Company Lawyers Vital To Drafting 'Corporate Responsibility' Policies

(See below for tips on how in-house counsel can make the “business” case for adopting a CSR program.)

The concept is an entrenched part of the corporate philosophy of New-Hampshire-based Timberland, according to General Counsel Danette Wineberg, who cited many practical benefits.

“Doing good leads to happier and loyal employees,” she said. “It leads to increased sales and customer loyalty, and to stronger and more sustainable relationships with retailers. All of this makes Timberland stronger as a brand. Doing good has a positive impact on our bottom line and on the attractiveness of our stock.”

A benefit of a CSR program is that they help companies manage situations when they arise, Rudolph added, such as effectively communicating their efforts to the public and avoiding a negative impact on brand name.

“Putting a program together will not prevent companies from having problems, but a good program will minimize exposure legally and from a brand standpoint,” Rudolph said. “You want procedures in place to get and evaluate the facts and put corrective actions in place quickly.”

Nike, for example, was dogged for years by negative publicity surrounding its labor policies in third world production facilities, despite having a solid CSR program in place, Rudolph said.

With compliance and corporate ethics dominating the time of many in-house lawyers, they would be wise to recognize that corporate social responsibility is a related concept, Rudolph said.

“It’s a mistake to separate Sarbanes-Oxley from corporate social responsibility,” he observed. “Sarbanes-Oxley derives from the same set of pathologies fueling the CSR movement. You should take a strategic view and see them as related. A true compliance culture embraces not just corporate governance, but ethics issues and CSR issues as well.”

A commitment to corporate social responsibility could also mean corporate survival in times of trouble, pointed out David Stangis, director of corporate responsibility at California-based Intel Corp., the multinational technology group.

“There’s no doubt that if your company is thinking about these things, you catch the major mistakes those folks [at Enron] made,” he said.

Creating An Effective Policy

Once a company decides to adopt a formal CSR program, the job of actually creating a policy often falls to in-house counsel.

Rudolph, a former in-house attorney at McDonald’s Corp. charged with overseeing that company’s vendor compliance as part of its CSR program, suggested that the first step for in-house counsel is to determine exactly what the company wants to enunciate to employees and external stakeholders as its mission statement.

Jordan echoed that point.

“A policy should not be crafted in a vacuum. You have to get a clear internal consensus on how far a company wants to go in committing something to a policy,” said Jordan. “You have to delineate between what should be committed to a formal policy and that which is aspirational. The greatest risk to in-house counsel is going beyond what the law requires and moving toward public relations and protecting the brand name.”

In assessing what a policy should contain, Jordan advised taking a look at what competitors are doing in CSR-related activities.

Once a written policy is made public, stakeholders could potentially use it against the company if they feel the company is not living up to the policy, Jordan asserted.

Rudolph echoed that notion, saying the potential for problems necessitates in-house counsel’s participation in the drafting process.

Some of the potential trouble spots, Jordan noted, could be shareholder resolutions designed to embarrass the company in an attempt to get the company to abide by the policy, or even as the basis for a cause of action by workers in foreign plants who claim they are not being treated fairly.

“There’s the distinct possibility that a written policy can be used as a hammer against the company,” he warned. “Any public statement made by a company can be used against it.”

Following are some guidelines:

1. Use Aspirational Terms. Edward H. Seksay, the sole in-house attorney for Rockland Trust Company in Brockton, Mass., suggested that a policy be drafted only in general aspirational terms.

“The board of directors is at the top of the corporate pyramid, and when it adopts a CSR policy, it should be written at the 30,000-foot level, as a high-level policy statement.”

The trick, he said, is in the implementation and monitoring.

“How much of that falls to in-house counsel depends on how much they are involved in a management function as opposed to a legal advisory function,” Seksay said.

Rudolph said a written policy in and of itself would not create legal liability, but he noted that “it’s fair to conclude that companies need to be very careful in how they describe their CSR activities. Everything a company does involves some level of risk and in-house counsel help to define and manage that risk. In-house counsel has to be very thoughtful and careful in putting those sorts of documents together.”

Jordan noted that in-house attorneys could use as guides a number of effective CSR policies found on company websites. They may also want to consider joining key industry groups that consider these issues on a regular basis, such as the Ethics Officers Association.

2. Audit Compliance. As part of establishing a CSR program, Rudolph advised in-house counsel to audit what the company is already doing related to the policy, as well as determine the “touch points” of the company’s impact, such as geographically and environmentally.

“You can’t really design a program unless you know what products you’re selling to whom and in what markets,” he said. “For example, if your company sources products from developing countries, you could develop a code of conduct for suppliers stating what your company’s expectations are, for example, on how workers are to be treated.”

Contracts with suppliers and vendors can spell out their responsibilities in complying with the code of conduct, and can state that they will be terminated if they don’t comply, he added.

Jordan agreed, observing that a number of companies have determined as a matter of policy not to do business with manufacturers that don’t meet written specifications on working conditions and minimum age requirements of workers.

In-house counsel must also identify all relevant stakeholders, such as employees and shareholders internally, and activist groups externally in order to figure out ways to engage them appropriately whenever issues arise, Rudolph said.

3. Identify Potential Legal Risks. Rudolph cited the following potential legal risks associated with CSR.

Companies doing business in Third World countries face potential liability under the federal Alien Tort Claims Act for alleged human rights abuses, particularly regarding treatment of local workers.

“There are lots of these cases in the pipeline,” he noted. “This federal statute is from 1789 and was designed to provide a jurisdiction for people who claimed to have suffered a violation of international law. Plaintiffs’ lawyers are very clever and dredged up this law as a way to put pressure on companies, which means in-house and defense attorneys have to get involved.”

RICO is another cause of action based on alleged human rights abuses, Rudolph noted.

Another potential problem occurs when the U.S. Customs Service stops the import of a company’s goods if they are made with illegal child labor abroad.

“Your products end up in a black hole,” Rudolph noted. “It’s mundane, but a very real problem.”

An additional worry is risking inconsistent statements on environmental impact in legally required disclosures and CSR communications with stakeholders. “Post Sarbanes-Oxley, that’s a big problem,” noted Rudolph.

Not A ‘Silver Bullet’

Companies with CSR policies are less driven by specific rules than by overall approaches to ethical behavior, which tend to minimize potential legal problems.

“Sarbanes-Oxley, while a good set of rules, isn’t enough to prevent misconduct – unless companies implementing these programs are also developing a set of corporate values they’re communicating to their employees and stakeholders,” noted Rudolph.

“I was in Europe,” he continued, “when Sarbanes-Oxley was being drafted, and they said, ‘We have a handful of pages telling people how to behave, you have a whole phone book – but all that does is employ lawyers because people will continue to find loopholes and misbehave.’”

An overall atmosphere devoted to ethical practices “is not a silver bullet,” Rudolph added. “But companies with them are a lot further ahead in dealing with problems.”

For example, in 1982 when it was discovered that bottles of Tylenol in Chicago had been poisoned, Johnson & Johnson immediately pulled the product off the shelves nationwide, Rudolph noted.

The company, which had a longstanding and deeply entrenched policy of business ethics and customer safety, did not have to hold lengthy meetings to come to a decision. That not only saved lives, but saved the corporate reputation, Rudolph said, which meant the company survived the crisis.

(Paul D. Boynton contributed to this article.)

Questions or comments can be directed to the editor at: [email protected]

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Making The ‘Corporate Social Responsibility’ Case To Company Officials

Well-managed companies recognize that they earn more if the public has a positive perception of their approach toward the environment, human rights, treatment of employees, and related matters.

“There’s no doubt people expect it today,” said David Stangis, director of corporate responsibility at California-based Intel Corp., the multinational technology group. “In the mid-1990s, they just wanted to know you weren’t doing any harm. Now they want to know that you’re ‘doing good.’”

Even small legal departments are finding the time to promote the concept.

Edward H. Seksay, the sole in-house attorney for Rockland Trust Company in Brockton, Mass., notes that his bank has aggressively pursued a social responsibility program and it has seen a boost in the bottom line as a result of stronger customer loyalty.

“When you think of Rockland Trust Company, you think of it not as a name on a sheet of paper but a branch manager who sponsors the cancer walk or a loan officer who helps out at the Boys and Girls Club,” said Seksay. “You’re personalizing the organization and building a relationship.”

Philip H. Rudolph, a partner in the Washington, D.C., office of Foley Hoag, said the concept is relevant to companies of all sizes and types. In particular, he noted the following, among others: multinationals; companies doing business in Third World countries; publicly traded companies; textile, pharmaceutical and health care companies; companies involved in any industry tarnished by recent corporate scandals; and any business that impacts the environment.

How can in-house counsel make the business case to their companies of the financial benefits of corporate social responsibility?

Experts suggested the following:

NGOs. Non-government organizations such as Greenpeace and Amnesty International are highly organized and vigilant. They’re also very savvy about using the media.

If they believe a corporation is harming the environment or mistreating workers, they’ll swing into action – and a company may find itself as a bad guy splashed across newspapers and TV broadcasts worldwide. The resulting negative publicity can have an overwhelming effect on a company’s revenues.

Indeed, “probably the biggest reason companies are interested in this topic these days is due to a much more educated and motivated set of NGOs,” observed Rudolph. He contended that it’s the external actors who are driving the trend toward CSR, not altruistic in-house lawyers trying to impose their morality on corporations.

Avoiding Public Relations Disasters. It’s far more expensive to be reacting to negative publicity and similar problems than working to avoid them, said Debra Sabatini Hennelly, former vice president and general counsel at Integrity Interactive Corporation in Waltham, Mass., which provides ethics and compliance training to companies.

Stangis of Intel Corporation agreed.

Intel meets regularly with shareholder groups to keep abreast of their concerns. As a result, it gets very few resolutions filed by unhappy shareholders. “If we get them, it’s usually from groups we haven’t met with before,” said Stangis. “The others know to call us before it gets to the point of filing shareholder resolutions. Then we can negotiate. It’s much easier to deal with them up front.”

Attracting Investors. In 2001, 13 percent of all money invested by professional asset managers – some $2 trillion – was placed in socially responsible investments, according to Rudolph, and the number is growing. There are more investment companies, such as Domini Social Investments, devoted entirely to selecting stocks from “good guy” companies. A company without a positive rating by these investment houses is losing untold millions in potential investments.

Attracting Clients. ENSR International, an environmental firm that provides industrial companies and government agencies with air, water, and environmental management solutions worldwide, puts an enormous emphasis on health and safety issues for its contractors and subcontractors. Because of insurance costs as well as OSHA and other regulations, ENSR’s excellent industry rating for worker safety is one of the top reasons clients choose the Massachusetts-based company, which also has U.S. offices in Virginia, North Carolina, Ohio and Minnesota.

“The more aggressive you are in lowering the injury rate, not only are you protecting contractors and subcontractors, but you make yourself more attractive to clients,” said Jon Mahoney, general counsel for ENSR. “If you don’t ‘do right,’ you’re really putting yourself behind the eight ball.”

Attracting Board Members. “These days, a company is much more likely to attract new board members if the company has a positive external footprint,” noted Sabatini Hennelly, who recently became a compliance attorney with British Petroleum.

Better Performance. A study at DePaul University showed that the overall financial performance of the 100 companies listed on Business Ethics magazine as the best corporate citizens was significantly better than the remaining companies in the Standard & Poor’s 500, noted Danette Wineberg, general counsel at New Hampshire-based Timberland, which was ranked 14th on the list.

Customer Demand. Customers also are insisting on corporate responsibility before they’ll do business or buy products.

“Consumers care deeply about the reputation of the people they’re buying from, and apparently care more deeply about it than they used to,” Rudolph said.

Recent surveys have shown that at least 20 percent of potential customers will refuse to deal with a company that’s perceived as behaving badly.

Customer Loyalty. In the early 1990s, the city of Brockton, Mass. was crime-ridden and financially devastated. As other banks pulled out, Rockland Trust Co., a community bank based in Massachusetts with $2.5 billion in assets, moved in and opened up branches and lending centers. Its corporate officers and employees also got involved in an economic revitalization project as well as volunteering for children’s sports and other groups.

“We did it because it was the right thing to do, first and foremost,” said Seksay, Rockland’s general counsel. “But secondly, and not insignificantly, Brockton is a major population center.”

Today, the city is seeing a revival of its fortunes. The bank is doing very well also with devoted customers who appreciate what it did.

The end result, he noted, is that investing in the city “helped the community but it also helped our bottom line.”

Employee Satisfaction. Likewise, employee loyalty is increased. Employees prefer to work for a company that’s a good corporate citizen, and turnover and the resulting loss of productivity are minimized for companies.

“Employees happy to be working there are more productive,” noted Sabatini Hennelly.

ENSR also works hard to be an industry leader on environmental issues, for example by providing free consulting to government agencies in a wetlands restoration program. Among other benefits, including forging good relations with agencies with whom ENSR’s clients work, this makes ENSR an attractive company for “top-notch” students. “We’re putting ENSR out as an environmental leader, so that students, when they hear our name, will hopefully see it as a place they want to work,” said Mahoney, the company’s general counsel.

Government and Community Relations. Intel Corporation knows that its corporate reputation is critical to its success. In the 50 countries around the world where it operates, it works hard to develop trust with local officials.

“In a high-tech environment, a lot of our market advantage comes from being able to move quickly, getting our permits on line and so on,” said Stangis. Because Intel has an excellent reputation for dealing with employee concerns, human rights issues, and the environment, government officials are far more cooperative.

For example, when the company wanted to build a new $2 billion facility in Arizona six years ago, its reputation for community responsibility and open communication with local leaders and others enabled it to land the necessary permits as one package, which sped up the process.

“We were able to be more productive, more efficient. It’s just a better way to run a business,” Stangis said.

As all of these stakeholders – employees, consumers, shareholders, and community neighbors – become savvier about corporate social responsibility, it will become a bigger point of differentiation, said Wineberg.

“Given a choice, these educated stakeholders may pick an organization that has adopted a CSR policy over one that has not.”

– Elaine McArdle