Feds’ corporate law reform may create more problems than it solves
Instead of making it easier for a board of directors to consider a company’s climate impact, revised act could make it harder
The 2019 federal budget proposed a number of changes to the Canada Business Corporations Act. One in particular, which is expected to receive Royal Assent soon, would allow a corporation’s board of directors to consider the interests of certain prescribed stakeholders, the environment and the long-term interests of the corporation. While the intention may be to clarify and broaden the scope of directors’ duties to act in the best long-term interests of a corporation, the amendment’s muddled language may have the opposite effect. So instead of making it easier for a director to consider a company’s impact on the climate, it could make it harder.
The amendment to the CBCA was characterized as a “codification” of the Supreme Court of Canada’s 2008 decision in BCE Inc. v. 1976 Debentureholders regarding directors’ duties to act in the best interests of the corporation. The BCE decision helped to shred the notion that a corporation only exists to serve shareholders. It was a watershed moment for the stakeholder capitalism model making clear that a broader array of employee, consumer, environmental interests could be properly considered.
The Supreme Court in BCE was clear that directors owe their statutory duty of loyalty to the corporation itself and that, in considering the best interests of the corporation, the board may consider the impact of corporate decisions on “shareholders or particular groups of stakeholders,” including “the interests of shareholders, employees, suppliers, creditors, consumers, governments and the environment” to ensure that they are treated fairly.