Bridge Over Troubled Water: Corporate Law Reform for Life-Cycle Based Governance and Reporting

Abstract

In spite of all the business initiatives using a sustainability language status quo remains very much unchanged: ‘business as usual’ continues, and is a very certain path towards a very uncertain future. The dire status as regards the convergence of environmental crises facing global society is encapsulated in the concept of ‘planetary boundaries’, first identified in the ground-breaking article by Rockstrom et al. in 2009, and updated and re-affirmed by Steffen et al. in 2015. Planetary boundaries define global sustainability criteria for critical environmental processes that regulate the stability of the life-support systems on Earth, defining nine parameters of the earth system to indicate a safe operating space for humanity. According to Steffen et al., human production and consumption is placing us in increasing or high risk in relation to at least four of the boundaries: climate change, biosphere integrity (genetic diversity, with uncertainty concerning the boundary for functional diversity), land system change, and biogeochemical cycles (phosphorus and nitrogen). The grand challenge of sustainability lies in securing the social foundation for humanity now and in the future, while staying within the planetary boundaries; in Kate Raworth’s words: achieving a safe and just operating space for humanity. Business contribution to meeting this grand challenge is vital. This paper concentrates on the contribution of the dominant legal form of business: the company. The paper first discusses why we are in this situation of corporate unsustainability: why has neither the mainstream corporate governance debate nor the more progressive CSR movement provided helpful answers? The answer lies in the perception of the nature of the company and of the role of regulation that informs these two alternative streams (Section 2), where the social norm of shareholder primacy dominates and where law, and notably company law, to a great extent has been ignored. This is also true of the business and human rights movement, although its innovative approach has the potential for contributing to breaking down barriers between social norms and law.The paper continues with discussing the role of the law, arguably the most powerful tool for society to implement the social norms that society on a high political level agree on: where and how has law failed in ensuring that companies create value in an environmentally, socially and economically sustainable way? That section concludes with an identification of the main barrier to sustainable business: the social norm of shareholder primacy that has taken over the discretionary space company law has given corporate decision makers, and the explanatory power of this recognition for the failure of the most favoured legislative tool for sustainability: reporting (Section 3). Legislative efforts at promoting sustainable business through reporting requirements risk continued failure because of the chasm between the perceived role and duty of the board and by extension management, and what boards and management are asked to report on.The recognition of the chasm between the perceived role and duty of the board and management, and the reporting requirements, helps identify a possible solution (Section 4). The research-based corporate law reform proposal presented here has the potential of being a ‘bridge over troubled water’, spanning this chasm and giving content to the new ‘non-financial’ reporting requirements of the EU. Section 5 concludes.