Three Christmas Spirits of Corporate Social Responsibility (French and European Law)

This Working paper is the basis for a conference. Go to the presentation of the conference to see the program, the speech plan or the slides.

____

It is usual to oppose "Civil Law" and "Common Law", mainly in Law and Economics works. But the different European national legal systems blend their own tradition with the new Law of the European Union, introducing legal innovations created by European bodies, especially the European Commission. This is the case for Competition Law, Securities Law, Consumer Law, Banking Law, Safety Law, Insurance Law, Intellectual Property Law and Environmental Law.

This tendency has had a major impact since 1950 in France and Germany, and since 1972 in the U.K.. As everyone knows, France and Germany have a Continental legal tradition while England is the birthplace of Common Law. Europe is build by and through Law. This Law doesn't belong to a system or another. Morever, Civil Law and Common Law belong to what might be called "Occidental Law", in opposition to African or Asian legal systems, because Continental Law and Common Law are based on the right of persons , private property and freedom. 

Therefore, the use of the term "Civil law" is not relevant for French, German, Italian and Spanish Law etc., even thought everybody use it.  It’s confusing to do so, because the "civil law" is also a branch of the entire system as oppose to “public law” and refers to  the rules which applies to physical persons in their family life. If one insists on opposing those legal system to UK and US legal systems, it is preferable to use the expression of "Continental Law"..

That said, if I try to understand how French Law has taken in consideration stakeholders, and maybe because we are on December, I may try to fetch the spirit of the Corporate Social Responsibility and might see three Christmas Spirits, hoping to meet benevolent Ghosts.

The first Ghost is "the Ghost of Christmas past", when French Law didn't know it had made theory and practice of CSR but already had it thank to special civil Law, liability law and civil procedure law (I). The second Ghost is "the Ghost of Christmas present", with the current arrival of the CSR through the financial market Law and the Law invented by the European Commission, which is influenced by Common Law and economic theories (II). The third Ghost, "the Ghost of Christmas yet to come", about which I don’t know anything yet about, could be a little scary. It's possible that the CSR becomes so powerful in European and French law that the definition of a company itself will change. In this case, it may be possible that the Legislator gives a company a soul, i.e. all power (III).

I. THE GHOST OF CHRISTMAS PAST: THE CONSIDERATION OF STAKEHOLDERS IN THE COMPANY BY CONTINENTAL LAW

A. OBSTACLE BORN OF CONTINENTAL LAW BUILT BY DIVISIONS BETWEEN BRANCHES

1. The construction of the Continental Law systems by branches and the isolation of Corporate Law

Continental Law systems aren’t built as Common Law systems are: Common Law is a rules-based system, built on an accumulation of solutions found for cases.

It is a case-Law system. Continental Law systems, such as French, Italian, German or Spanish Law, are systematic and ex ante legal systems. Before issuing a particular solution, a general system has been built on a construction. The summa divisio is the opposition between public Law and Private Law. After that, within Private Law, the distinction exists between civil Law and Commercial Law.

After that, one finds the distinction between Employment Law and Corporate Law. There aren’t dogmatic and academic distinctions ; this is the basis of technical legal rules in continental legal systems.

2. Separation between Corporate Law and special civil Law

Because they are built before be applied, consequences in the Continental Law systems are fundamental : Corporate Law is the branch of principles and rules applied to commercial persons which aren’t physical persons but which are created by the authorization of the Legislator and built by will (“a company”) .

This is why, within Private Law,  Corporate Law is separated from employment Law, because the company is the employer itself, and its governance isn’t an issue for the relation between employer and employee. Moreover, environmental or human rights issues belong to Public law. Because Corporate Law is inside Private Law, it is impossible, or very difficult!footnote-115, to take in consideration these issues in Corporate Law, in its classical conception.

3. Corporate Law as a branch of Law closed on itself, separated from Employment Law, from Human Rights, from Environment Law

This is why Corporate Social Responsibility (CSR) is a theory born in the Common Law system which has picked it up from financial theory. Continental Law is too strongly built to adopt a foreigh theory so easily.

If we come back to Corporate Law, Corporate Law is the Law of commercial persons which have the form of company. Because company is created by a partnership agreement, a contract which creates a legal person at its turn, Corporate Law is only able to be composed by principles and rules governing the relationship between partners and between partners and officers.

The firm isn’t a legal notion in the classical Continental systems of Law. This is because Continental Law converses reality only through the legal categories. The legal category is the notion of "person": the enterprise, the firm, the business isn’t a legal category : only the company is a legal category in the classical Continental legal system. However, the legal notion of company organizes the relations between partners and between partners and officers. Corporate Law is truly closed on itself.

This is why when French Legislator decided to take stakeholders in consideration, the only way it found was to transform stakeholders to shareholders, by laws transferring the shares to employees!footnote-114. 

It would be possible too when French Parliament obliged listed companies to include women in their board, because women are independent directors just like any other. It was possible to do so inside Corporate Law for company workers or women independent directors, but this way needs identified persons who fit the legal categories of Corporate Law (shareholder or independent director) and this method doesn't work for protecting human rights or environmental issues.

B. THE POWER OF CIVIL LAW

1. The Law of Civil Liability

This is why, in the past, the consideration of stakeholders has taken the way of civil law, not of commercial law.

Civil law has two places. It is a special  branch of Law, for family and physical persons. But civil Law includes generale rules too: civil law is the general law. This is why you speak also about « Civil Law systems » … 

In civil law, a very important and usual mechanism is Tort Law.

The most famous article in the Code civil (the French Civil Code of 1804) is article 1382. It says: "Any act of anybody, which causes damage to another obliges the person by whose fault it happened to repair"!footnote-96. Admired by Stendhal, this article is absolutely general : if anybody causes damage to anybody by his fault, he must repair. Nothing more, nothing less. We need damage, victim, fault, causation and author. Nothing less but nothing more.

Through Tort law, it became possible to impose on companies some effective duties.

For example, the obligation to preserve the environment could be imposed by the precautionary principle. It is an ex ante method.

But an analogue mechanism can be created by tort law thank to the courts, by ex post only through the the notion of “objective duty” . Even in the Continental Law systems, important cases are followed by the other courts, not because their solution is obligatory but only because the decision is justified (“grand arrêt”). This is why Professor Geneviève Viney writes that the precautionary principles has done a little to Tort Law, because this branch of Law did a lot ...!footnote-103.

Let’s take an example : the criminal Chamber of the Cour de cassation, by the decision of the 25th  of September 2012, Erika. 

In this case, an environmental catastrophe had been caused by a firm. The “victim” was the Nature. But Mother Nature isn’t a legal person and the firm claimed that this sort of damage isn’t covered by the law. But the court just said that environmental damage is damage just like any other and a firm can be to ordered to pay money to compensate for this sort of damage because every damage must be repaired.

By the way, an Ex Post way, stakeholders oblige companies to take them in consideration ex ante, even for interests without identified owners, which is the case for environmental interest.

2. Procedural Law

Another very general law is procedural Law. Access to the court is the most fundamental right in a legal system. This is why access to a court isn’t a liberty, isn’t a power : it is a right. (article 12 of the French Procedural Code). More, it’s a constitutional right. To have the right to make a claim to the judge, you need to have an interest, that but only that.

This is the case for a workers committee which needs to know how company board and managers work, in order to bring an hypothetical liability action against them. French courts admitted such actions brought by a workers committee for obtaining an expert analyse of the company’s book and decisions, the sole way to have proof of it liability. 

With the alliance between civil procedure and civil tort law, ex post mechanism, companies learned to take in consideration stakeholders.

II. THE GHOST OF CHRISTMAS PRESENT: THE LEGAL CONSTRUCTION OF "CORPORATE SOCIAL RESPONSIBILITY"  BY FINANCIAL LAW

Let’s go to Christmas present ! It's time to forget the past ! Place to to New and modern Law ! The present is the direct consideration of financial market.

A. "CORPORATE SOCIAL RESPONSIBILITY", AS INVESTORS' RIGHT TO BE INFORMED OF NON-FINANCIAL ACTIVITIES OF LISTED COMPANY

1. The disclosure requirements for listed companies

Financial Law is a new and quite strange branch of law in the French law system: a sort of accumulation of rules, extracted from private law or public law, a mix of corporate law, criminal law, repressive administrative Law, procedural law, constitutional law, and so on. The rationale of Financial Law is to serve the good functioning of financial markets.

This is why the core legal requirement is investors’ information!footnote-102.

French Law adopted the 15th of  may 2001 an Act on the New Economic Regulations (« Loi sur les nouvelles régulations économiques"). It put in the French Commercial Code (« Code de commerce) a new article, only applicable to listed companies.

The Article L. 225-102-1, al.5 of the French Commercial Code disposes: "It (theBoard report) also includes information on how the company takes into account the social and environmental consequences of its activity as well as its social commitments to sustainable development and for the fight against discrimination and the promotion of diversity."!footnote-97.

How can we explain this new obligation, only on listed companies, only about information ? 

It’s possible to explain these restrictions by a double influence: political and legal.

At first, a political influence. This Law on New Economic Regulations has been designed by a French socialist government, Lionel Jospin was Prime Minister and said: “France needs to have a market economy but France isn’t a market society”. 

This is why another very political Law « Grenelle II » about environmental issues, adopted the 12th  of July  of 2010 had as a title “engagement national pour l’environnement” and asks companies to have consideration for environmental consequences of their activities.

Secondly, the law of 2001 on the New Regulations shows a legal influence from the European Union.

Because, It was in 2001 that the European Commission published its Green Paper, on the 18th  of July 2001, Promoting a European framework for Corporate Social Responsibility. This Green Paper is only a proposal to promote a conception, not a draft for legal obligations to do something for workers, for human beings (human rights), for Mother Nature. It was more a political conception of the company as a political agent in a complex world.

Because this is a new objective, the political conception was translated in a obligation of information for the benefit of investors. This was why it was located in the branch of Financial Law, for the shareholders on the financial markets.

2. The move from Financial Law to Economic Law

I think we can see an evolution after that, less political and more economic, less socialist and more liberal.

This takes the form of a move from Financial Law to Economic Law.

If you read the Communication from the European Commission to the European Parliament and the Council, About a Renewed EU strategy 2001-2014 for Corporate Social Responsability , adopted the 25 of October  2011, the rationale is different.

It is even more clearer in the European Directive of the 22nd of October 2014 taken by the European Parliament and the Council as regards of non-financial and diversity information by certain large undertakings groups. The criterion isn't the fact that the company is listed, the objective isn't the market information anymore and the criterion is the self-commitment as big companies can take.

The idea is : a firm needs innovation. People work in a better way if they are happy, if they trust the company, maybe if they love the company … Before, we loved State … (Rousseau), now, we are incited to love firms … (sign of the times ; o tempora, o mores …).

Why does the company need to take care of workers ? Because it’s good for itself.

Why do the public bodies, such as the European Commission agree? Because they love companies, because they trust them and because Innovation is the key for the future. This is the meaning of the European Directive of the 22nd of October 2014!footnote-113.

Human rights, which aren’t pertinent for innovation, referring to a political conception of corporation, don’t have any place in this European conception.

It is more ambiguous for environmental issues. Indeed, French Law seems to consider environmental preservation as a political objective through the law of 12th of July 2012 but European Union Law seems to considers this goals as a business goals in the Green Paper of the European Commission of 2001.

But, let return to the  technical Law, if these issues are under the governance of all companies, the restriction of the legal previsions, only to the listed companies, only about information,  isn’t justified anymore, because non-listed companies need innovation or need save the planet too. Moreover, innovation is not only a wish, it is a national obligation, perhaps a global obligation. Why stay on this step of this single information obligation ?

The temptation appears to go to a general obligation to do.  Is is good news or bad news for companies?

French Law transform the obligation of information. At the beginning, it was an obligation applied only on listed companies, in the branch of Financial Law to inform the Financial Market.

For the European Commission and in a Common Law system, because it an undertaking, market pressure would be sufficient. But a Continental Law system such is French Law doesn't like this sort of non-binding rule and the law "Grenelle II" adopt a mecanism of independent body in charge to control the respect of this obligation by the listed company.

But the Act of the 12th of July 2010 (“Grenelle II” on environmental issues) and an Ordinance of the 31rst July 2014 addeda new paragraph to article 225-102-1 of the French Commercial Code.

This new paragraph disposes : " A decree of the State Council shall establish two lists specifying the information referred to in this paragraph and the terms of their presentation, in order to allow a  comparison of data, depending on whether or not the company is admitted to trading on a regulated market."!footnote-98.

We see the criterion ceases to be the distinction betwee listed company and non-listed companies.

But, this obligation of information isn’t for all companies because it is  heavy to establish the report about non-financial information.

This is why as the case the European and French Law could take another sort of criterion : not a qualification (such listed / non-listed), but a threshold in order to apply this obligation only to quite big companies, or if it seems very important to the Legislator he applies the obligation to information to every companies (for environmental information). Texts use a sort of mix.

They  aimed at all listed companies because all listed companies are presumed big. And if a company isn’t listed, Law put a threshold. And if this an environmental issue, the threshold is posed by an act of the Parliament (Law of the 12th of July 2012 “Grenelle II”) but for the others subjects,  they are fixed by decree adopted by the French Council of State.

But form other stakeholders, Laws takes others criterions. As you saw, for diversity or equality between men and women, the Council of State will precise the criterion.

But for the environmental diligences,

The Law of the 12th of  july 2012 “Grenelle II” about environmental issues organizes general obligations of information for “big companies”:

III. THE GHOST OF CHRISTMAS YET TO COME: THE SOCIAL RESPONSIBILITY OF THE COMPANY, AS FOUNTAIN OF ITS POWER

A. "CORPORATE SOCIAL RESPONSIBILITY", AS A  BASIS FOR CHANGEIN THE DEFINITION OF THE COMPANY

1. From Article 1832 of the Code civil (French Civil Code) to a possible new Article 1833 of the Code civil

Corporate Social Responsibility could be a true revolution in the French legal systems tomorrow. For the moment, the European Commission says that a company can commit itself to improve the cooperation inside the firm and increase innovation.

If Corporate Social Responsibility is this, the definition of Corporation isn’t changed in Law.

In French Law, the definition of Corporation is given by the old Civil Code by article 1832. By combination of article 1832 and 1833, al.1 of French Civil Code, the interest served by the company is the shareholders’ interest.

But courts created the notion of “interet social”. Through case-law at the beginning then through criminal Law by crimination of misuse of corporate assets. The managers   and board must take decision to comply with the interest of the corporation itself.

In the legal field, academics always struggled to define the notion of the interest of the company. But everyone agrees it is a selfish interest.

Because Law is only a game of words, since a few years, some lawyers haved proposed including CSR in the notion of interest of the company. It is quite easy, because nobody knows what the company interest exactly means … it is like the general and public interest … Some mysteries on which legal systems are built …

The French Minister of Economy, Emmanuel Macron has proposed a addition of Article 1833 of Civil Civil in these terms:

A press article said : by this rewriting, Emmanuel Macron places the Corporate Social Responsibility in the DNA of the Corporation …

It is true …

Is it a good idea? Is it a big change ? Is it a good drafting?

2. The judge at the center of a possible new system

Every french lawyer applauds! Because nobody knows what is the « best interest of the company »!

This standard is a Common Law standard put in a continental legal system!!!

We started with an Ex Ante reference in 1804 (the common financial interest of shareholders in a contract) and we  might arrive with a an Ex Post reference en 2014.

It is an Ex Post reference because only the judge could say, case by case, what is the « best interest of a company ».

B. "RESPONSIBILITY", AS PROOF OF A POSSIBLE CORPORATE CONSCIENCE ?

1. The link between Corporate Social Responsibility, Responsibility itself and Conscience

What will be the future of the Corporate Social Responsibility?

For example, professor Alain Supiot, the best professor in Labor Law, is absolutely against the Corporate social Responsibility!footnote-95. Because he fights for social rights. Social rights are given by States, not by companies by contract or undertaking.

Why does this author have this position ?

Because of the consequence of this theory : it gives total power to firms.  Because of the basis of this theory : it supposes that a company has feelings.

Think about it. Is the legal theory of Corporate Social Responsibility reasonable? About CSR, an author wrote "If companies have a soul ...!footnote-111". But  remember Lord Chancellor Edward Thurlow who said two centuries ago: “Companies don’t have body and soul”.

2. The proof given by the Holly Hobby case (U.S. supreme Court, 30 June 2014)

Now, read the U.S. supreme court judgment Holly Hobby of the 30th of June 2014 : a company is a person as any other. It has feelings (for environment, for weak people, for the future of the planet, et so on). Corporation is a real person. It is what US Supreme court said en 2014, and before in 2010.

Why? Because Law can say what it wants … But if a company has feelings, it can support political candidate (judgment supreme court 2010) and it can be against women rights (Holly Hobby). Why not ? Companies will be the new legislators. By contracts and undertakings.

Law trusts companies to look after people, social group and earth.

Law doesn’t trust the State to do so anymore, but trusts companies to do so.

Why ?

2. Would it be possible in a Continental Law system ?

This is Hubris.

Academics in finance have shown the negative effects of hubris.

Now, the power to adopt rules, which are general, which are applied to everybody, which are accepted by everybody by contract, everywhere (because corporations are larger than States) belongs to companies. Many lawyers talk about the conscience of companies and the necessity of "coregulation". Others write about "citizen corporations"!footnote-110 : it is right companies need to be "citizen" if we have to be conducted by them.

Maybe in a Common Law system, case by case, it is easy to justify the solutions found situation after situation. But in a Continental Law system, you refer to principle: to respond and to take after other people, to impose them your personal opinions and desires, enven by contracts, you need to have a soul and a body.

no more than that but not less than that.

If you use the "responsability" only because corporation have a lot of power and because States have less power, without consideration for conscience, you presume and offer to companies a conscience and increase their power: they will be able to impose leur conception of the world to people by soft Law and contract. Peole will consent to a representation of the world unilaterally proposed by companies. The fact of globlalization isn't suffisant to justify a new fountain a power : an empty is not a source.

Don't worry. Company looks after the workers health, through its Corporate social responsibility. Good idea? Why not. But the US Supreme Court Holy Hobby judgment Holly Hobby admitted that the decision of this company to refuse to reimburse a contraceptive drug to women workers because this drug is against its “religious feelings” is a constitutional right.  The basis of the very worrying judgment is the idea of company conscience, applying to the others, especially to workers.

Through the new and very modern Corporate Social Responsibility, maybe companies are able to become the new Leviathan, a very continental figure of power.

_____

____