COLUMN: Why do corporations exist?
In many countries — most notably the U.S. — corporations are considered “persons” under law, enjoying many of the same legal rights and responsibilities as “natural” persons. Judging by the way some corporations operate, you might conclude they’re not very good people.
Defining corporations as “persons” simply means they have a legal identity separate from shareholders and owners. But what is the purpose of a business or corporation? If you look at sectors such as the fossil fuel industry, you might be led to believe the primary aim is to enrich shareholders and CEOs, and maybe create some employment, regardless of the costs to society.
Generating profits and jobs is important in an economic system that relies on those principles, but they shouldn’t be the ultimate goals. The British Academy — the U.K.’s national institution for the humanities and social sciences — concluded from its research on the future of the corporation “that the purpose of business is to solve the problems of people and planet profitably, and not profit from causing problems.”
In most countries, it’s left up to business owners, CEOs and boards to decide what their purpose is, and all too often the choice is ultimately based on greed. That’s why many countries, including France and the U.K., have started incorporating corporate purpose into legal frameworks.
France amended its Civil Code in 2019 to include, “The company is managed in its corporate interest, while taking into account the social and environmental issues related to its activity.” It also introduced a measure, albeit not mandatory, for companies to articulate their reason for being in their “articles of association.”
Although many Canadian companies have vision and mission statements, these often amount to little more than public relations and don’t spell out any legal duties or requirements. The Canada Business Corporations Act doesn’t require a statement of corporate purpose. It’s time to change that, for the good of society and the corporations themselves.
Research shows companies with stated purposes that take into account their impacts on people and the planet often do better than those without. They attract loyal customers willing to advocate for and promote them. And the companies enjoy better reputations and are able to attract good employees who stay longer.
A U.S. study found 60 per cent of Americans would “choose, switch, avoid or boycott a company based on its stand on social issues.” Another found that 66 per cent of people would switch from a product they normally buy to one from a purpose-driven company.
The real bottom line, though, is that the world can no longer afford to support or sustain companies that exist almost entirely to make money. Humanity is reeling under numerous crises brought on by consumer-driven economics based on the fallacy of endless growth in a finite world — from biodiversity loss to gross inequality to climate disruption.
A new David Suzuki Foundation report offers a way for Canada to correct course. “Bringing Corporate Purpose into the Mainstream: Directions for Canadian Law” recommends major changes to the Canada Business Corporations Act to ensure that large companies prioritize people and planet over profit. It’s part of a global movement to shift the focus of economic systems from money-driven consumerism to well-being.
Among its recommendations, the report — by academics from the Faculty of Law at McGill University — calls for the act to be reformed to require corporate boards to have a statement of purpose, to extend the fiduciary duty of directors and officers to pursuing the purpose of the corporation in good faith with a view to its best interests, and to broaden those best interests to include impacts on the community in which it operates.
“Part of transforming to a society that values our needs, relationships and the natural world is ensuring corporations are held accountable for their actions. Establishing a corporate purpose is one tool to help enable that shift,” said Tara Campbell, David Suzuki Foundation well-being economies specialist.
These reforms won’t transform society by themselves, and would only apply to large corporations that operate under the act, but they’re an important step in the necessary shift from a society that prioritizes wealth accumulation and economic growth to one that puts personal and societal well-being above the pursuit of profit.
David Suzuki is a scientist, broadcaster, author and co-founder of the David Suzuki Foundation. Written with contributions from David Suzuki Foundation Senior Writer and Editor Ian Hanington.
Learn more at davidsuzuki.org.