Corporate Social Responsibility: Corporate Counsel Build A Treasury Of Good Will - Part II

Saturday, January 1, 2005 - 00:00

Part I of this article appears in the December 2004 issue of The Metropolitan Corporate Counsel.

Editor: In Part I of this article that appeared in our December issue, you mentioned the advantages that accrue to a company that has a strong corporate social responsibility (CSR) agenda. Many companies are expanding abroad. How does such globalization relate to CSR?

Shestack: Globalization has a distinct bearing on corporate social relationships. Globalization is characterized by rapid economic integration across national borders, open access to markets, deregulation of cross-border economic activity and advanced technology. Globalization holds the promise of economic opportunities and advanced economic welfare worldwide.

In this era of globalization, multinational corporations can be so powerful, both politically and economically, that they cannot be readily controlled by national governments, particularly in developing countries. That power facilitates the ability of multinational corporations to further socially responsible programs, and also they are blamed if such programs do not emerge. In short, with power comes responsibility.

Editor: Are there particular benefits to multinational corporations in having a strong CSR program?

Shestack: Definitely. John C. Fast, general counsel of BHP Billiton, an Australian company that is the world's largest diversified natural resource company, stated it well in an interview in the June 2004 issue of The Metropolitan Corporate Counsel:

"Good corporate social responsibility performance is an increasingly important contributor to our license to operate and grow our businesses. Companies with a poor track record in these areas will find it increasingly hard to gain regulatory approvals and community support for new developments. The benchmarks provide a degree of assurance to external parties that we are serious about our commitment to corporate social responsibility and have effectively put our policy commitment into practice."

In a study for the World Bank/IMF, PricewaterhouseCoopers interviewed some 25,000 citizens from across 23 countries on six continents. Nearly 60% form their impression of a company based upon labor practices, business ethics, environmental impact and responsibility to society at large. More than 75% hold companies responsible for discrimination, child labor exploitation and other human rights abuses. Over one in five consumers reward or punish companies based on perceived social performance.

Finally, I would add that there is a growing recognition that improving social and economic conditions in underdeveloped countries can attract a large untapped consumer market.

Editor: What are the consequences of neglect of CSR?

Shestack: Warren Buffett once said: "It takes 50 years to build a reputation and five minutes to ruin it." Some of the most vigorous criticism of multinational corporations has focused on companies that seem to be associated with gross and systematic violations of human rights. But, companies can adopt remedies. For example, Chiquita International received strong criticism from media and labor groups for bad environmental practices in its Latin American operations. After much grief, the company established a partnership with the Rain Forest Alliance and an independent certification of its environmental operations. Nike had its reputation severely damaged when activists charged that it was running sweatshops in Asia. Since then the company has worked hard to manage fair labor conditions in its supply chain. Shell experienced criticism in connection with its exploration in the Niger Delta, which was alleged to be detrimental to the Ogani tribe. Shell responded by becoming a leader in implementing sustainable development principles. The Switzerland-based Nestlé Group has long been a target of human rights criticism because of Nestlé's marketing of baby formula over mother's milk in poor countries. In 2002 Nestlé appointed an ombudsman to expose unethical promotional activities.

Editor: How does CSR relate to human rights?

Shestack: The behavior of global companies in underdeveloped countries is increasingly being governed by international human rights standards. For example, health and safety are covered by human rights treaties. Codes and treaties cover the right of workers to be represented for collective bargaining purposes. International legislation protects children against exploitation. There are also international environmental standards. Standards in these and other areas affecting human rights and social environment principally arise from a variety of sources - treaties, UN codes, NGO international organizations, and private trade associations. Obviously, corporate general counsel mostly oversee compliance with such standards.

Editor: What happens when a company operates in a country that does not observe human rights?

Shestack: Companies that seek to establish operations in countries that do not observe at least minimum international human rights standards will have to prove to their employees, customers and other stakeholders that they are not seeking advantage from and are not otherwise complicit in those human rights violations. Otherwise they will risk adverse publicity, shareholder protests and lawsuits. A good example would be the difficulties, including disinvestment, faced by companies that continued to operate in South Africa when apartheid prevailed in that country.

A company has a choice to make. A study by Shell Corporation in the late 1990s showed that some 20% of corporations decided not to proceed with at least one project in countries where there were serious human rights concerns.

Editor: Can you give me examples of the exercise of CSR?

Shestack: There are numerous examples. General Mills has an anti-hunger program. Sara Lee has food programs for women. IBM supports devices for the handicapped. Motorola helps addicts in Hong Kong. In Taiwan, a soft drink maker called KinKar mounted a campaign to help victims of a severe flood. As a result of KinKar's efforts, more than 10% of Taiwan's 22 million people pledged money to relieve the plight of the victims. A leading exponent of CSR is Canon, a Japanese technology company that addresses some of the global imbalances in developing countries. The company's policy is called "kyosei," a business credo, defined as a spirit of cooperation in which individuals and organizations work together for the common good. In Japan, some banks have become leaders in converting bad Third World debt to nonprofit economic development activities.

Editor: Is there a particular role for corporate general counsel in furthering CSR?

Shestack: I would hope that corporate general counsel of global companies would feel a special responsibility to address CSR. In fact, many major companies, like BHP Billiton, have aggressive CSR agendas overseas that are strongly supported by their general counsel. Mr. Fast is not alone. For interviews with some of these general counsel, I suggest you go to the home page of The Metropolitan Corporate Counsel at www.metrocorpocounsel.com and then click on "Globalization" in the column on the left. Those interviews have also been compiled by the National Legal Center for the Public Interest. To obtain a copy of the compilation which is entitled "Capitalism and Corporate Citizenship: Profiles of American Business in Global Markets," call the NLCPI at 202-466-9360.

Editor: What has globalization achieved?

Shestack: So far, it is a mixed bag. There is no doubt that interest in CSR has blossomed considerably since the mid-20th Century. When the Harvard Business School offered its first course in ethics in 1915, there were few takers. Today, more than 95% of business schools offer courses in business ethics and CSR, and the courses are often mandated. There are more CSR symposia, more learned articles, more conferences, more media attention, and more CSR websites than ever before. There is an impressive list of corporate-initiated programs that have benefited society. Business leaders have characterized CSR as "a competitive necessity." But many corporations still question what CSR buys.

CSR has undoubtedly been an advantage to some multinational corporations by enlarging their access to markets, increasing brand recognition, providing inexpensive labor and satisfying shareholders and stakeholders. But on the sinister side, globalization has engendered substantial criticism that the multinational corporations have enhanced their power while neglecting the objectives of advancing the lot of the underdeveloped and poverty-stricken nations that they have entered.

This criticism of globalization is not a casual matter. To be sure, there has been recent encouraging data which show that the entry of multinational corporations into underdeveloped countries has somewhat raised their standard of living. Still, developing countries have 80% of the world's population but less then 20% of global GDP. Only six states have larger revenues than the first six multinational corporations. In some African countries, per capita incomes are lower now than they were in 1970. A study just released by the UN Food and Agriculture Organization reveals that the number of malnourished people in developing nations has grown to 815 million and is rising. Fully 65% of the world's population earn less than $2,000 per year - that's 4 billion people. More than a billion people have to live on less than $1 a day. These statistics are not exactly advertisement for globalization.

Editor: As a litigator, does a good record of CSR benefit the client? Is it helpful to select a lawyer who is committed to public service? What are the benefits to the lawyer?

Shestack: While cases should be decided on their merits, my personal experience as a litigator is that it is often easier to defend a corporation that has become known in the community and to the judiciary for its commitment to social programs such as providing legal services to the poor and the practice of diversity. And a litigator who earns a reputation for pro bono service gains stature before judges.

Additionally, in selecting outside lawyers, corporate counsel are increasingly choosing lawyers that reflect socially progressive values. More and more in beauty contests and requests for RFPs, corporate counsel are asking law firms: "What is your record on diversity and what is your record in pro bono?" They are asking not only about the general record of the law firm in these matters, but also increasingly about the records of the individual lawyers who will be assigned to their cases.

Let me add that while CSR has entered the corporate vocabulary, it has a long way to go before it is meaningfully reflected in their behavior. I suggest that corporate counsel have the ability and, indeed, the obligation to implement CSR in the corporate conscience.

Please email the interviewee at jshestack@schnader.com with questions about this interview.