Crossing the divide

The recognition of corporate social responsibility and the prevalence of social audits mean companies and law firms are treading carefully when setting up shop away from home, reports Chris Baker

Ask most people in the UK to define the meaning of corporate social responsibility and they will probably suggest it involves companies investing in their local communities.

But across Europe corporate social responsibility and the concept of the social audit - where an organisation's ethical activities are open to public scrutiny - are slowly but surely becoming bywords among policymakers.

In these days when non-governmental organisations (NGOs) closely watch the ethics of the business world, and less organised groups lead pickets on May Day, it would be wise for both law firms and clients to know where they stand.

And where firms are entering emerging markets in other jurisdictions, a sense of corporate social responsibility can help ease the fears of local lawyers and avoid hostility, according to experts in the field.

The Law Society of England and Wales first became aware of the growing need for socially accountable business practices when English and US firms started moving into the emerging markets of eastern Europe.

The Society's head of international, Alison Hook, says there was 'some resentment' from local lawyers caused by the business practices of some of the larger international firms.

'If there's a market that is reportedly more unregulated you will get firms going in and if they are not careful they will really annoy local lawyers,' she says.

'And the eventual backlash will be local lawyers campaigning with their governments to close up the market.'

Lawyers in Romania and Poland have tried to restrict the activities of foreign firms in the past.

'In Slovakia, it's still going on but in most cases they have been resolved,' Ms Hook adds.

To combat such conflicts, the Society urges firms not to antagonise the local bar of a country they move into, and to act as responsibly as possible.

'If they want to be in that market for the long term, it's essential that they behave and put something back into the country and put something back into its bar,' Ms Hook says.

Allen & Overy partner Stephen Denyer helped the firm to establish offices in eastern Europe.

He says A&O has had no real problems with local lawyers.

'The behaviour of the firm is as important as the clients that we act for,' he says.

'We have to contribute to the wider community, and we do that through pro bono work.

We also contribute help - both financial and free legal advice - to local charities and groups.'

When the firm opened in Warsaw it hired a prominent Polish lawyer to build the practice and recruit more lawyers.

He soon became one of the first Polish lawyers to become a partner in an international firm.

'That's the approach we prefer, rather than hiring people who speak the language but are English or American qualified,' Mr Denyer says.

'The more we can do that the better we will succeed in the next place because we will have examples to show people.'

However, all is not so rosy in India.

Groups of local lawyers have begun litigation in an attempt to close the market to foreign lawyers.

One partner of a firm with dealings in India, who prefers not to be named because of the sensitive nature of his work, says foreign firms could use corporate social responsibility to teach skills and help broaden the base of Indian lawyers.

'It sounds almost imperialistic but [foreign lawyers] would be able to bring in the sorts of skills that would be of enormous benefit to India plc in the long run,' he says.

This lawyer points to the oil boom in northern England in the late 1970s and early 1980s.

'We were invaded by US lawyers and we thought we were going to lose our shirts,' he recalls.

'But they came and they had the experience and there was a transfer of knowledge, and now lots of English firms have subsequently become involved in oil and gas.'

Firms are also going to have look to their own internal arrangements.

Ms Hook says: 'In the UK, we have traditionally regarded corporate social responsibility as being very much about community services.

In Europe, particularly in the Netherlands, Germany and Belgium, the focus is more on going beyond statutory responsibilities and being an extra-specially good employer.'

The EU may have decided against imposing corporate social responsibility (see [2003] Gazette, 18 July, 9) but Belgium did attempt to use its recent EU presidency to bring the issue into the spotlight.

France passed legislation in 2001 requiring mandatory disclosure of social and environmental issues in companies' annual reports and accounts.

Last year, Linda Perham, Labour MP for Ilford, introduced a corporate responsibility Bill in the UK.

The Bill did not receive a hearing, but had it got onto the statute books it would have made the so-called 'triple bottom line' of social, financial and environmental reporting mandatory.

So, while clients are facing increasing pressure to demonstrate their commitment to responsible business practice, the Law Society argues that their lawyers should follow suit.

'Many firms are now global corporations and there is no reason why they should not be thinking about corporate social responsibility for themselves,' Ms Hook says.

Jonathan Lux, a Hamburg-based Ince & Co partner and chairman of the International Bar Association's (IBA) corporate social responsibility task force, agrees.

'There are two aspects to this for lawyers,' he says.

'One is the managing of one's own business with working practices and gender issues.

The other is what advice we can give to the business world.

'It would be particularly invidious if we have a role in CSR for outside business and are guilty of dereliction ourselves.'

Many firms cite their pro bono work and family-friendly arrangements as examples of socially responsible working.

At the moment, it may just be seen as a good example of best practice that can boost a firm's status, but things could change.

Ms Hook sees mandatory corporate social responsibility as inevitable in the post-Enron world.

'It's almost as if today's voluntary standards will become tomorrow's statutory minima,' she says.

And Mr Lux warns: 'As a business lawyer, I feel it would be a serious mistake for solicitors to see this as a matter for environmental activists or other groups to deal with.

Just as 20 years ago there were not that many firms with dedicated environmental law departments or practice groups, in 20 years' time we will similarly see firms with dedicated corporate social responsibility departments or units.'

The Council of the Bars and Law Societies of Europe (CCBE) is in the process of working up guidelines for solicitors on corporate social responsibility issues.

The guidelines, currently still in draft form, state: 'Responsibility for advising on corporate social responsibility issues has not always been seen as falling to the legal profession.

The CCBE believes that this should change.'

It argues that lawyers should make company management aware that corporate social responsibility is a serious issue.

And it warns that in the current environment, a corporate client could incur 'losses of a considerable size' if it is negligent in this area.

If the lawyer did not raise this possibility at board level, it says, that could be viewed as liability.

It recommends that lawyers advise their corporate clients to undertake wide-ranging reviews of corporate social responsibility, implement risk management and undertake assessments of corporate social responsibility projects.

'There is a piecemeal application of corporate social responsibility, and there is no systematic change or sincere change in big business,' the council concludes.

'This is where the role of lawyers becomes crucial, to advise their clients of the importance of a field which could have a major impact on their businesses.'

Corporate social responsibility has all the potential to become a double-edged sword.

It seems almost certain that lawyers will have the responsibility of advising corporate clients where they fall short on the issue, and likewise they could be held open to scrutiny themselves.

Corporate social responsibility should not be seen as an onerous requirement for openness, but should be turned to the advantage of companies and firms as evidence of being good employers.

As Mr Lux puts it: 'If you want to be attractive to young recruits, be seen as a leader in the field and a good employer with quality of service - or even if you want to look in the mirror with pride in the morning - it's important for law firms to buy in to the sense of corporate social responsibility.'

Chris Baker is a freelance journalist