New mantra for reformers: Don't sue.

By , Correspondent of The Christian Science Monitor

When Denny Larson wants to harness the power of law to keep oil companies honest, he sometimes leaves his legal files at home and visits a Louisiana neighborhood with a bunch of buckets.

Residents living downwind from the state's many refineries use the special data-gathering buckets as backyard tools for measuring air quality. When toxic chemicals show up in a sample, the so-called "Bucket Brigade" might have evidence of illegal pollution, sometimes enough to trigger a government investigation and hefty fines.

The approach of Mr. Larson's army might be unique, but his foot soldiers are not alone in using the law creatively to make companies behave ethically. Reforms stemming from corporate scandals of recent years have made the law an increasingly flexible and far-reaching tool for ordinary investors, employees, and consumers who want ethical accountability but don't necessarily have the time, money, or desire to sue.

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"It's using the environment the law has created," says Damon Silvers, an attorney with the AFL-CIO. "There are some things you can do that are free or cost very little and, if you have something real, can be very effective."

Among the more pungent examples of using the law without suing:

Pennsylvania's grass-roots movement against corporate hog farms. At least a dozen townships in recent years became so worried about the threatened stench of large hog operations that they passed ordinances restricting where new ones could set up shop or barring them altogether. The legal rationale: The waste they would generate could contaminate groundwater.

So far, attempts to override the local codes at the state level have failed, and the townships' basic legal tactic seems to be working.

"The regulatory regime was actually created to shield corporations from the individual, giving the impression of oversight while actually letting them do what they want," says Mary Zepernick, cofounder of the Program on Corporations, Law and Democracy, a grass-roots corporate watchdog group. By using township ordinances, opponents have forestalled the farms. But "real change can only happen on another level," she adds.

Sometimes, scandals provide the impetus for new legal tools that can lead to change.

In response to public outrage over Enron and other instances of corporate fraud, Congress has passed new legislation meant to increase public access to corporate information. Citizens exercising these access rights can help spur ethical behavior inside corporate cultures, observers say, without necessarily mounting a costly legal battle.

One potential pressure point: shareholder resolutions. This year, investors are bringing 1,126 policy proposals to vote at corporate annual meetings, up from 802 in 2002, according to the Investor Responsibility Research Center.

Another pressure point: federal regulators.

Since news of the scandals broke two years ago, thousands of people have called the Securities and Exchange Commission with tips on corporate misbehavior. As investors take advantage of their new rights under the law, regulators can no longer be aloof, says Tracey Rembert, director of shareholder activism for the Social Investment Forum. "I think it's had a profound effect on the SEC because they're not used to hearing from individuals."

Within this climate, corporations must make their shareholders aware of potential liabilities that could cause stock prices to plummet.

That requirement has enabled shareholders to pressure utilities, with threats of embarrassing resolutions and lawsuits, to report how their fossil-fuel burning might affect global warming. At least six states, according to the Wall Street Journal, are preparing to sue five energy companies whose emissions have allegedly become a public nuisance. In other cases, shareholders are demanding that company managers report how much impact operations might have on global warming.

Changes in the law have also opened new avenues for ethical crusading in the workplace. Whistle-blower laws protecting employees who witness wrongful conduct on the job have become significantly stronger, Ms. Rembert says. Example: Those who go over their bosses' heads to report wrongdoing no longer need to fear retribution. By law, their identities can't be revealed to their immediate superiors.

For average investors, creative use of the law in today's scandal-weary environment often means exercising their newly established rights. Once investors know those rights, experts say, execution is far easier than they might have imagined.

Mutual-fund investors, for instance, will soon have a right to know how fund managers have been voting on resolutions raised at specific companies' shareholder meetings. Did they side with the company's management on issues from labor relations to environmental impact? Did they support pay hikes for the CEO? Did they insist on board-member independence to prevent any possible conflict of interest?

After Aug. 31, investors will be able to obtain answers simply by contacting the mutual fund and requesting a proxy voting report. Industry watchers expect a high level of interest among individual investors might lead fund managers to weigh ethical considerations seriously when voting their proxies next time around.

Investors also have a right to information that might reasonably affect their decisions about whether to keep investing in a particular company, says Mercer Bullard, professor of securities law at the University of Mississippi School of Law. For investors with ethical concerns, the challenge lies in how to make the case for why they have a stake in the company's behavior.

"You need to formulate your social values into market values," Mr. Bullard says. If the investor can show that disclosure on social issues could reasonably affect his or her decisions and financial returns, then SEC regulators can take up the cause and mandate the sought-after disclosure.

Of course, where the law is wielded as an instrument, lawsuits are never far behind. According to new, post-scandal requirements, executives now must sign off on company financial statements, attesting to their comprehensive review and accuracy. That some individual executives will be sued for allegedly misleading investors, experts say, is only a matter of time.

For now, most class-action lawsuits on behalf of investors have centered on the financial damages they allegedly suffered. But as an increasing number of suits get settled with nonfinancial commitments to corporate reform among the terms of agreement, the scope defining what's due investors seems to be broadening, Rembert says. "It's not far fetched that you might see a class-action suit on some kind of social issue."

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