Corporations are essential to the modern economy. They allow for the organization and strategic application of capital in focused manner that allows for wealth to grow, and have been a fundamental legal innovation for the emergence of the capitalist economy.
Of course, corporations as legal entities are a legal fiction that converts what would otherwise be a piece of property into a party with its own free-standing rights. These rights are limited, however, and continue to be defined.
The Court in cases like Irwin Toy Ltd. v. Quebec and British Columbia Securities Commission v. Branch confirmed that although they enjoy some Charter rights, they do not have the same type of individual rights as natural persons under s. 7 of the Charter. However, in R. v. Big M Drug Mart Ltd and R. v. Wholesale Travel Group Inc., the Court also confirmed that where a corporation is accused of a criminal offence or is a defendant in a civil proceeding by the state, they may raise the Charter as a defence.
On July 25, 2019, the Supreme Court of Canada granted leave in 9147-0732 Québec inc. c. Directeur des poursuites criminelles et pénales, a Quebec Court of Appeal decision that ruled that s. 12 Charter rights against cruel and unusual punishment could also apply to corporations. Doug Beazley explains what this decision means in National Magazine,
The appeal court stated that legal persons can suffer from cruel and unusual punishment to the degree that their corporate discomfort leads to suffering for flesh-and-blood people. In other words, a punitive fine that leads to layoffs or bankruptcy, or compromises the stability of an employee pension plan, could engage a company’s rights under s. 12.
Despite some recent controversy over how corporations received their legal personhood in America, the origins of this concept goes back much further in history. Samuel Williston wrote in the Harvard Law Review in 1888 about the origins of the corporation, even before the East India Company in 1600,
The general idea of a corporation, a fictitious legal person, distinct from the actual persons who compose it, is very old. Blackstone ascribes to Numa Pompilius [753–673 BCE] the honor of originating, the idea. Angell and Ames are of the opinion that it was known to the Greeks, and that the Romans borrowed it from them.
This narrative though likely reflects a highly Eurocentric perspective, and Vikramaditya S. Khanna of Michigan Law School points out that the ancient Indian Maurya Empire used a corporate form for centuries before the Romans, from at least 800 BCE. The oldest continuously operating corporations though are most likely found in places like Japan and Austria.
Williston explains that the Romans utilized distinct corporate forms. The fiscus created a personhood for existing groups of shared interests such as priests, artisans, blacksmiths, and bakers, and operated more as a business association, as their members still worked individually. The societates were less frequently used, but were contractual in nature. They could incur obligations, but were dissolved by will or death of a single member.
These different forms also reflect some of the different philosophies around the purpose and role of corporations, including whether they are pre-existing groups of people that the state formally recognizes, or that are created entirely by the state for purposes and utility that the state sees fit. These philosophies also found their way into the controversial 2010 SCOTUS decision in Citizens United v. Federal Election Commission and commentary around it.
In a democracy we must insist that the state still reviews this purpose of the corporation, to ensure its ongoing relevance and efficacy. In Canada, that has meant the distinctions we hold in law from Americans as to the purpose of corporations, and what a director’s duty is towards, and thecodification of these distinctions in the Canada Business Corporations Act (CBCA) under Bill C-97, receiving Royal Assent on June 19, 2019.
The duty of the directors and officers for a CBCA corporation are set out in s. 122, of the Act,
Duty of care of directors and officers
122 (1) Every director and officer of a corporation in exercising their powers and discharging their duties shall
(a) act honestly and in good faith with a view to the best interests of the corporation; and
(b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
Canadian courts historically considered the “best interests of the corporation” in cases like Palmer v. Carling O’Keefe Breweries and Brant Investments Ltd. v. KeepRite Inc. to be synonymous with “the best interests of the shareholders.” Canadian courts bolstered this position by the Chancery Court decision in Parke v. Daily News Ltd., but this holding was reversed by the Companies Act 1980, which created a new statutory duty of loyalty to look at a wide range of considerations, to promote the company’s success for all of its members.
The perspective of shareholder maximization or through auction duty, also known as shareholder primacy, is mirrored in the American case law, based on the 1986 Delaware Supreme Court decision in Revlon Inc. v. MacAndrews & Forbes Holdings, where the court stated,
The duty of the board had thus changed from the preservation of Revlon as a corporate entity to the maximization of the company’s value at a sale for the stockholders’ benefit. This significantly altered the board’s responsibilities… the directors’ role changed from defenders of the corporate bastion to auctioneers charged with getting the best price for the stockholders at a sale of the company.
Mohamed Khimji noted in 2006 that concerns around corporate governance in Canada led to the 1994 Dey Report, leading to reforms to the TSX. The emergence of hostile, leveraged control transactions provided a direct challenge to shareholder value realization, and other stakeholder constituents frequently were impacted adversely given the short-term focus of most market participants.
Canadian courts soon after more clearly diverged from this position with the Court’s decision in Peoples Department Stores Inc. (Trustee of) v. Wise, where the Court stated,
42 …Insofar as the statutory fiduciary duty is concerned, it is clear that the phrase the “best interests of the corporation” should be read not simply as the “best interests of the shareholders”. From an economic perspective, the “best interests of the corporation” means the maximization of the value of the corporation: see E. M. Iacobucci, “Directors’ Duties in Insolvency: Clarifying What Is at Stake” (2003), 39 Can. Bus. L.J. 398, at pp. 400‑1. However, the courts have long recognized that various other factors may be relevant in determining what directors should consider in soundly managing with a view to the best interests of the corporation. For example, in Teck Corp. v. Millar(1972), 1972 CanLII 950 (BC SC), 33 D.L.R. (3d) 288 (B.C.S.C.), Berger J. stated, at p. 314:
A classical theory that once was unchallengeable must yield to the facts of modern life. In fact, of course, it has. If today the directors of a company were to consider the interests of its employees no one would argue that in doing so they were not acting bona fide in the interests of the company itself. Similarly, if the directors were to consider the consequences to the community of any policy that the company intended to pursue, and were deflected in their commitment to that policy as a result, it could not be said that they had not considered bona fide the interests of the shareholders.
I appreciate that it would be a breach of their duty for directors to disregard entirely the interests of a company’s shareholders in order to confer a benefit on its employees: Parke v. Daily News Ltd.,  Ch. 927. But if they observe a decent respect for other interests lying beyond those of the company’s shareholders in the strict sense, that will not, in my view, leave directors open to the charge that they have failed in their fiduciary duty to the company.
We accept as an accurate statement of law that in determining whether they are acting with a view to the best interests of the corporation it may be legitimate, given all the circumstances of a given case, for the board of directors to consider, inter alia, the interests of shareholders, employees, suppliers, creditors, consumers, governments and the environment.
The flexibility to consider these other factors is still discretionary by directors, and subject to the business judgment rule, explained in Maple Leaf Foods Inc. v. Schneider Corp. and Kerr v. Danier Leather Inc., where courts are loathe to undertake an extensive analysis of how directors make such decisions as the directors are best suited to make this determination.
Khimji critiques this decision as focusing too extensively on the protection of stakeholder interests, rather than the factual analysis of whether the directors were acting in the best interests of the corporation. The other causes of action that a creditor may have are distinct from the fiduciary duty.
The Court’s decision in Wise could still be interpreted as emphasizing other stakeholder interests to the extent that their treatment is affected by shareholders. Before a bankruptcy, shareholder and creditor interest may very well be aligned, but a director’s fiduciary duties are far less significant when an insolvent corporation is being liquidated.
More significantly, the Court in BCE Inc. v. 1976 Debentureholders explicitly rejected the notion of shareholder primacy, stating,
 What is clear is that the Revlon line of cases has not displaced the fundamental rule that the duty of the directors cannot be confined to particular priority rules, but is rather a function of business judgment of what is in the best interests of the corporation, in the particular situation it faces…
Of particular interest is how the Court described a balancing of these different stakeholders,
 The cases on oppression, taken as a whole, confirm that the duty of the directors to act in the best interests of the corporation comprehends a duty to treat individual stakeholders affected by corporate actions equitably and fairly. There are no absolute rules. In each case, the question is whether, in all the circumstances, the directors acted in the best interests of the corporation, having regard to all relevant considerations, including, but not confined to, the need to treat affected stakeholders in a fair manner, commensurate with the corporation’s duties as a responsible corporate citizen.
 There is no principle that one set of interests — for example the interests of shareholders — should prevail over another set of interests. Everything depends on the particular situation faced by the directors and whether, having regard to that situation, they exercised business judgment in a responsible way.
Jeffrey Macintosh criticizes both of these decisions, claiming they have placed “corporate law into a state of uncertainty and confusion.” He points to a potential schism between corporate law ans securities law, especially in areas of takeover bids, and calls for amendments to the CBCA that would reiterate shareholder primacy. However, Macintosh’s position is still predicated on the assumption that because shareholders elect the directors they will elect directors that will maximize their financial interests.
While this may generally be true for the vast majority of corporations, it may not apply in the same way to a small but growing number of corporations that provide mixed utility to their shareholders, including corporate social responsibility practices and reputational aspects that are not strictly monetary.
If the market values these principles in conjunction with straight share price, this schism may not necessarily occur. Instead, it may provide some corporations, and their directors making their decisions, greater flexibility. For example, Oregon’s Business Corporations Act was amended in 2007 to allow a corporation’s Articles to include a provision that would require the corporation to conduct itself in an environmental and socially responsible manner.
As society’s values change, and the needs of a democracy shift to recognize emerging societal concerns, the rights and obligations conferred on corporations can be modified accordingly. These duties need not be in conflict, and an inherent tension may actually be beneficial to proper corporate governance.
Christopher Bruner describes in the Alabama Law Review an alternative description of corporate governance as it relates to 3 issues:
- the locus of ultimate corporate governance authority,
- the intended beneficiaries of corporate production, and,
- the relationship between corporate law and the achievement of the social good.
These tensions are in fact appropriate for the modern public corporation facing numerous and complex social and economic demands.
Bill C-97 effectively codifies the rationale of the Court’s decisions by amending s. 122 of the CBCA by adding the following provision:
These provisions go beyond even further than the decisions above by the Court, by adding retirees and pensioners as explicit stakeholders – likely in response to other contemporary controversies in corporate governance in Canada. As a non-exhaustive list, the fiduciary duty here may include other non-enumerated stakeholders, depending on the factual circumstances.
Effectively this consideration of non-shareholders stakeholders may not necessarily amount to a shift away from consideration of shareholder concerns, and in most circumstances would not, but would be particularly pertinent if the Court does rule favourably on the applicability of s. 12 Charter to corporations. It provides a more nuanced rubric through which directors should perceive the corporation’s best interests, especially in times where questions are raised about good corporate citizenship.