Law Vision
Perception of CSR through the prism of law
Photo: Moma.sk
In 1973 Votaw stated “CSR is a brilliant term that means something to everybody but it does not mean the same to all”. Interestingly the dynamics of Corporate Social Responsibility (CSR) have been evolving even faster these days. CSR, once comprehended as an affair of voluntary good practice or simply a matter of public relation, has now become a concern of law. Many countries are incorporating provisions to accommodate CSR issues in their laws. For example, British Companies Act 2006 or Danish Financial Statements Act (amendment 2008) imposes statutory requirements on compulsory CSR reporting on businesses. We can observe similar efforts mostly in the banking sector of Bangladesh. However, CSR reporting is not yet a mandatory requirement in Bangladesh. Bangladesh has observed a significant growth in CSR activities over the last few years and it demands academic research from the law view point to improve the legal framework to facilitate the CSR activism.
The concept of CSR renders a special arrangement of regulation whereby the businesses integrate social and environmental concerns in their operations on a voluntary initiative. CSR entails that business has obligations to stakeholder and when such responsibilities are based on duties of fairness and morality, CSR collides with the shareholder primacy norm of business law. This norm renders that corporation is the property of the shareholders. In Dodge v. Ford Motor Company (1919) the court uphold this norm. In 1916 Henry Ford, announced that no more special dividends would be paid and the earnings would be put back to the company. In the press release he expressed his intention “...to employ more men to spread the benefits of the industrial system to the greatest possible number. By doing so the company will be benefited in the long run.” Ford's decision was challenged in the court by the minority shareholders and the court decision went against Mr. Ford. Michigan Supreme Court expressed that the corporate directors' responsibility was to maximize the profit for the benefit of the shareholders and had no right to devote such profit to other purposes. However, there are many case laws where the court interpreted shareholder primacy norm in a wider sense. Hutton v. West Cork Railway Co. (1883) is a leading English company law case regarding the limit of directors to spend company fund for the benefit of non-stockholder stakeholders. The court stated “the law does not say that there are to be no cakes and ale, but there are to be no cakes and ale except such as are required for the benefit of the company.” So, spending fund for the non-shareholder stakeholders' benefit can suffice the shareholders primacy norm when such act brings good for the company in the long run. Although, case laws have widen the interpretation of shareholder primacy norm court never took a positive role to uphold the companies' contribution into the society even on the ground that such decisions would be beneficial for the shareholders in the long run. We can see this spirit in most of the recent CSR laws. Many countries have imposed statutory requirements on businesses to publish CSR reports. However in most cases businesses are free to choose whether or not they wish to work on CSR. Again, Friedman suggests that only natural person can have social responsibility so, corporation being a legal structure can not be socially responsible. Therefore, CSR activists and professionals should keep in mind to relate to the corporation's human agents.
Friedman questions if we could justifiably expect to shift the regulatory burden on businesses. Corporations are deemed as extended hands of the public authority. Hence, we can claim operating towards the fulfilment of the public goal is the legal obligation of corporations. Thus, we might legitimately shift some regulatory burden from the government to the corporations.
Most of the CSR violations are rooted in the developing countries and the large corporations are in many cases economically and de facto politically more powerful than the host states. Whether the state is incapable or reluctant (perhaps for attracting FDI) to improve labour rights, environmental compliance etc. voluntary CSR instruments might compensate the vacuum. On the other hand developed home states might increase extraterritorial jurisdiction application to regulate the behaviour of the corporations and their subsidiaries in developing states. Alien Tort Claims Act allows overseas plaintiffs to challenge the delinquent behaviours mostly US-based big corporations in federal court of USA. Liability can be imposed on corporations for their activities which are inconsistent with corporate public commitments. Canadian Corruption of Foreign Public Officials Act 1998 is an example of recent legislative development to fight corruptions.
In response to an allegation of unfair labour practice by Nike supply chain in Asia Nike made public communication claiming they had taken effective measures to stop such abuse. However, In 1997 an audit report revealed that abuses in Nike supply chain had been continuing. CSR activist Marc Kasky, brought a legal proceeding against Nike on the ground of misleading advertisement under California's stringent false advertising and unfair business practice laws. The court cited in favour of kasky. However, increasing extra territorial jurisdiction is not an option that can be preferable in all cases. Such actions might sanitize the international relations between nations. Moreover, regulation from a distant jurisdiction might cause miscarriage of justice due to cultural relativity and other socio-economic factors.
It is claimed that since EMAS has a legal status within the member states it can take a more prescriptive approach to environmental management issues than that of ISO 14000. If this statement is true than it somewhere contradict with the view of those who believe that CSR issues in the present global world can be better dealt by voluntary initiatives and magnifies their worries who fear that privatization of regulation and deregulation will result into non-regulation. Business entities are inherently designed to respond to change rather than proactively seeking for it. Incentive is a prime drive for business to act effectively. We cannot meaningfully expect firms to undertake any social duty while not doing so has no reasonable consequences.
Multi-stakeholders mechanisms make platforms for different constituencies where non-state actors can pursue the creation, development and maintenance of a private regulatory regime. In present global order the metrics of the relation of Corporations and the Society is significantly sophisticated and it is rather infeasible for public regulatory bodies to regulate every aspects of businesses exclusively. Sometimes it might seem that the rapid development of corporate codes of conduct and other forms of nongovernmental CSR mechanisms as a dangerous trend towards a privatization of social rights. Again, Voluntary and business case driven CSR projects are inherently constricted to a win-win relationship between CSR and corporate profits. Hence, the most well intended and executed, CSR initiatives seem inherently ineffective to deal with much unsustainability in the economic system. EU green paper 2005 on CSR rightly pointed out that while CSR cannot be used as a substitute for international and domestic legislation, social dialogue and collective bargaining, the legislation now should take a greater commitment to support and facilitate the voluntary initiatives.
The writer is a CSR Manager at Carving Careers, West Bromwich, England.
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