Jeffrey Bone
Abstract:
In the seminal corporate law case of BCE and Bell Canada, the Supreme Court stated that corporate directors must resolve to balance stakeholder interests “in accordance with their fiduciary duty to act in the best interests of the corporation, viewed as a good corporate citizen.”[1] The initial reaction of the corporate and legal community to the BCE decision has been to suggest that the U.S. principle of maximizing shareholder value in a change of control situation is no longer the default rule. Beyond this principle, BCE has also introduced the progressive concept of the ‘good corporate citizen.’ The article questions whether this statement carries any legal import, or is merely an insignificant judicial remark of diminutive value.
Article:
I. INTRODUCTION
This paper assesses whether the “good corporate citizen” is a supplementary component in Canadian corporate law, or is simply a restatement of the existing legal standard. To be clear, it remains apparent that corporate profit is the primary feature of directors’ fiduciary responsibility, however the injection of the ‘good corporate citizen’ standard may suggest that this is not the only legal mandate or objective of a corporation.
For instance, is it permissible for corporate directors to balance corporate social responsibility along with shareholder wealth? This paper explores this concept and suggests that a new paradigm has emerged beginning with the Peoples decision where corporate directors may take into account non-shareholder interests such as environmental protection and long-term sustainability along with the tradition values of profit and primacy of the shareholder.[4] In other words, this is an endorsement of a so-called director primacy norm as opposed to a traditional shareholder primacy norm.
A. Summary of the BCE Case
BCE is the most important Canadian corporate law case since Peoples and its most significant departure from the former case law is with the introduction of the “good corporate citizen.” While the context of the BCE decision concerns fundamental change of control scenarios, the decision has a general application on corporate accountability and directors’ fiduciary duties towards stakeholders. [5]
The case relates to the privatization of BCE Inc. and Bell Canada (BCE) that would have transferred corporate ownership to a syndicate of private equity investors led by the Ontario Teachers Pension Plan Board. This would have been Canada’s largest corporate takeover. The privatization under the proposed consortium of owners would have seen the syndicate invest eight billion of capital and require an additional $30 billion of new BCE debt. [6] This would have significantly devalued the existing bonds of the corporation to an approximate decline of 20 percent. [7] The deal was eventually terminated in December of 2008 because the Ontario Teachers Pension Plan Board was unable to obtain a professional accounting opinion on the solvency of the proposed transaction. Subsequently, BCE has commenced litigation against the consortium for breach of contract in the amount of $1.2 billion.[8]
In May 2008, the Québec Court of Appeal (QCA) ruled in favour of the holders of Bell Canada debentures (Bondholders) in permitting the use of the Canada Business Corporations Act[9] oppression remedy to challenge the BCE plan of arrangement. [10] This plan of arrangement was initially approved by the shareholders in September of 2007. The Bondholders argument was threefold: (1) the privatization of BCE converted investment grade debt into junk bonds; (2) the plan of arrangement was not fair and reasonable, and; (3) the BCE directors had not appropriately considered the Bondholders interests. In their written decision, the QCA focused on the representations and understandings between BCE and the Bondholders which fell outside the scope of the trust indenture. The QCA held that BCE had continually assured the Bondholders that the investment grade rating of the bonds would continue. By entering the proposed transaction BCE had failed in this commitment.
The implications of the QCA decision were troublesome to lawyers and the corporate community. Under this decision, corporations could not rely on the exculpatory terms of their contractual relationship with bondholders and creditors to govern their legal obligations. In other words, bondholders were entitled to rely on expectations that were outside the legal rights as dictated in the terms of the trust indenture. Additionally, corporations were not entitled to rely on the financial literacy or sophistication of their investors. For example, all of the relevant bondholders in BCE were savvy investors and/or high powered financial institutions. This case was destined for the Supreme Court of Canada, and in the spring of 2008 the Supreme Court granted leave to hear the appeal and subsequently overturned the QCA decision.
In December 2008, the court released a written judgment confirming that the Directors of BCE had acted properly under the proposed plan of arrangement. The decision indicated that the QCA had applied the holding in Peoples incorrectly and that the BCE directors did not have an overriding legal obligation to take into account the Bondholders interests. [11] Instead the directors have a fiduciary obligation owing to the corporation itself, which includes the considerations of several corporate constituents such as creditors, suppliers, governments, consumers, employees, and the environment.[12]
This decision leaves ambiguity on the legal ramifications of corporate accountability in Canada and the nature of directors’ fiduciary duties towards corporate constituents. As one commentator remarked, “a duty owed to everyone is in effect a duty to no one.”[13] In effect, the fiduciary obligation of directors to any particular stakeholder group is permissive rather than mandatory.[14] This is interesting considering that the Supreme Court had an opportunity to address in BCE the long standing debate in corporate law over whether any stakeholder can challenge the primacy of shareholders.
Unfortunately, the wider questions involving corporate accountability and the nature of stakeholder rights, and how to balance those competing interests were not resolved in BCE. It is only clear that directors may make decisions with wide latitude in interpreting what is in the best interests of the corporation. Additionally, the “good corporate citizen” standard was explored at paragraph 66 of the judgment:
Professor Anand called the “good corporate citizen” reference a “conspicuous ambiguity” in the judgment.[16] BCE has opened the door to speculation on the nature of the ‘good corporate citizen,’ and whether this remark has ramifications on directors’ fiduciary duties. This paper confronts this obscurity within the BCE decision and addresses the purpose, scope and potential impact of this novel standard on Canadian corporate governance.
II. CORPORATE CITIZENSHIP
The history of the term the “good corporate citizen” has a rich and fascinating beginning. The Great Depression sparked a response to perceived abuses of corporate power. [17] This period was marked by sweeping changes in corporate law, and began a period of corporate governance and regulation as advocated through the work of Berle and Means in their groundbreaking work on the modern corporation.[18] At the same time, a less well known scholar by the name of Edwin Merrick Dodd, Jr. wrote about the business corporation and envisioned a new era of corporate social responsibility under the legal justification of corporate citizenship.[19]
Dodd provided a realistic assessment of corporate financial performance which included the contribution of employees, creditors, consumers, and the community as well as shareholders. This concept has also been linked to the more recent literature of Blair and Stout on the team production model of corporate accountability that argues for directors to “build and protect the wealth-creating potential of the entire corporate team [with] “wealth” that is reflected… [in] good “corporate citizenship” in the community.” [20]
Blair and Stout challenged the long held assumption of Berle and Means and argued that the true objective of corporate governance is to find an efficient solution to the team production problem, whereby corporate mangers have to adequately address the valid claims of all corporate constituents encompassed in the “corporate team.” [21] Essentially under the team production approach, corporate profit is viewed as the result of different stakeholders contributing their “firm-specific” resources in the enterprise. [22] Therefore, each constituent is part of the collective effort to produce output for the corporation. The central problem is that once the joint input has been allocated from each constituent, the corporation is vulnerable to the opportunistic and tactical behaviour of individual constituents vested solely with self-interest.
A. Director Primacy Norm vs. Shareholder Primacy Norm
The solution to this corporate problem is two-fold according to Blair and Stout. First, each stakeholder should be entitled to compensation based on his or her original investment of labour or capital. Second, the corporate directors should effectively find a fair distribution among the corporate constituents in accordance with their ‘opportunity cost.’[23] Essentially, this implies that the role of the corporate director is to mediate the allocation of production in a fair distribution to all corporate constituents, and further to enhance corporate profitability as an independent board with sole allegiance to the corporation itself. This is also referred to as the director primacy norm.
Under the director primacy norm, corporate managers are not simply the trustee of the shareholders but are beholden to the entire corporate team. [24] Based on the principle of transaction costs, Blair and Stout argue that it is more efficient for these decisions to be determined by an independent board of directors as opposed to negotiating for each ‘contract’ between the various corporate constituents.[25]
The influence of law and economics is obvious in the team production approach with references to principles such as efficiency, transaction, and opportunity costs. However, the team production model favours a responsible version of corporate governance that does not put the interests of one constituency group above any other by automatic operation of law.
Under the shareholder primacy norm, corporate managers must maximize profit in the firm and let the value accrue to the shareholders. The performance of the firm is governed by the invisible hand of the market.[26] Included among the shareholder primacy theorists is the late Nobel Prize winning economist Milton Friedman who argued that the socially responsible objective for corporations is to increase profits.[27] Friedman wrote: “[The responsibility of managers] is to conduct the business in accordance with [the desires of shareholders], which generally will be to make as much money as possible while conforming to [the] basic rules of the society, both those embodied in law and in ethical custom.”[28] In Friedman’s argument, he advances the premise that corporations exist for the pleasure of shareholders, and ultimately that corporate directors, pursuing alternative objectives beyond maximizing shareholder wealth, are using the financial capital they have been entrusted with outside the acceptable discretion. The socially responsible objective of corporate directors should be to allow the corporation to engage in the free market economy in an efficient manner, thereby increasing the wealth of shareholders and all market participants. That is why a shareholder primacy model purports to be the best means to achieve aggregate social interests. [29]
In the Canadian context, Professor Ben-Ishai has indicated that the Supreme Court judgment of Peoples was reflective of the team production model and director primacy norm that a single shareholder or group does not control public corporations. [30] It was in the Peoples decision that the following statement was first written by Major and Deschamps JJ and then later referenced in BCE:
In her article, Professor Ben-Ishia applied the team production model to argue that Canadian law contemplates a director primacy norm as opposed to a shareholder primacy norm. [32] In this sense, directors have the opportunity to legally allocate resources between corporate constituents as opposed to simply protecting the interests of shareholders beyond all other considerations. At the time of her article, widespread thinking in the Canadian legal community supported the view that Peoples was “an unjustified departure from Canadian corporate law’s principal-agent and shareholder primacy understanding.” [33]
Subsequent to Professor Ishai’s article, the BCE decision has not resolved the debate over corporate accountability in Canada, and whether a shareholder primacy or director primacy norm is the appropriate standard. In any event, this paper seeks to resolve a broader issue beyond this debate. This paper questions whether the curious addition to the BCE case of the “good corporate citizen,” which was not included in the Peoples case, represents any fundamental development that may eventually impact corporate governance in a significant way? As a preliminary review, the following is a brief analysis of the term “corporate citizenship” as applied under Canadian law.
B. Judicial Application of “Corporate Citizenship” in Canadian Jurisprudence
In a search for the term the “corporate citizenship” in legal databases such as WestlaweCARSWELL and CanLII, I was able to note the following substantive references in Canadian case law. [34] In order to frame the BCE decision, I have briefly summarized these cases below.
i. British Columbia Hydro and Power Authority v. British Columbia (Environmental Appeal Board)
BC Hydro[35] was a case that concerned a remediation order to reclaim a site where roofing materials were manufactured under s. 27.1 of the Waste Management Act. The order was aimed at a corporation which was responsible for the waste, however had subsequently merged with a new corporation (BC Hydro) and officially dissolved the former entity.
The legal question was whether BC Hydro still attracted the liability of the remediation order. The Honourable Madam Justice Newbury of the British Columbia Court of Appeal stated that it might be expected BC Hydro would “co-operate in remediation efforts on a voluntary basis “either as part of good corporate citizenship or in the context of lawsuits filed by the parties.”” [36] This judicial remark is an indication that “corporate citizenship” is a voluntary practice many corporations undertake, however it does not automatically create legal liability. The court was not prepared to order performance of the remediation based on a doctrine of corporate citizenship. In any event, the corporation was order to satisfy the remediation order and comply with the judgment against them.
ii. R v. Bata Industries Ltd.
Bata is a leading case concerning sentencing for corporate environmental crimes in Canada.[37] In 1992, Bata Industries Ltd. was at the centre of a corporate sentencing hearing concerning an environmental offence under the Ontario Water Resources Act [38] . The court was very clear in their purpose and objectives in prosecuting environmental transgressions: “Breaches of these regulations and laws must be dealt with in such a fashion as to prevent their repetition and to foster the principle of environmental responsible corporate citizenship.[39] ” Justice Ormston of the Ontario Provincial Court went on to define these principles as:
B. The extent of the damage afflicted;
C. The deliberateness of the offence;
D. The attitude of the accused.[40]
This test was developed from Chief Justice Stuart of the Territorial Court of the Yukon and was applied as a standard in which to foster principles of environmentally responsible corporate citizenship. Curiously, these principles consider the “deliberateness” and “attitude” of the offending corporation. Of course, a corporation does not have an attitude, it is the operating minds behind the corporation which can display these features. On this basis, corporate citizenship is akin to a due diligence defence that a corporation may utilize to defend against accusations of environmental malfeasance.[41]
Bata demonstrates that the courts have fashioned a purpose behind prosecuting environmental offences and invoke the language of corporate citizenship in doing so. Normatively speaking, prosecution of criminal offences creates a sense of justice in reminding individual citizens to respect the law. Conversely, by prosecuting corporations for breaching environmental regulations enforces compliance and respect for the law.
iii. T. Eaton Co.
In 1999 the Ontario’s Superior Court of Justice (Commercial List) reviewed a plan of compromise and arrangement respecting the Eaton’s Company Ltd. [42] Eaton’s was a major retail store and was entering into bankruptcy proceedings via the Companies’ Creditors Arrangement Act[43] . In the judgment, the Justice commented in obiter about the possibility that Eaton’s counsel, in their own best interest may take advantage of other creditors who failed to be as opportunistic as Eaton’s. In this regard, Justice Farley stated:
While the Court acknowledged that Eaton’s had a legitimate legal route to pursue self interest at the expense of other creditors, it also acknowledged that this could result in a negative impact on the reputation and public perception of the corporation. This case would suggest that corporate citizenship is about corporations meeting the social expectations of the community. However, these expectations are not legally mandated or required under the law. When this principle is applied to BCE, it appears that the reference of the “good corporate citizen” does not add any legal dimensions to directors’ fiduciary duties. Therefore, the remark does not have any legal import based on the merits of the T. Eaton Co. case.
iv. Windsor v. Canadian Pacific Railway
The 2006 Alberta decision of Windsor v. Canadian Pacific Railway[45] concerns an application to certify a class action lawsuit against Canadian Pacific Railway (CPR). The class action revolved around a ground water spill of hazardous pollutants that diminished property value and caused physical damage. In a very novel argument, CPR claimed that allowing certification of the law suit in the face of “good corporate citizenship” would be counter productive and discourage corporations from adopting corporate citizenship strategies. As counsel for the Defendant said in oral argument: “CPR is doing the right thing, we don’t need a class action to force them to do it...”[46] Essentially, CPR was pointing out that they had been proactive before and during the investigations by government officials. For instance, they were integral in the development of programs with Alberta Environment in creating a remediation program. In any event, this submission did not appear to have a significant influence on the decision as the class proceeding was granted.
v. Vysek v. Nova Gas International Ltd
Finally, Vysek[47] involved a negligence claim under a duty of care standard. This incident revolved around the employment of a Malaysian engineering student at Nova Gas International Ltd. (Nova Gas). Interestingly, the Defendant, Nova Gas, argued that the student was hired in an exchange program that was a matter of ‘good corporate citizenship’ more than a commercial initiative.[48] The Court partially accepted the argument and agreed that because this was a good corporate citizenship initiative as opposed to a commercial initiative, Nova Gas’ duty of care towards the engineering student was diminished. This is because the exchange program was organized by a non-profit group known as the Howard Foundation and this institution had also been contributory negligent in hiring the student.
In this review of Canadian law it is clear that Courts have not been hesitant to use the term “corporate citizenship,” however the term has not been linked to any legal obligations beyond the prosecution of environmental offences as summarized in Bata.
In that case, the court utilized the language of corporate citizenship to sanction liability for environmental offences. This paper suggests that the corporate citizenship reference in BCE may perform a similar legal function over governance practices. However, in Bata an explicit test is set out which highlights the principles of “responsible corporate citizenship.” BCE does not contain any definition or parameters of corporate citizenship. Therefore, in an attempt to understand the normative underpinnings, the following is brief literature review on the legal implications of corporate citizenship.
C. Theoretical Foundations of Corporate Citizenship
As previously mentioned, Edwin Merrick Dodd, Jr. wrote in 1932 about the modern business corporation. Under Dodd’s model, if a corporation is seen as a separate entity from that of its shareholders, then management can act on behalf of the corporation at large as opposed to simply the best interests of shareholders. The corporate interests would include the benefit of a range of corporate constituents, such as employees, creditors, consumers, and the community. The interests of these corporate members can often conflict. For example, a policy designated to benefit employees may conflict with the wealth maximization of shareholders. However, Dodd saw a trend among prominent business leaders towards conceptualizing the corporation as a citizen rather than simply as an engine for shareholder wealth:
Dodd has been interpreted as stating that the idea of a good citizen implied, “right conduct in the context of a community of others… [and] [r]egard for others and a willingness to sacrifice personal interests for others’ sake characterize[s] responsible citizenship.”[50] Therefore, fixation on shareholder profit alone is not conducive to an efficient community, and in terms of social costs it is inappropriate for a corporation to do so, just as it would be for a regular citizen or natural being.[51] In terms of reform, the corporate citizenship model has, “substituted a public notion of corporate law, based on the public effects of corporate activity, which implied a much richer notion of obligation than a unitary duty to shareholders.” [52] This focus on citizenship, as a defining feature of the corporation has been dormant in corporate law literature with only a few exceptions. For example James White wrote:
Dodd saw corporate law at a crucial epoch, where it was returning to the sphere of public regulation as opposed to private law due to a variety of forces. [54] These forces included the inequality of bargaining power that large corporations had acquired, and resulted in a considerable amount of legislation to protect the health, safety and financial interest of employees.[55] Dodd’s legal argument coincided with the reality that corporations were now large multinational institutions capable of affecting people’s lives to a degree equivalent to government intervention or other forms of public control.
According to Dodd, at stake was the defence of the entire capitalist system that needed to accept corporate social responsibility as a constructive leadership plan in the empire of American capitalism. [56] Dodd firmly believed there was growing trend towards corporate citizenship principles. However, as the economy recovered from the Great Depression, perhaps the signs Dodd believed to be indicators of this trend had become obsolete. At the time of writing we are in a new age of global economic crisis; the question is whether there will be signs of revival in this principled belief of corporate citizenship and responsibility.
D. Application of BCE and the “Good Corporate Citizen” Approach
The previous section explored the history of corporate citizenship as explained by Dodd, however it is unclear from the analysis of Dodd what the indicia of a good corporate citizen would be when balancing the interests of corporate stakeholders? For the purposes of this paper, it is the contemporary meaning of this concept as imparted in the BCE decision which must be examined. On this note, even if the doctrine of the “good corporate citizen” carried legal import, there is uncertainty over what values or ethic would underscore the concept.
One scholar has offered up an opinion on this point. Michel Dion suggests that a business enterprise, such as a corporation is a moral agent and has its own social responsibilities “following from the implicit social contract between society and business.” [57] In search of a definition of corporate citizenship, Dion draws on ten values delineating a code of ethics including, “integrity, honesty, justice, equality, objectivity, loyalty, devotion, respect, prudence and tolerance.[58] ” However, these values appear to be in line with moral philosophical precepts rather than legal parameters for the purposes of determining corporate accountability. There is no clear evidence that the Supreme Court in BCE intended values such as these to be part of the a legal definition of corporate citizenship. Unfortunately, as mentioned previously, the BCE decision did not fashion a test or framework of law in this regard. Whether this omission was purposeful because the Supreme Court was hesitant to give legal credence to the corporate citizenship notion is unknown. However, future litigation that explores the language utilized in BCE, may attempt to attribute legal application of the “good corporate citizen” concept.
In this hypothetical future litigation, it would be necessary to review guidance from relevant academic disciplines to fashion a test of “good corporate citizenship.” These disciplines may include academic research in law, business or philosophical theories. In this assessment it becomes important to review approaches such as Dion's to determine what particular legal impact the ‘good corporate citizenship’ doctrine should have, if any. While Dion’s work provides assistance in forming the non-legal nature of corporate citizenship, it would be mere speculation to assume that the Supreme Court would agree with these indicia of corporate citizenship.
However, this paper suggests that if the Supreme Court has intended to craft a novel approach to corporate accountability in BCE, it will be left to future litigation to breath new life into the principled features of the concept. Given the ambiguity of the language, it will only be known in time whether this principle will have any legal application. For now, the meaning of the “good corporate citizen” is left to speculation and conjecture. However, that does not mean corporate directors should ignore the implications from BCE as explained below.
i. Immediate Implications for Corporate Directors in the wake of BCE
The advice that can be imparted to boards of directors operating under the BCE fiduciary standard is to make diligent and clear corporate decisions based on a variety of factors relating to the interests of corporate constituents. Further, the competing interests must be weighed in a manner that acknowledges the director’s best business judgment in relation to the immediate circumstances. This is all conventional wisdom; however this paper suggests that in the aftermath of the BCE decision, corporate directors must be prepared to defend corporate actions with due diligence and defendable approaches which acknowledge the corporations wider responsibilities beyond maximizing shareholder profit.
This can be reflected as heightened awareness of corporate responsibility, particularly in a change of control circumstance. For instance, if the impact of a proposed corporate transaction would result in the termination of several employees, then BCE could be used as legal support for an oppression remedy on behalf of employees invoking the “good corporate citizen” standard. In this context, a board of directors may be appropriately exercising their business judgment by accepting a lower offer in a potential takeover if it benefits a broader group of stakeholders. Essentially, this is a clear step away from the so-called Revlon rule in the United States, which compels directors to maximize shareholder interests in the context of corporate takeovers. [59]
Further, it could become a percept of the “good corporate citizen” standard that the long-term financial interests of a corporation should be a prevailing factor over short-term gain. The variety of issues that may arise as a result of balancing corporate constituents’ interests is limitless, particularly, in times of a bleak economic climate. In any event, to what extent a corporate board should balance shareholder profit and stakeholder interests remains a matter of discretion and business judgment.
III. CONCLUSION
This paper suggests that the BCE decision still allows directors to contemplate for themselves the future course of a corporation, and it would be foolish to assume directors do not have a primary mandate to ensure a corporation is profitable. This paper does not argue with the reality that corporations must diligently protect the wealth of their constituents and the assets they have been entrusted with. However, when a corporation is returning an adequate profit, it becomes clear that economic values are not the only mandate. [60] To this extent, BCE has continued in the course towards a director primacy norm which was a trend beginning in Canada with the Peoples decision. In short, BCE signals that it is in keeping with directors’ fiduciary duty to act as more than a mere trustee of shareholder’s assets. Additionally, BCE signals that “good corporate citizenship” may represent a new standard that gives directors the authority to make decisions based on non-financial principles as opposed to simply economic values as the solitary feature.
Finally, in conclusion the questions raised in this paper have not been given a complete explanations through BCE, and the mechanisms by which directors balance divergent interests and assess environmental, social and economic values is largely left for directors to decide. The BCE decision has not mandated any socially responsible corporate behaviour, however it simply gives directors a further reason to regard non-economic values that affect more peripheral corporate constituents then simply the shareholders.
The analysis presented in this paper has demonstrated that in the context of the BCE case, the application of corporate citizenship in Canada is far from a settled matter. However, the citizenship approach can be met with an institutionalization of corporate ethics that legitimizes directors and managers acting in the interests of all affected corporate members, and by reaching decisions through an informed, fair and participatory process that ultimately unites the interests of all corporate constituents. Whether such a result can be achieved through legal reform is questionable. However, the Supreme Court has been clear in their adoption of a new expectation, the “good corporate citizen” standard. Therefore, modern Canadian corporations may be wise to stay ahead of the curve and begin their transformation into a new era of corporate ethics in relation to corporate citizenship.
[1] BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 S.C.R. 560 at para. 81 [BCE] [emphasis added]; Note that in regards to the oppression remedy, the Supreme Court defined this duty as a “responsible corporate citizen” as opposed to “good corporate citizen” (ibid. at para. 82).
[2] Ibid. at para. 40.
[3] Ibid. at para. 81 [emphasis added].
[4] Peoples Department Stores Inc. (Trustee of) v. Wise 2004 SCC 28, [2004] 3 S.C.R. 461 [ Peoples
[5] Peer Zumbansen and Simon Archer, “The BCE Decision: Reflections on the Firm as a Contractual Organization” (2008) CLPE Research Paper 17/2008 vol. 04 no. 04.
[6] Jim Middlemiss, “BCE ruling good news for board; Duty to Act: Supreme Courts says directors must consider all stakeholders” Financial Post (20 December 2008) FP6.
[7] Ibid.
[8] Ibid.
[9] Canada Business Corporations Act, R.S.C. 1985, c. C-44, ss. 192, 241 [ CBCA ].
[10] BCE Inc., Re, 2008 QCCA 933, 43 B.L.R. (4th) 157.
[11] Peoples, supra note 4.
[12] BCE, supra note 1 at paras. 37-39.
[13] Anita Anand, “Backing the BCE Board” University of Toronto Law School Faculty Blog (19 December 2008) [BCE Board], online: University of Toronto Faculty of Law http://utorontolaw.typepad.com/faculty_blog/2008/12/backing-the-bce-board.htm.
[14] Ibid.
[15] BCE, supra note 1 at para. 66 [emphasis added].
[16] BCE Board, supra note 13.
[17] Note many of Berle’s ideas in The Modern Corporation and Private Property made there way into President Franklin Roosevelt’s ‘New Deal’ including deposit insurance and securities regulation. See Richard Parker, “The Crisis Last Time” The New York Times Book Review (9 November 2008), online: The New York Times http://www.nytimes.com/2008/11/09/books/review/Parker-t.html.
[18] Adolph A. Berle & Gardiner C. Means, The Modern Corporation and Private Property , (New York: Macmillan, 1933) at 334.
[19] Merrick. Dodd Jr., “For Whom are Corporate Managers Trustees?” (1932) 45 Harv. L. Rev. 1145 [For Whom are Corporate Managers].
[20] Margaret M. Blair & Lynn A. Stout, “Specific Investment and Corporate Law” (2006) 7 European Business Organisation Law Review 473, online: SSRN.
[21] Corrine M. Fiesel, “Fiduciary Duties of Directors, Corporate Governance and the end of Shareholder Primacy” in Poonam Puri & Jeffrey Larsen, eds., Corporate Governance and Securities Regulation in the 21st Century , (Toronto: Butterworths, 2004) 61 at 79 [Shareholder Primacy].
[22] Margaret M. Blair & Lynn A. Stout, “A Team Production Theory of Corporate Law” (1999) 85 Va. L. Rev. 247 at 249 [Team Production Theory].
[23] Shareholder Primacy, supra note 21 at 79 and Team Production Theory, supra note 22 at 265-66.
[24] Supra note 21 at 80.
[25] Further, “the power that the stakeholders confer upon the board of directors to favour one group of corporate claimants over others is virtually absolute as long as their decisions are in the long-term interest of the overall enterprise, and as long as the board of directors evidence loyalty to the overall enterprise and refrain from self-dealing at its expense” ( ibid ).
[26] Daniel.J. Morrissey, “Towards a New/Old Theory of Corporate Social Responsibility” (1989) 40 Syracuse L. Rev. 1005 at 1024.
[27] “The Next Question” 386:8563 The Economist (19 January 2008) 8.
[28] Milton Friedman, “The Social Responsibility of the Corporation is to Increase its Profits” (1970) N.Y. Times Magazine (13 September 1970), online: University of Michigan http://www.umich.edu/~thecore/doc/Friedman.pdf at 1.
[29] Henry Hansmann & Reinier Kraakman, “The End of History for Corporate Law” (2000-2001) 89 Geo. L.J. 439 at 441.
[30] Stephanie. Ben-Ishai, “A Team Production Theory of Canadian Corporate Law” (2006-2007) 44 Alta. L. Rev. 299 at 299 [Canadian Corporate Law], citing Peoples, supra note 4.
[31] Peoples, ibid. at para. 42.
[32] Canadian Corporate Law, supra note 30.
[33] Ibid. at 3.
[34] Note that the term “corporate citizenship” was chosen as the search term because it would capture closely related references such as “good corporate citizenship” or “corporate citizen” in order to perform a broad and contextual approach to the review. Only those cases with significant reference of the term are included in this analysis.
[35] British Columbia Hydro and Power Authority v. British Columbia (Environmental Appeal Board), 2003 BCCA 435, 17 B.C.L.R. (4th) 201 [ BC Hydro ].
[36] Ibid. at para. 39 [emphasis added].
[37] R. v. Bata Industries Ltd. (1992), 7 C.E.L.R. (N.S.) 245 at 293 (Ont. Prov. Ct.) [Bata].
[38] R.S.O. 1980, c. 361 ss. 16(1), (2), 75(1).
[39] Supra note 37 at para. 2 [emphasis added].
[40] Ibid. at para. 5.
[41] Note there was an appeal of this decision to the Ontario Court of Appeal, however the issue of the principles applied was not part of that appeal.
[42] T. Eaton Co., Re (1999), 14 C.B.R. (4th) 298 (Ont. Sup. Ct.) [T. Eaton Co.].
[43] R.S.C. 1985, c. C-36.
[44] T. Eaton Co., supra note 40 at para. 5 [emphasis in original].
[45] 2006 ABQB 348, 402 A.R. 162.
[46] Ibid. at para. 146.
[47] Vysek v. Nova Gas International Ltd. 2001 ABQB. 750, 298 A.R. 253 [Vysek].
[48] Ibid. at para. 221.
[49] For Whom are Corporate Managers, supra note 19 at 1161. Intriguingly, Dodd quoted an officer of the General Electric Co. who offered a warm assessment of the corporate vision and related this to the public obligation and public duty of large corporations to act as good citizens: If there is one thing a lawyer is taught it is knowledge of trusteeship and the sacredness of that position. Very soon he saw rising a notion that managers were no longer attorneys for stockholders; they were becoming trustees of an institution. If you will pardon me for being personal, it makes a great difference in my attitude toward my job as an executive officer of the General Electric Company whether I am a trustee of the institution or an attorney for the investor. If I am a trustee, who are the beneficiaries of the trust? To whom do I owe my obligations? My conception of it is this: That there are three groups of people who have an interest in that institution. One is the group of fifty-odd thousand people who have put their capital in the company, namely, its stockholders. Another is a group of well toward one hundred thousand people who are putting their labor and their lives into the business of the company. The third group is of customers and the general public. Customers have a right to demand that a concern so large shall not only do its business honestly and properly, but, further, that it shall meet its public obligations and perform its public duties — in a word, vast as it is, that it should be a good citizen. Now, I conceive my trust first to be to see to it that the capital which is put into this concern is safe, honestly and wisely used, and paid a fair rate of return. Otherwise we cannot get capital. The worker will have no tools. Second, that the people who put their labor and lives into this concern get fair wages, continuity of employment, and a recognition of their right to their jobs where they have educated themselves to highly skilled and specialized work. Third, that the customers get a product which is as represented and that the price is such as is consistent with the obligations to the people who put their capital and labor in. Last, that the public has a concern functioning in the public interest and performing its duties as a great and good citizen should. I think what is right in business is influenced very largely by the growing sense of trusteeship which I have described. One no longer feels the obligation to take from labor for the benefit of capital, nor to take from the public for the benefit of both, but rather to administer wisely and fairly in the interest of all. (Address of Owen D. Young, January 1929, quoted in John H. Sears, The New Place of the Stockholder (New York: Harper & Brothers, 1929) at 209 as quoted in For Whom are Corporate Managers, supra note 19 at 1154.) Further, a General Electric Co. lawyer in 2005 wrote in the Wall Street Journal that “corporate citizenship has three interrelated dimensions: strong, sustained economic performance; rigorous compliance with fundamental accounting and legal requirements; and ethical actions beyond what the law requires, which advance the reputation and long-term health of the enterprise.” B.W. Heineman, “The Next Question” The Wall Street Journal (28 June 2005).
[50] David Millon, “The Ambiguous Significance of Corporate Personhood”, online: (2005) 1:2 Stanford Agora at 48 http://agora.stanford.edu/agora/libArticles2/millon/millon.pdf
[51] Ibid.
[52] Ibid.
[53] James Boyd White, “How Should We Talk About Corporations? The Languages of Economics and of Citizenship” (1984-1985) 94 Yale L.J. 1416 at 1418. [emphasis added].
[54] Dodd wrote: “Several hundred years ago, when business enterprises were small affairs involving the activities of men rather than the employment of capital, our law took the position that business' is a public profession rather than a purely private matter, and that the business man, far from being free to obtain all the profits which his skill in bargaining might secure for him, owes a legal duty to give adequate service at reasonable rates” (supra note 19 at 1148). Further Dodd wrote, “Regulations imposed in the interest of employees, consumers, or others may increasingly limit the methods which managers of incorporated business enterprises may employ in seeking profits for their stockholders without in any way affecting the proposition that the sole function of such managers is to work for the best interests of the stockholders as their employers or beneficiaries” (For Whom are Corporate Managers, supra note 19 at 1153).
[55] Ibid. at 1151.
[56] Ibid. at 1155-56.
[57] Michel Dion, “Corporate Citizenship as an Ethic of Care: Corporate values, codes of ethics and global governance” in Jörg Andriof & Malcolm McIntosh, eds., Perspectives on Corporate Citizenship (Sheffield: Greenleaf Publishing Limited, 2001) 119.
[58] Ibid. [emphasis added].
[59] The United States position as outlined in the Delaware case Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 at 182 (Del. Sup. Ct. 1986) [Revlon] is aligned with the shareholder primacy and law and economic perspective of corporate accountability. See also Jeremy Barretto, “BCE Inc. v. 1976 Debentureholders: Directors do what is best for the firm” Osgoode Hall Law School, York University: The Court (22 December 2008) online: Osgoode Hall Law School http://www.thecourt.ca/2008/12/22/bce-inc-v-1976-debentureholders-directors-do-what-is-best-for-the-firm/.
[60] See Dodge v. Ford Motor Co. 204 Mich. 459, 170 N.W. 668 (Sup. Ct. 1919).
