Bill S-285, the 21st Century Business Act, was recently introduced in the Senate and proposes to amend the Canada Business Corporations Act (CBCA) to redefine the purpose of corporations to include not just the pursuit of shareholder interests but also to give legal force to the idea that corporations have positive social and environmental obligations.
The proposed amendments would mandate that directors and officers ensure their companies operate in a way that minimizes harm to society and the environment, reflecting a growing trend towards stakeholder governance.
Corporations incorporated pursuant to the CBCA, whether publicly listed or privately held, would be required to publish an annual report outlining the corporation’s impacts on broader society and the environment.
Key Aspects of Bill S-285
1) Corporate Purpose: If adopted, Bill S-285 will add a new section to the CBCA providing that the purpose of a corporation is to pursue its best interest while also operating in a manner that:
(a) benefits the wider society and the environment in a manner proportionate to its size and the nature of its operations; and
(b) minimizes any harm that the corporation causes to the wider society and the environment, with the objective of eliminating such harm.
2) Fiduciary Duties: Directors and officers would be required to act honestly and in good faith with a view to the best interests of the corporation. Directors and officers of corporations must exercise care, diligence, and skill, that a reasonably prudent person would exercise in comparable circumstances towards shareholders, employees, retirees and pensioners, creditors, consumers, governments, the environment and corporation’s long-term interests.
3) Annual Reports: If adopted, Bill S-285 would require all corporations incorporated pursuant to the CBCA to file annual reports detailing their impact on society and the environment. This increased transparency aims to hold companies accountable for their societal and environmental footprints. Regulations which are not yet available will disclose the exact content of the reports.
Compliance Implications for Canadian Businesses
1) Increased Accountability: Businesses will need to adopt comprehensive reporting mechanisms to track their social and environmental impacts.
2) Potential Legal Exposure: If the proposed amendments to the CBCA are not complied with, a “complainant” can bring a litigation action, on behalf of the corporation, to seek redress for wrongs done to the corporation. The mandatory nature of these considerations could lead to more complex decision-making processes and potential legal challenges if shareholders believe their interests are not adequately protected.
3) Jurisdictional Considerations: Businesses might engage in jurisdiction shopping, choosing to incorporate in provinces or territories with less stringent requirements if they find the federal mandates too burdensome.
Trends
Bill S-285 is motivated by a broader international movement towards redefining corporate responsibilities to include social and environmental considerations. The UK, France and the European Union (EU) have all introduced initiatives to integrate societal goals into corporate governance through the Better Business Act initiative, the French Loi PACTE and the Corporate Sustainability Due Diligence Directive (CSDDD).
Current Status of Bill S-295
Bill S-285 is currently at the second reading stage in the Senate. As a Senate public bill, it faces a challenging path to becoming law, but its introduction signals a significant shift towards integrating corporate governance with broader societal goals.
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