Academic

Oregon's Corporate Code

By Gordon Smith, Christine, Hurt, Vic Fleischer, Fred Tung, Lisa Fairfax, David Zaring

Oregon recently amended its corporate code to expressly permit corporations to include in their charter a provision authorizing or directing the corporation to conduct its business "in a manner that is environmentally and socially responsible." The legislative history of the amendment notes that courts in other jurisdictions have interpreted corporations' obligation to act in shareholders' interest to mean that corporations must maximize shareholder profit, even if it results in a corporate failure to act environmentally and socially responsible. Apparently the amendment is designed to counteract this kind of interpretation, and encourage corporations to engage in sustainable behavior. On the one hand, some may argue that this kind of amendment is not necessary. Indeed, to the extent the amendment is designed to ensure that corporations are not prohibited from engaging in socially responsible behavior, the business judgment rule appears to give corporations the flexibility to pay heed to other interests, except perhaps in limited contexts such as takeovers. On the other hand, the amendment appears to go farther, suggesting that corporations that embrace such an amendment have an affirmative responsibility to be socially responsible. From that perspective, it is a clear change. What is not clear, however, is the precise contours of a corporate commitment to engage in responsible behavior, and the kind of exposure generated by the failure to live up to that commitment. Interestingly, the legislature apparently discussed the fact that many corporations have embraced a commitment to engage in responsible behavior in their corporate documents. I have also noticed this trend. But it seems that expressing a commitment to responsibility on a corporate website or even in an annual report is a far cry from embracing such a commitment in the articles of incorporation. Nevertheless, it is an interesting development.

Full post as published by Conglomerate on April 03, 2008 (boomark / email).