Focus: Corporate Responsibility - Directors 'should be accountable to stakeholders'

Anita Pati, anita.pati@haynet.com

A Labour MP says they must be legally obliged to consider their firms' social and environmental impacts too.

Company law should be reformed to make directors accountable to their stakeholders as well as their shareholders, according to Sarah McCarthy-Fry, the Labour MP for Portsmouth North.

She made her comments in a Commons debate on corporate responsibility earlier this month, attended by energy minister Malcolm Wicks.

On 10 October, McCarthy-Fry tabled an Early Day Motion, Modernising Company Law, to prime MPs for the forthcoming Company Law Reform Bill, which is due to start progress through Parliament later this autumn. Nine days later, the EDM had 47 signatures.

McCarthy-Fry, whose interest in CSR stems from involvement with the co-op movement, said: "Historically, the legal responsibility of a company's directors has been to maximise shareholder value.

"However, it can be argued that is a narrow view and that there is a moral and legal responsibility to consider the interests of employees, the local social and environmental impact of doing business and the impact of company operations on the economy of the whole country."

She said companies were not always scrutinised enough, and that they were able to maintain a facade by churning out the requisite reports and paying "lip service" to the concept of CSR.

"Most of us have signed up to the Make Poverty History campaign," she said. "But do we know which companies continue to exploit workers in the developing world, on poverty wages and in unsanitary and unsafe working conditions? Are we happy to let subsidiaries of UK firms do that, safe in the knowledge that they have no legal responsibility to tell their shareholders that they are doing so?"

McCarthy-Fry proposed that the Bill should include a statutory duty to affected stakeholders as well as to shareholders. Her Early Day Motion called for "a duty for directors to identify, consider, minimise and report on any negative social and environmental impacts caused by a company's activities in the UK or overseas".

Wicks made the business case, saying CSR could increase competition between firms. "CSR is not only about businesses being more responsible because of the moral and ethical considerations, valuable though such things are," he said. "It also enables companies to become more efficient, more profitable and more sustainable in the longer term."

COMMENT

DEBORAH DOANE, chair, Corporate Responsibility Coalition (Core)

In its forthcoming Bill, the Government has chosen to drive the idea of 'enlightened shareholder value' as its way of embedding social responsibility in corporate behaviour. Shareholders, it argues, will have to be concerned about ethics because managing risk issues such as reputation means that socially responsible decisions will be the only ones that make good business sense.

Members of Core, a coalition of 130 NGOs, disagree. According to Amnesty International, contractual agreements used by companies in the extractive industries actually prohibit the implementation of human rights laws in vulnerable countries.

The Government must recognise the limitations of shareholder value and require companies to be accountable to both shareholders and stakeholders.

Such a model will bring companies into the 21st century and help deliver the critical aims of sustainable social and environmental development beyond the simple creation of wealth.

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