A company is a company because of other people: corporate social responsibility and the constitution

Cockburn, Alexandra

A company is a company because of other people: corporate social responsibility and the constitution

Thesis / Dissertation

2009

Abstract

The inability of governments worldwide to protect individuals from economic insecurity has led to a renewed interest and public expectation that corporations have public responsibilities in furthering the interests of the public or the public good. Corporate social responsibility is a serious and pressing concern for all members of the new South Africa. Recent reports of fraud and corruption in the corporate sphere, coupled with ongoing environmental disturbances and labour disputes, have exposed the dangerous and potentially disastrous effects which can be triggered by corporate abuse. Serious attention and reform in this sphere are critical to the preservation and promotion of a harmonious future. South Africa needs to develop a legislative framework tailored specifically towards the governance of corporate social responsibility in order to ensure that corporate disasters can be foreseen and prevented well in advance of their occurrence, an occurrence that will impact negatively on the well-being of the economy as a whole as well as on the rights of individual citizens. Corporate social responsibility is not only a social imperative but also a constitutional mandate. Since the implementation of the Final Constitution in 1996, the South African Legislature has had a duty to bring the corporate sphere in line with the foundational principles of our new constitutional democracy, in particular with the Bill of Rights. To date, there has been no evidence of law reform in this regard. The new Companies Act, which was promulgated this year but which is only destined to come into effect in 2010, purports to impose greater restrictions and sanctions on the actions of corporate officers. However, the effectiveness of the proposed mechanisms has never been tested and is by no means guaranteed. What is required in order to comply with the constitutional mandate- in place of the present framework of disjointed fragments of legislation which have no unified or valuable effect - is a detailed study of the scope, content and practical implementation of corporate social responsibility jurisprudence, uniquely tailored to the South African context. Corporations are vastly superior to humans in power, money, and resources. Without a clear reason for them to respect human beings, we will be at their mercy. We will have created monsters. Contemporary society is characterised, to a large extent, by commercial interchange and corporate supremacy. Companies control South Africa's markets and its economy. The vast majority of South Africans rely on these 'corporate giants,' directly or indirectly, for their livelihoods. In an era of corporate dominance it is the responsibility of all South Africans to ensure that sufficient controls and restraints are placed on companies in order to prevent them from perpetrating fraud or other forms of abuse in respect of the societies in which they operate. There is a wide variety of individuals whose entire futures fall to be ruined on account of reckless and irresponsible business practices. On one end of the spectrum are the company's direct participants- employees and creditors - who will suffer direct and extensive financial loss through any malpractice on the part of the company. On the other end of the spectrum are various members of society who also have an interest, albeit an indirect one, in companies observing good business codes. For instance, where a company is polluting the environment of a specific community, every member of that community has an interest in ensuring that this matter is addressed and remedied. In addition, there are the consumers, who also have a direct interest in ensuring that companies observe high standards of care in their production processes and do not expose consumers to unnecessary product risks. Finally, the interests of all South Africans lie in the promotion and protection of the human rights enshrined in the Bill of Rights. The costs of corporate disaster have been brought to light in recent years. In the United States in the late 1990's, the fall of Enron and associated corporate giants exposed the dire societal consequences resulting from corporate abuse: "Total corporate debt in the form of outstanding bonds and loans soared to $8 trillion after 1998 ... " Americans insisted that the corporate officers responsible for this debt " ... should be forced to part with their ill-gotten gains, which could then be used as reparation for employees who lost jobs and pensions because of the deception. " However, in reality, only a fraction of the losses were recovered and paid out to the affected parties. More recently, the subprime crisis and resultant credit crunch over the last year, beginning with the collapse of the Lehman Brothers in the latter part of 2008, have wrought economic ruin on large portions of the global society. The results have been devastating with many people losing jobs, pensions and livelihoods the world over. The underlying cause of this corporate catastrophe was irresponsible business practices, most notably the activity of trading in non-existent securities. It is important to note that these corporate catastrophes originated in the United States, one of the wealthiest countries in the world. The results have been felt in South Africa, but we have managed to escape total financial ruin. However, if a similar disaster were to occur in South Africa alone, a significantly poorer country with far less advanced social welfare guarantees and virtually no means of supporting the financial burden of more insolvent citizens, it is unlikely that our foundling economy would be able to recover. "Susan George, author of A Fate Worse than Debt unambiguously demonstrates the inequity of the situation when she argues that Tanzania, a country with a gross national product of 2.2 billion dollars, has to share this between 25 million people; whereas Goldman Sachs, an investment firm ranking in annual profits of 2.2 billion dollars, shares these among 161 partners. "That's the world we're living in now," she says." It is clearly necessary to put in place effective preventative protection mechanisms to avoid corporate abuse in advance. The term generally used to describe such mechanisms is 'corporate social responsibility:' ... an agreement between business firms (all productive cooperative enterprises) and society (individual members of a given society in the aggregate) ... [and] the reciprocal expectations of the parties to the contract who were both assumed to be interested in maximizing the benefits (e.g. specialization, stabilisation of output and distribution, liability resources, increased wages) and minimizing the drawbacks (pollution, depletion of natural resources, destruction of personal accountability, worker alienation) of productive organizations. In order to supply a foundation for the concept of corporate social responsibility that is rooted directly in South African culture, it is both useful and enlightening to have regard to the philosophy of group and community solidarity enshrined in the African value of 'Ubuntu.' The cardinal belief of Ubuntu is that a person can only be a person through other persons. "The important values of Ubuntu are group solidarity, conformity, compassion, respect, human dignity and collective unity." It is clear that Ubuntu played a central role in the drafting of the South African Constitution, particularly in protecting human rights such as dignity, equality and freedom. However, in order to live up to the mandate of our constitutional democracy, it is necessary to continue to allow the values inherent in the Ubuntu culture to inform our decision making and legislating. In particular, respect and support for the rest of one's community is fundamental to the sustainability of a peaceful and progressive South Africa. This value must inform every facet of South African life, including the corporate sphere. Companies must fulfil their role as members of the African community and, as such, must provide guarantees that they will work in the interests of the community at large and provide respect and support to all members of that community. This attitude is entirely different to the present corporate mindset, a mindset driven entirely by the objective of unimpeded profit-maximisation at the expense of all other interests. However, as shall be exposed in this dissertation, a purely money-driven corporate mindset is unsustainable and harmful to both South African citizens and the environment in which they live. One of the interesting aspects of the value of Ubuntu is the fact that it is not an objective value against which Africans measure their actions but is instead an intrinsic part of every African, "entrenched and pervasive in virtually all aspects of their lives on a daily basis." This is exactly what is required in the sphere of corporate social responsibility. The entire corporate attitude must be altered so that respect and responsibility towards the South African community is not simply an ideal which may be promoted wherever possible in corporate action but is rather an intrinsic, fundamental and overarching principle which informs every decision and action on the part of the company. It is only through the achievement of this attitude that South Africans will be able to rely on companies behaving in a compliant and responsible manner: strict adherence to the values enshrined in Ubuntu will prevent corporate disasters - financial, environmental or personal - from taking place at all. This is superior indeed to the alternative, which is to force companies to provide remedies and redress to affected persons only after the relevant corporate disasters have taken place. It is far better to develop a corporate ethos that will prevent and curb the advent of such disasters in advance. That companies should amend their attitudes and respect their role as mutually dependent members of the communities in which they operate is evidenced from the following quotation: No enterprise or corporation can survive without society. In fact business enterprises are a creation of society. Society is made up of what have been referred to as the 'stakeholders' of business. They include the community in which the corporation or business enterprise operates, its customers, employees and suppliers. Business and society are mutually dependent. In pursuit of wealth and profit maximisation, companies utilise human and other resources, and in so doing provide employment, investment, goods and services. Business therefore forms part of the fabric of society. The practical starting point for the development of a South African doctrine of corporate social responsibility is the stakeholder model of company law. The present corporate mindset is controlled by the interests of shareholders only and, consequently, is fundamentally driven by a hunger for ever-increasing profits. However, the King Report on Corporate Governance suggests that companies should be required to promote the interests of all stakeholders, not merely the controlling shareholders. Clearly, this is the first step in ensuring that employees and creditors are protected from abuse, and that environmental activists and similar bodies are given the consideration and respect due to them. Such a model complies with the Ubuntu conception of mutual support and promotion, and with the mandate imposed by the Constitution that all South Africans should work together in pursuing the shared objective of a better life for all. However, the stakeholder model of corporate law is by no means a blueprint for a South African doctrine of corporate social responsibility. It is merely a starting point. One of the problems which are not directly addressed by this model is the ominous threat of fraud perpetrated by company officers. The new Companies Act attempts to curb the opportunities for fraud by imposing an "almost-strict liability" sanction on company directors and managers who do not act in the best interests of the company at all times. If the stakeholder model of corporate governance is introduced then the 'interests of the company' will be the interests of all the stakeholders of the company. The Supreme Court of Appeal in the Shaik criminal trial of 2006 emphasised the widespread and devastating results which fraud and corruption can have on the sustainable development of this country, and called for the Legislature to introduce even more stringent and powerful restrictions against such action. It is therefore necessary to evaluate the current position and determine the most effective mechanisms for dealing with corruption in the corporate sphere. This is an essential component of the principle of' accountability' contained in the Preamble to the Constitution. Up until recently, corporate social responsibility has been identified only in negative terms. It encompasses the obligation to refrain from fraud and corruption; to refrain from devaluing and abusing the interests of stakeholders such as employees, consumers and the like; to refrain from polluting the environment, and so on. But does the concept of corporate social responsibility amount to something more than this? Do the Constitution and the underlying African principle of Ubuntu require companies to take positive steps in the promotion and improvement of South Africans in general? The concept of corporate social responsibility could indeed be interpreted to impose positive duties on companies. Examples of what such duties would entail are numerous. Legislation may require that companies donate a portion of their profits to charity, or that all corporate officers and employees participate in pro bono work programmes. The affirmative action policies that are in place in most companies at present are an ideal example of an attempt to impose some level of social responsibility on companies and to force them to take part in the necessary redressing of the wrongs committed by the Apartheid State. The degree to which positive obligations may effectively be imposed on companies without inhibiting profit-maximisation is an issue requiring much more consideration and will be explored in more detail in this dissertation.

Keywords

Private Law

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