This is the first in a series of posts reflecting excerpts from a chapter that I authored on corporate social responsibility (“CSR”) for the Corporate Legal Compliance Handbook.
Over the last 20 years, many companies have invested considerable time and resources in developing comprehensive compliance standards and procedures. At a minimum, compliance programs are intended to prevent and detect violations of the law that may lead to civil or criminal liability. A rigorous approach to compliance may help a company establish credibility with key stakeholders, and, at the same time, may represent a form of insurance when, or if, breaches of the law do occur: strong compliance systems may help insulate a company from indictments, litigation, and/or punitive fines.
Notably, CSR serves many of the same functions for companies. Companies with demonstrable commitments to strong social, environmental, and governance standards reduce their legal, reputational, and operational risks, in part by reducing the risk of performance failures and also by building a “social license to operate” with key stakeholders. The former U.N. Special Representative on Business and Human Rights, John Ruggie, observed that a social license to operate “is based on prevailing social norms that can be as important to a business’ success as legal norms.” A failure to address emerging normative standards can leave a company without capacity to effectively engage stakeholders and pursue business objectives. In contrast, a willingness to engage stakeholders in transparent dialogues regarding the impacts of corporate operations fosters an environment in which grievances may be amicably resol
ved before they lead to litigation, boycotts, attacks on corporate facilities and other forms of stakeholder protest.
While compliance and CSR fundamentally serve some of the same risk-management functions for companies, internally they are often managed quite differently. Personnel in charge of compliance may have few direct engagements with those in charge of CSR. With rigorous compliance audits, companies may be able to demonstrate their compliance with law, but they may not have the same capacity to demonstrate their efforts to fulfill voluntary commitments. As noted above, a failure to demonstrate that a company is fulfilling its commitments to stakeholders can be costly. There are strong business reasons, therefore, to leverage and integrate CSR commitments and compliance processes.
Excerpt reproduced with the permission of Wolters Kluwer from Theodore Banks & Frederick Banks (eds.), “Corporate Social Responsibility,” Corporate Legal Compliance Handbook, Chapter 15 (2016). A copy of the full handbook can be purchased here.