“The world is getting better, but it’s not getting better fast enough, and it’s not getting better for everyone.” So began Bill Gates’ call to philanthropic and Corporate Social Responsibility (“CSR”) arms at the World Economic Forum in Davos, Switzerland in January 2008 when he challenged executives of the world’s largest corporations to put social entrepreneurship on the corporate agenda. Only a few weeks earlier on December 7, 2007, then-presidential candidate Senator Barack Obama made a rousing campaign speech in which he promised to start a Social Entrepreneur Agency if elected. When the dialogue on the world’s political stage is the same as the dialogue on the corporate stage, reasonable minds cannot disagree on whether or not a corporate board should have some knowledge of the subject matter. Welcome to the age of corporate conscience. In the fall of 2007, Sustainability Meets Profitability: The Convenient Truth of How the Business Judgment Rule Protects a Board’s Decision to Engage in Social Entrepreneurship introduced the innovative proposition that boards have a fiduciary duty to be informed of both the financial and social impacts of business decisions. The pursuit of this “double bottom line” is supported by existing corporate laws that allow boards to consider stakeholders other than shareholders; the growing body of knowledge on measuring social impacts qualitatively and quantitatively; and the increasing demand by consumers, investors, and governments for sustainable and responsible business practices. In Sustainability Meets Profitability, social entrepreneurship was proven to be a valuable business tool “that has come into its own in the last decade, capturing the imaginations of many thoughtful observers.”
While Sustainability Meets Profitability argued that the business judgment rule protects a board’s decision to engage in social entrepreneurship, this Article follows up to examine creative capitalism in the legal landscape, refine the definition of CSR, and offer an original, distinct framework for analyzing a socially responsible project in light of the primary duties a board of directors has to a corporation. The Article will focus on answering three questions: (1) When, and under what circumstances, can a company truthfully claim to be socially responsible? (2) What kinds of socially responsible projects can corporate boards pursue while minimizing the risk of litigation? and (3) What kinds of CSR information should a director track to be reasonably informed? Part I provides a brief overview of current corporate law jurisprudence. Part II introduces an entirely original “Creative Capitalism Spectrum” in an effort to clarify ambiguous terms and gauge whether a corporation can truthfully claim to be socially responsible. Part III introduces a new five-factor test for determining what projects corporate boards should pursue and for evaluating whether a board breached a duty of good faith or of due care in choosing a particular CSR project. The five-factor test–dubbed the “PRISM”–provides an entirely new and objective set of benchmarks against which CSR projects can be evaluated so that a board may justify deploying valuable corporate resources. Part IV provides reference to information that boards should track to be reasonably informed of the impact and opportunities of CSR. Part IV concludes the Article, predicting the trends toward quantifying social return on investment (“SROI”), expecting further developments of the commercial speech doctrine, and broadening of the fiduciary relationship to extend to stakeholders besides just stockholders.
This Article uses the terms CSR, social enterprise, and creative capitalism to generally refer to a company’s policies and programs that consider both the financial and social impacts of decisions. The social impact problems that these decisions attempt to alleviate or prevent range from pollution in the environment to poverty to global warming and beyond. However, the key is to remember that with CSR, a board is not merely chasing a profit, but also seeking business as a vehicle to make a positive social impact.
Today, business leaders have been challenged to “think beyond their balance sheets” to address society’s needs and problems, and the fierceness of global competition raises the stakes even higher. Thus, with the age of corporate conscience upon us, it is critical to examine the legal foundations upon which CSR rests. Now that creative capitalism is at the tip of the corporate tongue, the conversation about whether to engage in social responsibility is over. The only remaining questions are: “‘What, specifically, and how?”’ This Article seeks to enable a board of directors to answer those questions satisfactorily while preserving the integrity of the fiduciary relationship to the corporation and being protected by the business judgment rule.