CBCA s. 122(1)(a) is a fiduciary duty owed only to the corporation. Section 122(1)(b) requires directors and officers of a corporation to “exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances”. This duty of care is not owed only to the corporation (BCE v. 1976 Debentureholders).
It is for directors and managers to do what is in the best interest of the company. However, the courts generally follow the business judgment rule and do not interfere when directors and managers make reasonable decisions with the knowledge they had at the time, even if it wasn’t the best decision. The “best interests of the company” means the maximization of the value of the company, not the best interests of the shareholders. It is appropriate for directors and officers to consider the interests of shareholders, employees, suppliers, creditors, consumers, governments, and the environment (Peoples Department Stores v Wise).
Therefore, it is entirely appropriate for Tim Cook to consider the environment when he makes certain decisions. However, he should make it clear that the environmental sustainability programs implemented benefit the company and are in the company’s best interests. Good intentions are not enough if there is not benefit to the company (Parke v Daily News). Specifically, in the future, Tim Cook should refrain from making statements such as “there are many things Apple does because they are right and just, and that a return on investment was not the primary consideration on such issues”. As the CEO, Mr. Cook owes a duty to Apple to always do what is best for Apple. His above statement suggests that he does not always do this, and breach of s. 122(1)(a), while not creating a cause of action in itself, supports the contention of wrongdoing (Saskatchewan Wheat Pool). In Re W & M Roith, the court held that the claim for the pension could not be supported because it was not for the benefit of the company nor was it incidental to carrying on the company’s business. An alternative defence available to Mr. Cook is that making Apple responsible to the community and environment at large is incidental to carrying on business.
A good summary of cases that we covered in class on fiduciary duty of directors and officers. And I liked the way you applied the law to the Apple case. People care about environment and more and more people in our society hold themselves to be environmentalist. Think about how much a public company or entity spends on public relations each year. Environmental sustainability programs have spillover effects upon the public image of a company, which will add on the return of investments in a long run. Also, to develop environmental sustainability programs is not necessarily at odds with shareholder’s interest. The management must have done the math before they decide on how much to spend. Think of Subaru’s National Parks Zero Landfill Initiative, with which 100% of manufacturing waste is either recycled or turned into electricity. This company has stepped into its 10th year of zero landfill manufacturing. Isn’t it amazing? Aside from winning good public image, Subaru has benefited a lot from executing this policy simply because waste is a huge cost of doing business.
Great discussion, Julia and Chong. I like how you both argue that the general s. 122(1)(a) fiduciary duty to the company should be interpreted so that “best interests of the company” would include environmental sustainability. Had Mr. Cook argued that environmental sustainability is in the best interest of the company because a good public image is conducive to the maximization of company value, this would likely be more successful. This approach directly links the fiduciary duty to a company interest in a sustainable environment, while making an abstract argument about a moral obligation to the environment suggests that there is another primary duty that is adverse to the company duty.
In regards to alternative defences (other than the one Julia mentioned about how environmental responsibility is incidental to carrying on business), I was wondering whether s. 122(1)(b) could be used as a defence for Mr. Cook. The s. 122(1)(b) duty is not owed exclusively to the corporation and so can be the foundation for liability to other stakeholders in accordance with tort and contract law (BCE v. 1976 Debentureholders). While this may be outside the scope of the course, could Mr. Cook argue that while s. 122(1)(a) does not include a fiduciary duty to the environment, s. 122 (1)(b) includes a general duty of care to the environment? Mr. Cook could argue that he was prioritizing environmental sustainability for the company because the company owes a general duty of care to stakeholders outside of the company like the environment. This is a general standard of behaviour that should be reasonably expected (Canada v Saskatchewan Wheat Pool) so Mr. Cook, by this line of reasoning, was just fulfilling his general duty to environmental stakeholders.
You make a good point regarding “the environment” being one of the factors that the court in Peoples v Wise said should be taken into consideration when assessing what is in the best interests of a corporation. In my post on the same topic, I suggested that Tim Cook is basically asking to be sued when he makes statements like the one here. However, he could very well use the Peoples judgment to argue that he was in fact acting in Apple’s best interests per the Supreme Court of Canada’s own instructions.
On the other hand, I’m thinking about what Professor Festinger said today about the SCC possibly implying that the stakeholders they lay out in Peoples should be considered in the order they are listed (i.e. shareholders first and the environment last). Looking at the issue through that lens, it seems that Cook’s statement is still unwise at the very least. I wholeheartedly agree with you that he should be clearer about the idea that what he is doing is in Apple’s best interest–either that Apple will benefit from a cleaner environment, or that they will benefit from the good PR.
I couldn’t agree more with you Julia and Chong. As Chong pointed out, in addition to bolstering ROI though public image, many large companies such as DuPont, Walmart, and M&S who have invested in environmentally friendly energy-saving strategies have dramatically reduced their costs, thus boosting their net profits. They probably aren’t doing this out of the goodness of their left-wing environmentalist hearts – far from it. They are doing it because it’s better business that presumably benefits the ROI. Tim Cook’s statement likely wasn’t out of line with shareholder interests, he just expressed it very poorly (I doubt he has to worry).