1.1 Introduction
In the late twentieth and early twenty-first century, a catalogue of high-profile disasters and controversies has drawn attention to the problematic nature of the relationship between large corporations and society. The list would include: the Shell Brent, Spar incident.2 the Shell crisis in Nigeria,3 the Bhopal chemical spill,4 the Exxon Valdez oil spill,5 the use of slave labour in Burma and the controversial working conditions in Asian factories,6 the baby milk scandals,7 the conflicts between indigenous peoples, mining communities and mining companies in South American countries, Papua New Guinea and other areas,8 the pharmaceutical industry and the anti-retroviral drugs crisis,9 the Enron collapse,10 the banking crisis of 2008,11 the BP-Gulf of Mexico oil spill12, the Rana-Plaza building collapse in Bangladesh13 and the VW emissions scandal14 to mention but a few. These incidents and crises have thrown open questions about the impact of corporations, especially multinational corporations, on various aspects and actors within society. Freeland observes that:
the Gulf oil spill and the financial crisis have taught us, rather brutally, that the heart of the relationship between business and society doesnât lie with the charitable deeds companies do in their off-hours but whether they are doing in their day jobs in ways that help â or hurt â the rest of us.15
Therefore the changing nature of the relationship between large corporations and society in this period has become the driving force for renewed demands that corporations become âsocially responsibleâ. These demands have come from several sectors of society including non-governmental organisations (NGOs), local communities and academics amongst others.16 This is because of perceptions of a sustained shift towards private corporate interests through privatisation and the consequential involvement of these private corporate interests in many aspects of public societal life.17
Yet corporate social responsibility (CSR) has a longer history, one that can be traced back to the United States where there were debates in the late 1920s and early 1930s about the nature and role of the corporation in the aftermath of the Great Depression. These debates, which took place in various academic and business settings, is exemplified in the writings of Dean Donham of the Harvard Business School in 1927,18 the seminal debate between Berle and Dodd in the Harvard Law Review in 1931 and the Berle and Means publication of the Modern Corporation and Private Property in 1932.19 The Berle-Dodd debate raised fundamental questions about the nature of corporations and whether the business managers could be trustees for a wider group of stakeholders. Doddâs point that business had a wider social responsibility, which it already assumed, is also echoed in quotes credited to business leaders of the time.20
This view is also echoed in Bowenâs on Social Responsibilities of the Businessman. Often remembered for its widely cited definition of social responsibility, this book was driven by contextual observations in the United States on the choices facing the businessman in the face of wider questions prompting the re-evaluation of the role of business in society following various failures in the economic system.
Bowen observed that:
it was of course, a serious delusion to believe that in a laissez-faire system no rules for the individual would be required except those of following oneâs self-interest ardently and competing vigorously ⌠in practice, however, many conflicts arose between individuals and social interests. Some of these conflicts developed because the inability or failure of people to accept moral responsibilities necessary if the system were to achieve acceptable social results. Examples were tendencies of businessmen towards deceptive behaviour ⌠failure of the businessman to provide for protection of life, limb and health; the frequent failure of competition and the lack of restraint in imperfectly competitive situations and the frequent failure to recognise the human rights of workers. The earliest tendencies toward social and governmental control of business arose from these failures.21
That this observation could still so easily encapsulate the challenge faced in 2015 is quite telling of the progress (or lack thereof) made in this area. Nevertheless Bowen perceptively captures the essence of the problem, which is that corporate âfailuresâ hint at the many conflicts in the relationship between large corporations and society and thereby trigger demands for CSR. This is reinforced by the dominance of the corporate form of business in the commercial world, with commerce as the mainstay of varied capitalist economies.22 With the fall of the Soviet Union and the spread of varieties of capitalism, these concerns are now global concerns in ways hitherto unrecognised.23 CSR thus arose as an attempt to encapsulate these demands for social responsibility. It is therefore a concept which could have significant implications for corporations and society.
At the heart of CSR is the debate about its meaning and contestations about the role and relevance of law. The emphasis of several proponents in defining CSR as âbeyond lawâ may have its roots in reluctance both within law and business to portray CSR as a legal issue. Company law in the main privileges company interests and externalises social interests, within business there is a push for an exclusively âvoluntaryâ assumption of responsibilities. As early as 1927, Dean Donham observed that lawyers appear to have abdicated their responsibility to society in favour of serving the businessmanâs interests and thus losing their relevance in solving the complex social problems which face the wider community.24 He observed that:
when the lawyer ceased to be advisory leader and sound counsellor and ⌠went to work as a servant of the businessman, mainly doing his will, he lost something and the community lost a great deal ⌠these conditions exist in the law because the men of real imagination and ability in the legal profession have not, on the whole, retained their social point of view or used their talents to solve the increasingly complex problems of our organised community.25
He then proposed that this left the businessman by default in a position where he had to voluntarily assume these social responsibilities as a result of his position âin control of the mechanisms of production, distribution and financeâ.26
Nevertheless when one examines the relationship between corporations and society, law is a fundamental aspect of such a relationship. Law is important in structuring and enabling the corporate objective, it is an important tool of government and social control and law is also more sophisticated than the voluntary-mandatory dialogue which pervades CSR.27 Law can be examined from contemporary social perspectives that will allow it flexibility to achieve certain stated or contextual social functions. The recurring nature of problems which drive for more CSR mean that it is also important to recapture the vital questions about the role of law and legal arrangements in ensuring social responsibilities. Bowen, who is widely viewed as âthe father of modern CSRâ,28 considered one of the key CSR questions to be that of institutional and legal arrangements which enable the assumption of social responsibilities.29 In many ways, it is vital that law recaptures its ability to suggest solutions to complex social problems and proffering legal approaches to CSR could be a good start.
The objective of this book is to reveal that although the meaning of CSR is contested, it has a common reference point which permits the examination of legal approaches and perspectives. This common reference point or central theme can be found in complex social problems arising from questions about the legitimacy of corporate power and this permits the exploration of chosen legal approaches with the potential to structure and influence the external use of power in the relationship between corporations and society. The book then proposes a functional legal approach (the law-jobs approach) which can examine, shape and structure some of the embryonic CSR rules that are developing.
1.2 Context
The changing relationship between corporations and society that has been introduced in this chapter must be placed against the context of globalisation.30 Globalisation places emphasis on a world without borders, with the aim of achieving record levels of global âinterconnectednessâ.31 The emphasis has been on persuading more states to pursue âgoodâ32 economic governance, âbased on the precepts of macroeconomic stability, liberalization of markets and privatization of economic activityâ.33 This represents a capitalist approach and has resulted in the expansion of markets and the private sector. The focus has been on the protection of foreign investment through principles such as the principle of national treatment. This principle makes it possible for corporations to establish business in almost any state without hindrance, unless the host country imposes similar restrictions on its own corporations.34 Cutler points out that âforces of globalisation and the privatisation and deregulation of industries, sectors, commodities and services are transforming authority relations locally and globallyâ.35
This trend of global integration has been intense, with âthe intensification of world-wide global relationsâ36 and events, but also varied, with uneven benefits, significant tensions and contradictions.37 The opening up of markets has been of immense benefit to multinational corporations (MNCs).38 It has resulted in âglobalisation of the production of goods and services as well as of financial marketsâ39 thereby projecting MNCs onto the global stage as international actors. MNCs can be defined as large corporations which control operations or income-generating assets in more than one country.40 This control and the resulting revenues for the corporate group have led to claims that corporations possess more economic power than certain states.41 This has also meant that the private decisions of business regarding questions of investment can affect whole communities as well as states. This âability to affectâ has resulted in countervailing demands for corporations to take on social responsibility. Lydenberg proposes the current dilemma as follows
Assets and power around the world have shifted...