Chiu, H; (2017) Unpacking the Reforms in Europe and UK Relating to Mandatory Disclosure in Corporate Social Responsibility: Instituting a Hybrid Governance Model to Change Corporate Behaviour? European Company Law , 14 (5)

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Abstract

Corporate social responsibility is a key point of intersection at the junctures of business, society and government. It has first been conceived of as voluntary or self-regulatory measures that address, at least in part, complex issues that entail from corporate activity, whether they relate to direct or indirect forms of externalities or indeed the provision of proactive ‘good’ for social causes and objectives. Global corporate activities are increasingly related to the provision of global public or collective goods,such provision no longer confined to public sector actors. This is arguably because the existence of the needs for global public goods is due to the externality-creating actions on the part of corporations that consume planetary resources and often fail to internalise social cost associated with their activities. Corporations suffer from a collective action problem in refraining from creating such externalities (as their competitors may persist in doing so) as well as redressing them- both are phenomena of the tragedy of the commons. Global public goods include environmental protection, sustainability in the use of planetary resources, adequate standards and protection of certain humanity conditions such as human rights, labour rights and communities,development, addressing the sub-optimal institutions in political economy (such as tax havens and corruption), and social transformations (such as consumerism). Voluntary corporate responsibility may not be able to keep pace with the intensity and range of social demands, not to mention that the incentives that drive corporations often diverge from social expectations. The needs for these global public goods arise in a polycentric space of actors and stakeholders including states, international organisations and other public and private sector stakeholders. States and law-makers are not necessarily able to command this space5 as the transnational context for global multi-national corporations and the complexity of issues that affect a wide range of stakeholders increasingly elude state-based authority and mechanisms. Polycentric governance is an important paradigm du jour for analysing these issues. The importance of polycentric governance is reflected in the development of reflexive means of governance in law and policy to be discussed shortly. However, commentators increasingly observe a ‘juridification’ of corporate social responsibility and the extension of regulation and legalisation (in various forms). This is largely due to increasing pressure for change in corporate behaviour over years of slow achievements in the voluntary efforts led by the corporate sector. A ‘new’ regulatory technique, which is found in the EU Non-financial Reporting Directive 2014 implemented in the UK Companies Act 2006, and to a lesser extent in the UK’s Modern Slavery Act 2015 seems poised to draw together the polycentric forces of governance in a new way and yet leverage upon the power of state-backed regulation to achieve changes to corporate behaviour. We suggest that such a new regulatory technique brings about new opportunities for corporate behaviour to be shaped by social input. This can incrementally result in cultural and behavioural change at corporations. Although this technique may appear ‘weak’ as corporate law is not significantly reformed, intrusive or ‘command’-forms of hard law need not be superior. What matters is whether behavioural change can be secured. This article makes a positive case for the social implications of the new mandatory disclosure obligation, although we acknowledge that this is not a silver bullet. The article does not take the view that other forms of hard law reforms such as in relation to corporate objective, directors’ duties etc8 are unnecessary. The complementarity between the case put forward in this article and other reform options is a subject for another discussion. In this article, Section A will discuss briefly the context for ‘juridification’ or ‘legalisation’ of issues of corporate social responsibility. Section B discusses the provisions in the EU Non-financial Disclosure Directive (and the equivalent in the UK Companies Act) and how procedural regulation for corporations is introduced via a form of mandatory disclosure. Section C discusses the UK’s Modern Slavery Act regime which employs less legalisation and compares this to the non-financial disclosure regime. Section D draws together a few broad critical reflections and concludes.

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