Global Policy Forum

By Leon Gettler

More than 20 years after lawyers and a Brooklyn judge struck a deal to end the legal battle with veterans over Agent Orange, chemical companies were still being sued over chronic diseases associated with the herbicide sprayed on Vietnam to deny food and cover to the communists.

One of the companies, Dow Chemical, is also embroiled in a lawsuit under way against Union Carbide, the company at the centre of the Bhopal disaster. Dow acquired Union Carbide in 2001, 17 years after the world's worst industrial accident at Bhopal, which killed nearly 2000 instantly and which has since produced a death toll of almost 30,000 people.

In January, Dow was summoned before an Indian criminal court seeking to bring to justice those responsible for the deadly gas leak.

The Bhopal cases continue despite a 1989 settlement that had Union Carbide agreeing to pay $US470 million to the Indian Government. At the time of the acquisition, Dow said its due diligence had given it total comfort on past and future liabilities. To this day, it maintains that it holds no responsibility for the accident.

The cases demonstrate the way the courts and the changing landscape for liability are transforming notions of corporate social responsibility (CSR). Liability now seems to be expanding over time, distance, supply chains and incorporation, and with the growth of legal activism and a growing class-actions industry, particularly in North America, CSR looks like turning into a risk management strategy.

New areas of liability inconceivable a decade ago are now meat for lawyers drumming up business from investors, consumers, non-government organisations and activists, workers and local communities.

New litigation flashpoints include climate change and human rights. Another is obesity, with the food industry now being turned into the new tobacco and the US House of Representatives last year passing the so-called "Cheeseburger bill" designed to stop people suing fast food restaurants.

Over the past 30 years, costs of the US tort system have soared from 0.5 per cent to 2.3 per cent of gross domestic product. Over the next decade, litigation costs in the US are projected to hit an astonishing $US360 billion ($A473 billion) annually, the equivalent of the US defence budget in 2002.

Not all tort targets are businesses, but a lot of the recent growth - up 13 per cent in 2002 and 14 per cent in 2001, compared with about 3 per cent the previous decade - has been driven by lawsuits against companies. And while the growth of litigation might reflect some idiosyncratic conditions under the US legal system, it seems to be spreading to jurisdictions outside the US.

In recent years, US lawyers have been filing claims against companies under the Alien Tort Claims Act. The ATCA, passed in 1789, was one of the first laws passed by the new American republic. The aim was to ensure that violations of international law, the "law of nations", could be heard in US courts.

Legal historians say the intention of the law was to show the world that pirates could not find a haven in the US and to protect American sailors from being seized by foreign press-gangs. Pirates and press-gangs left American waters and the act lay dormant. Then, in the 1980s, lawyers twigged to it as a way to seek damages for human rights abuses, including claims on behalf of injured citizens from other countries.

Cases filed under the ATCA in recent years include charges against Coca-Cola that the drinks company should be held responsible for paramilitary forces that terrorised and murdered trade unionists in Columbia, and against Exxon Mobil alleging that Indonesian army units assigned to protect the company's facilities in Aceh were provided logistical support while they committed genocide, torture and kidnapping.

Another case was brought against international banks, Islamic foundations and their subsidiaries by survivors of the September 11 terrorist attacks. No one has yet won an ATCA case against a corporation, but that's beside the point. As with all litigation, the risk for companies is that it brings underlying issues to the media's attention, damages reputations and creates enormous costs.

British consultants SustainAbility say the big change is that two forms of liability are now emerging: moral and legal. Legal liability applies to obligations under local, national and international law and regulations. According to SustainAbility, there is, however, a growing risk of "moral liability", where stakeholder expectations are seen to be violated in such a way as to put the businesses at risk. No law has necessarily been broken, but companies focusing purely on legal compliance ignore this at their own peril. A good example is James Hardie's treatment of asbestos liabilities. Others are Nike, which found itself in trouble over labour conditions in Third World nations, and Shell immediately after the Brent Spar and Nigerian crises in the 1990s.

SustainAbility argues that changes to the liability landscape mean companies would need to turn CSR into a risk management strategy, where compliance moves beyond box-ticking to focus on societal, as opposed to strictly legal, expectations and where all stakeholders, including not only investors but customers, employees and non-government organisations, are engaged. The problem for management will be balancing that with demands from a market that cannot tolerate anything less than superior returns.