Corporate Social Responsibility and the Law : Foley Hoag LLP

On July 22, the D.C. Circuit Court of Appeals vacated Exchange Act Rule 14a-11, the proxy access rule that was approved by the Securities and Exchange Commission ("SEC") in August 2010. The rule sought to provide certain shareholders with the right to nominate corporate directors and have those nominations appear in corporate proxy statements. The rule was originally expected to be effective in November 2010, but it was stayed pending a request for judicial review by the U.S. Chamber of Commerce and the Business Roundtable.

The D.C. Circuit held (.pdf) that the SEC "acted arbitrarily and capriciously" in failing to adequately assess the economic effects of the new rule, including the costs that companies may incur in opposing shareholder nominees. The Court specifically noted the likelihood that "institutional investors with special interests" such as "unions and state and local governments whose interest in jobs may well be greater than their interest in share value" might seek to utilize the rule. The Court found that "by ducking serious evaluation of the costs that could be imposed upon companies from use of the rule by shareholders representing special interests...the Commission acted arbitrarily."

A separate rule issued at the same time as the proxy access rule, Rule 14a-8(i)(8), was not impacted by the Court's decision. This rule limits corporate capacity to exclude shareholder proposals seeking revisions to a company’s procedural requirements for shareholder director nominations.

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Exciting news today!

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Press Release

Author of U.N. Guiding Principles on Business and Human Rights to Join Foley Hoag

John G. Ruggie, U.N. Special Representative for Business and Human Rights, Will Join Corporate Social Responsibility Practice

BOSTON, July 26, 2011 – Foley Hoag LLP will expand its Corporate Social Responsibility Practice with the addition of John G. Ruggie, the recent U.N. Secretary-General’s Special Representative for Business and Human Rights and current Harvard professor, who will join the firm’s Boston office in September as a senior advisor.

Ruggie authored the Guiding Principles on Business and Human Rights, which the U.N. Human Rights Council formally endorsed in June after six years of development. The principles provide high-level guidance to companies on managing the human rights impacts of their operations and are likely to affect national law and policy in jurisdictions worldwide.

Key elements of the Guiding Principles have also been incorporated into the updated OECD Guidelines for Multinational Enterprises and into ISO26000, a new social responsibility standard adopted by the International Organization for Standardization. The International Finance Corporation, the private-sector arm of the World Bank, has revised its policy and performance standards for clients to recognize explicitly for the first time the business responsibility to respect human rights.

As a senior advisor in Foley Hoag’s Corporate Social Responsibility Practice, Ruggie will help multinational companies navigate the Guiding Principles and apply them to their global business practices. He will also provide broad-based guidance in the area of business and human rights. Ruggie will continue to serve as the Berthold Beitz Professor in Human Rights and International Affairs at the Harvard’s John F. Kennedy School of Government and as an Affiliated Professor in International Legal Studies at Harvard Law School after he joins the firm.

“John Ruggie is one of the premier authorities on corporate citizenship and responsibility,” said Adam Kahn, Foley Hoag co-managing partner. “He joins an internationally recognized team of lawyers who advise clients on business issues throughout the world, and he is a welcome addition to the firm.”

Foley Hoag’s Corporate Social Responsibility Practice advises multinational corporations, governments, and multilateral institutions on a range of social, political, and environmental issues in the global business marketplace. Foley Hoag helps clients anticipate social, ethical, and environmental accountability challenges and limit their risks by incorporating internationally recognized standards into their strategies and operations and relationships with stakeholders.

“The Corporate Social Responsibility Practice we have built at Foley Hoag during the past decade provides clients with unparalleled insight into their operations,” said Gare Smith, a Washington-based partner and chair of Foley Hoag’s Corporate Social Responsibility Practice. “They can depend on us to consider their business objectives in any solution we propose. To have John Ruggie join us further strengthens this level of service, and will allow us to help clients apply the Guiding Principles and more effectively manage their stakeholder-related risks.”

Now that the focus has moved on to implementation of the Guiding Principles, the opportunity to apply his unparalleled international policy experience with a leading corporate social responsibility practice was a key reason Ruggie decided to join Foley Hoag.

“Joining Foley Hoag, with a talented group of corporate social responsibility lawyers, is a great fit and gives me the opportunity to help companies apply these standards on an international scale,” Ruggie said. “The aim is for companies to avoid involvement in human rights harm in the first place, and to remediate harm where it does occur.”

Ruggie has long been involved in practical policy work, initially as a consultant to various agencies of the United Nations and the U.S. government. From 1997-2001 he served as U.N. Assistant Secretary-General for Strategic Planning, where he was responsible for establishing and overseeing the U.N. Global Compact, now the world’s largest corporate citizenship initiative; proposing and gaining General Assembly approval for the Millennium Development Goals; advising Secretary-General Kofi Annan on relations with Washington; and broadly contributing to the effort at institutional renewal for which Annan and the United Nations as a whole were awarded the Nobel Peace Prize in 2001. 

About Foley Hoag LLP

Foley Hoag is a dynamic law firm that represents public and private clients in a wide range of disputes and transactions worldwide. We have expertise in industries such as life sciences and healthcare, technology, energy and renewables, investment management, and professional services. We also offer our clients market-leading international litigation and arbitration and corporate social responsibility services. From our offices in Boston, Washington, D.C. and Paris, and our Emerging Enterprise Center in Waltham, Massachusetts, we provide strategic legal advice that is tailored to each of our clients' unique goals. Foley Hoag combines powerful regional, national and international practices that share a common emphasis on client service. We are focused on what we do best: helping our clients succeed through the delivery of exceptional legal service. For more information, visit www.foleyhoag.com.

Contact:

Jasmine Trillos-Decarie, Foley Hoag LLP, 617 832 7010, jtrillos-decarie@foleyhoag.com

Matthew Bashalany, Foley Hoag LLP, 617 832 7123, mbashalany@foleyhoag.com

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On Monday, July 11, for the second time in four days, a U.S. appellate court issued a decision stating that corporations are proper defendants in cases involving claims under the Alien Tort Statute (“ATS”). The Seventh Circuit Court of Appeals dismissed plaintiffs’ claims in Flomo v. Firestone, but held that “corporate liability is possible” under the ATS.

In a decision written by Circuit Judge Richard Posner, the Court observed that appellate courts in the Eleventh, District of Columbia, Second, Fifth, and Ninth Circuits have all held, or assumed, that corporations can be liable under the ATS. The Court then noted that the “outlier” decision on the question of corporate liability is Kiobel v. Royal Dutch Petroleum, and found that “the factual premise of the majority opinion in the Kiobel case is incorrect."  The Second Circuit's decision held that because corporations have never been prosecuted, civilly or criminally, for violating customary international law, there can’t be a principle of customary international law that binds a corporation. The Court disagreed with this premise, citing the dissolution of German corporations after World War II under the authority of customary international law.

After stating that Kiobel’s factual premise was incorrect, the Court then observed:

And suppose no corporation had ever been punished for violating customary international law. There is always a first time for litigation to enforce a norm; there has to be.

Ultimately, the Court found “[i]nternational law imposes substantive obligations and the individual nations decide how to enforce them.” Finding that corporate civil liability is proper in U.S. courts, the Court stated that corporate liability for violations of customary international law is “limited to cases in which the violations are directed, encouraged, or condoned at the corporate defendant’s decisionmaking level.”

The case involved allegations that children at the Firestone Natural Rubber Company’s rubber plantation in Liberia worked in such hazardous conditions that the work violated customary international law. The Court upheld the dismissal of plaintiffs' claims, finding that the conditions under which the children were alleged to have worked did not provide “an adequate basis for inferring a violation of customary international law.”

While the dismissal of plaintiffs’ claims was upheld, this decision, and the D.C. Circuit’s decision in Doe v. Exxon Mobil, represent two significant victories for those seeking to hold corporations liable under the ATS. As one of the plaintiffs’ lawyers, Terry Collingsworth, observed after the announcement of the Flomo decision, “We won the war, but lost the battle.” 

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On July 8, the D.C. Circuit Court of Appeals reinstated a lawsuit brought against Exxon Mobil Corp. (“ExxonMobil”) by Acehnese villagers, alleging that the company and its Indonesian subsidiary are liable for killings, torture, and other human rights abuses committed by the Indonesian military. In a lengthy 2-1 decision, the D.C. Circuit held that companies are proper defendants under the Alien Tort Statute (“ATS”), expressly disagreeing with the Second Circuit’s decision in Kiobel v. Royal Dutch Petroleum, 621 F.3d 111 (2d Cir. 2010).

The ExxonMobil case, originally filed in 2001, has a complex history. In 2005, the District Court for the District of Columbia dismissed plaintiffs’ claims under the ATS and the Torture Victim Protection Act, and held that aiding and abetting was not a proper theory of liability under the ATS. Plaintiffs were subsequently allowed to amend their original complaint and proceed under D.C. tort law. In 2009, the District Court dismissed plaintiffs’ remaining claims in an unusual decision relying on the “prudential standing” doctrine. Plaintiffs appealed the dismissal, and ExxonMobil raised the question of corporate liability on cross-appeal.

In reinstating plaintiffs’ claims, the D.C. Circuit stated “neither the text, history, nor purpose of the ATS supports corporate immunity for torts based on heinous conduct allegedly committed by its agents in violation of the law of nations.” The Court stated that the Kiobel decision “overlooks the key distinction between norms of conduct and remedies” and found that while international law provides the norms of conduct applicable in ATS cases, citing to Sosa v. Alvarez-Machain, 542 U.S. 692 (2004), federal common law governs the available remedies.

The Court also agreed with plaintiffs that aiding and abetting is a proper theory of liability under the ATS. Notably, the Court found that the proper standard for aiding and abetting liability is “knowing assistance that has a substantial effect on the commission of the human rights violation.” In stating that a “knowledge” standard is proper for aiding and abetting claims, the Court disagreed with the Second Circuit’s holding in Presbyterian Church of Sudan v. Talisman, 582 F.3d 244 (2d Cir. 2009). In that case, the Second Circuit held that defendants may only be found liable for violations of customary international law under an aiding and abetting theory of liability if they provide substantial assistance to the primary violator with the intent of furthering the human rights violation.

In its decision,  the D.C. Circuit observed that the Eleventh Circuit has also upheld corporate liability for ATS claims, citing Sinaltrainal v. Coca-Cola Co., 578 F.3d 1252 (11th Cir. 2009), Romero v. Drummond Co., Inc., 552 F.3d 1303 (11th Cir. 2008), and Aldana v. Del Monte Fresh Produce N.A., 416 F.3d 1242 (11th Cir. 2005).  Unlike the D.C. Circuit's decision, the Eleventh Circuit cases do not include much analysis of the question of whether corporations are proper defendants.  The D.C. Circuit’s opinion establishes a clear split with the Second Circuit's analysis in Kiobel.  In June, plaintiffs in the Kiobel case have filed a petition for a writ of certiorari with the Supreme Court.  Some commentators believe that the clear split between the Circuits may lead the Supreme Court to take up the question of corporate liability under the ATS, an issue which was left unanswered in Sosa.

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