Green Business: Should We Revoke Corporate Charters for Environmental Violations?

• Author: Mitchell F. Crusto
• Position: Former law clerk to the Honorable John Minor Wisdom, U.S. Court of Appeals for the Fifth Circuit
• Pages: 175-241

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Mitchell F. Crusto is a former law clerk to the Honorable John Minor Wisdom, U.S. Court of Appeals for the Fifth Circuit. He is currently a Professor at Loyola University New Orleans School of Law and a Visiting Professor at Vermont Law School. Formerly, Member, President Bill Clinton's Transition Team for U.S. Environmental Protection Agency; Senior Manager, Arthur Andersen's Worldwide Environmental Management Consulting Group; Director, Corporate Environmental Policy, Monsanto Corporation; Member, Industry Working Group, Environmental Management Principles, American Standards; Associate Deputy Administrator, Finance, Investment and Procurement, U.S. Small Business Administration, 1989-91, President Bush Appointee. Yale Law School, J.D. 1981; Oxford University, England, B.A. 1980, M.A. 1985; Yale University, B.A. 1975. Special thanks to those who have contributed to this article, including the faculty, research assistants, administrative assistants, students and staff at the Loyola University School of Law and at Vermont Law School. The author gratefully thanks the research assistance provided through the generosity of the Alfred T. Bonomo Sr. Family and the Rosario Sarah LaNasa Memorial Fund.

Following the recent corporate abuses in financial reporting and the resulting passage of the Sarbanes-Oxley Act of 2002, it is appropriate to focus attention on the adequacy of corporate governance of environmental behavior, including environmental financial disclosures.

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Broadly speaking, this article addresses a pivotal question: Does United States corporate law help or hinder environmental protection? More narrowly, it focuses on a recent critique of corporate law that demands that a corporation should be made to surrender its corporate charter for violating environmental laws. It proposes a corporate code of environmental principles, namely, Corporate Environmental Principles ("CEP"). It concludes that corporations should greatly improve their environmental protection efforts, and that their voluntary adoption of Corporate Environmental Principles or CEP is the right answer.

This is a timely discussion. Recent corporate financial scandals involving Enron, Worldcom, Arthur Andersen, and others have heightened awareness of the need to revisit corporate accountability. The environment, particularly climate change, is still a major global concern. And there is evidence that both government and industry are failing to achieve corporate self- regulation of environmental protection.

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One radical proposal-that states revoke a corporation's charter for violation of environmental laws-was recently proposed against a transnational oil company, UNOCAL. This proposal raises an exciting corporate law issue, "Can and/or should states revoke corporate charters for environmental violations?" While this proposal seems a bit extreme, an analysis of this issue illuminates how corporate structure promotes or hinders corporate environmental protection.

This article analyzes the interdisciplinary relationship between corporate law and environmental protection. First, it describes and analyzes the benefits and requirements of incorporation. Second, it proposes a model, corporate self-regulatory code, Corporate Environmental Principles (CEP). Third, it makes the case for a voluntary code of corporate environmental principles. Fourth, it describes sources of change in corporate environmental behavior and evaluates how corporations react to change. It also analyzes the interdisciplinary relationship between securities laws and corporate environmental disclosures. And lastly, it recommends that the American Law Institute supplement its existing Principles of Corporate Governance with the newly proposed Corporate Environmental Principles.

Finally, the author concludes that it is greatly unlikely that corporate charters would be (or should be) revoked for environmental violations. Yet, as the United States Congress and the President are considering how to hold corporations accountable for their financial reporting, via the Sarbanes-Oxley Act, it is likely that the Securities and Exchange Commission will revisit its policies on corporate environmental disclosures. In order to anticipate the government's and society's environmental expectations, it is advisable that corporations voluntarily adopt and implement Corporate Environmental Principles. This would allow corporations to stay ahead of compliance, do right for its other constituents, and achieve competitive business advantage.

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I Introduction: Does Corporate Law Promote Corporate Accountability For Environmental Protection?

Recent corporate financial scandals involving Enron, Worldcom, Arthur Andersen and others have led to the passage of significant legislation effecting, inter alia, corporate financial disclosure.¹ These recent financial reporting scandals raise red flags concerning corporate accountability generally. This is an appropriate time to reconsider corporate accountability for environmental protection.²Additionally, environmental challenges continue in the form of climate change. Industry and government continue to fail to achieve corporate self-regulation. One radical proposal recently surfacing is to revoke corporate charters for environmental violations.³

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The environment, particularly climate changes, is still a major global concern. At the World Economic Forum, both business and government leaders voted climate change the greatest challenge facing the world at the beginning of the century.⁴ Indeed, recent statistics show that pollution of air, water and land has been increasing in many areas.⁵

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Two major sources are attributable to the rising levels of pollution: the lack of governmental enforcement⁶ and the inability of corporations to effectively self-regulate.⁷ Relative to EPA enforcement, there has been a recent paradigm shift towards promoting corporate self-regulation.⁸ Relative to corporate environmental behavior, there is a growing gap between societal expectation and corporate behavior.⁹ Taken together, the rising levels Page 181 of pollution and the demand for greater corporate environmental responsibility raise the essential question: "Does United States (U. S.) corporate law promote environmental protection?"

This article explores the interdisciplinary dimensions of corporate law and analyzes and describes their shortcomings relative to environmental matters. Part II describes the benefits and the requirements of corporate law. Part III proposes a model corporate self-regulating code, namely, Corporate Environmental Principles. Part IV makes the case for a...