26 January 2024
“A director…of a corporation must exercise [her] powers and discharge [her] duties…in the best interests of the corporation...”
These words come from the Corporations Act of Australia. Words that seem relatively harmless. You’d think that they ought to be the law everywhere. In fact, they are. But they’re not harmless. There probably isn’t 23 words in the law anywhere which are responsible for as much destruction.
The problem is that these words require the people who run companies to act “in the best interests of the corporation” even if doing so severely damages the environment. It’s not that directors start out to cause severe harm. They find out later that the greenhouse gases (GHGs) their company is emitting are causing global warming. When this is discovered, their company already has billions invested in its business which will have to be written off if they stop. Incurring the write-offs can’t be “in the best interests of the corporation,” so they do what they can to continue (including lobbying our elected officials to frustrate the enactment of new laws which would make them stop).
This has been the law for more than 140 years in some jurisdictions. The damage which it perpetuates wasn’t apparent earlier. The climate crisis made it visible.
It is now clear is that this law as a huge flaw in it. It creates institutions which can cause great damage that government can’t find a way to stop. In its current form, the law subjugates protecting the environment from severe harm to the interests of big companies. It undermines the purpose for which all governments are formed—to protect the public interest. If it isn’t fixed soon, our very existence may eventually be threatened.
There is an answer. The duty of directors to serve their company must become balanced with a duty to protect the public interest--at least from severe harm. No company should ever cause severe harm to the environment, but when it does, its directors must be obligated to make it stop.
This can be achieved by changing the duty to read as follows:
A director…of a corporation must exercise [her] powers and discharge [her] duties in the best interests of the corporation,…but not at the expense of severe damage to the environment.
These additional words (the Code for Corporate Citizenship) will make it clear that directors’ duty to serve their company has limits and those limits are breeched when the company is severely harming the environment. (See: www.codeforcorporatecitizenship.com.)
The Code will make it clear to directors that serving their company does not include allowing it to emit significant quantities of GHGs into the atmosphere. It will further protect the environment from any other corporate behaviour discovered to be causing severe harm in the future. This should make all corporate directors more aware of their company’s impact on the environment and cause them to treat it more cautiously.