The responsible stakeholder model: An alternative theory of corporate law

JurisdictionSouth Africa
Citation(2018) 5(1) Journal of Comparative Law in Africa 1
Pages1-36
Published date16 August 2019
Date16 August 2019
1
THE RESPONSIBLE STAKEHOLDER
MODEL: AN ALTERNATIVE
THEORY OF CORPORATE LAW
Nojeem Amodu*
Abstract
The debate on corporate objective is open ended. While some scholars argue it is
already ‘end of history’ with the shareholder primacy theory, others contend that the
future lies with the stakeholder-oriented progressive models of corporate law. This
article contributes to this debate using the backdrop of corporate social responsibility
(CSR). It synthesises a few corporate law theoretical approaches and develops an
alternative model called the responsible stakeholder model (RSM). The author
argues that corporate objectives can be better understood within the framework of
the RSM and that corporate actions (including CSR activities) are better measured
using the assumptions of the RSM. The article touts RSM as an effective policy
response to stakeholder rights abuses and incidences of ‘greenwashing’.
Keywords: Alternative model, corporate law, CSR, stakeholder theory.
Le débat sur l’objectif d’entreprise est sans fin. Alors que certains spécialistes
affirment qu’il s’agirait déjà de la « fin des haricots » pour la théorie de la primauté
des actionnaires, d’autres affirment que l’avenir réside dans les modèles progressistes
du droit des sociétés axés sur les parties prenantes. Cet artic le contribue à ce débat
en utilisant en toile de fond la responsabilité sociale des entreprises (RSE). Il
synthétise quelques approches théoriques du droit des sociétés et développe un
modèle alternatif appelé modèle de partie prenante responsable (MPPR). L’auteur
soutient que les objectifs d’entreprise peuvent être mieux compris dans le cadre
du MPPR et que les actions de l’entreprise (y compris les activités de RSE) sont
mieux mesurées en utilisant les hypothèses du MPPR. L’article présente le MPPR
comme une réponse politique efficace aux violations des droits des parties prenantes
et aux incidences du ‘‘greenwashing’’.
Mots-clés : Modèle Alternatif, Droit des Sociétés, RSE, Théorie des parties
prenantes
1. INTRODUCTION
Corporate social responsibility (CSR) or corporate responsibility (CR),
as it is also called, denotes the responsibility of a company to consider,
manage and balance the social, economic and environmental impacts of
* Nojeem Amodu, PhD, Department of Commercial and Industrial Law, Faculty of Law,
University of Lagos, Lagos, Nigeria. Email address namodu@unilag.edu.ng.
(2018) 5(1) Journal of Comparative Law in Africa 1
© Juta and Company (Pty) Ltd
2 JOURNAL OF COMPARATIVE LAW IN AFRICA VOL 5, NO 1, 2018
its activities.1 It has also been said that ‘the social responsibility of business
encompasses the economic, legal, ethical and discretionary expectations
that society has of organisations at a given point in time’.2 It may also be
seen as a business governance and management model which broadens
the responsibility of companies and businesses in an attempt to align the
interests of business managers and the interest of not only the shareholders
as a whole but also that of a stakeholder group within the environment
of such businesses.
For the avoidance of doubts, CSR conception in this article is not
about corporate charity or making donations from surplus cor porate
profits. It should not be construed as voluntary giving back to the society
or simply philanthropic corporate actions done beyond the requirements
of the law.3 Instead, it involves the exercise of social responsibility in how
profits are made.4 CSR seeks to impress upon the business community the
notion that, as a matter of general corporate law and beyond cor porate
charity, businesses have responsibilities for the welfare of worker s, to
1 Parliamentary Joint Committee on Corporate and Social Responsibility, Corporate
Responsibility: Managing Risk and Creating Value, (Parliament of Australia, 2006) xiii; also see Institute
of Directors in Southern Africa, ‘King Repor t on Gover nance for South Africa’ and the ‘King Code
of Governance Principles’ 2009 at 51. Cf: O Osuji, ‘Corporate Social Responsibility, Globalisation,
Developing Countries and International Best Standards: The Incoherence of Prescriptive
Regulation’, Conference Paper (12th International Conference on Corporate Social Responsibility,
ISSN 2048–0806, Niteroi and Rio de Janeiro, Brazil, June 2013). At footnotes 41 to 46 and
accompanying texts, Osuji appears to differentiate between CSR and CR, conceptualising CSR
largely as a moralistic ethical concept beyond legal requirements and CR as being underpinned by
legal requirements.
2 AB Carroll, ‘A Three-Dimensional Conceptual Model of Corporate Performances’ (1979) 4
Academy of Management Review 49, 500 (hereinafter simply Carroll 3 Dimensional Model); see also
AB Carroll, ‘The Pyramid of Cor porate Social Responsibility – Toward the Moral Management
of Organizational Stakeholders’ (1991) 34 Business Horizons 39, reprinted in A Craine, D Matten
and LJ Spence (eds) Corporate Social Responsibility: Readings and Cases in a Global Context (Abington:
Routledge, 2008) 64.
3 D McBarnet, ‘Corporate Social Responsibility Beyond law, Through Law, for Law’ (University
of Edinburgh School of Law Research Paper, No 3, D Augenstein (ed), 2009) 1 and 18; Cf: Section
135 of the 2013 Indian Companies Act with effect from 1 Apr il 2014 available online at http://
www.mca.gov.in/D90E2FD7-99B9-4CB8-870F-0151E8094C1C/FinalDownload/DownloadId-
20D934C8FD5E06E61A081F2FA6703697/D90E2FD7-99B9-4CB8-870F-0151E8094C1C/
Ministry/pdf/CompaniesAct2013.pdf (last accessed 5 May 2017) with its CSR perspective in terms
of community development projects such as: eradicating extreme hunger and poverty; promotion
of education; promoting gender equality and empowering women; reducing child mortality; and
improving maternal health amongst others; see further Schedule VII of the 2013 Indian Company’s
Act.
4 N Amodu, ‘Regulation and Enforcement of Corporate Social Responsibility in Corporate
Nigeria’ (2017) 1 (61) Journal of African Law 105, 106 and 107; also available at https://doi.
org/10.1017/S0021855317000018 (last accessed 7 May 2017) (hereinafter simply ‘Amodu JAL’);
R Cowe, Investing in Social Responsibility: Risks and Opportunities (Association of British Insurers’
research report, London, 2001) 1; see also N Amodu, Effective Corporate Social Responsibility in
Corporate Nigeria: Understanding the Matters Arising, Conference Proceedings ISSN 2048–0806
(12th International Conference on Corporate Social Responsibility, Universidad Federal Fluminense,
Niteroi and Rio de Janeiro, Brazil, June 2013).
© Juta and Company (Pty) Ltd
THE RESPONSIBLE STAKEHOLDER MODEL: AN ALTERNATIVE THEORY OF
CORPORATE LAW 3
make products safe, to be good citizens in the communities in which they
operate, to protect and promote clean air and clean water, and so on.5
Although the modern conception of CSR can be traced to corporate
governance reforms and checks on the raw exercise of corporate power s
in the 1970s,6 CSR keeps evolving however. Overall, it seems to have
evolved from corporate charity7 into more modern issues such as
the triple bottom line (TBL) of planet, people and profit;8 the green
movement;9 (comprising green advertising, g reen product manufacture
and competition and green management); and more recently, the advocacy
for sustainable development10 amongst others. It is no longer business as
usual; it appears no longer commercially wise to simply declare huge
profit margins in annual reports without justifying how such bottom lines
were legitimately reached without contravening accepted core values of
the society. Otherwise, such businesses run the likely reputational risks of
losing their so-called ‘social licence’11 to operate and its attendant effects.
5 D Branson, ‘Cor porate Governance “Reform” and the New Corporate Social Responsibility’
(2001) 62 University of Pittsburgh Law Review 605, 615, fn 26.
6 Branson above note 5 at 609. There are other CSR traces to other sources however. See
generally, Ramon Mullerat, ‘Corporate Social Responsibility: A European Perspective’ [2013] 6 (13)
Jean Monnet/Robert Schuman Paper Series 13; J Meehan, K Meehan and A Richards, ‘Corporate
Social Responsibility: the 3C-SR Model’, (2006) 33 International Jour nal of Social Economics 386; R
Broomhill, ‘Corporate Social Responsibility: Key Issues and Debates’ (Dunstan Research Paper No
1/2007, Don Dunstan Foundation for the Dunstan Papers Series, University of Adelaide) 9–10;
and M Blowfield and JG Frynas, ‘Setting New Agendas: Critical Perspective on Corporate Social
Responsibility in the Developing World’ (2005) 3 (81) International Affairs 499 at 500.
7 The general attitude of both ‘prudent’ cor porate managers and even the judiciary to Corporate
Charity in those days has been expressed thus: ‘… Char ity has no business to sit at boards of
directors qua charity …’ See Hutton v West Cork Railway Co (1883) 23 ChD, 654. See also the
following: Dodge v Ford Motor Co (1919) 204 Mich 459, 170 NW 668, Amalgamated Society of
Woodworkers of South Africa v Die 1963 Ambagsaalvereniging (1967) 1 SA 586 (T).
8 Branson above note 5; see also R Mullerat, ‘Corporate Social Responsibility: New Trends’
(2006) American Bar Association Section of International Law 3.
9 IO Smith, ‘Cor porate Social Responsibility towards a Healthier Environment’ (2000) 1(4)
MPJFIL 22–40; Branson supra note 5 at 644 and 645.
10 WBCSD, Corporate Social Responsibility: Making Good Business Sense (Geneva, Switzerland,
2000); According to the 1987 Brundtland Repor t, sustainable development is the development that
meets the needs of the present without compromising the ability of future generations to meet their
own needs. It is said to have three pillars namely: Economic Growth, Environmental Protection
and Social Equity; see generally, World Commission on Environment and Development (WCED),
Our Common Future, Report of the WCED, 1987, annexed to United Nations General Assembly,
document A/42/427.
11 B Nwete, ‘Corporate Social Responsibility and Transparency in the Development of Energy
and Mining Projects in Emerging Markets; Is Soft Law the Answer?’ (2007) 8(4) German Law Journal
324; see also, J Prno, ‘An Analysis of Factors Leading to the Establishment of a Social Licence to
Operate in the Mining Industry’ (2013) 4(38) Resources Policy 577–590.
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