An interventionist society will use negligence to hold companies to account

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Corporate, social and responsibility (CSR): three words when spoken together ought to mean something powerful, something fundamental and at the heart of what an enterprise does. Yet, they do not mean that, do they? They never have. In truth, CSR has been shaped as a tool for modern liberal capitalism. An economic system that has, for the past 30 or so years, pursued the singular objective of maximising shareholder return. In this economic construct, CSR has been nothing more than a currency used to pay a debt to society. With corporations solely pursuing profit, society has suffered as a consequence. Whether it be lack of diversity or inclusion in the workplace, environmental impacts, disruption of communities and indigenous people, inappropriate use of labour, bribery and corruption, society has been damaged. CSR programmes were merely a compensation scheme.

When put as starkly as that, CSR is laid bare as a short-term and fragile approach in the context of longer-term value generation.

This was the perspective of yesterday. Today the world is changing. We are witnessing a paradigm shift in that crucial central theme, namely the singular pursuit of profit. Companies are actors in society. Enduring success requires a longer view of the role a company plays as a stakeholder in the society it helps to shape and the context in which it is built to thrive. There are currently 3,000 companies certified as benefit corporations (B Corps) which, as their corporate purpose, sign up to contribute to a sustainable society in parallel with optimising profits. In September, the US Business Roundtable broke with existing economic dogma and declared that corporations need a purpose apart from their pursuit of profit. They should take into account their impact, as well as their co-existence with other stakeholders in society.

Driven by the growing gap in wealth between the elite and the majority, the heightened awareness of human rights breaches, the imminence of irreversible climate change, the degradation of our oceans and destruction of our forests, society is not only overreaching governments, it is overreaching the law. It is knocking on the door of corporations and those answering are struck with the need to change.

Economics and politics – what have these got to do with a company's legal liabilities? To be frank, everything. Where society sets a bar, law must enforce that bar. Today, the bar is being reset. How will companies respond?

Society's bar is often implemented through regulation. We have the Foreign Corrupt Practices Act, the UK Bribery Act etc. Through the regulatory regime, corporations can clearly see what they need to do to meet the required code of conduct, to be certain that the actions based on these rules will endure and to be confident that the rules will be consistently applied to their peers. However, what happens when regulations do not keep pace and when society demands more? Populist governments, a shrinking state and underfunded regulators leave a vacuum, but society will intervene. Dance with civil society at your peril, because it is ill equipped to give you clear, certain and consistent rules. Society's guidance is opaque, subject to frequent change and lacking in consistency.

This is the business environment in which companies are now operating and where civil society will use the court of public opinion to enforce its intent. We will see more regimes like the Modern Slavery Act that names and shames, and leaves enforcement to the reputational impact on companies. International standards and company statements, if breached, will be seized upon by activist shareholders and, indeed, institutional investors may disinvest in asset classes. However, perhaps more pertinent in terms of legal liability, is the likelihood of more claims for negligence.

We can see that negligence is already being used to hold corporations to account for the bar that they set for themselves. A business can be seen to assume a duty of care (Cape v. Chandler, Lungowe v. Vedanta). However, the breach of that duty must still be seen as behaviour that falls below the level of reasonable care that is to be expected.

Who is setting this expectation?

As far back as Donoghue v. Stevenson, the answer was set out by Lord Atkin as the "man on the Clapham omnibus". This bus is now held up in traffic due to the Extinction Rebellion blocking Waterloo Bridge – what do the men and women sitting on that bus expect of business today?

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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