Corporate Law, Codes of Conduct and Workers' Rights

Vanisha Sukdeo

• Publisher: Routledge
• Year: 2019
• ISBN:
  9780429594762
• Edition: 1
• Topic: Law
• Subtopic: Law Theory & Practice
• Index: Law

This book critically explores how increased regulation and governance of corporations can be used to help improve the rights of workers amidst an era of union decline.

The book posits that soft law techniques such as codes of conduct are more effective in protecting workers than "hard law" i.e. domestic regulation. It starts by analysing the transnational regulation of corporations and codes of conduct, and then puts forward a model code of conduct that can be used by corporations to help increase the protection of workers. Through this model's use of a monitoring scheme, shareholders, activists, and NGOs put pressure on the corporation to reform itself and enact a code which has obligations flowing both ways between the corporation and its employees. The book then looks at the expansions of fiduciary duties and changes to corporate governance, including Benefit Corporations and how they can be used to increase the rights of workers. It then discusses changes to standard union contracts before concluding with an assessment of the best way forward for workers' rights.

By providing a new contribution to the current dialogue on corporate social responsibility and codes of conduct, this book will be a valuable resource for academics working on labour, employment, and business law as well as corporate lawyers.

1
Introduction

This book critically explores how the increased regulation and governance of corporations can be used to help improve the rights of workers. Chapter 1 outlines the introduction and literature review, Chapter 2 explores transnational regulation of corporations and codes of conduct, Chapter 3 looks at the expansions of fiduciary duties and changes to corporate governance and how it can be used to increase the rights of workers, and Chapter 4 looks at changes to standard union contracts. Chapter 5 is the concluding chapter. My original contribution is looking at how labour law and corporate governance rarely intersect. But at this important intersection, there lies the promise for workers. By using CSR, and ethical consumption, the worker is able to gain increased rights.

Background of the problem

My study is situated within a broader debate about CSR (Dirk Matten and Andrew Crane), codes of conduct (Rhys Jenkins and Richard Locke), and increasing workers’ rights outside of hard law (Archon Fung, Dara O’Rourke, and Charles Sabel). When the sweatshop free movement started, certain companies branded themselves as sweatshop free in order to build their consumer base. Companies like American Apparel built their image as sweatshop free clothing manufacturers. Other companies such as the Gap changed their policies in regards to sweatshops due to external pressure from unions such as UNITE HERE.¹ My research investigates how to use corporate law in such a way that would increase the rights of workers. This research will analyse whether it is possible to build corporations that are socially responsible and that can improve the rights of workers, as the two are not mutually exclusive. My focus will be on how codes of conduct act as a soft law mechanism to implement change.

1 See work of UNITE HERE in regards to getting media attention about the Gap and its use of sweatshops. Maquila Solidarity Network: http://en.maquilasolidarity.org/resources/video/StopSweatshops.

Purpose of the study

This study will be useful in crafting new solutions to existing problems about the divide between soft law and hard law. This research pushes beyond the law into the business, management, and industrial relations disciplines. This research may also be of use in the environmental studies area, as the corporate social responsibility umbrella covers the environmental effects caused by corporations.

Corporations may promote CSR initiatives in order to satisfy external pressures but may fail to do anything specific to adequately build social responsibility. Corporations may also brand themselves as socially responsible in recognition of the shift to ethical consumption. “Ethical consumption refers to retail customers’ opting for goods that are perceived to create more preferable social economic or environmental impacts and outcomes than competing equivalent.”² This may force corporations to put substance behind their claims to be socially responsible. Because consumers are becoming more knowledgeable about products, the demand for ethical products may put pressure on corporations to make its products ethical.

2 Wayne Visser et al., The A to Z of Corporate Social Responsibility: A Complete Guide to Concepts, Codes and Organisations (West Sussex: John Wiley & Sons Ltd, 2007), at 195.

Codes of conduct and ethical consumption are linked in that consumer pressure for more ethical products may force corporations to adopt a code of conduct. Professor Compa states that “[t]oday a new generation of codes called ‘multi-stakeholder’ initiatives has appeared. Companies, unions, human rights groups, community and development organizations, and other NGOs participate in formulating a code of conduct.”³ He argues that corporate social responsibility is most effective when used alongside strong legislation and trade unions where workers are able to freely bargain and are able to effect change.⁴ This statement will be examined as his notion of unions working in conjunction with the corporation to bring about a CSR enlightened code of conduct is fascinating.

3 Lance Compa, “Corporate Social Responsibility and Workers’ Rights” online: <http://digitalcommons.ilr.cornell.edu/articles/183/>, at 5.

4 Lance Compa, “Corporate Social Responsibility and Workers’ Rights” online: <http://digitalcommons.ilr.cornell.edu/articles/183/>, at 6.

In this book I look at how corporate governance mechanisms be used to help increase the rights of workers. I also look at whether codes of conduct are a useful tool to use in order to strengthen the rights of workers. My hypothesis is that, while corporate governance mechanisms such as codes of conduct may be effective tools in strengthening the rights of workers, they are but a few tools among many available, and that many tools being used at the same time for the same purpose will prove more effective than a single tool.

Theoretical framework

My study is situated within a broader debate about corporate social responsibility that also includes the debates about workers’ rights and supply chains more broadly. The debate about CSR can be traced to the Berle and Dodd debates in 1931, where the issue of who managers actually serve was raised – is the obligation owed to shareholders? Or to some other group? Both American and Canadian corporate law is shareholder-centric, where shareholder primacy model/shareholder wealth maximization is still the theory that is enforced. Obviously, Supreme Court of Canada decisions such as BCE have made changes to the law that requires Directors to “consider interests” of stakeholders beyond shareholders, but the extent of this obligation is still unclear. As well, the term CSR is still relatively new, and a definite definition is not agreed upon. Even the notion of corporate philanthropy and whether this falls under CSR is being debated; as if the assertion that shareholders are the owners of the corporation stands, then according to agency theory, the Directors and officers of a corporation have an obligation to focus on shareholder wealth and giving away the corporation’s money is running afoul of agency theory. Scholars such as Donaldson, Drucker, and Jensen have varying theories about CSR, where no one theory is held to be definitive and absolute. CSR can be critiqued from the left as being mere whitewashing and ineffective. It can also be used by corporations to stave off actual state regulation in place of private or self-regulation. CSR can be critiqued from the right as being beyond the scope of the corporation. If the corporation operates with a view to a profit, it can be held that social obligations fall outside the true mandate of the corporation. If the corporation was intended from creation to be socially oriented, then the applicable legislation would reflect the same. The fact that other corporate forms like the Benefit Corporation exist echoes the refrain that the “original” corporate form was not meant to be socially oriented because the need for these new forms reflect CSR, not the “original” form of the corporation. If all corporations were meant to be CSR corporations, then Benefit Corporations would never have been created because they would serve no purpose. Milton Friedman argues that businesses have no obligations beyond avoiding fraud and deception, but this statement is antiquated and no longer applicable. Due to recent corporate law decisions in Canada, we see the SCC shift towards greater corporate accountability and transparency. These shifts have resulted in a change to the corporate form as it existed years ago when Friedman wrote. Even if the past corporation did not have to be socially responsible, the modern-day corporation has to be reformed to reflect the changing values of both society and the actual caselaw in Canada.

Corporate governance theory can be traced back to Ronald Coase and his article “The Nature of the Firm,” and to Michael Jensen and his writings on agency theory. Adolf A. Berle published “For Whom Corporate Managers Are Trustees: A Note” in 1932 to continue the debate with Dodd over the obligations of Directors. Milton Friedman in 1970 declared that corporations do not have social responsibilities, as the responsibilities of businesses was to merely increase profit and avoid doing so by deception and fraud. R. Edward Freeman devised stakeholder theory, which is still held up in opposition to shareholder primacy model/shareholder wealth maximization. The differing views of corporate governance can be ascribed to Lynn Stout’s work on stakeholder theory, and Henry Hansmann and Reinier Kraakman in “What Is Corporate Law?”

Theory of the firm – how does the corporation function?

Note that the question is framed as to how the corporation functions rather than how the corporation should function. The question of how the corporation should function is more open to interpretation than that of how it functions, in that one’s beliefs and value system will influence how one determines the best way for the corporation to aspire to act.

Ronald Coase

“The Nature of the Firm”⁵ by Ronald Coase is a fundamental article in economics because Coase sets out to explain why an individual would choose to join a firm (partnership, corporation, or other entity) rather than work independently as an entrepreneur. “[I]f some people preferred to work under the direction of some other person. Such individuals would accept less in order to work under someone, and firms would arise naturally from this.”⁶ This seems to be about shifting liability in that an individual as sole proprietor would have full responsibility, while as simply a member of a firm, the individual is able to shift or spread liability. Coase does not address this issue which may be more of a legal issue than an economic one. Coase argues that by allowing individuals to share resources and restrict transactions to internal ones rather than external, prices dec...

Table of contents

• Cover
• Half Title
• Series Page
• Title
• Copyright
• Contents
• List of tables
• Acknowledgements
• Overview of the book
• Author biography
• 1 Introduction
• 2 Codes of conduct
• 3 Changes to corporate governance
• 4 Changes to standard union contracts
• 5 Concluding chapter
• Index