Corporate social responsibility is no oxymoron

The increasing globalization of business has created demands for a corresponding increase in corporate social responsibility, or CSR, by multinational companies -- particularly in environmental protection and international human rights.

Skeptics of CSR say that social policy should be left to governments, that businesses should stick to making a profit. Proponents say that the principles of good corporate governance and citizenship must embrace CSR because the operations of multinational companies impact almost every country on the globe, rich and poor alike, and that companies must be held accountable to prevent a race to the bottom in wage and labor policies and activities that would despoil the environment.

Proponents of global CSR appear to be winning the day -- multinational corporations are increasingly adopting CSR policies as integral parts of overall business strategy. Is this a new dawn of corporate altruism, or are other factors at work?

Profit vs. virtue

Business for Social Responsibility, the largest U.S. business organization promoting CSR, defines CSR as "achieving commercial success in ways that honor ethical values and respect people, communities and the natural environment."

As this definition implies, companies that back CSR principles do not think CSR requires the sacrifice of profit for virtue. Rather, they see that CSR programs can be "win-win," a way to help boost profits while doing good.

The business benefits of CSR most often cited include:

  • Improved risk management through better business intelligence and reduced exposure to environmental and human rights-related risks;
  • Enhanced brand image and reputation;
  • Increased sales and customer loyalty;
  • Improved ability to attract and retain talented employees;
  • Greater productivity and better quality through improved working conditions and labor practices among suppliers;
  • Increased attractiveness to investors;
  • Reduced risk of governmental oversight and regulatory compliance/enforcement issues.
    In addition, some CSR initiatives can directly improve financial performance and reduce operating costs, for example, recycling programs and initiatives aimed at reducing noxious emissions and use of potentially harmful chemicals.

    On the other hand

    Companies may also be motivated to adopt CSR policies to help ward off unwanted press attention and the threat of being the target of actions intended to punish alleged CSR-related misbehavior and cause reform. The actions in question can range from consumer boycotts and "name and shame" publicity campaigns by activist groups -- particularly effective against corporate targets with a brand to protect -- all the way to formal claims of legal wrongdoing answerable in court.

    A growing number of class-action lawsuits seek to hold multinational companies accountable in court for alleged failings in their CSR performance abroad. Here are some notable examples:

    In a landmark case, Doe v. Unocal, the company was sued in federal District Court in California under the U.S. Alien Tort Claims Act of 1789 (ATCA), which grants jurisdiction to federal district courts for "any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States." The suit claimed Unocal had been complicit in human rights violations by the Burmese military during construction of a pipeline in Burma.

    A companion suit in California Superior Court charged Unocal with violation of provisions of the California Constitution prohibiting slavery and forced labor, and violation of California's Business and Professions Code section 17200 (California's "unfair competition law") on grounds that Unocal's use of forced labor in Burma created an unfair competitive advantage. Both the federal and state suits were settled in December 2004.

    In Doe v. Exxon Mobil, the company was charged before the U.S. District Court in Washington, D.C., with complicity in human rights violation by Indonesian security forces in the course of protecting the company's interests in an Indonesian natural gas field. Here, the plaintiffs relied on both ATCA and a more recent statute, the U.S. Torture Victims Protection Act, passed in 1991.

    In a well-publicized California case, Kasky v. Nike, also brought under California's unfair competition law, Nike was sued for alleged false statements regarding labor practices and working conditions in its supplier factories overseas. After extensive litigation, including a trip to the U.S. Supreme Court, the case was sent back for decision to the California Supreme Court and eventually settled in September 2003.

    One report states that in the past decade ATCA has been used for 26 lawsuits against corporate defendants alleging complicity in human rights violations in their foreign operations. The companies charged have included such stellar names in U.S. business as ChevronTexaco, Coca-Cola, Del Monte, Citigroup, Bank of America and Occidental Petroleum.

    It should be noted also that while California's unfair competition law was extensively amended in November 2004 to make it less friendly to class-action lawsuits, there may well exist laws in other states that lend themselves to class actions against U.S. companies based on their CSR performance abroad.

    Managing risk

    Companies are increasingly being called to account not only for their own CSR performance but also for that of their entire supply chain, including the operations of foreign subsidiaries and foreign contractors and subcontractors.

    Companies can act to limit their CSR-related risk through such measures as establishing codes of conduct, regulating health and safety conditions and setting fair wage and labor standards in supplier factories, and obtaining certifications from overseas suppliers and contractors that they do not and will not use forced or child labor.

    To support these codes of conduct, companies should also create inspection systems using both corporate, in-house inspectors and those of independent organizations. In today's global business environment, such proactive measures of risk management in international CSR may be far costlier for companies to ignore than to implement.

    Kaplan practices corporate, financial and international business law in San Diego, where he is Counsel to Goode, Hemme, Peterson & Sayler. Send comments to All comments are forwarded to the author and may be used as Letters to the Editor.

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