The limits to corporate social responsibility

Abstract

This thesis asks what limits New Zealand law places on the scope of corporate social responsibility (CSR). It asks how far directors may go with shareholders’ funds, how they should choose between competing social and environmental purposes, and when shareholders or stakeholders can hold them to account. I conclude that CSR is concerned with outcomes for the firm rather than for society. New Zealand law adopts neither profit maximisation nor stakeholder theories of social responsibility. The entity primacy model means that the most important limit on CSR is the duty to act in good faith in the best interests of the company. Stakeholder interests may be considered to the extent that they are instrumental to the company’s success. A firm may voluntarily pursue wider social and environmental stakeholder interests at cost to the value of the firm when its constitution or business context allows. Social norms and community expectations form part of directors’ duty to act in the company’s best interests. I show that stakeholders and their interests cannot be adequately identified. One consequence is that accountability for decisions and for outcomes may be reduced when stakeholder interests are considered. If a recent amendment to directors’ duties allows discretion to sacrifice firm value for undefined social outcomes, then corporate value will be affected even if the discretion is never exercised. I analyse theories that argue CSR is largely presentational and alternatively that existing legal tools can be used to make social responsibility commitments effective. By comparing those theories to examples of CSR instruments, I find support for both theories. CSR cannot be defined with sufficient precision to measure its effectiveness. Therefore, CSR cannot be shown to produce better social outcomes than alternative models such as regulation, and claims that investors can ‘do well by doing good’ cannot be supported. Stakeholders cannot use remedies in the Companies Act 1993, but anti-social behaviour may be reviewable and shareholders have remedies for decisions that are not rationally connected to the purpose of the business.