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A New Twist on CSR

Date: Feb 01, 2006


As we discussed briefly last August, corporate social responsibility (CSR) is defined in many ways. Activists suggest corporations must not act only in the interests of shareholders but also consider their role in society and address the interests of other stakeholders, including employees, local communities, and society at large.

Many businesses that embrace CSR believe it makes good business sense. Today, CSR initiatives cover a broad range of social issues from labor and human rights concerns to climate change. Such non-traditional business measures as voluntary greenhouse gas reductions, while potentially beneficial to society at large, recently have raised concerns among shareholders about the value and validity of CSR initiatives. This development has the potential to affect businesses, including the converting industry, more broadly.

Concerns that companies have gone too far with CSR initiatives are a more recent manifestation of a long-running debate over CSR, reflected in two questions: Does CSR pay? Do CSR activities comport with a corporation's fiduciary duty to shareholders to maximize profitability?

How these questions are answered generally depends on whether one views corporations as providing shareholder rather than stakeholder value.

Shareholder value emphasizes profitability and argues that social matters are best left to individuals and government. Stakeholder value argues that responsibility should precede profitability, and corporate success should be measured by satisfaction among all stakeholders, not just shareholders.

The US Securities and Exchange Commission (SEC) generally has stayed out of the CSR debate, but that may change following a dispute involving the General Electric Co. (GE) and a mutual fund established specifically to encourage corporate resistance to pressures from environmental activists.

Taking a page from the activists' playbook, the mutual fund has filed a shareholder resolution with the SEC requesting that GE report on its "Ecomagination" campaign at the next shareholders' meeting.

Noting that "GE's main responsibility is to create shareholder value" and that company policy should be based on "sound scientific and economic analyses," the resolution would require a report on "the scientific and economic analyses relevant to GE's climate-change policy."

Characterizing GE's Ecomagination campaign as "appeasement" of activists, the resolution requests the specific scientific data GE relied on to formulate its climate-change policy and an estimate of the costs and benefits of such a policy.

GE disagrees and has informed the SEC it intends to exclude the resolution from its annual meeting materials. The company is requesting concurrence by the SEC that the fund's proposed shareholder resolution violates SEC rules and should be excluded because it is "impermissibly vague and indefinite" and involves GE's "ordinary business operations."

According to GE, efforts to promote the company's energy-efficient and climate-change-friendly products are a business strategy rather than a climate-change policy and, as such, are not subject to shareholder review.

Regardless of the SEC's ruling, it seems clear the debate over CSR could heat up in 2006, making it one for converters, particularly those that are publicly traded, to watch.

Reproduced with the permission of Paper, Film & Foil CONVERTER magazine (312.726.2802). Copyright © 2006 by Intertec Publishing. All rights reserved.

Sheila A. Millar, a partner with Keller and Heckman LLP, counsels both corporate and association clients. Contact her at 202/434-4143; millar@khlaw.com.