Tag: Corporate Social Responsibility

Sustainability: Environmental, Social, and Governance (ESG)

Understanding the environmental, social, and governance (ESG) issues of today’s business world are key to understanding the discussion of sustainability and climate change (a sub-topic of each ESG and sustainability).  For example, a sustainable business that demonstrates strong ESG planning, will often include climate change risk management.

Today’s press informs that mounting pressure from the United Nations participants continues to build a focus on reducing greenhouse gas emissions.  The UN’s 25th Session of the Conference of the Parties (COP25) to the UN Framework Convention on Climate Change was held in Madrid from December 2 – 13.  The U.S. filed a notification of withdrawal from the Paris Agreement on November 4, 2019.  The U.S. State Department has announced it will continue to participate in ongoing climate change negotiations and meetings, such as COP25, to ensure a level playing filed that protects U.S. interests.  Also, the UN released its report noting the emissions gap they observe that demonstrates the difference between amounts of carbon dioxide emitted now and lower levels predicted as necessary to stop global warming.  The question being asked is whether there are missed opportunities to achieve GHG reduction goals.

Domestic and international companies are in the process of reviewing their ESG reports to assess last year’s accomplishments and in setting goals and action items for the new year of 2020 and beyond.  Climate change and other sustainability concerns like waste management are clearly on the minds of many.  There is no single formula for a well-developed ESG strategy and report, since each is as unique as the individual company about which the report speaks.  There are common ESG themes, however.  The UN Sustainability Goals provide a convenient list of well-refined issues against which a company (or individual) can assess their opportunities and vulnerabilities.  The goals set forth a number of environmental, social, and governance topics worthy of note to include: poverty, hunger, good health, education, gender equality, clean water, affordable and clean energy, decent work and economic growth, industry/innovation/infrastructure, reduced inequality, sustainable cities/communities, responsible consumption and production, climate action, life below water, peace and justice, and partnership to achieve the goal.  These are the types of issues to consider when exploring ESG and sustainability.  Consultation of the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB) can also assist.  Keep in mind that there is no one gold standard metric against which to measure ESG ratings or accomplishments.  The reason for that is simple, each company has a different complement of skills, talents, and opportunities or stated differently, ESG risks and solutions.

If you were to review a few ESG reports found on corporate websites, it will become apparent the differences and unique qualities of each reporting company.  Geographic locations of operations can define the ESG goals.  If operating in major metropolitan cities as opposed to emerging countries, the corporate responsibilities are quite varied.  If manufacturing consumer products, packaging is an attractive target for reduction in waste.  However, if manufacturing items used in the value chain, perhaps an ESG goal is managed through energy consumption during manufacturing or delivery of products.  If providing medical services, the ESG goals can be energy, water, supply chain, waste, etc.  Just as each of us possess capabilities and assets we can use to invest in our future, the same is true for companies.  We must acknowledge the unique accomplishments and actively invite the benefits gained from a collective effort.

The final item listed by the UN Sustainability goals is partnership, meaning the efforts and benefits should be shared.  We all must work together to achieve the change we need.  All contributions must be welcomed to build the sense of common good.

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For more on global sustainability efforts, see the National Law Review Environmental, Energy & Resources Law section.

Crying Over Spilled Milk: What Companies Can Learn from the Paula Deen Disaster

McBrayer NEW logo 1-10-13

Paula Deen may be the most recent celebrity to ruin the brand she built, but she is certainly not the first. Consider Martha Stewart, Tiger Woods, and Lance Armstrong. At one point, all had an empire built around their name and reputation. And, just like that, all were vehemently vilified by the press and public when an aspect of their personal lives became front-page news, resulting in the swift destruction of their businesses.

PR disasters can happen faster than a boiling pot can run over, and as Paula Deen is learning, it is hard to contain the mess once it has been unleashed. Even if companies do not have a national celebrity as the face of their business, there is a lot they can learn from the Calorie Queen’s downfall.

Separate the brand from the CEO (or other high-powered figure)

We are all human. What happened to Paula Deen can happen to any business owner.  People make inappropriate comments, go to prison, sleep around, and take steroids (see above-named individuals). When your face is more than just who you are, though, you have to tread lightly in the public eye.  When your face is your brand, negative publicity affects business.

Food Network, Smithfield Foods, Wal-Mart, Novo Nordisk, and Home Depot did not drop Paula Deen because her products were not up-to-par. They dropped Paula Deen because her public image tarnished her brand.

A company should not rest on one person’s reputation, but should be built around principles, a mission, or a niche. That way, when the higher-ups make a mistake, the company can continue. With that being said, management and boards should be concerned with how the highly visible, well-known figures in their companies are behaving, whether they are on national TV or at a local charity gala. Employment agreements should always include expectations regarding behavior and how one represents the company. Extensive background checks should occur for any employee who could potentially taint the brand.

Act fast, but fully assess the situation

In the age of social media, an incident can lead to pandemonium in no time. Allegations can spread quickly and extensively. Whether, when, and why Deen may have uttered an offensive racial slur is of no matter because Facebook and Twitter reported that she did; that was enough for public conviction. If gossip is spreading about your business, do not be afraid to address it head-on through social media or a press release. But do not fall victim to knee-jerk reactions. Take time to investigate, come up with a game plan, and take necessary action before addressing the publicity. If the incident is so bad that your company’s future is on the line, then hire a PR team to step in.

Thank employees, customers and clients for loyalty

There are a lot of angry fans out there who think Paula Deen was thrown under the milk truck. In the midst of almost every PR crisis, there will be supporters. These people will stand by the company when others are jumping ship. Make your gratitude to them known, whether it is in the form of a bonus, sincere message on your company Facebook page, or a customer appreciation day. Find some way to turn the situation into a positive one.

We have likely not heard the last of Paula Deen. Her brand, though in the trenches now, may pull through. And there is always a scorned celebrity book deal to be made. Smaller companies may not recover so easily from PR blows. Business owners should always be monitoring their image and employees to minimize risks. HR departments should be pro-active. Expectations should be communicated. Professionals should be consulted if needed.

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Total Settles Foreign Corrupt Practices Act (FCPA) Bribery Claims for $398M

Katten Muchin

On May 29, French oil and gas company, Total SA, agreed to pay $398 million to settle US civil and criminal allegations that it paid bribes to win oil and gas contracts in Iran in violation of the Foreign Corrupt Practices Act (FCPA). Notably, the criminal penalty is the fourth-largest under the FCPA and the case marks the first coordinated action by French and US law enforcement agencies in a major foreign bribery case.

In a scheme that allegedly began nearly 20 years ago in 1995 and continued until 2004, Total allegedly paid approximately $60 million in bribes to induce an intermediary, designated by an Iranian government official, to help the company win contracts with National Iranian Oil Co. The contracts gave Total the right to develop three oil and gas fields and included a portion of South Parys, the world’s largest gas field. Total allegedly characterized the bribes as “business development expenses” in its books and records.

The DOJ filed a three-count criminal investigation charging Total with FCPA conspiracy and internal controls and books-and-records violations. Total agreed to resolve the FCPA charges by paying a $245.2 million criminal penalty, which was at the bottom of the $235.2 to $470.4 million range of fines available under the US Sentencing Guidelines. The company also settled a related civil case with the US Securities and Exchange Commission for $153 million in disgorgement of its profits in the scheme. The criminal case will be dismissed after three years if Total complies with the deferred prosecution agreement, which requires Total to (i) retain a corporate compliance monitor, who will conduct annual reviews; (ii) cooperate with authorities and (iii) implement an enhanced compliance program designed to prevent and detect FCPA violations. The compliance program requires, among other things, that Total’s Board of Directors and senior management “provide, strong, explicit and visible support and commitment” to the company’s anti-corruption policy and that they appoint a senior executive to oversee the program and report directly to an independent authority, such as internal audit, the Board or a committee thereof. Total’s problems, however, are not over. French prosecutors have recommended that the company and its chief executive officer be brought to trial on violations of French law, including France’s foreign bribery law.

U.S. v. Total SA, 13-cr-239 (E.D. VA. May 29, 2013).

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NetSpend: Delaware Chancery Criticizes Single-Buyer Negotiating, Use of DADW & Revlon Process, But Denies Injunction

GT Law

In a nutshell, plaintiff’s motion to enjoin Total System Services’s $16 per share/$1.4 billion (cash) acquisition of Netspend Holdings was denied because the balance of the equities tipped in favor of the defendants (i.e., the court’s perceived risk to the target’s stockholders of a deal that might fail in the face of a MAC or breach when it was the only deal on the table) even though Vice Chancellor Glasscock concluded that it was reasonably likely that at trial the plaintiff would successfully establish that the Netspend board did not conduct a reasonable Revlon value maximizing process.

The key facts and observations in the case included, among others:

– A single-buyer negotiating strategy employed by the Netspend Board with no formal pre-sign check (although a go-shop was asked for several times in the negotiations and repeatedly rejected by the buyer, the repeated asks appear to have helped obtain the $16 per share price.

– An unaffected 45% premium without giving effect to an immediate pre-sign, positive earnings release by Netspend).

– Netspend had prior bad experience with collapsed sale processes and, therefore, it was queasy about undertaking another formal or elongated process.

– Netspend was not “for sale” and responded to Total System’s initial IOI and commenced discussions mainly because Netspend’s 31% stockholder and 16% stockholder wanted to exit an illiquid and volatile stock (Netspend was content to execute management’s stand-alone operating strategy absent a compelling price).

– Appraisal rights are available under DGCL 262; Vice Chancellor Glasscock questioned whether Netspend’s directors had a “reliable body of evidence” and “impeccable knowledge” of the company’s intrinsic value in the absence of a pre-sign market check and despite Netspend’s prior failed sale processes some years before.

– The fairness opinion obtained by the Netspend board was “weak” under all of the circumstances (putting more pressure on the directors’ understanding of the company’s intrinsic value).

– No interloper surfaced even after the transaction litigation delays (putting maximum pressure on plaintiff’s demand for an injunction); the deal protection package was pretty plain vanilla (the break up fee was in the “northern sector” of the range at 3.9% of total equity value, but certainly not preclusive or coercive; matching rights and other buyer protections were customary).

– A reasonable arms-length negotiating strategy was employed to obtain the $16 per share.

– Netspend’s CEO (who led the negotiations with appropriate Board participation and oversight) was not conflicted (in fact, he was found to be aligned with the non-affiliate stockholders in several respects).

– The nominees of Netspend’s 31% stockholder and 16% stockholder constituted a majority of the Netspend Board (but Vice Chancellor Glasscock found that their interests were aligned with the non-affiliate shareholders).

– Two private equity firms had conducted diligence and looked at buying a significant stake in the company from Netspend’s 31% stockholder and 16% stockholder at a materially lower price than Total System’s initial (and final) bid, but they never indicated a desire to buy 100% of Netspend.

– The support agreements entered into between Total Systems and each of the two large stockholders were coterminous with the merger agreement (but were not terminable upon the Netspend Board’s withdrawal of its declaration of advisability of the merger agreement).

In a noteworthy passage, Vice Chancellor Glasscock faulted the decision of the Netspend Board not to waive the “don’t ask-don’t waive” clauses in the confi-standstills with the two private equity firms at the time discussions commenced with Total Systems and, in the case of any post-sign unsolicited “superior offers” that might arise, he noted the ineffectual fiduciary out to the no-shop covenant in the merger agreement which required Netspend to enforce and not waive pre-existing standstills (thus, the private equity firms were precluded from lobbing in a post-sign jumping bid).

Vice Chancellor Glasscock refers to Vice Chancellor Laster’s In re Genomics decision and to Chancellor Strine’s decision in In re Ancestry pointing up, again, the Court’s sensitivity to, and the highly contextual nature of, DADW provisions in pre-sign confi-standstill agreements and perhaps further underscoring the distinction between using a DADW in a single-buyer negotiating strategy vis a via using one in a formal auction setting or where a full pre-sign market check is conducted.

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European Parliament Adopts Resolution on Corporate Social Responsibility

Update from this week’s guest blogger at the National Law Review from Foley Hoag LLP.  Tafadzwa Pasipanodya discusses how a Corporate Responsibility Mandate would actually work.  

A resolution adopted by the European Parliament on November 25, 2010 increases the likelihood that the days of CSR as a purely voluntary initiative are numbered. Approved by a margin of 480 votes to 48, the resolution on corporate social responsibility in international trade agreements calls on the European Commission to include a CSR clause in all of the European Union’s trade agreements.

Such a clause would require, inter alia, companies to publish “CSR balance sheets,” report on due diligence, and seek free, prior and informed consultation with local stakeholders.  The proposed CSR clause would also provide for monitoring and judicial cooperation in pursuing and punishing breaches of CSR commitments.  More generally, the resolution also calls on the Commission to reinforce its promotion of CSR in multilateral trade policies and to conduct sustainability impact assessments before and after trade agreements are signed.

According to its explanatory note, the resolution was drafted in recognition of the reality that for “ordinary people throughout the world, the expansion in international trade is justified only if it contributes to economic development, to job creation and to improved living standards.”

The note provides moral, socio-economic, and political justifications for Europe to address CSR in the context of its trade agreements:

  • First, European companies enjoying the benefits of trade must be asked to conduct themselves in a socially and environmentally responsible manner in developing countries and elsewhere.
  • Second, “non-compliance with CSR principles constitutes a form of social and environmental dumping” in developing countries to the detriment of companies and workers in Europe, who are required to meet more stringent social and environmental standards.
  • Third, the EU’s trade policy must be consistent with and complimentary of its other foreign policy priorities on matters such as environmental protection and development aid.

Many of the EU’s international trade agreements already address social and environmental concerns. The significance of the proposed CSR clause is that it would place an onus on companies – not just the State parties to the trade agreements – to act in a socially and environmentally responsible manner.  Also, while recent trade agreements concluded by the EU with South Korea, Colombia and Peru vaguely mention the State parties’ intent to promote CSR, the proposed CSR clause would require specific actions by companies.  Among the proposed requirements for the CSR clause are the following:

  • Companies would be required to publish CSR balance sheets in two or three year intervals in order to reinforce transparency and reporting and encourage visible and credible CSR practices;
  • Companies would be required to conduct due diligence in order to identify and prevent  “violations of human and environmental rights, corruption or tax evasion, including in their subsidiaries and supply chains”;
  • Companies would be required to commit to “free, open and informed prior consultation” with local and independent stakeholders prior to commencing a project that impacts a local community.

The resolution envisions that other provisions enforcing implementation of CSR would accompany the CSR clause.  It recommends, for example, that in addition to establishing appropriate investigatory mechanisms, State parties should be willing to “name and shame” companies in serious breach of their CSR commitments.  The resolution also foresees judicial cooperation and training as a means of facilitating judicial redress for victims of inappropriate corporate conduct.

The European Parliament’s resolution is a non-legislative act and thus not enforceable.  It is now up to the European Commission to decide whether to incorporate the Parliament’s proposals into binding legislation.  Although some companies will balk at any attempts to limit the voluntary nature of CSR, others, especially those that already seek to operate in a socially and environmentally responsible manner, may welcome the prospect of all companies being required to operate by the same rules in the context of particular trade agreements

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