Corporate Responsibility

Corporations are the most common form of business organization and are established as a legal entity separate from its constituent members or shareholders. In a corporation with shares, ultimate responsibility is usually allocated to the board of directors, which is elected by shareholders and accountable to them. All persons, regardless of their position in the corporation, including directors and officers, are evaluated in reference to the fundamental purpose of the corporation. Beyond electing the board of directors, shareholders do not participate in the decision making and operation of the organization. Decision makers in a corporate context, as anywhere else, are liable for the consequences of their decisions. Where the decisions are within the legal authority of the decision maker, liability for the consequences remains with the corporation and not with the individual person. Corporate responsibility then is related to the purpose of the organization as established by law, and where the corporation is a business, the responsibility is to conduct business in compliance with the law. Internally, the board of directors usually bears substantial responsibility for all the corporation's acts or omissions.

All corporations exist as persons only by authority of law; hence the term legal persons. As a legal person, the purpose of a corporation is set out in its enabling law. A business corporation therefore is an organization that exists by the authority of business corporation law for business purposes, which is understood to be financial profit. This focus on financial gain has been and remains the responsibility of the business corporation. Where corporations for nonbusiness purposes can and do exist, they are usually mandated with different purposes, and hence different responsibilities. The overriding goal of corporate responsibility is acting in the best interest of the public beyond what constitutes legal obligations; however, the interpretation of this goal in compliance with corporation objectives can vary considerably depending on the business and context.

Since about the mid-20th century, business corporations were demanded by public persons and not by the law to address issues other than financial. With this development, corporate governance involved the exercise of business and social responsibility. What has since come to be known as corporate social responsibility has many definitions, all of which have served to broaden the scope of corporate governance to include contemporary needs and goals of societies locally and globally.

By their actions, for better or worse, corporations have affected the quality of life in the communities within their sphere of influence. For example, employment practices within the company can reinforce or challenge local practices. Such was the case when apartheid was an official policy in South Africa. Business corporations with interests in South Africa, Canada, and the United States were under pressure to operate in South Africa in accord with Canadian and American practices and differently from the local policy of apartheid. At about the same time, a large multinational business corporation selling milk powder to disadvantaged people living under conditions of famine in Africa did respond to international popular pressure. In doing so, this corporation accepted responsibility for the effects of its legitimate business and changed its practice, thereby alleviating the dependencies and health consequences to the population from relying on the powdered milk for babies in the absence of clean water. In this sense, the business corporation's legal obligation to operate for profit was modified with the addition of the responsibility to act contextually in accord with ethical and humanitarian principles or social interests.

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