Corporate Social Responsibility

AuthorJ. Anthony VanDuzer
In Chapter 1, we described a busines s organization as the intersection
of the claims of a var iety of people with a stake in the organizat ion,
including owners, managers, creditors, customers, the public, gov-
ernment, tort victims, and others. In this context, both pa rtnership
law and corporate law represent an inter vention into the marketplace
which allocates among these st akeholders the risks assoc iated with
business activities carried on through corporat ions and partnerships.
As we have seen, in many res pects the law of corporations favours the
interests of shareholders over those of other stakeholders by allocating
the risks as sociated with a business to other stakeholders as a way of
encouraging shareholders to invest in businesses.
Most of the previous chapters focused on the relationship between
management and shareholders in corporations incorporated under the
CBCA and other Canadi an corporate statutes. In this ch apter, we shift
the focus to the interests of non-shareholder stakeholders. In particular,
we examine the extent to which corporate law permits or requires dir-
ectors and off‌icers (often referred to together in this chapter as manage-
ment) to take stakeholder interests into account in making decisions
about the business.
One view on the responsibil ity of corporations to groups other than
shareholders, sometimes referred to as corporate social responsibility,
or CSR, comes from the late Charles Gonthier:
The idea that collective entit ies have a responsibility b eyond the mere
benef‌its of their memb ers . . . is as old as humanity itsel f. . . . Despite
variance s in specif‌ic def‌initions of the term , CSR generally embodies
the notion that a corpor ation must act in a responsible man ner with
regard to the envi ronment, community and bro ader society in which
it operates. In its most ba sic form, CSR emphasizes a n approach to
corporate gove rnance and op erations th at integrates a nd balance s
the self-interest of t he corporation, and those of its inve stors, with
the concerns and i nterests of the public. The role of the corporation
goes beyond providing i ndividual benef‌its to it s shareholders; it also
includes a respons ibility towards a wider com munity.1
The main legal approach used to protect the interests of corporate
stakeholders and, more generally, to address the environmental and
other social consequences of corp orate behaviour is the direct impos-
ition of standards for behaviour. Liabilit y is imposed on corporations
as well as on their director s and off‌icers for failing to comply with these
standards. For example, we rely on environmental standards to pro-
tect the environment, and consumer protection legislation is enacted
to protect consumers against certain kinds of corporate misbehaviour,
such as misleading advert ising. Inevitably, however, direct regulation
provides incomplete protection. No regulatory scheme can respond
comprehensively and perfectly to the universe of possible social harms
caused by corporations. As well, there is always a gap between stan-
dards set and their en forcement. When the activities of corporations
take place outside Canada, en forcement through domestic courts and
agencies may not be possible. The main issue t hat we will address in
this chapter is to what extent these gaps can and should be addresse d
by legally binding norms for corporate governa nce in corporate law.
Once we have sketched out the general nature of the interests of
non-shareholder stakeholders and their protection under existing law,
we will look at the policy argument s regarding the appropriateness of
an obligation for management to maximi ze only the value of share-
holders’ investment in the corporation as compared to a much broader
obligation to take all stakeholder interests into account. In the remain-
der of the chapter, we will discus s three other ways that corporate and
securities law r ules may be used to enhance management sensitivity
to the broader social consequences of their actions and, as a result, en-
hance corporate social re sponsibility — shareholder proposals, disclo-
1 C Gonthier, “Foreword” in M Kerr, R Janda, & C P itts, Corporate Social Respon-
sibility: A Legal An alysis (Markham, ON: Lexi sNexis, 2009) at vii [Kerr, Janda, &
Pit ts].
Corporate S ocial Responsibi lity 613
sure by corporations regarding how they deal with the environmenta l
and social impacts of t heir operations, and requirements for greater
diversit y on corporate boards.
1) Introduction
It is a trite observation that corporations have an enormous and multi-
dimensional impact on society both in Canada and abroad. Decisions
taken by management on a day-to-day basis affect the prof‌itability of
the corporation and the value of shareholder investments; the security
of the stakes of those with f‌inancial claim s against the corporation, in-
cluding employees, creditors, customers and suppliers; the interest s of
the community in which the corporation operates; and, in some cases,
society at large. The interests of all of these stakeholders coincide in
the sense that t hey all have a general interest in the f‌inancial health of
the corporation. Maxim izing the value of shareholders’ residual claim
to the assets of the corporations, at least in the long run, will h ave the
effect of increasing the security of any f‌ixed claim th at a stakeholder
has against the cor poration, including claims of creditors, employees,
suppliers, and customers.3 Maximizing shareholder value means m axi-
mizing the sur plus over what is required to pay f‌ixed claim s. In most
situations, maximizing this sur plus makes it more likely that f‌ixed
claims wi ll be paid.4 As well, the community in which a corporation
operates benef‌its from the direct employment that the corporation
generates as well as economic benef‌its associated with local spending
by employees. There is also evidence that beh aviour by corporations
that is sensitive to a broad range of stakeholder interests is prof‌itable,
2 Some of this ch apter is a revised and up dated version of JA VanDuzer, “To Whom
Should Corporation s Be Responsible? Some Ideas for Improv ing Corporate
Governance” in Go vernance in the 21st Century: Transactions of the Royal Soc iety
of Canada Series (VI, Vol X, 1999) (Toronto: University of Toronto Press, 200 0),
with per mission.
3 R Romano, “Comment: What Is t he Value of Other Constituency Statute s to
Shareholders?” (1993) 43 University of Toronto Law Journal 533 [R oman o].
4 As discus sed below (see note 40 and accompanyi ng text), where the corpora-
tion is on the bri nk of insolvency, high-risk strate gies to create some value for
shareholders ma y prejudice f‌ixed-claim holders.

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