The First Commandment of Corporate Directors
“Corporate directors need a new First Commandment. When corporate behaviour causes extreme harm to the environment, directors must have an obligation to make it stop.”
Robert C. Hinkley
13 May 2022
For more than a century, the duty of corporate directors under the law has been to act in the best interest of the corporation and its shareholders. This seems innocent enough, but we now know otherwise. It can result in extreme harm to the environment and other elements of the public interest.
When a director’s only concern is making money, some will use their duty under the law as an excuse to ignore the harm that results. Further, they will interfere in the legislative process to delay and frustrate attempts by government to make them stop. The most glaring example of this today is the emission of huge quantities of greenhouse gases that cause global warming.
The damage electric power companies and motor vehicle manufacturers are causing is extreme. Their directors should have brought it to a halt years ago. However, the emissions weren’t illegal and writing off the assets of these businesses couldn’t be justified as being in their company’s or shareholder’s best interest. So, the fuels didn’t change, and the emissions continued.
Government can no longer afford the luxury of creating companies which are set on a course to look out only for themselves unbounded by any obligation to safeguard the public interest. Until now, it has been assumed that legislatures could always rein in anti-social corporate behaviour with new laws and regulations. This assumption has proven to be naive.
To safeguard the public interest, democracies need the help of corporate management. The corporate pursuit of self-interest must have boundaries. Should a company find itself exceeding these boundaries, its directors must have an obligation to make it stop, regardless of whether existing law prohibits the harmful behaviour.
If you think there needs to be restraints on the pursuit of profit to keep companies from causing extreme harm to the environment, speak to your elected officials. Legislators have the power to change the duty of directors. The law, which now says the duty of directors is to act in the corporation's and shareholder’s best interest, should be extended to provide “But not at the expense of extreme harm to the environment.”
Government’s purpose is to protect the public interest by limiting the destructive behaviour of those that it governs. Corporate directors need a new First Commandment. When corporate behaviour causes extreme harm to the environment, directors must have an obligation to make it stop.