Notes Lecture 3 Corporate Social Responsibility (2223-LAW4037)
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Course
Corporate Social Responsibility (2223LAW4037)
Institution
Maastricht University (UM)
This document is a transcript of the third lecture of the course Corporate Social Responsibility. In this document you will find not only the lecture notes, but also the transcription of all the audiovisual material to be studied for this week's topic: Corporate groups, liability & access to remedy.
Week 3: CSR and corporate group responsibility - liability, regulation & access to remedy
Topic I: The structure of modern multinational corporations and their legal responsibility
1. Watch Video VI: Multinational Corporations & the law
This video introduces the notion of the 'multinational corporation' (or transnational corporation,
multinational enterprise) as the central object of regulation. It introduces the structure of corporate groups
and the setting up of supply-chains as two central legal categories through which multinational
corporations operate legally.
Audio
The past videos have been looking at how globalization and corporations interact so to say what has caused
globalization what does it mean for the regulation of corporations and what kind of current debates, cases
and regulatory initiatives are going on in order to govern global corporate conduct and to ensure that
corporations act in the interest of society.
This last video will introduce you to you another problem. it's not all about globalization; it's also about the
structure of corporations. Most of what we will be discussing in the course and most of the cases that we
will deal with are cases that are related to multinational corporations and multinational corporations are
not a legal concept; they are not existing in the law so the closest definition of what a multinational
enterprise is the OCD guidelines for multinational enterprises. I'm doing a lot of referencing here because
we're having an intertwined topic which we will address thoroughly in week six as an international
framework that also has a known enforcement mechanism that applies to multinational enterprises and a
bit freed from sort of national legislation and national conceptions of the company and the company interest
and the way in which corporations are organized. The OCD guidelines for multinational enterprise have
quite wide definition of what a multinational enterprise is they basically say:
“Multinational enterprises usually comprise companies so server companies or other entities established
in more than one country (so here we have again the global element) and so link that they may coordinate
their operation in various way when one or more of these entities may be able to exercise the significance
influence over the activities of others the degree of autonomy within the enterprise may vary widely from
one multinational to another.”
So here we have a definition that already understands as multinational enterprises as something that
connects several entities yeah and this is something that is very specific about global most globally
operating companies that they are that this these are linkages of independent companies, legally independent
companies that are however managerially and economically intertwined. So it's not only about
globalization, it's also about companies and company regulation and in the in week one we discussed a
lot on how company law and the corporate purpose can integrate certain CSR concerns but the problem is
that we're not talking about companies, individual companies under globalization we're mostly talking about
corporate groups which are normally qualified as equity based in the Ruggie text they're qualified as
actor based and about global supply chains about sort of contract based and contractual relations between
different companies which Ruggie calls network based.
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,So, if we look into actor-based corporations that is more or less what a what a multinational company can
look like it has their several holdings in several countries and all of these specific company like this one
here this one they're all separate legal entities and here you see partly the shares so you see what type of
equity relation these companies have.
How are these corporate groups treated from the legal perspective?
Remember that in week one I referenced as a core feature of corporate law separate legal personality and
limited liability and entity shielding. Separate legal personality means that each of these companies have
a separate personality, they are the addressees of any obligations and it's not the corporate group though the
whole that is addressed, there's limited liability meaning that if a subsidiary like one of these companies
there is a damage happening that is caused by some operation of that subsidiary, the parent company or any
other entity cannot be held liable and in the first place because they are the shareholder and the shareholders
are not liable, at least they cannot be held liable in their capacity as a shareholder.
Entity shielding that companies can also invest and put capital into another entity, into a subsidiary, to
shield to shield that capital from being part of the liability mass if they are held liable. So, if you look into
the ‘oversimplified structure of corporations’ then you have all these entities being different differently or
being separate and being only the addresses the individual addresses of obligations and of liability claims…
… and this is what we're what we're what we're discussing essentially in week four where we're looking
into how can corporate groups be liable and how are they regulated and we're going to specifically look at
that's the image as well again oil spills in the Niger Delta a fundamental case that has been taking place in
the Netherlands on the possibility of suing a parent company for violations that happen at the
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,subsidiary level and we're also looking into two important cases in the UK for this purpose that are very
recent Lungowe v. Vedanta & Okpabi v Shell (is still to be decided) on the possibility to sue a parent
company in the UK for violations that happen in other countries. Okpabi v Shell it's also in Nigeria.
Lungowe v Vedanta Resources we're talking about Zambia and about mine operations.
So this is the push for corporate group liability we also will touch upon corporate group regulation again
talking about the non-financial reporting directive and due diligence regulation, which are new forms by
which companies are addressed not only with obligations that apply to the corporate entity but also that
expand to the corporate group by requiring companies to have reporting on the operations of the whole
group in relation to CSR matters by requiring and a management plan from companies that cover all
controlled entities so that is on corporate groups so remember economically corporate groups might be sort
of as multinational enterprises be considered as an economic unit but from the law, the law treats every
party separately and that causes a lot of problems so private law that the substantive private law that's also
applying when you have domestic companies is shielding or is allowing the company to fragment into
different entities and hereby avoid regulation and liability and the question is sort of to what extent
does the law currently react to that and with new types of regulation and new types of liability
concepts that apply to corporate groups
The other one that I'm going to talk about is about supply chains. Supply chains and corporate groups are
different from the law because supply chains are contractually based in this image you see that the lines
that I made here these are the contractual lines (- - - -) and these are the equity based lines (____) so now
and I put in blue the contractual partners and in orange the parent color the equity based chain so the
corporate group structure and when we get into supply chains we are getting even further into the difficulties
because a corporate group can still be explained by an economic unit based on shareholder investment or
even managerial control. When we talk about global supply chains we have a contractual influence and
these are existing in reality are these different suppliers that provide input to another component and to
another component and then we have one company let's say at the top that is that is distributing the good,
think of apple think of Nike that all outsource their production.
… and here again we face a fundamental problem from the legal perspective not only because the laws
treating every single company separately but also because we have a market based contractual conception
of the relations. So here we're not even talking about equities or some form of control where you can apply
what you can apply to corporate groups, but about contractual conceptions and contractual conceptions are
different because they're assumed to be taking place in the market context where parties simply negotiate
their conditions and they agree on a contract and then everyone incurs the obligations that are in the contract.
Besides the privity of contracts which is a fundamental principle of contract prevents that one party can
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, be held liable by someone who has been damaged by the other by the conduct of the other. à That is
something that has been played out quite dramatically in the Rana Plaza collapse which is which what was
discussing intensively in week four where most of you will know this picture where a factory has been and
has been collapsing where clothes were produced for retailers and brands that were also located in Europe
and in the United States and another Western countries and the question there was can also or do also these
buyers they only buy the clothes there from there do they also have a responsibility because they are
essentially let's say governing or controlling the supply chain. So, there is a current discussion an
expansion of whether sort of the ideas that have been/are in the process of being developed can be applied
to supply chains and also whether they're separate cases on supply chain liability contractually and there
is and this is what we also will be discussing in week four whether there's regulation or there is increasing
regulation to monitor supply chains. Due diligence legislation as it's currently planned in many countries
should also include the supply chains and that's quite far reaching it's basically saying European companies
are responsible for regulating not only their own filiated entities of which they have shares or where they
control the management but also where they simply source from outside. So, there is also an increasing
trend of addressing supply chains as a regulatory object so that was also a lot of introductions but this
should also only set the basis for what we're discussing in week four in week four we will discuss
specifically how supply chains are regulated what type of litigation there is on supply chains
Topic II: Liability in corporate groups - Theories of corporate group liability and their application
1.Watch Video VII: Theories of corporate group liability I: Corporate veil piercing, agency theory,
enterprise liability
This video introduces different approaches in law - specifically liability laws - to hold corporate groups
accountable for violations. It shows that within different areas of the law, different approaches have been
developing. In this week's tutorial and lecture, we will then look specifically at the tort law approach, which
has been most relevant in relation to CSR/human rights and sustainability issues.
This week will focus specifically on litigation in national courts against corporations. You might wonder
what how those links to the past week where we already discussed certain types of litigation and the Kiobel
case and the Nevsun case. So, this week we will expand we will consider the concept of corporate groups.
Remember that at the end of last week I showed you the as I always call it oversimplified structure of
corporations and so in Kiobel and then Nevson we didn't discuss these types of issues that we're talking
about multinational corporations that are structured as corporate groups. This will be the focus of this week
and the second aspect is that we will focus on how litigation is done by using tort law by using civil liability
as a means. In contrast last week the Kiobel case and the Nevsun case were very much with this conception
of this idea to hold corporations directly liable for violations of international human rights. So now it's
basically translating human rights claims were also environmental claims into a tort claim. So, this is what
is different this week and these videos will be a little bit longer because we have to dive a bit into the
technicalities. now and to do that this video will introduce you into the most common understandings or
most common theories of corporate group liability.
So, if you remember this is the oversimplified structure and if you remember from last week these different
entities here, parent company, subsidiary are all and from the law separate legal entities. à So that means
if something happens here, if we have a damage here occurring at a subsidiary that has been directly caused
there, you cannot hold the other companies not here another subsidiary not the parent company liable
for that. That is the principles of separate legal personality and the principle of limited liability. In case
you have a shareholder involvement of the parent company the parent company cannot be held liable
simply, because it has been as its holding shares in the subsidiary. Generally, there's a separation, separate
legal personality, but there are certain changes or there are certain ways in which is currently tried. and I
will present you sort of the different approaches that are discussed and focus specifically on those that are
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