Caremark and ESG, Perfect Together: A Practical Approach to Implementing an Integrated, Efficient, and Effective Caremark and EESG Strategy

45 Pages Posted: 30 Jul 2020 Last revised: 11 Aug 2020

See all articles by Leo Strine

Leo Strine

University of Pennsylvania Carey Law School; Wachtell, Lipton, Rosen & Katz; Columbia Law School - Ira M. Millstein Center for Global Markets and Corporate Ownership

Kirby Smith

Independent

Reilly Steel

Independent

Date Written: July 30, 2020

Abstract

With increased calls from investors, legislators, and academics for corporations to consider employee, environmental, social, and governance factors (“EESG”) when making decisions, boards and managers are struggling to situate EESG within their existing reporting and organizational structures. Building on an emerging literature connecting EESG with corporate compliance, this Essay argues that EESG is best understood as an extension of the board’s duty to implement and monitor a compliance program under Caremark. If a company decides to do more than the legal minimum, it will simultaneously satisfy legitimate demands for strong EESG programs and promote compliance with the law. Building on that insight, we explain how boards can marry existing corporate compliance programs with budding EESG programs. By integrating compliance and EESG, corporations can meet growing societal demands in an effective and efficient manner that capitalizes on existing structures. Lastly, we address how EESG and corporate compliance responsibilities should be allocated at the board and senior management level. Instead of separating compliance and EESG oversight, this Essay suggests that boards embrace a functional approach, delegating similar compliance and EESG oversight to the same committee and managers. By situating EESG within the board’s existing fiduciary duties, this Essay provides academics, legislators, investors, and managers with a novel framework to conceptualize EESG while also offering a path forward for boards struggling to place the current EESG movement within their existing corporate structure.

Keywords: Corporate Governance, Social Responsibility, ESG, EESG, Caremark, Sustainability, Corporations, Corporate Social Responsibility, Corporate Purpose

JEL Classification: G18, G23, G32, G34, G35, K22, P12, P16

Suggested Citation

Strine, Leo and Smith, Kirby and Steel, Reilly, Caremark and ESG, Perfect Together: A Practical Approach to Implementing an Integrated, Efficient, and Effective Caremark and EESG Strategy (July 30, 2020). Iowa Law Review, Forthcoming, U of Penn, Inst for Law & Econ Research Paper No. 20-45, Available at SSRN: https://ssrn.com/abstract=3664021

Leo Strine (Contact Author)

University of Pennsylvania Carey Law School ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States

Wachtell, Lipton, Rosen & Katz ( email )

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New York, NY 10019
United States
212-403-1178 (Phone)

Columbia Law School - Ira M. Millstein Center for Global Markets and Corporate Ownership ( email )

435 West 116th Street
New York, 10027
United States

Kirby Smith

Independent ( email )

Reilly Steel

Independent ( email )

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