Corporate Responsibility Should Be A Corporate Duty

Events over recent years have shown the devastating effect companies can have in their single-minded pursuit of profit.

Over 1,000 workers dying in a Bangladesh building unfit for factory use is a stark example. Others are are huge supermarkets squeezing out competition and forcing suppliers to cut costs at risk to human health and animal welfare; of banks gambling enough to devastate the global economy; of construction cartels seizing contracts worth hundreds of millions of pounds of public money; of oil companies inflicting massive environmental damage; of marine life being decimated and seas sterilised by industrial fishing.

But the pursuit of profit is pretty much the single legal duty of corporations towards their shareholders, so destructive impacts on nations, communities, workers and the environment are inevitable consequences of the legal duties placed upon corporations.

UK Company Law is the only framework that sets out the overarching principles of behaviour by companies, so to try to deal with these issues will mean changing company law to include social and environmental responsibilities, so as not to leave the pursuit of profit as the primary legal requirement, trumping all other considerations.

Our Labour Government came close to imposing social and environmental reporting obligations on directors in the 2006 Company Law Reform Bill, but the opportunity to protect people, places was lost at that time.

Just as an Education Bill should take into account the rights and interests of teachers, pupils and parents, reform of UK Company Law must balance shareholder interests with those of communities, employees and other stakeholders. This is a crucial point, as it is the only way to ensure that profit-making does not take place at the expense of people and the environment.

Unfortunately, business prosperity and responsible business behaviour are not always two sides of the same coin.  In reality, situations often arise where a director’s duty to maximise profits to shareholders conflicts with environmental and social goals, and profit will always win out where this is legal.

And we cannot rely on consumers to force companies to change their behaviour.  Most UK consumers base their shopping choices on price – and sometimes quality – rather than ethical performance. Poor labelling and lack of transparency in the production of goods and services means that those shoppers who care about corporate responsibility can’t always avoid buying from irresponsible companies. Current outrages over the misdescription of meat content of processed foods shows starkly how consumers who do try to shop for quality are wantonly – perhaps sometimes mistakenly – deceived.

To argue that not to do so could see companies incorporation en masse somewhere that does not make such requirements is simply wrong, as if that were the case they would already have done so to avoid taxes and other regulation. We would not be alone in this: already, German company law requires corporations “to be useful”, and theirs is a hugely successful economy.

British business has global reach, and there are already too many examples of abuse by UK companies operating overseas.

We must have provisions in UK company law on social and environmental matters to achieve trade justice, poverty alleviation, and sustainable development, both at home and wherever they operate in the world.

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