September 20, 2012
Chik-fil-A Backs Down
Posted by Usha Rodrigues
August 17, 2012
CSR: Masters Forum on Corporate Social Responsibility: the Complete Posts
Posted by Erik Gerding

Thank you to our Masters for two days of provocative and insightful posts on what the Chick-fil-A controversy means for the current state of corporate social responsibility.

The complete set of posts in the forum can be viewed here

For those of you looking for weekend reading, here is a (tiny) sample of very recent writings by scholars with a history of provocative writing on the field of CSR:

Claire and Brett’s new volume also includes contributions on “Corporate Constituencies” by Stephen Bainbridge, Margaret Blair, Chuck Whitehead, and our current Master Matt Bodie, as well as our own Gordon Smith.

There is a lot more good stuff in the Handbook – including chapters by Lisa Fairfax and our current Master Steven Davidoff. Congratulations to Claire, Brett, and their contributors!

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CSR: What Dan Said (A Footnote)
Posted by joanheminway

Christine notes in her post: "Frequent reader and commenter Jake suggests the CFA issue is a non-issue because the controversy is about the CEO's beliefs and charitable causes, not any anti-gay mission or policies of the corporation."  Specifically, Jake critiques our commentary on Chick-fil-A's "corporate stance against same sex marriage" and notes: "There is zero evidence that Chick-Fil-A has such a 'corporate stance' from the standpoint of hiring, customer service, or any other perspective save the protected First Amendment speech of the CEO." Admittedly, I find it hard to assess the accuracy of Jake's observation based on publicly available information.  

The corporate mission statement--"Be America's Best Quick-Service Restaurant"--is not anti-gay.  And as I note below, the corporation expressly articulates policies of inclusion.  As to Chcik-fil-A's "corporate stance," however, I am having a tougher time.  It may be useful to remind readers at this juncture that Dan Cathy explicitly joined his personal beliefs on the notion of family (which implicitly convey beliefs about the institution of marriage) to the corporation, at least as I have seen the matter reported:

Some have opposed the company's support of the traditional family. "Well, guilty as charged," said Cathy when asked about the company's position.

"We are very much supportive of the family -- the biblical definition of the family unit. We are a family-owned business, a family-led business, and we are married to our first wives. We give God thanks for that.

"We operate as a family business ... our restaurants are typically led by families; some are single. We want to do anything we possibly can to strengthen families. We are very much committed to that," Cathy emphasized.

Of course, in the close corporation, there is some fluidity as among the owners, the managers, and the business entity.  But it seems that the "we" here is a reference to the business.  Based on these statements, I am unclear as to whether/how support is/would be given by Chick-fil-A to a family consisting of same-sex marital or non-marital partners (with or without children).  And what about families consisting of unmarried heterosexual domestic partners (with or without children)?

It is Dan Cathy's later radio interview--in which he specifically attacks gay marriage (as opposed to merely reafirming the corporation's support for the biblical definition of a family)--that kicked the controversy up a notch, however.  It is important to note that the statements in that interview, which were quite condemning (although Dan Cathy's tone was not), were conveyed as Mr. Cathy's personal beliefs.  The Christian Post and other news media have joined the two statements (from the press interview and the radio interview) together in their reporting, which compounds the injury to gay marriage supporters and blurs the individual/entity distinction further.  (Footnote to the footnote: As many of you know, I have written a bit about the individual/entity separation problem in the public company disclosure context in connection with Martha Stewart's legal troubles.  People central to their businesses are associated with those busineses, whether they like it or not.)  Commentators on the Chick-fil-A matter also have linked the Cathy radio broadcast statement to charitable giving by Chick-fil-A's corporate-affiliated foundation.  (Also here.)  There clearly are some association issues here that impact the public perception of the firm (which then becomes the public reality until controverted effectively).

In the wake of all of this, the corporation, as has been repeated in press releases in recent days, has reaffirmed its stance on inclusiveness in the operation of its business.  It has done so as to customers after Kiss Day:

At Chick-fil-A, we appreciate all of our customers and are glad to serve them at any time. Our goal is simple: to provide great food, genuine hospitality and to have a positive influence on all who come into contact with Chick-fil-A.

And more generally after Chick-fil-A Appreciateion Day:

The Chick-fil-A culture and 66-year-old service tradition in our restaurants is to treat every person with honor, dignity and respect – regardless of their belief, race, creed, sexual orientation or gender.

Given all this, it may not be fair to characterize Dan Cathy's statements as "the corporate stance." But I do think it's fair for folks to associate the Chick-fil-A business with his statements on gay marriage and question how, based on these statements, those aspects of the family's Christian beliefs (their narrow notion of family and marriage) may affect the conduct of the business.    It's a complex issue.  The operational effects of those beliefs may be unintended or unconscious.  And the perception issues may loom larger than the realities--something firm management always must look out for.  As outsiders to the corporate enterprise, it's hard to know how it all shakes out in practice at Chick-fil-A.

 

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CSR: I'll Take a 6-Piece Nugget Combo with a Side of Guilt
Posted by Usha Rodrigues

I've been reading the forum posts with interest and guilt. Having been raised Catholic, guilt is a perpetual state of mind for me, but I'll try to unpack the specific guilt this Chik-Fil-A brouhaha has occasioned.

Unlike Brett or Jeff, our family frequents Chik-Fil-A; indeed, it's probably our fast food establishment of choice, and with kids aged 2 and 5, we choose fast food more often than I'd care to admit (Hi guilt!  It's been too long!) .  I am also pro-same-sex-marriage.  What causes me conflicting emotions isn't just that Dan Cathy has articulated a position at odds with my own principles, but that that articulation has, as Christine aptly described, stems from a source that has positive and negative effects.

Let me explain.  Chik-Fil-A is headquartered in Georgia, and UGa counts many of our alums amongst its executives.  I have had two different Chik-Fil-A lawyers, one a Vice President, serve as guest speakers in my classes.  So I've thought about Chik-Fil-A as an organization perhaps more than the average business law professor.  Before Dan Cathy's remarks, I knew Chik-Fil-A:

  • is closed on Sundays (always good for a reference when teaching Dodge v. Ford)
  • has some type of college scholarship program for its employees
  • Requires franchisees to pay only $5,000 (compared to $45,000 for McDonald's), but also requires them to complete an extensive training program, and to work full-time on the business
  • Hires perennially cheerful employees who deliver customer service of a kind all too rare these days

A lot of these qualities are tied to Chik-Fil-A's identity as a company.  A Christian company.  Some (good customer service) I value more than others (closed on Sundays).  But it has a strong corporate identity tied to Christian values, including preferring Christians as franchisees, as Will Wilkenson points out by way of Ian Reifowitz.  Which is another way of making Christine's point, that WinShape (Dan Cathy's foundation), like many organizations, does things that my private value system considers "good" and "bad."  What's hard for me is that I attribute many of this particular company's virtues and its vice--statements by the CEO with which I disagree--to the same source: its strong identification as a Christian organization.  So to condemn it now feels kind of hypocritical.

Well, at least I don't have to feel guilty about not contributing to the CSR forum anymore. 

 

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CSR: From Curbing Externalities to Conscientious Consumerism
Posted by Christine Hurt

First of all, before I type anything, I must admit this:  I love Chick-Fil-A.  When the first stand-alone CFA restaurant opened in my home town, the cars lined up for blocks, way before anyone knew what either SSM or Mr. Cathy stood for.  The sandwich, the nuggets, the chicken noodle soup, the caffeine-free diet Coke, the light lemonade.  Mmmmm.  Also, the prizes in their kids' meals are awesome.  Once we scored 30-minute Between the Lions CDs.  A lot better than a superhero McDonald's toy.

I've enjoyed reading the posts of all my friends almost as much as that buttered bun, crispy chicken and single pickle slice, even though I generally try not to think about CSR.  The concept is too amorphous and slippery to me, worse even than "corporate ethics."  Legal ethics and medical ethics refer to rules and principles that are written down, and violations of those rules can lead to sanctions.  The concept of corporate ethics has no such analogue, and so means different things to different people.  CSR also can have a meaning that ranges in scope, with the narrowest construction being following the law, a middle construction being reduce externalities (don't do evil), and a broad construction of being a good global citizens.    So, I'm in the middle camp -- I think corporations should curb their externalities -- try to be "green"; try to be a good employer, purchaser, vendor.  The third construction leads to the most problems.  Some citizens sit at home and mind their own business, put their hand on their heart when the National Anthem plays, and vote; others volunteer, serve in the military, organize their neighbors, protest, rally, and give charitably.  If we think corporations should be engaged, participating Super Citizens, then this leads to some issues.  If a Super Citizen volunteers, organizes, protests, rallies and gives charitably to causes that the Super Citizen believes are good causes, then what if there's a difference of opinion on what a good cause is?  (I understand that many who enter the CFA debate believe there is no room for a rational difference of opinion on the SSM issue, but let's put that aside for now.)

So, Issue #1 arises out of the belief that corporations should be Super-Citizens, but only for "good" causes.  So, if you find out a corporation gives charitably (or its CEO/100% owner gives charitably) to a cause you detest, is the corporation being a Super Citizen or a Super-Evil Citizen?  In my teens, my friends told me never to eat Domino's pizza because my money would go to anti-abortion groups.  Snopes.com tells me that the Domino's founder (and contributor to the Ave Maria School of Law) gave money to Operation Rescue, though the Domino's corporation did not.  He also owned the Detroit Tigers, though I don't know if there was a Tigers boycott as well.  Frequent reader and commenter Jake suggests the CFA issue is a non-issue because the controversy is about the CEO's beliefs and charitable causes, not any anti-gay mission or policies of the corporation.  Obviously, Domino's corporation had nothing to do with abortions and didn't discriminate against pro-choice employees.  So, is it OK to equate the beliefs of CEOs with the corporation?  The founder?  The 100% shareholder? 

Issue #2 arises when a "good" cause has multiple missions.  Brett says that if he wants some fast-food fried chicken, he'll go to KFC. KFC gives money to various causes, including the NAACP and LULAC.  These two organizations announced in recent months that they each supported SSM.  But did they last year?  What if the NAACP had come out against SSM.  Would we need to boycott KFC because they give money to the NAACP, which does a lot of various, socially beneficial things, but also issued a statement we don't agree with?  Also, the CEO of KFC, David C. Novak, (according to the internet) donated $5000 to Romney for President, Inc. this year.  I don't Romney supports SSM, though he is obviously a multi-faceted candidate.  What then?

The controversy surrounding CFA centers not only on Cathy's statements of his own beliefs but on the relationship between Chick-Fil-A and his foundation, the WinShape Foundation, which runs programs on traditional marriage and contributes to causes that support traditional marriage legislation.  But WinShape does a lot of things, and I've known folks involved in the foster care aspect of WinShape.  Giving love and stability to children in foster care seems pretty pro-social.  So, does Mr. Cathy's support of WinShape qualify as a "good" cause or a "bad" cause?  American Girl supports many philanthropic causes, including Girls, Inc., which does a lot of great things for girls.  And (or But, depending on your take), Girls, Inc. supports reproductive freedom for girls.  So, many called for a boycott of American Girl.

All of this can make it pretty tricky to purchase anything.  A lot of folks here in C-U like to buy (raw) chicken from Amish farmers and hire Amish carpenters to make our cabinets.  I don't know what the traditional stance of most Amish is on SSM, but I really don't want to start asking.

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August 16, 2012
CSR: Substantive versus Symbolic
Posted by Matt Bodie

Much of this debate over the role of CSR is based on definitional boundaries, as Jeff Lipshaw has vividly pointed out.  And I agree with his assessment that there is no way out -- corporations do not exist in separate "economic" spheres where ideology and politics are absent.  All actions have ideological consequences, and we cannot remove our political selves from the market in order to carry out the work of our economic selves.  At the same time, I think the point of Will Wilkinson's post is to ask whether we want to amp up the politicization of corporations, particularly on issues not directly relevant to the business at hand.  That is a thornier issue.

But there's a big distinction to be made first.  Ideological issues that are directly related to the firm's business need more airplay, not less.  And I think traditional CSR has focused on those issues.  The campaign against the use of sweatshops in making college apparel, for example, and the efforts to promote greater sustainability in farming and manufacturing strike directly at the heart of certain industries and their methods of production.  Here CSR is simply pointing out the ideological ramifications of the businesses themselves, and asking for reforms of certain practices.  Those who claim to take "ideology" out of these decisions by rejecting CSR are simply trying to change the subject.  It is pure ideology to say that a corporation has a duty to pollute as much as it can or pay its workers as little as possible in order to maximize profits.  Shunting off these decisions onto other fields of law--such as environmental or labor law--is a way of promoting one ideology over the other.  Those who buy sweatshirts or organic food, or use electricity from coal-fired plants, or partake in any of a myriad of consuming choices throughout any particular day, are morally on the hook for those practices.

On the other hand, I feel for those workers at Chick-fil-A who have found themselves in the crossfire over ideological stands that really have nothing to do with the core business.  From a HuffPost article:

One gay employee who works at Chick-fil-A headquarters in Atlanta, Ga., and asked to remain anonymous for fear of losing his job, says he is getting it from both sides. On the one hand, there is the customer who came in and said he supported Dan Cathy and then "continues to say something truly homophobic, e.g. 'I'm so glad you don't support the queers, I can eat in peace,'" the employee, who is 23 and has worked for Chick-fil-A since he was 16, wrote in an email. On the other hand, he continued, "I was yelled at for being a god-loving, conservative, homophobic Christian while walking some food out to a guest in a mall dining room."

The employees of Chick-fil-A knew they were joining a fast-food company that had a Christian orientation.  And that orientation has some concrete ramifications for the core business -- the stores are closed on Sunday. But making and selling (delicious) chicken sandwiches does not really relate to gay marriage.  If Chick-fil-A decided not to hire LGBT employees, that would be a concrete personnel decision with business ramifications. But they haven't.  Instead, what we have are the words of a president/COO--words that have labeled Chick-fil-A as a pro-Christian, anti-gay restaurant.

So I suppose I agree with Willkinson that it would be a shame if a lot of companies decided to "brand" themselves with political or religious affiliations that have nothing really to do with their core business -- particularly if these affiliations are chosen by the CEO and/or majority shareholder.  That's what Dan Cathy seems to have done here: made a conscious decision to cast the company's lot with a particularly policy choice as a symbolic, hortatory matter.  But employees who make up the vast bulk of the company had no say on the decision.  Cathy is arguably parlaying Chick-fil-A and the brand loyalty it has developed into support for his unrelated political and religious views.  The company is privately owned by his family, so perhaps it's his to parlay.  But it sure seems unfair to the rest of the company, especially those employees who are gay and lesbian.

When you buy a Chick-fil-A sandwich, there are a number of political/ideological/policy ramifications: how the chicken was raised, how it was prepared, what packaging is used, even how the restaurants are built.  (The restaurant addresses the last two issues here.)  Your support or antipathy towards gay marriage is not inherently part of the equation.  Since Cathy made his company a symbolic player in the gay marriage debate, I cannot blame folks on both sides who will base their chicken-consuming decisions on that stand.  But CSR should be based on what the company actually does -- not the unrelated views of one of its owners or executives.

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CSR: Hard Questions for All Sides
Posted by Brett McDonnell

One thing I really like about the Will Wilkinson Economist post that Erik points us to in his introduction is that it poses hard questions for several different sides in the by now rather stale CSR debate.  For progressive CSR advocates like yours truly, the problem is obvious.  Normally, we think of CSR as trying to get corporations to do stuff that we like or stop doing stuff we don't like.  But the Chick-Fil-A position on same-sex marriage (or rather, it's CEO's position on same-sex marriage) is not at all something that we like.  The bank account of my partner and myself has taken a beating in recent months as we have given money to try to defeat the anti-marriage constitutional amendment on the ballot here in Minnesota.  And yet, taking stands on an important political and social issue sure does seem like the kind of thing CSR advocates encourage.  Indeed, my side of the marriage debate here is urging corporations to publicly oppose the amendment, and I personally cheer every time one does (you rock, General Mills).  So, what's sauce for the goose is sauce for the gander.

One of my favorite examples of this is one of the classic old CSR cases, Medical Committee for Human Rights v. SEC.  There, a lefty activist group put forth a shareholder proposal to Dow Chemical asking it to stop making napalm for use in war (this was during the height of the Vietnam War).  Where a CSR advocate should stand on this seems clear.  And yet, there is a suggestion in the case that Dow wasn't really profiting from napalm, but rather was producing it because the management felt that was its patriotic duty.  Who knows, maybe they did.  Do we want managers (or shareholders?) making those kinds of moral decisions?

And yet, if not them, who should be making those decisions?  Another position which I think Wilkinson's post implicitly challenges is Wilkinson's own libertarianism.  Wilkinson is generally dismissive of CSR in that post.  Yet, a libertarian for good reasons is skeptical about most governmental limits on corporate behavior, and does not want them to proliferate.  Now, if you are an Ayn Rand type of libertarian who just doesn't give a hoot about anyone else on principle, there's no problem--just let corporations go off and maximize profits as Milton Friedman suggested.  But if one believes there are real moral harms that corporations are causing but that government should not be solving, then CSR is a way of addressing those harms in a much less statist way.  CSR is thus a way of being libertarian without endorsing pure selfishness and evasion of all serious externalities.  Wilkinson (my sense of him is that he's a very smart, reasonable libertarian-ish writer; I don't read him enough, but he's worth checking out if you haven't already) should be more sympathetic than he is in the post.

And yet, the critique that Wilkinson makes of CSR has much force.  Carried far enough, it converts all sorts of everyday consumption decisions into a part of the culture wars.  How dreary.

And so what to do?  Joan sums up the legal situation well.  Basically, corporate boards and officers can do what they want without fear of legal consequence.  Shareholders can try to influence them through 14a-8 proposals or through decisions about what kinds of stock to buy or sell.  Consumers can try to influence them through their own buy/sell decisions, individually and sometimes in collective actions.  That is as it should be.  Individually, we each have to decide when our consciences are touched enough by a particular corporation's behavior, bad or good, to change our consumption or investment decisions.  Totally ignoring all moral problems surrounding any corporations one associates with denies one's place in the moral fabric of the world.  Continually harping on about all sorts of different corporate misdeeds will make you into someone wisely avoided at any social event.  Somewhere in between is a balance that will differ for everyone.

As for me and Chick-Fil-A, luckily I don't have to choose.  There are very few in Minnesota (none near me), and it's not the sort of place I'd go to anyway.  If it were more of an option for me, I'd have a problem.  I feel personally very strongly on the marriage issue (why I can't marry the man I have been with for 25 years while ex-Gopher basketball star Kris Humphries can marry Kim Kardashian is rather a puzzle).  But, the nexus between that issue and Chick-Fil-A is weak--it has nothing to do with the company's business, and the issue only arises because of some personal statements by the CEO.  Given all the notoriety at this point, though, if I did feel a real yearning for some fast food chicken, I'd probably head to Kentucky Fried Chicken.

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CSR: Chick-Fil-A, Taxonomies, and Definitions - A Curmudgeon's Response
Posted by Jeff Lipshaw

When Erik proposed this forum, I responded that I didn't think I had anything profound to say because (a) I couldn't care less whether Chick-Fil-A sells or doesn't sell chicken sandwiches, (b) think gay people should eat wherever they feel welcome and have as much right to demonstrate as the CEO had to opine, and (c) Chick-Fil-A, which apparently does not discriminate against gay employees or customers (morality aside, their work is work, and their money is green), will get whatever it deserves.  (There's a small establishment here in town here in northern Michigan I will no longer patronize with my occasional twenty bucks because the owner got ahold of my e-mail address and keeps spamming me with Republican propaganda, despite my request he not do so.)

After reading Erik's excellent introduction to the issue and Joan's first-rate discussion of the doctrine, I still don't think I have anything profound to say, but at least I think I know why.

250px-Pop!Tech_2008_-_George_LakoffI don't know if it's me getting older and grumpier, or that I have gained some kind of insight (getting in touch with my inner Lakoff, perhaps), but I find myself far less patient with definitional or taxonomic parlor games (e.g. "is rhythmic gymnastics a 'sport'?").  I'm also not very patient when merchants serve up morality and ideology of any leaning with their secret sauce or chicken nuggets (I live in Cambridge, MA, the ideological other extreme from Joan's world), but that's not why I was asked to be a "Master."  No, I'm here because I'm a professor, but my curmudgeonliness now extends to the somewhat more serious philosophical game of proposing a taxonomy and then worrying about whether something we didn't think fell within a particular bucket might actually belong in that bucket. 475_dover-parkersburg-bucket-2-1

Don't get me wrong. There is a serious consequence to taxonomies and definitions.  If a court finds that your business of buying up rights of AIDS victims in their life insurance policies involves a person investing money in a common enterprise with the expectation of profits arising out of the efforts of others, you are now in the "investment contract" bucket, which puts you with the "security" bucket for purposes of the Securities Act of 1933.  Pass a misanthropic park officer with your screaming baby in a perambulator, and you may find yourself worrying about whether the device is a vehicle.  

This is what lawyers do - classify real life into buckets for purposes of determining whether there's a remedial consequence.  Sometimes it drives normal people crazy.  "Whaddaya mean my baby buggy is a vehicle?"

ImagesNow the other thing that is pretty common is trying to make the argument that there really is a natural or scientific or descriptive reason for a bucket when what we really are doing is drawing a normative conclusion about the activity we either want or don't want in the bucket.  Whether a perambulator "is" a vehicle is the proxy war for whether somebody "ought" to be allowed to have a screaming baby in an otherwise peaceful park.  (That's why we don't allow noisy cars and trucks, isn't it?)

So what about "Corporate Social Responsibility," a disciplinary bucket now so widely acknowledged that it gets referred to by its initials?

The thrust of Erik's post is exactly right.  If CSR purports to be an "is", and corporations ought to engage in it, then how do you possibly distinguish causes and advocacies merely because of the merits of the causes or advocacies?

The answer is "doh, you can't."  

If you accept the idea of CSR, then indeed you have to accept the idea that "social change" and "commerce" are going to be intertwined.

And, of course, "social change" and "commerce" are themselves taxonomic or definitional buckets.

The chestnut case for the bucket game of "social change" and "commerce" is Dodge v. Ford Motor Company, wherein the shareholders objected because Henry Ford declined to pay a dividend and chose instead to invest profits in a smelting plant so as to reduce the price of the automobiles, not because it putatively related to a commercial purpose, but because of Ford's desire to effect social change - "the betterment of mankind."

Almost a hundred years later, it ought to be clear there are so many different ways of looking at social change and commerce as concepts, and indeed they are not mutually exclusive as applied to business activities, that trying to play the definition game a la Dodge is about as satisfying as arguing about whether rhythmic gymnastics or dressage are sports.

I used to be the general counsel of a publicly-traded company, so let me give two examples of how muddied the waters can get (no word play intended).

1.  A company makes a product that in the near term unquestionably saves lives.  The product may also have a long-term environmental impact; let's assume some of its ingredients are persistent in the environment, there is increasing evidence that they bio-accumulate, but there is still a largely open issue on whether they are toxic.  For some the P & B (or even the P) of the PBT triad would be enough to say "ban the stuff" or "boycott the bastards" even if it's the most cost effective way (by a long shot) of providing the present unquestioned benefit.  The company, however, abides by the American Widget Council's "We Care" program and thus would, on its own, stop making a demonstrably PBT widget, even at the expense of return to the shareholders.  I don't think anybody would seriously challenge the company's right to make a judgment, weighing commerce and social change, anywhere along the P to PBT continuum.  I really don't care which theoretical taxonomic bucket the judgment falls into.  But you pays your money and you takes your chances with the public and with your shareholders.

2.  A company makes significant contributions to the Children's Museum, public radio and television, the Art Institute, the Symphony, the Zoo, and other cultural institutions in the metropolitan area.  The company also encourages its executive to take time from their day jobs to play leadership roles in those institutions.  Some of those institutions' programs are, from time to time, controversial.  (Think Mapplethorpe or a PBS special on something that offends somebody.)  For those of us who have ever tried to recruit employees to relocate to Indianapolis or Detroit (try it some time), the idea that these "social" activities also contribute to commercial success is patently obvious.  Once again, I don't care whether the judgments fall into the "commercial" bucket or the "social responsbility" bucket.  You pays your money and takes your chances with customers and shareholders every time you make or don't make a decision.

So....  As a grumpy old ex-corporate guy, I reject the notion that there ever were "separate spheres."  A Images-1 language is a dialect with an army and a navy, and a movement is an academic theory whose initials get capitalized.  If I decide to run a maquiladora on the Mexican side of the Rio Grande because wages are a mere fraction of those across the river in Texas, then I better be prepared to deal with the wrath of the Little Sisters of the Poor when they submit their Rule 14a-8 shareholder proposal.  No doubt somebody here in northern Michigan likes getting Pete Hoekstra for Senate spam.

You pays your money and takes your chances.  

Harrumph.

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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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CSR: The Chick-fil-A Controversy and a Masters Forum on Corporate Social Responsibility
Posted by Erik Gerding

We have decided to convene a late summer forum of the Conglomerate Masters -- our roster of distinguished corporate and financial law professors -- to discuss the current state of corporate social responsibility.  In particular, we wanted to address the controversy over Chick-fil-A's corporate stance against same sex marriage and to use this Economist blog post as a jumping off-point. 

The Economist blogger contends that Chick-fil-A's culture is in fact a prime example of a firm embracing corporate social responsibility (or "CSR") - albeit not with the politics that one traditionally associates with that movement.  The blogger concludes that the Chick-fil-A example demonstrates that matters of social policy should best be left to democratic institutions.  He or she writes:

Matters of moral truth aside, what's the difference between buying a little social justice with your coffee and buying a little Christian traditionalism with your chicken? There is no difference. Which speaks to my proposition that CSR, when married to norms of ethical consumption, will inevitably incite bouts of culture-war strife. CSR with honest moral content, as opposed to anodyne public-relations campaigns about "values", is a recipe for the politicisation of production and sales. But if we also promote politicised consumption, we're asking consumers to punish companies whose ideas about social responsibility clash with our own. Or, to put it another way, CSR that takes moral disagreement and diversity seriously—that really isn't a way of using corporations as instruments for the enactment of progressive social change that voters can't be convinced to support—asks companies with controversial ideas about social responsibility to screw over their owners and creditors and employees for...what? 

It is a provocative argument.  Although one wonders if the author would have made this same series of arguments in the 1960s: would the author have encouraged civil rights protesters to abandon lunch-counter sit-ins and lobby state legislators instead?

Still, the Chick-fil-A example raises some disquieting questions for CSR, which our Masters may address.  These include:

Is corporate law the most effective or legitimate tool for social change?  If we are worried about environmental degradation, is the solution to broaden the stakeholders to whom a corporation must answer?  Or shouldn't we look instead to environmental law?

Is CSR viewpoint neutral?  When covering CSR in a Corporations course, I ask students whether social activists who are lobbying a corporation to change what they see as immoral employment practices, should be able to put their views to a shareholder vote?  Then I ask whether the answer would or should change based on whether the activists are looking to end racial or gender discrimination or whether they are lobbying a company to stop offering benefits to partners in same sex couples.

At the same time, the current state of legal affairs raises some disquieting questions for opponents of CSR too.  The conclusion in the Economist blog -- leave social policy to democratic institutions and public law -- has a long lineage.  It harkens back to Milton Friedman's arguments that corporations and the states do and should exist in separate spheres; if citizens want to change corporate policy, the argument goes, they should act through the political process and push through public regulation.

But, the separate spheres argument looks more and more outdated, as corporations influence and permeate the sphere of government.  Do arguments to leave regulating the public dimension of corporate behavior out of corporate law and governance -- and leave it to traditional legislative and regulatory bodies -- appear naive in a post-Citizens United (and post-public choice)world?

Also, do these same questions for proponents and critics of CSR apply in equal measure to the growing field of social entrepreneurship?  Can entrepreneurs do well while doing good?  Should we expect them too?  Is social entrepreneurship a workable, stable, and viewpoint neutral concept?  If so, what does it entail?  Does/should CSR apply equally to small businesses and startups as to global corporations?

We look forward to hearing from our Masters...

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