As I explained in my earlier post, at Washington and Lee we divide the basic course into two, Close Business Arrangements (CBA) and Publicly Held Businesses (PHB). We don't deal much with CSR in the CBA course because privately owned firms, typically small in size, are much less likely to generate significant externalities (e.g, environmental or human rights costs) than are larger ones. Or at least the magnitude of any such effects is generally far smaller. Further, because there is usually a unity of ownership and control, those in charge of closely held firms are much less likely to possess the discretion or the inclination to deviate from profit maximization and, if they do, they do it with the consent of their fellow investors so there is typically no one to complain about it.
So CSR is really a problem for publicly held corporations and therefore needs to be addressed in the PHB course, which I teach. I don't spend a lot of time with the political or moral question of whether large corporations have an obligation to temper profit maximization with pursuit of conflicting objectives. I do, though, want the students to see that their size and the scope of their operations necessarily mean that there are substantial and potentially negative effects on the wider society in which our largest corporations operate. And I think they also need to know that there is significant disagreement here and abroad about the appropriate social responsibilities of large businesses. So I start the course by explaining the shareholder primacy conception of corporate purpose and management responsibility and then contrast it with CSR as a competing alternative that is taken seriously in most quarters (even if not by many of the most prominent corporate law academics in this country). No effort is made to resolve what is essentially a dispute about social policy or moral obligation.
In my view, the students need to understand that corporate law – this is supposed to a course about law, after all – is ambivalent on the question of shareholder primary, at times conflicted or agnostic or even hostile. (My colleague Christopher Bruner's articles on this subject are important.) So, for example, state statues authorize corporate philanthropy. Federal Rule 14a-8 allows shareholders to communicate with each other about the social, political, or ethical implications of what their firms are doing. The business judgment rule insulates from shareholder scrutiny policies aimed at promoting nonshareholder interests. Corporations confronted by hostile takeovers can take effects on nonshareholders into account in formulating defensive responses (except in the narrowly-defined and readily avoidable Revlon situation). At the same time, even if the law does not require it, it does allow corporate management to disregard nonshareholder interests (as long as it honors contracts and complies with applicable regulations) and pursue profit maximization if it chooses to do so.
So corporate law ends up being irrelevant to the crucial question of corporate purpose and management's responsibility. The students therefore need to understand the non-legal incentives – including compensation arrangements, pressure from institutional shareholders, social norms – that nowadays lead management to prioritize current share price maximization over long-term strategic considerations or costly (as opposed to public relations) CSR policies.
We all know that the mark-up on many products is probably more than 100%. So, if you really like that $50 sweater, in a few weeks it may be "buy one, get one 50% off," and if you can hold out until the end of the season, it may be "buy one, get one free." (I remember this scene from The Jeffersons where Florence the housekeeper hands Louise a hat, explaining that the store was having a "BOGO free" sale. Then Florence says Louise owes her the price of the hat because Florence kept "the free one.")
But "Buy One, Give One," has become a socially responsible marketing gimmick as well, expanding on the familiar "we give a percentage of the profits from the sale of "X" to "Y" charity" campaign. For most businesses, these are just gimmicks. If the business wants to give a percentage of profits to its favorite charity, then it can do that without involving consumers in any way. But the Toms Shoes BOGiveOne campaign has seemed more integral to the business plan of the popular shoe store. From its inception, the company has donated one pair of Toms shoes to children around the world, citing shoelessness as contributing to disease and not attending school. People seem to love this business model and love wearing the same shoes that are distributed. Now, a cynic might also say that people get a sense of "Prius Piety" from wearing the distinctive shoes, signalling that they made a socially responsible footwear choice. The shoes are pared-down enough that they may not have been popular without the "I'm basically wearing rags wrapped around my feet with no arch support because I care about shoeless children" dimension. (Of course, people buy Crocs, so who knows.)
So now other entrepreneurs want to capitalize on this willingness of U.S. consumers to choose goods that make them feel good. Most are not bold enough to sell a product at 2X its market value to fund the BOGiveOne model, though, so the models aren't usually one-for-one.
I guess I feel the same way with these goods as I do with school fundraisers. If I want a pair of espadrilles, then sure, I'll buy a pair at the store that will ship a matching pair to someone who needs it, particularly if that pair isn't substantially more than the marked-up pair at the department store. But I'm not going to let it make me buy something I don't want. So, I'm the parent who says, "Instead of my buying $50 worth of overpriced wrapping paper so that the school gets $25 worth of supplies, why can't I just write you a check for $25?"
But Toms isn't just selling a good sale, it's selling a mindset, almost a lifestyle. For many years, we would go eat at Chili's on St. Jude day, when the profits go to St. Jude's Children's Hospital. The wait is amazingly long, which speaks well of how much people like the charity. But, standing in line with three restless children, I often wonder why we aren't eating somewhere else and just writing a check to St. Jude's. What keeps us in line is (1) For $50 we can eat and give to St. Jude's, but if we went somewhere, that amount would be more and (2) it's sort of meaningful to be at Chili's on St. Jude day, talking to your kids about how fortunate we are and remembering the ones that aren't.
I vividly remember the beginning of an English class in college when the professor (whom we called Dr. Death for reasons I don't recall now) detailed the staying power of the novel Frankenstein -- it had been reprinted X number of times, sold X copies, been translated into X languages, inspired X plays, X movies, X works of art. Then, Dr. Death said "Mary Shelley was 18 years old at the time. What have you done?"
This is how I feel when I think of Mark Zuckerberg, who is 26 and the youngest billionaire in the world. Because of this one fact, his young age, I was surprised to read today that he is giving away $100 million to the Newark public school system. (Zuckerberg did not go to school in NJ.) Of course, if Facebook is really worth what we are told it is worth, and Zuckerberg will someday have an IPO day that rivals Sergey Brin and Larry Page's Google post-IPO sales, $100 million may be a rounding error. But it's a very big deal to the troubled school system and is said to be the beginning of an education foundation that Zuckerberg wants to create. Now, I've heard development people talk about self-made wealthy individuals as having "acquisition" phases and "giving" phases. Zuckerberg seems to have moved to the giving phase at an extremely early age. If you remember, another Harvard dropout named Bill Gates was also at one time the youngest billionaire, and received criticism for many years for not being philanthropic enough before creating his foundation.
So, is Zuckerberg just a much nicer person than Bill Gates? Or, could it be, that Zuckerberg is facing a PR problem? In a few days, a movie is going to open called The Social Network, which is going to paint a slightly younger Zuckerberg in a not-quite-flattering light. However, many people say that the facts depicted in the movie (based on the book The Accidental Billioniares) are wrong, and that the real story about the beginnings of Facebook and the motivations behind individuals spinning the story the other way are far different. However, even this story doesn't make Zuckerberg look like someone you would want to do business with without a lot of lawyers around. So, is it coincidental that Zuckerberg picks this week to make a super-generous gift to a cause (public education) no one can fault?
Whatever the motivations, let's hope that wonderful things flow from this generous gift.
The United States Court of Appeals for the Second Circuit just issued its opinion in Kiobel v. Royal Dutch Petroleum, a case involving claims under the Alien Tort Statute for human rights abuses in Nigeria. More specifically, the plaintiffs allege that Royal Dutch and Shell aided and abetted "Nigerian military forces [that] shot and killed Ogoni residents and attacked Ogoni villages — beating, raping, and arresting residents and destroying or looting property." The companies allegedly provided transportation, staging areas, food, and compensation to the Nigerian soldiers. The issue in the case is fundamental: "Does the jurisdiction granted by the [Alien Tort Statute] extend to civil actions brought against corporations under the law of nations?"
The court's answer: No.
The court's rationale: the subject-matter jurisdiction of the Alien Tort Statute is defined by customary international law, and "from the beginning ... the principle of individual liability for violations of international law has been limited to natural persons — not 'juridical' persons such as corporations — because the moral responsibility for a crime so heinous and unbounded as to rise to the level of an 'international crime' has rested solely with the individual men and women who have perpetrated it."
While both the majority and the concurrence in Kiobel recognize a norm of aiding and abetting liability under the Alien Tort Statute, the majority relies heavily on the notion that "no international tribunal has ever held a corporation liable for a violation of the law of nations." Judge Leval observes in a concurring opinion that no tribunal has ever held that a corporation could not be liable for a violation of the law of nations.
The majority counters this argument in Parts II and III of the Discussion, arguing that customary international law is not established by the logical extension of existing norms, but only by actual practices. As for actual practices, the court leans heavily on the absence of cases imposing criminal liability on corporations as evidence that "corporate liability has [not] attained universal acceptance as a rule of customary international law." While the concurrence questions this approach, the majority offers substantial support for its analysis.
In the end, the concurrence offers an impassioned argument for corporate liability and wins convincingly in the battle of quotability, but the majority's opinion is more firmly grounded in analysis of authority. Julian Ku observes, "there appears to be no serious argument left that customary international law can impose duties on private corporations."
I suspect that the majority opinion will not put an end to serious argument, but you can judge for yourself.
As oil continues to pour out of the BP managed rig in the Gulf of Mexico, the discussion in marketing circles is (of course) what this will mean for BP's image. See Advertising Age. About a decade ago BP launched an intensive effort to brand itself as the "responsible" and "green" oil company with its "Beyond Petroleum" campaign and a logo change to a green and yellow stylized sunburst. (This campaign apparently included some pretty weird, but entertaining, viral videos. See this I say "apparently" because although the production values of the video are very high, it almost seems like a spoof with its inclusion of things like breast implants ["beyond pain, joy"] and a guy running out of toilet paper ["beyond fear, courage"]).
Some observers think the campaign was never anything more than greenwashing; that is, it was an attempt to manipulate public perception without any significant commitment to alternative energy exploration. For example see this criticism in 2000 and this in 2010.
But reading the article in Advertising Age, which dissects what PR observers appear to think is a less than stellar response to the accident on the part of BP, is instructive about what everyone in the business thinks is going on with these campaigns. A problem they say is that BP's campaign was so successful it underscored the disconnect between the campaign claims and the reality in the Gulf. (Ironically, BP was actually on the verge of winning an award for its safety record, an award the article implies, but does not say, may have been more attributable to the campaign than to the actual record.) This disconnect is a problem. But you'd think it is one that could have been avoided by making a commitment to these issues that was more than rhetorical. Too often though the commitment stops at the marketing.
On the blow out, management at BP has apparently been slow to control "the message" and has actually been doing things that might make a bad situation worse; like "offering $5,000 settlements to residents if they waived their rights to sue for any damages." As one PR pro put it:
"That's a profoundly disturbing message to have resonating as one of your first public messages ... When the public sees the company leading with a legal protection agenda trying to limit legal exposure, it's not a good thing. The next shoe to drop is usually the attorney general intervening to remind the company of its obligations. Perception-wise, this is out of control."
Uh, yeah. Although perhaps it isn't just the perception.
This is a perennial problem with PR - the temptation to believe that the response stops with managing the public perception and that changing the perception is the solution to any problem. That can work pretty well until reality collides with promotion. And then promotion may not help much. As the article notes:
"Of course, all the social media in the world won't do much if millions of gallons of oil wash ashore, crippling the fishing industry in Louisiana and Mississippi or destroying the white-sand beaches (and tourism trade) in Alabama and Florida."
It will be interesting to see if BP does manage to get its arms around a better PR strategy, in addition to actually fixing the problem. But I'm betting it does the first before it does the second.
I mentioned last week that there were more interesting arguments raised in connection with the cert. petition in the Philip Morris case which bear on on my claim that Citizens United will be used to bolster arguments for more protection for commercial speech. As I observed, The Washington Legal Foundation and the National Association of Manufacturers asserted in an amicus brief that Citizens United supported their argument about commercial speech. Here it is:
(1) Because the health consequences of tobacco use is a matter of public concern; and
(2) Because much of the communication on which liability was predicated took place in the form of newspaper articles, op-eds, congressional testimony, press releases, and television appearances and was in response to public criticism the speech in question was speech on "a matter of public concern."
(3) Because it was speech on a matter of public concern it should have been fully protected.
[Notice that the same thing that makes something a matter of public concern is also was makes it a legitimate object of governmental regulatory efforts. So it can't be enough to say that full protection follows from the observation that something involves a matter of public concern.]
The trial appellate courts apparently failed to give this speech the protection to which, in the Foundation's view, it was entitled "because the speakers had an economic motive for their communications." (Brief at 6). The brief go on to say, "But economic motive is insufficient to transform fully protected speech into commercial speech. See Citizens United v. Federal Election Comm'n, 130 S.C. 876, 899 (2010) ('First Amendment protection extends to corporations.')." (Id.)
It seems to me that the connection between the reference to economic motive and the observation about the rights of corporations is a non sequitur unless the Foundation is making the following assumptions: (1) "corporations" in this sentences = for-profit corporations; and (2) all speech by for profit-corporations has an economic motive. I make these same assumptions; so I think they are fairly reasonable and I understand why the authors believe Citizens United supports their cause. I think it does too, even though I disagree that commercial speech ought to be fully protected. However, I've often encountered objections to these same assumptions when I make them (i.e., "But not all corporations are for-profit!"; or "Not everything a for-profit corporation says is commercial speech!"). But as you can see; these arguments aren't original to me. I got them from the proponents of full First Amendment protection for commercial speech.
I've also argued that many of these proponents are essentially arguing for a constitutional right to lie. See Grounding Nike: Exposing Nike's Quest for a Constitutional Right to Lie. Some think this overstates it. But the Washington Legal Foundation's brief seems to corroborate it. In footnote 2 the Foundation argues that although the Court of Appeals did not "explicitly label" the speech in question "commercial" that must have been the standard the Court was applying because it rejected the First Amendment defenses "solely on the grounds that the speech was (in the court's view) fraudulent" and that only commercial speech could be "punish[ed]" (?!) on that ground; fully protected speech "even if false - is entitled to 'breathing space'...."
Res ipsa loquitur.
A dear former colleague used to argue with me that the First Amendment didn't protect fraud and that there was no "right to lie" even under the strict protection offered in N.Y. Times v. Sullivan. There may not be an right in the abstract to lie. But that can be the practical effect of a high evidentiary standard. As any litigator can tell you (and I have been one), there is a difference between an abstract principle and how it plays out "on the ground." I will have more on that later. Suffice it to say that the "breathing space" the Foundation argues for here would cover an awful lot of fraud.
And that brings me to the next point. How do you prove that a corporation has the specific intent necessary for fraud?
The Foundation claims that the judgment below was flawed because the government did not show sufficient evidence of specific intent to prove fraud because the government relied on a collective intent theory. (Id. at 8). It argues that the court should have looked to the state of mind of the individual officer and employees because "a company - as opposed to an individual - can never entirely know what information it possesses." Just so. Sounds awfully close to an argument that the company, qua company, can never commit a fraud because it can never have specific intent.That certainly turned out to be the Achilles heel of the prosecution of the Arthur Andersen accounting firm in the wake of the Enron scandal.
I actually think there may be something to this argument and it is part (not all) of the problem I see with imposing criminal liability on entities like corporations. Without revisiting the whole issue of corporate criminal law though it is sufficient for my purposes here to note that this argument too would increase the difficulty in restraining fraud. I'm not sure that we should be too sanguine about throwing up additional legal obstacles to prosecuting fraud.
In any event, the record, all 1700 or so pages of findings of fact and conclusions of law, offers what seems to me to be ample evidence of specific intent and plenty of false statements (including that by now notorious false testimony before Congress. See some of it in this clip from 1994 here). For a summary of some of Judge Kessler's findings in this case, as well as a summary of tobacco company marketing efforts to children and the addictive properties of nicotine from the Campaign for Tobacco Free Kids see this.
Is it really a matter of constitutional significance that tobacco companies be able to advertise in Rolling Stone or market their products in pink packages or other specific trade dress?
This was a civil RICO case filed by the United States in 1999 against several tobacco companies and two of their non-profit organizations, the Council for Tobacco Research and the Tobacco Institute. The lawsuit accused these entities of engaging in a conspiracy, taking place over a period of approximately 50 years, to mislead the public about a number of issues related to smoking including: the potential health consequences of smoking; the dangers of environmental smoke (second-hand smoke); whether nicotine was an addictive substance; whether the tobacco companies were manipulating nicotine content; whether the tobacco companies were intentionally targeting youth in their advertising and promotional efforts; whether they were intentionally marketing cigarettes as "light" or "low tar" to imply health benefits (or less detriment) the companies knew did not exist because of a phenomenon known as "compensation," and other claims.
The case went to trial in 2004 and lasted for about 9 months. In 2006 D.C. District Court Judge Kessler, issued an opinion with findings of fact and conclusions of law that ran about 1700 pages. The evidence buried in these pages is unequivocally damning.
Several years later, in 2009 the D.C. Circuit Court affirmed most of these findings in the per curiam opinion above. The defendants (and the government) filed petitions for cert. The petitions of the parties are available here. Whether the Supreme Court will agree to hear the case is unknown, but with the government seeking review as well it may do so. And issues of commercial speech and the First Amendment are raised through out the case. Indeed, the amicus brief filed by the Washington Legal Foundation and the National Association of Manufacturers explicitly says this case offers the Court the opportunity to answer the question that it left open in Nike v. Kasky, writing "This Court has recently reaffirmed that the speech of corporate actors may be entitled to full First Amendment Protection" (Page 19 of the brief which you can view here citing yes, Citizens United).
The 5th case down in the Table of Authorities is Citizens United and it is cited twice in the argument. The brief argues the lower court ignored that much of the misleading speech took place in the form of editorials, op-eds, press releases and the like and involved issues of "public concern" and thus was fully protected speech. Mind you these press releases, so-called informational pamphlets (some sent to school children purporting to educate them about the "debate"), came from a group of defendants who the record amply demonstrates did meet together with their public relations and law firms to come up with a strategy to manufacture a debate that really didn't exists since their problem was that there was scientific consensus on the basic facts about the health risks of smoking and that these facts would be very damaging to future business. Their strategy is succinctly captured in the phrase found in some internal documents and widely reported on since, "Doubt is our product." It is important to be clear on what they are asking for; they are asking for constitutional protection for the manufacture of a phony debate, to obfuscate rather than to clarify information about a product for which there is no safe level of use.
This seems an appropriate juncture to raise Justice Jackson's admonition that "the Constitution is not a suicide pact." It seems like the government ought to be able to regulate a potentially lethal product, and that regulation of advertising and marketing is a necessary part of such appropriate regulation in the public interest. Such a regulation has recently been passed in the form of the Family Smoking Prevention and Tobacco Control Act, Pub. L. 111-31, 123 Stat. 1776 (2009). The Act permits the FDA to regulate tobacco products and includes very strict limitations on permissible forms of advertising and promotion.
But a group of tobacco companies is attacking this statute in a District Court in Western Kentucky (much forum shopping there?) on the grounds (among others) that it violates the First Amendment. The companies even wanted to claim First Amendment protection for marketing practices like giving out free samples! The district court denied most these claims, but nevertheless found that some of the statute's regulation of color and trade dress did violate the First Amendment. The opinion is here It was issued before Citizens United came down. But taken together with the arguments raised by the Washington Legal Foundation in the Philip Morris RICO case, I think we can expect Citizens United may well be used in the future in this case as well. Only time will tell. I would worry about giving them ideas, but the connection between Citizens United and commercial speech protection claims is clearly already out there amongst firms litigating these issues.
Later I will post some other aspects of the Philip Morris case which may be of interest to Glom readers, in particular whether a corporations can commit conspiracies or have specific intent.
Much of the outcry about Citizens United has focused on its anticipated impact on elections, see here and here, as well it might since the decision was, after all, one about the proper interpretation of the Bipartisan Campaign Reform Act, aka McCain-Feingold. However, for my money (no pun intended), its most pernicious impact is likely to be not on elections (there was already a lot of corporate money in elections), but rather its influence on the future interpretation of the commercial speech doctrine. The commercial speech doctrine permits the regulation of commercial speech for its truth.
What has this got to do with political speech you might say? Nothing, unless one considers why for-profit corporations get into campaign finance or lobbying in the first place. They do so for the same reasons they engage in commercial speech; to further the economic interests of the corporation (and/or the shareholders if you prefer). Even though the Supreme Court did not hold in Citizens United that a corporation enjoys the same First Amendment rights as a human being, the rhetoric in the opinion, what I call the "anti-discrimination rhetoric," is likely to be used as if the Court had said just that and in support of an argument that the Court should not "discriminate" against commercial speech and relegate it to the category of an intermediate scrutiny test but rather should apply to it a strict scrutiny test, a New York Times v. Sullivan test. Suffice it to say that this permits regulation in theory, but little in practice.
There is evidence that Citizens United will be used this way if you look at how at how Bellotti was used. Bellotti was another corporate election law case. It was decided in 1978, only two years after Virginia Pharmacy, the case in which the commercial speech doctrine was first announced. It has been repeatedly used to argue for expanded protection for commercial speech. Most recently in the Supreme court in 2003 in the Nike v. Kaksy case. See here, here and here.
Theoretically Bellotti was a case that had nothing to do with commercial speech. Nevertheless, it has regularly showed up, as it did in Nike, in arguments in favor of more protection for commercial speech, supposedly for the proposition that speech is not less valuable because a corporation utters it. May be. But consider this, if we (or the Court) gets this argument tangled up with some notion that First Amendment protection is offered on the basis of some anti-discrimination principle we may be in very deep waters indeed, because for a business corporation its political expression is surely tangential to its main organizing purpose. It's core expressive activity is commercial speech. If we are protecting the speaker then it would seem that its core expressive activity ought to be protected. However, going that way would seemingly wreak havoc on any sort of regulation of commerce. How can you regulate commerce if you can't regulate commercial speech? If the Court goes the way of offering strict scrutiny protection to a lot of commercial speech it may make debate about reform of the financial sector moot. Not to mention the idea that corporations need protection against discrimination is a fairly difficult one to swallow. (It makes for some good editorial cartoons though! This month's Vanity Fair has a great one which you can only see if you buy the magazine; but you can find in the table of contents here under the Vanities section. A similar cartoon showed up earlier in the Boston Phoenix and that one you can view here .)
This is not just a theoretical proposition. There is a case now pending before the Supreme Court which (arguably) involves commercial speech and at least one amicus brief suggests that this is the case in which the Court can resolve the status of commercial speech (in favor of more protection, natch) and answer the question raised but not answered in Nike v. Kasky. Guess which case is included in its list of authorities? Yep. Citizens United. I will save for another post which case this is and where else Citizens United is popping up. But this is one of those First Amendment cases that could have very widespread impacts on all sorts of regulation of business. That may be a happy thing if you think less is more in the regulatory arena for business. May be not so happy if you think the government should have more of a hand in the regulation of the safety of food, drugs or... financial services.
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If you watched the Oscars last night (and I will save the commentary for someone else!), then you probably saw the American Express commercials featuring two socially responsible entities--the Harlem Children's Zone and Patagonia. The commercials represent part of an initiative, called Members Project, in which American Express has partnered with Take Part to provide people with opportunities to "make a difference in the communities" where they live and work. You can "take part" in three ways. First, you can vote once a week for your favorite charity and every three months American Express will donate $200,000 to the five charities with the most votes. Second, you can volunteer your time at a charity through Members Project, and in exchange, American Express cardholders can receive membership reward points, while non-cardholders can donate the points to a charity of their choice (or redeem the points if and when they become an American Express card member!). Third, you can make a donation, either in cash or in membership points.
The American Express Take Part website begins with this expression: "Giving back is a core value at American Express and being a “good citizen” is a hallmark of the brand." After pinpointing its involvement in charitable giving, and noting that the company "is often credited as being the first company to launch a cause-related marketing campaign," American Express states that the Take Part initiative reflects the company's "next step in its mission to empower positive change." And it is a step designed to make it easier for people to get involved. Given recent reports indicating a sharp drop in charitable contributions along with an increase in the need for services, it seems like a good next step.
As I have noted in other post, many so-called activist hedge funds engage in charitable giving. Interestingly, these funds also bring their own management and investment style to their charitable giving practices. As one article notes, such funds rely on the same kind of rigorous research and strong oversight that they bring to other portfolios they manage. Hence, the article explains that one fund "uses a private-equity strategy of placing a portfolio manager with each grantee to ensure it extracts the highest return from each programme, measuring the impact on children's health, psycho-social well-being and educational attainment, then 'calibrating' scores against other potential investments." Is this kind of approach good for charities?
Apparently some charities find the approach "threatening." And others have concerns about intentions; or perhaps they are concerned about whether aggression and charity go hand-in-hand. And yet, charities are certainly in need of donations, even if they would rather that such donations came with no strings. Then too, charitable organizations are not immune from charges of mismanagement and self-dealing. Thus, it is certainly not the case that such organizations have perfect management structures. Perhaps the approach some hedge funds bring will provide, even in a small way, better or more efficient oversight to charitable organizations and projects. Who knows if that is the case, but it is certainly something interesting to consider. And of course it also will be important to consider if this management/investment style raises other concerns about which charities should be mindful. Of course, as this Wall Street Journal story indicates, the economic downturn has meant that hedge funds have had to make considerable adjustments to protect their charitable endeavors against losses. Thus, it is likely that the real concern is not about how these organizations manage, but rather about whether they can continue their giving in this current financial environment.
Global Corporate Citizenship ("GCC") emerged in management and business scholarship in the 1990s. GCC posits that corporations have rights and obligations in society similar to citizens. It addresses the ethical responsibilities of companies operating in a global market and the values that should guide corporations' engagement with society. In effect, GCC requires that corporations engage with both financial and societal stakeholders as well as acting as stakeholders themselves.
GCC is closely related to corporate citizenship (without the “global”). Corporate citizenship is a business strategy, a voluntary model for business practice that is believed to incorporate core values while simultaneously supporting the pursuit of financial goals. According to the Boston College Center for Corporate Citizenship, there are four key principles of corporate citizenship: (1) minimize harm, (2) maximize benefit, (3) accountability and responsiveness to key stakeholders, and (4) support strong financial results.
Theories of GCC infuse the discussion of the role of corporations in society with questions of ethics, morality, and societal values, which are substantially lacking in the scholarly lineage that followed Berle’s line of argument. (See my earlier Conglomerate post on Corporate Purpose.) It is inherently interdisciplinary and draws from several fields such as management studies, political philosophy, international relations, sociology, and legal studies. GCC already plays an important role in the actual business practices of transnational corporations ("TNCs"), goals and agendas of international institutions, and theoretical advancements in academic fields such as management, business, and economics.
The underlying values of GCC are recognized by an increasing number of corporations and business leaders and many TNCs have incorporated GCC into their business goals and policies. For example, in 2003 CEOs of numerous TNCs published a joint statement with the World Economic Forum ("WEF"). This statement set out a framework for the implementation of GCC principles in the business context. Since that time, the integration of GCC into the policies of TNCs has moved beyond the group of companies and CEOs associated with the joint statement. For example, TNCs have begun including GCC in the portfolios of their in-house counsel and corporations are becoming increasingly engaged in promoting GCC.
In addition to its integration into business policy and practice, GCC is also becoming institutionalized at the international level and an increasing number of non-governmental organizations are supporting GCC. For example, GCC is being promoted by international institutions such as the United Nations Global Compact ("Global Compact") and the WEF. The Global Compact is a public-private initiative that seeks to promote ten principals that focus on human rights, labor standards, the environment, and anti-corruption. The WEF is a Swiss non-profit foundation that focuses on the equality of values and rules in shaping corporate governance and ensuring that economic progress and social development go hand-in-hand. Both organizations support the creation of a framework that incorporates values and morals into corporate governance and operations while taking the interests of both financial and societal stakeholders simultaneously into consideration – key elements of GCC.
A body of scholarship on GCC has developed in some academic fields, for example, management and business theory. In 1997, good GCC was defined as "meeting, within reason, the expectations of all its societal stakeholders to maximize the company's positive impact and minimize the negative impact on its social and physical environment, while providing a competitive return to its financial stakeholders" in a publication funded by the Hitachi Foundation. Over the past decade GCC has continued to be discussed in the management and business literature. In the management literature, GCC is used at times as an umbrella to include a range of corporate social responsibility and corporate social accountability initiatives. The stakeholder model rather than a shareholder model for corporate responsibility has played and continues to play an important role in the management literature. Recent articles argue that corporations are citizen-stakeholders in the global society and, therefore, they should play a more direct role in the advancement of society.
However, although the question of shareholder versus stakeholder models continues to be debated by legal scholars, GCC theory has received only minimal resonance in the U.S. legal discourse. GCC has been mentioned briefly in several international law articles in connection with descriptions or discussions of the Global Compact and the Millennium Development Goals. While some legal articles mention GCC in discussions of Corporate Social Responsibility and human rights, others go further and contemplate the definition a good global corporate citizen or propose regulating accountability for GCC. A few legal articles briefly mention GCC in discussing how NGOs can strengthen their international roles and the role of NGOs in building global democracy. Still others briefly mention the role that policymakers have in promoting GCC and how the tax advice of law firms and accounting firms may undermine GCC. Despite brief acknowledgement of GCC in a handful of legal articles since 2000, there has not yet been an attempt to develop a theoretical framework for GCC in the legal context.
I believe that GCC offers a useful theoretical framework with which to integrate and analyze the interests of both financial and societal stakeholders in this age of globalization and my current scholarship focuses on exploring ways that GCC can inform legal theory and corporate, international, and human rights law. Voluntary measures are an important way to create and realize behavior that is influenced by societal morals and values. However, reliance on voluntary initiatives is insufficient to assure the protection of key human rights and societal values. Although the body of scholarship that has developed in the business and management fields is a promising starting point, I believe that developing a legal theory of GCC offers another perspective from which to approach and, hopefully, make a useful contribution to discussions about how to regulate and govern corporations.
*The main body of this post is excerpted from my article entitled Toward Global Corporate Citizenship: Reframing Foreign Direct Investment Law, 18 Mich. St. J. Int'l L. 1 (2009), which is available on SSRN here.
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I couldn’t agree with Rachel more. The discussion on the role of corporations in society is not over, in fact two seemingly separate stories from last week – the standoff between Google and China and the landmark Supreme Court decision in Citizens United –together signal that we are a watershed moment in this question. I don’t claim to have done the type of deep thinking that Rachel or Gordon or Lisa or other corporate scholars who have written on corporate social responsibility have. But at the risk of interloping into territory others know and think about far deeper and better than I, consider a few quick thoughts on how contrasting Google/China with Citizens United suggests we are returning to some very old questions about the twin risks of not having corporations separated from government power and not having governments separated enough from corporate power.
I would argue that Google’s threat to leave China because of government intrusion into its operations can be seen as a victory for those who advocate for corporate social responsibility. And the Citizens United decision obviously represents a victory for those who want to see corporations as not being creatures of the state, but rather as persons that can check government action. But these two victories pose thorny intellectual problems for the victors. These problems, in turn, reveal something about the horrible tangle we find ourselves in after the financial crisis as we cut our way between the risks of government being captured by corporate interests and corporations becoming the playthings of the state. Bear with me, because I think these two stories also have something to tell us about New Governance and the need for even greater cross pollination between public and private law in scholarship and the classroom.
Google v China: Do we know corporate social responsibility when we see it?
Many (I won’t even attempt to embed links) have applauded Google’s threat to pull out of China on account of state censorship and cyberattacks on Google’s servers as a victory for corporate social responsibility. Some scholars, like Ribstein, complicate this interpretation, in part, because Google’s actions may stem more from pure economic self interest. Given Google’s business model -- particularly their need to reassure users of the sanctity of personal information -- it may be impossible to disentangle definitively whether this resistance to China is an example of self-interest or social responsibility.
Let me ask a more basic question. How do we define what corporate social responsibility is? And who gets to define it? When we discuss corporate social responsibility at the end of my Business Associations class, there inevitably seems to be widespread consensus in the classroom about what responsible behavior means. Everyone seems to agree that dumping mercury in the Rio Grande or employing child laborers is irresponsible. But then I ask students what if social activists were pushing a corporation either to include abortion coverage in their health plans or to exclude same sex partners from employee health benefits. Consensus evaporates.
Do we define corporate social responsibility through the public law process? There are real dangers with treating corporate social responsibility as a matter of positive law and state determination. Consider that Google may not be a good corporate citizen if you look through the lens of the Chinese government. They are violating Chinese law. That of course is an extreme, rhetorical example. But there is a deep concern though that by implicating public law or government intervention – however light and well-intentioned -- in the core purposes of corporations we are slouching towards treating corporations as a plaything of the state rather than as a potential check on government power. Which is the role many lauded Google for playing.
So the Google victory poses several questions for advocates of corporate social responsibility, including how do we know what is corporate social responsibility, who decides, and are we comfortable that we can draw principled distinctions that will ensure the public does not subsume the private? Are corporate social responsibility advocates putting great faith in the political process to check abuses?
Citizens United: spheres unseparated
Meanwhile, Google and all other corporations received a huge boost to their political power and their ability to check and shape government regulation by virtue of the Supreme Court’s landmark decision in Citizens United. I won’t pretend to be a public law scholar, but the sweeping aside of restrictions on corporate political speech clearly represents the culmination of a centuries long evolution of case law -- running from Dartmouth College to Bellotti – that has given corporations more and more of the constitutional rights of natural persons. If last week’s Supreme Court decision means anything, it is a clear refutation of the ancient idea that corporations are creatures of the state.
But in this victory too lies a deep intellectual challenge for the victors. In the precursor of the current debate on social responsibility, Berle espoused a view of corporations and government as existing in “separate spheres” a view that echoed 19th century political thought and was in turned echoed later by Milton Friedman and others who later argued against corporate social responsibility. To render a fine idea into a quick sausage: governments should set the rules of the game for corporations then stay out, and corporations play by the rules.
From a pure descriptive standpoint, after the Citizens United decision, it seems impossible to argue that these spheres can be neatly separated. Corporations are not just playing by the rules, they have the right to participate in setting them. Moreover, they may be the 800 lb gorilla in the room. One interesting morsel in reading through the dissent was to see Justice Stevens grappling, even briefly, with corporate law scholarship questioning whether shareholders have the realistic ability to control corporate speech through corporate governance.
More deeply, do we now need to worry more that corporate law rules are not merely the product of competition and economic efficiency but set through management’s use of the political process. (For an interesting comparative study of the intersection of politics and corporate governance, see Peter A. Gourevitch & James Shinn, Political Power & Corporate Control (Princeton 2005). There seems to be a danger of management using the political process to hardwire not only management entrenchment but the political preferences of those in control of corporations. Aren't those who laud Citizens United placing great faith in the capacity of markets and the competition for corporate control to prevent agglomerations of political power? If the Google/China standoff lays bare for the need for the separation of corporations from state control, Citizens United raises the question of how we ensure that governments can retain sufficient independence from corporate control.
Strange constellations: the alignment of corporate law scholars after the financial crisis
I don’t think these concerns about corporations capturing the government or the government overreaching into the private sector are just dystopian constructs. The bailouts during the financial crisis reveal that these concerns are festering. There is plenty in the bailout for people across the political spectrum to lament. Progressives lament that bailing out AIG and other firms represents government capture and the socialization of loss and the privatization of profit. Conservatives lament the government interference in the discipline of the marketplace and now government using its leverage from the bailouts to justify interventions such as in executive compensation.
In the wake of the financial crisis, is government becoming the plaything of corporations? Are corporations becoming the playthings of government? Or is the reality some complex and perverted mix of both? Forgive the metaphor, but we seem to be stuck in bad remake of some scene from Eyes Wide Shut. It’s not clear from the tangle and the masks who is in control, but it’s clear it is not G-rated.
Problems of power and the dangers of a lack of clarity between public and private power point to a reason to ask tough questions of New Governance – which I admit to being only at the beginning of understanding. Cindy Williams politely told me that there are different versions of New Governance. At its core, New Governance seems to look to public/private partnership in regulation. But blurring the lines between public and private, even in experiments, has dangers. Progressives should fear regulatory capture. Libertarians should fear government co-opting the private sector.
Further afield, experimentation to insulate government decision-making from the political process has again become a constitutional issue as revealed by the Supreme Court taking up the challenge to the Public Company Accounting Oversight Board. This case – about an obscure and odd agency duckling created in the wake of the Enron scandal to insulate the regulation of the accounting profession from the political influence of the accounting profession – brought together strange constellations of law professors to support and oppose the constitutionality of the agency. If you look at the professors who filed briefs as amici, you might seem some striking lineups. I don’t presume to place scholars in political pigeonholes, but their previous scholarship suggests we have seen truly strange alliances of professors with very different political beliefs. And within the various alliances, the professors likely have very different opinions on the relative risks of state versus corporate power. I am sorry I missed the AALS Hot Topic Panel on the case, because I hear it cast a sharp spotlight on the strangeness of these political constellations.
Is this a one-off phenomenon, or are we seeing an ideological realignments in the legal academy? If you are outside the academy, you might ask: who care what we eggheads think on this technical topic? It sounds trite, but ideas matter and will spill over into the political arena -- perhaps after years of gestation. Perhaps the gestation period will be much shorter; the political arena seems ripe for a tectonic shift. We already see stark examples of strange political bedfellows – the Kuciniches of the left and the Pauls of the right -- in Congressional opposition to bailouts and to the political independence of the Federal Reserve itself.
Unchecked Power – Public and Private
So in debating the risks of concentrated corporate power versus concentrated government power, we are likely revisiting the same debates we had at the turn of the last century. History didn’t end. Nor does it repeat. It rhymes and samples. Indeed, to sample from my favorite poem, “All the new thinking is about concentrated power. In this it resembles all the old thinking…”
We are also likely to hear some familiar motifs in the political noise – such as calls to break apart corporate conglomerates to reduce perceived threats to democratic values. Is this perhaps an unspoken aim of the Volcker plan to limit the size of financial institutions. Will we return to trust busting?
If we are concerned about democratic values, we need to pay attention to agglomerations of control in the media. Without a critical and independent media, we will have no way of gauging how corporate and state powers are intersecting. But we may come to find a genie let out of the bottle during the Clinton presidency when few were watching closely. If few really understood what the repeal of Glass Steagall would mean for the consolidation of power in the financial sector, are we considering enough what the Telecommunications Act of 1996 means for the consolidation of power in the media industry? Do we understand how competition and consolidation among broadcast, cable, phone, internet, newspaper, radio corporations will play out in terms of concentrations of political power? I certainly don’t because communications law and the economics of those industries lie far outside my understanding.
When historians look back to the Clinton era, they will likely see the most radical shifting in economic and political control since FDR – all the more radical because its magnitude was obscured by its technicality and by the fact that the President who squired it cast himself as part of some “Third Wave” in politics. Beware those selling easy ways to transcend and triangulate across political divides. Here is a third example of a statute passed during the Clinton years that will have far reaching consequences for concentrations of political power: cyberlaw scholars have been trying to get us for years to pay attention to what the Digital Millenium Copyright Act of 1996 means for who holds the power over the intellectual commons.
Looking for checks
Cyberlaw scholars first made their mark by alerting us to the subtle and far-reaching consequences of seemingly technical questions on how both the state and corporations could use the internet as a means of social control. So we are now full circle to the conflict between Google and China. One of those scholars, Larry Lessig advocated making the “code” of the internet “open” to allow civil society to check these subtle forms of control. This last fall, Lessig notably balked at a broadbrush application of these same open source ideas to making politics more transparent.
Indeed, citizens would have trouble making sense of raw government transparency – in terms of the volume of information and the complexity of issues. This is not because people are stupid, but no individually has time to master complex issue and process reems of raw data. We need to rely on experts to edit and filter information for us. The forms of political, economic, and technological control are subtler and potential threats to democratic value harder to grasp.
But how do we trust those experts? Trust throughout society has long been thought to have been declining for decades, and perhaps accelerating in an age of political polarization. Moreover, we also decry how the digital age has left us with shorter attention spans. We also live famously in an age of irony. It is often remarked now that some of our most intelligent commentators on public affairs are fake newscasters. This irony may lead to a particularly unfunny kind of political paralysis (“Ha ha – that’s really funny what Colbert said about our country going to hell. LOL ;-).”)
It’s not easy to make sense of the new dangers of concentrations of political power. Bolshevism and trusts were simple compared to understanding interconnections between complex corporate ownership structures, telecommunications regulations, and how the technology of the internet functions.
Understanding this landscape requires the involvement of scholars who are independent of corporate and government power. Which is why sources of university financing during an age of budget cuts looms as so large an issue.
All the New Thinking: cross pollination in legal scholarship and public law in the business law curriculum
If legal scholars must play a valuable role in sorting through the risks of concentrating political power, it suggests that faculties need to foster greater dialogue among private and public law scholars. Understanding new constellations of power might require minds in corporate law, constitutional law, cyberlaw, communications law …
Integrating scholarship in corporate law with public law is not a new idea. In fact, this essay has clearly trampled all over ground covered by many scholars who’ve looked at the intersection of public law and corporate law -- Kent Greenfield, Larry Mitchell, Lyman Johnson, Lynn Stout, Cindy Williams, Margaret Blair, Lynn Dallas. Not to mention our own Lisa and Gordon and our guest Rachel. I’m likely making enemies galore by the dozens of scholars I am leaving out including scholars -- like Bainbridge -- critical of corporate social responsibility.
There is also a question of whether we corporate law scholars need to build a bigger public law component into basic business law courses. This is also not a novel idea. I admit being resistant to doing this; law students need to learn the nuts and bolts in order to get a job and have the intellectual tools to practice as effective lawyers. But I am reconsidering, because law students also need a set of intellectual tools to exercise their duties as citizens.
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In an effort to stop the economic freefall of the most severe financial disaster since the stock market crash of 1929 Great Depression, the United States and governments around the world took action. Government intervention ran the gamut from conservatorships, partial nationalization, rescue plans, guarantees, and aid requests to the International Monetary Fund. While these measures may have prevented a total collapse of the global economy, they do not suggest a model for the future. Two of the many questions one could ask in this situation are: What can we do differently and who should be doing what?
As corporate law scholars and economists know, the role and responsibilities of public corporations has been the subject of debate since the birth of large public corporations in the late nineteenth century. Corporate responsibility can be categorized as: economic, legal, ethical, and discretionary. In the United States corporations generally are considered to have a primarily economic function with corresponding economic goals and responsibilities that are then tempered by legal and ethical restraints while still allowing corporations to take on discretionary responsibilities such as philanthropy. However, both practitioners and theorists have questioned the primacy of the economic function.
Generally, when U.S. legal scholars question the primarily economic role of corporations in society, they do so either in the context of Corporate Social Responsibility ("CSR") or Corporate Social Accountability ("CSA") or both. These theoretical frameworks can be traced back to arguments advanced by E. Merrick Dodd in a debate between Adolph Berle and E. Merrick Dodd in the 1930s. Berle essentially argued for the primacy of obligations to financial stakeholders. Dodd essentially argued that corporations have responsibilities to both financial and societal stakeholders. The modern legal discourse on CSR has its roots in Dodd’s position. In more recent decades the CSA movement has expanded the discourse.
The exact scope and contours of CSR are disputed within the U.S. legal discourse and also varies from country to country. However, it is fair to say that CSR relates to the scope of ethical obligations that corporations have to stockholders, stakeholders, and society more generally. In corporate legal theory, CSR generally focuses on economic and governance issues. The underlying question revolves around the purpose of the corporation. In the U.S. corporate law context, the rules governing CSR tend to be found in state and federal statutes and these "hard laws" are generally enforceable in a court of law. In international legal theory, CSR generally focuses on human rights. The underlying question revolves around what is acceptable conduct from a moral and societal standpoint. In the international and transnational business arena, the rules governing CSR tend to be found in codes of conduct or documents produced by international organizations. These types of "soft law" tend to be non-binding and unenforceable in a court of law. In the U.S. legal discourse, domestic corporate governance and international human rights occasionally have uncomfortable meetings. However they not yet been integrated into one overarching theoretical framework.
The CSA movement attempts to implement the principles of CSR as legally enforceable "hard law." Among other things, CSA is an attempt to link human rights, the environment, and other societal issues to the economic and corporate governance concerns of corporations. This can take the form of disclosure rules, national and international standards, and legal liability for the social and environmental effects of corporate actions. CSA is a shift from CSR because it moves from a discussion of moral and ethical obligations and responsibilities to a discussion of socially and legally enforceable obligations and responsibilities. However, CSA is more instrumental than theoretical. It allows us to link domestic corporate governance with international human rights in an instrumental manner. However, it does not offer a theoretical framework for bridging the gaps between the interests of financial and societal stakeholders.
From where I sit, the recent financial crises suggest both a need and an opportunity to bring the corporate purpose and corporate social responsibility and accountability discussions to the forefront of legal scholarship. I plan to continue this discussion in an upcoming post.
*The main body of this post is excerpted from my article entitled Toward Global Corporate Citizenship: Reframing Foreign Direct Investment Law, 18 Mich. St. J. Int'l L. 1 (2009) (citations omitted), which is available on SSRN here.
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If you are planning to buy something from the grocery store, pharmacy, or other food-service provider in Washington, DC, you better remember to bring your own bag. That’s because as of January 1, 2010, DC’s new bag tax law took effect. Under the law, you are charged five cents for every paper or plastic carry-out bag you use at businesses that sell food or liquor. The law is aimed at discouraging the use of plastic and paper bags and thereby promoting the use of reusable shopping bags. The law is also aimed at limiting pollution at DC’s Anacostia River and its tributaries, since plastic bags apparently are the largest single source of trash in the river tributaries and one of the three largest sources in the entire river. Under the law, businesses keep a penny for each bag sold, while the remainder goes into a fund to clean up the Anacostia River. If businesses offer discounts to consumers who use reusable bags, such businesses keep two cents for each bag sold.
On the one hand, I wonder if the law will have its desired impact. In that regard, my observations to date provide some anecdotal evidence that the law may be working. First, I have noticed that, when shoppers are reminded of the cost involved with getting a paper or plastic bag, some simply forego bags all together. And I have seen this occur both at delis and at grocery stores. Second, I have noticed that more people appear to have reusable bags with them when shopping. That is, it seems that there has been an increase in the number of people grocery shopping with several reusable bags under their arm or in the cart. Third, more and more people—who either have forgotten their bags or forgotten about the law—appear to be buying the reusable bags offered at the check-out stand. Indeed, I found myself doing that just yesterday—along with the person in front of me. In this regard, the law already seems to be altering people’s behavior, prompting more people to forego paper and plastic bags, and hence potentially improving the environment and the waste clogging the Anacostia river.
On the other hand, I worry that the law may have unintended negative consequences. For example, in San Francisco, where plastic bags have been banned altogether, there has been an increase in the use of paper bags. However, at least one story suggests that such an increase is not a good thing because paper bags can pose similar, if not more, problems for the environment. Then too, because many people work in DC, but live in Maryland or Virginia, it could be that the law simply encourages people to avoid shopping in DC, and hence the law could have a negative impact on DC businesses and its economy. Finally, for people who do not use reusable bags, such a law serves to increase their grocery bill in the midst of a recession. Granted, DC’s five cent tax is significantly less than the 25 cent tax contemplated by some other cities. Then too, DC’s law includes a provision for working with companies in order to provide free reusable bags to low income residents. Yet while that may prove helpful, it doesn’t protect against those times when one forgets to bring bags or otherwise may not have enough. In this regard, the law seems like a good way to use the tax system to provide some economic incentive for engaging in more responsible behavior, but the law has some pitfalls of which we need to keep track.
Of course, regardless of your thoughts on the subject, as of now, the law means you have to remember to bring your own bag, or pay the consequences.
If Saab does meet its demise (I hope it doesn't) and now that Volvo seems to be thinking outside the box (wink) and marketing itself to Republicans, what will academics drive? Here are some of the candidates with a thumbnail analysis of implications for parking one in the faculty lot:
1. Volkswagen: verboten.
2. Prius: Check plus on assauging social guilt, check minus on panache.
3. Subaru: A strong candidate except doesn't exactly scream "I'm a European Social Democrat stuck in the U.S."
4. Jaguar: Screams "I'm a Tory, and you don't even know what that means."
5. Land Rover: The toxic connotation combination of yuppiedom and colonialism.
6. Mercedes/BMW: makes it hard for the driver to make social justice arguments in faculty meetings on the parking situation.
7. Mazda/Honda and everything else: a little too lower case "d" democratic.
I guess that leaves us with ... Audi. Just don't check its corporate structure or you'll be back at square 1.