11/28. We can’t continue to have corporations run roughshod over the planet when government can’t or won’t pass a law to stop it. The duty of directors must be changed, not just to allow them to protect the environment, but to require them to do so at all times.
Changing the duty of directors after 140 years is no small thing. It shouldn’t be changed unless it is clearly necessary. It won’t be changed without strong public support.
The most glaring example of why it must be changed is the climate crisis. The amount of carbon in the atmosphere is continuing to rise. We know now governments aren’t going to be
Photo by Richard Miller
successful in making the fossil fuel companies and their customers stop the emission of greenhouse gases (GHGs). A new tactic must be found and adopted.
It probably takes a corporate lawyer to realize it, but the law controls corporate behaviour two ways. Most understand it does so by enacting new laws and regulations restricting their harmful behaviour (e.g., new environmental laws).
The other way it controls corporate behaviour is by dictating the duties of the people who manage corporations. The law gives each person elected to a board of directors a role. Currently, fulfilling that role requires each director to give up a part of his or her personhood—the part that is fully responsive to the public interest. Each knows, he or she must act only in the best (financial) interests of their company. This rule is today getting in the way of stopping the emission of GHGs.
No law should encourage behaviour which severely harms the public interest. When one does, it must be changed. The corporate law duty of directors is no different. It’s just another law. It’s not sacred. It can be changed.
For our purposes, this law is the same the world over. This is significant because it means that a global problem like the emission of GHGs and climate change can be solved by making the same change everywhere.
More important than its universality, however, is its simplicity. The duty should be changed to include a duty to not allow the company to cause severe harm to the environment. It should look like this:
The duty of directors is to act in the best interests of the company, but not at the expense of severe damage to the environment.
At eleven words, it’s so simple anyone can understand it. So simple that strong public support for it can be built which will drive government to adopt it. People want a solution to the climate crisis and for businesses to be run more responsibly.
Making the change will profoundly affect the way business is conducted. Companies which emit significant quantities of GHGs will have to stop. All directors will automatically start thinking about that and what it will mean for their company if it’s found to be causing severe harm. All will become more cautious with the environment reducing the possibility of a similar environmental crisis in the future. The world will appreciate that.
Next time, we’ll explore matters of enforcement and timing (how soon after enactment it should be expected that companies become fully compliant). In the meantime, if you have questions, feel free to write me at email@example.com. For my earlier posts on this subject, see www.codeforcorporatecitizenship.com.