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Andreas Rühmkorf

This chapter discusses the changing sourcing strategies of transnational corporations and the challenges that they raise for the international Corporate Social Responsibility (CSR) activities of companies. Whereas Western transnational corporations traditionally sourced from wholly owned foreign subsidiaries, they now increasingly use a complex supply chain consisting of direct suppliers and, in most cases, also their subcontractors. These supplier companies are usually not owned by the Western transnational corporation. The chapter first introduce global sourcing strategies. It then analyses the barriers that global sourcing through foreign subsidiaries and independent suppliers constitute for the promotion of CSR, for example, the lack of a binding international human rights framework on companies and the territorial limitation of national law. The chapter will then critically review existing attempts to regulate CSR in global sourcing such as private governance schemes, tort law approaches in both English and US law, the extraterritorial criminal liability of companies and disclosure laws. The chapter also reviews the Accord on Fire and Building Safety in Bangladesh as an example of a multi-stakeholder initiative. The chapter argues that the home states of transnational corporations can do more to fill the regulatory gaps in promoting greater CSR in global supply chains.
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Andreas Rühmkorf

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Andreas Rühmkorf

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Andreas Rühmkorf

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Andreas Rühmkorf

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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Andreas Rühmkorf

In the course of globalisation, companies no longer completely produce their goods themselves within the boundaries of their resident country, but rather distribute their production to suppliers in different countries around the world through global supply chains. Companies in the global North and West have increasingly outsourced parts of their production to suppliers in developing and transitional countries in order to reduce cost. This process of outsourcing to suppliers is particularly prevalent in labour-intensive production industries such as the garment industry and also in the food industry. The buyers in these supply chains are often multinational companies. However, reports about human rights violations of employees of suppliers in the developing world, for instance through the use of child labour, unsafe working conditions or excessive working hours, have negatively affected the reputation of some Western companies which trade with these suppliers. The collapse of the Rana Plaza Building in Bangladesh in April 2013, which killed more than 1100 people, dramatically highlighted the often hazardous working conditions at supplier factories. As a consequence of this increasing interest in the supply chain, Western multinational companies, particularly those with well-known brands, have come under increasing public and political pressure to show that they are socially responsible in their supply chain. Many multinational companies therefore implement Corporate Social Responsibility (CSR) policies into their supply chain. Based on a small-scale study of contractual CSR documents provided by multinational enterprises on their websites, this chapter analyses how companies incorporate CSR codes of conduct into the supply chain contracts with their suppliers. To that end they use different mechanisms through which CSR becomes part of the contract, particularly through the incorporation into the buyer’s terms and conditions which are part of their purchase order. This chapter argues that while the buyer’s CSR policies often become part of the contracts between buyer and supplier and hence creates enforceable contractual terms, it is important to note that contract law faces severe drawbacks in its ability to promote socially responsible behaviour in suppliers in the developing world, for example, due to the doctrine of privity of contract. On the other hand, the analysis of the terms and conditions of three multinational companies shows that the buyer would often be able to procure a remedy for breaches of CSR principles in supply contracts.
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Andreas Rühmkorf

Consumers are increasingly a driver of Corporate Social Responsibility (CSR) activities of companies. Surveys have shown that up to 90% of consumers consider the social responsibility of companies in their purchase and consumption behaviour. The term ‘ethical consumerism’ denotes the situation that consumers care about issues of CSR and are positively influenced by a company’s CSR engagement in their purchase behaviours. Consumers’ perceptions of companies are better if they believe that companies are committed to CSR. This trend provides an incentive for companies to be socially responsible. Companies have responded to ethical consumerism by giving CSR an increasingly important role in their marketing activities. Brands are portrayed as being socially responsible. Many companies therefore publicise information about their engagement with CSR, including the codes of conduct to which they have signed up. These codes of conduct account for a significant part of the CSR strategy of companies as they usually contain principles of socially responsible behaviour with which companies pledge to comply. The rise of ethical consumerism raises the question how reliable the information is which companies release about their CSR record. Consumers, as the targets of corporate CSR marketing activities, require protection against false information. This chapter therefore addresses the question to what extent English consumer law currently promotes CSR. To that end, the chapter analyses if breaches of CSR policies by companies are encompassed by English consumer law at all and, if this is the case, then examine whether consumers may procure an appropriate remedy in such a situation. Based on this analysis, the chapter addresses the question how consumer law could better promote CSR. This section particularly discusses the Consumer Protection (Amendment) Regulations 2014 which introduced a private right of action for consumers. This chapter argues that the way in which consumers are protected in private law against false information of companies about their CSR commitments is inadequate. The new private remedy is a step into the right direction, but no more. The fact that consumers still do not have the right to injunctions is a missed opportunity from a CSR point of view. Reg 5 (3) (b) CPRs explicitly makes the breach of a commitment in a code of conduct a misleading action, if some further requirements are satisfied, and therefore brings CSR into the scope of the CPRs. Yet, without the right to an injunction it will be difficult for consumers to meaningfully promote CSR through consumer law. They are still dependent on the public enforcement bodies which are the only bodies that can exercise this right.
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Andreas Rühmkorf

It is possible that actions by companies which violate principles of Corporate Social Responsibility (CSR) also constitute torts. CSR and the law of torts overlap where tort law protects the interests that form part of the CSR principles such as the protection of the company’s employees, its consumers or the environment. Due to the protection that tort law offers for personal interests such as health and property, tort law has been identified as a possible means of promoting CSR. Private individuals could use civil claims based on tort to promote greater social responsibility of corporations. This chapter comprehensively analyses the use of tort law as an instrument for the promotion of CSR by addressing both the ability of tort law to promote greater socially responsible conduct of companies as well as the challenges of using tort law to that end. This chapter argues that English tort law already makes an important contribution to the promotion of CSR, as it provides several causes of action for the violation of CSR principles, for example, the health and property of some of the company’s stakeholders such as its employees. Tort law provides several groups that are, by definition, encompassed by CSR, with a remedy in tort for the violation of their interests (which overlap with CSR). Through the provision of legal remedies, tort law is therefore a means of enforcing CSR principles. However, the chapter also argues that tort law is restricted in its ability to enhance greater social responsibility of corporations in a number of ways. First, the right to action is limited to those persons whose property or other personal interests have been harmed. Secondly, tort law is primarily reactive and compensatory. Actions in tort are brought when the tort has already occurred and the main aim of tort is to compensate the tort victim for the injury sustained. Thirdly, the ability of private parties to make use of the potential of tort law as an instrument to promote greater CSR is limited due to the difficulty with accessing justice. This situation is down to the restricted availability of class actions in tort and recent changes to the funding of civil litigation. Finally, the particular challenge for using tort law in the context of CSR is that many companies operate corporate group structures in order to diversify their risk of incurring liability. It is argued that this situation is not fair for a tort victim of a subsidiary whose claim cannot be compensated by that subsidiary, particularly where subsidiaries are undercapitalised.
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Andreas Rühmkorf

This chapter builds on the analysis of four areas of substantive English private law in the preceding chapters of the book (i.e. company law and corporate governance; contract law; consumer law; tort law). The chapter brings the threads of the analysis in the chapters together. It is argued that the four areas of private law that were analysed in this book have demonstrated that private law plays an important role for CSR in various ways, for example, through director’s duties and the strategic report in company law, the incorporation of CSR standards into supply chain contracts, the liability in tort for violations of CSR principles and through the private remedy of consumers in relation to misleading business practices. This chapter argues that while there are limitations to the promotion of CSR in English private law, private law has made and can continue to make an important contribution to the promotion of CSR and that it could make an even better contribution if these limitations were addressed. Based on the discussion of the limitations and opportunities provided by private law, the chapter provides a list of substantive recommendations for changes to English law that result from the analysis. Within the discussion of the limitations and the strengths of private law in the promotion of CSR, this chapter also addresses the question to what extent English private law could contribute to the implementation of the UN Guiding Principles on Business and Human Rights into English law.