August 16, 2012
CSR: Doctrine and . . . CSE?
Posted by joanheminway

First, a few prelimiaries.  I admittedly come at this issue as someone who has not been a huge proponent of CSR (although I am a firm believer that the corporate form exists/can be employed for more than just shareholder weatlth maximization) and who thinks that religion in business is, well, uncomfortable at best.  I was born in New York, educated in Rhode Island and New York, and last employed (before my current position) in Massachusetts.  I was brought up in a religious family (Episcopalian, if you must know) in which religion never was worn on the sleeve.  That was my world for most of my life.

Having moved to East Tennessee twelve years ago, I have come to know a completely different world--a world in which my primary care physician is part of a self-labeled Christian medical practice (complete with a mission statement that explains the concept) and a furniture store at which our family has shopped overtly shares that one of its two operating philosophies is to serve the Lord.  Prolonged exposure has not made me any more comfortable with the injection of religion into the business environment.  But I have come to accept the North/South difference.

I also understand marriage as both a legal and religious institution, and believe that the two should not be confused or conflated.  I respect Dan Cathy's right to his religious view on marriage and his freedom of speech, but I disagree with that view on both legal and religious grounds.

On to CSR and the role of the corporation in society.  As a rulehead, I will focus on some basic doctrine in this post.

Although the corporation is fundamentally conceptualized as an economic institution, there is nothing in the set of off-the-shelf statutory rules that make up standard business corporation law that constrains a corporation to operate exclusively in the economic sphere.  For example, Section 14-2-301 of the the Georgia Corporation Code, the statutory law under which Chick-fil-A is incorporated, provides (rather typically) that "[e]very corporation incorporated under this chapter has the purpose of engaging in any lawful business unless a more limited purpose is set forth in the articles of incorporation."  Chick-fil-A's articles (available through the Georgia Secretary of State's Web site) do not provide to the contrary: "The purpose of the Corporation is to engage in any form or type of business for any lawful purpose or purposes not specifically prohibited to corporations for profit under the laws of the State of Georgia and to have all the rights, powetrs, privileges an immunities which are now or hereafter may be allowed to corporations under the laws of the State of Georgia."  Interestingly, Georgia law also allows corporations to include in their articles an "other constituencies" provision:

A provision that, in discharging the duties of their respective positions and in determining what is believed to be in the best interests of the corporation, the board of directors, committees of the board of directors, and individual directors, in addition to considering the effects of any action on the corporation or its shareholders, may consider the interests of the employees, customers, suppliers, and creditors of the corporation and its subsidiaries, the communities in which offices or other establishments of the corporation and its subsidiaries are located, and all other factors such directors consider pertinent; provided, however, that any such provision shall be deemed solely to grant discretionary authority to the directors and shall not be deemed to provide to any constituency any right to be considered.

Chick-fil-A has not taken advantage of the opportunity to include this provision in its articles.

Which brings me to fiduciary duty law.  In Georgia, as elsewhere,

All corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation managed under the direction of, its board of directors, subject to any limitation set forth in the articles of incorporation, in rights, options, or warrants permitted by paragraph (2) of subsection (d) of Code Section 14-2-624, or in an agreement among the shareholders meeting the requirements of Code Section 14-2-732.

Because of the board's management power, many identify the board's fiduciary duties under corporate law as the real constraining force on corporate activity that might be labeled as CSR.  If fiduciary duties are narrowly tailiored to the maximization of shareholder wealth or are generally shareholder-centric, then a board's approval of socially responsible corporate activities that are not shareholder-driven is violative of the board's fiduciary duties.  In Georgia, as in other MBCA-based states, these duties are rooted in the statutory standard of conduct for directors:

 A director shall discharge his duties as a director, including his duties as a member of a committee:

   (1) In a manner he believes in good faith to be in the best interests of the corporation; and

   (2) With the care an ordinarily prudent person in a like position would exercise under similar circumstances.

A brief look at caselaw in Georgia is not very illuminating--although dicta in a recent Georgia Supreme Court case relating to a nonprofit corporation (Shorter College v. Baptist Convention, 279 Ga. 466, 474-75 (Ga. 2005)) indicates that Georgia may take a narrow view of "the best interests of the corporation," focusing in on shareholder benefit and a money-making corporate objective.  Interestingly, the case cites to a 1992 article written by Larry Mitchell in the Texas Law Review on fiduciary duty law principles.

If neither statutory law nor caselaw apparently constrains a corporation (here, a Georgia corporation) from operating its business in a manner that invokes social, including religious, or political issues, it is free to do so.  Dan Cathy's good faith is not at issue, as far as I know.  One could argue that the dissemination of his anti-gay-marriage message is in the best interests ofthe corporation--or that it is not in the best interests of the corporation, depending on context.  It's also not clear that he abdicated his duty of care in these circumstances.  The corporate shareholder base and a lot of the corporation's other constituents, if they are like many of my individual and corporate neighbors here in East Tennessee, support Dan Cathy's message as a corporate value statement (even if they do not agree with it). 

So, a corporation operating its business for a lawful purpose is free to incorporate, e.g., religious values into that business as long as the directors manage the corporation in good faith, in the best interests of the corporaiton, and in a manner consistent with their duty of care.  This does not mean that any law compels a corporation to be socially responsible.  Maybe that means, as Erik posits, that CSR is viewpoint neutral.  

Maybe we should just talk about corporations being socially engaged.  Has anyone yet coined the term "Corporate Social Engagement?"  (I see the concept has been floated on the Web in a number of places, like here and here.)  Is it time to start talking about CSE?  (It's really a concept akin to corporate citizenship, as I understand the use of that term.)  Is that (again, as Erik notes) what social entrepreneurship is all about?  If so, why do we need all these new forms of entity (L3Cs, benefit corporations, etc.) that now are being introduced in legislatures across the country?

If we want to keep corporations out of the social and political spheres, current corporate law does not do that effectively or efficiently.  But it certainly offers opportunities to do that (through charter provisions that narrow corporate purpose and allow for explicit considerations other than shareholder interests in board decision making).  I look forward to reading what others have to say.

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