The Singapore Law Review

From the Chief Editor
Corporate social responsibility (CSR) as a school of thought is still in its infancy, having been established as recently as the 1970s. It has, within its short span of life, been elevated to a buzzword due to the large impact business-oriented corporate bodies often have on issues extraneous to mere finance. These include environmental concerns and the interests of society at large.

Due to the “economics-first” maximising mindset that many lawyers and businessmen employ in the course of their work, we have found it fitting to provide a fresh perspective in the second issue of Juris this academic year. As always, we commence with a brief introduction of CSR for those unacquainted with the concept. This will be followed by interesting discussions of the CSR movement’s relevance to the common student and its correlation with corporate governance. A guest writer from the University College London shares with us her international perspective of CSR, while views on whether CSR should be legislated are also juxtaposed. On a lighter note, the Odex saga, which has been quite widely debated of late, will be also be analysed in light of CSR.

I hope that this issue of Juris would encourage all of us to critically evaluate the wide-ranging impact that each seemingly insignificant decision made by a corporation entails.

Read the Print Version of this issue here: Juris Vol 4 Issue 2 (September) (more…)

For The love of One’s Company.

If the headline strikes you as ironic, you’re probably not alone. The Big Bad Corporation still grips the popular imagination: companies are bullies, companies are bureaucratic, companies are obsessed with profit margins, companies are… evil. Intellectually, we do appreciate the benefits of not regulating companies. Cookie-cutter legislation only increases transaction costs; its aim of regulating managers’ behaviour can be achieved more elegantly by free, competitive markets, such as the market for corporate securities.

Yet this fixation on economic efficiency is precisely the kind of fixation which makes us distrust companies and seek regulation in the first place! Surely there’s a better reason, a moral reason, as to why we should avoid legislating ‘best practices’?

Perhaps. Our political and social universe is today no longer dominated solely by state governments. Companies increasingly impinge on our lives, and not simply in a transitory way. Many of us spend a huge chunk of our time working in companies. We also invest significant amounts of personal wealth in them.

The upshot of this is that we no longer stand on the outside, looking in. Just as we are citizens within a state, many of us are also part of a company’s inner life – a company that is essentially also a political entity, with its own constitution and internal deliberative organs.

Like it or not, the company has thus become, like the nation-state, a public forum in which we can debate and exercise our own choices. Like how we don’t interfere when another state decides to construct a nuclear power plant atop a dormant volcano, we shouldn’t interfere with the autonomy of a company’s stakeholders to build their own collective identity, ethos and management systems. As with international law, the operative word here is ‘self-determination’.
So, if you love your liberty, then resist legislation… Love your company!

Zewei is a second year law student and an associate editor of SLR.

Stop me if you heard this one already.

Wait. You mean my favourite oil guzzling, incompassionate company is actually capable of something beyond appeasing its shareholders?

As corporations become more conscious of their image and seek to align themselves with “good causes”, the negative image they have loses its power. It’s a sign that Corporate Social Responsibility is finally making its way into the boardroom. Such publicity stunts are however, closely related to the money made from it. As long as I know that I was not implicit in a worldwide conspiracy to kill babies when I pop a french fry in my mouth, this social responsibility thing has done its job.

Since corporations are basically human inventions, it is remarkable how they seem to go against our interests. Perhaps this is due to the one-dimensional nature we accord to them. When the fundamental question of what a company is asked, someone will claim that companies are to make money, and we will all agree with him. We measure a company’s success by its share price and the net worth of its assets. Why are we surprised when a company would do anything for more money?

There is nothing wrong with companies. In fact, they are already useful. Humans cannot witness global warming or conduct deep space exploration because of our limited lifespan. Companies already provide a viable framework for private human endeavours to live forever. While the State may be another solution, it will suffer from diseconomies of scale, which was why we have companies in the first place.

It is nigh impossible to change a deeply entrenched assumption of company law, or even expect change to come from within the business community itself. The State, representing the interests of society best, should affect the landscape through the very laws that create the company.

Houfu is a second year law student and the Publicity Manager of SLR.

When he was Chancellor of the Exchequer, Gordon Brown remarked that CSR today is not so much about philanthropic donation for good causes, but is rather a responsibility that companies accept towards the community around them. Indeed, the success of corporations is dependent on the existence of a healthy society, and vice versa. An educated, healthy and motivated workforce is crucial to the development of successful companies, which in turn creates jobs, wealth and innovation, improving the society’s general standard of living.

The U.K., with Stephen Timms as the CSR minister, is one of the leading international contributors to CSR. It has introduced various legal frameworks to regulate employee welfare and corporate accountability. For example, the Health and Safety at Work Act 1974 places a legal duty on employers to ensure, as far as is reasonably practicable, the health, safety and welfare at work of all their employees. A Health & Safety Executive also exists to promote compliance beyond basic levels by encouraging the production of a health and safety index for insurance companies, investors and others to gauge the performance of a company. Further, the Employment Act 2002 introduced new legislation specifically designed to give working parents more choice and support to balance childcare and work.

The U.K. government has also embraced the concept of Operating and Financial Review (OFR) in response to the Company Law Review’s recommendations. The OFR requires listed companies to provide a narrative report setting out the company’s business objectives, its strategy for achieving them and the risk and uncertainties that might affect their achievement. It will require companies to report on other matters where these are necessary for an understanding of the business; these include information about employees, the environment and social and community issues.

Such measures are admirable as corporate honesty is arguably one of the most important aspects of CSR. Consumers and investors need an accurate picture of the companies which they are dealing with before any informed decision can be made. The OFR measures also aid in building a relationship of trust between corporate and social actors that is crucial to business success in the long run.

Daming is a second year law student and an associate editor of SLR.

As a form of corporate social responsibility, corporate governance is self-regulation that is more concerned with enhancing shareholder value and also guarding the stakeholder’s position in society. The latter theory is arguably more relevant in light of corporate scandals worldwide. It serves as the framework that ensures board accountability to the shareholders and, arguably, to society-at-large. In fact, Sir Adrian Cadbury in his Corporate Governance Report (1999) explained corporate governance as ‘holding the balance between economic and social goals between individual and communal goals’.

Corporate governance is important, firstly because the separate legal entity doctrine demands that adequate measures be implemented to ensure that the company’s interests are first and foremost. Such measures act as a check on agents of the corporation and prevent them from misusing their position and knowledge to the detriment of the interests of the company.

Secondly, on a practical note, it is one of the most important considerations in the stock selection of publicly-listed Asian companies. The McKinsey & Co Investor Opinion Survey 2002 showed that 82% of Asian respondents feel that corporate governance is more important than the potential financial returns. Another practical argument proffered is that good corporate governance, which demands increased bona fide disclosure, may encourage investor confidence, which in turn means greater capital flow.

Singapore’s model is based on both legislation and non-legislative regulations. The primary legislation dealing with corporate governance is the Companies Act. Singapore also has a wealth of case law dealing directly with corporate governance, as well as the stringent listing rules of the Singapore Stock Exchange (SGX).

However, a description of the local model is incomplete without the ‘Code of Corporate Governance 2005’. This code spells out guidelines pertaining to matters such as the composition and training of board of directors, disclosure/communication with shareholders, and accountability and audit. As with the U.K. Hampel Report, a key feature of the Code is its voluntary nature: non-compliance does not attract penalties. This voluntary nature reflects the maturity of Singaporean companies. An analysis of the Code shows that it is intended to allow companies a large degree of flexibility in their approach to corporate governance, as long as their approach remains centred around sound principles of corporate governance. Singapore has achieved success in this regard by recognizing that there is no ‘one-size-fits-all’ corporate governance model that can apply to all companies successfully.

The coupling of the Code with the Companies Act reflects Singapore’s approach to corporate governance. A balanced approach was seen as the most appropriate model in ‘slightly less developed markets’. This approach, as the label suggests, encourages commercial autonomy while also mandating legislative accountability. It thus differs from a prescriptive approach requiring companies to adopt specific practices and a non-prescriptive approach allowing companies to determine their own practices, subject to appropriate disclosures of such practices adopted.

The prescriptive approach is clearly unsuitable for Singapore given that it assumes a ‘one-size-fits-all’ model. On the other hand, the non-prescriptive approach is prevalent in the U.S. ,where stock exchanges require public-listed companies to describe specific corporate practices. The U.S. Securities and Exchange Commission, for example, emphasizes high disclosure standards. This approach was previously taken by Australia, although it has recently moved towards more regulation in the wake of Enron. However, it is suggested that this move is merely a prolonged knee-jerk reaction which will subside in the face of strong market forces.

Singapore should follow the non-prescriptive approach and adopt a model that mirrors the U.S.. In a mature economy like Singapore’s, it is important that investments flow unhampered by unnecessary regulations. Before this seamless flow of investments can occur, businesses must allowed the flexibility to stay competitive and adapt to market adjustments. Certainly, the law cannot keep up with changing commercial realities. Instead, commercial realities will necessarily force the investor to judge which company has the corporate governance practice that best matches his risk appetite. Market forces will edge out companies which do not practise good corporate governance policies.

Fears of the next Enron can be assuaged by the fact that Singapore is moving towards a more robust accounting standards system, coupled with the bare essentials of corporate governance legislation, viz the Companies Act, and other industry-specific legislation (e.g. Securities & Futures Act). Nevertheless, a closer examination of corporate scandals reveals that the problem lies not with the ineffectiveness of corporate governance legislation, but rather, the ineffectiveness of auditing practices.

The solution lies not in hamstringing corporate maneuverability with superfluous ‘codes’ or legislation, because these merely offer boxes in which directors are inclined to tick, so as to absolve themselves of liability. Instead, the solution is in buttressing our auditing and accounting standards, while retaining our disclosure-based philosophy of regulation and encouraging a more active shareholder participation. Although good corporate governance is paramount in any mature economy, unlike the rest of Asia where corruption heavily permeates commerce, Singapore’s economy is mature and robust enough to move towards a non-prescriptive approach to corporate governance. It needs to, if Singapore is to remain competitive.

Aidil is a second year law student and the Operations Manager of SLR. He would like to thank A/P Yeo Hwee Ying for her comments on this article.

Odex Pte. Ltd. (Odex) is a Singapore-incorporated company that licenses and releases anime for local and regional consumption. The company catapulted into notoriety this year when it applied for court orders against several internet service providers (ISPs) to reveal personal details of downloaders of anime licensed to Odex. Having successfully obtained discovery orders against ISPs SingNet and Starhub, Odex proceeded to issue letters of demand threatening legal action, both civil and criminal, against identified downloaders, barring out-of-court settlement. The sums demanded in settlement talks ranged from S$3000 to S$5000. Amidst public outcry, Odex has since decided not to issue letters to individuals who illegally downloaded prior to 3 September 2007.

There are several factors that make this saga intriguing: (1) the fact that the downloaders identified mostly did so for personal enjoyment, (2) the large sums demanded in settlement and (3) Odex’s threats of civil and criminal action to buttress their cause.

Firstly, in a recent parliamentary debate on the applicability of the Copyright Act (Cap. 63), it was proffered that “it is not intended to catch a person who commits an infringement by occasionally downloading… for his own personal enjoyment”. Sing. Parliamentary Debates, vol. 78, col. 1041 (16 November 2004) (Professor S. Jayakumar). The settlement amounts demanded of the offenders are also manifestly excessive when viewed in light of potential damages a court would grant should Odex hypothetically win a suit. Thirdly, Odex’s threat of criminal action is an unfounded one since this is dependent on an exercise of prosecutorial discretion, which judging from legislative intent in amending the Copyright Act, would be highly improbable. Of course, Odex still retains a civil claim against the offenders, however unlikely to be brought since the risk of an adverse judgment is ever-present.

This issue also opens a Pandora’s box in the area of corporate social responsibility. It is firstly opined that Odex’s actions are deplorable as a profiteering manoeuvre levelled at individuals who are often, legally untrained. Although Odex categorically denied this, it is difficult to conclude otherwise judging from the adversarial manner in which settlement processes were carried out. However, the blame cannot simply be cast on Odex, as SingNet and Starhub were equally culpable in their inertia. In failing to contest discovery orders and opting instead to receive payment from Odex to reveal downloaders’ information (The New Paper, 8 August 2007), they forsook their obligation to protect consumer privacy. It took an unprecedented decision by District Judge Earnest Lau in dismissing Odex’s discovery bid against a third ISP, Pacific Internet, to put a temporary cessation to the matter. Since then, Odex has teamed up with Japanese anime producers to explore ways of circumventing the judgment. It is hoped that the courts will firmly stand their ground in the face of these developments.

Jeth is a third year law student and the Chief Editor of SLR.

You may have seen her on campus. You may have thought she is just another exchange student. In fact, she is enrolled in the full-time Bachelor of Laws degree course in NUS Faculty of Law.

Anja Bihler, who is now into her second year of undergraduate studies, comes from Stuttgart in Germany (which she says is only interesting for cars and soccer). The first question that pops up in your mind: why NUS law school?

“It all began with a Singaporean friend of mine who is married to a German. She would often tell me about Singapore and I became interested in what the city had to offer.”

It was not without some difficulty that Anja managed to convince her parents and grandmother that Singapore really exists and is not just a part of China as many Europeans believe. “I had to pull out a map and literally point to the exact location of Singapore.” Indeed, the first time she set foot on Singapore was when she came for the entrance interview at the Faculty.

Anja completed her International Baccalaureate in Germany before pursuing her tertiary education at NUS. Was there any culture shock? “I’ve never seen so many hardworking students in my life. In German schools, people have better things to do than to study…students who work hard are the bare minority.”

It was certainly not just a twist of fate that brought Anja to our midst. Commenting on the competitive edge of NUS law school, Anja says matter- of -factly, “NUS law school enjoys good reputation and if you’d want to work in Asia, it is the natural choice to make.” Will she stay on in this little red dot? “As long as I like it here, I will stay.”

An Qi is a second year law student and the Juris Editor.

Alexander Yang is a second year NUS South East Asian Studies Major student. Asked what it means to be a CSR ‘activist’ on campus, he jokingly said: “It means a constant marvelling at how CSR is picking up such speed and clout elsewhere around the world but yet is so completely unheard of in NUS.

Juris talks to the President of the NUS CSR Student Movement.

Q: How is knowledge of CSR important to the student?

CSR comprises a set of values that will have great impact on the student once he or she enters the workforce. These values imply things such as a humane work schedule, a working environment free of hazards, and the on-going development of their talents in substantial ways, among other things.

However, as with most values, CSR does run into problems in practice and it is knowledge of these problems that students should ideally understand and contribute their thoughts on.

Like any ideal still in its infancy, we who take it up now face a lot of questions and challenges and wonder constantly if it is all worth it. However, the trends are certainly encouraging. A lot of countries and major companies are picking it up and it’s only a matter of time before it arrives here and arrives big.

Q: What programme does NUS CSR have in the pipeline this academic year?
Some highlights: We are putting together a conference/seminar on CSR to be held in around January in 2008. We hope to bring in corporations, NGOs and government agencies to get their perspectives on CSR and its development in Singapore.

Also in the works is a trip to an exotic resort overseas to learn about its environmental
and social efforts. Another project involves helping a local small enterprise develop and execute a socially responsible business plan.

For more information on the CSR Student Movement: http://csr.blogsome.com/ , or email nus.csrsm@gmail.com.

In an April 2004 report by Freshfields Bruckhaus Deringer, titled “Corporate Social Responsibility” (“Freshfields Report”), two references were cited as to what CSR means:

The European Commission describes CSR as:

‘… a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.”

Similarly, the U.K. Department of Trade and Industry (DTI) regards CSR as involving:

‘… businesses looking at how to improve their social, environmental and local economic impact, their influence on society, social cohesion, environmental and human rights, fair trade and on ways that fairness can be corrupted. CSR is an issue for large multinationals and for small, locally based businesses.’

DRIVERS OF CSR

Some might argue that a company should focus on the financial profits rather than issues like human rights or business transparency. However, the assumption made is that these are mutually exclusive.

Studies have actually concluded that incorporating CSR into business would not only make economic sense, but would also enable the business to be more sustainable. In a report by the UK DTI and Forum for the Future, it was concluded that a business with strong CSR practices will, for reasons rooted in business strategy, often be more successful in generating Economic Value Added (EVA).

In fact, engaging in CSR will spin off several benefits like increasing sustainable competitiveness (e.g. reputations and brands, efficient operations, increased sales and consumer loyalty, ability to retain employees), creating new business opportunities, attracting investments and business partners etc.

Greater public awareness, external pressure exerted by the mass media, and social activism also act as drivers for companies to adopt such policies, since the price for corporate misconduct is now higher than ever before.

WHY SHOULD WE CARE?

Why Lawyers Should Care

Lawyers are engaged to provide opinions on the law – that of course is the bare minimum. As identified in the Freshfields Report, the “keystone of CSR is compliance with international and national legal standards. Advising on the applicability, interpretation and application of laws is quintessentially what lawyers are trained to do.”

The report then suggests roles that lawyers can play. These include evaluating (1) the legal risks faced by the company; (2) which legal obligations are binding on it; (3) to what extent they are being complied with; and (4) how to deal with legal problems if they arise.

Issues like corporate governance, for example, are clearly within the scope of responsible corporate management.

Why Everyone Should Care

But in today’s globalised world and competitive business environment, it will not be surprising for clients to expect more. They expect practical and functional solutions that also give the company a competitive edge.

Legal solutions cannot be created without a thought as to their practicality in implementation. Ultimately a good solution not only resolves the problem from a legal standpoint, but also takes into account the other stakeholders in that business. This provides not just a strong foundation for corporate risk management, but further enhances the corporate image.

Lawyers who give that extra value-added service are those who understand their client’s business and how legal and non-legal factors can interact to affect their ultimate business objectives. On top of legal compliance, an effective solution must also take into account factors like ethical standards, best practices, proper management of stakeholder relationships, and public perceptions and expectations of the company.

For example, companies may outsource their production processes to countries where regulations against exploitative labor conditions are lacking. While this might be legally legitimate within that country, heightened awareness of such issues through mass media exposés and the work of NGOs will create public relations issues for the company – resulting in damage to corporate brand and reputation.

In this regard, the lawyer is well advised to keep abreast of the relevant codes of conduct and international best practices. While not legally mandatory, these considerations will no doubt be essential in forming a practical and functional framework for the company.

Proper management of stakeholder relationships and potential disputes can also reduce the risks of litigation, thus avoiding potential publicity pitfalls for the company.

All these are non-legal considerations which lawyers cannot ignore if they want to provide solutions that are not just robust in legal analysis, but also practical and effective in implementation.

Calvin Lim is a fresh law graduate and is now doing his Practical Law Course. He is a former president of the NUS CSR Student Movement.

Look no further than the 2008 Beijing Olympics to see a grandiloquent display of CSR tactics on the sponsorship chessboard. Any Olympic sponsor who thinks it can use CSR as a mere watchword, however, misunderstands the power of international scrutiny. More than ever, sponsors are under pressure to make a tangible impact on the Chinese population.

In the evolving global marketplace I call World Inc., CSR is now coming into play as a crucial strategic factor. CSR has infiltrated the business policies of giants like Nike and Microsoft, government legislation (as with the focus on sustainability and quality community implications disclosure in the Companies Act 2006 in the U.K.) and business alliances across the U.S. and Europe. Southeast Asian countries like Thailand and the Philippines are also encouraging the development and dissemination of best CSR practices.

Further, CSR practices are rapidly crossing borders. In March 2006, the European Commission launched the European Alliance for CSR, an umbrella network for discussing new and existing CSR initiatives by large companies, SMEs, and their stakeholders. By raising awareness on CSR and developing open coalitions, it is hoped that European companies can stay competitive. In the U.K., ministers have been specially appointed to cover certain strategic aspects of CSR, and to extol its virtues in the international arena.

What started as an astute chessboard strategy by MNCs like General Electric and Walmart has become a critical variable in its own right. CSR’s proponents are no longer a few lingering street activists or a defunct NGO, but business and legislative expectations. In a global marketplace, this matters to firms who are struggling to find the critical variables in the equation for business success. CSR may be an asset, or a serious liability. Firms are fast losing the option to play the CSR card as a defensive fig leaf.

It will be an Olympian challenge for firms to fulfill these obligations. Moreover, the question remains whether international pressure or legislation (or even a mix) will be sufficient to persuade firms to play their cards right.

Grace Chong is a second year law student at University College London.