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April 23, 2003
Is Nike Guaranteed Free Speech? The Supreme Court Will Decide
    by William Baue

Advocates of socially responsible investment and corporate social responsibility on both sides of the Atlantic weigh in on the implications of Nike's Supreme Court case.


Today, the U.S. Supreme Court is hearing oral arguments in the Nike v. Kasky case. Nike (ticker: NKE) appealed the California Supreme Court decision in favor of social advocate Marc Kasky, who claimed that Nike's statements about its sweatshop labor practices were commercial speech and that Nike broke a state law against false advertising.

Nike argued that its statements, which were not made in advertisements but in press releases and letters to editors and college sports administrators, contributed to the public debate on globalization and should be protected by First Amendment free speech rights. Nike defined its speech as political, not commercial.

The decision, which is expected in late June, carries significant implications for socially responsible investing (SRI) and corporate social responsibility (CSR) globally, as it could affect corporate disclosure of social and environmental practices and policies.

Earlier this month, Domini Social Investments filed an amicus (or "friend of the court") brief with the Supreme Court in support of Mr. Kasky.

"The fundamental premise of our brief is that social and environmental information should be subject to the same legal requirements as financial information," said Cynthia Williams, an associate law professor at the University of Illinois College of Law and author of the Domini amicus brief.

She continued, "Nike or any other company should not be able to 'plead the First' so that the truth of the facts they assert about their social and environmental records cannot be tested in litigation, just as they would not be able to plead the First to preclude an examination of their statements of fact about their financial results of operations or about executive compensation or stock options or product quality, price, or safety."

"While the government has no role to play in winnowing false from true political ideas, it has a role to play in ensuring that facts of commercial significance are accurate," Ms. Williams added.

Domini's brief cites Nike's own court brief in establishing the commercial nature of all corporate communications.

"[V]irtually everything a company does is ultimately intended to improve its financial bottom line," Nike's brief states on page 22.

Nike's brief then points out that the company's statements were not addressed to consumers, but rather were "addressed to the public generally" and sought to "influence lenders, investors, or lawmakers."

Domini's brief expresses concern that defining Nike's non-advertising communications as political speech will allow the company to "influence investors" with false and misleading information about its non-financial operations.

Some European SRI and CSR advocates view this same issue from the opposite end of the spectrum. In March, SRIMedia.com, a UK-based media provider on SRI issues, and CoreRatings, a CSR rating agency, filed an amicus brief in support of Nike. These groups express concern that a Nike defeat will discourage companies from voluntarily disclosing their social and environmental practices and policies, as many currently do in CSR reports and conversations with SRI firms. Other European SRI and CSR experts agree.

"There is no doubt that a finding against Nike at this stage will represent a major blow against the move towards greater voluntary corporate accountability as risk-averse companies clamp down on disclosure," said Mallen Baker, development director for UK-based CSR advocate Business in the Community.

"While I think this is important to consider, I think it's really a bit of a smokescreen," countered Adam Kanzer, Domini's general counsel and director of shareholder advocacy.

Domini maintains that corporate CSR and SRI disclosure will continue even if Nike is defeated because it is in companies' best interest to do so, and because consumers and other stakeholders demand such information.

"I don't have a significant fear of a chilling effect," Mr. Kanzer said. "I do think [a Nike defeat] may force corporations to look a little bit more carefully at the statements they make, which is a good thing for everyone."

Central to the matter is whether to allow corporations leeway in the veracity of their public statements, or to allow the public to hold corporations accountable for disseminating false and misleading statements. Social investors encourage voluntary CSR and SRI reporting, but many question its usefulness if it allows misleading statements and active deceit.

"There are a number of CSR reports that we've seen that are primarily exercises in public relations, and not true disclosure documents," Mr. Kanzer said. "If the flow of those reports stops, I don't think it's going to harm anyone."

 

 
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