Earlier this month,
The proposed move was a reaction to the shareholder protections in
This type of "jurisdiction shopping" is not new for corporate law, nor is it necessarily harmful. While one could imagine a race to the bottom of among jurisdictions hoping to attract companies with visionary leaders, one could also see the opposite borne out in practice. Around two-thirds of S&P 500 companies are governed by
In
BILL S-285
In that context,
As debates as to how corporations should be legislated generally and governed specifically have intensified in recent years,4 it is notable that these key elements of Bill S-285 resemble some, though not all, of the hallmarks of the recently conceived class of corporations known as "benefit companies."
A NEW FORM OF BENEFIT COMPANY
There are key distinctions between benefit companies, at least as governed by
Foremost, benefit company status in
In contrast, a key element of Bill S-285 is that, if passed, its amendments would apply to every CBCA corporation. In other words, the proposed amendments would convert every CBCA corporation into a new sort of universal benefit company. But not only would shareholders not be given an opportunity to vote or dissent in respect of the change, this new class of "21st century business" corporation would lack some of the key features that were intended to keep benefit companies attractive to two key constituencies: shareholders and managers.
For example, a somewhat alarming element of Bill S-285 is its potential to increase claims against, and potentially exposure to liability for, the directors and officers of CBCA corporations. The bill proposes that a complainant in a derivative action would include any person that a court is satisfied is acting in pursuit of the interests of the wider society or the environment. That appears to be anybody, regardless of the remoteness of their connection to the corporation. What it would take to satisfy a court, and how likely any such action would be to succeed in the face of the business judgment rule, would have to wait to be seen, but it appears that the universe of potential claimants in relation to CBCA companies would be vastly expanded. The expansion of the duty of care, similarly, may create an additional new category of claims.
In contrast, benefit company laws were crafted to limit the availability of claims against directors and officers. Importantly, a claim to enforce the new element of the fiduciary duty - to act honestly and in good faith with a view to conducting the business in a responsible and sustainable manner and promoting the public benefits specified in the articles - may only be commenced by shareholders holding certain minimum thresholds, and only for non-monetary awards. Directors and officers are not exposed to the infinite universe of potential claims that could arise from "wider society."
IS CORPORATE PURPOSE UNIVERSAL OR BESPOKE?
The other key difference between the proposed amendments contained in Bill S-285 and benefit companies is the concept of "purpose" itself. Benefit companies must set out in their constating documents the public benefit(s) the company will promote. In other words, the company's purpose must be specific and tailored to that company. In contrast, Bill S-285 appears to impose a monolithic purpose on all CBCA corporations. It would legislate what the purpose of all corporations must be; benefit company legislation, recognizing that every corporation is unique, takes the lighter touch of legislating how a particular corporation should pursue a purpose that it has invented on its own.
Improvements in corporate law should always be aimed at increasing the benefits that corporations have created for our societies and reducing the costs they have imposed. Much of the corporate governance discourse has focused on doing that less by changing what corporations are and more on how they are governed. But the proposed amendments in Bill S-285 are less about improving corporate governance than they are about altering the nature of the corporate form itself. Rather than providing a means to improved governance - a means for which benefit companies were conceived - it appears to be using the corporate law as an instrument to implement a wider social policy.
Given the panoply of corporate statutes available to businesses in this country, and the relative ease of jurisdiction shopping, it is hard to see how it would be effective.
EXHIBIT
Footnotes
1.
2.
3. Ibid.
4. See, for example,
5. To be clear, becoming a benefit company does not necessarily mean that a company is committing to less profitability; but it could change the time horizon over which, and the means by which, profits accrue. See our
6. Conducting business in a "responsible and sustainable manner" means taking into account the well-being of persons affected by the operations of the benefit company and endeavoring to use a fair and proportionate share of available environmental, social and economic resources and capacities.
7. While the drafting is not perfectly clear, it appears that this is not intended to create new objects of the fiduciary duty, who would then have claims of their own, altering the principle that a director's and officer's duty is to the corporation itself, not to any particular group of stakeholders.
8. See, for example,
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