The Social Responsibility to Follow the Law

The requirement that corporations “follow the law” is supposed to be one of the easy ones, or at least it’s supposed to be a requirement that’s easy to agree upon. Regardless of whether you’re a free-market economist or an anti-globalization protestor, there seems to be pretty broad agreement that doing what is legally required is sort of the bedrock of being even a minimally decent corporate citizen.

Of course, things are not really that simple. Companies are subject to an immense number of laws and regulations issued by various levels of government. In some industries (e.g., biotech or nanotech) legal requirements can sometimes be unclear and are often in flux. Add into the mix well-known ‘agency problems’ (roughly: problems in getting people in a chain of authority to do what they’re supposed to do) and it suddenly becomes very likely that any large company simply is going to end up violating the law at some point. In at least some industries, scrupulous adherence to the law, in every aspect of a company’s operations, is a significant achievement (and might even be impossible). For practical purposes, then, our interest turns away from whether a given company ever violates laws or regultions, to the question of whether, when violations occur, the company cooperates with government authorities, modifies its behaviour, cleans up its mess, and works expeditiously at implementing changes.

The occasion for posting on this topic is the following NYT story about the safety of magnetic toys:

Toy Magnets Attract Sales, and Suits

MEGA Brands, which buys its magnets in China, looks to be just such a company, according to records that the United States Consumer Products Safety Commission provided to Congressional investigators examining problems with magnet toys. Even as the company’s products were the subject of two voluntary recalls prompted by the commission — one in March 2006 and another on April 17 this year — MEGA Brands delayed answering the government’s requests for information, was uncooperative with the commission and violated the terms of one of the recalls, the records show.

Problematic or improperly labeled toys also remained on sale at major retailers well after they were supposed to have been off the shelves.

Harold Chizick, director of promotional marketing and public relations at MEGA Brands, says the company has done right by consumers and regulators. “Obviously, the company wanted to make sure this was handled swiftly and properly. We did everything we were instructed to do.”

So, although the details are muddy, let’s assume that MEGA did in fact meet its regulatory obligations, eventually, and that they merely took their time in doing so. Is this flagrant violation of law? No. Is this casual disrespect for lawful regulatory authority? Looks like it. My own informal observation via news reports suggests that behaviour like this is not uncommon. So what level of praise ought we offer companies that don’t act that way?

In other words, my question is this: could a company rightly brag about its exceptional performance if it were simply to adhere more scrupulously to all legal requirements than any other company in its industry? Discuss among yourselves.

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