Corporate social responsibility after disaster.

AuthorKuo, Susan S.

Table of Contents INTRODUCTION I. THE SOCIAL CAPITAL OF LOCALLY OWNED BUSINESS A. Bottled Water, Pop-Tarts, and Generators B. The View from Bourbon Street II. THE ECONOMICS OF SOCIAL CAPITAL A. Collective Action B. Exit, Voice, and Loyalty C. Transaction Costs D. Slinging Arrows at Social-Capital Theory III. REVISITING CORPORATE SOCIAL RESPONSIBILITY A. Agency Costs and Moral Obligation 1. The Classical Framework 2. The Progressive Framework B. Beyond Agency Costs IV. RESTORING NORMALCY A. Post-Disaster Entrepreneurship B. Market-Distorting Signals CONCLUSION INTRODUCTION

In recent years, corporations have devoted substantial resources to disaster relief worldwide. (1) For instance, Wal-Mart garnered favorable attention for its contributions in New Orleans and the Gulf Coast after Hurricane Katrina. (2) According to company press releases, Wal-Mart recently gave hundreds of thousands of dollars for disaster relief in Brazil following a flood, (3) and it has pledged millions in support of Japan in the wake of the tsunami. (4)

Large corporations have not only the economic resources, but also the logistical capacity and operational expertise to make a difference in the first terrible days after a disaster. However, commentators disagree about how best to harness corporate resources to support disaster relief efforts. (5) This is not a new issue; the disaster law and policy discussion is only the latest iteration of a longstanding debate concerning the proper role of the corporation in society. (6)

Broadly speaking, there are two frameworks for assessing corporate social responsibility: a "classical" framework that treats non-shareholder interests as outside the corporation's proper concern, and a "progressive" framework that encourages corporations to pursue a broader social agenda. (7) According to the classical framework, corporations contribute to society by maximizing profits for their shareholders. (8) On this view, giving managers discretion to use corporate resources for other purposes only exacerbates agency costs between the managers and the shareholders who entrust their capital to the corporation. (9) By contrast, the progressive framework emphasizes that corporations owe their existence to the state and benefit from limited liability and other special protections and thus concludes that corporations have a special duty to serve a broader community of stakeholders. (10)

The corporate social responsibility debate has important implications for disaster law and policy. (11) At bottom, the issue is whether corporations can advance socially desirable objectives consistent with their primary obligation to earn a profit for their shareholders. (12) Some commentators contend that by enhancing public-private partnerships, government can incentivize the use of private distribution networks like Wal-Mart's in a coordinated effort with public disaster response agencies. (13) With the right market incentives, corporations can be induced to perform a socially useful function. (14) Other scholars cite Wal-Mart's performance after Katrina as evidence that profit-oriented corporations already have appropriate incentives and will provide necessary relief on their own without the waste and mismanagement too often associated with public relief efforts. (15)

On the other hand, some scholars contend that the business corporation's for-profit motivation should disqualify it from serving as a substitute for public disaster relief. (16) According to these commentators, essential government disaster relief functions must not be entrusted to private industry. (17) indeed, commentators have argued that public-private partnerships are inherently dangerous because private corporations can exploit disaster to serve their own ends and will corrupt public institutions in the process. (18) Thus, corporate altruism is not seen as a dependable substitute for an effective government-led response to disaster. (19)

This Article contends that the standard story concerning corporate social responsibility is incomplete because it features only the largest, publicly traded corporations. (20) As a consequence, scholars have overlooked the contributions of closely held, locally owned businesses, whether corporations, LLCs, or even franchise establishments with owners who reside in the community. (21) Businesses are economic enterprises situated in a broader web of social networks. (22) When business owners live where their customers live, these social networks strengthen as business ties overlap with other networks (school, church, recreation) that together form the fabric of place. (23) Locally owned businesses play a critical role in long-term disaster recovery, not only because they are motivated to reinvest in their own communities, but because the investments have social and economic significance.

The argument proceeds as follows. Part I contends that locally owned businesses have the social capital to help communities recover from disaster. Part II further defends the importance of social capital, arguing that social capital can enhance a disaster-struck area's prospects for recovery by solving economic coordination problems. Part III revisits the corporate responsibility debate and contends that the inclusion of closely held, locally owned businesses highlights social motivations for choice that neither position in the current debate captures. (24) Part IV argues that lawmakers and responsible officials should recognize the role of locally owned businesses in restoring normalcy after disaster and should include business-continuity measures in comprehensive disaster planning.

  1. THE SOCIAL CAPITAL OF LOCALLY OWNED BUSINESS

    Social capital "refers to the trust, social norms, and networks which affect social and economic activities." (25) Among the most important social norms are "reliability, honesty, and reciprocity." (26) Social capital is enhanced when individuals participate in group activities of various kinds and when those overlapping relationships enhance the overall level of trust. (27) in social networks characterized by high degrees of trust and reciprocity, "individuals and groups" are able "to accomplish greater things than they could by their isolated efforts." (28) Social capital may also foster virtues such as volunteerism and civic engagement that are essential to the health of a community. (29) According to one scholar, "people who trust others are all-round good citizens, and those more engaged in community life are both more trusting and more trustworthy." (30)

    Social capital is an important factor in disaster recovery. (31) Rebuilding physical infrastructure alone is not enough. (32) Resilience appears to have more to do with social infrastructure than with economic capital: "Communities with more trust, civic engagement, and stronger networks can better bounce back after a crisis than fragmented, isolated ones." (33) To a greater extent than is commonly recognized, "[n]eighbors and friends--not government agencies or NGOs--provide the necessary resources for recovery after disaster." (34)

    This Part uses examples drawn from the Gulf Coast and New Orleans after Hurricane Katrina to contend that locally owned businesses have an essential role to play in restoring a community after disaster. When locally owned businesses survive, they not only restore economic vibrancy but also replenish and strengthen the community's social capital. Part I.A acknowledges that public corporations can provide crucial economic assistance and may aid in the restoration of physical infrastructure. Part I.B contrasts the economic role of public corporations with the potential value of locally owned businesses, arguing that local businesses are crucial to a disaster-impacted region's social infrastructure and residents' ability to return to a normal life. (35)

    1. Bottled Water, Pop-Tarts, and Generators

      Wal-Mart's performance after Hurricane Katrina provides an excellent illustration of the potential value of large business contributions to disaster recovery. As is well known, the storm caught the Federal Emergency Management Agency ("FEMA") unprepared. (36) Wal-Mart, however, was ready. Its own meteorologists had been tracking the storm and predicted landfall near New Orleans "more than 12 hours before the National Weather Service issued a similar advisory." (37) Wal-Mart's Emergency operations Center successfully routed trucks with "hundreds of thousands of cases of bottled water, Pop-Tarts, and generators to distribution centers" outside the city before the storm hit. (38)

      Within days, most of Wal-Mart's stores in the Gulf Coast region were operational. (39) Indeed, "Wal-Mart employees arrived so early in the disaster area that they often wound up running their own relief efforts." (40) According to one local official, "The Red Cross and FEMA need to take a master class in logistics and mobilization from Wal-Mart." (41) in addition to the goods, services, and employment made possible by its normal business operations, Wal-Mart donated $20 million to support disaster relief efforts. (42)

      Other corporations also made substantial contributions. For instance, Dunkin' Donuts provided bi-weekly food shipments to aid in the disaster recovery and made coffee and donuts available for relief workers. (43) McDonald's gave approximately $5 million and sent nonperishable food items to New Orleans. (44) SYSCO, a food distribution corporation, worked with the Red Cross to provide hot meals through mobile kitchens. (45) The pharmacy chain CVS "donated approximately $1.2 million in supplies and money to hurricane victims through the American Red Cross and other local relief organizations." (46) CVS also "distributed water, ice and personal care items--goods that CVS carries." (47)

      Corporate donations of goods, services, logistical support, and cash provided immediate and substantial support to the victims of Hurricane Katrina and are emblematic...

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