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Corporate Social Responsibility in a Remedy-Seeking Society: A Public Choice Perspective

65 Pages Posted: 25 Oct 2013 Last revised: 29 Nov 2014

Donald J. Kochan

Chapman University, The Dale E. Fowler School of Law

Date Written: March 24, 2014

Abstract

Written for the Chapman Law Review Symposium on “What Can Law & Economics Teach Us About the Corporate Social Responsibility Debate?,” this Article applies the lessons of public choice theory to examine corporate social responsibility. The Article adopts a broad definition of corporate social responsibility activism to include both (1) those efforts that seek to convince corporations to voluntarily take into account corporate social responsibility in their own decision-making, and (2) the efforts to alter the legal landscape and expand legal obligations of corporations beyond traditional notions of harm and duty so as to force corporations to invest in interests other than shareholders and profits because they must comply with these new laws.

After surveying the corporate social responsibility debate, this Article examines public interest-labeled groups (including corporate social responsibility groups) under a public choice lens and determines that they seek to maximize their budgets, maximize influence, maximize membership, secure their jobs, and in the case of corporate social responsibility sometimes directly effectuate wealth transfers into their organizations or constituencies (e.g., from shareholders to stakeholders). When rent-seeking for legal change is the more efficient use of corporate social responsibility advocates’ limited resources, those groups will invest in the creation of law.

This Article pays special attention to a broad definition of rent-seeking that includes the investments made, through precedent-building litigation models, in the creation of legal liability regimes or realistic new threats of legal liability in an effort to obtain leverage over corporations in settlements or other negotiations designed to convince corporations to change behavior. According to studies on settlement dynamics, when novel new litigation theories start to survive motions to dismiss, corporate defendants have more incentives to settle to avoid harm to reputation or brand, in addition to avoiding adverse judgments. The Article concludes using the Alien Tort Statute (“ATS”) as a case study illustrating how the interest-group dynamic can play out in the development of a corporate social responsibility-driven liability regime.

Keywords: Corporate Social Responsibility, CSR, Public Choice, Interest Group Theory, Law and Economics, Rent Seeking, Litigation Models, Tort Liability, Alien Tort, Kiobel, Milton Friedman, Dodge v. Ford Motor Company

JEL Classification: K10, K22, K41, M14, D72, D60, D62, D63, D64, H11, I31, A10, A13, A12, B20, C78, D20

Suggested Citation

Kochan, Donald J., Corporate Social Responsibility in a Remedy-Seeking Society: A Public Choice Perspective (March 24, 2014). 17 Chapman Law Review 413 (2014); Chapman University Law Research Paper No. 13-13. Available at SSRN: https://ssrn.com/abstract=2342810

Donald J. Kochan (Contact Author)

Chapman University, The Dale E. Fowler School of Law ( email )

One University Drive
Orange, CA 92866-1099
United States
714-628-2618 (Phone)
714-628-2576 (Fax)

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