The practice of corporate social responsibility raises important legal issues for companies, says Mike Nash
Corporate social responsibility is primarily a non-binding commitment.
However, legal requirements can promote CSR; for example, the company
law review steering group has proposed that public and large private
companies be required to provide a qualitative assessment of
non-financial factors affecting their performance.
My aim
is to examine three other legal issues worth considering by those
responsible for managing CSR: the integration of CSR policies into
transactions; foreign direct liability, and document management.
Companies which have successfully integrated, for example,
environmental issues into pre-acquisition due diligence should perhaps
consider doing the same in order to ‘price’ wider CSR issues. This is a
daunting due diligence prospect, but sellers will generally resist the
alternative – warranties or indemnities – in all but the most specific
cases such as wage levels.
CSR need not create
unnecessary legal exposure. Document management has an important part
to play. Of course, incidents must be investigated, requiring openness
in order to prevent their recurrence. But care should be taken before
committing to paper, and retaining longer than necessary, damaging
speculations as to the causes of incidents. These might have to be
disclosed in legal proceedings, so guidelines for staff can be
invaluable here, taking account not just of the parent company’s
domestic legal framework. Some claims have succeeded in the English
courts on the back of documents made public in proceedings in other
jurisdictions, which the claimant could not have obtained in the
English proceedings.
The flurry of recent foreign direct
liability claims raises other issues for CSR. There are cases in the
English courts against companies – Thor, RTZ, Cape plc – alleging
liability for personal injuries allegedly caused by subsidiaries in
South Africa or Namibia. They allege that the parent is liable not for
the conduct of its subsidiary, but in its own right. For example, Cape
plc is alleged to have negligently exercised de facto control over its
subsidiary’s activities, failing to ensure a safe system of work
despite directors’ knowing of risks to workers.
Ironically, the legal risk may be greatest where the parent is taking
responsibility for its worldwide operations in a bid to raise
standards. But to conclude parent companies should not seek to impose
global standards carries risks of its own – as shown by the
disqualification of Barings directors for alleged failure to supervise
the subsidiary which employed Nick Leeson. The added legal risk
entailed by this degree of ‘control’ must be managed. This requires an
adequately resourced CSR policy. Each company group will strike its own
balance on these issues – the vital thing is to do so on an informed
basis.
Mike Nash is a senior solicitor in the
environmental law department of Simmons & Simmons.
