Abstract
In Canadian business law, directors have a duty to act in the best interest of the corporation, which includes the duty to assess, fairly and equitably, the impact of the corporation’s actions and decisions on its stakeholders. But which of the stakeholders’ expectations should be taken into account? How should a board arbitrate between the divergent expectations of different stakeholders? How should the interests of the shareholders be weighed in relation to the interests of the other stakeholders? Ultimately, in whose interests should the directors exercise their responsibility to govern the corporation’s affairs? This text attempts to provide answers to these questions, which are deeply perplexing to many directors, by reviewing the relevant law in other jurisdictions, particularly Great Britain and the United States, and then parsing the relevant judgments of the Canadian courts. We also provide guidelines for a board’s decision process when several stakefolders may be impacted by a decision or action of the company.
Highlights
The measure of a business corporation’s success is undoubtedly its economic performance
The Supreme Court noted in BCE that, in the event of a conflict between the interests of the corporation and the reasonable expectations of an interested party concerning a given result, the corporation’s interests prevail: “the directors owe their duty to the corporation, not to stakeholders, and [...] the reasonable expectation of stakeholders is that the directors act in the best interests of the corporation.” (BCE Inc. at para. 6)
According to the Canada Business Corporations Act, and the interpretation thereof by the Supreme Court of Canada in two recent decisions, the boards of directors of Canadian corporations must act in the interests of the corporation without favouring any particular stakeholder, not even the shareholders
Summary
The measure of a business corporation’s success is undoubtedly its economic performance. To achieve an excellent performance in the long run, the corporation must make the best use of the talent and experience of all its personnel. It must protect its good reputation as an employer, supplier of goods and services, buyer and citizen of the regions and countries where it operates. Corporate executives and boards of directors were imbued with a responsibility for a broad spectrum of stakeholders. They sought to maintain a healthy balance between the interests of the employees, shareholders, clients, and the broader societyeneral. Whatever the legal stipulations about boards’ fiduciary responsibility may have been during the 1950s to 1980s, management and boards of directors (made up at the time of a majority of insiders drawn from management) were driven by a concept of the corporation that took the interests of the stakeholders into account just as much as those of the shareholders
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