Discrimination as a Business Policy: The Misuse and Abuse of Corporate Social Responsibility Programs

Abstract

This article examines legal issues associated with so-called “Corporate Responsibility Programs” (CSR), which promote the interests of third parties over those of a public company's shareholders. In many ways, the rise of CSR programs can be seen as a logical interim development to help boards of directors balance the need to respond to aggrieved constituencies, on the one hand, with the relative paucity of tools meant to deal with such issues available under corporation statutes, on the other hand. Those who promote CSR programs, however, have myriad agendas, some as benign as ensuring that companies are responsible for pollution emitted into local communities and others acting as a facade for political campaigns that punish targeted groups or entities. In the worst of cases, activists have used CSR programs as cover to promulgate discriminatory campaigns of racial and national origin discrimination.

Beginning in 2010, in response to the rise of CSR programs, a number of American states formally addressed the need for a new corporate form that tempered shareholder primacy and elevated corporate stakeholder interests by creating a new statutory corporate form that allows shareholders to adopt non-financial objectives for the corporation (these entities are known as “Benefit Corporations”). A majority of American states now have some form of Benefit Corporation statute.

The question of how an American corporation can adopt and abide by a CSR program containing guidelines that conflict with local and federal American laws is one that has received minimal scholarly attention to this point.

This article will provide an overview of the shareholder primacy norm and competing theories of the corporation followed by a brief history of CSR programs in Europe and the United States. This article with then examine whether CSR programs are viable under state corporation law generally and specifically under Delaware corporation law, where many publicly traded corporations are incorporated and where a strong Benefit Corporation statute exists. Next, this article will examine how CSR programs have been used to compel corporations into adopting discriminatory policies and how those policies constitute violations of state and federal anti-discrimination laws, putting companies that adopt such CSR programs at risk of legal sanction. Finally, this article will examine the legal risks faced by a corporation that adopts a CSR program that incorporates unlawful discrimination.

Keywords: BDS, CSR, ESG, Corporation, Delaware, Fiduciary Duty, Investing, Israel

JEL Classification: K00, K10, K11, K20, K22, K42