Corporate Responsibility Coalition

Background
Corporate dishonesty, secrecy and irresponsibility abuses, kills and wastes people and the environment.

The head people at large corporations knew that tobacco, asbestos, food fats and additives, pesticides and pollution were harmful for years but kept it secret to make more money for themselves and their businesses.

Corporations set up under the Canada Business Corporations Act (CBCA) are major players both in Canada and in terms of Canadian corporate operations internationally. Not surprisingly, the environmental, social and ethical track record of these businesses is often of enormous concern to various corporate “stakeholders”, including local communities, customers, employees, shareholders, governments and even the nation as a whole.

Over 155,000 of Canada’s large corporations are set up under Canada’s federal corporations law, the Canada Business Corporations Act (CBCA), including half of the largest 500 corporations in the country.

The CBCA sets out the basic rights and responsibilities for these corporations, and is essentially Canada’s “corporate citizenship” law.

In recent years, stakeholders from many different sectors pressing for greater corporate social responsibility on the part of CBCA corporations have encountered a number of legal roadblocks. Several of these difficulties derive from the CBCA itself. Most notable among CBCA-related problems are barriers to shareholder activism.

Also of concern are legal limits that stop corporate executives from taking into account stakeholder interests when making corporate decisions. In addition, a number of other shortcomings in Canadian laws relating to corporate accountability and responsibility have been identified by non-governmental groups and governments over the years. These issues are discussed more fully below.

Canada’s biggest corporations spend $25 billion annually on their lobbying — so citizen groups must band together into a large coalition if there is any hope to counter the corporate lobby and win key corporate responsibility changes.

Join the Corporate Responsibility Coalition
Sign on to the 15 Recommendations to Make Canada’s Corporations Responsible

The Corporate Responsibility Coalition has been formed as part of Democracy Watch’s Corporate Responsibility Campaign to broaden support for changes to Canada’s corporate laws to ensure that corporations act responsibly or can be held accountable if they act irresponsibly.

Becoming a member group of the coalition is very easy. Just sign on to the 15 Recommendations to Make Canada’s Corporations Responsible, set out below and send us a note stating that your group wants to join the coalition and help with our campaign. And please also send a letter to key politicians using the Corporate Responsibility Action Alert.

Thirty-one citizen groups, including 18 national groups and 13 groups from five provinces, have signed on to the 15 recommendations to date, as follows:
Alliance for Public Accountability, Association de protection des épargnants et investisseurs du Québec (APEIQ), Canadian Council for International Cooperation, Canadian Friends of Burma, Canadian Labour Congress (CLC), Canadian Lawyers Association for International Human Rights, Canadian Union of Public Employees (CUPE), Citizens Council on Corporate Issues, Citizens for Public Justice, Democracy Education Network, Democracy Watch, End Legislated Poverty, Ethical Investors Group (Montreal), Greenpeace Canada, Island Residents Against Toxic Environments (IRATE), Low Income Families Together (LIFT), Maquila Solidarity Network, MiningWatch Canada, National Action Committee on the Status of Women, National Union of Public and General Employees, Ontario Public Interest Research Group-Carleton, Ontario Public Interest Research Group-Guelph, Ontario Public Interest Research Group-Ottawa, Oxfam-Canada, Partnership Africa Canada, Saskatchewan Action Committee on the Status of Women, Science for Peace, Sierra Club of Canada, Sierra Youth Coalition, Social Change Associates, Vancouver Island Public Interest Research Group.

On February 6, 2001, the government introduced Bill S-11. The government made a progressive change lowering the barriers to shareholder proposals (thereby implementing proposal #1 of the Corporate Responsibility Coalition, set out below) but did not include any other corporate responsibility measures in the new bill. Bill S-11 was passed by Parliament in June 2001.

In March 2004, the Corporate Responsibility Coalition won more of its proposed changes (specifically, changes addressing proposals #10 and #12 set out below) when the federal government passed Bill C-45 which changed the Criminal Code to make it easier to hold corporations accountable for crimes, and when the federal government passed Bill C-13, which:

creates a new Criminal Code offence of improper insider trading;
provides whistleblower protection to employees who report unlawful conduct; and
increases the maximum sentences for existing fraud offences and establishes a list of aggravating factors to aid the courts in sentencing.

The federal government is considering making further changes to the CBCA and related laws and regulations. In addition, the Ontario government is considering changes to investment industry laws and regulations which will affect most publicly traded corporations in Canada.

While the changes to the CBCA (and provincial corporation laws and related measures) recommended by the Corporate Responsibility Coalition may appear difficult to attain, the victories Democracy Watch has won by organizing the Canadian Community Reinvestment Coalition — including our success in defeating the bank mergers in 1998 — have taught us that broad-based coalitions can overcome even the strongest corporate lobby groups.

We look forward to hearing from you, and hope your group will join the
Corporate Responsibility Coalition.

If you have any questions, please don’t hesitate to contact Democracy Watch at Tel: (613) 241-5179.
We can also be reached by fax at (613) 241-4758, and
by email at [email protected]

15 Recommendations to Make Canada’s Corporations Responsible

I. Shareholder Proposals
1. Provincial governments should follow the lead of the federal government which passed Bill S-11 in June 2001 and prohibited federally incorporated corporations from refusing to circulate for a shareholder vote proposals made by shareholders that propose that cause-related, responsible actions be taken by the corporation. As under the federal law, provincial governments should allow all shareholder proposals as long as the proposal relates to the corporation’s activities.

2. The federal and provincial governments should change corporation laws so that shareholders do not have to own more than a few shares for a short period of time before they can make a proposal to other shareholders.

3. The federal and provincial governments should change corporation laws (such as section 137 of the Canada Business Corporations Act (CBCA)) to specify that the maximum length of the shareholder proposal [proposal plus supporting statement] be 500 words, and that the corporation’s response also be limited to a maximum of 500 words.

4. The federal and provincial governments should change corporation laws (such as clause137(5)(d) of the CBCA) to allow re-submission of substantially similar shareholder proposals within two years if the following minimum levels are met: 3% approval for the first time the proposal is put to vote; 6% for the second time it is put to vote; and 10% for any subsequent time. The minimum levels should be calculated as a percentage of the shareholder vote exclusive of the vote of a controlling shareholder.

5. The federal and provincial governments should change corporation laws (such as section 137 of the CBCA) to require that a corporation give notice in the present year’s proxy circular of the deadline for submission of proposals for the following year.

6. The federal and provincial governments should change corporation laws (such as section 137 of the CBCA) to require that a corporation justify, to a specified review agency, why a shareholder proposal is excluded. The review agency should use a low-cost, quick procedure for reviewing disputes. In addition, a corporation seeking to reject a proposal must bear the costs of the action and discharge the burden of proof in any administrative or judicial process.

7. The federal and provincial governments should change corporation laws to make them similar to subsection 116(5) of the Ontario Business Corporations Act (OBCA) which requires that a proposal to make a by-law that is adopted by shareholders at a meeting is effective from the date of its adoption.

EXPLANATION OF RECOMMENDATIONS #1-7:
Companies often do not hesitate to reject shareholder proposals, and often for very technical or unjustifiable reasons. The shareholder is then forced to go to court for a review of the decision, with the corporation bringing its vast resources to bear on each case.
As a result, shareholders are denied many opportunities to hear other shareholders’ proposals, and corporations easily and unjustifiably escape accountability to their own shareholders in many cases. Talisman Energy is one recent example of a company that used technical and questionable reasons for rejecting shareholder proposals filed in 1998 by 11 churches and religious orders from Canada and the U.S.
In contrast, in the United States, corporate and securities laws are much more open to shareholder proposals generally, and specifically relating to corporate responsibility issues.
Canadian governments should follow the U.S. lead and lower barriers to shareholders, the true owners of corporations, having a say in corporate decision-making. Enacting recommendations #1-7 would be a significant, and necessary, step forward in lowering barriers to shareholders putting forward proposals for consideration by other shareholders.

II. Fiduciary Duty
8. To guarantee that directors do not run afoul of fiduciary duties in responding to socially responsible shareholder proposals, and to help ensure corporations act responsibly, the federal and provincial governments should change corporation laws to require directors to consider non-shareholder stakeholder interests in making decisions, and to account publicly for the extent to which they do.

EXPLANATION OF RECOMMENDATION #8:
Corporate directors and managers are currently required, for example under subsection 122(1) of the Canada Business Corporations Act (CBCA), to act only in the interests of the corporation (ie. to increase financial return for shareholders). We view this as a fundamental cause of irresponsible activities by corporations.
As in the area of shareholder proposals, Canada is behind other countries in terms of requiring corporate boards and managers to consider also other stakeholders’ interests in making decisions. Both the Canadian Institute of Chartered Accountants and the 1994 Toronto Stock Exchange report Where Were the Directors? have noted the legitimacy of directors recognizing stakeholder interests, but there is no legal requirement to do so.
In England directors of a company incorporated under the Companies Act must take into account the interests of not only shareholders, but also employees, in their business decisions. Similarly, a majority of U.S. states have introduced so-called “non-shareholder constituency” laws. These laws explicitly allow directors to consider the interests of employees, customers, suppliers and others in making their business decisions, and in Connecticut directors are required to consider stakeholder interests.
Canada should follow the lead of these jurisdictions and require corporate directors to consider non-shareholder stakeholders when making decisions, and account publicly for the extent to which they do.
We suggest that the following words be added to the relevant sections of all laws under which corporations are established in Canada (e.g. the CBCA and provincial and territorial incorporation laws, as well as specific corporate sector laws such as the Bank Act, the Insurance Companies Act, the Telecommunications Act, the Broadcasting Act etc.). Here are the proposed words to add to these laws: “Corporations established under this law shall advance the interests of shareholders only in ways that fully take into account, fully and publicly document, and fully adhere to the highest global standards for the protection of human rights, the environment, public health and safety, consumer rights and shareholder rights.”

III. Disclosure of Information about Corporate Activities
9. In order to facilitate tracking of corporate activities in all areas of concern to stakeholders, the federal and provincial governments should change corporation laws to require corporations to disclose detailed information about their records of compliance with labour, environmental, human rights, consumer, health & safety, criminal, competition and tax laws or policies, and the government should set up easily accessible databases on the Internet and elsewhere containing this information.

10. The federal and provincial governments should change corporation laws so that anyone, especially staff or management, who discloses information a corporation is required to disclose, but has failed to do so, or who reports violations of legal requirements by a corporation should be protected from retaliation by the corporation.

EXPLANATION OF RECOMMENDATIONS #9 and 10:
As in the area of shareholder proposals and fidiciary duty, Canada is behind other countries in terms of requiring corporations to disclose information about their activities, and protecting “whistle-blowers”.
For example, in the U.S. publicly traded companies are required through a Securities Exchange Commission system to disclose violations of environmental and labour laws.
Also while whistleblowers are protected from retaliation under some environmental, human rights and health & safety laws in Canada, employees are protected under a much wider range of laws in the U.S.
A much better way for Canada to ensure protection of corporate employees who uphold the law in all situations is to enact protection in the CBCA and other federal and provincial incorporation laws.

IV. General Corporate Responsibility Measures
11. The federal and provincial governments should pass a law so that corporations and other suppliers of goods and services to governments who repeatedly violate labour, environmental, human rights, consumer, health & safety, criminal, competition and tax laws and policies are prohibited for a specific period of time (e.g. 5-10 years) from receiving grants, contracts, subsidies or tax breaks from government.

12. Corporations and their directors, officers and executives should be liable for the criminal conduct of their employees if they fail to exercise control properly over managers and employees, and as a result the manager or employee commits an offence. Further, corporations and their directors, officers and executives should be liable if they know that a manager or an employee is about to commit or is committing an offence during the course of employment, or consciously disregard information that clearly indicates that such an offence is about to be committed, or is being committed, by a manager or an employee in the course of employment.

13. The federal and provincial governments should change corporation laws to extend the oppression remedy (such as section 244 of the CBCA) to stakeholders other than security holders, creditors, directors or officers, to allow stakeholders whose interests are ignored in a corporation’s decisions or cations to take the corporation to court.

14. The federal and provincial governments should change corporation laws so that the justifiable reasons for dissolution of a corporation (such as the reasons set out in section 213 of the CBCA) are expanded to include repeated violation of laws.

EXPLANATION OF RECOMMENDATIONS #11-14:
While lowering the barriers to shareholder proposals, expanding the criteria for corporate decision-makers, and increasing disclosure requirements and whistleblower protection will help ensure that corporations act responsibly, other measures are needed.
First, public monies should not be subsidizing corporations that violate laws and as a result, as the U.S. federal government has proposed, violators should be prohibited from receiving government grants and contracts.
Second, the structure of corporations allows the corporation often to escape criminal liability for the acts of its employees. As the Department of Justice proposed in 1995, the Criminal Code of Canada should be amended to expand the liability standard for corporations.
Third, stakeholders should have a direct avenue to challenge corporations that ignore their interests in making decisions and undertaking activities. Expanding the oppression remedy to include stakeholders would create this avenue, and would be consistent with our proposed expansion of the concerns and interests that must be addressed by corporate decision-makers.
Finally, Canada is behind other countries in terms of penalties for corporate wrongdoings. Several Canadian jurisdictions have removed from their corporate laws in the past few decades the right of governments or courts to dissolve corporations that repeatedly violate laws. The removal of this penalty was misguided as it further protected corporations from accountability for wrongdoings which, in some cases, justify dissolution as a penalty.

V. Creating an Individual Shareholders Association and Citizen Watchdog Groups for Corporate Sectors
15. The CBCA or other laws that regulate corporations should be amended to oblige corporations, in their shareholder mailouts, to include a pamphlet inviting individual shareholders to join an association of individual shareholders by paying a nominal annual membership fee. The association would be directed by a board elected by members of the association, and would provide centralized expertise and assistance on shareholder rights issues. Requiring corporations to distribute such a pamphlet would be a very low-cost, effective way of helping individual shareholders band together across Canada. Such collective action by shareholders remains a difficult challenge for many individual shareholders attempting to defend their rights, and for shareholders with social responsibility concerns who are trying to have their proposals considered by other shareholders. The same method should be used to create consumer watchdog groups for all industry sectors.

EXPLANATION OF RECOMMENDATION #15:
While lowering the barriers to shareholder proposals will help shareholders have a greater voice in the corporations they own, individual shareholders in particular will continue to face high financial and technical barriers to making their voices heard. The method of organizing an individual shareholders association, independent of all corporations, described in Recommendation #15 has worked well for organizing utility ratepayer groups in some U.S. states, and should be implemented in Canada.
For more information about how this method of organizing citizen watchdogs groups to watch over corporations works, please view Democracy Watch’s Citizen Association Campaign webpage.

Democracy Watch’s Corporate Responsibility Campaign

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