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Corporate Citizenship and Social Responsibility:

An Agenda for Raising the Standards in Canada

(October 1994)

This Discussion Paper outlines the current situation concerning corporate citizenship and social responsibility in Canada, where we want to be, and sets out a framework for examining strategies and mechanisms for achieving more stringent citizenship and social responsibility standards for corporations in Canada.

Democracy Watch is calling on Canadian governments to examine and implement many of these proposals.

I. Introduction

From the moment we are born until the time we die, corporations dominate most facets of our lives. Our citizen roles of voter, taxpayer, worker, consumer and shareholder are all affected by corporations. They produce and sell the food we eat, the clothes we wear, the houses we live in, the vehicles we travel in and the entertainment we enjoy. Corporations affect the quality of our environment and shape the values of our society, influencing the areas of law, taxation, education, communications, athletics, families and organized religion through corporate lobbying, polluting, advertising, and sponsorship.

Large Canadian corporations and transnational corporations (TNCs) are especially influential. Because of the sheer size of these corporations, the decisions of the relatively few people who control them exert great influence on the decision-making of local, provincial and national governments, and can have great impact on the communities in which these corporations are located. For these reasons, there is a need for a social responsibility framework for large corporations and TNCs especially, a framework that enables individual citizens and communities to hold corporations accountable to community interests.

Central to this framework is the comparison between individual citizenship and corporate citizenship. When a person immigrates to Canada, they are put through a rigorous process before they become a citizen of Canada, subject to the rights and responsibilities of Canadian laws, community standards and traditions. In contrast, corporations automatically become "citizens" of Canada by simply filing papers with the government. And corporations exercise their rights with great force in Canadian society, but they have often shown that they are not subject to the responsibilities of citizenship or to Canadian laws. Some individual Canadians also use the "veil" of corporate citizenship to escape the responsibilities of individual citizenship.

At times, both individual citizens and corporate "citizens" are negligent and do not fulfill their responsibilities, but the overall impact of corporate negligence on Canadians and Canadian communities far outweighs the impact of individual negligence, as detailed below.

II. Where We Are

In Canada, the revenues of the largest 500 corporations total about 80 percent of the Gross National Product and these corporations employ about two million Canadians. However, the small business sector creates 80% of new jobs in Canada. Moreover, corporate taxes, when compared to personal taxes, represent a proportionally smaller and decreasing share of government revenues, as the following figures show:

Although "smogging" is recognized as much as "mugging" now as a societal harm, corporate crime is scarcely tracked as compared to street crime in Canada. An accounting is made of consumer fraud, but no account is taken (by Statistics Canada for example) of crimes against the environment, economic crimes or of the deaths and injuries caused by dangerous products, workplace hazards, and preventable occupational diseases. One researcher compiled the following statistics for Canada in the early- and mid-1980s:

As far as consumer fraud is concerned, the RCMP Commercial Crime Section estimates losses by Canadian victims in 1992 at $574 million. Others have put the figure at $4 billion, based upon a U.S. study which totalled losses there at $44 billion.

Corporate criminal liability is not fully developed in Canada either, in part because of the structure of corporations. Enforcement of environmental protection and securities laws has increased and, in some cases, the courts have held corporate directors responsible for the activities of the corporation. However, the development of director responsibility is resisted by a relatively small corporate elite, each of whom serve as figureheads on numerous boards. Director responsibility implies liability for these figureheads, and they are concerned that they could be held liable for decision-making processes in which they rarely take an active part.

In addition, there are many clear conflicts of interest in the make-up of Canadian corporate boards, and there have been many examples of corporate breakdown caused in part by poor corporate governance. Take, for example, the fact that the majority of directors of the big six banks are these banks' biggest corporate customers. The collapse of Confederation Trust has been attributed in part to the ties between its boards, its managers and its large borrowers in the real estate development industry. The Toronto Stock Exchange Committee on Corporate Governance released a draft report in May 1994 calling for guidelines for improved corporate governance in Canada, which, prompted by many examples of conflicts on interest, included a recommendation that corporations should have to tell shareholders, and give reasons, if a majority of their directors are not "unrelated" to the corporation.

Meanwhile, although shareholder activism has realized some success in recent years, shareholder democracy has never been realized in any of Canada's large corporations or, even less so, in any TNCs. Many citizen groups buy a single share in large corporations each year and attend annual general meetings to confront the board of directors with citizen concerns. However, although these efforts often receive extensive media coverage, they rarely affect corporate decision-making directly.

In the area of constitutional law, studies have shown that large Canadian corporations have used the Charter of Rights and Freedoms to advance their claims in court more successfully than have Canadian citizens. Corporations now enjoy many of the protections of the Charter intended to apply to individuals, rather than entities constructed by legislation and regulations alone. The next test of the extension by judges of Charter protection for corporations comes this December, when the Supreme Court of Canada will hear the tobacco industry's challenge to the federal government's tobacco advertising restrictions on the ground that it violates their freedom of speech.

Corporate political donations to political parties amount to undue influence in many cases of government decision-making. For example, changes to the Bank Act in 1991 were influenced by the fact that the big six banks give about $250,000 each year to the federal Conservative and Liberal parties, and the February 1994 tobacco tax cut was influenced by the fact that the big three tobacco companies gave $270,000 to the federal Liberal party between 1988 and 1992.

In the international arena, of the largest 100 economies in the world, 47 are transnational corporations (TNCs). Over the past seven years, trade agreements such as the Canada-U.S. Free Trade Agreement (FTA), the North American Free Trade Agreement (NAFTA) and the recent General Agreement on Tariffs and Trade (GATT) have set a foundation to subjugate community values - consumer, labour, health and environment - to the values of global commerce. These agreements enrich and empower TNCs at the expense of Canada's economy and the ability of the Canadian government to regulate domestic corporate activities. In addition, there is no role for citizens or citizen groups in the undemocratic and secretive decision-making processes of these agreements.

In an age of rapid globalization of capital and business, international regulatory frameworks aimed at controlling the activities of TNCs are few and far between and are not enforced effectively. One of the main means of regulating TNC activities to date has been the drafting of codes of conduct, but although these codes are often strong statements of principles of accountability for TNC actions, most remain in draft form or in their own wording are unenforceable.

III. Where We Want to Be

Here is a proposed statement of principles:

"We want to live in a world where the rights of all individual citizens to adequate food, clothing and shelter, decent employment, education and health care, a clean environment, social assistance, and quality public services are ensured and where the rights of individual citizens and communities prevail over the rights of corporate "citizens".

We want to live in a world where individual citizens have the right to meaningfully participate in decisions affecting their rights and their lives.

Specifically, we want to live in a world where individual citizens, in their roles as voters, taxpayers, workers, consumers and dshareholders, have the right through democratic community and government decision-making processes to determine and to limit the rights and activities of corporate "citizens", and have the right to hold corporate "citizens" accountable for their activities."

IV. How We Get There From Here

There are several possible ways to get from here to there in terms of both a range of corporate citizenship and social responsibility mechanisms and a range of strategies for ensuring that these mechanisms are enacted and effectively enforced (See APPENDIX for full list). These strategies involve exercising our citizen roles of voter, taxpayer, worker, consumer and shareholder.

First, there are a number of grassroots-oriented defensive campaign strategies that could be used to stop the harmful activities of corporations. These include boycotts, letter-writing and publicity campaigns directed at corporations, investors, shareholders and the government.

Second, there are offensive campaign strategies to press local, provincial and federal governments to adopt corporate social responsibility mechanisms. Examples of these strategies include: requiring disclosure of important details about corporate activities; including discharges of pollutants and violations of laws; and requiring corporations that receive tax breaks and other public incentives to locate in a community to pay penalties to the community if they shut down and move. A requirement for a greater degree of corporate democracy would give voice to citizen concerns in corporate decision-making.

Considering they benefit from an extensive "corporate welfare" package, corporations could be required to pay their fair share of taxes, and they could also be required to facilitate the creation of citizen watchdog groups through various funding mechanisms.

Corporate crime could be addressed through setting up a corporate crime registry, so that crime in the suites is tracked in as much detail as crime in the streets. Citizens could be given the right to prosecute corporate crime; liability standards could be increased for corporate managers and executives, especially if they fail to report violations; and jail terms could apply to corporate criminals. For repeat corporate offenders, a "three strikes you're out" rule could be used to "execute" the corporation by revoking its charter.

Government subsidies of environmentally harmful activities of corporations could be ended, and government could pledge to purchase products and services only from socially responsible companies. In addition, the executives of socially responsible corporations could be encouraged to advocate that their colleagues follow their example.

Third, there are transformative campaign strategies to press governments to re-charter corporations based upon a social responsibility framework. Corporations could also be removed from the protection of the Charter of Rights and Freedoms, thereby reclaiming it as the Charter of Human Rights and Freedoms.

Finally, there are international campaign strategies to create an international social responsibility framework for transnational corporations (TNCs). These include strengthening international codes of conduct for TNCs and the enforcement of these codes, and ensuring that TNCs can't shift blame or profits from country to country to avoid liability and taxes.

V. What's Next?

Further examination of where we are, where we want to be, and how we get from here to there is needed to determine what's next. This examination should include studying case histories in which the various mechanisms and strategies have been used successfully.

After this examination is completed and decisions are made concerning which strategies to employ and which mechanisms to advocate, an action plan can be set out for campaigns at local, provincial, national and international levels, all aimed at ensuring the establishment of an effective corporate citizenship and social responsibility framework for large corporations and TNCs.


List of Strategies and Mechanisms
for Corporate Citizenship and Social Responsibility

The following hopefully provides a useful framework for the examination of which strategies and which mechanisms are possible and advisable, and which are most likely to succeed:

(1) Defensive campaign strategies to stop the harmful activities of large corporations.

For example:

(2) Offensive campaign strategies to press local, provincial and federal governments to adopt corporate social responsibility legislation, regulations, codes, resolutions and other accountability mechanisms, and to press corporations to set industry performance standards that involve social responsibility and increase accountability.

For example:

Corporate Decency and Social Responsibility

Corporate Democracy

Corporate Tax and Subsidies

Corporate Crime

Corporate Mergers

Corporations and the Environment

Corporate Performance

(3) Transformative campaign strategies to press Canadian governments to re-charter corporations based upon a social responsibility framework.

For example:

(4) International campaign strategies to create an international Transnational Corporation (TNC) social responsibility framework.

For example: