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Electronic copy available at: http://ssrn.com/abstract=2789801
Using Proactive Legal Strategies for Corporate Environmental Sustainability
Gerlinde Berger-Walliser,* Paul Shrivastava** & Adam Sulkowski***
Abstract
We argue that proactive law can help organizations be more sustainable. Towards
that end, this Article first provides a synopsis of proactive law literature as it pertains to
corporate sustainability. Next, we discuss a series of illustrative cases on the pivotal
nexus of proactive law and corporate sustainability. We then advance novel propositions
that connect proactive law to central organizational design elements. The discussion
traces further implications and suggests fruitful avenues for research and ways of using
proactive law for firms to become more sustainable.
INTRODUCTION
In the past forty years the world has developed a new understanding of the
relationship between humans and the natural environment. Within this time period,
awareness of environmental crises has steadily increased. The current world population
of approximately 7.2 billion is expected to increase to 9.2 billion by 2050.1 The global
economy will triple in size over this time, assuming no catastrophic perturbations. This
population increase and growth in global production, consumption, and pollution will
likely further exacerbate negative impacts on ecosystems and climate.2 To cope with
Copyright 2015. The Authors.
* Assistant Professor of Business Law, School of Business, University of Connecticut, 2100 Hillside Road
Unit 1041, Storrs, CT 06269-1041, Telephone: 860-486-5864, e-mail: Gerlinde.berger-
walliser@business.uconn.edu.
** David O'Brien Distinguished Professor of Sustainable Enterprise, John Molson School of Business,
Concordia University (Canada) and Affiliate Faculty, ICN Business School (France).
*** Associate Professor of Law & Sustainability, Babson College. Earlier versions of this article were
presented at the 2014 Society for Business Ethics Annual Meeting, the 2015 Academy of Legal Studies in
Business Annual Conference, and the 2015 Annual Conference of the North Atlantic Regional Business
Law Association. The authors wish to specifically thank Zeki Simsek, Robert Bird, Stephen Park and
Andrew Ross for their insightful comments and Sophia Ononye and Peter Anastasio for their editorial
assistance. All opinions expressed here and any errors are ours.
1 See Karen Ward, The World in 2050: Quantifying the shifts in the global economy, HSBC GLOBAL
RESEARCH (Jan. 4, 2011), available at
http://www2.warwick.ac.uk/fac/soc/csgr/green/foresight/economy/2011_hsbc_the_world_in_2050_-
_quantifying_the_shift_in_the_global_economy.pdf (stating that by 2050 19 of the top 30 economies by
GDP will be countries that we currently describe as emerging economies).
2 See PRICE WATERHOUSE COOPERS, THE WORLD IN 2050: WILL THE SHIFT IN GLOBAL ECONOMIC POWER
CONTINUE? 1 (2015), available at http://www.pwc.com/gx/en/issues/the-economy/assets/world-in-2050-
Electronic copy available at: http://ssrn.com/abstract=2789801
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worsened environmental conditions and mitigate further harms to humans and damage to
the natural environment, public, private, and corporate efforts to prevent environmental
degradation and to develop resilience and disaster programs must be broadened and
intensified. Some argue persuasively that enterprises should look beyond having zero net
effect and pursue the goal of having a restorative effect.3
Corporations increasingly internalize the social costs and potential gains of
corporate environmental sustainability practices and address them as one aspect of
corporate social responsibility (CSR). A growing body of research and case studies show
that corporations are beginning to understand how long-term sustainability goals can be
drivers of corporate success.4 However, despite the fact that some companies have fully
embraced the concept of sustainability, at the macro level environmental conditions are
worsening.5 Environmental regulation remains piece-meal and reactive and corporate
sustainability programs often are still primarily driven by efficiency and compliance, and
thus do not reach their full potential.6
To address these concerns, this Article outlines a theoretical framework that fuses
legal concepts with central organizational design elements to support corporate
environmental sustainability through the use of proactive law. Proactive law is an
emerging approach in the legal literature, which regards law as an enabling instrument for
companies to prevent legal disputes and reach their strategic goals.7 Originally a
European concept, proactive law has been previously studied in the U.S. legal literature
as a means for companies to gain competitive advantage,8 or to enhance global
sustainability governance.9 Management research has linked environmental
february-2015.pdf (stating that the world economy is projected to grow at an average rate of just over 3%
per annum from 2014 to 2050, doubling in size by 2037 and nearly tripling by 2050).
3 Gunter Pauli, BLUE ECONOMY-10 YEARS, 100 INNOVATIONS, 100 MILLION JOBS (2010).
4 See generally, RESEARCH IN CORPORATE SUSTAINABILITY: THE EVOLVING THEORY AND PRACTICE OF
ORGANIZATIONS IN THE NATURAL ENVIRONMENT (Sanjay Sharma & Mark Starik eds., 2003); see also
Michael J. O’Hara, Governing for Genuine Profit, 36 VAND. J. TRANSNATL L. 765, 777-78 (2003)
(explaining why managing long-term goals creates shareholder wealth).
5 See Wayne Visser, The Age of Responsibility: CSR 2.0 & the New DNA of Business, 5 J. BUS. SYS..
GOVERNANCE & ETHICS 7, 7 (2010), available at http://www.animus-
csr.com/docs/paper_age_responsibility_wvisser.pdf (2010) (stating that “while at the micro level in terms
of specific CSR projects and practices we can show many improvements, at the macro level almost every
indicator of our social, environmental, and ethical health is in decline,” and pointing to individual positive
examples at 13).
6 See Gerlinde Berger-Walliser & Paul Shrivastava, Beyond Compliance: Sustainable Development,
Business, and Proactive Law, 46 GEO. INTL. L. J. 417, 433-34 (2015) (with references) (calling for a
synergistic relationship between the private and public sector to create an effective regulatory framework);
see also Ingrid Bonn & Josie Fisher, Sustainability: The Missing Ingredient is Strategy, 32 J. BUS.
STRATEGY 5 (2011) (addressing sustainability as a strategic instead of an operational issue to
fundamentally transform corporate strategies and operations).
7 See generally Gerlinde Berger-Walliser, The Past and Future of Proactive Law: An Overview of the
Proactive Law Movement, in PROACTIVE LAW IN A BUSINESS ENVIRONMENT 13 (Gerlinde Berger-Walliser
& Kim Østergaard eds., 2012).
8 See George J. Siedel & Helena Haapio, Using Proactive Law for Competitive Advantage, 47 AM. BUS. L.
J. 641 (2010) (relating proactive law to the law and strategy approach in the U.S. legal literature and
applying proactive law to identify how firms can use law as a source of competitive advantage).
9 See Berger-Walliser & Shrivastava, supra note 6 (engaging law and sustainable business to determine the
best way to develop a regulatory framework based on the principles of proactive law).
Electronic copy available at: http://ssrn.com/abstract=2789801
PROACTIVE LEGAL STRATEGIES FOR CORPORATE ENVIRONMENTAL SUSTAINABILITY
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responsiveness to organizational capabilities and performance, thus influencing
competitive strategies and organization,10 and recognized the positive role corporations
can play in shaping environmental regulation.11 The present Article is the first attempt to
integrate the proactive law approach with organizational environmental sustainability,
thus linking corporate sustainability strategy and proactive law and moving beyond
regulatory aspects alone.
This Article contributes to the literature on CSR, corporate sustainability, and
proactive law by demonstrating that proactive use of legal institutions offers the formal
structure within which strategic leadership can achieve its full potential to mitigate and
adapt to ecological collapse and support the public good. Our theoretical development
and practical examples focus on how law and its integration with corporate strategy can
advance sustainability goals by going beyond the goals of compliance, efficiency, and
legitimacy.
The Article proceeds in three parts. Part I outlines the evolving nature of
corporate sustainability. Part II describes the proactive law approach and provides
practical examples of how it relates to corporate sustainability. Part III develops a
theoretical framework that fuses research on sustainability, strategic leadership,
organization, and proactive law to advance corporate sustainability goals. The Article
concludes by developing policy implications and suggestions for future empirical
research on proactive law and corporate sustainability.
I. THE EVOLVING NATURE OF CORPORATE SUSTAINABILITY
Interaction between law and corporate sustainability becomes relevant at multiple
levels: natural resource management, environmental protection, crisis prevention and
management, and climate change mitigation and adaptation. The following section
retraces corporate reactions to these sustainability challenges.
For the past ten years the annual State of the World report by World Watch
Institute12 along with studies by other research organizations have documented severe
ecological degradation in virtually all major ecosystems of the world.13 Scientists largely
10 See Sanjay Sharma & Harrie Vredenburg, Proactive Corporate Environmental Strategy and the
Development of Competitively Valuable Organizational Capabilities, 19 STRATEGIC MGMT J. 729, 730
(1998) (providing empirical evidence for the relationship between environmental responsiveness to
organizational capabilities and performance; with references); see also Michael E. Porter & Claas van der
Linde, Toward a New Conception of the Environment-Competitiveness Relationship, 9 J. ECON.
PERSPECTIVES 97, 101 (1995) (arguing that firms from jurisdictions with strict environmental regulations
will give these firms a competitive advantage).
11 See generally Andrew King, Why it Pays to Become a Rule Maker, 56 MIT SLOAN MGMT.REV. 11
(2015); Porter & van der Linde, supra note 10.
12 See WORLD WATCH INSTITUTE, STATE OF THE WORLD 2014: GOVERNING FOR SUSTAINABILITY 9-13
(Lisa Mastny ed., 2014), available at http://www.worldwatch.org/bookstore/publication/state-world-2014-
governing-sustainability (noting worsening environmental trends due to growth in greenhouse gas
emissions and natural resource use).
13 See, e.g., AMERICAN ASSOCIATION FOR THE ADVANCEMENT OF SCIENCE, WHAT WE KNOW: THE
REALITY, RISKS AND RESPONSE TO CLIMATE CHANGE (2014), available at http://whatweknow.aaas.org/wp-
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agree that humans are exceeding the adaptive capacity of the biosphere and
compromising healthy, functional ecosystems.14 Beyond the massive and persistent
ecological harm inflicted by daily activity within modern industrial societies15 there are
moments of acute disaster such as the 1984 Bhopal disaster,16 the Chernobyl Nuclear
Accident in 1986,17 and the 2010 Macondo Well Deepwater Horizon oil spill18 to name
just a few. Lesser-known, but more massive and slower-moving catastrophic phenomena
include oil spillage in the Ogoni Delta of Nigeria19 and the rainforests South America.20
Such disasters occur at local, regional and international levels, and are part of larger
complex social, economic, and technological systems. They implicate corporations, but
companies do not always have direct control over their causes and consequences. For
example, in the case of the 2011 Fukushima Reactor Meltdown, a major tsunami was the
principal cause of the ensuing nuclear accident in Fukushima, Japan.21 The risks these
crises pose are different from the more familiar forms of corporate risks (i.e.
technological, financial, and market risks) for which companies have developed and
implemented procedures. Ecological crises both systemic and acute have literally
incalculable total costs in terms of loss of irreplaceable life-supporting ecosystem
services, economic damage, and human suffering and require stakeholder engagement for
specifying and addressing them.22 Practices that would help industrial civilization to
continue with fewer perturbations, such as collocating factories to 100% utilize each
content/uploads/2014/07/whatweknow_website.pdf (noting the overwhelming evidence of human-caused
climate change and describing its vast implications).
14 See generally Johan Rockström et al., Planetary Boundaries: Exploring the Safe Operating Space for
Humanity, 14 ECOLOGY & SOCY 32 (2009) (providing groundwork for the estimation of the safe space for
human development).
15 See generally INTERGOVERNMENTAL PANEL ON CLIMATE CHANGE [hereinafter IPCC], CLIMATE CHANGE
2014: IMPACTS, ADAPTATION, AND VULNERABILITY (2014), available at
http://www.ipcc.ch/report/ar5/wg2.
16 The Bhopal disaster is a gas leak incident that occurred in December 1984 at the Union Carbide India
Limited (UCIL) pesticide plant in Bhopal where over 500,000 people were exposed to methyl isocyanate
(MIC) gas and other chemicals. See generally PAUL SHRIVASTAVA, BHOPAL: ANATOMY OF A CRISIS (1987)
(recounts the worst industrial accident in history, examines the causes, and suggests policy changes to help
prevent future crises).
17 See generally Chernobyl Accident 1986, WORLD NUCLEAR ASSN (April 2015), http://www.world-
nuclear.org/info/Safety-and-Security/Safety-of-Plants/Chernobyl-Accident/ (describing the Chernobyl
accident in detail as well as the environmental and human health effects).
18 See Helen K. White et al., Impact of the Deepwater Horizon oil spill on a deep-water coral community
in the Gulf of Mexico, 109 PROCEEDINGS OF THE NATL ACAD. OF SCIS. OF THE U.S. 20303 (2012)
(describing the impact of the Deepwater Horizon oil spill on a deep-water well in Mexico).
19 See generally Prince Mmom and Augustine Igbuku, Challenges and Prospect of Environmental
Remediation/Restoration in Niger Delta of Nigeria: The Case of Ogoniland, 5 J. ENERGY TECHS. &
POLY 1, 5 (2015).
20 See generally Paul Arellano, Kevin Tansey, Heiko Balzter, and Doreen S. Boyd, Detecting the Effects of
Hydrocarbon Pollution in the Amazon Forest Using Hyperspectral Satellite Images, 205 ENVIRONMENTAL
POLLUTION, 225 (2015).
21 See Fukushima Accident, WORLD NUCLEAR ASSN, http://www.world-nuclear.org/info/Safety-and-
Security/Safety-of-Plants/Fukushima-Accident/ (last visited March 19, 2015); see also Berger-Walliser &
Shrivastava, supra note 6, at 429 (describing the interdependent nature of today’s corporate industrial
systems and the significant damage to the environment and human life an error within some small
subsystem can generate).
22 See Sharma & Starik, supra note 4; see also PAUL SHRIVASTAVA, GREENING BUSINESS: PROFITING THE
CORPORATION AND THE ENVIRONMENT (1996).
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other’s waste streams, decarbonizing energy, changing food supply chains, and cradle-to-
cradle product design, are in nascent stages of adoption, due in some cases to a perceived
stakeholder preference for incremental change.23
In an effort to mitigate and adapt to large-scale and ongoing ecological collapse,
without compromising economic development, experts have long advocated a move
towards sustainable economic development. In its landmark 1987 Brundtland Report
(entitled Our Common Future) the World Commission on Environment and Development
(“WCED”) articulated the idea of “sustainability.”24 It defined sustainable development
as “development that meets the needs of the present without compromising the ability of
future generations to meet their own needs.”25 The concept evolved into the “triple
bottom line”,26 to emphasize “three E’s”: (ecology/environment, economy/employment
and equity/equality), and became influential for corporate sustainability strategies.27
Corporate reaction to the calls for sustainable development has varied through the
years.28 Until the mid-1960s, US and European corporations operated in a cultural
climate that emphasized corporate productivity, while ignoring environmental
degradation. The playing field began to change in response to large-scale pollution and
public outcry, stimulated by works such as Rachel Carson’s influential book Silent
Spring.29 In the 1970s, government regulations began to hold corporations more
accountable for their environmental impacts. To avoid legal penalties, corporations
reacted with attempts to mitigate the environmental risks and impacts of their operations.
The conservative governments of the 1980s (e.g. Ronald Regan’s in the US,
Margaret Thatcher’s in the UK) tried to minimize government involvement in
environmental conflicts. Nonetheless, corporations became responsive to public opinion
and environmental activism, and reacted to public lobbying by categorizing
environmental concerns with other social responsibilities30.
23 See Sanjay Sharma & Irene Henriques, Stakeholder Influences on Sustainability Practices in the
Canadian Forest Products Industry, 26 STRATEGIC MGMT. J. 159, 161-67 (2005) (examining “how
managers’ perceptions of different types of stakeholder influences in the Canadian forestry industry affect
the types of sustainability practices that their firms adopt”).
24 REPORT OF THE WORLD COMMISSION ON ENVIRONMENT AND DEVELOPMENT: OUR COMMON FUTURE 40
(1987), available at http://www.un-documents.net/our-common-future.pdf [hereinafter Brundtland Report].
25 Id. at 43.
26 See JOHN ELKINGTON, CANNIBALS WITH FORKS: THE TRIPLE BOTTOM LINE OF 21ST CENTURY BUSINESS
70-96 (1997) (broadening the concept of environmental sustainability and presenting the concept of the
“Triple Bottom Line” of economic prosperity, environmental quality and social justice and practical steps
to build a sustainable corporation).
27 See generally ANDRES R. EDWARDS & DAVID W. ORR, THE SUSTAINABILITY REVOLUTION: PORTRAIT OF
A PARADIGM SHIFT (2005). See also Thomas N. Gladwin, James J. Kennelly & Tara-Shelonith Krause,
Shifting Paradigms for Sustainable Development: Implications for Management Theory and Research, 20
ACAD. MGMT. REV. 874, 876 (1995) (reviewing and critiquing the development of management scholarship
following the Brundtland Report).
28 See generally ANDREW J. HOFFMAN, FROM HERESY TO DOGMA: AN INSTITUTIONAL HISTORY OF
CORPORATE ENVIRONMENTALISM (1997).
29 RACHEL CARSON, SILENT SPRING (1962).
30 See generally Cynthia E. Clark, Differences Between Public Relations and Corporate Social
Responsibility: An Analysis, 26 PUB. RELATIONS REV. 363 (2000).
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By the 1990s, corporate environmentalism emerged with a “compliance”
mentality in corporate environmental management policies and practices. Insurance
companies, customers, and investors were seen as advocates for environmental stakes.
Some corporations began public reporting on their social and environmental
performance. The rise of reporting schemes such as the Global Reporting Initiative
(“GRI”) and ISO 14000 environmental management standards represent an expression of
this trend.31 Since 1992 the Security and Exchange Commission (“SEC”) mandates
publicly traded US corporations to disclose environmental liabilities in their financial
statements to shareholders.32
Today, under the influence of regulation, public awareness, and stakeholder
pressure, as well as the increasing cost of natural resources, corporations at least must
appear to be concerned about their environmental impacts.33 Companies adopt resource
efficient production processes, use eco-friendly packaging, and engage in public-private
partnerships such as the UN Global Compact (UNGC) to develop their sustainability
programs.34 Corporate leaders recognize the benefits sustainable practices offer to them,
such as reduced costs and risks, reputation boosts, attractiveness to talent and investors,
and increased competitiveness.35 Some companies even make the environment or other
social goals their central business purpose like Green Mountain Coffee Roasters,
Patagonia, or Newman’s Own.36 These social enterprises,37 benefit corporations, or what
Hoffman and Haigh call “hybrid organizations”, are companies pursuing social goals like
a non-profit by the means of a for-profit organization.38 A growing body of research
31 See What is GRI?, GLOBAL REPORTING INITIATIVE, https://www.globalreporting.org/information/about-
gri/what-is-GRI/Pages/default.aspx (last visited May 25, 2015).
32 See generally Risa Vetri Ferman, Environmental Disclosures and Sec Reporting Requirements, 17 DEL.
J. CORP. L. 483 (1992).
33 The World Business Council for Sustainable Development (WBCSD) lists numerous ecological
sustainability programs adopted by the world’s largest corporations, Overview, WORLD BUS. COUNCIL FOR
SUSTAINABLE DEV., http://www.wbcsd.org/work-program/sector-projects/cement/overview.aspx (last
visited May 19, 2015).
34 See generally Overview of the UN Global Compact, UNITED NATIONS GLOBAL COMPACT (Apr. 22,
2013), https://www.unglobalcompact.org/AboutTheGC/index.html; see also George Kell, The Global
Compact: Origins, Operations, Progress, Challenges, 11 J. CORP. CITIZENSHIP 35, 37-39 (2003)
(describing the United Nations’ role as an authoritative convener and facilitator between governments,
companies, labor and civil society organizations); see also Surya Deva, Global Compact: A Critique of the
U.N.’s “Public-Private” Partnership for Promoting Corporate Citizenship, 34 SYRACUSE J. INTL L. &
COM. 107, 115 (2006) (describing and critiquing the UNGC).
35 See generally Thomas Dyllick & Katrin Muff, Clarifying the meaning of Sustainable Business,
ORGANIZATION & ENVIRONMENT (forthcoming DATE?), available at
http://www.iwoe.unisg.ch/~/media/internet/content/dateien/instituteundcenters/iwoe/lehre/dyllick%20muff
%20-%20clarifying%20final_new.pdf (reviewing existing research and introducing a typology to assess
company’s sustainability strategy).
36 For other examples see Visser, supra note 5, at 13 and for an auto-bibliographical description of the
carpet manufacturer Interface’s transition to a sustainable business model see RAY ANDERSON,
CONFESSIONS OF A RADICAL INDUSTRIALIST (2009).
37 See generally Justin Blount & Patricia Nunley, Social Enterprise, Corporate Objectives, and the
Corporate Governance Narrative, 52 AM. BUS. L. J. 201 (2015).
38 Andrew J. Hoffman & Nadia Haigh, Positive Deviance for a Sustainable World: Linking Sustainability
and Positive Organizational Scholarship, in HANDBOOK ON POSITIVE ORGANIZATIONAL SCHOLARSHIP 953,
958 (Kim Cameron & Gretchen Spreitzer eds., 2013); for an analysis of the benefit corporation from a legal
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analyzes these positive corporate efforts39 and tries to explain what motivates individual
and organizational “positive deviant practices” that seek to change organizations,
industries, and socio-economic systems of which they are a part,40 but also criticizes
corporate sustainability programs as greenwashing,41 incremental, piece-meal and still
primarily motivated by efficiency and cost concerns42 rather than true concern for the
environment. They observe that corporate efforts, as laudable as they are, have not been
able to stop environmental degradation and that, on the contrary, our planet’s biosphere is
still in rapid decline,43 and thus call for a fundamental shift toward a “holistic model of
CSR” that better takes into account non-monetary values and needs in addition to
corporate interests.44
II. APPLICATION OF PROACTIVE LAW TO CORPORATE SUSTAINABILITY
In previous work we have outlined the basic concepts of proactive law and how it applies
to sustainability regulation.45 The following part briefly describes the concept and then
concentrates on how proactive law can be linked to corporate sustainability at the firm
level.46
and CSR perspective see generally Janine S. Hiller, The Benefit Corporation and Corporate Social
Responsibility, 118 J. BUS. ETHICs 287 (2013).
39 See Mark Starik & Patricia Kanashiro, Toward a Theory of Sustainability Management: Uncovering and
Integrating the Nearly Obvious, 26 ORG. & ENVT 7, 8 (2013) (outlining a “proto-Theory” based on the
cultural sustainability immersion concept); see generally Sharma & Starik, supra note 4; PAUL
SHRIVASTAVA, GREENING BUSINESS: PROFITING THE CORPORATION AND THE ENVIRONMENT (1996).
40 Hoffman & Haigh, see supra note 38, at 956 (summarizing the underlying reasons for organizations and
individuals to seek positive change in their organizations, industries or socio-economic environment); see
also King, supra note 11, at 11-12 (explaining what motivates firms to actively participate in public and
private environmental rule-making).
41 See William S. Laufer, Social accountability and corporate greenwashing, 43 J. BUS. ETHICS 253, 255
(2003) (arguing that “the problems and challenges of ensuring fair and accurate corporate social reporting
mirror those accompanying corporate compliance with law”).
42 See David Morrow & Dennis Rondinelli, Adopting Corporate Environmental Management Systems:
Motivations and Results of ISO 14001 and EMAS Certification, 20 EUROPEAN MGMT. J. 159 (2002)
(exploring the motivations and corresponding impact of firms adopting and certifying EMS).
43 See Dyllick & Muff, supra note 35, at 2.
44 See Visser, supra note 5, at 12 (stating that “the current incremental approach to CSR does not produce
the scale and urgency of response that is required, nor does it get to the roots of business’s
unsustainability,” and proposing a “holistic model of CSR” based on value creation, good governance,
societal contribution and environmental integrity). See also Hoffman & Haigh, supra note 38, at 959
(examining how positive organizational scholarship can help sustainability make a shift from addressing
“deficit gaps” to instead addressing “abundance gaps) and Paul Shrivastava, Sustainability 2.0: Aesthetics
of Sustainability, in HANDBOOK OF ENVIRONMENT AND BUSINESS 631 (Andrew J. Hoffman & Pratima
Bansal,eds., 2011) (suggesting to focus research on corporate sustainability on internal spaces of the human
mind and emotions in addition to its past focus on external spaces); see also Dyllick & Muff, supra note 35,
at 10-13 (addressing how businesses can make more effective contributions to addressing sustainability
challenges and ascertaining when businesses are truly sustainable).
45 Gerlinde Berger-Walliser & Paul Shrivastava, Beyond Compliance: Sustainable Development, Business,
and Proactive Law, 46 GEO. INTL. L. J. 417 (2015).
46 The following section builds on Berger-Walliser, supra note 7.).
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A. A Brief Overview of the Proactive Law Approach
The social scientific concept of proactivity goes back to experimental psychology
from the 1930s.47 The word “proactive” implies acting in anticipation of future
problems, needs, or changes. Similarly, proactive law does not regard law necessarily as
a constraint with which companies and people in general need to comply. It is not a cost
factor, administrative burden, or simply a means to protect one’s own or somebody else’s
interests against harmful behaviour by others.48 In contrast to the dominant adversarial
and retroactively-oriented legal system, proactive law positions law as an enabling
instrument to create success and foster sustainable relationships.49
Proactive law has its roots in Scandinavian legal realism wherein the law pursues
socially useful goals and takes into account the economic and social consequences of
judicial decisions.50 It should come as no surprise that proactive law originally emerged
as a European concept, as continental European civil law stands in sharp contrast to the
adversarial Anglo-American legal system. Originally developed by civil law scholars, it
emphasises collaboration, common goals, and dispute prevention as opposed to the
adversarial tradition of the United States and other common law countries. However,
previous work has shown that the concept is equally applicable in the common law
context,51 where ultimately it might lead to an even greater shift in legal thinking.
Proactive law urges a paradigm shift from a system based on narrowly defined
and immediate self-interest, separation, and power, to one of understanding, integration
and accommodation.52 To this end it focuses on dispute pre-emption and legal risk
management, rather than dispute resolution. To avoid getting to the stage of conflict it
suggests paying careful attention to legal clarity, early warning mechanisms, mutual
understanding, and enhanced collaboration.53 Proactive law originated from studies on
the improvement of contracting processes.54 However, the logic of proactive law is
seeping into many different practical settings. The European Union itself can be seen as
47 See Paul L. Whitely & Gerald Blankfort, The Influence of Certain Prior Conditions Upon Learning, 16 J.
EXPERIMENTAL PSYCHOL. 843 (1933) (investigating the relation of conditions prior to learning efficiency
using a variety of conditions antecedent to the learning test).
48 See Constance E. Bagley, Winning Legally: The Value of Legal Astuteness, 33 ACAD. MGMT. REV. 378,
380-81 (2008) (proposing a framework for firms to use “legal astuteness” for competitive advantage); see
also Siedel & Haapio, supra note 8 at 647 (stating that managers tend to think about the law as a “burden!or
obstacle rather than a source of competitive advantage”).
49 See Berger-Walliser supra note 46, at 16 (describing the concept of proactivity and the objectives of
proactive law).
50See Soile Pohjonen, Proactive Law in the Fields of Law, in A PROACTIVE APPROACH, 49 SCANDINAVIAN
STUDIES IN LAW 54, 57 (Peter Wahlgren ed., 2006) [hereinafter A PROACTIVE APPROACH] (describing
Scandinavian legal realism).
51 See generally Siedel & Haapio, supra note 8; see also THOMAS D. BARTON, PREVENTIVE LAW AND
PROBLEM-SOLVING: LAWYERING FOR THE FUTURE (2009).
52 See Id. at 3 (providing practical examples to illustrate this paradigm shift in legal thinking).
53 See Siedel & Haapio, supra note 8, at 668-69 (identifying understanding of the law as the first step for
companies to gain competitive advantage through use of proactive legal strategies).
54 See generally Helena Haapio, Quality Improvement through Proactive Contracting: Contracts Are Too
Important to Be Left to Lawyers!, in AMERICAN SOCIETY FOR QUALITY, PROCEEDINGS OF ANNUAL
QUALITY CONGRESS 243 (1998), available at http://asq.org/qic/display-item/index.pl?item=10690.
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a result of proactive law logic in that it was formed to avoid another conflict between
European states after WWII by bringing economic interdependence and political
integration among European countries.55 The success thereof can be measured by 2012’s
Nobel Peace Prize award to the European Union in recognition of its contribution
towards the advancement of peace and reconciliation and democracy and human rights in
Europe for over six decades.56
Proactive law is also outcome-orientated and driven by economic value creation.57
It encourages original and creative thinking to generate new ideas and concepts in
response to foreseeable exigencies. Proactive law is dynamic, empowering, user-
friendly, and allows for active participation of companies and other actors in the legal
process. It requires cross-professional collaboration and group learning between lawyers,
managers, and subject matter experts, as this is essential to reaching common goals and
avoiding legal disputes.58 A proactive lawyer places an emphasis not on how to reach the
best outcome for a client in court, but how to help the client reach desired outcomes and
avoid the negative effects of litigation. When drafting a supply contract, for example, the
emphasis would not be on allocating responsibilities in case one of the parties does not
perform her obligations, so one can claim damages and sue the other party in court, but
how both parties collaboratively can ensure that satisfactory performance occurs in a
timely manner.59 This goal in itself is nothing new. It is a long-standing truism that
avoiding disputes is typically less costly - in terms of money, time, and emotional stress -
than litigation.60 Another truism is that creative legal counsel should try to understand
and integrate their client’s business and/or personal goals into the legal solutions they
propose.61 The contribution that proactive legal scholarship can make is to identify both
a theoretical model and specific tactics that legal and business professionals can
systematically apply to improve relationships with consumers, suppliers, employees and
other stakeholders, and ultimately achieve better (business) results. In doing so, proactive
legal counsel will not only help their clients to stay out of court, but they will be able to
identify new business opportunities, mitigate risk, and ultimately be able to add value to
business and society in general.62
In the emerging legal literature on proactive law a variety of terms have been
used, sometimes synonymously, sometimes with subtle differences, ranging from
“proactive law movement,” to “proactive law approach,” to “proactive law. Similar
55 Craig Parsons, Showing Ideas as Causes: The Origins of the European Union, 56 INTL ORG. 47 (2002)
(analyzing the reasons Europeans post-war chose the European Union over other less developed
international institutions).
56 See generally The Nobel Peace Prize 2012, NOBELPRIZE.ORG,
http://www.nobelprize.org/nobel_prizes/peace/laureates/2012/ (last visited May 15, 2015).
57 See Berger-Walliser, supra note 46, at 29 (identifying general principles of proactive law).
58 Id. at 30 (with references).
59 For a practical example of a more proactive approach to contracting see Pathclearer: A more commercial
approach to drafting commercial contracts, CLARITY: L. DEPT QUARTERLY (OCT. DEC. 2005), available
at http://www.clarity-international.net/documents/Pathclearer%20article%20in%20PLC-3.pdf (last visited
May 15, 2015).
60 See generally LOUIS M. BROWN, PREVENTIVE LAW (1950).
61 Id.
62 For practical examples see GEORGE SIEDEL & HELENA HAAPIO, PROACTIVE LAW FOR MANAGERS: A
HIDDEN SOURCE OF COMPETITIVE ADVANTAGE (2010).
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concepts are embraced by the “comprehensive law movement” focusing more on non-
business arenas63 and the “law and strategy” approach in the United States.64 As far as
regulation, which is beyond the scope of this article, the academic literature on “new
governance”65 including “polycentric governance”66 and proactive regulation share some
common features.67 For the purpose of this Article we use “proactive law” as a
comprehensive term for a cooperative approach to law and legal instruments by the users
of the law (organizations and individuals) as a means of communication, risk
identification and mitigation, harm elimination, solution implementation, and conflict
avoidance.
The sustainability challenges described in Part I of this Article call for proactive
and preventive strategies. Systemic ecological devastation involving mass extinction,
toxic pervasive pollution, and habitat destruction is largely irreversible. In the context of
acute localized disasters, the ordering of a clean-up and payment of monetary damages,
which is typically all the legal system can provide, cannot bring back lost lives and
frequently fails to fully restore ecosystems.
The interrelationships between industries and governments and societies often
make it hard to pin responsibility for environmental problems on one or even a few
entities. All actors are responsible and need to collaborate in order to prevent ecological
crises and promote sustainable development. Proactive law does not only promote
sustainable behavior rather than punishing “bad” behavior after the damage is done. It
also has the potential to embrace and mediate between stakeholders with different
interests. A basic feature of both sustainable businesses and proactive law is the striving
for win-win situations. Partnerships between government, civil society, corporations, and
63 See generally Susan S. Daicoff, Law as a Healing Profession: The Comprehensive Law Movement,, 6
PEPP. DISPUTE RESOLUTION L.J. 1 (2006).
64 See generally Robert C. Bird & David Orozco, Finding the Right Corporate Legal Strategy, 56 MIT
SLOAN MGMT. REV. 81 (2014); Robert C. Bird, Pathways of Legal Strategy, 14 STAN. J. L. BUS. & FIN. 1
(2008); Bagley, supra note 48; Constance E. Bagley, What’s Law Got to Do with It?: Integrating Law and
Strategy, 47 AM. BUS. L. J. 587 (2010); Robert C. Bird, Law, Strategy and Competitive Advantage, 44
CONN. L. REV. 61 (2011); Siedel & Haapio, supra note 8.
65 For an overview of the “New Governance” paradigm see generally Orly Lobel, The Renew Deal: The
Fall of Regulation and the Rise of Governance in Contemporary Legal Thought, 89 MINN. L. REV. 342
(2004) (identifying common traits to several “New Governance” approaches).
66 See Elinor Ostrom, Nested Externalities and Polycentric Institutions: Must We Wait for Global Solutions
to Climate Change Before Taking Action at Other Scales?, 49 ECON. THEORY 353 (2012); Daniel H. Cole,
From Global to Polycentric Climate Governance, 2 CLIMATE L. 395 (2011); Elinor Ostrom, Polycentric
Systems for Coping with Collective Action and Global Environmental Change, 20 GLOBAL ENVTL.
CHANGE 550 (2010); Elinor Ostrom, A Polycentric Approach for Coping with Climate Change (World
Bank Policy Research, Working Paper No. 5095, 2009), available at
http://elibrary.worldbank.org/doi/pdf/10.1596/1813-9450-5095; see also Scott J. Shackelford, Governing
the Final Frontier: A Polycentric Approach to Managing Space Weaponization and Debris, 51 AM. BUS. L.
J. 429, 468-69 (2014) (applying Polycentric Governance to space governance as global commons); Jamie
Darin Prenkert & Scott J. Shackelford, Business, Human Rights, and the Promise of Polycentricity, 47
VAND. J. TRANSNAT'L L. 451 (2014) (applying Polycentric Governance to business’s obligation to respect
and promote and human rights.
67 See Berger-Walliser & Shrivastava, supra note 6, at 453 (suggestingthat effective sustainable
governance should be proactive in its content orientation while using a reflexive or polycentric mechanism
for its technical legislative implementation”).
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environmental or other advocacy groups can help advance the goals of all actors involved
and encourage sustainable development.68
Management research has shown how proactive environmental practices can
improve efficiency inside an organization and legitimacy in the eyes of outside
stakeholders, thus yielding competitive advantage.69 However, these proactive
environmental strategies are largely viewed as “organizational commitments that are not
required by law.”70 The following parts of this Article explain how legal institutions, if
used according to proactive law principles, can provide formal structures that foster
corporate environmental sustainability.
B. Examples for Practical Applications
The logic of proactive law is seeping into practical settings at several levels:
international, state, industry-wide, and firm-level. The following examples demonstrate
the practical relevance of proactive law for corporate environmental sustainability on
each level.
Proactive law is not tied to a single national legal system. Instead it is a legal
mindset meant to promote desirable economic and social goals. It seeks value creation
for all stakeholders through structures that can be supranational or international, allowing
for resolution of complex cross-boundary problems.71 One example of the potential for
the application of proactive law is water management. Rivers can flow across
international boundaries through different jurisdictions and can be controlled at different
points, which affects availability downstream, causing conflicts over usage and pricing.72
In most cases there is abundant data on the quantity and quality of water flow in rivers to
68 John C. Dernbach, Navigating the U.S. Transition to Sustainability: Matching National Governance
Challenges with Appropriate Legal Tools, 44 TULSA L. REV. 93, 116 (2008) (stating that “[a] significant
but not insurmountable challenge in such partnerships . . . is ensuring that the results they claim are
credible”).
69 See generally Michael A. Berry & Dennis A. Rondinelli, Proactive Corporate Environmental
Management: A New Industrial Revolution, 12 ACAD. MGMT. EXECUTIVE 38 (1998); DANIEL C. ESTY &
ANDREW S. WINSTON, GREEN TO GOLD: HOW SMART COMPANIES USE ENVIRONMENTAL STRATEGY TO
INNOVATE, CREATE VALUE, AND BUILD COMPETITIVE ADVANTAGE (2006); Stuart L. Hart & Mark B.
Milstein, Creating sustainable value. 17 ACAD. MGMT. EXECUTIVE 56 (2003); Jeffrey G. York, Pragmatic
Sustainability: Translating Cnvironmental Ethics Into Competitive Advantage 85 J. BUS. ETHICS 97 (2009).
70 See Nicole Darnall, Irene Henriques, & Perry Sadorsky, Adopting Proactive Environmental Strategy: The
Influence of Stakeholders and Firm Size, 47 J. MGMT. STUDIES 1072, 1080 (2010) (substantiating “the
development of stakeholder theory by deriving a size moderated stakeholder model and applying it to a
firm's adoption of proactive environmental practice”).
71 See Stephen Kim Park & Gerlinde Berger-Walliser, A Firm-Driven Approach to Global Governance and
Sustainability, 52 AM. BUS. L. J. 255, 284 (2015) (suggesting that both regulators and firms should be
proactive in using environmental regulation for environmental issues on a global scale).
72 See e.g. Valentin Jeutner, Water Claims of A Palestinian State Under the Principles of International Law,
24 GEO. INT'L ENVTL. L. REV. 367 (2012) (discussing a dispute between Israel and Palestine related to the
three main shared water resources (Coastal Aquifer, Mountain Aquifer, Jordan River) under principles of
international law).
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anticipate associated problems.73 Through proactive water management negotiated
between national governments, curbs can be placed on excessive use upstream to avoid
disputes related to downstream water scarcity. Such problems have been relatively well
managed in some cases where cross-border water management agreements have been
developed. For example, in Central Asia, the Interstate Commission for Water
Coordination of Central Asia (“ICWC”) has been formed,74 issuing two agreements in
particular: the Agreement between the Republic of Kazakhstan, the Kyrgyz Republic, the
Republic of Tajikistan, Turkmenistan and the Republic of Uzbekistan on Cooperation in
the Field of Joint Management on Utilization and Protection of Water Resources from
Interstate Sources (1992),75 and the Statute of the Interstate Commission for Water
Coordination of Central Asia (2008).76 These institutions have adopted water resource
management principles for the participant countries, such as principles of equitable and
reasonable utilisation, obligation not to cause significant harm, principles of cooperation,
information exchange, notification, consultation, and peaceful settlement of disputes.
The agreements have had positive impacts on the implementation of these principles in
practice and have thus facilitated sustainable water resources management.77 For firms
depending on these water resources, the agreements and supranational structures make
the amount of available resources more predictable, eliminating risks and price volatility.
Consequently, they have a vital interest in working with government to encourage these
types of proactive international agreements, which serve both public and private interests.
On the industry level, self-regulation efforts often seek to pre-empt or exceed
externally driven regulations. For example, following the BP oil spill, industry-driven
regulation became more predominant, where governments set the general safety
standards that must be met, but left it to rig operators to work out the details. This system
is referred to as "performance-based" in some countries and "goal-oriented" or "goal-
setting" in others. By engaging in self-regulation, corporations do not simply use or cope
with the law, but take responsibility by proactively shaping the law themselves.78 The
American Petroleum Institute (“API”) created the Center for Offshore Safety aimed at
improving safety protocols while reducing pressure for greater government regulation.
The Center works to share best practices and help companies build enhanced safety
73 See generally Christer Nilsson & Birgitta Malm Renöfält, Linking Flow Regime and Waer Quality in
Rivers: a Challenge to Adaptive Catchment Management, 13 ECOLOGY & SOCY. 18 (2008) (reviewing
knowledge on how “the flow regime and water quality can impact ecosystem processes”).
74 INTERSTATE COMMISSION FOR WATER COORDINATION OF CENTRAL ASIA (hereinafter ICWC),
http://www.icwc-aral.uz/index.htm (last visited May, 4, 2015).
75 Agreement between the Republic of Kazakhstan, the Kyrgyz Republic, the Republic of Tajikistan,
Turkmenistan and the Republic of Uzbekistan on Cooperation in the Field of Joint Management on
Utilization and Protection of Water Resources from Interstate Sources, ICWC, http://www.icwc-
aral.uz/statute1.htm (last visited May, 4, 2015).
76 Statute of the Interstate Commission for Water Coordination of Central Asia, ICWC, http://www.icwc-
aral.uz/statute4.htm (last visited May, 4, 2015).
77 See Muhammad Mizanur Rahaman, Principles of Transboundary Water Resources Management and
Water-related Agreements in Central Asia: An Analysis, 28 INTL. J. WATER RES. DEV. 475, 477-79 (2012)
(analyzing the use of transboundary water resources management principles through the regional water-
related agreements in Central Asia).
78 See Kaisa Sorsa, The Role of Proactive Law for System Level Innovations, in ACADEMIC FORUM FOR
INNOVATIVE RESEARCH AND PRACTICE. PROCEEDINGS OF THE 2011 IACCM ACADEMIC SYMPOSIUM ON
CONTRACT AND COMMERCIAL MANAGEMENT 108, 114 (René F. Henschel ed., 2011).
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programs, which are based on API standards. Since 2010, it has published more than 100
new and revised industry standards for safe exploration and production, which now are
largely required by federal regulation.79 In another industry, the American Chemistry
Council regulates its members with its Responsible Care program, a system for
minimizing potential environmental risks.80 Similar agreements have been formed in the
mining industry but on a much more regional basis, where impact and benefit agreements
(“IBAs”) between first nations, local communities, and the mining companies include
profit-sharing, employment, wider economic development opportunities, greater
transparency, and enhanced protection of environmental and socio-cultural amenities.81
In addition, Good Neighbour Agreements (“GNAs”) have also been formed in many
different countries where mining companies and the local communities have formed
partnerships. For example, the GNA in Montana among citizens in Stillwater and Sweet
Grass counties and the Stillwater Mining Company established a process for citizens to
regularly meet with company representatives to address and prevent problems related to
the impact of mining, reclamation, and other activities.82
III. TOWARDS A PROACTIVE LAW FRAMEWORK FOR ORGANIZATIONAL
SUSTAINABILITY
As exemplified in the previous Part, proactive law offers promising perspectives
on how a different approach to law can promote corporate sustainability and help prevent
ecological disasters, rather than allocating responsibility when it is too late. Moving
beyond individual examples, the following Part advances a theoretical framework that
tries to link proactive law to organizational sustainability and proposes some
hypothesized relationships among organizational elements and proactive law strategies in
an effort to enhance corporate sustainability.
A. The Proactive Law Framework
Proactive law is consistent with the precautionary principle, which holds that risks
of harm should be ascertained before any activity is allowed.83 Yet proactive law
79 See generally Brian Straessle, Offshore oil & gas operations are safer than ever, AM. PETROLEUM
INSTITUTE (Apr. 9, 2015), http://www.api.org/news-and-media/news/newsitems/2015/apr-2015/api-
offshore-oil-gas-operations-are-safer-than-ever (describes recent developments in technology, standards
and practices that have improved the safety of America’s oil and gas industry).
80 See Marc Allen Eisner, Corporate Environmentalism, Regulatory Reform, and Industry Self-regulation:
Toward Genuine Regulatory Reinvention in the United States, 17 GOVERNANCE, 145, 148 (2004)
(examining the recent trends in corporate environmental management and regulatory reform).
81 See generally Lindsay Galbraith, Ben Bradshaw, & Murray B. Rutherford, Towards a new supra
regulatory approach to environmental assessment in Northern Canada, 25 IMPACT ASSESSMENT &
PROJECT APPRAISAL 27 (2007) (providing formal assessment of he Mackenzie Valley Environmental
Impact Review Board (MVEIRB) environmental assessment (EA) to determine whether the rise of private
agreements might be attributable partly to deficiencies in the EA process).
82 See generally Sarah M. Zuzulock & James R. Kuipers, The Good Neighbour Agreement: A Proactive
Approach to Water Management through Community Enforcement of Sites Specific Standards, 53
GREENER MGMT. INTL. 73 (2007).
83 See N. Ole Nielsen, Ecosystem approaches to human health, 17 Cadernos de Saúde Pública 69, 70
(2001), available at http://www.scielo.br/scielo.php?pid=S0102-311X2001000700015&script=sci_arttext
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approaches are also constructive – or perhaps even more helpful – in contexts in which
the precautionary principle is not followed, and potential risks are not fully known.
Some studies have shown the value of proactive corporate strategies against global
warming.84 Previous research has evaluated how stakeholders pressure organizations to
adopt proactive environmental practices,85 and to what extent the relationship between
stakeholder pressure and proactive environmental practices depends on size of the
organization.86 Firms that adopt proactive environmental management strategies have
been reported to become more efficient and competitive.87 Though these are encouraging
trends, we argue that voluntary corporate sustainability programs can be enhanced
through formal legal structures to help corporations to fully reach their sustainability
goals, and in the process, become sustainable. Legal instruments such as contracts, self-
regulation, or formal dispute resolution entail the power of enforceability and legitimacy,
which otherwise are lacking. The legitimacy society conveys to legal institutions
provides a means to secure a company’s strategic goals.
To this end, we advance the framework in Figure 1 as a way of better
understanding the role of proactive law in the achievement of corporate sustainability.
------------------------------------------- INSERT FIGURE 1 ABOUT HERE -----------------
This framework of concentric circles is appropriate and helpful for several
reasons. We will proceed in explaining the figure by moving from the outside toward the
center. First, it illustrates the context of society and economics, in which human
stakeholders of every kind (customers, suppliers, competitors, members of society,
employees, shareholders) all live within – and thanks to and at the mercy of – the natural
environment. Further, the interests of ecological systems must be communicated to
society’s decision-makers by human representatives.88
(emphasizing that “the promotion of human health must be embedded in the wider pursuit of ecosystem
health”).
84 See Olivier Boiral, Global Warming: Should Companies Adopt a Proactive Strategy? 39 LONG RANGE
PLANNING 315, 321 (2006) (arguing that managers should adopt a proactive strategy to address
environmental concerns in light of the Kyoto Protocol and citing several empirical studies).
85 See Jon M. Shepard, Michael Betz, & Lenahan O'Connell, The Proactive Corporation: Its Nature and
Causes, 16 J. BUS. ETHICS 1001, 1008 (1997) (stating that stakeholder activism and recognition of the
social and ecological embeddedness of the economy are the reason for corporations “increasingly adopting
proactivity over mere reactivity in their stakeholder relationship”); see also Magali Delmas, Stakeholders
and Competitive Advantage: The Case of ISO 14001, 10 PRODUCTIONS & OPERATIONS MGMT. 343 (2001);
Sharma & Henriques, supra note 23, at 161-67 (examining how managers’ perceptions of different types of
stakeholder influences in the Canadian forestry industry affect the types of sustainability practices that their
firms adopt).
86 See Darnall, Henriques & Sadorsky, supra note 70, at 1080 (2010) (substantiating the development of
stakeholder theory by deriving a size moderated stakeholder model and applying it to a firm's adoption of
proactive environmental practice).
87 See generally Berry & Rondinelli, supra note 69; Esty & Winston, supra note 69; Hart & Milstein, supra
note 69.
88 This is especially so in American courts, per recent and controversial decisions of the United States
Supreme Court on the issue of standing. Even where Congress passed environmental protection legislation
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Second, concentric circles are also appropriate for illustrating the context of a
firm as embedded within the context of stakeholders. As further discussed below,
potential relations with stakeholders include a broad spectrum of relationships and
potential risks, including supply chains, employment, customer transactions, investment,
and conflict.
Proactive law is therefore best seen as surrounding the organizational elements of
the firm. Dotted lines are deliberately chosen to represent the borders between proactive
law and stakeholders and functions of the firm, as well as the boundaries of the firm. As
elaborated upon below, this illustrates proactive law’s function – ultimately – as a
communications medium. Proactive law’s two-fold function of transmitting
information back-and-forth between the firm and stakeholders, but also as protective
layer against future liability is most analogous to a cell membrane. Cell membranes
similarly serve an essential dual role by being semi-porous: facilitating the passage of
material back-and-forth between the cell and the external environment, but also
screening-out harmful substances. This similar defining characteristic of proactive law
functioning as a semi-porous membrane that facilitates stakeholder communication and
simultaneously shielding the firm from harm – is represented by these dotted lines.
Ultimately, this framework suggests that proactive legal strategies help to
anticipate and preempt conflicts involving stakeholders and the natural environment. The
following sections will specifically investigate the relationship between proactive law and
the organizational elements depicted in Figure 1. After discussing the four functional
areas where proactive law can help the firm, the Article returns to the central unifying
theme of communication.
B. Integrating Proactive Law and Organizational Elements
Our framework presents sustainability benefits of proactive law for organizations
as a function of organizational uncertainties, value chain characteristics, performance,
and conflict management considerations. The following sections examine how proactive
law can prevent organizational conflicts from emerging and becoming the subject of
litigation. We will also identify specific ways that proactive law principles directly
influence organizational uncertainty, value chains, and performance. After discussing
how the four functional areas relate back to the essential function of proactive law as a
communications medium, we will discuss implications of the proposed theoretical model
for both practitioners and further research.
1. Proactive Law and Organizational Uncertainty
We propose that organizations can articulate their proactive legal strategies to
better insulate themselves from uncertainties, and thereby allow them to better manage
explicitly granting any citizen the power to litigate to enforce statutory mandates, the Supreme Court has
added further hurdles, requiring plaintiffs to show how they personally have been harmed (as individual
people) in order to pursue enforcement actions in courts. Adam Sulkowski, Ultra Vires Statutes: Alive,
Kicking, and a Means of Circumventing the Scalia Standing Gauntlet in Environmental Litigation, 24 J.
ENVTL L.& LIT., 75-118 (2009) at 85-88.
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financial, litigation, and reputation risk. The risks related to long-term systemic harms
and environmental accidents, for example, put a high burden of uncertainty on
companies, especially those operating in high-risk sectors such as the oil industry.
Companies have direct control over some of their causes, but others, as was the case of
the Fukushima Reactor Meltdown,89 involve other factors such as natural occurrences, or
imply collaboration with other stakeholders to control causes or mitigate consequences.
Environmental accidents can draw negative media attention and result in costly
litigation,90 and typically are not fully covered by insurance policies, resulting in financial
disruption.91 A corporate strategy to avoid, or at least mitigate the consequences of such
environmental harm can be enhanced through proactive legal means such as contracts
that share the risk or allocate responsibilities between multiple parties involved in such
high-risk economic activity. Insofar as proactive law removes uncertainties, it allows
organizations to effectively manage potential dangers for organizations, society, and the
environment. Proactive law opens the door to considering diverse sources of uncertainty
including the technological, social, cultural, and legal uncertainties of doing business.
A contract drafted according to the aforementioned proactive law principles, such
as “outcome orientation,” “user-friendliness,” and “cross-professional collaboration,”
does not only shield the parties involved from legal or financial responsibility in case of
non-performance by either side, but more importantly makes expectations and risks
visible and allows parties to address them before they cause harm.92 Additionally, a
proactive contract, as opposed to a non-proactive contract, would not only identify the
potential dangers and allocate responsibilities, but establish an emergency protocol with
shared tasks for all parties that makes best use of their technical, organizational, financial
and other capabilities to effectively resolve or mitigate the crisis. It could be
complemented by fast and effective early-warning and dispute resolution mechanisms as
part of the contractual terms. If a dispute were to arise regarding the allocation of tasks
among parties, this would facilitate a fast dispute resolution and keeping impacts of
unavoidable ecological disasters as low as possible.
It is likely that the parties involved in this process will disagree substantially
about how to allocate the tasks. To overcome and solve these conflicts durably, pre-
contractual mediation, which uses a neutral third party to facilitate, appears to be an
89 See Fukushima Accident, supra note 21; see also Berger-Walliser & Shrivastava, supra note 6
(describing the interdependent nature of today’s corporate industrial systems and the significant damage to
the environment and human life an error within some small subsystem can generate).
90 See generally Roberta Bigliani, Reducing Risk in Oil & Gas Companies (EMC White Paper, May 2013),
available at http://www.emc.com/collateral/analyst-reports/minimizing-operational-risk-in-oil-gas-
industry.pdf; see also US legal proceedings, BRITISH PETROLEUM (“BP”),
http://www.bp.com/en/global/corporate/gulf-of-mexico-restoration/investigations-and-legal-
proceedings/US-legal-proceedings.html (last visited DATE NEEDED).
91 See Sharma & Vredenburg, supra note 10, at 734 (finding that strategies of proactive responsiveness to
the uncertainties inherent at the interface between business and ecological issues were associated with the
emergence of unique organizational capabilities, which in turn were seen to have implications for firm
competitiveness).
92 See generally
Gerlinde Berger-Walliser, Robert C. Bird & Helena Haapio, Promoting Business
Success through Contract Visualization, 17 J. L. BUS. & ETHICS 55 (2011).
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effective proactive legal tool.93 Additionally, a pre-appointed facilitator could help the
parties to overcome disagreements about the interpretation of the contractual terms or
shared tasks, thereby saving valuable time in case of an emergency.
Thus, in an effort to link the management of organizational uncertainty to legal
institutions through use of proactive legal strategy, a corporation engaged in potentially
harmful economic activity could negotiate a contract with local authorities, suppliers, and
other stakeholders before starting operations that maps out responsibilities to effectively
manage and mitigate the harm should an accident occur, even if not required to do so by
law. From a government’s perspective, the issuance of required permits or other
government authorizations could be made dependent upon conclusion of such a “disaster-
management-contract.”94 An agreement of this kind would be beneficial to all actors
involved. The corporation, public authorities, and other stakeholders will be able to
identify potential dangers and take action to prevent them or at least reduce the impact of
an unavoidable accident. It also can improve a company’s relationship to local
communities, employees, and environmental NGOs.95 Most importantly from a
corporate standpoint, through engaging in a voluntary, proactive contractual relationship,
the corporation will be able to share the risks and associated financial burden related to
uncertainty, thereby providing it with an advantage over less proactive competitors. In
this respect we assume that the adoption of proactive legal strategies in uncertain
environments, though they might be expensive and burdensome to implement, will
benefit both society and the organizations involved in the long-term.
2. Proactive Law and Value Chains
At an organizational level, supply chains that encompass diverse participants can
have an impact on quality and product brand.96 Since corporate supply chains today are
global, raw material extraction, labor, assembly, packaging, and storage may happen in
different countries. Many value-chain related social and environmental problems such as
child labor, fair wages, bribery, pollution, as well as excessive extraction, farming, and
fishing practices, may be acceptable in one country but not in another. Companies with
global “sustainable brands” can avoid risking their brand identity through a proactive
approach to managing their global supply chain.
93 See Camilla Baasch Andersen, Pre-Contractual mediation in negotiation, in PROACTIVE LAW IN THE
BUSINESS ENVIRONMENT, in PROACTIVE LAW IN A BUSINESS ENVIRONMENT 155, 164 (Gerlinde Berger-
Walliser & Kim Østergaard eds., 2012) (suggesting the use of a mediator during contract negotiation in
order to prevent problems during the performance phase of a contract).
94 See Vincent J. Foley, Post-Deepwater Horizon: The Changing Landscape of Liability for Oil Pollution in
the United States, 74 ALB. L. REV. 515, 515 (2011) (analyzing the Oil Pollution Act of 1990 (“OPA”),
which requires companies in the oil industry to submit evidence of financial responsibility sufficient to pay
claims up to the OPA limits).
95 See generally Michael V. Russo & Paul A. Fouts, A resource-based perspective on corporate
environmental performance and profitability, 40 ACAD. MGMT. J. 534, 551 (1997) (indicating that the
“resource-based view of the firm can be applied fruitfully to corporate social responsibility issues”).
96 UNITED NATIONS GLOBAL COMPACT, SUPPLY CHAIN SUSTAINABILITY: A PRACTICAL GUIDE FOR
CONTINUOUS IMPROVEMENT (2010), available at
http://www.bsr.org/reports/BSR_UNGC_SupplyChainReport.pdf.
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In this sense, several examples of proactive supply chain management strategies
are emerging. Nestle, Walmart, General Electric, and other companies who have to
manage thousands of vendors realize the need to encourage sustainability practices in
their supplier organizations. Thus, they are adopting codes of conduct, mandated training
programs, labor practices affidavits, and other tools to mitigate sustainability problems.
Another example comes from Nike, who in the mid-1990’s faced serious accusations of
child labor exploitation in Pakistan, which sparked boycotts. A decade later Nike began
improving its labor conditions through monitoring programs, auditing, and enforcing
compliance with its code of conduct. In 2005, Nike was the first in its industry to release
the names and locations of its factories in order to show transparency.97 The company
continued to develop a strategic approach to corporate responsibility (CR) that
emphasized value creation, collaboration with business units, and proactive strategic
planning.98
Companies can strengthen these corporate sustainability strategies with proactive
legal tools. This can be done individually through implementation of supplier obligations
in individual supply contracts, which Peterková calls “sustainability contractual clauses
(SCCs),99 or through industry self-regulation in the form of industry standards, codes of
conduct, or labels. SCCs or codes of conduct can put pressure on suppliers to respect
standards which go beyond local labor, safety or environmental laws thereby avoiding
problems down the chain or even promoting socially responsible behavior.100
In this respect supply contracts, due to their legal enforceability, become a
powerful legal vehicle to achieve corporate sustainability goals. Despite their growing
use in international business contracts they have been scarcely addressed in the academic
literature and court decisions.101 This gap has been attributed to the fact that legal
research concerned with CSR typically concentrates on questions of global governance
while scholarship of contracts is not typically concerned about the social or
environmental dimensions of contractual terms102 and SCCs are hardly ever enforced in
public courts.103
97 See generally Eugenia Levenson, Citizen Nike, FORTUNE, Nov. 24, 2008, at 165.
98 See generally Marc J. Epstein, Adriana Rejc Buhovac & Kristi Yuthas, Implementing sustainability: The
role of leadership and organizational culture, 91 STRATEGIC FINANCE 41 (2010).
99 Kateřina Peterková, Sustainability Clauses in International Business Contracts (2013) (unpublished PhD
dissertation, Aarhus University) (on file with authors).
100 This type of supplier relationship has been described as “political CSR,” reflecting companies’
initiatives to maintain high ethical standards, especially when dealing in foreign countries, and in the
absence of government regulation. See Andreas Georg Scherer & Guido Palazzo, The New Political Role of
Business in a Globalized World: A Review of a New Perspective on CSR and its Implications for the Firm,
Governance, and Democracy, 48 J. MGMT. STUD. 899, 901 (2011).
101 See Doreen J. McBarnet & Marina Kurkchiyan, Corporate social responsibility through contractual
control Global supply chains and other regulation, in THE NEW CORPORATE ACCOUNTABILITY:
CORPORATE SOCIAL RESPONSIBILITY AND THE LAW 59 (Doreen J. McBarnet, Aurora Voiculescu, & Tom
Campbell eds., 2009); M. P. Vandenbergh, The New Wal-Mart Effect: The Role of Private Contracting in
Global Governance, 54 UCLA L. REV. 913, 925-26 (2007).
102 See Peterková, supra note 99, at 11 (citing Gunther Teubner, In the Blind Spot: The Hybridization of
Contracting, 8 THEORETICAL INQUIRIES IN L. 51, 54 (2007)).
103 Id. at 10 (with references).
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In contrast to individual SCCs, corporate and industry codes of conduct are not
always legally binding. Therefore, codes of conduct have been questioned or criticized
as marketing tools without legal enforceability.104 However, it can be argued that
corporate codes of conduct are often put in place to appease powerful stakeholders such
as consumers or investors. Even if not legally binding, companies are pressured to
comply with them for economic reasons.105 Also, companies can refer to corporate or
industry codes of conduct in individual contracts with suppliers. In doing so the code can
be made an integral part of the legally binding contract, and a supplier not respecting the
code would be breaching his contractual obligations.106 It has also been suggested in the
literature that such codes could be used by courts to interpret vague laws or identify legal
versus illicit industry practices,107 and the breaking of codes of conduct have been found
to constitute false advertising to consumers.108
While codes of conduct are often characterized as soft law,109 we suggest that they
can also be used as a proactive legal tool. By bringing these value chain stakeholders
into proactive communication about a code of conduct, organizations can detect
environmental or social problems and risk factors, cope with them, isolate them, allocate
responsibility for preventing ecological destruction, develop effective disaster plans, and
collaboratively develop alternative, innovative, and sustainable solutions. Proactive
strategies with respect to value chains can help organizations to assess and manage
relationships with suppliers, customers, intermediaries, and business associates involved
in value creation.
3. Proactive Law and Conflict Management
An important feature of proactive law is dispute pre-emption, and avoiding
getting to the stage of legal controversy.110 Proactive law recognizes that, in the long-
run, conflicts and adversarial legal strategies are less likely to benefit either side but
rather cause economic, reputational, and emotional loss for all stakeholders involved.111
Therefore proactive law requires stakeholders to enter into communication about
potential conflicts and to seek solutions for how to deal with them before problems arise.
Proactive law strategies are directly relevant to organizational conflict management and
104 Id. at 100; see also Li-Wen Lin, Legal Transplants through Private Contracting: Codes of Vendor
Conduct in Global Supply Chains as an Example, 57 AM. J. COMP. L. 711 (2009).
105 See Andre Sobczak, Are Codes of Conduct in Global Supply Chains Really Voluntary? From Soft Law
Regulation of Labour Relations to Consumer Law, 16 BUS. ETHICS QUARTERLY 167, 168 (2006) (arguing
that from an economic perspective codes of conduct are not really voluntary).
106 The legally binding nature of codes of conduct clauses was tested in the “Walmart case”, see Doe v.
Wal-Mart Stores, Inc., 572 F.3d 677 (9th Cir. 2009).
107 See Sobczak, supra note 105, at 168 (with references).
108 Id. (referencing Kasky v. Nike Inc., 45 P.3d 243 (Cal. 2002)); see also Nike Inc. v. Kasky, 539 U.S. 654
(2003).
109 See Park & Berger-Walliser, supra note 71, at 256 n.3 (defining soft law as “rules, standards, principles,
and norms articulated in the language of law that are not legally binding but nonetheless are treated as
having legal authority.”).
110 See Berger-Walliser, supra note 46, at 30 (suggesting that the practice of proactive law can avoid getting
to the stage of dispute resolution).
111 Id. at 27 (stating that the main objective of proactive law is promoting good behavior and helping
stakeholders to reach their goals).
PROACTIVE LEGAL STRATEGIES FOR CORPORATE ENVIRONMENTAL SUSTAINABILITY
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costs thereof.112 By anticipating conflicts, proactive approaches allow organizations to
avoid and deflect conflicts. If avoidance is not possible, mapping out potential conflicts
before they occur allows breaking down large conflicts into multiple smaller ones that
can be more easily managed. Gaining a clear picture of potential conflicts allows
organizations to plan and allocate resources for rapid conflict resolution, thereby reducing
overall impact and the costs of potential conflicts if they materialize.
Proactive law seeks to achieve these goals through careful attention to legal
clarity, early warning mechanisms, and enhanced collaboration in the early stages of a
relationship. This includes clear understanding and alignment of diverging interests in
contrast to protection of one-sided individual interests, which benefit one party but are
detrimental to the other side.113 The sustainability paradigm itself builds on this idea of
bridging conflicting interests.114 Sustainability requires organizations to reach
compromises inside and outside the organization. When a conflict arises it needs to be
resolved quickly and effectively in order to limit, in some cases, negative impacts on the
environment or stakeholder relationships.
In order to avoid legal disputes later on, proactive legal strategy suggests
contemplating, and, more importantly, preemptively eliminating potential conflicts before
they arise. Though this initially may be time-consuming and costly, in the long-term,
dispute preemption strategies save valuable time and financial resources.
4. Proactive Law and Performance
The relationship between proactive law strategies and performance is a complex
one. On the one hand, initial adoption of proactive law strategies can benefit
productivity. In a contractual relationship, for example, it can help lower transaction
costs through clear contract design.115 In the context of environmental protection, a
proactive approach can lower production costs through waste minimization, waste
elimination, and pollution prevention through the use of less or alternative raw
materials.116 It can also reduce potential cost of government fines through careful
compliance with environmental laws and regulations.
Ideally, a proactive approach to law will help management discover new business
opportunities.117 Siedel and Haapio provide an interesting example of how a company’s
112 A. Mitchell Polinsky & Steven Shavell, Costly Litigation and Optimal Damages, 37 INT'L. REV. L. &
ECON. 86, 88 (2014) (concluding that “for every dollar transferred from an injurer to a victim through the
tort liability system, approximately one dollar of litigation costs is incurred jointly by the parties”).
113 See Siedel & Haapio, supra note 8, at 668-69 (featuring understanding as the first step in the “Manager’s
Legal Plan” toward the use of law for competitive advantage).
114 See supra note 24 (and accompanying text).
115 See generally Libby Weber & Kyle J. Mayer, Designing Effective Contracts: Exploring the Influence of
Framing and Expectations, 36 ACAD. MGMT. REV. 53 (2011).
116 See Berry & Rondinelli, supra note 69, at 42 (providing examples for how waste prevention is spurring
innovation).
117 See Siedel & Haapio, supra note 8, at 655 (proposing that by reframing legal concerns as business
concerns firms “can perceive the [legal] process of searching for foreseeable uses [under product liability
law] as a form of market research” leading to new product ideas). See also Bird, Pathways of Legal
PROACTIVE LEGAL STRATEGIES FOR CORPORATE ENVIRONMENTAL SUSTAINABILITY
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analysis of potential misuse of a product to avoid future product liability can help the
firm to generate new business ideas.118 Similarly, companies who actively monitor and
even cooperate with regulatory activities can develop strategies and new products,
services, and production processes in anticipation of emerging environmental regulation.
Such a strategy, once the regulation is in place, can give the proactive company a
valuable first-mover advantage over competitors who instead react to new regulations.119
Proactive law can support enterprise sustainability by integrating different issues
related to environmental impacts. Currently, environmental impacts are assessed by the
popular process known as an environmental impact assessment. This process identifies
positive and negative environmental consequences of a project from an engineering and
technology perspective but, while helpful, it is also prone to biases and fraud.120
Proactive law behooves taking into account many more stakeholder perspectives,
including but not limited to those connected with customer contracts, supply chain issues,
and finance, credit, and banking. Integrating this multitude of perspectives through
proactive law can aid companies in avoiding future conflicts.
However, at some point, the costs of implementing proactive law may have an
adverse impact on productivity because pre-contractual or pre-regulatory collaboration is
time consuming and moving beyond compliance with the law, redesign of processes,
products, or business models can generate extra costs. Therefore one would expect
proactive law strategies to generate higher costs in the short-term, but to be more cost and
time efficient in the long run due to fewer costs related to poor performance, bad quality,
and conflict.
5. Stakeholder Communication & Sustainability Reporting
A central aspect of all the elements described above is communication. As
alluded to and illustrated in Figure 1, a defining function of proactive law is serving as a
communication medium with stakeholders. Effective exchange of information with all
stakeholders both inbound collecting of concerns and suggestions as well as outbound
sharing of management policies, plans, facts and data is essential to the operation of
proactive law. This importance is visually represented in Figure 1 by communication
enveloping the organizational elements that have been specified above. It is impossible
for proactive law to function without stakeholder communication. This reality is also
represented by communication being on the boundary between firm functions and
proactive law. To articulate further how communication is a sine qua non to the four
functional areas: meaningful supply chain contract terms that deal with dispute resolution
or uncertainty, as described above, will need input from all stakeholders, especially
Strategy, supra note 64, at 33-38 (labeling this step “transformation” providing the biggest advantage
because it is the most difficult for competitors to imitate).
118 Siedel & Haapio, supra note 62, at 37.
119 See Bagley, supra note 64, at 589-90 (citing LEE E. PRESTON & JAMES E. POST, PRIVATE MANAGEMENT
AND PUBLIC POLICY: THE PRINCIPLE OF PUBLIC RESPONSIBILITY 12, 4 (1975) and describing “anticipating,
understanding, evaluating and responding to public policy developments within the host environment
[as…] a critical managerial task”).
120 See generally, ALAN GILPIN, ENVIRONMENTAL IMPACT ASSESSMENT: CUTTING EDGE FOR THE 21ST
CENTURY (1995).
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technical and scientific experts, and cannot be done by lawyers alone. Value chain
management equally benefits from stakeholder communication. By bringing value chain
stakeholders into proactive and comprehensive communications about future
performance, organizations can detect environmental or social problems and risk factors,
allocate steps and responsibility for preventing ecological destruction, develop effective
disaster plans, and collaboratively develop alternative, innovative, and sustainable
solutions.
A systematized approach for communicating with stakeholders has emerged since
the 1980s121 and become mainstream.122 Sustainability reporting – the publication of
information on an organization’s governance and impacts on the environment, economy,
and society is both a variety of soft law and intended to catalyze dialogue and action
about stakeholder concerns.123 Soft law concepts such as regulation-by-voluntary-
disclosure have the added benefit in a globalized economy of not being wedded to a
jurisdiction’s institutions nor laws.124 Neither are they grounded in common law nor civil
law traditions. This helps to understand why sustainability reporting has become de
rigeur for practically all large companies in every region of the world,125 even if some
121 See Robert G. Eccles & Michael Krzus, ONE REPORT: INTEGRATED REPORTING FOR A SUSTAINABLE
STRATEGY (2010); John Elkington, CANNIBALS WITH FORKS: THE TRIPLE BOTTOM LINE OF 21ST CENTURY
BUSINESS (1998) (considering whether holding corporations accountable to a “triple bottom-line” of
economic prosperity, environmental quality, and social justice constitutes progress).
122 See, e.g., Ernst & Young & The Boston College Center for Corporate Citizenship, VALUE OF
SUSTAINABILITY REPORTING, http://www.ey.com/Publication/vwLUAssets/ACM_BC/$FILE/1304-
1061668_ACM_BC_Corporate_Center.pdf (last visited Jan. 11, 2014) (showing the value of sustainability
reporting and indicating why many businesses practice it); see also Global Reporting Initiative, REPORT OR
EXPLAIN: A SMART EU POLICY APPROACH TO NON-FINANCIAL INFORMATION DISCLOSURE (May 2013),
https://www.globalreporting.org/resourcelibrary/GRI-non-paper-Report-or-Ex plain.pdf (indicating why
many businesses practice sustainability reporting); Allen L. White, Why We Need Global Standards for
Corporate Disclosure, 69 LAW & CONTEMP. PROBS. 167, 17576 (2006).
123 Cynthia A. Williams, Civil Society Initiatives and “Soft Law” in the Oil and Gas Industry, 36 N.Y.U. J.
INT'L L. & POL. 457, 496 (2004). See Adam J. Sulkowski & D. Steven White, Financial Performance,
Pollution Measures and the Propensity to Use Corporate Responsibility Reporting: Implications for
Business and Legal Scholarship, 21 COLO. J. INTL ENVTL. L. & POLY 491, 493 (2009).
124 While stakeholder consultations and sustainability reporting is predominantly seen as a voluntary, since
the 1990s several countries have gradually introduced mandates or encouragement related to sustainability-
related disclosures. See Ans Kolk, Trends in Sustainability Reporting by the Fortune Global 250, 12 BUS.
STRAT. ENV., 12, 279291 (2003).
125 KPMG’s triennial study of the phenomenon regularly finds that approximately 95 percent of the largest
250 corporations in the world (the Global Fortune 250 or G250) engage in sustainability reporting. KPMG,
KPMG INTERNATIONAL SURVEY OF CORPORATE RESPONSIBILITY REPORTING 2011 21 (2011), available at:
http://www.kpmg.com/ES/es/ActualidadyNovedades/ArticulosyPublicaciones/Documents/CR_Report_201
1.pdf. The number of companies in the G250 who had engaged in sustainability reporting (either in a stand-
alone report or within the context of an annual report) grew from 64 percent in 2005 to 83 percent in 2008
(or 207 out of the G250). KPMG, KPMG INTERNATIONAL SURVEY OF CORPORATE RESPONSIBILITY
REPORTING 2008 15 (2008), available at: http://www.kpmg.com/EU/en/Documents/
KPMG_International_survey_Corporate_responsibility_Survey_Reporting_2008.pdf; KPMG, KPMG
INTERNATIONAL SURVEY OF CORPORATE RESPONSIBILITY REPORTING 2005 4 (2005), available at:
http://www.gppi.net/fileadmin/gppi/kpmg2005.pdf. This fact led KPMG to assert that such reporting had
come of age and become de facto law for business.
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culturally-rooted nuances are observable in how companies describe their motivations for
disclosure.126
While this paper has focused on the aspects of sustainability as they are most
commonly understood namely, ecological and societal problems sustainability
reporting has the added advantage that materiality analysis encourages an organization to
examine, evaluate, communicate, and address other risks. If stakeholders tell an
organization, for example, that they are concerned with cyber-security, it should lead the
organization to critically examine its risks of being hacked and to communicate what the
company is doing to assess and assure the efficacy of its protections. Such disclosures
have been shown to be effective in boosting the cyber-security efforts and performance of
organizations.127 As recent data security breaches in the private and public sectors have
highlighted, cyber-security breaches are costly and damaging and should be more openly
and proactively addressed by both managers and lawyers, rather than reacting in crisis
mode.128
Scholarship of sustainability reporting and its drivers and impacts has advanced in
recent years; for example, a causative link has been demonstrated between having a green
reputation and having satisfied employees,129 and between firm size and age and
propensity to disclose ESG information,130 but many!questions still await answers. For
example, under what conditions does sustainability reporting contribute to stakeholder
dialogue that results in “win-win” solutions for the firm and those who experience side
effects created by the firm, and what are the optimal roles for attorneys in that process?
126 Adam J. Sulkowski et al., Corporate Responsibility Reporting in China, India, Japan, and the West:
One Mantra Does Not Fit All, 42 NEW ENG. L. REV. 787, 79698 (2008) (discussing how cultural values
appear to color how managers discuss their motivations, with Western executives being more inclined to
openly state that they engage in sustainability reporting for the sake of their shareholders, and Asian
executives tending to emphasize a duty of being transparent to society as a whole).
127 Andrea M. Matwyshyn, Material Vulnerabilities: Data Privacy, Corporate Information Security, and
Securities Regulation, 3 BERKELEY BUS. L.J. 129, 20203 (2005) (explaining how, in the context of
information security, mandated disclosures increase awareness of problems and supports systemic adoption
of best practices for both corporations and consumers).
128 Adam J. Sulkowski, Cyber-Extortion: Duties and Liabilities Related to the Elephant in the Server Room,
J.L. TECH. & POLY 1, 2163 (2007) (explaining how cybersecurity breaches, inadequate preventative
measures, and related costs and liabilities are more routine than commonly realized, and are under-
reported).
129 Cassandra Walsh & Adam J. Sulkowski, A Greener Company Makes for Happier Employees More So
Than Does a More Valuable One: A Regression Analysis of Employee Satisfaction, Perceived
Environmental Performance and Firm Financial Value, 11 INTERDISC. ENVTL REV. 4, 27482 (2010).
130 See Christopher Hughey & Adam J. Sulkowski, More Disclosure = Better CSR Reputation? An
Examination of CSR Reputation Leaders and Laggards in the Global Oil & Gas Industry, 12 J. ACAD. BUS.
& ECON. 2, 2434 (2012); Jia Wu, Linxiao Liu & Adam J. Sulkowski, Environmental Disclosure, Firm
Performance, and Firm Characteristics: An Analysis of S&P 100 Firms, 10 J. ACAD. BUS. & ECON. 4, 73
84 (2011); Lu Wei, Wang Wenjun, Adam J. Sulkowski & Jia Wu, The Relationships Among Environmental
Management, Firm Value and Other Firm Attributes: Evidence from Chinese Manufacturing Industry, 10
INTL J. ENVTL. & SUS. DEV. 1, 7895 (2011); Adam J. Sulkowski & D. Steven White, Financial
Performance, Pollution Measures and the Propensity to Use Corporate Responsibility Reporting:
Implications for Business and Legal Scholarship, 21 COLO. J. INTL ENVTL. L. & POLY 3, 491514
(2009). For examples of how sustainability data can help identify business opportunities or reveal problems
worth correcting, see Adam J. Sulkowski & Nicholas Vardaro, Sid Wainer & Son: A Growing Realization,
2013.
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Another obvious set of questions is whether mandating stakeholder consultations and
sustainability reporting enhances or detracts from the beneficial effects of proactive
communication.131 It should also be acknowledged that in academia, as in practice, some
take a skeptical view, holding that sustainability reporting much like any
communications tool can be abused and used more as a “greenwashing” or misleading
propaganda tool, rather than as a bona fide means of communicating objective vital signs
and learning about stakeholder concerns.132 Research into the misuse of stakeholder
communication tools is also useful.133
To an extent United States securities laws either explicitly in a few specific
instances or by interpretation overall require sustainability-related disclosures,
inasmuch as such information meets the threshold standard of materiality as defined in
relevant jurisprudence.134 Some assert that SEC guidelines have already improved
transparency (and hence, comparability of corporate performance), with regard to
corporate greenhouse gas emissions.135 However, the full utilization of sustainability
reporting especially the aspects involving stakeholder dialogue is still very much up
to the discretion of firm management and its advisers.136 It is a communications medium
for proactive law tactics that, depending on how sincerely it is deployed, can be leveraged
constructively to evaluate risks and cooperate with stakeholders of every variety to
preempt conflict by agreeing upon mutually satisfying solutions.
C. Implications for Practice & Future Research
Corporate strategy works best when it can rely on legal certainty.137 As
emphasized in proactive law literature, corporations need to better appreciate the capacity
131 See Lucien Dhooge, Beyond Voluntarism: Social Disclosure and France’s Nouvelles
Régulations Économiques, 21 ARIZ. J. INTL & COMP. L. 441-491 (2004).
132 See, e.g., Rob Gray & Markus Milne, Sustainability Reporting: Who's Kidding Whom? 81 CHRTD
ACCNTS J. OF N. ZEALAND, 66-70 (2002).
133 See, e.g., Güler Aras & David Crowther, Corporate Sustainability Reporting: A Study in Disingenuity?
87 J. BUS. ETHICS, 279-288 (2009).
134 Sulkowski, Adam & Sandra Waddock, Beyond Sustainability Reporting: Integrated Reporting Is
Practiced, Required, and More Would Be Better, 10 U. ST. THOMAS L.J. 1060 (2012-2013).
135 See Elizabeth E. Hancock, Note, Red Dawn, Blue Thunder, Purple Rain: Corporate Risk of Liability for
Global Climate Change and the SEC Disclosure Dilemma, 17 GEO. INTL ENVTL. L. REV. 233, 23334
(2005); Jeffrey M. McFarland, Warming Up to Climate Change Risk Disclosure, 14 FORDHAM J. CORP. &
FIN. L. 281, 281301 (2009); Perry E. Wallace, Climate Change, Fiduciary Duty, and Corporate
Disclosure: Are Things Heating Up in the Boardroom?, 26 VA. ENVTL. L.J. 293, 29399 (2008).
136 See Rob Gray, Social, Environmental and Sustainability Reporting and Organisational Value Creation?
Whose Value? Whose Creation?, 19 ACCOUNTING, AUDITING & ACCOUNTABILITY J., 793-819 (2006); see
also Adam J. Sulkowski, The Growing Trend of Voluntary Corporate Responsibility Disclosure and Its
Implications for Real Estate Attorneys, 38 REAL ESTATE L.J. 471, 472 (2010).
137 See generally Paul M. Swamidass & William T. Newell, Manufacturing Strategy, Environmental
Uncertainty & Performance: A path Analytic Model, 33 MGMT. SCI. 509 (1987); see also Birger Wernerfelt
& Aneel Karnani, Competitive Strategy Under Uncertainty, 8 STRATEGIC MGMT. J. 187 (1987) (analyzing
the trade-offs between acting early and acting later after the uncertainty is resolved, and trade-off between
focusing resources on one scenario and spreading resources on several scenarios by taking into
PROACTIVE LEGAL STRATEGIES FOR CORPORATE ENVIRONMENTAL SUSTAINABILITY
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of law and attorneys to add value beyond their roles in litigation. Therefore, our paper
also calls for more cross-professional collaboration between managers and lawyers and
all stakeholders inside and outside the firm. By applying proactive law precepts to
stakeholder interactions, including customer and supplier contracts, banking
relationships, and credit management, companies can develop stronger business
relationships and more conflict resistant approaches for their business activities. On a
broader level, companies can use proactive strategies and precautionary principles to
anticipate business risks. They can insert early warning signals into company systems
and processes to alert managers of impending problems. This can raise the general level
of vigilance and help avoid failures and expensive damage control.
Our analysis was exploratory and needs to be followed-up with empirical testing.
The following testable hypotheses reflect the relationship between proactive law and the
four organizational elements depicted in this Article. We suggest that future empirical
work address the hypotheses that (1) when pursuing sustainability, organizations facing
highly uncertain environments will experience greater benefits from using (and therefore
are more likely to use) proactive law strategies; (2) when aspiring to be sustainable,
organizations with long and complex value chains and greater attendant risks will
experience greater benefits from using (and therefore are more likely to use) proactive
law strategies; (3) when pursuing sustainability, conflict management costs will decrease
with the use of proactive law strategies; and finally (4) when pursuing and implementing
sustainable practices, organizational performance will increase with the use of proactive
law strategies.
Additionally, there is need for more detailed legal analysis and development of
innovative legal instruments to support organizational sustainability. One area that
comes to mind is corporate governance. New corporate forms such as the benefit
corporation model – arguably a manifestation of proactive law concepts – have been
adopted in many US states. It could be analyzed as a legal tool for companies to ensure
that they reach their sustainability or other social goals.138 Future research could focus on
certain high impact industries such as the energy sector. In-depth case studies could
bring to light best proactive practices, identify room for improvement, and suggest and
test new proactive legal tools or mechanisms for their effectiveness in preventing
ecological crisis and supporting corporate sustainable development. Empirical research
is also needed to show if proactive law helps improve local, state, federal and
international environmental laws and social standards and norms, as well as their
application.
Another avenue for future research concerns the use of proactive law for
competitive advantage, such as analyzing first-mover advantages for companies using
proactive legal strategies. In this context another research question that comes to mind is
consideration the nature of uncertainty, industry economics, intensity of competition, and the position of a
firm relative to its competitors).
138 See generally J. Haskell Murray & Edward I. Hwang, Purpose with Profit: Governance, Enforcement,
Capital-Raising and Capital-Locking in Low-Profit Limited Liability Companies, 66 U. MIAMI L. REV. 1
(2011); see also David Groshoff, Contrepreneurship? Examining Social Enterprise Legislation's Feel-
Good Governance Giveaways, 16 U. PA. J. BUS. L. 233 (2013); Hiller, supra note 38; Blount & Nunley,
supra note 37.
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whether some proactive law strategies adopted by big business (that involve advanced
technology adaptions), can harm smaller companies that do not have the same research
and development budgets or other financial means to implement the same techniques.
Or, conversely, are proactive law approaches inherently cheaper and more attractive to
smaller companies with fewer financial resources? On an organizational level, it would
be useful to learn about the organizational and communication dynamics that facilitate
successful proactive law applications (for example, top-down versus bottom-up
approaches).
CONCLUSION
Today’s business environment is inseparable from the greater context of societal
ills and both systemic and acute ecological crises. With increasing degradation of
ecosystems, businesses and civil society are looking for ways to pre-empt and avoid
environmental damage while assuring prosperity. Post-disaster cleanups and liability
allocation rarely can completely undo harms caused to natural systems and people. Also,
generally they are much more expensive to resolve than pre-disaster prevention measures
are to implement. Proactive law concepts can help organizations overcome some of the
challenges of adapting to a degrading ecosystem and striving to achieve sustainability.
Within this Article we identified law as one of the factors that influence organizational
behavior. We analyzed how the emergent concept of proactive law could help
organizations avoid ecological disasters and become more sustainable. We examined
precepts of proactive law. We offered a theoretical model that illustrates its role in
serving a protective role as well as a medium of communication. Finally, we suggested
several specific proactive law tactics for ameliorating corporate contributions to
ecological and societal crises and for encouraging efforts to achieve sustainability. In
doing this, we have offered a framework for further study and discussion of the role of
proactive law in legal and organizational studies.
Taken together, proactive law approaches offer promising opportunities to support
corporate sustainability. So far, research at the intersection of policy, legal, and
management approaches to corporate sustainability is highly under-represented in both
legal and management literature. Thus, our propositions offer avenues for
interdisciplinary theoretical and empirical research in these areas of organizational
sustainability, governance, and business law.
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Figure 1:
A Framework for Proactive Law and Corporate Sustainability
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... We described the need to for lawyers to adopt a more proactive mindset in articles with Joan MacLeod Heminway -Blockchains, Corporate Governance, and the Lawyer's Role 18 -and with Gerlinde Berger-Walliser and Paul Shrivastava in Using Proactive Legal Strategies for Corporate Environmental Sustainability. 19 Undoubtedly, greater gathering, use of, and intended (or unintended, or even coerced) disclosure of data creates legal risk of which attorneys should be aware. 20 ...
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We are all wondering: what's next? This paper poses and answers 10 questions. These are predictions for the COVID-19 era and beyond based on my research.
... 39 In another realm, data 29 availability is essential for green taxes 40 and proactive legal strategies. 41 As the adage goes, "'we manage what we measure.'" 42 However, what are the limits on gathering, keeping, requesting, and using data? ...
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This essay surveys legal issues raised by the wave of technological innovations that are defining the present era, known as Industry 4.0. These include the standards governing the gathering, keeping, use, and transfer of data, defining relationships when technology enables novel employment interactions, and fundamental questions about liability and legal personhood. After examining these distinct directions for future research, the essay concludes by urging that those of us in the legal profession—academics, practicing attorneys, judges, and policy-makers—become uncharacteristically proactive. It is explained that, absent our proactive involvement, advances in technology alone are not likely to bring about fundamental progress away from fundamental societal problems rooted in the 1st Industrial Revolution.
... At least equally intriguing is the question of when and how it is both aligned with strategy and even legally mandated to disclose data: the materiality principle in U.S. securities law arguably requires sharing data related to societal and environmental impacts by entities selling securities (Sulkowski, 2016;Sulkowski & Waddock, 2013). Data availability is a sine qua non for other legal frameworks, such as those related to green taxes (Alexander, Sulkowski, & Wiggins, 2016) and proactive legal strategies (Berger-Walliser, Sulkowski, & Shrivastava, 2017). There is evidence that companies self-regulate better in the context of a conventional "hard" law framework necessitating sustainability-related data measuring and reporting (Short, & Toffel, 2010). ...
... 239 The model visualizes law as a medium between a firm and its external context-a medium in which relationships are defined and the limits and consequences of side effects are set. 240 In this view, law is like a semi-permeable cell membrane between the internal functions of the firm and the realms of ecological systems and society in which the firm inextricably operates, from which it procures resources, and into which it releases products, services, and side effects such as pollution. 241 Blockchainenabled applications that help firms communicate with external stakeholders can be seen as part of this membrane between the firm and its surrounding environment. ...
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Blockchain technology has been hailed as the next disruptive leap forward in data sciences. Most legal scholarship related to the topic has focused on its relevance to finance, but it could revolutionize business supply chains. Specifically, blockchain-enabled solutions are expected to improve the reliability of data related to supply chains and to help businesses eliminate fraud, inefficiencies, waste, and harms to people and the environment. Despite the surrounding hype, this paper will explain why the promise of distributed electronic ledgers will only be realized in the context of effective governance and legal frameworks. This paper draws upon scholarly articles and the opinions of entrepreneurs actively engaged in bringing blockchain-enabled technologies to market to arrive at two sets of related conclusions. First, that the benefits of the technology (including its potential to help businesses prosper while eliminating societal and environmental harms) will only be realized in the context of enabling frameworks of law. Second, the author articulates how the role of the legal profession vis-à-vis business clients will evolve in the era of blockchain-enabled business supply chain optimization.
... 256 The model visualizes law as a medium between a firm and its external context-a medium in which relationships are defined and the limits and consequences of side effects are set. 257 In this view, law is like a semipermeable cell membrane between the internal functions of the firm and the realms of ecological systems and society in which the firm inextricably operates, from which it procures resources, and into which it releases products, services, and side effects such as pollution. 258 Blockchainenabled applications that help firms communicate with external stakeholders can be seen as part of this membrane between the firm and its surrounding environment. ...
Chapter
Sustainability is the important factor in the food sector, due to the large demand worldwide. Sustainability in food sector is not accepted globally as per the growing demand of food. Because of business risks, uncertainty, government policy, technology, innovation, etc. So, in this article we will discuss about the risks in adoption of sustainable food supply chain management (SFSCM) and ranking the risks by using Fuzzy Analytic Hierarchy Process (FAHP) technique. We acknowledged various SFSCM related risks and suitable correlation among the identified risks. Ranking the risks by using Fuzzy AHP approach based on their priorities. Nine risks were identified from literature survey and expert's views. Risks like safety, technology, and legal and monetary of food, etc., are barriers in successful adoption of sustainability in the food sector. The risks related some terms which were found according to Indian culture and lifestyle of Indians.
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Sustainability is the important factor in the food sector, due to the large demand worldwide. Sustainability in food sector is not accepted globally as per the growing demand of food. Because of business risks, uncertainty, government policy, technology, innovation, etc. So, in this article we will discuss about the risks in adoption of sustainable food supply chain management (SFSCM) and ranking the risks by using Fuzzy Analytic Hierarchy Process (FAHP) technique. We acknowledged various SFSCM related risks and suitable correlation among the identified risks. Ranking the risks by using Fuzzy AHP approach based on their priorities. Nine risks were identified from literature survey and expert’s views. Risks like safety, technology, and legal and monetary of food, etc., are barriers in successful adoption of sustainability in the food sector. The risks related some terms which were found according to Indian culture and lifestyle of Indians.
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Many studies have investigated the relationships among environmental management, financial performance and other firm attributes. Their results are inconsistent and contested. Most of the empirical studies to date are in the context of developed countries rather than developing countries. This study fills this gap by providing an empirical examination of the relationships among environmental management, firm value and other firm attributes in the Chinese context. In addition, this study is the first study of Chinese firms to use panel data analysis methods in the examination of the impact of environmental management on firm value. The results of panel data analysis show that environmental management has no significant impact on firm value. Pearson tests show that prior financial performance does not affect the level of environmental management. Rather, firm size is shown to be positively correlated with the level of environmental management.
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This paper tests two hypotheses. The first hypothesis is that employee satisfaction is positively impacted when a company is perceived as performing well environmentally. The second hypothesis is that employee satisfaction is positively impacted by firm financial performance. To test these hypotheses, the relationships between perceived environmental performance, financial performance and employee satisfaction were tested using regression analysis. The results indicate a significant positive relationship between employee satisfaction and level of perceived environmental performance. This study does not find a significant relationship between employee satisfaction and firm financial value. The practical implication for managers is that investments in environmental performance and related communications are important for reasons beyond those that are more commonly discussed, such as external stakeholder relations. This study suggests that environmental performance and related communications should be an integral part of human resources management strategies to recruit, motivate and retain the best talent. For scholars, this study suggests future directions for research in, for example, determining the causal mechanisms between actual environmental performance, perceptions of relative environmental performance and employee satisfaction.
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Companies have increasingly recognized that legal capabilities are crucial for ongoing corporate success, and they understand the importance of working with legal counsel. All too often, though, senior executives still view the law as a constraint on managerial decisions, primarily perceiving it as an issue of cost and compliance. But this limited perspective of the law does not explain how some leading companies, such as Qualcomm and the Walt Disney Co., have managed to deploy their legal departments to shape the legal environment in order to secure long-term competitive advantage. In their research, the authors have developed a framework that can help executives identify the different ways in which legal strategies can be used to achieve various corporate goals, including the identification of value-creating opportunities. The framework consists of five different legal pathways, which the authors describe using examples such as Qualcomm, Microsoft, United Parcel Service and Xerox. In order of least to greatest strategic impact, the five legal pathways are (1) avoidance, (2) compliance, (3) prevention, (4) value and (5) transformation. In the avoidance pathway, managers see the law as an obstacle to their desired business goals. Companies operating in the avoidance pathway will often have lax internal controls or a failure to perform due diligence, and this approach can lead to disaster. Companies in the compliance pathway recognize that the law is an unwelcome but mandatory constraint, and they think of compliance basically as a cost that needs to be minimized. For businesses in the prevention pathway, managers take a more proactive approach, using the law to preempt future business-related risks. The value pathway represents a fundamental shift in mind-set, from risk management to value creation; managers use the law to craft strategies that increase ROI in ways that can be directly tied to a profit-and-loss statement. For companies in the transformation pathway, executives have integrated their legal strategy not only within the organization's various value-chain activities but also with the value chains of important external partners. Finding the right legal pathway for a particular company requires more than just a consideration of the overall business model. Other key factors include managers' attitudes toward the law and their level of legal knowledge, the sophistication of legal counsel and, in particular, the legal department's ability to work with managers to achieve strategic business goals. Using the authors' framework as a basic guide, executives can craft a legal strategy that best suits their particular business needs.
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Labour and employment law no longer has a monopoly on regulating labour relations and is facing a crisis as its effectiveness is questioned. Codes of conduct adopted by companies to recognise their social responsibility for the global supply chain are instruments that can usefully complement labour and employment law. The aim of this paper is to analyse in depth the legal nature of codes of conduct and their impact on labour and employment law. Will the use of codes of conduct reinforce the crisis of labour and employment law in the era of globalisation or will these codes be part of a solution to this crisis? Do we have to consider codes of conduct as competitors to labour and employment law or as an opportunity for rethinking the way that labour and employment law norms should be produced and applied?
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In the wake of the most recent financial crisis, corporations have been criticized as being self-interested and unmindful of their relationship to society. Indeed, the blame is sometimes placed on the corporate legal form, which can exacerbate the tension between duties to shareholders and interests of stakeholders. In comparison, the Benefit Corporation (BC) is a new legal business entity that is obligated to pursue public benefit in addition to the responsibility to return profits to shareholders. It is legally a for-profit, socially obligated, corporate form of business, with all the traditional corporate characteristics combined with societal responsibilities. Considering the history and perception of shareholder primacy in United States law, it is argued that this new business structure is an ethical step toward empowering socially committed commercial entities. The contribution of this research is to provide a fundamental base of knowledge about the new legal form of business, the BC, upon which further study may rely. First, the legal history of the corporation is briefly reviewed in order to provide context to the relationship of the corporate form to society, including exploration of the premise that shareholder wealth maximization is its best and only purpose. Second, the BC is described in detail, and state statutes are compared. Third, the BC is placed within the context of corporate social responsibility. Finally, opportunities for future research are discussed.
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In this article we examine how the optimal level of damages depends on litigation costs. We assume that litigation costs have a fixed component and a variable component that rises with the level of damages. Our main result is that optimal damages are less than the sum of the victim's harm and the victim's litigation costs - even though damages equal to that sum would internalize the full social cost of an accident. The reason is that lowering damages reduces variable litigation costs. Indeed, optimal damages may be less than harm.