2 July 2018
“[I]t goes beyond philanthropy and compliance, and addresses how companies manage their economic, social, philanthropic and environmental impacts, as well as their relationships in all key spheres of influence: the workplace, the marketplace, the supply chain, the community and the public policy realm”.
Source: this memorandum was featured on the Harvard Law School Forum on Corporate Governance and Financial Regulation.
By Michael W. Peregrine; McDermott Will and Emery LLP
The general counsel’s ability to incorporate moral and ethical matters within her advice, and her accepted role as “wise counselor” to management, well-position her to be an important advisor to board and executive leadership on corporate social responsibility (“CSR”) matters.
By its nature, CSR reflects the confluence of business performance; law and regulation; corporate governance; and social and environmental goals. A company’s ability to respond to CSR depends in part on soliciting a diversity of related perspectives at the executive and board levels. These should logically include the general counsel, whose portfolio extends well beyond technical legal issues, to incorporating moral and ethical considerations in her advice to the corporation.
The managerially progressive CEO, who is sensitive to CSR principles, will support and embrace the regular and active participation of the general counsel in “C-Suite” CSR discussions.
Defining Corporate Social Responsibility
While there is no universally accepted definition of CSR, it is generally considered as incorporating “business’s responsibility to the wider societal good beyond, but in addition to, the business’s economic performance.” “[I]t goes beyond philanthropy and compliance, and addresses how companies manage their economic, social, philanthropic and environmental impacts, as well as their relationships in all key spheres of influence: the workplace, the marketplace, the supply chain, the community and the public policy realm”.
The American Bar Association has adopted a broad definition of corporate social responsibility that is grounded in concepts of corporate citizenship. The ABA definition refers to “voluntary corporate programs and practices that promote fairness, transparency, accountability and ethical behavior across global business, legal and social institutions”.
Such programs and practices incorporate three distinct elements, all which “intersect with the rule of law”: (i) “strong sustained economic performance”, which benefits all of the corporation’s constituents (including employees and communities); (ii) a meaningful commitment to legal and financial compliance that is supported by robust compliance programs; and (iii) initiatives, beyond legal requirements, to address social, environmental and human rights concerns, promote candor and fair dealing, and to achieve “a balance between private and public interests”.
Principles of CSR are being promoted by a broad cross section of interested parties, including but not limited to government; consumers; employees; contracting parties; industry groups and communities. Among the most publicly vocal of these parties has been the investment management industry. To varying degrees, firms such as BlackRock, Vanguard and State Street Investors have sought to motivate companies to focus both on making a positive contribution to society, as well as on financial performance. As part of their overarching goal to promote sustainable growth, these firms are increasingly engaging with companies with respect to their ability to manage environmental, social, and governance matters.
The Organizational Challenge
As many general counsel are painfully aware, some CEOs (and other senior executive officers) have historically been reluctant to invite or give thoughtful consideration to advice from the general counsel on matters apart from those considered strictly related to technical legal issues. This, despite the increasing recognition that the general counsel is to be viewed as a valued business partner to management, on a hierarchical par with the CFO.
This reluctance may be exacerbated in discussions concerning CSR. Certainly, the company will need legal advice on the implications of CSR; not just on matters of applicable legislation and regulation, but also on issues such as compliance with voluntary standards and responding to shareholder positions. But the value of general counsel input may be less obvious when dealing with collateral CSR concerns such as purchasing practices, threats of product boycott, social advocacy and pressure for CEO comments on leading issues.
Providing such moral and ethical-grounded advice is entirely consistent with the professional rules of conduct, as well as with the increasingly accepted view of the general counsel as a “wise counselor” and not just a technical legal expert. Yet in many cases the Board Chair, the CEO and other senior executives may need to be convinced before they are willing to tolerate such an expansion of the general counsel’s portfolio.
The Perspective of the Professional Rules
Consider, then, Section 2.1 (“Advisor”) of the Model Rules of Professional Conduct (“Model Rules”):
“In representing a client, a lawyer shall exercise independent professional judgment and render candid advice. In rendering advice, a lawyer may refer not only to law but to other considerations such as moral, economic, social and political factors, that may be relevant to the client’s situation.” [Emphasis added] (Note also the Model Rules’ reference to the lawyer as an officer of the legal system and a public citizen having “special responsibility for the quality of justice”).
As the Comment to Rule 2.1 acknowledges, advice that is provided in a narrow, strictly technical nature may be of little client value, particularly when other, practical factors (e.g., cost or effects on other people), are present. In such situations, purely technical legal advice can sometimes be inadequate. It can then be proper for a lawyer to “refer to relevant moral and ethical considerations in giving advice”.
Certainly, Rule 2.1 should not be interpreted as adding the role of “moral advisor” to the general counsel’s portfolio. It does, however, recognize that moral and ethical considerations can impinge upon most legal questions and thus may have a ‘decisive’ impact on how the law will be applied.
This ability to incorporate “moral/social” perspectives with her most limited, technical role would seem to well position the general counsel to fully participate in the broader range of executive discussions prompted by CSR factors. After all, she’s already taking them into consideration when responding to corporate legal questions.
The “Wise Counselor” Role
Consider as well the increasingly accepted role of the general counsel as “lawyer-statesman” and the extent to which it positions her for fulsome CSR participation.
As articulated by the estimable Ben W. Heineman, Jr., the “lawyer-statesperson” serves her client not only as a technical legal advisor, but also as a “wise counselor” and as an effective leader. As “lawyer-statesperson”, the general counsel plays a significant part in helping her company achieve the twin goals of high performance, and high integrity and effective risk management.
According to the Heineman, Jr. view, the initial question the general counsel considers when providing advice may be “Is it legal?”, but it is followed up by the question, “Is it right (for the client)?” In that respect, she will place the question in context, and identify both the legal and non-legal issues that impact on the decision. She will apply such factors through the prism of organizational ethics, and assist the corporation in deciding “what actions to take voluntarily” beyond what may be mandated by legal rules and financial requirements.
According to Mr. Heineman, Jr., issues of organizational ethics implicate four specific responsibilities: (i) to the corporation itself, and its employees; (ii) to organizations and individuals outside the core entity who are served, or otherwise affected by, the corporation and its actions (ranging, e.g., from stockholders to customers to creditors); (iii) to the legal system and the rule of law, which are a fundamental component of a sound economy and a democracy; and (iv) the need “to secure other broad public goods and embrace sound private ordering” in support of justice and other similar sound societal goals.
Addressing issues of organizational ethics, and other factors related to the “is it right?” question (e.g., institutional, political, economic, policy, reputational, ethical), significantly sensitizes the general counsel to the perspectives necessary in advising her client on CSR issues.
Corporate leadership benefits from a diversity of perspectives when adopting CSR policies and positions. The general counsel, by virtue of her professional responsibilities and her recognized role as both technical legal advisor and, as “wise counselor”, is already incorporating moral and ethical considerations in her client advice. This practical experience uniquely qualifies her to serve as a primary CSR advisor to both the board and the executive leadership team.