Frequently asked questions
These are some of the questions that people have asked us concerning the 21BA
What will be the concrete impacts of the 21BA for businesses?
The 21BA will give legal force to the idea that businesses have social and environmental obligations in addition to their duty to advance the best interest of the corporation.
This means that companies can no longer claim that their fiduciary duties prevent them from acting in the best interest of society and the environment, even when such actions may be less profitable.
It will also confirm that shareholders of Canadian corporations have no legal basis to sue businesses for failing to focus exclusively on their financial interests.
Will the 21BA have a negative impact on profits and on the Canadian economy?
The 21BA does not change a company’s responsibility to innovate, generate profits, and contribute to Canadian prosperity.
The 21BA also preserves the important role of private entrepreneurs, shareholders and creditors in the growth and development of a business and does not affect the types of financing and transactions available to it.
What the 21BA does is to ensure that a company’s commercial operations and profit-seeking activities are conducted in ways that minimize harm and that benefit society and the environment, providing a legal foundation for the idea that wealth creation must be socially and environmentally sustainable.
Why should private businesses have a responsibility to contribute to social and environmental sustainability? Isn’t that the role of the government?
In 1970, Milton Friedman famously declared that companies had no responsibility to society, and that their only responsibility was to their shareholders. In his view, the promotion of social and environmental progress was the exclusive duty of the government.
This doctrine was highly influential in shaping the laws and obligations that govern businesses in the Western world, including in Canada. Fifty years later, however, we must adapt this dogma to the reality of the 21st Century. Governments do not have the resources and ability to do it all on their own; everyone has a responsibility to contribute to a more sustainable future.
As Chris Turner puts it, “Given the scale of the challenges that threaten peoples’ health, wealth and the natural world, we need to harness the enormous potential of business. Society’s most urgent global problems cannot be solved by government and non-profits alone. The role of innovators and entrepreneurs is crucial.”
What does it mean to benefit wider society and the environment? Isn’t that too vague? How are businesses supposed to know what to do?
The 21BA does not seek to micromanage businesses and subject their operations to detailed prescriptions. Instead, the 21BA broadens the fiduciary obligations of company directors and officers to state that, in addition to pursuing profits or any other objective, they must manage their business in ways that benefit society and the environment.
Under this updated fiduciary framework, company managers will retain the same measure of discretion they enjoyed when their fiduciary duty was limited to pursuing the best interest of the corporation.
This principle is often called the business judgment rule, and it is not affected by the 21BA. That said, the 21BA offers guidance to company directors and officers seeking to better understand their social and environmental obligations by referencing leading impact reporting standards, such as the GRI or the European Union’s CSRD.
Will the 21BA make Canadian businesses less competitive abroad?
The 21BA aims to align business practices with social and environmental sustainability. While this is undoubtedly in the public interest of Canada and the world, there are good indications that it can also make businesses more competitive
Canada’s Trade Commissioner writes that the “alignment of interests [across stakeholders] can make the socially responsible company and its products more appealing to consumers, communities in which they operate, and investors, and results in stronger brand fidelity and equity. These are crucial elements for international companies as doing business beyond Canadian borders requires a focus on social, environmental and economic factors”.
As countries around the world increasingly require that businesses align with social and environmental sustainability, it’s also in Canada’s interest to adopt a legal framework that reflects current and future expectations. As Slaughter and May write about British businesses and the Better Business Act “ a failure to embrace such a change may in fact leave the UK lagging behind in terms of company law innovation.”