To Govern in the Interest of the Corporation
What Is the Board's Responsability to Stakeholders Other than Shareholders?Yvan Allaire and Stéphane Rousseau | Journal of Management and Sustainability
In Canadian business law, directors have a duty to act in the best interest of the corporation, which includes the duty to assess, fairly and equitably, the impact of the corporation’s actions and decisions on its stakeholders.
But which of the stakeholders’ expectations should be taken into account? How should a board arbitrate between the divergent expectations of different stakeholders? How should the interests of the shareholders be weighed in relation to the interests of the other stakeholders? Ultimately, in whose interests should the directors exercise their responsibility to govern the corporation’s affairs?
This text attempts to provide answers to these questions, which are deeply perplexing to many directors, by reviewing the relevant law in other jurisdictions, particularly Great Britain and the United States, and then parsing the relevant judgments of the Canadian courts. We also provide guidelines for a board’s decision process when several stakeholders may be impacted by a decision or action of the company.