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Promoting more socially responsible corporations through a corporate law regulatory framework

  • Jingchen Zhao (a1)

This paper aims to lay the foundations for a more critical approach to the relationship between corporate social responsibility (CSR) and corporate law. Limitations on legislative approaches including directors’ duties, disclosure of information, sustainable decisions, direct promotion and corporate internal management structure are critically analysed, trying to find well thought-out and effectively implemented adjudication that provides meaningful instruction for regulating CSR. The paper explores the manner in which corporate law may contribute to accommodating CSR principles within corporate strategies, in order to establish a transformative legal regulatory framework within corporate law by using the authoritative legal mode to promote corporate regulatory mechanisms. The paper critically studies a few legislative measures supported by the relevant legislative experiences from various jurisdictions as examples of currently enforced CSR laws at national level, in order to offer comprehensive and potentially effective legislative suggestions for accommodating CSR elements. However, a ‘one size fits all’ approach is clearly not desirable, and these suggestions should be interpreted and implemented in a locally relevant manner, according to path dependence theory.

Corresponding author
Dr Jingchen Zhao, Associate Professor of Law, Centre for Business Law and Practice, School of Law, University of Leeds, Leeds LS2 9JT, UK. Email:
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I am immensely grateful to the anonymous referees for their constructive and insightful comments. I am greatly indebted to Professor Andrew Keay for providing me with valuable comments on the draft of this paper. I also want to thank Professor Blanaid Clarke for her encouragement and support.

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58. This is a fundamental and essential aspect of the free market arrangement that allows companies to ‘socialise’ or externalise their losses while privatising their profits; see Rayner (Mincing Lane) Ltd v Department of Trade (1989) Ch 72; Sea Fire and Life Insurance Co. Re (1854) 3 De GM & G 459; Hallett v Dowdall (1852) 21 LJQB 98.

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61. For example, suppliers lose money they are owed and lose their future business, the community and government lose tax revenue, employees lose their jobs or customers lose the product they have paid for.

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69. Some of the shareholders have barely seen any tangible part of what would usually be understood and regarded as the corporation.

70. Williamson, above n 68, at 514–515.

71. Ireland and Pillay, above n 41, p 82.

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73. Aberdeen Rly Co v Blaikie Bros (1854) 1 Macq 461; Bristol & West BS v Mothew [1998] Ch 1, 18; Henderson v Merrett Syndicates Ltd [1995] 2 AC 145; Attorney General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988; Re Allied Business and Financial Consultants Ltd, O'Donnell v Shanahan [2009] 2 BCLC 666; FHR European Ventures LLP v Cedar Capital Partners LLC [2014] 2 BCLC 145; ss 175 and 176 of Companies Act 2006; see also Edelman, JWhen do fiduciary duties arise?’ (2010) 126 Law Q Rev 302 ; Keay, AThe authorising of directors’ conflicts of interest: getting a balance’ (2012) 12 J Corp L Stud 129 ; Hannigan, BReconfiguring the no conflict rule – judicial stricture, a statuary restatement and the opportunistic director’ (2011) 23 Singapore Acad L J 714 .

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75. See Henderson v Merrett Syndicates Ltd [1995] 2AC 145 at 206; per Lord Browne-Wilkinson; see also Sealy, LSFiduciary relationships’ (1962) Camb L Rev 69.

76. Hannigan, B Company Law (Oxford: Oxford University Press, 22nd edn, 2009) pp 170172 . Sections 172, 173 and 175 of the Companies Act 2006 also address the true fiduciary duties of loyalty owed by directors to their companies; for more discussion on fiduciary duties and the Companies Act, see Lim, EDirectors’ fiduciary duties: a new analytical framework’ (2013) 129 Law Q Rev 242 ; Ahern, DGuiding principles for directorial conflicts of interest: Re Allied Business and Financial Consultants Ltd; O'Donnell v Shanahan (2011) 74 Mod L Rev 596 .

77. Sheehy, BDirectors’ legal duties and Csr: prohibited, permitted or prescribed?’ (2014) 37 Dalhousie L J 345. For example, in the USA, from securities and labour law reforms in the New Deal to the social welfare laws of the 1960s and 1970s, progressives have advocated a diverse and broad array of mandatory legal rules designed to limit corporate conduct which is perceived to be harmful to non-shareholder constituencies.

78. See Sheehy, BCorporations and social costs: the Wal-Mart case study’ (2004) 24 J L & Com 1 ; see also Wexler, LWal-Mart matters’ (2011) 46 Wake Forest L Rev 95 .

79. McConvill and Joy, above n 51; Stout, above n 51.

80. Re Smith & Fawcett Ltd [1942] Ch 304 CA; Re W & M Roith Ltd [1967] 1 All ER 427; JJ Harrison (Properties Ltd) v Harrison [2001] BCLC 158.

81. For directors using their power to raise capital for other purposes, see Punt v Symons & Co Ltd [1903] 2 Ch 506; Hogg v Cramphorn Ltd [1967] Ch 254. For the requirement that a director must not put himself in a position where there is an actual or potential conflict between his personal interests and his duty to the company, see s 175 Companies Act 2006 on avoiding conflict of interests; see also Aberdeen Rly Co. v Blaikie Bros (1854) 2 Eq Rep 1281; Knight v Frost [1999] 1BCLC 364; Jonathan Ball v Eden Project Ltd (11 April 2001, unreported); Bhullar v Bhullar, Re Bhullar Bros Limited [2003] EWCA Civ 424, [2003] 2 BCLC 241, and the duty not to make secret personal profit from any opportunity resulting from their position, even if they are acting honestly and for the good of the company: see Regal (Hastings) Ltd v Gulliver [1942] 1 All ER 378, HL; Gencor ACP Ltd and Others [2000] 2 BCLC 834.

82. See Percival v Wright [1902] 2 Ch 421; Peskin v Anderson [2000] Bcc 1110.

83. See Hutton v West Cork Rwy Co. Ltd [1883] 23 Ch D 654; Saul D. Harrison & Son Plc, Re [1995] 1 BCLC 14, CA.

84. See Lonrho Ltd v Shell Petroleum Co Ltd [1981] 2 All ER 456, [1980] 1 WLR 627; Colin Gwyer & Associates Ltd v London Wharf (Limehouse) Ltd [2002] EWHC 2748 (Ch); [2003] BCC 885 (Ch D); Bilta (UK) Ltd (In Liquidation) v Nazir [2012] EWHC 2163 (Ch); [2013] 2 WLR 825; Winkworth v Edward Baron Development Co Ltd [1986] 1 WLR 1512; [1987] 1 All ER 114; Liquidator of West Mercia Safetywear Ltd v Dodd (1988) 4 BCC 30; Yukong Line Ltd of Korea v Rendsburg Investments Corp of Liberia [1998] 2 BCLC 485; Facia Footwear Ltd (In Administration) v Hinchliffe [1998] 1 BCLC 218; Kinsela v Russel Kinsela Pty Ltd (1986) 4 ACLC 215; [2003] BCC 885; Re Idessa (UK) Ltd (In Liquidation) [2011] EWHC 804 (Ch); [2012] BCC 315.

85. See Allen v Hyatt (1914) 30 TLR 444.

86. Shuttleworth v Cox Bros and Co (Maidenhead) [1927] 1 Ch 154; see also Peskin v Anderson [2000] Al ER (D) 2278; Coleman v Myers [1977] 2 NZLR 225; Brunninghausen v Glavanics [1999] 46 NSWLR 538; also, it was made clear by the Supreme Court of Canada that formal directors’ duties as established under Canadian law can involve consideration of a broad set of social, environmental and stakeholder concerns in appropriate circumstances in Peoples Department Store Inc. (Trustee of) v Wise [2004] SCJ No 64, 2004 SCC 68; [2004] 3 SCR 461 at para 42 (SCC).

87. ESVP is the idea, described by Millon, that corporations should pursue shareholder wealth with a long-run orientation that seeks sustainable growth and profits based on responsible attention to the full range of relevant stakeholder interests. See Millon, DEnlightened shareholder value, social responsibility, and the redefinition of corporate purpose without law’ in Vasudev, PM and Watson, S (eds) Corporate Governance after the Financial Crisis (Cheltenham: Edward Elgar, 2012) p 68 ; see also Keay, A The Enlightened Shareholder Value Principle and Corporate Governance (Abingdon: Routledge, 2013).

88. Members are in most cases the shareholders; s 172 does this to cater for the situation of all companies, including guarantee companies that do not have shareholders.

89. Loughrey, J, Keay, A and Cerioni, LLegal practitioners, enlightened shareholder value and the shaping of corporate governance’ (2008) 8 J Corp L Stud 79 at 86.

90. Keay, ATackling the issues of the corporate objective: an analysis of the United Kingdom's “enlightened shareholder value approach”’ (2007) 29 Sydney L Rev 599.

91. The non-member stakeholders listed under the section cannot initiate any proceedings against the directors when there is a breach of the duty. Hence, in the event of a breach of duties towards stakeholders, they are toothless in confronting the directors. See J Kay ‘The Kay Review of UK equity markets and long-term decision making: final report’ (July 2012) pp 57–76; this review delivered a wide-ranging report in 2012 on the reforms needed to embed a long-term focus in UK companies and equity markets. Kay found that a number of directors actually believed that they had a legal obligation ‘to achieve the highest possible share price in the short-term’; see also Department for Business, Innovation and Skills (BIS)Building a culture of long-term equity investment, implementation of the Kay Review, a progress report’ (London: BIS, October 2014); Keay, above n 87, chs 4 and 7; Lynch, ESection 172: a ground-breaking reform of director's duties, or the emperor's new clothes?’ (2012) 33 Company Law 196 ; Ho, VEnlightened shareholder value: corporate governance beyond the shareholder–stakeholder divide’ (2010) 36 J Corp L 59 ; Keay, AThe duty to promote the success of the company: is it fit for purpose in a post-financial crises world?’ in Loughrey, J (ed) Directors' Duties and Shareholder Litigation in the Wake of the Financial Crisis (Cheltenham: Edward Elgar, 2014) p 50 .

92. Section 135 (1) Indian Companies Act 2013; the committee has three tasks, including formulating and recommending CSR policy, recommending the amount of expenditure to be incurred on related activities, and monitoring the CSR policy of the company accordingly to s 135 (3) Indian Companies Act 2013.

93. The term ‘CSR’ is not defined in the Act. Schedule VII of the Act lists CSR activities and suggests communities as the focal point.

94. Kumar, CSNA study of Csr rules under Companies Act 2013’ (2014) Asian J Multidiscip Stud 142 at 145.

95. This is further discussed in section 2(b).

96. Majumdar argued that the new legislation embedded in Companies Act 2013 did not reflect the intent and spirit of CSR, which is to include CSR in the core strategies of the company. Majumdar, ABIndia's journey with corporate social responsibility – what next?’ (2015) 33 J L & Com 165 at 204.

97. Singh, A and Verma, PFrom philanthropy to mandatory Csr: a journey towards mandatory corporate social responsibility in India’ (2014) 6 Eur J Bus & Mgmt 146 at 147. Religious practices (including Zakat, the Islamic practice of giving and consequent self-purification, or Dana, the practice of giving in Hinduism) and philosophical texts make it clear that individuals must engage in charitable activities that provide social and soul acceptance, and forms of behaviour that give rise to the Gandhian principle of trusteeship; see Majumdar, above n 96; AB Majumdar ‘Zakat, Dana and corporate social responsibility’; available at (accessed 15 February 2016).

98. PricewaterhouseCoopers India Handbook on Corporate Social Responsibility in India (Haryanan PwC India, 2013) p 7.

99. Sangle, SCritical success factors for corporate social responsibility: a public sector perspective’ (2010) 17 Corp Soc Respons & Envtl Mgmt 205 at 205–206; see also Sharma, SGCorporate social responsibility in India: an overview’ (2009) 43 Int'l Law 1515 .

100. Pavan, M and Neeti, SExpanding dimensions of Csr – the Indian way’ (2015) Asian J Mgmt 229 at 230.

101. Jenkin, RGlobalisation, corporate social responsibility and poverty’ (2005) 81 Int'l Affairs 525.

102. PricewaterhouseCoopers India, above n 98, p 7.

103. Arevalo, JA and Aravind, DCorporate social responsibility practices in India: approach, drivers and barriers’ (2011) 11 Corp Govern: Int'l J Bus in Soc'y 399; Sharma, above n 99.

104. Pillay, R The Changing Nature of Corporate Social Responsibility: CSR and Development in Context – The Case of Mauritius (Abingdon: Routledge, 2015) p 243.

105. Ibid, p 254; see also Gokulsing, RDCsr matters in the development of Mauritius’ (2011) 7 Soc Respons J 218 ; Pillay, RMauritius’ in Visser, W and Tolhurst, N CSR: a Country-by-Country Analysis of Corporate Sustainability and Responsibility (Sheffield: Greenleaf Publishing, 2010) p 257 ; Mahadeo, JD and Soobaroyen, TA longitudinal study of the implementation of the corporate governance code in a developing country: the case of Mauritius’ (2013) Business Society, published online before print; available at (accessed 10 February 2016).

106. Pillay, above n 104, p 265.

107. [2010] 320 Itr 546 (Sc).

108. [2010] 327 Itr (570).

109. Manu/Et/0150/2013.

110. Ibid.

111. Mohd. Ahmed (Minor) v Union of India & Ors., Wp (C) 7279/2013 (Del.).

112. Cs, No 35 of 2013, Ngt, 21 February 2014.

113. Ibid.

114. A provision that is similar to Esvp, also introduced in the new Companies Act, states that ‘a director of a company shall act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of environment’ (s 166 (2) of Indian Companies Act 2013).

115. Principle IV. D, Chinese Securities Regulatory Committee OECD–China Policy Dialogue on Corporate Governance: Corporate Governance of Listed Companies in China; Self-Assessment by the China Chinese Securities Regulatory Committee (Paris: OECD, 2011).

116. Cadbury, A and Millstein, IM The New Agenda for ICGN, Discussion Paper No 1 for the ICGN Tenth Anniversary Conference, London, July 2005, 13; available at (accessed 26 February 2016).

117. Apart from jurisdictions discussed in section 2, the regulatory initiatives were made in Canada (Continuous Disclosure Obligation NI51-102), Norway (Accounting Act (Regnskapsloven) 1999), Denmark (Aarhus Convention on Access to Information, Public Participation in Decision-Making and Access to Justice in Environmental Matters 1998), South Africa (Code of Corporate Practice and Conduct/The King's Code 2002) and the USA (see Notice of SEC Registrants’ Duty to Disclose Legal Proceedings 2001); according a 2015 report by the Initiative for Responsible Investment at the Hauser Institute for Civil Society at the Kennedy School, 23 countries have enacted legislation requiring public companies to issue reports on social and environmental issues including, apart from the countries that have been mentioned here, Argentina, China, the EU, Ecuador, Finland, Germany, Greece, Hungary, Ireland, Italy, Japan, Malaysia, the Netherlands, Spain and Taiwan; see Initiative for Responsible Investment Corporate Social Responsibility Disclosure Efforts by National Government and Stock Exchanges (12 March 2015).

118. For example, KMPG believes, from a practical point of view, that corporate responsibility reporting has established its position as the de facto law for business, delivering a compelling insight into the expectations that companies face; see KPMG, above n 35, p 2.

119. Chen, S and Bouvain, PIs corporate responsibility converging? a comparison of corporate responsibility reporting in the Usa, Uk, Australia and Germany’ (2009) 87 J Bus Ethics 299 at 300.

120. Bouten, L et al ‘Corporate social responsibility reporting: a comprehensive picture’ (2011) 35 Acc Forum 187 at 202.

121. See eg G20/Oecd, above n 17, ch 5.

122. Section 414C(7)(b) Companies Act 2006.

123. Section 414C(7)(b) Companies Act 2006 (Strategic Report and Directors’ Report) Regulation 2013.

124. The Business Review was the previous legal requirement before the enforcement of the Companies Act 2006 (Strategic Report and Directors’ Report) Regulation 2013. Legislatively, under s 417 of the Companies Act 2006, directors are obliged to include in the Business Review ‘a fair review of the company's business and a description of the principal risks and uncertainties facing the company’. The purpose of the Business Review was ‘to inform members of the company and help them assess how the directors have performed their duty under Section 172’. The obligations imposed on quoted companies are more onerous in comparison. Their Business Review must ‘to the extent necessary for an understanding of the development, performance or position of the company's business’, include ‘the main trends and factors likely to affect the future development, performance and position of the company's business and information about environmental matter, the company's employees, social and community issues’.

125. Section 414C (1) Companies Act 2006.

126. Ibid, at 442.

127. See Art 5 of Chinese Company Law 2006 (Ccl 2006); ss 134–135 of the Indian Companies Act 2013.

128. This implies that the controlling bodies of companies, when pursuing the interests of their shareholders, have to be socially responsible, and responsible to internal and external stakeholders.

129. The abstract provision could act as a guidance principle for future provisions, such as: detailed corporate responsibilities at different levels; enforcement measures for these responsibilities; directors' duties towards stakeholders in realising these responsibilities; and corporate liability and directors' liability in breach of these responsibilities.

130. Typical primary stakeholders are employees or creditors who input human capital and loan capital to companies, while shareholders inject equity capital.

131. Darling, AA political perspective’ in Kelly, G, Kelly, D and Gamble, A (eds) Stakeholder Capitalism (Basingstoke: Palgrave, 1996) p 17.

132. See Dean, J Directing Public Companies: Company Law and the Stakeholder Society (London: Cavendish, 2001) p 103.

133. Companies in an insolvent condition, near or in the vicinity of insolvency, doubtfully solvent, or at risk of insolvency or financial instability; the common law discussion in this area is vast. See s 172 (3) Companies Act 2006; Re New World Alliance Pty Ltd [1994] 51 FCR; Multinational Gas and Petrochemical Co v Multinational Gas and Petrochemical Services Ltd [1983] Ch 258; Re MDA Investment Management Ltd [2004] BPIR 75 at 102; [2003] EWHC 227 (Ch) at [70]; Nicholson v Permakraft (NZ) Ltd [1985] 3 ACLC 453; Re Horsley & Weight Ltd [1982] 1 Ch 442 at 455; Geyer v Ingersoll Publications Co 621 A 2d 784; Facia Footwear Ltd (in administration) v Hinchliffe [1998] 1 BCLC 218; Re HLC Environmental Projects Ltd [2013] EWHC 2876 (Ch) (Ch D (Companies Ct)); Moulin Global Eyecare Holdings Ltd v Lee [2012] HKCFI 989 (CFI (HK)). For academic discussion of the field, see Keay, ADirectors' duties and creditors' interests’ (2014) 130 Law Q Rev 443 ; Keay, A Company Directors’ Responsibilities to Creditors (London: Routledge-Cavendish, 2007); Milman, D Governance of Distressed Firms (Cheltenham: Edward Elgar, 2013); J Zhao and S Wen ‘Improving the disadvantaged position of unsecured creditors through law and corporate social responsibility’ (2013) J Bus Law 868.

134. Kay, J and Silberston, ACorporate governance’ (1995) 153 Nat'l Inst Econ Rev 84 ; see also Pillay, above n 104, pp 88–91; the Aktiengesetz mandates a two-tier board with a supervisory board (Aufsichtsrat in §100 AktG) and a management board (Vorstand in §76 (3) AktG); see also §1, 7, 27, 31 MitbestG; three co-determination regimes are currently enforced under German law, including co-determination pursuant to the Montan Co-Determination Act, co-determination pursuant to the DrittelbG 2004, and co-determination under the Co-Determination Act 1976. Historically, there has been voluntary formation of labour councils at the factory level by an amendment to the Business Practice Act in 1890 (Gewerbeordnung or GewO); Art 165 of the Weimar Constitution of 1919 guaranteed employees the right to cooperate with employers on an equal basis in the regulation of wages and working conditions; and the Labour Management Relationship Act 1952 (Betriebsverfassungsegesetz 1952, or BetrVG 1952) introduced the principle of one third representation of the management board for all other industries. See also Cromme, GCorporate governance in Germany and the German Corporate Governance Code’ (2005) 13 Corp Govern: Int'l Rev 362 ; Goergen, M, Manjoin, MC and Renneboog, LCorporate governance in Germany’ in Keasey, K, Thompson, S and Wright, M (eds) Corporate Governance: Accountability, Enterprise and International Comparisons (Chichester: Wiley, 2005) p 285 .

135. See Zhao, J Corporate Social Responsibility in Contemporary China (Cheltenham: Edward Elgar, 2014) pp 6987 ; Zu, L Corporate Social Responsibility, Corporate Restructuring and Firm's Performance (Berlin: Springer-Verlag, 2009) pp 4450 .

136. Since the Sixth Plenary Session of the Sixteenth Central Committee of the Chinese Communist Party in 2006, the policy has been adopted as the long-term goal of Chinese socialism; see Long, G, Zadek, S and Wickerham, JAdvancing sustainable competitiveness of China's transnational corporations’ (2009) AccountAbility (London) 35 .

137. Lin, LWCorporate social responsibility in China: window dressing or structural change?’ (2010) Berkeley J Int'l L 64 at 88.

138. Blount, J and Offei-Danso, KThe Benefit Corporation: a questionable solution to a non-existent problem’ (2013) 44 St Mary's L J 617.

139. Lin, above n 137, at 96.

140. The State-owned Assets Supervision and Administration Commission of the State Council (SASAC) issued the ‘Guidelines to the state-owned enterprises directly under the central government on fulfilling corporate social responsibilities’; the Chinese Academy of International Trade and Economic Cooperation, a subsidiary of the Ministry of Commerce, issued ‘Guidelines on corporate social responsibility compliance by foreign invested enterprises’; and the Shanghai Stock Exchange issued ‘Notice on strengthening listed companies’ assumption of social responsibility and guidelines on Shanghai Stock Exchange listed companies' environmental information disclosure'; see also Zhao, J Corporate Social Responsibility in Contemporary China (Cheltenham: Edward Elgar, 2014) pp 136141 ; Sarkis, J, Li, N and Zhu, QWinds of change: corporate social responsibility in China’ (2011 January–February) Ivey Bus J 1 .

141. On the basis of empirical research, human rights issues have been largely ignored by corporations in their corporate reports: see Li, Z and Cui, XN Corporate Social Responsibility in China (Beijing: China Economic Publishing House, 2011). This may be a useful opportunity for the UN to introduce human rights law and jurisprudence developed by the UN treaty bodies to the Chinese legal and constitutional system. See Subedi, SPChina's approach to human rights and the Un human rights agenda’ (2015) 14 Chinese J Int'l L 437 .

142. Human Rights Watch World Report 2014: China Events of 2013; for example, Zhao Lianhai, a Chinese activist who campaigned for better compensation for victims of the Sanlu baby milk scandal, was jailed for two and a half years on charge of ‘causing a serious disturbance’ under s 293, Chinese Criminal Law 1997.

143. See eg O Lui ‘Mining companies explain their operations abroad – and so do their problems’ CSR Asia, 7 October 2008. However, it is argued that the settlement of human rights related issues still has a long way to go in China: see H Zhang and C Qian ‘Merging business and human rights in China: still a long way to go’ (2014) 76 Focus, available at (accessed 22 February 2016); see also Hanlon, RJ Corporate Social Responsibility and Human Rights in Asia (Abingdon: Routledge, 2014) pp 91116 .

144. According to path dependence theory, an outcome or decision is shaped in specific and systematic ways by the historical path leading to it, as well as by other factors within the socio-economic context; see Hathaway, OAThe course and pattern of legal change in a common law system’ (2001) 1 Iowa L Rev 103104 .

145. Bebchuk, L and Roe, MJA theory of path dependence in corporate governance and ownership’ (2000) 52 Stanford L Rev 127.

146. See Anderson, A and Gupta, PPCorporate governance: does one size fit all’ (2013) 24 J Corp Acc & Fin 51 ; Gilson, RControlling shareholders and corporate governance: complicating corporate taxonomy’ (2006) Harv L Rev 1641 ; Roe, MJExplaining Western securities markets’ in Roe, MJ (ed) Corporate Governance: Political and Legal Perspectives (Cheltenham: Edward Elgar, 2005) p 279 . See also J Buchanan, DH Chai and S Deakin ‘Empirical analysis of legal institutions and institutional change: multiple-methods approaches and their application to corporate governance research’, Centre for Business Research, University of Cambridge, Working Paper No 445; Schmidt, RH and Spindler, GPath dependence and complementarity in corporate governance’ in Gordon, N and Roe, MJ (eds) Convergence and Persistence in Corporate Governance (Cambridge: Cambridge University Press, 2004) 114 ; Aoki, M Corporation in Evolving Diversity: Cognition, Governance and Institutions (New York: Oxford University Press, 2012).

147. Of course, taking into account a nation's corporate law, enforcement processes, shareholder structure, civil procedures, stage of economic development, and other aspects including the culture, history and traditions that are embedded within a particular jurisdiction. See Bell, JPath dependence and legal development’ (2013) 87 Tulane L Rev 787 at 787.

148. La Porta, R, Lopez-de-Silanes, F and Sheifer, AThe economic consequences of legal origins’ (2008) 46 J Econ Lit 285 ; see also Bendall, above n 33.

149. See Roe, MCommentary, chaos and evolution in law and economics’ (1996) 109 Harv L Rev 641.

150. Kerr, M, Janda, R and Pitts, C Corporate Social Responsibility: A Legal Analysis (Ontario: LexisNexis, 2009) p 101 ; see also Filatotchev, I and Nakajima, CCorporate governance, responsible managerial behaviour, and Csr: organizational efficiency versus organizational legitimacy’ (2014) 28 Acad Mgmt Perspect 289 ; Benn, S, Dunphy, D and Griffiths, A Organizational Change for Corporate Sustainability (Abington: Routledge, 33rd edn, 2014 ).

151. Abbott, KW and Snidal, DHard and soft law in international governance’ (2000) 54 Int'l Org 421 at 421.

152. Ibid, at 422.

153. KPMG's Global Sustainability Services and UN Environment Programme Carrots and Sticks for Starters: Current Trends and Approaches in Voluntary and Mandatory Stands for Sustainability Reporting (South Africa: UNEP, 2006) p 9.

154. A ‘comply or explain’ approach reduces reporting costs for companies by not requiring companies to report on matters which are not relevant in practice; see European Commission The EU Corporate Governance Framework COM(2011) 164 final 5.4.2011 at 18.

155. This concept of ‘comply or explain’ originated in the UK with the Cadbury Report in 1992, which provided the first serious code, and states that a company should comply with a set code of practice, but if it does not then it must state this in the annual directors' report and explain why; see Keay, AComply or explain in corporate governance code: in need of greater regulatory oversight’ (2014) 34 Legal Stud 279 ; MacNeil, I and Li, X“Comply or explain”: market discipline and non-compliance with the combined code’ (2006) 14 Corp Govern: Int'l Rev 486 ; Andres, C and Theissen, ESetting a fox to keep the geese – does the comply-or-explain principle work?’ (2008) 14 J Corp Fin 289 ; Arcota, S, Brunob, V and Faure-Grimaud, ACorporate governance in the Uk: is the comply or explain approach working?’ (2010) 30 Int'l Rev L & Econ 193 ; Seidl, D, Sanderson, P and Roberts, JApplying the “comply-or-explain” principle: discursive legitimacy tactics with regard to code of corporate governance’ (2012) 17 J Mgmt & Govern 791 .

156. For example, it is suggested by Horrigan that new rules are needed, with governments, companies and the community all playing a part and proposing a framework of international agreement focusing on CSR; see Horrigan, above n 19, pp 269–270.

157. Kerr et al, above n 150, p 100; see also BE Olsen and KE Sorensen ‘Strengthening the enforcement of CSR guidelines: finding a new balance between hard law and soft law’ (2014) 41 Legal Issues Econ Integ 9.

158. For example, corporate codes of governance to which listed companies should adhere could be one of the legal documents that help to promote CSR. They are useful in the context of voluntary principles that acquire recognition by companies, international financial institutions and civil societies as the result of an industry drive towards self-regulation, globally re-enforcing norms that have received multilateral and international acceptance; see B Nwete ‘Corporate social responsibility and transparency in the development of energy and mining projects in emerging markets: is soft law the answer?’ (2007) 8 German L J 311 at 327. As another example, stock exchanges require social and environmental disclosure as part of their listing requirements: Australia's ASX, Brazil's Bovespa, India's Securities and Exchange Board, and the London Stock Exchange; see Initiative for Responsible Investment Corporate Social Responsibility Disclosure Efforts by National Government and Stock Exchange (12 March 2015).

159. Pillay, above n 104, p 136.

160. Ireland and Pillay, above n 41, p 91; Aguilera, RV et al ‘An organizational approach to comparative corporate governance: costs, contingencies, and complementarities’ (2008) 19 Org Sci 475 at 488; see also Esser, ICorporate social responsibility: a company law perspective’ (2011) 232 S Afr Mercant L J 317 .

161. Ireland and Pillay, above n 41, p 91; see also Ronnegard, D and Smith, NGShareholder primacy as an impediment to corporate social responsibility’ in Coutinho de Arruda, MC and Rok, B Understanding Ethics and Responsibilities in a Globalizing World (Heidelberg: Springer-Verlag, 2016) p 43; Sjåfjell, B et al ‘Shareholder primacy: the main barrier to sustainable companies’ in Sjåfjell, B and Richardson, B (eds) Company Law and Sustainability: Legal Barriers and Opportunities (Cambridge: Cambridge University Press, 2015) p 79 ; Pillay, above n 104, pp 32–67.

162. Sahlin-Anderson, KCorporate social responsibility: a trend and a movement, but of what and for what?’ (2006) 6 Corp Govern: Int'l J Bus in Soc'y 595 at 597.

163. Emeseh, E et al ‘Corporations, Csr and self regulation: what lessons from global financial crisis’ (2010) 2 German L J 230 at 243.

164. Kerr et al, above n 150, p 29.

165. Skjaerseth, JB, Stokke, OS and Wettestad, JSoft law, hard law, and effective implementation of international environmental norms’ (2006) 6 Global Envtl Pol 104.

166. Tan, above n 9, at 250.

167. Kirton, JJ and Trebilcock, MJIntroduction: hard choices and soft law in sustainable global governance’ in Kirton, JJ and Trebilcock, MJ (eds) Hard Choices, Soft Law (Aldershot, Ashgate, 2004) p 3 at p 12.

168. S Arcot and V Bruno ‘In letter but not in spirit, an analysis of corporate governance in the Uk’ LSE RICAFE2 Working Paper No 31; available at (accessed 28 July 2016).

169. RK Sithanen ‘Riding out the global crisis: saving jobs, protecting people, preparing for recovery’ (2009) 4 para 16, cited by Pillay, above n 104, p 227; see also Ragodoo, NJFCsr as a tool to fight against poverty: the case of Mauritius’ (2009) 5 Soc Respons J 19 .

170. Section 50 L (1)Income Tax Act 1995; ‘CSR programme’, according to 2 (iv) means ‘a programme having as its objects the alleviation of poverty, the relief of sickness or disability, the advancement of education of vulnerable persons or the promotion of any other public object beneficial to the Mauritian community’.

171. Section 135 Indian Companies Act 2013; the government shifted responsibility to corporate sectors, and it is estimated that the law will cover about 3,000 companies in India and about US$2 billion per annum of expenditure on CSR activities related to social welfare initiatives. See Ernst and Young ‘Understanding the Company Bill 2012’ (2013), available at$file/ey-understanding-companies-bill-2012.pdf (accessed 28 July 2016); Ernst and Young ‘Corporate social responsibility in India: potential to contribute towards inclusive social development: Global CSR Summit 2013, an agenda for inclusive growth’ (2013), available at$File/EY-Corporate-Social-Responsibility-in-India.pdf (accessed 20 February 2016).

172. It is argued that since time immemorial, CSR has had its origins in Dural, The Great Book of Tiru Valluvar’s Verses; see C Raja Gopalachari Kural, The Great Book of Tiru Valluvar (Hindu Books Universe, 2003), available at¼Content&pa¼showpage&pid¼44 (accessed January 2016).

173. Pillay, above n 104, p 228.

174. Jain, AThe mandatory Csr in India: a boon or bane’ (2014) 4 Indian J Appl Res 301.

175. Sanjay, CA and Sharma, KA 360 degree analysis of corporate social responsibility (Csr) mandate of the new Companies Act, 2013’ (2013) 3 Global J Mgmt & Bus Stud 757 at 761.

176. That is to say that if the company fails to spend the required minimum of 2% of its average net profit over the previous three financial years on its CSR initiatives, the board must provide reasons for not spending this amount in its Board Report, based on s 135 (5) of the Indian Companies Act 2013. The ‘comply or explain’ principle was first introduced in the Cadbury Report to accommodate the need for flexibility and experimentation in corporate governance, and it has had a profound impact on corporate governance worldwide; see IM Millstein ‘Sir Adrian Cadbury’ in Financial Reporting Council (Frc) Comply or Explain: 20th Anniversary of the Uk Corporate Governance Code (London: Stock Exchange, 2012).

177. For example, the 2% requirement will result in a reluctance to comply for loss-making companies, and it is not clear whether the list of CSR activities provided in Sch VII is an inclusive or exhaustive list.

178. Comments of Venkateshwaran, partner and head of accounting advisory services at KMPG India ‘India now only country with legislated CSR’ Business Standard 3 April 2014); available at (accessed 28 July 2016).

179. Gopalan, S and Kamalnath, AMandatory corporate social responsibility as a vehicle for reducing inequality: an Indian solution for Piketty and the millennials’ (2015) 10 Nw J L & Soc Pol'y 34 at 44.

180. Ibid, at 103.

181. Majumdar, above n 96, at 196.

182. Singh, SCompulsory Csr in India; understanding Clause 135’ (2014) 5 Int'l Res J Mgmt Sociol & Humanity 206 at 210.

183. Legitimacy is defined as ‘a generalised perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions’; see Suchman, MCManaging legitimacy: strategic and institutional approaches’ (1995) 20 Acad Mgmt Rev 571 at 574; see also Kostova, T and Zaheer, SOrganizational legitimacy under conditions of complexity: the case of the multinational enterprise’ (1999) 24 Acad Mgmt Rev 64 ; see also Joutsenvirta, M and Vaara, ELegitimacy struggles and political corporate social responsibility in an international setting: a comparative discursive analysis of a contested investment in Latin America’ (2015) 40 Org Stud 1 ; Acquier, A and Aggeri, FThe development of a CSR industry: legitimacy and feasibility as the two pillars of the institutionalization process’ in Den Hond, F, De Bakker, F and Neergard, P Managing Corporate Social Responsibility in Action: Talking, Doing and Measuring (Aldershot: Ashgate, 2007); Rendtorf, JDf Responsibility, Ethics and Legitimacy of Corporations (Copenhagen: Copenhagen Business School Press, 2009); Pava, ML and Kransz, JCriteria for evaluating the legitimacy of corporate social responsibility’ (1997) 16 J Bus Ethics 337 ; for discussion on developing countries, see R Barkermeyer ‘Legitimacy as a key driver and determinant of CSR in developing countries’, Research Paper from the University of St Andrews and Sustainable Development Research Centre (SDRC) School of Management (2007).

184. The approach does not lead to compulsory Csr-related corporate actions and decisions.

185. See Gimbel v Signal Cos. 316 A.2d 599, 608 (Del. Ch. 1974); In re The Walt Disney Co. Derivative Litigation 906 A.2d 27 (Del. 8 June 2006); Aronson v Lewis 473 A.2d 805, 812 (Del. 1984); Sinclair Oil Corp. v Levien 280 A.2d 717, 720 (Del. 1971); see also Davis, KBOnce more, the business judgment rule’ (2000) Wis L Rev 573 ; Johnson, LThe modest business judgement rule’ (1999–2000) 44 Bus Law 625 .

186. See eg s 172 of the Companies Act 2006; see also Ghlm Trading Ltd v Maroo [2012] Ewhc 61 (Ch); Smith & Fawcell Ltd, Re [1942] Ch. 304.

187. Sjåfjell, BInternalizing externalities in Eu law: why neither corporate governance nor corporate social responsibility provides the answers’ (2008) 40 Geo Wash Int'l L Rev 977 ; A Johnston ‘Governing externalities: the potential of reflexive corporate social responsibility’, Centre for Business Research, University of Cambridge, Working Paper No 436, 3,

188. Mitchell, RK, Agle, BR and Wood, DJToward a theory of stakeholder identification and salience: defining the principle of who and what really counts’ (1997) 22 Acad Mgmt Rev 853 at 854–858; for more discussions on guidance related to enforcing directors' duties to make integrated decisions by giving directors legitimacy to have regard to stakeholders' interests, see section 4.

189. This legislative approach may be traced not only to the ESVP in the UK Companies Act 2006, as discussed in the last section, but also to Art 1174 of the Italian Civil Code, which provides that performance can also correspond to non-monetary interests of the creditors, and Art 1141 of the Code, whereby an agreement in favour of a third party may be considered admissible if it is relevant to the interests of the stipulans (the contracting party).

190. 134 S Ct 2751 (2014).

191. Ibid, at 2771.

192. People's Department Store Inc. (Trustee of) v Wise [2004] SCJ No 64, 2004 SCC 68, 2004 3 SCR 461 (SCC) at paras 42 (SCC); see also BCE Inc v 1976 Debentureholders 2008 SCC 69 (CanLII), [2008] 3 SCR 560. For discussion of the case and integrated decision-making, see Francis, C People's Department Stores Inc. v Wise: the expanded scope of directors’ and officers’ fiduciary duties and duties of care’ (2005) 41 Can Bus L J 175 ; Rousseau, SDirector's duties of care after people's: would it be wise to start worrying about liability?’ (2005) 41 Can Bus L J 236 ; Gray, WDA solicitor's perspective on People's v Wise (2005) 41 Can Bus L J 184; Lee, IB People's Department Stores v. Wise and the “best interests of the corporation”’ (2005) 41 Can Bus L J 212 ; Waitzer, E and Jaswal, JPeople's, Bce, and the good corporate “citizen”’ (2009) 47 Osgoode Hall L J 439 ; MacIntosh, JGBce and the People's Corporate Law: learning to live on quicksand’ (2009) 48 Can Bus L J 255 .

193. People's Department Store Inc. (Trustee of) v Wise [2004] SCJ No 64, 2004 SCC 68, 2004 3 SCR 461 (SCC) at paras 42–43 (SCC).

194. It was found in a 2010 report by Calvert Asset Management and the Corporate Library that 65% of S&P 100 companies have board committees at varying levels for the oversight of corporate social and environmental responsibility concerns; see Calvert Asset Management and the Corporate Library ‘Board oversight of environmental and social issues: an analysis of current North American practice’ (2010) at 14–16. This implies that having a CSR committee is possible, necessary and fits with practice, and could be beneficial if it was made mandatory.

195. Pava, ML and Krausz, JThe association between corporate social responsibility and financial performance: the paradox of social cost’ (1996) 15 J Bus Ethics 321.

196. Patten, DMIntra-industry environmental disclosures in response to the Alaskan oil spill: a note on legitimacy theory’ (1992) 17 Acc Org & Soc'y 471.

197. Rhodes, MJInformation asymmetry and socially responsible investment’ (2010) 95 J Bus Ethics 145 at 148.

198. See Berthelot, S, Cormier, D and Magnan, MEnvironmental disclosure research: review and synthesis’ (2003) 22 J Acc Lit 1 ; bWLaufer, SSocial accountability and corporate greenwashing’ (2003) 43 J Bus Ethics 253 ; Graham, D and Woods, NMaking corporate self-regulation effective in developing countries’ (2006) 34 World Dev 868 .

199. Directive 2014/95/EU of the European Parliament and of the Council of 22 October 2014. From a regulatory perspective, it is positive that the Eu has embraced indirect encouragement in the form of a non-financial reporting requirement applicable to large-scale undertakings in 2014. It had initially shied away from mandatory regulation in relation to CSR.

200. Such as the Un Global Compact, the Ruggie Principle, the Oecd Guidelines or international standards such as Iso 26000.

201. Buhmann, above n 15, at 192.

202. For example, the strategic report from the Uk Companies Act could be helpful for other jurisdictions (s 414C (7)(b) Companies Act 2006 (Strategic Report and Directors’ Report) Regulation 2013).

203. Watt, R and Zimmerman, JTowards a positive theory of the determination of accounting standards’ (1978) 53 Acc Rev 112 at 115–116.

204. For example, s 414(C)(1) of the Uk Companies Act 2006 states that ‘the purpose of the strategic report is to inform members of the company’.

205. Ireland and Pillay, above n 41, p 77.

206. Tan, above n 9.

207. See also Esser, above n 161, at 334.

208. P Utting and Jc Marques ‘Introduction: the intellectual crisis of Csr’, in Utting and Marques, above n 41, pp 5–6.

209. See May, PCompliance motivation: perspectives of farmers, homebuilders, and marine facilities’ (2005) 27 Law & Pol'y 317 ; Nagarajan, VFrom “command-and-control” to “open method coordination”: theorising the practice of regulatory agencies’ (2008) Macquarie L J 6 .

210. Thirarungrueang, KRethinking Csr in Australia: time for binding regulation?’ (2013) 55 Int'l J L & Mgmt 173 at 177.

211. Friends of the Earth ‘Submission on the European Commission's Green Paper on Csr’, Friends of the Earth (Amsterdam, December 2001) at 2.

212. Rahim, MMCorporate governance as social responsibility: a meta-regulation approach to raise social reusability of corporate governance in a weak economy’, in Boubaker, S and Nguyen, DK (eds) Board Directors and Corporate Social Responsibility (Basingstoke: Palgrave Macmillan, 2012) p 145 at p 146.

213. Ibid, at 151–152.

214. Kerr et al, above n 150, p 531.

215. Kidder, RM The Ethics Recession: Reflections on the Moral Underpinnings of the Current Economic Crisis (Rockland, ME: Institute for Global Ethics, 2009).

216. Sjåfjell, B and Anker-Sørensen, LDirectors’ duties and corporate social responsibility’, in Birkmose, H, Neville, M and Sørensen, KE (eds) Boards of Directors in European Companies – Reshaping and Harmonising their Organisation and Duties (Alphen aan den Rijn: Wolters Kluwer Law & Business, 2013).

217. See JC CoffeeWhat went wrong? an initial inquiry into the causes of the 2008 financial crisis’ (2009) 9 J Corp L Stud 1 ; Avgouleas, EThe global financial crisis, behavioural finance and financial regulation: in search of a new orthodoxy’ (2009) 9 J Corp L Stud 23 ; Gentle, CHow the credit crunch has its roots in the lack of integrated governance and control systems’ (2008) 9 J Risk Fin 206 ; The Association of Chartered Certified Accountants (ACCA) ‘Climbing out of the credit crunch’, ACCA Policy Paper (2008); Robins, N and Krosinsky, CAfter the credit crunch: the future of sustainable investing’ (2009) 15(4) Pub Pol'y Res 192 .

218. UN Environment Programme Global Green New Deal, Policy Brief (Nairobi, Kenya: UNEP, March 2009).

219. Stiglitz, JE Making Globalisation Work (New York: WW Norton, 2007) p 190.

220. Ireland and Pillay, above n 41, p 89.

221. This is particularly important in Anglo-American jurisdictions, where the quasi-legal shareholder primacy norm is regarded as unchallengeable. See Stout, above n 51; Stout, LAKilling conscience: the unintended behavioural consequences of pay for performance’ (2014) 39 J Corp L 525 ; Stout, LAThe toxic side effects of shareholder primacy’ (2013) 161 U Pa L Rev 2003 ; Stout, LAWhy we should stop teaching Dodge v Ford ’ (2008) 3 Va L & Bus Rev 163 .

222. Copi, I Introduction to Logic (New York: Macmillan, 1982).

223. Sheehy, BDefining Csr: problems and solutions’ (2015) 131 J Bus Ethics 625 at 640; see also Sheehy, B and Feaver, DPDirectors’ legal duties and Csr: prohibited, permitted or prescribed?’ (2014) 37 Dalhousie L J 148 .

224. Kakabadse, AP and Kakabadse, NKCSR in the boardroom: myth or mindfulness’ in Kakabadse, AP and Kakabadse, NK CSR in Practice, Delving Deep (London: Palgrave Macmillan, 2007) p 180 .

225. Gobert, J and Punch, M Rethinking Corporate Crime (Cambridge: Cambridge University Press, 2003) pp 309310.

226. This is particularly the case after the introduction of the Ruggie Principle; see s 414 (C)(7)(b)(iii). See also Buhmann, KPublic regulators and Csr: the “social licence to operate” in recent Un instruments on business and human rights and the juridification of Csr’ (2016) J Bus Ethics 699 ; Ramasatry, ACorporate social responsibility versus business and human rights: bridging the gap between responsibility and accountability’ (2015) Bus & Hum Rts 237 ; for a historical review, see Santoro, MABusiness and human rights in historical perspective’ (2015) 14 Bus & Hum Rts 155 ; Ruggie, JG and Nelson, THuman rights and the Oecd Guidelines for Multinational Enterprises: normative innovations and implementation challenges’, Corporate Social Responsibility Initiative Working Paper No 66 (Cambridge, MA: John F. Kennedy School of Government, Harvard University, 2015); McCorquodale, RCorporate social responsibility and international human rights law’ (2009) 87 J Bus Ethics 385 .

* I am immensely grateful to the anonymous referees for their constructive and insightful comments. I am greatly indebted to Professor Andrew Keay for providing me with valuable comments on the draft of this paper. I also want to thank Professor Blanaid Clarke for her encouragement and support.

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