Embracing a model of corporate social responsibility can help a company better manage its risk and improve its governance structure, but it’s not just in-house counsel who should be working on it — external counsel have a role to play as well.
“Lawyers have to take a more active role in what are the expectations of corporate social responsibility,” says Michael Torrance, a lawyer with Norton Rose Canada LLP speaking on a panel called Corporate Social Responsibility: Business Imperative with Legal Implications, part of a day-long conference held by Norton Rose for the extractive sector last week.
“External counsel need to be at the table as well. CSR will ultimately have to be embedded in a company’s legal risk management strategy. I think in-house counsel get it. The role of external counsel in my view, they have a depth of subject matter expertise in all of the important areas of CSR and can help shore up areas of expertise in-house counsel do not have.”
Torrance outlined seven principles of CSR:
• sustainable corporate governance;
• stakeholder engagement;
• consistent best practices;
• precautionary approach;
• community investment.
“These are going to be core elements of a CSR strategy,” says Torrance. “Each aspect has legal implications that arise from them. They will be adopted voluntarily in many circumstances by companies because they view adoption as being beneficial in terms of managing risk, but once adopted they cease to be voluntary. Once a corporation decides to incorporate them they become part of the governance of the company.”
Most companies feel they need to build a business case for CSR before embarking on all the issues that factor into such a broad governance model. In many cases it can mean significant investment in a community.
“I heard an executive who specializes in CSR with a large mining company who said the business case for CSR is that CSR builds trust, trust builds reputation, and reputation drives value,” says Torrance.
CSR principles can come into play as an important strategy for risk management within an organization and viewed as a form of self-regulation.
“It comes down to a set of governance standards a company can use to regulate themselves whether or not the law regulates them. Whenever a company does this it will give rise to legal implications,” says Torrance.
Oversight of risk in an organization is a primary focus in governance today, says Norton Rose partner Janne Duncan.
“Managing risk is also one of the leading fiduciary obligations of a director,” she says. “The debate today is who should have oversight of risk?”
While the role of risk used to reside with the in-house legal team or general counsel, who was the go-to person on anti-bribery or corruption questions, occupational health and safety, and other issues, rapidly that role is also moving right up the chain of command so in many companies it’s the CEO, CFO, COO, and chief risk officer.
“When people talk about how CSR is really voluntary and not legal, I don’t think they are seeing the issues in terms of larger corporate governance and legal risk framework,” says Duncan.
Duncan notes that there are many examples of how poor governance in areas of CSR has served to wipe out share value of large companies.
“For example, right now we are watching Wal-Mart as its stock price is sliced by a significant amount by reason of anti-bribery and corruption allegations in Mexico,” she says.
At the conference several mining companies talked about how they approach CSR in the communities they work in around the world, in particular underdeveloped areas such as Africa.
Douglas Perkins, president and CEO of Legend Gold Corp., emphasizes the importance of building a company’s CSR into compensation plans for those working on the ground. He notes a CSR program should be developed from the bottom up to ensure maximum return on investment for the money spent in the communities for things such as schools, clean water, health care, and other social programs that benefit the communities around the mines.
“You need to put the responsibility for CSR at the individual mine level, provide people to perform the tasks and put the parameters of success in the mine manager’s KPIs for his annual bonus,” says Perkins.