The Next Stage of CSR for Canada: Transformational Corporate Governance, Hybrid Legal Structures, and the Growth of Social Enterprise

By Liao, Carol | McGill International Journal of Sustainable Development Law and Policy, Fall 2013 | Go to article overview

The Next Stage of CSR for Canada: Transformational Corporate Governance, Hybrid Legal Structures, and the Growth of Social Enterprise


Liao, Carol, McGill International Journal of Sustainable Development Law and Policy


1. INTRODUCTION 2. THE PROBLEM TO BE ADDRESSED 3. MARKING A PATH FOR CANADA    3.1 Following Peoples Department Stores Inc. (Trustee of) v. Wise       (2004)    3.2 Following BCE Inc. v. 1976 Debentureholders (2008) 4. ATTAINING TRANSFORMATIONAL CORPORATE    GOVERNANCE    4.1 For-Profit Corporations    4.2 Hybrid Models        4.2.1 Support Existing Hybrids: The Co-operative        4.2.2 Support Emerging Hybrids: The BC Community Contribution              Company        4.2.3 Enact Meaningful New Hybrids 5. CONCLUSION 

To qualify as "transformational," a company must both transform its own business model toward sustainability and the larger economic ecosystem in which it exists.

Coro Strandberg (1)

There is a general understanding among corporate legal scholars that the concept of shareholder primacy is deeply ingrained within the modern corporation--pursuing anything other than shareholder wealth is tantamount to bad governance. (2) Social gains resulting from corporate actions are considered ancillary, subordinate, and/or supporting of the singular objective of profit making. (3) However, within the last decade, innovative new alternative legal structures have appeared on the international stage. These "hybrid" corporate structures blend for-profit and non-profit legal characteristics into their governance models, enabling businesses with infrastructure to pursue both economic and social mandates. Some alternative models available to social entrepreneurs include the low profit limited liability company and the benefit corporation in the United States and the community interest company in the United Kingdom. Restrictions on dividends, obligations on directors to consider community interests, and community-purpose asset locks are some examples of the unique governing features found within these models.

Canada is beginning to contemplate the adoption of hybrid corporate models into its laws, and the process has already begun in a few provinces. The growth of the "social enterprise"--a term with no legal import that commonly refers to either a for-profit trying to do social good or an enterprising non-profit--is beginning to generate a legislative response. In March 2012, the British Columbia government announced the creation of a new hybrid model, the community contribution company. (4) Nova Scotia has since followed suit, announcing the adoption of a similar hybrid in November 2012. (5) These provincial hybrids are each modeled after the British community interest company, which is designed to allow traditional non-profits the ability to make a profit and raise capital while keeping the social mission intact through stringent limitations on their distribution of capital. (6)

There is now much fanfare surrounding the possible implementation of a hybrid similar to the US benefit corporation to address traditional for-profit sector needs for social progress. (7) However, some of the fundamental legal characteristics within the benefit corporation that differentiate that model from traditional US corporate laws seem to parallel the existing common law in Canada. As Canada begins to move toward the active implementation of hybrids, a pressing and important question arises: What is Canada's actual legal model to govern its corporations? The answer to that question dictates how Canada should proceed in the adoption of hybrid corporate legal structures. If the benefit corporation is designed mainly to address American corporate governance needs for social progress, then, before Canada elects to adopt similar laws, there must first be an accurate depiction and understanding of Canada's own governance position. This will ensure that Canada does not simply adopt an American solution to an American problem that is not reflective of Canada's current progressive legal stance and potentially confuse or jeopardize that stance.

Corporate governance itself is a complicated matter, deriving from various laws, customs, and processes--with significant normative underpinnings--and these continue to be formative years in development of Canada's governance standards.

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