The Creative Capitalism Spectrum: Evaluating Corporate Social Responsibility Through a Legal Lens Abstract
Janet E. Kerr
Pepperdine University - School of Law
June 1, 2009
In this Article, I contend that directors who purposely refuse to consider corporate social responsibility and related practices, the social return on investment, or the double bottom line could be found potentially liable for breach of good faith under the standard recently articulated by the Delaware Supreme Court. Moreover, it may be a material misstatement and therefore actionable if a corporation makes a false statement claiming to be socially responsible.
I introduce an entirely new and original way to define CSR under the “Creative Capitalism Spectrum,” providing guidance about whether a company can legitimately claim to be socially responsible. Recent scholarship has been devoted to redefining CSR, but it fails to take into account the legal implications of making public statements about CSR. The Creative Capitalism Spectrum provides directors with objective guidelines based on legal principles to corroborate a public statement of a corporation’s social responsibility. The Article distinguishes the concept of social entrepreneurship from other forms of CSR, and insists that full compliance with laws affecting social issues is a precondition to a claim of social responsibility. The Article confronts the growing problem of “greenwashing,” a term rapidly becoming a buzzword to describe companies who purport to employ environmentally responsible practices but fall short.
Furthermore, I introduce a five-factor test boards can use to determine whether CSR projects or policies are justifiable uses of corporate resources. The five factors were pulled from various sources and reorganized to form the anagram PRISM: Potential, Relevance, Impact, Suitability, and Morale. This PRISM test should serve as guidance to directors and courts, especially as boards come under fire for engaging in CSR projects that ultimately do not prove to be financially beneficial to stockholders. Directors seeking protection under the Business Judgment Rule need the PRISM test to serve as an objective standard to demonstrate that they acted in a reasonably informed manner, in good faith, and that their decisions did not violate their fiduciary duty of due care.
Number of Pages in PDF File: 57
Keywords: Creative Capitalism, Corporate Social Responsibility, Social Entrepreneurship, 10(b)(5), Good Faith, Commercial Speech, Greenwashing, Dow Jones Sustainability Index, UN Global Compact, Social Return on Investment (SROI)
Date posted: November 7, 2009