BARRISTON BRIEFS: Acting in the Best Interests of the Corporation

The BarristonBlog

BARRISTON BRIEFS: Acting in the Best Interests of the Corporation

15 Jan, 2020

It is generally well understood that directors of a corporation owe a duty to act and make decisions in the best interests of the corporation.  What has been less clear are the factors that directors should be taking into account when making such decisions.  There exists a common belief that acting in the best interests of the corporation means maximizing shareholder value, which implies that the ultimate measure of a company’s success lies in its ability to enrich its shareholders.  If this belief is followed to its conclusion, it creates an impetus that directors make decisions in the pursuit of profit over everything else.  But is maximizing shareholder value really acting in the best interest of the corporation?

In business today we are actively seeing shifts away from a shareholder value model of decision making to one that considers what impact the decisions being made have on other stakeholders.  We see this shift being driven both on the legal side, through court decisions and legislation, and also being driven directly by a growing number of corporations.

In the 2008 Supreme Court of Canada decision of BCE Inc. v. 1976 Debenture Holders the court outlined that a variety of stakeholder groups may be considered by directors when discharging their duties to the corporation.  More recently, Bill C-97 has come into force and made changes to the Canada Business Corporations Act (“CBCA”).  These changes outline that directors, when acting with a view to the best interests of the corporation, may consider the interests of shareholders, employees, retirees and pensioners, creditors, consumers, governments, the environment and the long-term interests of the corporation. 

A significant corporation driven shift can be seen in the growth of the B Corp movement.  Certified B Corporations® (B Corps™) are for-profit companies that use the power of business to build a more inclusive and sustainable economy.  B Corp Certification is a third-party certification that assesses the overall positive impact of a company by assessing that company’s impact on its workers, customers, community, and environment.  A B Corp must amend its legal governing documents to require that the corporation’s board of directors balances profit with purpose.  B Corp is a movement that is business driven and takes the legal framework to the next level by empowering businesses to self-reflect and strive for continual improvement within the B Corp certification framework.  B Corps have made it their mandate to consider more than just shareholder value when making all of their decisions.  They meet the highest verified standards of social and environmental performance, transparency, and accountability.

The growth of the B Corp movement, and the ever-changing and expanding laws in Canada, contribute to a growing momentum toward “big picture” thinking, opening up the possibilities of using business to not only make money, but also do good.

Michelle Greenwood, Associate 

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