Carol Liao is a Distinguished Scholar of the Dhillon Centre for Business Ethics at the University of British Columbia’s Sauder School of Business and a professor at the Peter A. Allard School of Law at UBC. She authored A Critical Canadian Perspective on the Benefit Corporation, published in March, 2017, and was formerly a corporate lawyer in New York.
In May, 2018, legislation was introduced on behalf of the BC Green Party to enable a B.C. business to incorporate as a “benefit company,” a type of corporate entity that includes “promoting one or more public benefits” as its legally defined purpose. Benefit corporations, first introduced in the United States in 2010, are now authorized by a majority of U.S. states. With the BC Greens hoping to push an amended version of this legislation forward this November, British Columbia could be the first Canadian province to adopt benefit corporation laws.
It’s easy to see why MLAs may be inclined to vote in favour of legislation fostering “good” businesses. We are in desperate need of real solutions to combat climate change. Earlier this month, a United Nations panel warned the world is failing in its effort to avert catastrophic climate change, and the result will be more deaths and climate refugees due to extreme weather and rising seas, a greater rate of species extinction and reduced economic growth. The idea of laws supporting businesses promoting public benefits sounds like the answer for Canada, right? Here’s why it’ s not.
Canada does not need to adopt American solutions to American problems
Our laws already allow businesses to promote public benefits and this new legislation implies that they don’t. Benefit corporation laws were originally designed to address strange quirks in American corporate laws that are hotly contested. American states require boards to exercise their fiduciary duties in the best interests of the corporation and the shareholders, which to boards invariably mean the shareholders, with share price as the easy measure. That and strange court decisions have muddied the waters for American lawyers in terms of what their laws say and what corporations are supposed to do, and American law professors can build a career debating these issues.
Canadian corporate law already favours a stakeholder-based model of governance
In Canada, directors owe fiduciary duties to the best interests of the corporation. The oppression remedy and other minority protections oblige directors to consider non-shareholder stakeholders. Landmark judgments from Canada’s highest court, particularly Peoples v. Wise and BCE v. 1976 Debentureholders, have affirmed the board requirement to consider stakeholder interests which includes not only shareholders, but among others, “employees, suppliers, creditors, consumers, governments, and the environment.” Furthermore, directors are not confined to short-term profit or share value, but are to look to long-term interests and “act in the best interests of the corporation, viewed as a good corporate citizen” and “commensurate with the corporation’s duties as a responsible corporate citizen.” In fact, the BCE ruling has caused corporate lawyers worth their weight in fees to strongly remind their clients to consider stakeholder interests and document that consideration whenever possible, in minute books and board presentations, calcifying the consideration of stakeholder interests in governance. The trajectory of our common law is holding all Canadian corporations to a higher standard, not just a niche sector of the market.
Canada already has real legal alternatives
The co-operative is the oldest corporate legal form (take Mountain Equipment Co-op and Vancouver City Savings Credit Union as modern examples). B.C. also introduced the community service co-operative in 2007 and the community contribution company in 2013.
“B Corp” as a brand
The B Corporation certification is a private certification issued to businesses by B Lab, a non-profit organization founded by American entrepreneurs that is attempting to create a global brand. To be certified, companies must complete an online assessment, integrate commitments to stakeholders in their governing documents and pay B Lab an annual fee. B Lab’s active pursuit of an international market for its brand stands in contrast to good business initiatives led by governments in 29 other countries that do not prioritize the need for other countries to emulate them. The catch is that benefit corporations are strongly encouraged to privately certify as B Corporations to make the new laws worth anything, and Canada is an important market for B Lab. Furthermore, B Lab and advocates often misconstrue existing corporate laws while promoting the benefit corporation – a real fear I have if benefit companies are adopted here.
If the Green Party bill is passed, we’ll obfuscate the progress of Canadian corporate law and governance, seemingly validate unsustainable corporate behaviour from regular corporations, and create a special market for the private Americanization of good business standards at the expense of real broad-scale sustainability initiatives. The B Corporation folks will brag over social media that Canada has bought their brand of solutions, new B.C. benefit companies can feel like they are being good with no real fear of legal reprisal, and it will be business as usual.
We should want businesses to embrace making a positive impact on society, workers, the community, and the environment in addition to profit, but we should do so with initiatives and legal ecosystems that hold all companies accountable and have a real impact, and are not just a branding exercise.