Corporate Social Responsibility, Private Law and Global Supply Chains

Corporate Social Responsibility, Private Law and Global Supply Chains

Corporations, Globalisation and the Law series

Andreas Rühmkorf

This insightful book demonstrates that private law makes a significant contribution to the promotion of corporate social responsibility (CSR), but that with certain changes this contribution could be better. Based on the analysis of four substantive areas (company law/corporate governance, contract law, consumer law and tort law), the book covers a full range of issues that are important for CSR. These include directors’ duties, corporate reporting, the incorporation of CSR policies into the supply chain, consumer rights and the tortious liabilities of companies.

Chapter 2: Company law, corporate governance and corporate social responsibility

Andreas Rühmkorf

Subjects: law - academic, corporate law and governance, human rights, regulation and governance

Abstract

The adoption of the enlightened shareholder value theory in the Companies Act 2006 was intended to promote a long-term approach to doing business, which includes a range of stakeholders, rather than purely focusing on shareholders. The aim of the enlightened shareholder value approach overlaps with the concept of Corporate Social Responsibility (CSR), as CSR implies an obligation on the part of large companies to pursue objectives advancing the interests of all groups affected by their activities – not just shareholders but also stakeholders such as employees, consumers, suppliers, creditors and local communities. It has therefore been argued that the revised Companies Act has several potential CSR implications. This potential link raises the question to what extent English company law and corporate governance promote or could be further developed to better promote the socially responsible conduct of companies. This chapter shows that the system of corporate governance within the framework of the enlightened shareholder value doctrine has, at least in theory, the potential to promote CSR. Corporate governance and CSR overlap in different areas which are addressed here: the duty to promote the success of the company for the benefit of the members as a whole (s172 CA), the reporting duty (s414A CA), the derivative action (s260 CA) and the composition of the board. There is a strong correlation between the list of factors in s172 (1) CA and the concept of CSR. Nevertheless, this chapter argues that the promotion of CSR through corporate governance and company law is, at present, limited. In particular, the duty in s172 (1) CA has so far not achieved much to enhance CSR. The various aspects analysed in this chapter all have severe shortcomings in the promotion of the socially responsible conduct of companies. CSR is too much left to the discretion of directors. The chapter argues that the interests of the various stakeholders and the concept of CSR continue to be subordinated under the shareholder value prerogative. The ultimate beneficiaries of the company remain the shareholders with only discretionary consideration of other aspects. The chapter concludes that despite the theoretical overlap between English company law and corporate governance with CSR, it is important to redirect the corporate objective in English law to a more pluralistic understanding of the firm in order to better promote CSR.

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