Corporate Social Responsibility Statements and false advertising laws

1
Corporate Social Responsibility Statements and
false advertising laws

• 26 September 2008
• John Southalan
• Rio Tinto Research/Teaching Fellow

2
Overview

• Reflections on the environmental -v- social
  tension within CSR, and international aspects
• Regulation of CSR statements
• CSR statements and false advertising laws.

3
Environment -v- social tensions

• To date, CSR regulation and CSR reporting has
  been more on environmental rather than social
  aspects.
• Environmental aspects are often easier to deal
  with because economic convergence, more readily
  measurable and 'treatable', greater consensus.
• Have been occasional disputes where social and
  environmental ends conflict, but largely glossed
  over. This leaves it to be addressed in future.
• Starting to see in concepts of 'sustainable
  markets (Borregaard Dufey 2005) and
  'responsible competitiveness (Zadek 2006) -
  looking at wider factors than just one company or
  metric.

4
International aspects

• One aspect of a 'wider' perspective appreciating
  the different conditions in different countries.
• A 2007 study of CSR across many different
  countries identified four key determinants of
  'corporate social and environmental
  responsibility' public corruption, economic
  development, and political and economic freedoms
  (Baughn o'rs 2007).
• This is not surprising - where a countrys
  population has spending capacity and its
  regulation allows, it is more likely to be an
  environment that will encourage firms' CSR
  behaviour. CSR is more likely to be effective.
• Useful to look at the disparities, which question
  the universal applicability of much CSR analysis
  and standards.

5
Public corruption Latin American OECD countries
low corruption
high corruption
6
Public corruption Latin American OECD countries
low corruption
high corruption
7
Per capita GDP (PPP adjusted) Latin American
OECD countries
rich
poor
8
Regulation of CSR statements

• The development of regulation for CSR is a long
  and slow thing, but there is scope for false
  advertising laws to control some aspects while
  the broader picture develops.
• CSR statements material produced about CSR
  aspects of business (eg. annual report, press
  release, product advertising, industry
  promotion).
• Most obvious current form of CSR statements is
  CSR reporting. Reporting has historically
  focussed on environmental issues, and is more
  about stakeholder management than stakeholder
  engagement (Hess Dunfee 2007). What can/should
  regulation do to address?
• Caution against fixation on reporting
  overshadowing actual operations. 'Sustainability
  reporting...is becoming one of the basic criteria
  for judging the social responsibility of
  organisations' (Aust Govt 2005) - I hope not!

9
False advertising laws - intro

• Australia has a nation-wide 'false advertising'
  law. Prohibits activity in business that 'is
  misleading or deceptive or is likely to mislead
  or deceive' (TPA 1975, s52).
• This applies to statements as well as actions,
  and has been applied to CSR statements (examples
  follow).
• Wide scope of law
• no need for 'intention' (eg. even where the party
  acted honestly and reasonably and did not mean to
  deceive)
• silence can be misleading, as can partial
  disclosure (the circumstances and parties'
  dealings may make it misleading to withhold
  certain information)
• disclaimers/limitations have limited affect in
  avoiding liability and
• covers representations about the future, or
  predicted results.
• Anyone can bring claim against misleading/deceptiv
  e statements (incl. government regulator,
  competitors, customers, the public, and community
  groups - even where the party making the
  complaint has not suffered any loss because of
  the statement).
• Broad range of remedies (incl. compensation,
  injunctions, order corrective advertising, order
  refunds, fines in some circumstances - not for
  s52 alone).

10
False advertising laws egs

• Examples relevant to CSR field
• advertisements for a carbon-neutral car,
  biodegradable plastic bags, and claims of an
  'environmentally friendly' air conditioner for 'a
  new ozone era - keeping the world green'
• production of a timber industry-promoting film by
  the government and a group of firms (law does
  cover, but this was not relevantly misleading),
• tobacco industry advertisements promoting the
  industry in general (rather than any particular
  firm or product),
• even statements of someone not involved in
  business who seeks to encourage others to do
  business with a particular firm.
• can strengthen use of non-binding standards and
  codes, eg. misuse of labelling.
• Similar in the UK. In August 2008, Shells breach
  of advertising code in advertisements promoting
  Shells sustainable approach in connection with
  north American oil sands and refinery projects.
  The advertisement's content and use of the word
  'sustainable' implied an environmental priority
  which the projects were not shown to have.

11
Conclusions

• These decisions do not prevent firms from
  promoting their CSR initiatives for commercial
  advantage, but simply require that CSR statements
  must be accurate. Companies have breached the law
  when they cannot substantiate their claims.
• In various jurisdictions, the authorities have
  warned against the use of vague terms like
  'green', 'sustainable', 'environmentally
  friendly' etc because these can risk misleading
  consumers and thereby breach the law (eg. Aust
  Govt 2008, UK Govt 2003, EC 2000).
• Applicability to other jurisdictions depends on
  their structures and resources (eg. problems in
  US because of constitutional provisions in
  relation to free speech).
• Has been more useful in environmental aspects
  (rather then social).

12
References

• Aust Govt, 2008. Australian Competition and
  Consumer Commission, Greenmarketing and the Trade
  Practices Act. Available ltwww.accc.gov.au/content/
  item.phtml?itemId815763nodeId69646a6d15e7958a41
  b40ab5848c6968fnGreen20marketing20and20the20
  Trade20Practices20Act.pdfgt 3 May 2008
• Baughn, C ors, 2007. Corporate Social And
  Environmental Responsibility In Asian Countries
  And Other Geographical Regions. 14 Corp. Soc.
  Responsib. Environ. Mgmt 189205.
• Borregaard, N Dufey, A, 2005. Challenging
  preconceptions about trade in sustainable
  products Towards win-win-win for developing
  countries. November 2005, Sustainable Markets
  Discussion Paper Number 1. Available
  ltwww.iied.org/pubs/pdfs/15500IIED.pdfgt 13
  September 2008.
• EC, 2000. European Commission, Guidelines for
  Making and Assessing Environmental Claims,
  Directorate-General Health Consumer Protection,
  Report No. 67/94/22/1/0028, December 2000.
  Available lthttp//ec.europa.eu/consumers/cons_safe
  /news/green/guidelines_en.pdfgt 16 September 2008.
• Hess, D Dunfee, T, 2007. The Kasky-Nike Threat
  to Corporate Social Reporting Implementing a
  Standard of Optimal Truthful Disclosure as a
  Solution. 17(1) Business Ethics Quarterly 5-32.
  Available lthttp//webuser.bus.umich.edu/dwhess/Hes
  s20and20Dunfee20200720Kasky20Nike.pdfgt 17
  September 2008.
• TPA 1975. Legislation of the Australian
  Parliament, Trade Practices Act 1974. Available
  ltwww.austlii.edu.au/au/legis/cth/consol_act/tpa197
  4149/gt 22 September 2008.
• UK Govt, 2003. Department for Environment, Food
  and Rural Affairs, Green Claims Practical
  Guidance How To Make A Good Environmental Claim,
  November 2003. Available ltwww.defra.gov.uk/environ
  ment/consumerprod/pdf/genericguide.pdfgt 4
  September 2008.
• Zadek, S, 2006. Responsible competitiveness
  reshaping global markets through responsible
  business practices. 6(4) Corporate Governance
  334-348. Available ltwww.corporate-responsibility.o
  rg/module_images/corporateabuse_discussionpaper.pd
  fgt12 September 2008.