1.1 SRCG as a Redefinition of Corporate Governance

Socially responsible corporate governance is a product of the interaction of two transnational business governance schemes, corporate governance and corporate social responsibility, converging into a redefinition of corporate governance.^{Footnote 9} These two business governance schemes belong to two opposite visions of the firm putting forward different principles.

Corporate governance is traditionally supported by the agency theory view of the firm,^{Footnote 10} which holds that a corporation exists for the primary purpose of benefiting its shareholders. The core principle of corporate governance is thus share value maximization.^{Footnote 11}

By comparison, within the CSR point of view, the firm is envisioned from the stakeholder approach,^{Footnote 12} which emphasizes the importance for firms of taking into consideration the various parties impacted by its activities: shareholders, employees, consumers, local communities, and so on, as well as environmental impacts. The stakeholder view puts forward two principles. First, a corporation’s activities should be overall beneficial to all its stakeholders.^{Footnote 13} Second, corporations are accountable to stakeholders on their ethical as well as their legal obligations.^{Footnote 14}

These two different visions of the firm and the principles they convey have coalesced around SRCG discourse that financial performance in the long run is best assessed by an approach that integrates environmental, social and governance (ESG) issues.^{Footnote 15} The principles of shareholder maximization and accountability towards all stakeholders have been united under the idea that there is no fundamental conflict between the two.

The merger between corporate governance and CSR has been facilitated by the principles underlying SRCG: accountability,^{Footnote 16} sustainability,^{Footnote 17} and due diligence.^{Footnote 18} These principles have helped bring together CSR and corporate governance discourses in two important ways.

First, these principles have helped bring together actors by unifying perceptions about CSR issues and how to address them.^{Footnote 19} The principle of sustainability has thus helped consolidate the perception that environmental factors such as global warming could threaten the long-term viability of capitalism and should systematically be considered in decision-making. Likewise, the principle of accountability has crystallized the idea that corporate scandals such as Enron or Rana Plaza could best be prevented by obliging corporate actors to be accountable for their actions. The principle of due diligence has spelled out the obligation for corporations to identify, prevent or mitigate, and take appropriate action regarding their potential adverse human rights impacts.^{Footnote 20}

Second, these principles have helped to frame the issues^{Footnote 21} surrounding SRCG in an amenable way to institutional investors. The open-endedness of the terms “sustainability,”^{Footnote 22} “due diligence,”^{Footnote 23} and “accountability”^{Footnote 24} allows for the consideration of economic or governance issues alongside social and environmental ones^{Footnote 25} and has facilitated the enrolment of institutional investors. The principles may be applied to governance issues as well as to the social issue of worker protection and allow a measure of “flexibility and business-determined discretion,”^{Footnote 26} although, as section III will show, their indeterminacy may be detrimental to the enforcement of social issues. The open-endedness and process-oriented form of these principles are also congenial to the reflexive regulatory structure that best describes SRCG, which the next section will discuss.

1.2 The Reflexive Regulation of SRCG

Reflexive law induces desired socio-economic outcomes through the implementation of internal processes and procedural duties in order to increase organizational reflexivity.^{Footnote 27} The development of SRCG is mainly supported by the expansion of such reflexive processes and duties within existing corporate law structures.^{Footnote 28} It relies mainly on two avenues: the enlargement of corporate directors’ fiduciary duties and socially responsible investment (SRI).^{Footnote 29} Both are undergoing significant evolution, which increases the salience of social and environmental issues in corporate decision-making and promotes processes of internal reflection regarding those issues.

First, corporate directors’ fiduciary duties have been broadened in various jurisdictions using case law^{Footnote 30} or legislation.^{Footnote 31} These duties include a duty of loyalty and a duty of care to the corporation. The broader definition of the directors’ duty of loyalty allows directors to, as the Supreme Court of Canada has put it: “look to the interests of, inter alia, shareholders, employees, creditors, consumers, governments and the environment to inform their decisions.”^{Footnote 32} This notion of corporate “best interests” is indeterminate and can best be thought of as a procedural mechanism inducing the development of an internal reflection on the social responsibility of the corporation.^{Footnote 33} As for the duty of care, it requires that administrators set up monitoring systems to ensure that the directors and the corporation itself act in compliance with the law.^{Footnote 34} Once in place, these internal monitoring processes can be used to report on compliance with externally devised standards,^{Footnote 35} such as board declassification, gender pay equity, or reducing carbon emissions. The duty of diligence stated in the Guiding Principles is to be envisioned in that light. Given that some of these rights concern working conditions,^{Footnote 36} the duty of care could pave the way for greater responsibility^{Footnote 37} with regard to workers all across the supply chain.

Second, SRI refers to the use by shareholders of their access to corporate annual meetings^{Footnote 38} and to financial markets to push for greater social and environmental responsibility on the corporation’s part. Socially responsible investment has gained formal recognition by the United Nations–backed Principles for Responsible Investment. Socially responsible investment relies on the inclusion of ESG criteria in investment decision and on shareholder engagement.^{Footnote 39} Socially responsible investment is supported by the promulgation of standards requiring that investment funds establish and publish guidelines for proxy voting.^{Footnote 40} These procedural duties could be envisioned from a reflexive perspective as structuring and “encouraging”^{Footnote 41} the process of deliberation regarding the impact of corporate activities on social and environmental issues.

Overall, the broadening of corporate directors’ fiduciary duties and socially responsible investment opens up corporate governance to the consideration of environmental and social issues. In reflexive law terms, these pathways stimulate the process of reflection in shaping corporate governance’s “procedures of internal discourse and [its] methods of coordination with other social systems.”^{Footnote 42} It should also be noted that, the process-oriented^{Footnote 43} character of these pathways does not indicate which stakeholders’ interests should be prioritized nor, in the case of conflict, which stakeholders’ interests should prevail.^{Footnote 44} Combined with the open-ended nature of the principles of due diligence, accountability, and sustainability guiding SRCG, the process-oriented character of the pathways underpinning SRCG renders it normatively indeterminate.

2.1 Competition

The broadening of the fiduciary duties leaves directors with a broad discretionary power to choose which constituency’s interests should be taken into account. While the broadening of directors’ duties allows them to consider worker interests, it does not impose the prioritization of their interests over any others’.^{Footnote 45} Directors may even choose to prioritize shareholder interests.^{Footnote 46} The indeterminacy of the stakeholder model, the inclusion of shareholders among the stakeholders whose interests may be taken into consideration, and the equal footing given to governance issues alongside environmental and social ones leave open the possibility of stakeholders competing among themselves to ensure that their interests predominate.

Moreover, the importance SRCG has gained in the past years does not imply that corporate governance and CSR are now completely integrated schemes. A significant number of corporate governance actors have not adopted the idea that corporate governance should be as much concerned with social and environmental issues as focused on share value maximization. For instance, shareholders such as hedge funds or mutual funds, that trade 100 to 300 percent of their shares during a year,^{Footnote 47} focus solely on increasing share value.^{Footnote 48} Another example is provided by the recommendation, from a major player in the proxy advisory service industry, that the increase or protection of shareholder value be the guiding principle in voting on a proposal regarding social or environmental issues.^{Footnote 49}

In such a context of competition between the importance to be given to share value maximization and social issues, shareholders may well have the upper hand as the examination of the legal structures shaping the interaction of corporate governance and CSR will show.

2.2 Legal Structures Shaping the Interaction

As seen earlier, the interaction of corporate governance and CSR that defines SRCG occurs within two pathways: the broadening of directors’ fiduciary duties and SRI. These pathways of interaction rely on and are strongly shaped by the existing structures of corporate and finance law. Those structures actually only empower two sets of actors: corporate directors and shareholders. As we will see, these structures limit the possibility of using SRCG to protect workers and shape the importance to be given to workers’ interests. These underlying structural elements, combined with the normative indeterminacy of SRCG, may, as a result, shape corporate directors’ fiduciary duties towards shareholder value maximization rather than worker protection issues. Overall, shareholders’ interests emerge as those favoured by SRCG.

Within Anglo-Saxon corporate law structure, directors benefit from a large latitude in deciding where lay the best interests of the corporation and how different stakeholders’ claims should be balanced.^{Footnote 50} The protection of corporate directors’ discretion^{Footnote 51} enables corporate directors not to pursue shareholders’ value maximization. However, it does not compel them to do so. Besides, directors have no duty to consult stakeholders prior to making a decision which impacts their interests.^{Footnote 52} Directors have merely an obligation to consider stakeholders’ interests.^{Footnote 53} Devoid of consultation rights and voice mechanisms, the opportunity of workers to press for support for their issues is quite limited. Moreover, workers have an extremely narrow standing in corporate law to use judicial procedures.^{Footnote 54}

The limited right of workers to have their issues “considered” by directors and workers’ lack of consultation rights should be compared with the possibility shareholders enjoy of having their voice heard, through the election of boards, shareholder proposals at annual meetings, and various measures that require their approval.^{Footnote 55} Shareholders also enjoy access to judicial control of corporate directors’ decisions through the oppression remedy^{Footnote 56} and the derivative action.^{Footnote 57} Moreover, the share value maximization norm is conveyed by the requirement of securities commissions’ that the value of shares must be maximized during take-over bids.^{Footnote 58}

Finally, the capacity of institutional investors to support SRI issues is constrained by financial law requirements regarding the fiduciary duties of investors who act as trustees. Fiduciary duties of institutional investors require them to act in their beneficiaries’ best interests. Unless their beneficiaries have explicitly mandated them to take into account non-financial factors, institutional investors are bound by law to aim to seek solely the best financial interests.^{Footnote 59} Similarly, active engagement with corporate boards on social issues may only be warranted if the potential returns offset the effort and time used.^{Footnote 60} As Richardson points out: few social investors view themselves as “authorised to police the market.”^{Footnote 61}

On this count, it is quite instructive to examine how unions’ pension funds use their shareholders status to further workers’ issues. Union pension funds are institutional investors which are put in charge of managing union affiliated workers’ pension funds.^{Footnote 62} Union pension funds are generally considered as actively involved shareholders who do not hesitate to voice their concerns.^{Footnote 63} Yet, evidence shows that union pension funds sometimes cast their proxy votes in order to advance workers’ interests^{Footnote 64} but not always.^{Footnote 65} Most often, they seek to maximize shareholder value or align directors’ compensation with shareholder interests.^{Footnote 66} For instance, Agrawal has demonstrated that the AFL-CIO pursued labour objectives solely when casting proxy votes in firms whose unions were affiliated with the AFL-CIO, not in non-affiliated firms.^{Footnote 67}

Union pension funds advocacy for workers’ issues is constrained by the fact that, as institutional investors of workers’ pension funds, they are acting within the constrained role of trustees^{Footnote 68} and have a duty of loyalty to their beneficiaries. They may not act for third-party interests.^{Footnote 69} Labour issues, as any other issue for that matter, can only be considered when they are financially material to investment performance.^{Footnote 70} Proposals need thus to reformulate worker issues as material issues for shareholders rather than normative ones regarding workers. The necessity to adopt such a strategic stance is not devoid of advantages. It allows union pension funds to reach out to other shareholders for support.^{Footnote 71} Since union pension plans account for a small fraction of shareholders, it helps them get a much needed support for their proposals.^{Footnote 72} But it also limits union pension funds’ interventions to corporations where worker issues have the capacity to affect investment performance.

Taken as a whole, the surrounding legal structures shape up SRCG toward shareholder primacy and leave a very limited opportunity to use SRCG to further workers’ interests. A case can then be made that co-optation and capture best describe the mode of interaction between corporate governance and CSR.

2.3 Co-optation and Capture

This section will report how corporate governance actors pushing for shareholder primacy may be able to absorb the CSR discourse without changing its overall orientation towards share value maximization. By co-opting^{Footnote 73} the SRCG regulatory schemes, the status quo would be largely maintained even though the practices of SRCG and its principles of sustainability, due diligence, and accountability have become widespread. Co-optation may be achieved by regulatory capture, when a regulating scheme is used to serve the interests of those it seeks to regulate.^{Footnote 74} Regulatory capture may result in inadequate regulation to defend social preferences or unenforceable regulation.^{Footnote 75} Within SRCG, the risk of private regulatory capture is substantial.^{Footnote 76} It is increased by the fact that SRCG relies mainly on corporate directors and shareholders to implement and enforce corporate social responsibility.

With regard to the reliance on corporate directors’ discretion to orient corporations towards increased social responsibility, the risk of capture is amplified by the lack of enforcement and the normative indeterminacy of SRCG that allows any corporation to establish its own CSR program, tailored to its particular need. Conley and Williams indicate that corporations use CSR “as opportunities to shape and control the debate over their conduct.”^{Footnote 77} A report from SustainAbility, a strategic advisory firm, mandated from the UN Global Compact to establish the impact of CSR initiatives, highlights that these initiatives are often targeting peripheral activities of the firm and do not address long-term strategy of the corporation.^{Footnote 78} The corporate domination of CSR discourse may end up in SRCG being nothing but a public relations exercise,^{Footnote 79} especially when one takes into account the fact that the implementation of a code of conduct within a transnational firm does not grant workers the right to demand that this code be applied.^{Footnote 80} Even worse, the implementation of a code of conduct may present an opportunity for transnational firms to increase their hold over workers across the production chain^{Footnote 81} and to undermine the actions of local unions.^{Footnote 82}

Socially responsible investment also supports instances of regulatory capture. The ethical investment movement which constituted the earlier form of SRI^{Footnote 83} has been watered down by the United Nations’ Principles for Responsible Investment (UNPRI)’s focus on “responsible investment.” The equal footing given to governance alongside environmental and social issues in the Principles for Responsible Investment allows shareholders to claim to act as “responsible owners,”^{Footnote 84} whether they support board declassification or the eradication of forced labour. Socially responsible investment gives additional legitimacy to shareholders even though some of the governance issues they may champion are opposite to worker interests. For instance, proposals such as those opposing supermajority vote requirements and poison pills adoption aim at facilitating buyouts in order that shareholders receive a premium.^{Footnote 85} The facilitation of buy-outs, often an occasion for corporations to renege on their implicit contracts with workers,^{Footnote 86} does not protect labour interests.

The combination of the broad discretionary powers granted to directors and increased shareholder activism may well end up improving both directors’ and shareholders’ governance capacity. Directors have complete discretion to decide with which stakeholders they will dialogue and whether they will commit to the outcomes of the process.^{Footnote 87} Shareholders’ governance capacity has also increased. For instance, the changes in proxy rules in order to promote greater shareholder democracy have facilitated hedge funds activism.^{Footnote 88}

The ascendancy of shareholder value maximization makes it likely that CSR will “fall victim to business capture.”^{Footnote 89} Should we throw in the towel in regard to using SRCG as a way to protect workers? The next part will make a case that the interaction of SRCG with TLL could serve to bring some responsiveness in the reflexive model of SRCG and increase its usefulness in protecting workers.

3.1 Interaction Between SRCG and TLL: Two Examples

The interaction between SRCG and TLL happens mainly through the rule incorporation and referencing of fundamental International Labour Organization (ILO) Conventions or of the 1998 ILO Declaration on Fundamental Principles and Rights at Work that enshrines them.^{Footnote 96} For instance, the 1998 Declaration or the eight fundamental ILO Conventions have been incorporated into key instruments of SRCG: the Global Reporting Initiative (GRI), the Global Compact, the Guiding Principles, International Organization for Standardization (ISO) 26000, the International Finance Corporation Standards, ^{Footnote 97} and various Development Banks’ environmental and social policies.^{Footnote 98} Over the years the Declaration has increasingly become an essential reference point for codes of conduct.^{Footnote 99} Finally, shareholder proposals concerning the protection of worker rights often refer to the 1998 Declaration or to the fundamental ILO conventions. Two examples from Canada may be useful to illustrate how the interaction between SRCG and TLL occurs. The first example comes from a union campaign in Quebec contesting the closing of two convenience stores in the wake of obtaining union certification. The convenience stores belonged to the same high profile corporation, Alimentations Couche-Tard. The union filed a complaint under the Quebec Labour Code to seek redress, facing a host of procedural and substantive contests from Couche-Tard. From a legal perspective, it was far from certain that the union could obtain a favourable remedy under labour law: it had the burden of proof and was encountering major difficulties in obtaining the financial information needed to prove that the closing rested on an anti-union strategy and not on financial reasons.^{Footnote 100} So the union confederation pursued at the same time a complementary strategy: its pension fund filed a shareholder proposal asking for Couche-Tard to adopt a policy that conforms to ILO conventions.^{Footnote 101} While the proposal was far from being adopted, with a support of 0,83 per cent of shares, a settlement was latter obtained by the union.^{Footnote 102}

Another example comes from a Canadian civil lawsuit filed recently against a Canadian mining corporation, Nevsun Resources Ltd., alleging the use of forced labour and torture in an Eritrean gold mine developed. Directly suing the sub-contractor of Nevsun in Eritrea using local labour laws and courts was not a realistic option for the workers: the forced labour system had been put in place by the Eritrean government. Bringing a lawsuit in Canadian courts against Nevsun seemed a far more promising option if the defendants could establish a link between Nevsun and the use of forced labour in Eritrea. To document the corporation’s self-alleged responsibility to oversee and supervise the management of its business, the notice of civil claim^{Footnote 103} states the fact that Nevsun has adopted the 2006 International Finance Corporation Standards on social and environmental performance requiring the corporation to “protect workers by assessing forced labour risks.”^{Footnote 104} Interestingly, these Standards explicitly draw on ILO Conventions 29 and 105^{Footnote 105}.

3.2 Labour Participation

These examples exemplify three levels of labour participation that increase SRCG responsiveness to workers’ needs, issues, and values and prevent regulatory capture.

At a first level, labour participation occurs at the onset, when the content of the regulation, here the ILO Conventions, is defined.^{Footnote 106} Participation of a third party, different from regulators and corporations, in defining the broader goals of regulation decreases the risks of capture.^{Footnote 107} In that respect, labour participation is ensured in drafting the ILO Conventions because every country member is represented by a tripartite delegation (representatives of workers, employers, and governments).

At a second level, labour participation is instrumental in bringing increased adoption^{Footnote 108} of TLL principles by corporations. In the Couche-Tard example, a union pension fund (RRCSN), through a proposal, seeks the adoption of a policy in conformance with ILO conventions. In order to do so, RRCSN enlists other shareholders through the shareholder proposal mechanism. This case illustrates an instance of actors cooperating to force the adoption of TLL principles in corporate governance in order to build a multi-stakeholder dialogue around labour issues. Eventually, this adoption may be used to shame the corporation for not upholding international standards.

At a third level, labour participation occurs at the enforcement level, where workers, acting alone or cooperating with other actors, may hold accountable the regulator who failed to act.^{Footnote 109} In the Nevsun example, the corporation has agreed within the SRCG model to act as regulator of some forbidden labour law practices, such as forced labour, within its supply chain. By filing a civil claim, workers are seeking to hold Nevsun accountable for its complacency in punishing noncompliance.

Labour participation is thus essential to ensure SRCG’s responsiveness to workers’ needs.^{Footnote 110} On that count, TLL offers methods and mechanisms that open a pathway of participation. Collective representation^{Footnote 111} and collective action^{Footnote 112} are among TLL’s core methods. Traditionally, collective representation and action happened through the unionization process, where they are recognized and protected by international and national laws. However, considering the difficulty of reaching transnational firms through national laws and the lack of workers standing in corporate governance, workers need to build multi-stakeholder dialogue and partnerships, as in the Couche-Tard example, to have their voice heard and considered. Here, the ILO and global union federations may help build the necessary institutional capacity to participate.^{Footnote 113}

The intersection of these pathways of participation with SRCG may tremendously increase its effectiveness in protecting workers. Worker representatives may document violations of TLL principles or voice their own interpretations on how those principles should be applied in a particular corporation. Unions may also ask for sanctions to be taken, report on the effectiveness or lack thereof regarding particular frameworks of self-regulation, and press SRCG actors to support them. Collective worker participation is essential for the effectiveness of any business governance scheme endeavouring for worker protection.^{Footnote 114}

3.3 TLL Substantive Principles

The interaction of SRCG with TLL may also prevent regulatory capture by bringing up front labour law substantive principles. Substantive values and labour rights are needed in a regulatory scheme to “serve as goal, guide and ultimately as a source of sanction.”^{Footnote 115} By spelling out what the regulatory aims with regard to workers ought to be, TLL provides a common reference point that could be used to assess whether regulatory initiatives respond to labour values. In the end, it may contribute to implementing a dynamic of co-opetition favourable to ratcheting up labour standards.

Transnational labour law provides a coherent set of principles regarding work regulation. At the heart of labour law lie the principles of human dignity,^{Footnote 116} equal autonomy,^{Footnote 117} and proportionality: protection of labour as the weaker party in the work relationship.^{Footnote 118}

Transnational labour law brings labour law’s substantive principles to its interaction with SRCG. It provides SRCG with principles which can be used to oppose the principle of shareholder primacy^{Footnote 119} and a counter-narrative to neo-liberalism.^{Footnote 120} Transnational labour law principles as expressed by the 1998 Declaration have helped to unify perceptions about the importance of labour rights.^{Footnote 121} The Couche-Tard case illustrates how ILO Conventions provide the necessary social consensus needed to justify the intervention of the union pension fund^{Footnote 122} and rally other shareholders.

Furthermore, TLL principles may serve as a normative framework by which to evaluate corporate conduct with regard to workers, as the Nevsun and Couche-Tard cases exemplify. In this respect, the 1998 Declaration sets a referential minimal line of labour standards, thus suggesting a normative content to SRCG’s initiatives to protect workers. Moreover, TLL principles can be used as a standard for assessing SRCG actors’ claims to legitimacy when undertaking initiatives aimed at protecting workers. Webb has already shown how the ISO’s ability to enlist the participation of the ILO in the development of ISO 26000 enhanced the ISO’s legitimacy.^{Footnote 123} Similarly, we want to argue that the incorporation of TLL core principles enhances the legitimacy of SRCG’s actors as SRCG regulators. Transnational labour law thus has an opportunity to use SRCG actors’ desire to ground their legitimacy by incorporating ILO principles in order to ratchet up the standards of SRCG initiatives in matters of worker protection.

Overall, the interaction of TLL and SRCG may generate a certain level of cooperation between TLL and SRCG’s actors who are otherwise representing the opposite interests shareholder primacy and worker protection. We are thus in the presence of a form of co-opetition, where actors who are in competition with one another regarding the proper regulatory scheme recognize an opportunity for cooperation in their mutual benefit.^{Footnote 124} Webb has indeed shown how co-opetition certainly characterized the interaction of the ISO and the ILO in developing the ISO 26000 standards.^{Footnote 125} The same mode of interaction could depict the overall relationship between SRCG and TLL and contribute to checking the tendency of SRCG to regulatory capture.