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May / June 2012 Issue
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Slick companies ignore green lawsuits

 Professions Feature

New research at the University of Adelaide is investigating how companies respond at a senior level when they are sued.

The study by PhD student Chelsea Liu (Business School) was sparked by the 2010 BP oil disaster in the Gulf of Mexico.

Chelsea is a graduate of the University of Adelaide with Bachelor degrees in Law and Commerce (Accounting), both with First Class Honours. She is also a qualified lawyer.

Her PhD research project reflects her own personal interests as well as her study interests in corporate governance and law.

"The BP oil spill is an extreme illustration of what happens when companies get into trouble," Chelsea said.

"Those events received worldwide media coverage and created a significant public backlash against the company. It also resulted in litigation against BP. The CEO of BP, Tony Hayward, was replaced by the company following these events.

"This made me wonder what internal changes companies initiate to cope with litigation - what prompts them to make such changes, and under what circumstances," she said.

Chelsea said that over the last two decades there had been legal debate about whether corporations that breached the law were sufficiently penalised to create disincentives for such wrongdoings.

Now into the third year of her research, Chelsea has studied cases from the US Federal Courts in which companies are sued. She has looked at five types of corporate litigation: environmental violations, securities fraud, anti-trust disputes, intellectual property infringements; and breaches of contract.

"My research examines the consequences for public companies of allegedly breaching the law; in particular, whether managers responsible suffer pecuniary or reputational penalties, and whether the accused companies undergo internal restructuring to ensure better monitoring of their management in the future.

"By observing the responses of public corporations when confronted with these lawsuits, my project seeks to shed light on corporate attitudes towards allegations of different natures," Chelsea said.

Her research has so far yielded some interesting results, with the BP oil spill case standing out as a rare instance in which a company responded dramatically to an environmental issue.

"Companies are often more willing to replace their managers when securities fraud is alleged, because the victims in these cases are often the owners - that is, the shareholders - of the company," Chelsea said.

"From what I have seen, companies are far less willing to respond in the same way to environmental allegations, where the main victims are third parties, such as the local communities affected by environmental problems.

"Empirical results suggest that shareholders and company management rarely respond to environmental lawsuits in this way," she said.

Chelsea has presented the results of her research at two conferences and a workshop in the last 12 months. Her first was the conference of the Law and Society Association held in San Francisco.

She is also a previous finalist in the Three-Minute Thesis (3MT) competition at the University of Adelaide and believes in the importance of being able to communicate academic work to the general public and policy makers.

"Ultimately, I hope to provide timely evidence to inform policy makers as to the general attitudes of corporations towards different allegations," she said.

"Because the majority of research in this field has focused on securities fraud, my work may be of some use in helping to inform policy on a wider range of corporate legal issues, and provide insights into the operation of the monitoring mechanisms that would deter managers from breaching the law."

Chelsea's research is supervised by Associate Professor Alfred Yawson and Professor Yossi Aharony.

Story by David Ellis

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Business PhD student Chelsea Liu
Photo by David Ellis

Business PhD student Chelsea Liu
Photo by David Ellis

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