governmental organisations (NGOs), local communities and academics amongst others.¹⁶ This is because of perceptions of a sustained shift towards private corporate interests through privatisation and the consequential involvement of these private corporate interests in many aspects of public societal life.¹⁷

Yet corporate social responsibility (CSR) has a longer history, one that can be traced back to the United States where there were debates in the late 1920s and early 1930s about the nature and role of the corporation in the aftermath of the Great Depression. These debates, which took place in various academic and business settings, is exemplified in the writings of Dean Donham of the Harvard Business School in 1927,¹⁸ the seminal debate between Berle and Dodd in the Harvard Law Review in 1931 and the Berle and Means publication of the Modern Corporation and Private Property in 1932.¹⁹ The Berle-Dodd debate raised fundamental questions about the nature of corporations and whether the business managers could be trustees for a wider group of stakeholders. Dodd’s point that business had a wider social responsibility, which it already assumed, is also echoed in quotes credited to business leaders of the time.²⁰

This view is also echoed in Bowen’s on Social Responsibilities of the Businessman. Often remembered for its widely cited definition of social responsibility, this book was driven by contextual observations in the United States on the choices facing the businessman in the face of wider questions prompting the re-evaluation of the role of business in society following various failures in the economic system.

Bowen observed that:

it was of course, a serious delusion to believe that in a laissez-faire system no rules for the individual would be required except those of following one’s self-interest ardently and competing vigorously … in practice, however, many conflicts arose between individuals and social interests. Some of these conflicts developed because the inability or failure of people to accept moral responsibilities necessary if the system were to achieve acceptable social results. Examples were tendencies of businessmen towards deceptive behaviour … failure of the businessman to provide for protection of life, limb and health; the frequent failure of competition and the lack of restraint in imperfectly competitive situations and the frequent failure to recognise the human rights of workers. The earliest tendencies toward social and governmental control of business arose from these failures.²¹

That this observation could still so easily encapsulate the challenge faced in 2015 is quite telling of the progress (or lack thereof) made in this area. Nevertheless Bowen perceptively captures the essence of the problem, which is that corporate ‘failures’ hint at the many conflicts in the relationship between large corporations and society and thereby trigger demands for CSR. This is reinforced by the dominance of the corporate form of business in the commercial world, with commerce as the mainstay of varied capitalist economies.²² With the fall of the Soviet Union and the spread of varieties of capitalism, these concerns are now global concerns in ways hitherto unrecognised.²³ CSR thus arose as an attempt to encapsulate these demands for social responsibility. It is therefore a concept which could have significant implications for corporations and society.

At the heart of CSR is the debate about its meaning and contestations about the role and relevance of law. The emphasis of several proponents in defining CSR as ‘beyond law’ may have its roots in reluctance both within law and business to portray CSR as a legal issue. Company law in the main privileges company interests and externalises social interests, within business there is a push for an exclusively ‘voluntary’ assumption of responsibilities. As early as 1927, Dean Donham observed that lawyers appear to have abdicated their responsibility to society in favour of serving the businessman’s interests and thus losing their relevance in solving the complex social problems which face the wider community.²⁴ He observed that:

when the lawyer ceased to be advisory leader and sound counsellor and … went to work as a servant of the businessman, mainly doing his will, he lost something and the community lost a great deal … these conditions exist in the law because the men of real imagination and ability in the legal profession have not, on the whole, retained their social point of view or used their talents to solve the increasingly complex problems of our organised community.²⁵

He then proposed that this left the businessman by default in a position where he had to voluntarily assume these social responsibilities as a result of his position ‘in control of the mechanisms of production, distribution and finance’.²⁶

Nevertheless when one examines the relationship between corporations and society, law is a fundamental aspect of such a relationship. Law is important in structuring and enabling the corporate objective, it is an important tool of government and social control and law is also more sophisticated than the voluntary-mandatory dialogue which pervades CSR.²⁷ Law can be examined from contemporary social perspectives that will allow it flexibility to achieve certain stated or contextual social functions. The recurring nature of problems which drive for more CSR mean that it is also important to recapture the vital questions about the role of law and legal arrangements in ensuring social responsibilities. Bowen, who is widely viewed as ‘the father of modern CSR’,²⁸ considered one of the key CSR questions to be that of institutional and legal arrangements which enable the assumption of social responsibilities.²⁹ In many ways, it is vital that law recaptures its ability to suggest solutions to complex social problems and proffering legal approaches to CSR could be a good start.

The objective of this book is to reveal that although the meaning of CSR is contested, it has a common reference point which permits the examination of legal approaches and perspectives. This common reference point or central theme can be found in complex social problems arising from questions about the legitimacy of corporate power and this permits the exploration of chosen legal approaches with the potential to structure and influence the external use of power in the relationship between corporations and society. The book then proposes a functional legal approach (the law-jobs approach) which can examine, shape and structure some of the embryonic CSR rules that are developing.

1.2 Context

The changing relationship between corporations and society that has been introduced in this chapter must be placed against the context of globalisation.³⁰ Globalisation places emphasis on a world without borders, with the aim of achieving record levels of global ‘interconnectedness’.³¹ The emphasis has been on persuading more states to pursue ‘good’³² economic governance, ‘based on the precepts of macroeconomic stability, liberalization of markets and privatization of economic activity’.³³ This represents a capitalist approach and has resulted in the expansion of markets and the private sector. The focus has been on the protection of foreign investment through principles such as the principle of national treatment. This principle makes it possible for corporations to establish business in almost any state without hindrance, unless the host country imposes similar restrictions on its own corporations.³⁴ Cutler points out that ‘forces of globalisation and the privatisation and deregulation of industries, sectors, commodities and services are transforming authority relations locally and globally’.³⁵

This trend of global integration has been intense, with ‘the intensification of world-wide global relations’³⁶ and events, but also varied, with uneven benefits, significant tensions and contradictions.³⁷ The opening up of markets has been of immense benefit to multinational corporations (MNCs).³⁸ It has resulted in ‘globalisation of the production of goods and services as well as of financial markets’³⁹ thereby projecting MNCs onto the global stage as international actors. MNCs can be defined as large corporations which control operations or income-generating assets in more than one country.⁴⁰ This control and the resulting revenues for the corporate group have led to claims that corporations possess more economic power than certain states.⁴¹ This has also meant that the private decisions of business regarding questions of investment can affect whole communities as well as states. This ‘ability to affect’ has resulted in countervailing demands for corporations to take on social responsibility. Lydenberg proposes the current dilemma as follows

Assets and power around the world have shifted...