Good corporate citizenship isn’t a matter of choice

MONTREAL—If you don’t know why something exists, how would you know what to do with it? Identifying a purpose is something we start teaching our kids from the day they can understand us. “Put on your boots so your feet stay warm.” What happens when businesses are created and run with no purpose—at least no purpose that has the well-being of people and the planet in mind? It’s time for Canada to catch up to countries that have legal frameworks encouraging corporations to state their purpose. That’s not to say companies shouldn’t be able to make a profit. But as the British Academy stated in 2019, “The purpose of business is to solve the problems of people and planet profitably, and not profit from causing problems.” A more solid legal scaffolding for corporate purpose in Canada is necessary—and long overdue. Making corporate purpose a legal requirement in order to benefit from corporate status would help stakeholders, including investors, regulators, customers and employees, understand the company’s focus. For many companies, clarifying why they exist orients them toward clearly articulating social and environmental objectives and the value they are creating for their stakeholders. Richard Janda is a law professor at McGill University. Handout photograph Countries like France have already begun to incorporate corporate purpose into their legal framework. In 2019, the government amended the French Civil Code to include an important new sentence: “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 whereby corporations can articulate a raison d’etre in their articles of association. While not mandatory, it is an important step forward. In Canada, it remains up to the corporation’s CEO or board of directors to determine if the company should have a purpose at all. While companies have proliferated vision and mission statements, such statements are not understood by boards to orient the legal duties of those running the company. In other words, in Canada, high-sounding corporate declarations may amount to good PR and nothing more. What France has already caught on to, however, is that a legally significant social purpose can actually enhance profit rather than hinder it. Research continues to show that purpose-driven companies are more likely to attract loyal customers who are willing to advocate for them, maintain strong reputations and growth andbring in and retain better talent. One study found that 60 per cent of Americans would “choose, switch, avoid or boycott a company based on its stand on social issues,” while another found that 66 per cent of people polled would leave a product they commonly buy for a new one from a purpose-driven company. Iseoluwa Akintunde is an international lawyer and doctoral candidate at McGill University. Handout photograph Yet in Canada, corporations remain largely shareholder-driven, thanks in part to the Canada Business Corporations Act’s failure to require a statement of corporate purpose. Businesses need to be able to articulate why they exist. It can no longer just be about money —the world can no longer afford to support those kinds ofenterprises. In a new report, we call on the Canadian government to make five key reforms to the act, including requiring a statement of purpose from a corporation’s board (excluding small businesses), subjecting corporations to a“comply or explain” approach to stating that social purpose, extending the fiduciary duty of directors and officers to pursuing the purpose of the corporation in good faith with a view to its best interests, expanding those best interests to include impacts on community, and an annual statement from the board explaining how it has advanced those interests. Establishing corporate purpose is just one tool to enable a shift toward a society that prioritizes the well-being of people and planet over profit. But it is an important one. If Canada is serious about improving the lives of its citizens and every living thing, being a good corporate citizen can no longer be a matter of choice. Richard Janda is a law professor at McGill University. Iseoluwa Akintunde is an international lawyer and doctoral candidate at McGill University. The Hill Times