I. RISE OF STAKEHOLDERS
Corporations hold more power in Canada than our government institutions. Only a portion of the population elects government officials but elected officials must still govern for the whole of society. Our population holds our government officials to account and if they falter, we express our dissatisfaction at the ballot box. The unenviable position of elected officials probably explains why many more talented individuals prefer to work as corporate executives instead.
On the other hand, corporate executives are treated much better. While still beholden by the fiduciary duty to govern in the best interests of the corporation, corporate executives are placed high on a pedestal, almost god-like to shareholders. CEOs are considered gurus and experts and yet they still falter, but unlike a government official, they resign without the public shame. Therein lies the problem: corporate executives are not accountable to society but their impact on society is enormous. Corporations drive the economy, employ millions and take more risks than government officials. Unfortunately the average Canadian cannot show their dissatisfaction through the ballot box, and must endure the consequences of corporate risk-taking.
Unfortunately for corporate executives looking to shed the burden of utilitarianism that public service demands, it seems a shift in corporate governance is occurring that might expand the duty to govern in “best interests” of the corporation beyond shareholders. The rise of the stakeholders is upon us. Stakeholders include the disenfranchised Canadian impacted by the unaccountable corporation. Stakeholders are an amorphous blob, wielding the power of collective action, let loose by a faint glimmer of hope distended from the Supreme Court of Canada in the BCE decision. However, the hope is faint, and without clear government action, the rise of the stakeholder interest will remain divisive. Will we act?
II. STAKEHOLDER THEORY
Stakeholder Theory challenges the traditional Shareholder Primacy model. Traditionally, the company views the shareholder as having the most important interest and that the entire company leadership apparatus, the board of directors and corporate executives, serve to increase the value of shares for the shareholder. However, the problem with the Shareholder Primacy model is that corporate decision-making can often focus on the short-term goal of increasing the value of shares at the expense of the interests of society.
Stakeholder Theory suggests that companies should balance the interests of various stakeholders, including members of the Canadian public such as consumers, creditors, unions, and government bodies. The main advantage of this theory is that Stakeholder Theory helps address companies’ social responsibility to society better than the Shareholder model. It acknowledges that the survival and prosperity of a company is due to more than just the shareholders, and that it is the company’s duty to be held accountable to all the other stakeholders that contribute to the company’s existence.
III. JUDICIAL REMEDIES
An alternative way stakeholders, specifically consumers, can hold corporations accountable is through class actions lawsuits. The Supreme Court decision rendered in Western Canadian Shopping Centres Inc v Dutton identified three purposes of class actions: access to justice, judicial economy, and behaviour modification. A close reading of that decision reveals that the three purposes are all interrelated. The interrelation between the three is profound because one could easily assert that access to justice and judicial economy result in behaviour modification. This is because judicial resources of hearing more cases, as well as pooled economic resources of individual claimants through aggregation, means that corporate entitles are quite susceptible to lawsuits. Combined with the notion that almost all class actions are settled upon certification, they present an attractive option for many stakeholders, specifically consumers.
Class actions aspire to achieve long sought-after goals in corporate governance, which are catalyzed by buzz words such as consumer protectionism, shareholder primacy, and corporate social responsibility. They touch on countless industries, as vast as the corporate eye can see, ranging from manufacturing and mining to pharmaceutical and financing. They can achieve both specific and general deterrence by hollowing out the very foundation that feeds into profitmaking mandate of corporations. Class proceedings also spread the cost of litigation across class members. In class actions, if the plaintiff is unsuccessful in its claim, the cost is spread among the class members and absorbed holistically. This would not only incentivize the would-be litigants to seek judicial remedies against corporate defendants, but also foster an environment in which the strength of the case and size of the litigant’s purse would not dictate access to justice. Combined with the fact that significant majority of class action lawsuits are settled upon certification, they can provide a viable avenue for stakeholders to mandate accountability and deter corporate malpractice.