Dispute Resolution and New Governance: Role of the Corporate Apology

• Publication year: 2010
• Citation: Vol. 34 No. 02

UNIVERSITY OF PUGET SOUND LAW REVIEWVolume 34, No. 2WINTER 2011

Dispute Resolution and New Governance: Role of the Corporate Apology

Michael B. Runnels(fn*)

In the wake of the Great Recession,(fn1) the public increasingly expects to see corporations express proper contrition for their errors.(fn2) Likewise, corporate leaders,(fn3) policy makers,(fn4) and scholars(fn5) have long recognized that corporations can and should be more responsive to public expectations of ethical corporate behavior.(fn6) But the traditional means through which multiple stakeholders attempt to harmonize corporate behavior with these expectations,(fn7) the modern corporate social responsibility (CSR) movement, is unlikely to incentivize ethical corporate behavior.(fn8) The modern CSR movement advocates improved corporate behavior. The movement asks corporations to broaden relationships with multiple stakeholders(fn9) and to conform to society's rules-those embodied in both law and ethical custom.(fn10) In recent years, CSR has focused on corporate governance as a means through which CSR precepts may be incorporated into business decision-making processes.(fn11)

Decrying the modern CSR movement as being effectively co-opted by corporate marketing strategies,(fn12) critics argue that the movement is now little more than an elaborate public-relations charade whereby corporations perform certain prescribed rituals while continuing to conduct business as usual.(fn13) Corporate America's disregard of the public's desire for ethical corporate behavior is evident in the area of corporate dispute resolution.(fn14) Though the argument may seem counterintuitive on first impression, the use of corporate apologies is both good business and good ethics.

The contention that apologies can play a central role in dispute resolution is one apparent even to an eight-year-old.(fn15) An advocate of apologies in corporate dispute resolution and the founder of the Sorry Works! Coalition, Doug Wojcieszak,(fn16) describes a hospital's unapologetic behavior following the medical-malpractice-induced death of his brother as the catalyst for his work in advocating corporate apologies: After the funeral and all the relatives and friends went home, my parents went back to the hospital seeking answers . . . . "What happened? Why did it happen? Can the processes be improved so it never happens again?" These were all questions my parents . . . had. But the door was unceremoniously slammed in their face. Meetings were promised, but did not transpire. Even the surgeon who was so honest the night [my brother] died told my parents: "Look, our legal counsel has instructed me not to speak with you any further. You will have to leave."(fn17) Wojcieszak goes on to describe the dispassionate "deny and defend" ethos promulgated by defense attorneys(fn18) as precisely what triggered his successful lawsuit against the hospital.(fn19) Indeed, medical malpractice survey research suggests that victims desire apologies, and that some victims would have forgone litigation if the hospital had offered an apol-ogy.(fn20) Similarly, anecdotal evidence reveals parties who would have forgone litigation if they received an apology,(fn21) settlement negotiations unraveling over the issue of an apology-even after the parties agreed on damages,(fn22) plaintiffs who would have preferred an apology as part of a settlement,(fn23) and occasions where a failure to apologize provoked litigation by adding insult to injury.(fn24) Given the good ethics of the corporate apology, and that the modern CSR movement is unlikely to advance good corporate ethics, a "New Governance"(fn25) approach is the best framework through which to create incentives for corporate apologies.

New Governance is policyspeak for a contemporary approach to reform that encourages dialogue about regulatory principles from the perspectives of industry, CSR advocates, and shareholders.(fn26) There is no single model of New Governance, rather a series of evolving models that have been developed and tried in various industries around the globe.(fn27) The underlying policy priority of New Governance is that corporate governance mechanisms, if they are to be responsive to public expectations of good corporate ethics, must have greater flexibilities built into them. Moreover, those flexibilities ought to be animated by goals for out-comes-not processes.(fn28) While there is minimal overlap between the dispute resolution and New Governance literatures,(fn29) both fields rely on many of the same assumptions about how to encourage collaborative ends. Namely, both envision a flexible, problem-solving dynamic. In dispute resolution, this flexible dynamic could be achieved through the careful consideration of skills.(fn30) In New Governance, the same could be achieved through the careful consideration of institutional design.(fn31)

In one application of New Governance theory, Professor Edward M. Epstein considers what factors may induce corporations to become "Good Companies," ideal companies(fn32) that are responsive to public expectations of ethical corporate behavior.(fn33) In particular, he describes six factors-law, affinity-group regulation, self-regulation, ethical precepts, the media, and an engaged civil society-as "modes of social control"(fn34) that encourage corporations to engage in socially responsible behavior.(fn35) Epstein's work provides a practical framework that allows scholars to engage in a systematic reconsideration of ways to incentivize the best corporate behavior.

Although Epstein effectively describes the modes of social control that function as catalysts for good corporate ethics, his contention that each mode must be used individually to incentivize good corporate ethics robs the framework of the flexibility it needs to scrutinize a narrower set of goals. I propose an alternative framework that incorporates Epstein's modes but maintains the flexibility needed to make the framework effective. Part I of this Article summarizes Epstein's New Governance framework and his insights about the Good Company. Part II integrates Epstein's New Governance framework with the use of the corporate apology. Part III briefly analyzes Epstein's findings, suggests modifications to Epstein's New Governance framework that would lend it greater flexibility, and positions the modifications in the context of New Governance scholarship. The Article concludes by affirming Epstein's approach to the Good Company and offering final reflections about fostering Good Companies in the context of dispute resolution between corporations and individuals.

I. A New Governance Framework

In The Good Company: Rhetoric or Reality? Corporate Social Responsibility and Business Ethics Redux,(fn36) Epstein cogently analyzes the externalities(fn37) linked with the management of corporations.(fn38) Noting the evolution of the corporate form from organizations exclusively dedicated to the public good(fn39) to the modern corporation, Epstein considers discussions of CSR to be the natural outgrowth of this evolution.(fn40) In this age of the modern corporation, Epstein examines what factors, or modes of social control, may galvanize the realization of the Good Company.(fn41) Epstein defines six modes of social control in descending order of importance: law, affinity-group regulation, self-regulation, ethical precepts, the media, and an engaged civil society. Individually and in combination, the modes are fundamental to the actualization of the Good Company.(fn42) These modes of social control effectively operate as a New Governance framework. Each mode will be described, in turn, below.

First, Epstein selects law as the most important mode. But he expresses skepticism about the law's ability to incentivize good corporate ethics because law, he argues, often articulates the least common denominator of socially acceptable behavior.(fn43)

Second, Epstein defines affinity-group regulation as standards of behavior established by members of a specific profession, such as law or medicine.(fn44) Those corporations, operating under seriously administered affinity-group regulations, can be encouraged to be responsive to public expectations of good corporate ethics.(fn45)

Third, self-regulation, unlike affinity-group regulation, pertains to the voluntary adherence to standards set by nongovernmental organizations (NGOs) concerned with specific issues,(fn46) such as encouraging corporate apologies.(fn47) These standards often establish baselines that allow corporations to act in the public interest without experiencing competitive disadvantage.(fn48)

Fourth, Epstein characterizes ethical precepts as beliefs derived from religion, humanistic philosophy, social customs, mores, and tradi-tions.(fn49) If one considers law as the least common denominator of the social contract,(fn50) ethical precepts operate above this common denominator and often inform the creation of the law.

Fifth, because it is often the first source of information about corporate wrongdoing, a vigilant and responsible media, Epstein argues, is central to promoting Good Companies.(fn51) Critical media coverage can hold corporations accountable for illegal or unethical behavior.(fn52) Alternatively, favorable media coverage can result in increased business activity through the cultivation of corporate goodwill and serve as a catalyst for the actualization of Good Companies.(fn53)

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