Irresponsible corporate-responsibility rules

Abstract

A wave of legislative efforts in the first half of this decade, at both the federal and state levels, has steered corporations to engage in corporate social responsibility. At the national level, Congress is increasingly calling upon the Securities and Exchange Commission ("SEC") to promulgate specialized disclosure rules. The most notable example is Section 1502 of the Dodd-Frank Act, which requires publicly traded corporations to disclose their use of broadly defined "conflict minerals" in any products the corporations manufacture. At the local level, well over half the state legislatures have adopted benefit-corporation statutes meant to encourage corporate directors to promote the public good. These two well-meaning phenomena appear congruent and their goals seem promising: superficially, the SEC's specialized disclosure rules can be characterized as federal benefit-corporation rules. However, closer examination reveals that the federal specialized disclosure rules ignore the main insights of the state benefitcorporation trend and, as a result, are likely to be ineffective. Specifically, comparison of the two models indicates that the federal rules impose substantial costs while yielding speech of slight value and effecting little change in corporate behavior. Econometric analysis of first-year filings under the SEC's conflict minerals regulations supports this apprehension, suggesting that the benefits of the federal benefit-corporation rules are more illusory than actual. By overpromising and underdelivering, these federal corporate-social-responsibility rules are, in fact, irresponsible.