Alternative Law Journal
PAULA DARVAS[*] reviews a Canadian report on corporate accountability.
According to a recent Canadian poll, there are growing numbers of people questioning the existing degree of ‘responsibility corporations have to the societies within which they operate’. The Canadian Democracy and Corporate Accountability Commission was set up in February 2001 to examine this issue. The Commission spent a year consulting with a wide range of organisations and individuals and in January 2002 published a report entitled: The New Balance Sheet: Corporate Profits and Responsibilities in the 21st Century (the Report). It included a national opinion poll showing that 72% of Canadians (and 74% of Canadian shareholders) accept that corporations have a legitimate right to make profits but that they must act responsibly. The contents of the Report should keep academics, politicians and activists busy for many months to come.
The Report is in two parts. Part One examines the Commission’s vision of corporate accountability and the importance of corporate social responsibility (CSR). The Commission describes CSR as a ‘middle way’ between the narrow view of the responsibility of a corporation to maximise its profits for the exclusive benefit of shareholders and the view that corporations lack legitimacy because they are so powerful that they shape domestic and international policy agendas. CSR involves accepting the legitimacy of corporations, but questioning the extent to which they should be solely accountable to shareholders. There is, however, no settled or unified philosophy of CSR. The Commission therefore saw their main task as designing ‘the parameters for a profitable, internationally competitive corporation for the twenty-first century that remains accountable to its shareholders while acting responsibly towards citizens affected by its actions, in Canada and elsewhere’. For this reason, the Report’s recommendations are practically focused. They could also be utilised as a regulatory blueprint in other countries, such as Australia.
Part Two addresses five specific areas for such regulatory change. The first relates to corporate disclosure and the powerful idea that ‘information is the currency of democracy’. The Commission concludes that existing disclosure practices are inadequate in terms of CSR. The Commission recommended that corporations disclose their CSR policies and practices and follow up with a ‘social audit’ on the implementation of such policies and practices. The Commission further recommended including ‘factory of origin’ information on textile products and that companies provide information on a public record about serious criminal or regulatory convictions. In addition, the Commission recommended the passing of legislation to protect ‘whistleblowers’ who inform on corporate non-compliance with such laws.
The second area of regulatory change focuses on making social responsibility and stakeholder considerations part of business. In particular, the Commission recommended clarifying ‘the precise scope of directors’ fiduciary duties in relation to CSR’. This would involve express legislative recognition that directors will not be in breach of their duties if they take the interests of other stakeholders into account. The other major recommendation is for the Canadian parliament to consider whether constraints on CSR-related shareholder proposals have gone too far.
The third area of regulatory change is aimed at encouraging responsible behaviour at home and abroad. The Commission called for proper enforcement of existing laws and regulations pertaining to the environment and the health and safety of workers and communities. A number of recommendations were based on the Commission’s view that the rights of corporations in their investment activities overseas should be balanced with their obligations and that internationally, corporations should be adhering to CSR principles. The Commission recommended the Canadian government actively promote multilateral action on several fronts: to include a ‘social clause’ in trade agreements; to draft a convention requiring signatories to outlaw violations by companies incorporating in the signatory’s jurisdiction; and that the relevant Ministers should make such initiatives part of their mandate. Finally, if there is no success within three years, unilateral action by the Canadian government was recommended.
The fourth area of regulatory change relates to corporate democracy and issues involving the internal governance of corporations. A key recommendation is that companies implement governance structures to facilitate ‘the development of a corporate culture supportive of corporate social responsibility’. This would include establishing a CSR board committee and appointing a CSR ombudsperson. To facilitate this cultural change, the Commission recommends the introduction into business schools of mandatory CSR courses with a practical, vocational perspective.
The final area focuses on democracy and the corporation. The Commission recommends a blanket prohibition to prevent corporations and unions making donations to political parties or candidates, with increased public financing to ensure adequate funding of the political process. The Commission also focuses on the policy and procedures of the Canadian government, recommending scrutiny of ‘guidelines on government ethics, lobbying and the participation of company and industry groups at domestic and international meetings and negotiations to guard against both the appearance and existence of improper influence’.
This package of recommendations is wide ranging, cutting across the political and legal spheres at both a domestic and international level. It illustrates increasing social pressure demanding that the power of large corporations be used to benefit all. The Report draws together the abundance of recent academic work critical of the traditional legal model of the corporation, as well as providing some assistance in the direction to be taken by Australia, given the failure of the Corporate Code of Conduct Bill 2000 (Cth).
[*] Paula Darvas teaches in the Department of Business Law and Taxation, Faculty of Business and Economics, Monash University.
 Commission’s web site and all relevant documents can be located at: <http://www.corporate-accountability.ca/> last accessed 6 March, 2002.
 The Parliamentary Joint Statutory Commission on Corporations and Securities Report on the Corporate Code of Conduct Bill 2000 (Cth) that recommended to reject it as ‘unnecessary and unworkable’ (p.46), can be located at: <http://www.aph.gov.au/senate/ Commission/corp _sec_ctte/corp_code/sublist.htm> .