CSR: The Need for Proactive Management of Legal Risk
Multinational corporations have reason to pay close attention to current trends in the field of corporate social responsibility, especially given recent developments in U.S. courtrooms. In cases under both the Alien Tort Claims Act (ATCA) and general tort law, companies are being held accountable to human rights standards established in international law. Beyond the potential of ultimate liability, litigation can have significant costs in terms of legal defense fees and associated opportunity costs, but is also costly in terms of the reputational damage caused to companies both by initial allegations of poor human rights practices and by lingering perceptions that companies are indifferent to such accusations. Given the wide range of social and political contexts that surround their operations, companies should not hide from or cover up the unfortunate fact that human rights abuses may occur. Rather, companies should develop business policies meant to leverage both their abilities to prevent such abuses and their capacities to respond proactively and responsibly when they do occur.
CSR in Practice – Developing Policies
When developing human rights policies and associated codes of conduct or operational guidelines, companies should seek to close the gap between stated goals and commitments and actual business operations. These statements, in addition to providing a set of operating principles that can guide company operations, also provide platforms for dialogue with both employees and external stakeholders. They also provide for a consistency in approach that facilitates both daily operations and crisis management. Therefore, companies should take the time to develop policies that work for them and that address the actual issues that come up in their business operations. Boilerplate language can get in the way of developing effective guidelines that manage actual risk. Companies should see the development of effective policy guidelines as key components to risk management and therefore should approach the task with seriousness of purpose and time for reflection. It is a reality that not all companies will wish to be industry-leaders in terms of commitments to best practices and relevant voluntary standards. Corporate counsel can provide advice on the nature, scope and implications of specific commitments, standards and guidelines so that company executives can make informed internal determinations before making public statements.
CSR in Practice – Implementing Policies
As companies draft policies, it is important to be mindful of the challenges of implementation. Commitments should not be made by corporate social responsibility officers alone. Moments of crisis are not the time to determine that senior executives don’t know or understand what statements the company has made -- everyone needs to speak the same language.
Companies should also take the time to benchmark their current practices against the relevant standards and guidelines reflected in their policies. Benchmarking will add significant substance to the future analysis of the auditing and monitoring efforts that are required to ensure that company commitments are being met. With regard to monitoring and auditing, companies should have dedicated personnel who are tasked with verifying the proper implementation of company policies. Companies are well-advised to work with external monitors as well.
When entering into contractual relationships, companies should consult with counsel in determining to what extent company policies should be explicitly incorporated into standard contractual language. Assessments should be made as to what should be specifically required of contractors and suppliers at each level of operation. Entering into these relationships involves difficult tradeoffs between maintaining the independence of third parties and ensuring that adequate oversight exists to ensure that company standards are being met.
Finally, in building business policies that incorporate human rights, companies should increasingly approach human rights risk management as they would any other type of risk management. Potential projects and business relationships should be assessed for the manner in which they will challenge and possibly violate company values and policies. In some cases, particular investments may be deemed too risky. In other cases, specific risks will be identified and thoughtful planning as to how to manage those risks should begin.
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Sarah A. Altschuller is a an associate at Foley Hoag LLP's Corporate Social Responsibility practice. She can be contacted at saltschuller@foleyhoag.com.
