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Abstract
Companies are taking advantage of the opportunities offered by globalisation to reach new markets and to lower their costs. It is common for large companies to establish overseas subsidiaries. The different legal regimes and law enforcement policies that exist in many developing economies and the current weaknesses of international regulation means that it can be difficult to hold international companies to account when they transgress. However, this may be changing to some extent as a result of the Internet. This paper proposes to examine the extent to which the Internet can act as a medium for non-governmental organisations and pressure groups to bring about changes in corporate behaviour where the law or law enforcement has proved to be ineffective in curbing corporate abuses. New developments on the web (and particularly the rise of the ‘blog’) have been strengthening the persuasive power of pressure groups and the NGOs with regards to companies. However, this state of affairs may not last as companies seek new ways to limit the impact of these groups on their corporate strategies. This paper shall examine how companies are currently dealing with the threat to their corporate reputations from the Internet and shall consider whether companies can succeed in keeping effective regulation of their international commercial activities in the global market place at bay.
Notes
1. Any comments or observations on this working paper would be gratefully received. The author can be contacted at [email protected].
2. Reputation can be one of the foundation stones of corporate success according to Professor John Kay. See John Kay Foundations of Corporate Success Oxford University Press, Oxford, 1995, p 92.
3. Peter Sheldon Green Reputation Risk Management Financial Times/Pitman Publishing, London, 1992, describes reputation at the very beginning of his book as something that ‘can often be the single most valuable asset which a business owns’ (at p xi). The company's reputation is normally included in the ‘goodwill’ of the business. Goodwill can be allocated a value in monetary/accountancy terms when a business is purchased.
4. D A Aaker Building Strong Brands Free Press, New York, 1996, p 7.
5. See R Pike and B Neale Corporate Finance and Investment: Decisions and Strategies Prentice Hall, Hemel Hempstead, 1993, pp 82–84.
6. Green, op cit, note 3, p 2.
7. For further examples of bidding companies paying considerable sums to acquire businesses with strong reputations and strong product brands, see David Arnold ‘Brand valuations’ in The Handbook of Brand Management Century Business, London, 1992, ch 10.
8. Ralph Nader, quoted in J Larkin, Strategic Reputation Risk Management Palgrave/MacMillan, Houndmills, 2003, p 123.
9. For example, the Robert Maxwell pensions scandal.
10. The Enron Corporation was the biggest corporate bankruptcy in American history with debts of US$63.4 billion, until the collapse of Worldcom in July 2002 with debts of US$103.8 billion. The other major corporate insolvencies in America in the wake of Enron include, Global Crossing with debts of US$24.1 billion, Adelphia, with debts of US$22.4 billion and Kmart with debts of US$17 billion.
11. Since the collapse of Enron there has been close scrutiny of the financial reports of America's major companies. This intense scrutiny has brought to light a number of major accounting scandals. The most notable of these has been the collapse of Worldcom (where executives booked routine costs as business investments) and Xerox scandal (where there was financial mis-reporting of equipment leases).
12. For example the Maxwell pensions scandal, or the poor management decisions that contributed to the collapse of Marconi or the decline of Equitable Life.
13. Companies have successfully lobbied for the lowering of the tax burden on business and for deregulation. In the UK the Government has set up the Better Regulation Unit in the late 1990s with the aim of cutting ‘red tape’ that ‘burdens’ business.
14. M Friedman ‘The social responsibility of business is to increase its profits’ The New York Times Magazine 13 September 1970.
15. T Donaldson ‘Constructing a social contract for business’ in T Donaldson and P Werhance Ethical Issues in Business 2nd edn, Prentice Hall, Englewood Cliffs, NJ, 1983, pp 153–165.
16. Most businesses in Britain have tended not to adhere strictly to the Friedman philosophy. Many businesses have engaged in philanthropy and sponsorship of community activities.
17. Larkin, op cit, note 8, p 17.
18. The philosophy of IdealsWork is stated in their home page: ‘Change companies and change the world. No matter which issues you care about, chances are that companies have a lot to do with them. Changing the practices of companies is a key to building a brighter future. And as powerful as companies are, there's something even more powerful: you. Companies do what customers want. In fact, the main reason companies have not been more environmentally and socially responsible is because customers haven't demanded it. IdealsWork is here to change that—by giving you information about what companies do, and making it easy for you to do something about it.’ See http://www.idealswork.com/home.asp?from = /index.asp
19. He is credited with inventing the World Wide Web.
20. Tim Berners-Lee Weaving the Web Orion Books, London, 1999, p 133.
21. R Burnett and P D Marshall Web Theory Routledge, London, 2003, pp 166–167.
22. Naomi Klein No Logo Flamingo, London, 2000, p 395.
23. Ibid, pp 312–315.
24. Ibid, p 395.
25. Ward Cunningham, the creator of the first wiki in 1995, defines a wiki as ‘a piece of server software that allows users to freely create and edit web page content using any web browser. A Wiki support hyperlinks and has a simple text syntax for creating new pages and cross links between internal pages’. See http://wiki.org/wiki.cgi?WhatIsWiki
26. Larry E Ribstein ‘Initial reflections on the law and economics of blogging’ University of Illinois College of Law, Law and Economics Working Paper No 25, 2005, p. 3.
27. David Winer ‘What makes a weblog, a weblog?’ May 2003, available at http://blogs.law.harvard.edu/whatMakesAWeblogAWeblog
28. ‘Bloglines’ is a free online service for searching, subscribing, creating and sharing news feeds, blogs and rich web content. With Bloglines, there is no software to download or install; all one has to do is register as a new user and one can instantly begin accessing a personal account any time, from any computer or mobile device. See www.bloglines.com
29. Ribstein, op cit, note 26, p 4.
30. Quoted in Klein, op cit, note 22, p 396.
31. Union Carbide owned 50.9% of the shares and the Indian government and other Indian interests held the remainder.
32. D Dembo, W Morehouse and L Wykle Abuse of Power: Social Performance of Multinational Corporations: The Case of Union Carbide New Horizon Press, New York, 1990, p 5.
33. Ibid, p 1.
34. The other major firms (now known as the ‘big four’) are PwC, Ernst & Young, Deloitte and KPMG.
35. P C Fusaro and R M Miller What Went Wrong at Enron John Wiley, Hoboken, NJ, 2002, pp 124–131.
36. BBC News ‘Enron auditor fined $500,000’ available at http://news.bbc.co.uk/1/hi/business/2334761.stm
37. Dale Neef Managing Corporate Reputation and Risk Butterworth-Heinemann, Boston, MA, 2003, p 192.
38. ‘Andersen conviction overturned’ CNN Money.com available at http://money.cnn.com/2005/05/31/news/midcaps/scandal_andersen
39. Ibid, p 1.
40. Klein, op cit, note 22, ch 16.
41. Ibid, pp 395–396.
42. Ibid, p 361.
43. If a company's business or property is affected by defamatory statement it has the right to sue for damages. This principle was established in the nineteenth century: Metropolitan Saloon Omnibus Ltd v Hawkins (1859) 4 H & N 87; South Hetton Coal Co Ltd v North Eastern News Association Ltd 1894 1 QB 133.
44. Ian J Lloyd Information Technology Law 4th edn, Oxford University Press, Oxford, 2004, p 686. The author notes that in Germany, defamation is primarily a criminal law issue, while the authors, W V H Rogers Winfield & Jolowicz on Tort 14th edn, Sweet & Maxwell, London, 1994, p 312, noted that Brazilian defamation law was criminal only.
45. Rogers, op cit, note 44, p 312.
46. G J H Smith (Ed) Internet Law and Regulation FT Law and Tax, London, 1996, p 45.
47. Lloyd, op cit, note 44, see ch 31 on defamation.
48. Ibid, p 689; Stratton Oakmont v Prodigy (1995) 195 NY Misc LEXIS 229.
49. Ibid, Lloyd notes that the it is now possible to forge e-mail messages.
50. Ibid.
51. 2001 EWCA Civ 1897.
52. Lloyd, op cit, note 44, pp 689–690.
53. See also http://www.mcspotlight.org/case/index.html for further information about the litigation from the point of view of the defendants.
55. Rogers, op cit, note 44, p 337.
56. 2001 EWCA Civ 1805.
57. This would be different under American law, which has a single publication rule, which establishes that the cause of action arises at the time of the first publication of the defamation and will expire at the end of the limitation period.
58. 1999 EMLR 542.
59. Lloyd, op cit, note 44, p 695.
60. 702 A 2d 230 (1997).
61. Lloyd, op cit, note 44, p 703.
62. Also referred to as malicious falsehood.
63. ‘An action will lie for written or oral falsehoods … where they are maliciously published; where they are calculated in the ordinary course of things to produce, and where they do produce actual damage …’ Ratcliffe v Evans 1892 2 QB 524 at 527.
64. London Ferro-Concrete Ltd v Justicz (1951) 68 RPC 261.
65. Royal Baking Powder Co v Wright, Crossley & Co (1900) 18 RPC 95 at p 99.
66. Cellactite & British Uralite v H H Robertson & Co (1957) Times, 23 July.
67. This statutory rule was first introduced by section 3 of the Defamation Act 1952.
68. Loudon v Ryder (No 2) 1953 Ch 423.
69. Halsey v Brotherhood (1881) 19 Ch D 386 at 388.
70. Wilts United Dairies Ltd v Thomas Robinson, Sons & Co Ltd 1957 RPC 220.
71. Paul Todd E-Commerce Law Cavendish, London, 2005, p 27.
72. C Colston ‘Passing off: the right solution to domain name disputes?’ LMCLQ Vol 523, pp 526–527, 2000.
73. 1998 4 All ER 476 at 493.
74. Catherine Colston criticises the decision as being an unreasonable extension of the application of the law of passing off where there was no actual trading interest at stake. See Colston, op cit, note 72, pp 534–535.
76. For example, by typing in McDonalds in a Goggle search, the McSpotlight site is listed along with the official Company web site. Similarly a search for Walmart will show the ‘walmartsucks’ site http://www.walmartsucks.org/
77. See Miss World v James St Productions 1981 FSR 309.
78. See M Spence ‘Intellectual property and the problem of parody’ LQR Vol 114, p 594, 1998.
79. Clark v Associated Newspapers 1998 RPC 261.
80. Cambridge Nutrition Ltd v BBC 1990 3 All ER 241.
81. The Economist ‘The blog in the corporate machine’ The Economist 11 February 2006, p 65.
82. Ibid, p 66.
83. Financial Times ‘Brands enter the blogosphere’ Financial Times 20 December 2005.
84. Financial Times ‘Who's afraid of the big bad blog?’ Financial Times 4 November 2005.
85. Neef, op cit, note 37, p vii.
86. For example, Green, op cit, note 3; Adam Jolly Managing Corporate Reputations Kogan Page, London, 2001; Gary Davies Corporate Reputation and Competitiveness Routledge, London, 2002; Neef, op cit, note 37; Larkin, op cit, note 8; Charles A Fishkin The Shape of Risk: A New Look at Risk Management Palgrave MacMillan, Houndmills, 2006.
87. For example see Larkin, op cit, note 8, for a sustained analysis of this phenomenon in ch 3 on ‘Perception or reality? A risky business’, pp 86–120.
88. See Larkin, op cit, note 8, pp 20–21 and Green, op cit, note 3, ch 4 ‘The bottom line of reputation risk management’. In this chapter Green outlines the financial case for adopting RRM. One of his observations is that a reasonable percentage of the cost of this programme might already be in place in most companies. This is because funds will have already been allocated to the reduction of many other types of business risks in the company and given the overlap between this form of risk management and reputation risk management, some of the costs of managing risks to reputation may have already been paid for.
89. The Turnbull Report sets out the best practice for the internal control of risk and was first published in 1999. It has now been amended. The directors of listed companies are now required to confirm in the annual report that they have dealt with (or are planning to deal with) any significant failings or weaknesses highlighted by the internal control system. For the new guidance see the ‘Internal Control: Revised Guidance for Directors on the Combined Code’ available at www.frc.org.uk/corporate/internalcontrol.cfm
90. Green, op cit, note 3, p 171.
91. See, for example the case of Johnson & Johnson which was a company that was able to recover very quickly from a major crisis largely because it had a good reputation and acted ethically in the immediate aftermath of the crisis in Neef, op cit, note 37, pp 111–112.