corporate social responsibility: the ascendancy of the ... the use of csr to fundamentally undermine...
TRANSCRIPT
Corporate Social Responsibility: The Ascendancy of the Radical Version
Andrew W. Markley J.D.
Corporate Social Responsibility (CSR)1 has made great gains in the past 10 years, with
more and more companies issuing CSR reports, government policies promoting or enforcing
CSR, and further development of the conceptual realm of CSR in the scholarly literature. Indeed,
an internet search for the term “corporate social responsibility” these days will yield over
79,000,000 results in less than half a second. While CSR has captured more and more attention
in recent years, the question remains whether CSR in its more traditional form or in a new and
radical version will ultimately prevail. The most recent developments suggest that the newer and
more radical version is in the ascendant, fueled by those who would further limit the role of
companies and markets in favor not only of a greater degree of government and “stakeholder”
control of economic resources. While some aspects of CSR have been practiced for many years
and are entirely consistent with businesses operating in a market economy, the trend points
toward the use of CSR to fundamentally undermine private enterprise by redefining the very
nature and purpose of business in order to achieve greater government control over the
economy—what could be termed a new socialism, a socialism “from the inside out.”
Traditional Modes of CSR
The literature surrounding CSR recognizes that aspects of CSR have been practiced for
many years. From philanthropy to businesses which devote time and resources to social or
environmental issues, CSR is nothing new.
1 The term “corporate social responsibility” is not universally agreed upon: The concept of CSR can also be described by terms including “social responsibility,” “corporate responsibility,” “corporate citizenship” and “sustainability.” This article , however, will use “corporate social responsibility” since CSR is the most widely utilized term.
2
Philanthropy is perhaps the most well established mode for businesses to contribute to
societal needs, ranging from monetary support for non-profit organizations in the community to
monetary support for particular social or environmental causes. And, this form of corporate
social responsibility remains an important part of the CSR story. Eggers and Macmillan report
that corporate philanthropy by listed companies is now estimated to be $41 billion globally and
contributions by Fortune 500 companies have risen at a cumulative annual growth rate of 10%
since 2007. Over 120 of 400 wealthiest U.S. billionaires (on Forbes’ list of 400 richest
Americans) have signed up for Bill Gates’ and Warren Buffet’s “giving pledge.”2 Indeed,
according to Eggers and Macmillan, the Gates Foundation’s annual grant-making budget is
larger than that of the nation of Denmark.3
We also see many examples of companies making donations toward social needs,
including health and education, or environmental causes. For example, in 2006 Proctor &
Gamble partnered with UNICEF to establish a program to eliminate maternal and neonatal
tetanus in Africa, which has since been expanded to over sixty countries over several continents.
Under this program, based on its sales of specially marked Pampers, P&G donates US$.07 to
UNICEF to help fund tetanus toxoid vaccines.4 On the environmental side, Patagonia’s
commitment to donate 1% of its sales revenue for environmental causes is another well-known
example.5
Another long-established mode of corporate social responsibility is to combine business
practices with societal needs. In the 19th century, a number of industrial enterprises provided for
2 William Eggers and Paul Macmillan, The Solution Revolution (Boston: Harvard Business Review Press, 2013), 23. 3 Eggers and Macmillan, Solution Revolution, 18. 4 UNICEF, The UNICEF and P&G Pampers Partnership to Support Maternal and Neonatal Tetanus Elimination, https://www.unicef.org/partners/Partnership_profile_2012_PAMPERS_V2_approved.pdf. 5 Patagonia, “Environmental Grants and Support,” http://www.patagonia.com/environmental-grants-and-support.html.
3
the educational, recreational or housing needs for the company’s workers. In the UK, for
example, in 1901 Joseph Rountree purchased land bordering his factory at New Earswick in
order to build housing for workers. By 1954 the site included nearly 500 three-bedroom houses
as well as 130 cottages or flats.6 Other examples from the UK include Cadbury’s “Bournville”
housing for workers, and Boots’ schools in Nottingham, England, which provided educational
opportunities at a time before government schools existed.7
More contemporary examples of company’s reaching out to communities to address
social or environmental issues relevant to the company’s operations include The Coca-Cola
Company’s Replenish Africa Initiative (RAIN) to ensure water resources for communities in 35
African countries in which it markets its beverages,8 and Unilever’s Project Shakti in India and
Africa to provide training in basic business skills as well as health and hygiene in P&G’s quest to
empower women in rural areas to become successful entrepreneurs.9
Indeed, some business models very directly are able to serve both business and societal
needs, such as Safaricom’s M-Pesa mobile banking services, which enables the poor in countries,
such as Kenya, to access banking services which would otherwise not be available to these
individuals.10 General Electric Company’s “Ecomagination” initiative also provides a number of
examples of successful product innovations which also serve environmental needs. Steve Hung,
GE’s principal engineer and project leader, highlights GE’s work improving energy efficiency,
reducing pollution impacts, and creating materials’ sustainability in GE’s production of its
“Evolution Series” locomotives, which feature greater fuel efficiency and lower emissions, jet
6 The Rountree Society, “New Earswick,” http://www.rowntreesociety.org.uk/joseph-rowntree-1836-1925/. 7 Jeremy Moon, Corporation Social Responsibility: A Very Short Introduction (Oxford: Oxford University Press, 2014), 9. 8 The Coca Cola Company, “Rain: The Replenish Africa Initiative,” http://www.coca-colacompany.com/stories/rain-the-replenish-africa-initiative. 9 Hindustan Unilever Company, “Enhancing Livelihoods Through Project Shakti,” https://www.hul.co.in/sustainable-living/case-studies/enhancing-livelihoods-through-project-shakti.html. 10 See Safaricom’s M-PESA pages at https://www.safaricom.co.ke/personal/m-pesa.
4
engines for aircraft which feature lower noise, CO2 and NOx emissions, and wind turbines to
generate electricity.11 Many companies have successfully aligned their business with
environmental concerns by reducing the amount of waste in the production process and saving
on related costs of waste disposal. As Steven Anderson has noted with respect to company
strategy, “To the extent that social impacts are viewed as financially profitable, they can not only
be adopted but vigorously marketed.”12
In all of these manifestations, CSR is entirely consistent with the traditional model of
business. For these businesses, the traditional model of CSR could be defined as: A business
succeeds when it meet the demands of the marketplace and provides an acceptable return to the
firm’s owners. In conducting business, the firm should observe ethical standards—such as
honesty—and should abide by the law which in many countries already establishes a significant
body of government regulation on topics including employment, environment, antitrust, labor
union, and consumer protection. In order to maximize the firm’s opportunities for success in the
marketplace, the successful firm will often be able to identify specific opportunities to achieve
commercial success while meeting the needs of its customers, suppliers, lenders, workers, the
community and the environment. In pursuing success in the marketplace, however, the firm’s
management is always obligated to act in the longterm best interests of its owners.
The Shift Toward a Radical CSR
In recent years, however, CSR has taken a marked turn toward a more radical version,
which seeks to redefine the very nature of business by imposing on business the “triple bottom
11 Steve Hung, “Sustainability Initiatives at General Electric Co.,” Presentation Prepared for the Rochester Institute of Technology, April 22, 2014, https://www.rit.edu/affiliate/nysp2i/sites/rit.edu.affiliate.nysp2i/files/s_hung_2014_04_22_earthday_v2.1.pdf. 12 Steven G. Anderson, New Strategies for Social Innovation (New York: Columbia University Press, 2014), 98.
5
line”—a redefinition which seeks to have business step into the role of government as the
supplier of social and environmental goods. The trend in the CSR literature is to define CSR as:
The business has “triple-bottom-line” obligations to, and must be operated for, the benefit of
stakeholders of the firm, including employees, suppliers, creditors, the surrounding
community, and anyone else affected by the firm’s existence (including both current and
future generations);
the natural environment; and
economic development. Although one aspect of economic development is the payment of
a financial return to shareholders of the firm, shareholders are not the owners of the firm
in any meaningful sense. 13
The triple-bottom-line definition for corporate social responsibility is promoted as a path
to society’s broader “sustainable development” and “social justice,” with corporations (and
businesses more generally) now taking on tasks that governments and non-profit organizations
have failed to fulfill, and rekindling hopes to achieve failed leftwing political ideology, this time
by building social and environmental obligations into the DNA of the corporation. Supporters of
the new radical version of CSR believe that their radical redefinition of the nature of the
company is justified by several factors. First, it is argued that the success of the business is
significantly the result of a framework provided by society which includes consumers who are
ready to buy the firm’s product or service, infrastructure which the firm uses to conduct its
business, educated employees who engage in productive work for the firm, and a natural
environment conducive to company operations. It’s the “if-you’ve-got-a-business, you-didn’t-
13 The term “triple bottom line” is attributed to John Elkington. See John Elkington, Cannibals with Forks: The Triple Bottom Line of 21st Century Business (Oxford: Capstone, 1997).
6
make-that-happen”14 mentality which is used to justify turning businesses into another arm of the
state.
Triple-bottom-line believers also contend that the very legal existence of business
entities, such as corporations or limited liability companies, only depends on society’s approval
of a company “charter.” Haynes, Murray and Dillard contend that corporations have duties to
society, since “corporations are legal entities socially constructed with the legal frameworks of a
society.”15 According to this rationale, society can, therefore, decide to limit the terms of the
charter’s use in any way society wishes, including imposing sustainable development
requirements, as a condition to the company’s “license to operate.”
The new CSR’s redefinition of the social and environmental obligations of companies
also finds support among those who have joined the modern self-proclaimed human rights
movement, which seeks to expand the definition of “human rights” to include an array of
economic, environmental, and social measures. In the modern human rights pantheon, many
aspects of health, education, housing, work, and the environment become human rights.16
The new definition of CSR has also been promoted as a higher level of “business
ethics”—the field of business ethics has developed a particular focus on the treatment of
“stakeholders,” including those representing various environmental, social, and economic
interests. Advocates of greater environmental and social obligations on the part of business use
the stakeholder approach to advance environmental and social obligations or “returns” to the
14 President Barack Obama, Speech, July 13, 2012, https://www.youtube.com/watch?v=YKjPI6no5ng. 15 Kathryn Haynes, Alan Murray and Jesse Dillard, eds., CSR: A Research Handbook (London: Routledge, 2013), 10. 16 See, for example, the U.N. Declaration on the Right to Development, G.A. Res. 41/128 (December 4, 1986).
7
core of the business enterprise, in essence turning the business into a quasi-governmental
organization.17
Proponents of the new radical CSR also argue that we live in an unprecedented era of
trans-border control by multinational corporations, which render governments and non-profit
organizations powerless. Haynes, Murray and Dillard contend that the radical version of CSR is
warranted, since “corporations have acquired a dominating position within current society. They
allegedly create wealth, provide employment, consume natural resources, and require investment
at unprecedented levels.”18 Michael Blowfield and Alan Murray cite globalization as mandating
a new approach to regulating business thru CSR.19
The triple-bottom-line redefinition of business is also advocated by those who believe
that the natural environment is at imminent risk of disaster on a global scale due to resource
depletion, global warming and over population. Haynes and Murray, for example, contend that
the current state of a planet is one on the brink of catastrophe, which, therefore, justifies the more
radical version of CSR in order to usher in an era of “social justice.”20 Chandler and Werther
assert that “in terms of sustainable resource utilization, in the absence of dramatic political action
on a global basis, for-profit companies are, quite simply, our only hope.” As such, they argue
that the new radical CSR is the only answer.21
The move to the new CSR has also been furthered by a distortion of the existing
regulatory system which is already in place in most countries today to comprehensively regulate
17 See, for example, R. Edward Freeman, Strategic Management: A Stakeholder Approach (Boston: Pitman, 1984). 18 Haynes, Murray and Dillard, eds., Research Handbook, 10. Apparently the authors want to emphasize the economic resources at the command of multinational corporations, but still add the qualifier “allegedly” so as at the same time not to admit that corporations create “real” value—presumably on the argument that their environmental and other social justice “transgressions” eliminate the value that they otherwise might be seen to provide to society. 19 Michael Blowfield and Alan Murray, Corporate Responsibility (Oxford: Oxford University Press, 2014), 39. 20 Alan Murray and Kathryn Haynes, “In Conflicting Paradigms of Social Responsibility, Whither Social Justice?” in CSR: A Research Handbook (London: Routledge, 2013), 342. 21 David Chandler and William B. Werther, Jr., Strategic Corporate Social Responsibility: Stakeholders, Globalization, and Sustainable Value Creation, 3rd ed. (Los Angeles: Sage, 2014), 543.
8
a range of environmental and social issues. In a recent article, President Barack Obama justified
his agenda for limiting the role of companies and markets by declaring: “More fundamentally, a
capitalism shaped by the few and unaccountable to the many is a threat to all.”22 If business is
unaccountable, then certainly the Environmental Protection Agency, Securities Exchange
Commission, Occupational Safety and Health Administration, National Labor Relations Board
and Equal Employment Opportunity Commission, not to mention more recently created
agencies, such as the Consumer Financial Protection Bureau, should be abolished and those in
favor of government regulation should start anew. If businesses live in an age of
unaccountability, then somehow the 100,000 pages added to the Code of Federal Regulations
over the course of the past 50 years have been overlooked.
The true nature of the trend toward the radical version of CSR is openly acknowledged
by its supporters. For example, Haynes, Murray and Dillard acknowledge that preferences in the
definition of CSR greatly depend on what view is held regarding the role of companies and
markets. They recognize that “[u]ltimately, the question is how society’s best interest can be
attained? Is it through market-based self-regulation? Is it through government involvement and
regulation?”23 For Hayes, Murray and Dillard, as with other supporters of the new radical CSR,
the answer is clearly that businesses in particular and markets in general are flawed and that only
the new CSR can re-engineer the businesses for social good. In a similar vein, Professor Rob
Gray calls for full social and environmental accountability for corporations arguing that
“corporations are a force against social justice (as indeed they are against sustainability)” and
questions the traditional focus on shareholder returns by asking “Who are shareholders? They are
22 Barack Obama, “The Way Ahead,” The Economist (October 8, 2016): 22. 23 Haynes, Murray and Dillard, eds., Research Handbook (London: Routledge, 2013), 3.
9
the wealthy people.”24 Likewise, co-founder of B Labs Jay Coen Gilbert advocates an
“evolution” of business to a new “stakeholder” capitalism.25 The ideological foundation of the
new radical CSR is certainly on full display here.26
Designing Standards and Processes to Impose the Radical Version of CSR
Several other factors have greatly facilitated the shift to the radical version of CSR. First,
those involved in the formulation and administration of CSR standards have been very adept at
stacking the deck in favor of the radical version of CSR, which, in turn, has promoted flawed
standards and decision-making in the CSR area. For example, the drafting process for the ISO
(International Organization for Standardization) 26000 Guidance Standard for Corporate Social
Responsibility involved national delegations, each made up of representatives from six
“stakeholder” groups: consumer, government, industry, labor, NGO (non-profit associations
with public interest objectives), and “services, support and research”(academia).27 It is no
surprise that this composition of the national committees, which was largely comprised of
consumer groups, environmental and labor organizations, academics and government
organizations (The U.S. government representative was the Environmental Protection Agency.),
resulted in a final ISO 26000 text which was very much an embodiment of the new radical CSR,
since the only group to provide any check or balance—business—was outnumbered 5 to 1 in the
negotiating process. 24 Rob Jones, “Accountability, Sustainability and the World’s Largest Corporations: Of CSR, Chimeras, Oxymorons and Tautologies,” Research Handbook, 163 (emphasis in original). 25 Jay Coen Gilbert, Video Presentation, “On better businesses,” https://www.youtube.com/watch?v=mGnz-w9p5FU. 26 Other authors are more direct in their approach to achieving greater control over companies. Douglas Eichar advocates abandoning CSR in favor of direct government control of business. See Douglas M. Eichar, The Rise and Fall of Corporate Social Responsibility (New Brunswick: Transaction, 2015). In the same way, when discussing criticisms of CSR, Blowfield and Murray highlight arguments that direct government control would provide a better solution to the issues than any version of CSR. See Blowfield and Murray, Corporate Responsibility, 317-30. See also Robert Reich, Supercapitalism: The Transformation of Business, Democracy, and Everyday Life (New York: Alfred A. Knopf, 2007). 27 Janelle Diller, “Private Standardization in Public International Lawmaking,” Michigan Journal of International Law 33 (2012): 492.
10
Indeed, the deck was stacked even further, since the “business” stakeholder group itself
included CSR consulting companies which, of course, stand to earn more revenue with stronger
and more radical versions of CSR. In fact, in some countries, the expert “industry” group
representative was from a CSR consulting business. This was true of Canada, whose expert
“industry” group representative was B.R.I. International, Inc., a sustainability consultancy,28 as
well as Austria, whose expert industry group representative was CSR Company International.29
The same problematic approach characterizes the Organization for Economic
Cooperation and Development’s (OECD) Guidelines for Multinational Enterprises (GMNEs).
The OECD GMNEs require that each country have a “national contact point” to administer the
guidelines, and among other things, provide a mediation process for those who claim that a
multinational corporation has violated the GMNEs. In the U.S., the designated national contact
point is the U.S. Department of State Advisory Committee on International Economics
(USACIE), which, in turn, has appointed a Stakeholder Advisory Committee (SAC). The
USACIE SAC is made up of five stakeholders: academia, labor, environmental, civil society, and
business. Again, the very make-up of the board provides a strong constituency in favor of the
radical version of CSR and the redefinition of business. In the SAC’s first report to the USACIE,
it is not surprising that on 4 out of 5 issues, the SAC could not reach consensus, with business
standing alone and opposed by academia, labor, environmental and civil society representatives
on those issues.30
Again, ISO 26000 stands out as a particularly radical version of CSR, largely because the
drafting and approval process gave too much control to those who favored the radical version of
28 BRI International, “Welcome to B.R.I. International Inc.,” http://www.bri.ca/index.html. 29 CSR Company International, http://www.csr-company.com/. 30 Report of the U.S. State Department Stakeholders Advisory Board (SAB) on Implementation of the OECD Guidelines for Multinational Enterprises, February 24, 2014, 13-14. http://www.state.gov/e/eb/adcom/aciep/rls/225959.htm.
11
CSR. In fact, ISO 26000’s definition of social responsibility produces a “super triple-bottom-
line” standard by first defining social responsibility as contributing to sustainable development,
which then itself is described as the goal of integrating the three goals of economic development,
social justice, and environmental responsibility.31 Then ISO 26000 provides that “socially
responsible” companies must take into account the expectations of stakeholders, which include
individuals or groups with social, environmental, or economic interests arising out of the firm’s
activities. Finally, ISO 26000 then defines social responsibility in terms of complying with
“international norms of behavior,”32 which, in turn, is defined to include a broad array of social,
economic development, and environmental principles. Thus, ISO 26000 provides a three-fold
imposition of the radical version of CSR, or what might be called the “super triple-bottom-line.”
The end result, however, is a very flawed CSR “standard.” As Jon Entine notes:
ISO 26000 is vague and highly political. Each section has a laundry list of societal problems, mostly in developing countries, followed by a wish list of NGO-supported solutions, the bill for which would be picked up by developed countries. . . . The United States and India, which supported early drafts of the ISO 26000, ultimately voted . . . against the final version. Critics believe it contains problematic proclamations about contested notions of environmental impacts and employee and consumer rights, but no endorsement of shareholder rights.33
Nevertheless, ISO pushed the ISO 26000 CSR standard through its “approval” process and it
became effective in January 2010 and remains in force today.34
Recent Developments in the Radical Version of CSR
Several recent developments serve to highlight the extent to which the new radical
version of CSR has taken root. Among these developments are the rapid acceptance of the “B 31 ISO 26000: 2010, Sub-clause 2.23. 32 ISO 26000: 2010, Sub-clause 2.11. 33 Jon Entine, “ISO 26000: Sustainability as Standard?,” Ethical Corporation Magazine (July 11, 2012), http://www.ethicalcorp.com/business-strategy/iso-26000-sustainability-standard. 34 It is also interesting that the ISO calls ISO 26000 a “consensus” document even though major organizations representing large, medium, and small businesses rejected the final draft of ISO 26000, and even though major countries such as the United States, Germany, and India did not vote to support the standard.
12
Corporation” model into state corporation laws across the United States, the expansion of CSR
initiatives by national governments, and the dramatic rise in corporate activism on social and
environmental issues, including very controversial social and environmental issues, as companies
seek to gain favor with government regulators and seek to maximize opportunities for
government contracts and grants.
The Rapid Spread of “Benefit Corporation” Statutes
Championed by an organization known as B-Lab,35 states are being urged to pass
legislation to enable the chartering of a special type of business corporation known as the B
Corporation, or “Benefit” Corporation. Indeed, since Maryland36 became the first state to pass
Benefit Corporation legislation in 2010, B-Lab has been very effective as benefit corporation
legislation has swept the country with 29 other states and the District of Columbia having
followed suit in adopting Benefit Corporation legislation, with bills pending in several additional
states.37 Under the model B Corporation statute, the state would award this special status to
companies undertaking a “general public benefit” of societal and environmental impact as
measured against a comprehensive third-party standard on environmental and social issues.
Thus, the Benefit Corporation concept is very much in line with the radical version of CSR.
The B Corporation recognition certainly asserts that regular corporations do not offer a
benefit to society. Tell that to a company which has operated in the same community for
decades, providing jobs, producing a product or service valued by society, and paying taxes—
and complying with (ever-increasing) employment and environmental regulations. Yet, without
35 See “Welcome B Corporation,” https://www.bcorporation.net/. 36“Maryland First State in Union to Pass Benefit Corporation Legislation,” CSR Newswire Web site, April 14, 2010, http://www.csrwire.com/press_releases/29332-Maryland-First-State-in-Union-to-Pass-Benefit-Corporation-Legislation. 37 See http://www.socentlawtracker.org/#/bcorps for the current status of Benefit Corporation legislation across the U.S.
13
tying itself to a “third-party comprehensive social and environmental standard” and subjecting
itself to the perils described below, it is not a “benefit” corporation. Tell that to a start-up
company which is focused enough to be successful and grow rapidly in its market, increasing
employment, providing new tax revenues, and providing a new product or service valued by
society. Yet, without tying itself to a “third-party comprehensive social and environmental
standard” and subjecting itself to the perils described below, it is not a “benefit” corporation.
State incorporation law got out of the business of deciding which companies provided a public
benefit in the second half of the 1800s, not only because it is impossible to determine but also
because of concerns of corruption of government officials. Now is not the time to go back.
Moreover, the B-Corporation “general public benefit” standard is flawed. The model
statute says a general public benefit must include both environment and societal impacts, but
ultimately transfers the task of defining general public benefit to “third-party standards”
developed by NGO’s, such as B-Lab, the Global Reporting Initiative, and the International
Organization for Standardization (ISO). Is it wise, however, for legislatures to delegate the
power of defining public benefit to NGO’s? Is it wise for the state, in essence, to adopt the
standards set by “third-party” organizations as state public policy on what “benefits” society? Do
these standards, created by NGO’s, accurately reflect the views of American society? Do the
states which embrace B-Corporation legislation even know what’s in these “third-party
standards”?
For example, the ISO 26000 standard mentioned above:
was rejected by the American delegation to ISO, and so by definition could not even begin to
be said to reflect the views of the American people;
does not represent a broad consensus of either business entities or the world’s population;
14
contains many references to international treaties which the U.S. has rejected; and
was adopted by a procedure which raises substantial questions regarding the credibility of the
standard.
Moreover, we normally think that “public policy” standards are published and readily
available. Neither B-Lab’s certification standards nor ISO’s 26000 standard is freely available:
ISO 26000 must be purchased, and B-Lab’s standards are not publicly accessible.
Finally, according to the model B Corporation legislation, the benefit must encompass
both society and the environment, and must be “comprehensive.” A company that designates
10% of its profits to charity does not qualify as a Benefit Corporation because it has only a
“specific public benefit” rather than a “general public benefit.” If the government is going to be
in the business of naming certain companies as “Benefit” companies, a company which donated
10% of its profits to charity would seem to be an obvious choice. But, this is not so under the B-
corporation model statute.
The B Corporation is very much in line with radical CSR’s redefinition of the very
nature of a corporation. In the B Corporation, management MUST serve the environment, the
community, the employees, the customers, and the owners. By commanding service to many
masters, the B Corporation encourages directors to engage in irresponsible actions, since any
decision could be justified as serving the interest of one of the many designated masters. In an
era of heightened accountability, B Corporation legislation moves away from accountability of
management. Indeed, recent reforms in state corporate law and federal securities law have been
aimed at providing shareholders with a more effective voice in electing and controlling
directors.
15
In addition, the determination of compliance with “general public benefit” appears to be
left completely to the discretion of the “Benefit Director.” Under the model statute, compliance
with general public benefit begins with the company’s own report on meeting the chosen third-
party standard, which is then forwarded for approval by the “Benefit Director”—an independent
director who takes on the statutory role of reviewing the company’s compliance with “general
public benefit.” The statute has no standard, however, for the benefit director’s approval or
rejection, and seems to leave it to the benefit director what type of compliance is achieved with
the chosen standard. This would also seem to be the antithesis of disclosure and accountability.
It is also interesting that the Benefit Director must be an independent director, and since
director qualifications are more strictly scrutinized these days, presumably the Benefit Director
would have to have experience with “comprehensive” third-party standards—and is, therefore,
most likely to come from the NGO community. In essence, corporations are required to bring
NGO’s into the boardroom. Given the complete discretion (noted above) afforded to the Benefit
Director in reviewing general public benefit compliance, this is especially troubling.
It is hardly likely that the current system of company self-reporting and discretionary
Benefit Director approval will last. States will have to require more definite compliance with the
“general public benefit” standard. Will states convene a “general public benefit” board to make
the determination? Will states provide NGO’s, such as B-Lab and the Global Reporting
Initiative, with a role in state government as “certifiers” of general public benefit? Neither
alternative is good state policy.
B-Corporation legislation is a bad idea not only in its current form, but is also likely to
lead to state support for B Corporations through subsidies and tax breaks to B Corporations as
well as favoritism in awarding state contracts to B Corporations (or alternatively, tax penalties or
16
increased fees for corporations which are not B Corporations). It is also likely to lead to state
enforcement of certain social choices over others. If a general public benefit is required, it is only
a short step to the state mandating standards of public benefit, such as contributions to support
public education or paying higher wages to non-management employees.
Finally, it seems likely that the result will be state enforcement of comprehensive social
and environmental standards in all “chartered” companies to “level the playing field.” Chandler
and Werther even argue that a more direct avenue to imposing social and environmental
obligations on corporations is to have the federal government take over the incorporation
process, using the powers granted to Congress in the “commerce clause.”38 Whether achieved
through state-level B-Corporation legislation or national corporation regulation, the ultimate goal
of proponents of this legislation is the redefinition of private enterprise to societal enterprise.
Crony Capitalism, CSR, and Corporate Activism
Another significant development is the unprecedented level of corporate activism on
social and environmental issues, fueled by radical CSR and by crony capitalism. When North
Carolina proposed legislation to protect women from having to share bathrooms with transgender
biological males and Georgia considered legislation to protect religious liberty, major
corporations openly and aggressively campaigned against the legislation. In North Carolina,
Wells Fargo “lit up its offices at the 48-floor Duke Energy Center in Charlotte in pink, white and
blue (the colors of the transgender pride flag) to show support for the LGBT community.”39
PayPal announced that it had cancelled plans for a $3.6 million facility in North Carolina, and
38 Chandler and Werther, Corporate Social Responsibility, 498. 39 Maurice Schweitzer, Timothy Werner and Tobias Barrington, “How North Carolina’s Anti-discrimination Law is Redefining Corporate Activism,” (April 7, 2016). Weblog, http://knowledge.wharton.upenn.edu/article/schweitzer-werner-wolff-lgbt-corporate-boycotts/#.
17
PayPal’s CEO Dan Schulman joined the CEO’s of about 120 other major corporations in signing
a letter in opposition to the legislation.40
The desire to curry favor with government agencies to avoid regulatory scrutiny is
especially strong in an era where state and federal prosecutors seem eager to go after those with
the “wrong” view of climate change or other social or environmental issues. As Maggie
Gallagher has noted in connection with the North Carolina “restroom access” legislation noted
earlier:
Many of the 100 corporations speaking out about the issue—an issue that does not affect most of their core business interests—are, no doubt, expressing their own values. But it is striking that these firms do not mind running roughshod over so many of their customers’ values. Why? Why are corporations, historically averse to public controversy, wading directly into the culture wars? Part of the reason is that by engaging on this issue, they can cheaply please the regulators in Washington (and the Obama administration). The massive expansion of vague regulations under the Obama administration means that virtually every major corporation in America has some interest in keeping Washington off of their backs: Trouncing gay-marriage dissenters is a cheap strategy to curry favor.41
James Roberts of the Heritage Foundation has noted that as major corporations have grown
more active with favored government programs in the Obama administration, “. . . it was
probably not just serendipity that that many of these same giant companies underwent fewer
audits by Obama’s IRS.” Roberts cites research by Pepperdine law professor Paul Caron which
reveals that from fiscal year 2010 to fiscal year 2015 the Internal Revenue Service reduced the
number of hours that IRS agents spent in auditing larger corporations by more than one third.42
A separate motivation for corporate activism on social and environmental issues may be
found in the crony-capitalist arena of government grants and contracts. Gallagher recounts:
40 John Kamp and Valerie Bauerlein, “PayPal Cancels Plan for Facility in North Carolina, Citing Transgender Law,” The Wall Street Journal (April 5, 2016). 41Maggie Gallagher, “Social Conservatives’ Big Problem: We Lack Power (and How to Fix It),” National Review (April 8, 2016). 42James M. Roberts, “The Danger of Corporate Socialist Cronyism,” 2017 Global Agenda for Economic Freedom, Heritage Foundation, citing Professor Carson’s taxprof.com Weblog March 24, 2016, http://www.heritage.org/research/reports/2016/08/2017-global-agenda-for-economic-freedom.
18
The very first corporation that I saw get involved in fighting the voters who dissent from gay marriage was Indiana’s Cummins, Inc.—primarily an engine manufacturer. Cummins has no problem moving factories to India, which does not have gay marriage, but it threatened Indiana’s voters back in 2013 when they tried to pass a marriage amendment through the legislature. In 2015, Cummins received a $24 million defense contract — “one bid was solicited and one was received.”43
With government providing grants and contracts in so many areas of business, the motivation to
garner financial rewards from the government is greater than ever before.44
Corporate activism on social and environmental issues is also fueled by the increase in
the presence of the radical version within corporate organizations. With large corporations now
having CSR offices, composing CSR reports,45 and seeking certification under standards such as
ISO 26000, it is not surprising that we are seeing an unprecedented level of corporate activism
on social and environmental issues in general, but on the most controversial of these issues in
particular.
Government-Mandated CSR Measures are Increasing
Recent years have also seen a substantial increase in activity on the part of national
governments to enforce CSR measures. Overall, the United Nations Environmental Programme
reports that mandatory disclosure measures worldwide have jumped from 35 measures in 19
countries in 2006 to 248 measures in 64 countries in 2016.46 While both environmental and
social reporting continue to grow significantly, measures calling for reporting on social issues
have grown particularly rapidly in the past three years, having nearly doubled in that time
43 Maggie Gallagher, “Big Problem.” 44 James M. Roberts, “Danger of Corporate Socialist Cronyism.” 45 According to the global consultancy firm KPMG, 92% of the world’s largest companies issued social responsibility reports in 2015. KPMG, “Currents of Change: The KPMG Survey of Corporate Responsibility Reporting 2015,” 30. 46 United Nations Environment Programme, Carrots & Sticks: Global Trends in Sustainability Reporting Regulation and Policy (2016), 9, http://www.carrotsandsticks.net/wp-content/uploads/2016/05/Carrots-Sticks-2016.pdf.
19
frame.47 In June 2012, Brazil, Denmark, France and South Africa formed an initiative known as
the Group of Friends of Paragraph 47, an outgrowth of the 2012 United Nations Conference on
Sustainable Development (also known as the “Rio+20” Conference) seeking to promote
paragraph 47 of the Rio+20 “Outcome Document” and calling for national governments to
mandate corporate sustainability reporting.48 Since its founding, Argentina, Austria, Chile,
Colombia, Norway and Switzerland have joined the group.
The scope of national disclosure requirements vary, but the trend is for countries to
require comprehensive disclosure. In France and Denmark, comprehensive mandatory CSR
reporting is already in place for publicly traded companies as well as for privately held
companies meeting certain thresholds regarding factors including number of employees, total
assets, or annual revenue.49 For example, the French law requires company disclosure on social
issues such as human rights, employment and labor union issues as well as on environmental
issues including climate change, sustainable use of resources, protection of biodiversity, and
pollution management.50
In the United States, both federal and state laws already require disclosure on certain
topics. For example, the federal securities laws now require publicly traded companies to
disclose information on issues ranging from the sourcing of “conflict minerals” to the potential
business risks posed by climate change.51 State laws also now require disclosure on certain
issues. For example, the 2010 California Transparency in Supply Chains Act (the “TISA”),
47 United Nations Environment Programme, Carrots & Sticks: Global Trends in Sustainability Reporting Regulation and Policy (2016), 9. 48 United Nations Environment Programme, “Group of Friends of Paragraph 47,” http://www.unep.org/resourceefficiency/Business/SustainableandResponsibleBusiness/CorporateSustainabilityReporting/GroupofFriendsofParagraph47/tabid/105011/Default.aspx. 49 United Nations Environmental Programme and Group of Friends of Paragraph 47, Evaluating National Public Polices, 19. 50 Jonathan Morris and Farid Baddache, “The Five W’s of France’s CSR Reporting Law,” BSR (July 2012), 3, https://www.bsr.org/reports/The_5_Ws_of_Frances_CSR_Reporting_Law_FINAL.pdf. 51 Jonathan Morris and Farid Baddache, Five W’s, 2.
20
requires disclosure on the issue of human trafficking. Under the TISA, any retailer or
manufacturer of goods which does business in California and has annual worldwide gross
receipts of more than $100 million must disclose on its website what measures the company
takes to ensure that the company’s supply chain for those goods does not involve workers who
are victims of human trafficking.52
Beyond mandatory disclosure requirements, the U.S. government is using the power of
the White House and administrative agencies to further the agenda of triple-bottom-line CSR.
The U.S. Department of State Advisory Committee on International Economics (USACIE),
which serves as the U.S. government’s “national contact point” for the OECD GMNEs, has
opened CSR liaison offices in major federal government agencies, including the Overseas
Private Investment Corporation, the Export-Import Bank, the Department of Labor, USAID, the
Environmental Protection Agency, the Department of Agriculture, the Department of Energy, the
Department of Commerce, and the Consumer Financial Protection Bureau in order to further
implementation of the GMNEs.53
The White House actively advocates the use of federal largesse to promote the CSR
agenda. For example, a report from a 2011 conference on CSR cosponsored by the White House
and The Aspen Institute concludes that U.S. government agencies “can play a pivotal role to
accelerate its evolution, creating the operating context in which this new paradigm can
flourish.”54 The report goes on to specify that “Engaging a set of federal entities—such as the
Overseas Private Investment Corporation (OPIC), United States Agency for International
52 California Department of Justice, The California Transparency in Supply Chains Act: A Resource Guide (2015), 3, https://oag.ca.gov/sites/all/files/agweb/pdfs/sb657/resource-guide.pdf. 53 James M. Roberts, “Danger of Corporate Socialist Cronyism.” 54 The Aspen Institute, “Building an Impact Economy in America: A Report on the White House-Aspen Institute Impact Economy Summit” (October 2011), 2, https://www.aspeninstitute.org/publications/building-impact-economy-america-2011/.
21
Development (USAID), the Community Development Financial Institutions (CDFI) Fund, and
the Small Business Administration (SBA)—the federal government can play a vital role in
helping businesses flourish and compete on a level playing field.”55 The report also notes that the
SBA is particularly active in applying its policies in a way to favor CSR initiatives. CSR
supporters see the government’s use of public contract awards, tax incentives, subsidies and
liaison offices as an important step toward the redefinition of business.56
These moves to strengthen government involvement in, and enforcement of, CSR,
including at the USAICE pursuant to its role as the national contact point for the OECD’s
Guidelines for Multinational Enterprises, are certainly in line with the declared intent of the
OECD which has stated:
The problem with corporate social responsibility, as promoted in the OECD Guidelines for Multinational Enterprises, is that it is voluntary [emphasis added]. In some cases, corporations are out in front of governments in terms of addressing climate change and other problems. But the time is coming when companies will be required by governments to fulfill their environmental and social obligations both at home and abroad in the interest of sustainable development.57
Certainly moves by the USAICE as the national contact point for the OECD GMNEs will bear
close watching to see how far the US government moves toward mandating radical CSR
measures.
The Ascendancy of the Radical Version of CSR & Socialism “From the Inside Out”
While some aspects of CSR have been practiced for many years and are entirely
consistent with businesses operating in a market economy, recent developments herald a new
radical version of CSR which would fundamentally undermine private enterprise by redefining
55 The Aspen Institute, Building an Impact Economy, 11. 56 Jeremy Moon, Corporate Social Responsibility, 84-85. 57Organization for Economic Cooperation and Development, OECD Insights: Sustainable Development (2008), 86, http://www.oecd.org/document/11/0,3343,en_21571361_37705603_41530635_1_1_1_1,00.html (accessed November 30, 2016).
22
the very nature and purpose of business in order to achieve greater government control over the
economy. The rapid acceptance of “Benefit Corporations” by state legislatures, the dramatic rise
in corporate activism on controversial social and environmental issues, and the sharp rise in
government mandated CSR reporting and agency incentives, all point toward the rise of a new
socialism, a socialism “from the inside out.”