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.