Change the System
25 March 2023 CHANGE THE SYSTEM These eleven words will change the corporate system where it is most dangerous by ensuring that we never...
Businesses usually don’t start out to harm the public interest. The damage they cause only appears after they have become successful and huge amounts of money are invested.
Discovery of the damage (e.g. climate change, tobacco deaths and inhumane labour practices) then raises questions for corporate directors. What will it take to stop it? Is this in the best interests of the company? Can it be stopped without significant cost that would materially harm the company's financial condition? Too often, stopping is expensive. The duty of directors to act in the best interests of the corporation then serves as legal justification to continue.
In August 2019, the Business Roundtable in America decided that companies have obligations to protect the environment, employees and other stakeholders as well as just shareholders. In December 2020, the European Parliament recommended that the duty of directors be changed in each of its 27 member states.
More than 20 years ago, I conceived a solution which I call the Code for Corporate Citizenship (Code). The Code will amend the existing duty of directors “to act in the best interests of the corporation” by adding the following words:
“but not at the expense of severe damage to the environment, human rights, public health and safety, dignity of employees or the welfare of the communities in which the corporation operates.”
My hope is that legislatures around the world will find the thinking which went into the origination of the Code helpful when deciding how to make corporations more socially responsible and less destructive.
For more about the Code, follow this blog and see my book published in 2011, Time To Change Corporations: Closing the Citizenship Gap.
Corporate social responsibility has been a long time coming. It is said, "The arc of history is long, but it bends towards justice." The Code will eliminate the justification in current law for the continued destruction of the public interest. It will be a major step in the direction of justice.