Mandatory Corporate Social Responsibility? Legislative Innovation and Judicial Application in China
Forthcoming in American Journal of Comparative Law
54 Pages Posted: 16 Apr 2019
Date Written: March 28, 2019
Corporate social responsibility (CSR) is often understood as voluntary corporate behavior beyond legal compliance. The recent emergence of CSR legislation is challenging this typical understanding. A number of countries including China, Indonesia and India have expressly stated in corporate law that companies shall undertake CSR. The CSR law is controversial. Critics of CSR see the law as an unwise effort to challenge profit maximization as the only social responsibility of the corporation. Even CSR advocates welcome the CSR law with great caution. Given the vague statutory language of CSR, the practical application of the law places high demands on the judiciary. However, as the countries that have adopted the CSR law are mainly developing countries with rather weak legal institutions, it raises a common concern that the law is simply an innovation without implementation. This article conducts an empirical study on China, an early adopter of the CSR legislation. The empirical analysis of Chinese court cases reveals what the CSR law means in judicial practice, whether CSR is in fact mandatory and in what types of disputes CSR is relevant or outcome determinative. Among various findings, this article shows that the CSR law is by no means as useless as commonly expected. The meaningful application of the law is attributable to the law’s fit with China’s legal infrastructure and socio-political institutions. Chinese courts have innovatively applied CSR in various contexts far beyond the traditionally Western-led focus on directors’ fiduciary duties. The Chinese experience suggests that the significance of the CSR law is more of a judicial review standard than a corporate behavior standard, which further confirms the importance of judicial capacity in implementing the vague law. This article concludes with insights for the corporate purpose debate in comparative perspective and policy suggestions for adopting the CSR legislation.
Keywords: corporate social responsibility, corporate governance, shareholder primacy, fiduciary duty, legal transplant
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