Corporate Citizenship and Social Responsibility:
An Agenda for Raising the Standards in Canada
This Discussion Paper outlines the current situation concerning corporate citizenship and social responsibility in Canada, where we want to be, and sets out a framework for examining strategies and mechanisms for achieving more stringent citizenship and social responsibility standards for corporations in Canada.
Democracy Watch is calling on Canadian governments to examine and implement many of these proposals.
From the moment we are born until the time we die, corporations dominate most facets of our lives. Our citizen roles of voter, taxpayer, worker, consumer and shareholder are all affected by corporations. They produce and sell the food we eat, the clothes we wear, the houses we live in, the vehicles we travel in and the entertainment we enjoy. Corporations affect the quality of our environment and shape the values of our society, influencing the areas of law, taxation, education, communications, athletics, families and organized religion through corporate lobbying, polluting, advertising, and sponsorship.
Large Canadian corporations and transnational corporations (TNCs) are especially influential. Because of the sheer size of these corporations, the decisions of the relatively few people who control them exert great influence on the decision-making of local, provincial and national governments, and can have great impact on the communities in which these corporations are located. For these reasons, there is a need for a social responsibility framework for large corporations and TNCs especially, a framework that enables individual citizens and communities to hold corporations accountable to community interests.
Central to this framework is the comparison between individual citizenship and corporate citizenship. When a person immigrates to Canada, they are put through a rigorous process before they become a citizen of Canada, subject to the rights and responsibilities of Canadian laws, community standards and traditions. In contrast, corporations automatically become “citizens” of Canada by simply filing papers with the government. And corporations exercise their rights with great force in Canadian society, but they have often shown that they are not subject to the responsibilities of citizenship or to Canadian laws. Some individual Canadians also use the “veil” of corporate citizenship to escape the responsibilities of individual citizenship.
At times, both individual citizens and corporate “citizens” are negligent and do not fulfill their responsibilities, but the overall impact of corporate negligence on Canadians and Canadian communities far outweighs the impact of individual negligence, as detailed below.
II. Where We Are
In Canada, the revenues of the largest 500 corporations total about 80 percent of the Gross National Product and these corporations employ about two million Canadians. However, the small business sector creates 80% of new jobs in Canada. Moreover, corporate taxes, when compared to personal taxes, represent a proportionally smaller and decreasing share of government revenues, as the following figures show:
- In 1961, 21% of the federal government’s revenue came from corporate taxes;
- By 1992, however, only 7% came from corporate taxes;
- Over the same period, federal revenue from personal income taxes rose from 32% to 48%;
- Income taxes collected from the poorest 20% of Canadian families have more than doubled since 1984;
- In contrast, 93,405 corporations with combined revenues of $27 billion (including many of Canada’s largest corporations) paid no income tax in 1987; and
- Canadian corporations currently owe $36 billion in deferred taxes.
Although “smogging” is recognized as much as “mugging” now as a societal harm, corporate crime is scarcely tracked as compared to street crime in Canada. An accounting is made of consumer fraud, but no account is taken (by Statistics Canada for example) of crimes against the environment, economic crimes or of the deaths and injuries caused by dangerous products, workplace hazards, and preventable occupational diseases. One researcher compiled the following statistics for Canada in the early- and mid-1980s:
- Occupational deaths are the third leading cause of death in Canada;
- Every six hours a Canadian worker dies on the job;
- At least half of all workplace deaths in Canada can be attributed to unsafe and usually illegal working conditions;
- These working conditions cause more deaths in a month than all the mass murderers combined do in a decade;
- Canadians are 28 times more likely to be injured at work than by an assault, and 10 times more likely to be killed at work than by homicide.
As far as consumer fraud is concerned, the RCMP Commercial Crime Section estimates losses by Canadian victims in 1992 at $574 million. Others have put the figure at $4 billion, based upon a U.S. study which totalled losses there at $44 billion.
Corporate criminal liability is not fully developed in Canada either, in part because of the structure of corporations. Enforcement of environmental protection and securities laws has increased and, in some cases, the courts have held corporate directors responsible for the activities of the corporation. However, the development of director responsibility is resisted by a relatively small corporate elite, each of whom serve as figureheads on numerous boards. Director responsibility implies liability for these figureheads, and they are concerned that they could be held liable for decision-making processes in which they rarely take an active part.
In addition, there are many clear conflicts of interest in the make-up of Canadian corporate boards, and there have been many examples of corporate breakdown caused in part by poor corporate governance. Take, for example, the fact that the majority of directors of the big six banks are these banks’ biggest corporate customers. The collapse of Confederation Trust has been attributed in part to the ties between its boards, its managers and its large borrowers in the real estate development industry. The Toronto Stock Exchange Committee on Corporate Governance released a draft report in May 1994 calling for guidelines for improved corporate governance in Canada, which, prompted by many examples of conflicts on interest, included a recommendation that corporations should have to tell shareholders, and give reasons, if a majority of their directors are not “unrelated” to the corporation.
Meanwhile, although shareholder activism has realized some success in recent years, shareholder democracy has never been realized in any of Canada’s large corporations or, even less so, in any TNCs. Many citizen groups buy a single share in large corporations each year and attend annual general meetings to confront the board of directors with citizen concerns. However, although these efforts often receive extensive media coverage, they rarely affect corporate decision-making directly.
In the area of constitutional law, studies have shown that large Canadian corporations have used the Charter of Rights and Freedoms to advance their claims in court more successfully than have Canadian citizens. Corporations now enjoy many of the protections of the Charter intended to apply to individuals, rather than entities constructed by legislation and regulations alone. The next test of the extension by judges of Charter protection for corporations comes this December, when the Supreme Court of Canada will hear the tobacco industry’s challenge to the federal government’s tobacco advertising restrictions on the ground that it violates their freedom of speech.
Corporate political donations to political parties amount to undue influence in many cases of government decision-making. For example, changes to the Bank Act in 1991 were influenced by the fact that the big six banks give about $250,000 each year to the federal Conservative and Liberal parties, and the February 1994 tobacco tax cut was influenced by the fact that the big three tobacco companies gave $270,000 to the federal Liberal party between 1988 and 1992.
In the international arena, of the largest 100 economies in the world, 47 are transnational corporations (TNCs). Over the past seven years, trade agreements such as the Canada-U.S. Free Trade Agreement (FTA), the North American Free Trade Agreement (NAFTA) and the recent General Agreement on Tariffs and Trade (GATT) have set a foundation to subjugate community values – consumer, labour, health and environment – to the values of global commerce. These agreements enrich and empower TNCs at the expense of Canada’s economy and the ability of the Canadian government to regulate domestic corporate activities. In addition, there is no role for citizens or citizen groups in the undemocratic and secretive decision-making processes of these agreements.
In an age of rapid globalization of capital and business, international regulatory frameworks aimed at controlling the activities of TNCs are few and far between and are not enforced effectively. One of the main means of regulating TNC activities to date has been the drafting of codes of conduct, but although these codes are often strong statements of principles of accountability for TNC actions, most remain in draft form or in their own wording are unenforceable.
III. Where We Want to Be
Here is a proposed statement of principles:
“We want to live in a world where the rights of all individual citizens to adequate food, clothing and shelter, decent employment, education and health care, a clean environment, social assistance, and quality public services are ensured and where the rights of individual citizens and communities prevail over the rights of corporate “citizens”.
We want to live in a world where individual citizens have the right to meaningfully participate in decisions affecting their rights and their lives.
Specifically, we want to live in a world where individual citizens, in their roles as voters, taxpayers, workers, consumers and dshareholders, have the right through democratic community and government decision-making processes to determine and to limit the rights and activities of corporate “citizens”, and have the right to hold corporate “citizens” accountable for their activities.”
IV. How We Get There From Here
There are several possible ways to get from here to there in terms of both a range of corporate citizenship and social responsibility mechanisms and a range of strategies for ensuring that these mechanisms are enacted and effectively enforced (See APPENDIX for full list). These strategies involve exercising our citizen roles of voter, taxpayer, worker, consumer and shareholder.
First, there are a number of grassroots-oriented defensive campaign strategies that could be used to stop the harmful activities of corporations. These include boycotts, letter-writing and publicity campaigns directed at corporations, investors, shareholders and the government.
Second, there are offensive campaign strategies to press local, provincial and federal governments to adopt corporate social responsibility mechanisms. Examples of these strategies include: requiring disclosure of important details about corporate activities; including discharges of pollutants and violations of laws; and requiring corporations that receive tax breaks and other public incentives to locate in a community to pay penalties to the community if they shut down and move. A requirement for a greater degree of corporate democracy would give voice to citizen concerns in corporate decision-making.
Considering they benefit from an extensive “corporate welfare” package, corporations could be required to pay their fair share of taxes, and they could also be required to facilitate the creation of citizen watchdog groups through various funding mechanisms.
Corporate crime could be addressed through setting up a corporate crime registry, so that crime in the suites is tracked in as much detail as crime in the streets. Citizens could be given the right to prosecute corporate crime; liability standards could be increased for corporate managers and executives, especially if they fail to report violations; and jail terms could apply to corporate criminals. For repeat corporate offenders, a “three strikes you’re out” rule could be used to “execute” the corporation by revoking its charter.
Government subsidies of environmentally harmful activities of corporations could be ended, and government could pledge to purchase products and services only from socially responsible companies. In addition, the executives of socially responsible corporations could be encouraged to advocate that their colleagues follow their example.
Third, there are transformative campaign strategies to press governments to re-charter corporations based upon a social responsibility framework. Corporations could also be removed from the protection of the Charter of Rights and Freedoms, thereby reclaiming it as the Charter of Human Rights and Freedoms.
Finally, there are international campaign strategies to create an international social responsibility framework for transnational corporations (TNCs). These include strengthening international codes of conduct for TNCs and the enforcement of these codes, and ensuring that TNCs can’t shift blame or profits from country to country to avoid liability and taxes.
V. What’s Next?
Further examination of where we are, where we want to be, and how we get from here to there is needed to determine what’s next. This examination should include studying case histories in which the various mechanisms and strategies have been used successfully.
After this examination is completed and decisions are made concerning which strategies to employ and which mechanisms to advocate, an action plan can be set out for campaigns at local, provincial, national and international levels, all aimed at ensuring the establishment of an effective corporate citizenship and social responsibility framework for large corporations and TNCs.
List of Strategies and Mechanisms
for Corporate Citizenship and Social Responsibility
The following hopefully provides a useful framework for the examination of which strategies and which mechanisms are possible and advisable, and which are most likely to succeed:
(1) Defensive campaign strategies to stop the harmful activities of large corporations.
- Grassroots boycotts, letter-writing and publicity campaigns against a “symbolic” corporation that serves as a model for an industry sector’s practices and whose activities are especially harmful and;
- Boycotts and public pressure campaigns against suppliers, clients, banks and insurance companies of a corporation whose activities are harmful;
- Shareholder activism at corporate annual general meetings, including forcing resignations of “symbolic” board members and demanding improvements in the corporation’s activities;
- Innovative lawsuits aimed at public education and the setting of new standards for corporate social responsibility.
(2) Offensive campaign strategies to press local, provincial and federal governments to adopt corporate social responsibility legislation, regulations, codes, resolutions and other accountability mechanisms, and to press corporations to set industry performance standards that involve social responsibility and increase accountability.
Corporate Decency and Social Responsibility
- Link public ownership of public assets with public control of those assets and require that portions of the revenues collected from the private use of public assets (e.g. Crown lands, TV and radio airwaves) be set aside to fund citizen watchdog groups that will monitor the use of these assets;
- Require all institutions that mass mail bills or customer statements (banks, insurance companies, TV cable companies, telephone companies, natural gas, hydro-electricity, water and sewage utilities) to include periodic inserts in their billing envelopes that invite customers to become fee-paying members of independent consumer associations which will act as watchdogs to negotiate and advocate for their interests;
- Increase standing rights and class action lawsuit rights, and increase intervenor funding programs so that citizens can more easily gather together to hold corporations accountable in administrative hearings and the courts;
- Require disclosure of each large corporation’s workforce by sex, race, and job classification (including officers); disclosure of executive salaries; disclosure of discharges with regard to air and water pollution for the largest facilities operating within the company; disclosure of the total of all occupational injuries and illness incurred during the past year company-wide; disclosure of enforcement actions, civil and criminal sanctions and civil claims made against the corporation; disclosure of the twenty largest beneficial holders of voting shares in the firm and the long term debt of the firm; disclosure of the primary employment affiliation of each Board member, and each Board member’s meeting attendance record and cross-appointments; disclosure of the company’s overseas operations; disclosure of the firms legal and auditing expenses, including a breakdown where the costs are incurred; and disclosure of the firm’s effective annual tax rate, and value of government grants and contracts;
- Require one year’s notice to be given to the government minister responsible for labour, community representatives and workers if a plant closure is planned, and require public hearings on the planned closure;
- Hold the business closing the operation liable to the local government for revenue equal to that lost in taxes for one year from the business, and for the monetary value of any incentive package (e.g. property tax breaks) granted to the corporation in return for setting up in the locale and creating local jobs;
- Change the political finance laws to equalize the influence that individuals and corporations can have through donations to political parties, and to require prompt disclosure of donations;
- Document the existence and effectiveness of current corporate governance systems;
- Require that a majority of the board of directors be made up of “independent directors” who have not been an officer or employee of the firm or its affiliates for five years, are not relatives of an executive officer of the firm; do not have an equity interest in the firm; and are not lawyers, suppliers or investment bankers which have provided services to the firm in the past five years;
- Require that directors be assigned to various constituencies such as consumer protection, environmental protection, law compliance and political relations and that committees be set up within the board with special responsibilities to oversee company obligations in these areas and areas such as auditing and nominating of directors;
- Prohibit any person from serving as the director of more than two corporations incorporated in the same province;
- To encourage minority shareholder representation on corporate boards, give shareholders the right to nominate candidates for the board of directors if the candidates are supported by a reasonable minimum number or percentage of shares, and allow shareholders to cumulate their votes towards any one candidate;
- Give shareholders the right to review the board’s vote on any transaction involving the purchase, sale, lease, merger, consolidation, financing, refinancing, dissolution or liquidation of assets equal to ten percent of the firm’s total assets, or the sale of ten percent of the company’s stock;
- Recognize worker ownership of their own pension funds and give workers greater control over pension assets;
Corporate Tax and Subsidies
- Expose the extent of “corporate welfare” in sectors such as banking, natural resources industries and transportation;
- Impose a minimum corporate tax;
- Charge interest on deferred corporate taxes;
- Increase audits of corporations to reveal corporate tax cheaters;
- Tax corporate mergers;
- Eliminate corporate tax break on first $200,000 profit;
- Eliminate deduction for corporate entertainment expenses;
- Eliminate deduction for corporate lobbying expenses;
- Establish a publicly accessible corporate crime registry so that crime in the suites is tracked in as much detail as crime in the streets (including features such as a “Ten Most Wanted” white collar criminal list);
- The government should institute “enforced self-regulation,” compelling each company or industry to write a set of rules tailored to the unique set of contingencies facing that particular firm. The government regulatory agency would then approve these rules or send them back for revision;
- Discourage investments in criminally recidivist companies by publishing an index for investors and prohibiting public pension funds from investing in criminal corporate activities. And prohibit criminal companies for getting government grants, licenses or contracts;
- Facilitate class actions and a citizen’s bill of rights through which individual citizens can take action to prosecute corporate crime;
- Employees who report illegal activities, so-called “whistleblowers,” should be protected by federal and provincial legislation from dismissal and other retaliatory measures;
- Strengthen product liability laws so that victims can sue corporations to recover both compensatory and punitive damages;
- Increase staffs and budgets of corporate crime police, creating “strike forces” and increasing community contact by corporate crime police to increase awareness of corporate crime;
- Make police liable for failure to act and for looking the other way when knowledge of corporate crimes is obtained;
- Make it a crime for a corporation to have a standard operating procedure (SOP) that allows employees to execute their responsibilities in an illegal manner without executives being notified;
- Laws concerning the destruction of documents could be strengthened and enforced so that “sensitive” documents are protected for the benefit of the public;
- The actions of a corporation in reaction to an illegal act (covering up or taking measures to prevent repetition) should be able to be used as evidence of the intent of the corporation of the illegal act;
- Supervisors who willfully or recklessly fail to oversee an assigned activity that results in illegal conduct could be held criminally liable;
- It could be a criminal violation for a manager not to report to authorities any product or process that may cause death or serious injury;
- Change the standard of proof from “beyond a reasonable doubt” to “on the balance of probabilities” for prosecutions of corporations;
- If a corporate executive is convicted of an offence, he or she should have to make a public confession by newspaper advertisement of the nature of the offence and the penalty imposed, be barred from employment in the industry for a stipulated period of time and be required to participate in community service, including, for example, requiring convicted coal company executives to work in a coal mine for a year;
- Eliminate “country club” prisons so that white collar criminals are treated on par with street criminals;
- Convicted companies could be required to notify in advertisements and through direct mail where possible their victims and all companies should be required to notify any potential victims who may be adversely affected by potential health and safety dangers associated with any product, practice or service of the corporate entity;
- Convicted companies could be put “on probation” with a legal or financial officer assigned to assure compliance with the law within the managerial hierarchy over a period of time, or to structure new management procedures etc;
- Convicted companies could be required to make restitution to their victims, as in a civil proceeding;
- Restructure fines for corporate crimes into equity fines, in which corporations would be required to issue a number of shares (equal to the cash fine necessary to deter the activity) to a crime victim compensation fund, which can liquidate the shares at will;
- Strictly enforce fine collection schedules for corporate crime;
- Require that a percentage of fines be paid to support independent corporate “watchdogs” in order to increase the number and diversify the status of people monitoring corporate crime, which should help avoid crimes from being overlooked or ignored;
- In serious cases of repeat offences, implement a “three strikes you’re out: rule that would “execute” a corporation by stripping it of its charter;
- Formalize the notification system and set up a public review process for all corporate mergers;
- Tax all mergers, and forbid mergers of corporations of a certain size, regardless of how diverse their business lines are or how competition may be affected;
Corporations and the Environment
- Tax or prohibit environmentally damaging activities and products and energy inefficient products;
- Reduce or eliminate subsidies to resource-intensive or environmentally damaging activities;
- Document the effects of corporate social responsibility on the creation of “wealth” (using the market definition of revenues, profits and share price performance) by examining the track records of ethical investments funds and other indicators;
- Work with corporations one-by-one to set industry standards that include social responsibility and increase accountability. For example, if one corporation agrees to set a leading standard by pledging to eliminate their emissions of a pollutant, the societal benefits are the change in that corporation’s activities, the pressure on other corporations in the same industry to follow the standard, and the accountability that results from having a standard by which to measure performance. The corporation benefits by being able to increase its market share through promotion of its industry-leading practices;
- Gather together representatives from leading, socially responsible corporations and socially responsible investment funds into a coalition that will advocate for many of the accountability mechanisms listed above, and call on their colleagues in the corporate sector to follow their lead.
(3) Transformative campaign strategies to press Canadian governments to re-charter corporations based upon a social responsibility framework.
- Redefine the process and criteria for granting corporate charters to specifications set by governments after a democratic decision-making process involving all Canadians. For example, as a requirement of their right to incorporate, large companies should place in their offices a public ombudsperson, receiving public and employee complaints and investigating possible law violations. And publicly-held corporations should be required to disclose their litigation records in full to securities commissions before incorporation in a jurisdiction, as a character requirement for all companies doing business or licensed in a jurisdiction;
- Have governments determine and set limits on the rights, governance and activities of existing corporations through a democratic decision-making process involving all Canadians;
- Amend the Charter of Rights and Freedoms to explicitly exclude corporations from its protection, thereby reclaiming it as the Charter of Human Rights and Freedoms; and
- Revoke the charters of harmful corporations.
(4) International campaign strategies to create an international Transnational Corporation (TNC) social responsibility framework.
- Strengthen the international codes of conduct for TNCs;
- Advocate appropriate government policies, a supportive institutional structure and a financial commitment in both developed and developing countries to ensure enforcement of the codes of conduct;
- Establish a global auditing body to evaluate states and TNCs in terms of their adherence to international agreements and codes of conduct;
- Make parent companies liable for the activities of their subsidiaries, and allow legal violations by subsidiaries in other countries to be tried in the parent company’s country;
- Ensure that TNCs cannot use transfer pricing (shifting profits from country to country) to avoid paying taxes on profits;
- Make multilateral financial institutions (e.g the World Bank) accountable for the environmental aspects of development projects they subsidize, and expand public access to information about the projects.