Drugs, Murder and a name to trade on.

ESG and Litigation:

?There are too many instances where I put my hand on my head and shake it in dismay. Far few directors understand the impact of their corporate decisions on stakeholders. Furthermore, they fail to understand the potential consequences of their actions, leading to a greater overall risk in subjecting their companies to challenges such as litigation, by the stakholder.? Whilst working with directors around the practice of goodgovernce governance workshops, I am consistently surprised by the number of those that fail to understand their purpose within their business and the organisation’s purpose.

The question here is what if directors viewed their companies differently, such as the company being a citizen rather than a corporate machine.? (I can already feel some of you rolling your eyes – shaking your heads and thinking about profit margins).

I have and will continue to argue that there must be a significant shift on a directors relationship with their stakeholders, by focusing on all stakeholders rather than just the one stakeholder - shareholders. There are times however, where the shareholder/stakeholder revolts against the origiaindsation and it’s heavy returns in form of profits. The shareholder looks to holding the organisation accountable for their ESG commitments.

The first court cases on ESG were shareholders’ derivative actions against companies such as Facebook for failing to adhere to standard principles of diversity. Prior to this, the courts did not entertain such derivative ESG claims, insinuating that a company’s non-financial statements around ESG were non legally binding. Since the first ESG cases, ESG has become an ever-increasing concern for companies, individuals, public bodies, governments and international organisations/institutions. These bodies have introduced a regulatory framework for adhering to ESG standards and emphasised these principles which has resulted in an influx of litigation around the topic.

A recent case ?(Escobar inc (applicant) v European Intellectual Property Office (EUIPO) (respondent) [17 April 2024] surrounding the impact of a company’s actions on stakeholders was brought in the European courts. The case involved the Columbian Drug lord, Pablo Escobar’s brother, and his Cryptocurrency Company. Roberto de Jesús Escobar Gaviria named his cryptocurrency business “Escobar Cash”. For further context, the case was brought on 30 September 2021 by Escobar Inc., established in Puerto Rico (United States), who filed an application with the European Union Intellectual Property Office (EUIPO) for registration of the word sign, ‘Pablo Escobar’, as an EU trade mark for a wide range of goods and services.

Pablo Escobar was a Colombian national who died on 2 December 1993. He was ?a drug lord and a narco-terrorist who founded and was the sole leader of the Medellín cartel (as documented in many sources). The EUIPO considered, in an assessment of the trademark application’s viridity, the wider community who may have been impacted or believed to be impacted by Pablo Escobar. On this basis, the EUIPO rejected the application for registration on the grounds that the mark was contrary to public policy and contrary to accepted principles of morality.

Escobar Inc. brought an action against that decision before the General Court of the European Union. The action took in excess of four years to conclude. The ECJ similarly took an objective view of those effected by Escobar. The Court upheld the refusal to register the trademark ‘Pablo Escobar’. According to the Court, the EUIPO could rely in its objective assessment of the perception of the reasonable Spaniard “with average sensitivity and tolerance thresholds and who share the indivisible and universal values on which the European Union is founded (human dignity, freedom, equality and solidarity, and the principles of democracy and the rule of law and the right to life and physical integrity).” (Court of Justice European press release).?

It was correctly found that “those persons would associate the name of Pablo Escobar with drug trafficking and narco-terrorism and with the crimes and suffering resulting therefrom, rather than with his possible good deeds in favour of the poor in Colombia. The trademark would therefore be perceived as running counter to the fundamental values and moral standards prevailing within Spanish society.” (ECJ press release).

What the courts have consider here is yes the wider impact the use of the name will have but my position is that the company and it’s directors if they excised good governance practices and took into consideration the impact the name would have on it’s wider stakeholders it may not have used the name at all. ?

The courts tide is turning in respect of the impact of a company’s actions has on it’s wider stakeholders. It is time for directors to wake up and take the G in ESG seriously to reduce the risk of litigation.

To find out more about ?ESG and reducing risk around litigation contact me.

@RashmiDube X

@Rashmi.Dube Insta

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