JURIST Guest Columnist William Stanger, University of California, Davis School of Law Class of 2014, is a Staff Editor for the school’s Business Law Journal. Stanger writes about the shortcomings of corporate social responsibility and how government should play a larger role in regulating corporate efforts…

On April 20, 2010, the Deepwater Horizon offshore drilling platform suffered a tragic, avoidable accident. The courts will be sorting through the claims, counter-claims, appeals and cross-appeals for years. The corporate social responsibility issues faced by British Petroleum (BP), its partners, vendors, agents and other associates will no doubt serve as research fodder for dozens, and possibly hundreds, of legal publications in the coming decade.

The complaint [PDF] in Blanchard v. BP America Production Company states that BP entered into a contract in May 2010 with plaintiff, a restaurant and catering operation in St. Bernard Parish, Louisiana. The restaurant was to provide meals and catering services for BP cleanup crews operating in the area. However, BP allegedly breached the contract, refused to pay for services provided and hired a competing catering operation. The plaintiff seeks actual damages around $20,000, services and legal fees around $200,000 and nearly $2,000,000 in lost future business under the contract. While the case is ongoing, the implications of the suit as they relate to corporate social responsibility present a variety of issues. In addition to the damage BP has already caused on the Gulf Coast, it has now allegedly breached contracts with local small businesses, causing further economic harm.

BP has experienced its ups and downs in the public eye. In 2000, BP and legendary advertising firm Ogilvy & Mather launched the ongoing “Beyond Petroleum” campaign to spruce up its corporate image and tout its dedication to green energy investment. In 2005 and 2007, BP placed in Multinational Monitor’s top ten worst companies of the year. At the same time, CNN Money reported that Fortune Magazine, in partnership with AccountAbility and CSRNetwork, declared BP the top “most accountable” company in 2007 and the second “most accountable” in 2006. Adweek, a prominent marketing and advertising industry publication, and Mother Jones Magazine, one of the largest paid circulation liberal publications, both blasted BP for long engaging in a questionable practice known as “greenwashing.”

Greenwashing is one of the best examples of how the tenets of corporate social responsibility are self-contradictory. In this practice, a company focuses some resources on popular socially beneficial goals, focuses more resources on advertising its new socially responsible efforts and continues ignoring less popular but equally socially valuable goals, such as worker safety and disaster prevention. The practice illustrates the innate opposition of profit motive and social responsibility. By allowing and encouraging self-regulation and voluntary measures, we leave society defenseless against manipulation and unprotected from large informational disparities. Corporations are founded for the purpose of seeking and making profits, and they should be left to it, while the government should be charged with regulating corporate behavior.

The government is most aptly situated to protect society from unscrupulous practices perpetrated by corporations. The government enforces contracts, provides remedies for their breach, ensures that workers are paid wages and not treated too harshly and protects our natural resources from contamination and depletion. Unfortunately, the government reacts slowly to particular situations. For example, the government took 25 years to implement and enforce fair, logical intellectual property rights for computer programs. Unfortunately, the gap between invention and regulation is frequently filled with degrees of human suffering. For a modern example that bridges the gaps between cultures, look to economies that were or are shifting from agriculture to industry: 1800s England or modern day China. The socioeconomic upheaval inspires a variety of social and political perspectives. For some, it is a story of hardship, hazardous working conditions, subsistence wages and abuse of the working class. For others, factory life is a relief from the abuse of the landed gentry and fickle weather, a small measure of mobility and a glimmer of hope for advancement. Regardless of perspective, the government must intervene in order to ensure a fair deal between labor and management, to curtail the worst offenses to decency and to legislate a modicum of morality.

Corporations would have us believe that “corporate social responsibility” can replace government intervention. Corporate social responsibility refers to the idea that a company should self-regulate its behavior and engage in socially beneficial activities at its own expense. In reality, it is a label like “green” or “organic,” which means different things to different corporations, and with no standard definition or enforcement, it becomes just another marketing ploy. It convinces you to shop at one store instead of another. It makes you feel good about spending money on something unnecessary made overseas. It is a reason you should have warm and fuzzy feelings for the chemical conglomerate that poisoned your lake a few years ago or the oil company responsible for the latest spill. Looked at in the most base and crass light, it may not even be marketing so much as tainting the jury pool.

Turning a skeptical eye to the corporate social responsibility apparatus may be equally illuminating. We must consider who controls the policies and how and why they were developed. We further need to determine if companies take proactive steps to improve these policies once already in place. When companies take the proper steps, it is possible for them to effectively practice corporate social responsibility. However, all too often programs are designed through market research, as a response to negative press, or a lawsuit, or a function performed by the public relations staff to protect the integrity of the corporate brand. In these cases, the social good of the programs may be material, but they do not actually promote the cause of corporate social responsibility.

Extrapolating further, we can deduce that many of these programs may merely be cases of greenwashing, little more than public relations insurance policies against the next disaster. These programs promote corporate negligence. A few percentage points of profits given away buy as much good will as a more expensive investment in worker safety or environmental remediation. Further, a company may simply wash its hands of a questionable business practice by outsourcing it to a less scrupulous subcontractor and claiming ignorance if allegations of wrongdoing arise, as appears to have occurred with the Deepwater Horizon disaster.

It is axiomatic that there is no such thing as charity in business. Basic accounting principles state that for every liability there must be an equal and opposite asset. In this case, cash given to charity is offset on the balance sheet by increases in goodwill and tax savings. We must consider where a company gets the money it uses for corporate social responsibility. Naively, we may be told that the company pays for its policies through its own profits. However, the profits do not belong to the company; they belong to its owners. In a private company, this hardly matters, as the owners are the company and they can give as they choose.

For a public company, it is customers, and not the shareholders, who pay for the programs. Nobel Prizes in Economics have hinged on the notion that investors are good at making self-serving decisions and dislike when their investments make their decisions. In most instances the company passes the cost of charity on to the consumer through increased prices. Make no mistake; the 5 percent of pre-tax profits being charitably donated by certain big box discount stores raises prices accordingly. Effectively, this unilaterally pledges the consumer’s support to the charity on the company’s terms, and it does so in lieu of causes the consumer might prefer to support, if they were aware and motivated to do so on their own. Finally, the programs suffer from a lack of transparency, as consumers are generally disconnected from the process of determining which charities to support, and, if it occurs, have no oversight to scrutinize how the funds were spent once disbursed. The company asks the customer to take it on faith that their activities actually happen, and actually have a social benefit, leaving the door open for more greenwashing.

Corporations should be charged with doing what is in their nature—providing goods and services that people want, at a cost the market will bear, while the government should be charged with regulation. Despite the electronic communication and organization tools available today, the free market is too mindful of popular causes to adequately deter evildoers. Laws already exist to protect us from gross corporate fraud and negligence. For industries that operate behind veils of secrecy, we can only keep pressuring the government to adapt. Ultimately, it is the government, in response to society’s needs, which must continue to set the standards for corporate behavior, to create a common definition of corporate social responsibility and to oversee enforcement. Encouraging dubious corporate self-regulation of social behavior leaves us worse off, because we, as the consumers, are ultimately paying for it. Furthermore, self-regulation of social behavior has the unfortunate side effect of lulling everyone into a false sense of security.

William Stanger studied Economics and Computer Science at the University of Pennsylvania. He has held a variety of positions at Pennsylvania Real Estate Investment Trust, including Associate Asset Manager, Lease Coordinator and Associate Development Director. In addition, he was self-employed at Ventuity LLC, where he designed real estate development software and consulted with investors on real estate development opportunities.

Suggested citation: William Stanger, Dubious Self-Regulation and Greenwashing Corporate Negligence, JURIST – Dateline, Nov. 14, 2011, http://jurist.org/dateline/2011/11/william-stanger-corporate-responsibility.php.