Corporate Social Responsibility
The question of how to reconcile profitability with social responsibility is a central issue that has long been discussed across disciplines. Against the background of growing public attention to social and environmental standards as well as the fight against corruption in developing countries, the issue of corporate social responsibility (CSR) also raises important legal questions.
“To date, most work on CSR has come from economics and the social sciences. But the debate surrounding the social responsibility of companies touches on fundamental questions of company law”, says Institute Director Holger Fleischer, whose working group at the Institute has for several years researched CSR in order to provide critical input on future proposed reforms.
Liability for human rights abuses by corporations
Alarming abuses in the supply chains of multinational corporate groups have prompted the question of whether domestic parent companies must bear responsibility for human rights violations committed by their subsidiaries abroad.
Working together with Institute Senior Research Fellow Stefan Korch, Holger Fleischer has conducted a comparative analysis of the legal situation in Germany, the UK and France. In all three legal systems, it is widely agreed that corporations are not per se subject to any special rules in tort. However, a closer analysis shows that individual factors can work in combination to produce distinct obligations.
“As with the UK and France, in Germany under the rules of the general tort law of the Civil Code, every legal entity is in principle responsible only for its own conduct and its own sphere of activity,” Fleischer says. “For this reason, the question of whether the company-wide due diligence obligations of the parent company come into consideration regarding harmful actions by subsidiaries must be scrutinised in each individual case. This becomes relevant if the parent company is directly involved in the subsidiary’s risk management or gives it instructions in a high-risk setting. A further issue that may be brought to bear in the overall assessment of the case circumstances is the gravity of the impending legal infringement.”
Responsibility along global supply chains
Legal issues surrounding CSR gained a new urgency when the Rana Plaza garment factory collapsed in Bangladesh in 2013. This tragedy took the lives of 1,138 people and triggered a worldwide debate about procuring companies’ responsibility in global supply chains.
In particular, legal proceedings in the Rana Plaza case have focused on the issue of whether companies must take responsibility for their foreign suppliers’ misconduct or for their own negligence. Building on their analysis of corporate liability, Holger Fleischer and Stefan Korch have investigated the extent to which companies are accountable for misconduct occurring in their supply chains under German, French, British and US tort law.
“The four legal systems are in agreement that accountability under tort law applies only in exceptional cases,” says Stefan Korch. “This occurs when, for example, the procuring company directs the supplier as if it were a dependent operating unit. But even in a tightly forged supply chain, involvement alone is insufficient to establish liability for the actions of suppliers.”
New legal forms for social entrepreneurship
The company forms available under today’s German company law already offer several options for entrepreneurs who wish to orient their businesses to both profit and the common good. Unlike its counterparts in the UK and the majority of US states, however, German company law does not provide a special legal form for such entrepreneurs.
Julia Tittel, Research Associate at the Institute, is exploring in her dissertation project the question of whether German lawmakers should follow the lead of the US and UK by also introducing a special company form for socially oriented companies and, if so, what specific form it might take.
“It’s fascinating to me to observe how the traditional division between commercially oriented companies on the one hand and purely non-profit associations on the other hand appears to be fading away,” Tittel says. “I’m interested in how company law could respond to this trend. Looking beyond borders gives us illuminating sources of inspiration – in terms of both the reasons for introducing a new company form and the ways it might be configured.”
