Enabling Corporate Social Responsibility and Stakeholder Representation in UK Companies: Towards Institutional Variety

Corporate law theory and corporate governance debate has for decades centred around the appropriate level – if any– of social control and public interest obligations on large public companies. Law and economics authors have emphatically refused that companies ought to act in a socially responsible manner citing the present shareholder-centric stance of UK and US corporate laws as evidence of the economic superiority of shareholder primacy. Moderate stakeholder and CSR theorists have accepted the merits of the existing legal/institutional framework, but have urged for a move towards socially responsible and ethical business through self-regulation, non-binding codes of conduct, corporate values statements and non-financial disclosure. At the same time, radical views have argued for mandatory regulation of corporate conduct and corporate governance structures with a view to achieving social goals.

This paper examines the notion of CRS and the alleged merits of a stakeholder approach to managing large corporations, and argues that socially responsible business behaviour is not fundamentally inconsistent with long-term shareholder value creation. It follows that the implementation of a CRS agenda does not necessarily imply the introduction of mandatory rules to that effect, which -at any rate- would be fraught with difficulties and lead to unintended consequences. 

Still, this does not necessarily mean that a purely self-regulatory approach is adequate to ensure that CSR and a stakeholder approach to management are viable options for UK companies. It will be argued that the current legal framework based on the Companies Act 2006 and the relevant case law, although seemingly embracing an enlightened shareholder value approach that appears to implement a mild version of stakeholder theory, in fact embeds shareholder exclusivity via a combination of mandatory and default provisions. This means that UK businesses are less likely to implement extensive CSR policies or to take a stakeholder approach even if they think that it would lead to the best possible outcome for shareholder value in the long-term.

One way to respond to this problem would be to introduce a set of statutory provisions relating to stakeholder representation and CSR into which companies would be free to opt. Any companies choosing to opt into this framework would have to adopt a governance structure which would ensure –inter alia– that their key stakeholders have a voice in corporate decision-making and that the CSR record of the company and its divisions is taken into account in the determination of variable executive remuneration. These companies would then be able to advertise their adherence to the said framework as a certification of sustainable and responsible business, which would allow them to improve their commercial relationships with key stakeholders, to boost their reputation and increase their sales.