Corporate Social Responsibility versus Corporate Sustainability Responsibility Where

Corporate Social Responsibility versus Corporate Sustainability Responsibility: Where does corporate law stand? Olawale Ajai, Ph. D, Lagos Business School/Pan African

Agenda 1. Definition of terms – CSR, CS, etc 2. CSR V. CS – Synonymous or Distinctive Terms 3. Legal Concept of Corporate Sustainability 4. Legal Rules and Principles of Corporate Sustainability 5. Highlights of Judicial approaches in Development Vs. Environment cases Olawale Ajai, Ph. D, Lagos Business School/Pan African 2

Definitions • The following elements are significant: • Materiality of impact of company’s affairs on society and environment; • Distinction between philanthropy and core business activities; • Emphasis on CSR activities undertaken voluntarily and not legally compelled (note that the ISO working definition includes lawabidingness as integral to CSR). • Ideological attempts to widen or narrow the boundaries of the concept or to deflect negative neuro-linguisitic public communication stereotypes. • Using CSR and CS as synonyms on the premise that sustainable development is the imperative objective of CSR activities Olawale Ajai, Ph. D, Lagos Business School/Pan African 3

Synonyms – or what? • It appears from the selective list of definitions that CSR and CS are not exactly identical. CS seems to concentrate more on the impact of a company on its environment and vice-versa, whilst CSR seems to focus on the benevolent and beneficial activities of the company to society, although some definitions interchange the terms indiscriminately. In essence there is the idea that CSR is focused on stakeholder benefit/equity considerations primarily, whilst CS is focused primarily on fostering socio-economic development, albeit on terms of social equity. Olawale Ajai, Ph. D, Lagos Business School/Pan African 4

…humpty dumpty • Like “Humpty Dumpty” many commentators have chosen to treat CSR, CR and CS as synonyms. It has been said that CR evolved because businesses were uncomfortable with the “Social” in CSR and that CS evolved because it is less emotive and deflects the “rabble-rousing passions “of the term CSR. It has also been well said that CSR takes on a different hue and focus depending on the country and region, its history and ideology and that there is little practical reason in insisting on ONE definition so long as the general sentiment of holding corporate power in check and bending it creatively to the service of society is maintained. . Olawale Ajai, Ph. D, Lagos Business School/Pan African 5

. . dumpty humpty • Another perspective is that there has been an evolution of the concept such that CSR is now identified with current concerns about climate change, global warming, conservation of biodiversity, etc. , and the concept of sustainable development which from the notion of inter-generational equity includes the Human rights concerns of social equity in the globalized socioeconomy. Whatever, the case may be whether you call it Corporate Governance, CSR or CS it seems unhelpful that one concept is referred to by several terms. Olawale Ajai, Ph. D, Lagos Business School/Pan African 6

Inter-generational equity • There is a more critical point, however, in that CS is generally defined by reference to the notion of inter-generational equity between present and future shareholders and stakeholders of companies. This suggests that there may be a distinct character to the concept of CS after all. The implication of this notion is that corporate law can and should be “Greened”. What is the distinctive character of CS and how ‘Green” is corporate law now? Olawale Ajai, Ph. D, Lagos Business School/Pan African 7

Elements of the legal concept of corporate sustainability • Indefiniteness or futurity: • Does society have an independent interest in preserving the existence of flourishing companies? Probably yes, from the point of view of employees, tax authorities, suppliers and consumers of its popular products. Do they, or should they have a power of veto over shareholders who take the improbable decision to liquidate the company and run with the money? Probably not, at least if the right to private property and human rights in functioning democracies is any thing to go by , incidentally another cardinal plank of CSR and the sustainable development lobby. Olawale Ajai, Ph. D, Lagos Business School/Pan African 8

…elements • Frugality & thrift - requires: • that cost be reduced by eliminating waste and that inputs, production and management processes, design of product and services and their disposal – ecoefficiency; • that externalities be internalized; • that profits be optimized and be conservatively apportioned in compensation and dividend practices in favor of strategic savings for the rainy day ( building up healthy reserves) as a buffer for inclement times or unforeseen contingencies and reparations Olawale Ajai, Ph. D, Lagos Business School/Pan African 9

…elements • Precautionary approach: • This suggests that there is an imperative that risk management be based on conservative principles and state of the art considerations, avoiding recklessness or excessive risk-taking. Olawale Ajai, Ph. D, Lagos Business School/Pan African 10

…elements • Polluter pays principle: • Shows up in cases where courts impose absolute liability for highly hazardous activities, even in tort law. Olawale Ajai, Ph. D, Lagos Business School/Pan African 11

…elements • Meaningful participation and long term engagement: • Sustainable development tends to be incremental and long term in scope and gestation. Therefore, ad hoc and uncoordinated acts of corporate philanthropy are too scattershot, immaterial and amount to a “pin in a hay stack” effect that will not facilitate development. This suggests that CS activities be targeted and leverage on efforts by other stakeholders, including the subject communities themselves Olawale Ajai, Ph. D, Lagos Business School/Pan African 12

…Coordination of CSR on basis of PPP • The much maligned Corporate Social responsibility Bill before the Senate of the National Assembly of Nigeria may in fact contain the seminal principle that because corporate sustainability requires active and sustained collaboration and synergy with other stakeholders there is need for legislated, or at least negotiated umbrella or frameworks for an inclusive or Public-Private Partnership (PPP) approach for CS initiatives that reflect national priorities, theme and partnerships. Although, the strategy of the Nigerian CSR Bill which seeks to set up a Government Commission to regulate CSR activities of companies is faulty, the essential objective -, to harness the power of the corporate sector as a well coordinated complement to government development programme cannot be faulted in societies where ab initio, the deficits of governments capacity are all too familiar and obvious to all. Olawale Ajai, Ph. D, Lagos Business School/Pan African 13

CS Hard law? • • Section 172 of the Companies Act of United Kingdom, 2006 has lengthened the list of interests directors may consider in the performance of their duties beyond the traditional category of shareholder and employees interests, to the environment, consumers, suppliers and the general society, since it is permissive and not directory in character or tone. No doubt the best interests of the shareholders and the company are ultimately promoted if these matters are considered in corporate decision making. The criteria spelt out in the UK Act are an inexplicit best practice benchmark for company directors. Ignoring them by failing to install reasonable architecture and oversight processes in the company would presumptively mean that directors are in breach of their duty of care and skill to promote the success of the business, or to act in the best interest of the business. The above legal norm of corporate sustainability is further strengthened by statutory requirements for reporting of environmental or social responsibility This rule applies in countries that practice the common law where the list of concerns has not yet been explicitly extended beyond the interests of shareholders and employees Olawale Ajai, Ph. D, Lagos Business School/Pan African 14

Business Judgment & proper Purpose hurdles • in so far as other stakeholders are not represented on the Board of Directors under the Anglo-Saxon model it follows that unless some shareholders feel particularly aggrieved there may be no one to implement the duty. Even if a public spirited shareholder brings suit it would appear that the business judgment rule may provide a low hurdle for the director’s Olawale Ajai, Ph. D, Lagos Business School/Pan African 15

Judiciary & Development vs. Environment cases - highlights • • Crafting new procedural devices to improve access to justice and to impose novel rules of environmental liability; A cost-benefit approach which appears inherently to favour the profit motive rather than the precautionary principle; Upholding accepted commercial legal standards in cases that touch upon CSR obligations of companies tending to favour the application of CSR duties by not insisting on a higher threshold for establishing CSR Obligations. Keeping a close watch on exercise of regulatory power in order to preclude abuse and egregious politicization; Keeping a close watch on protecting Businesses from egregious partisan ideology or the ideological plaintiffs; Tension between activist mindset and conservative rule constructionist mind set – keeping within the boundaries of black letter law versus judicial policy/law making Materiality of impact versus blameworthiness; Protecting the national revenue base from natural resource exploitation Olawale Ajai, Ph. D, Lagos Business School/Pan African 16

Reforms & directions for further development of CS in corporate law • Need for a positively framed explicit statutory director’s duty of care towards the conservation of the environment as a matter of natural evolution, although this is now implicit as argued above. • Alternative formulation to “foster sustainable development” may be too wide for now in view of the still evolving nature of the concept Olawale Ajai, Ph. D, Lagos Business School/Pan African 17

. . reforms, further development • ‘Access to Justice Plan” to allow interested stakeholders to approach the courts to protest decisions that are adverse to their interests by companies of a particular size should be legislated into companies law. • Such law should first grant them access to the directorate of the company in their character as nonmember stakeholders, and perhaps go the full hog of allowing them a seat on the Board to represent larger stakeholder interests. A precursor model already exists under German and French law - even in Anglo-American Law the notion of the “Independent Directors” has become quite recognizable and acceptable. Olawale Ajai, Ph. D, Lagos Business School/Pan African 18

Finally • Thank you. Olawale Ajai, Ph. D, Lagos Business School/Pan African 19