The evolution of directors duties: bridging the divide between corporate governance and corporate social responsibility

Abstract

However challenging the prospects, there are growing indications of large corporations taking their social and environmental responsibilities more seriously, and of these issues becoming more critical in the business agenda. The substance of company reports is changing, from purely environmental reporting up until 1999, to sustainability reporting (social, environmental and economic), which has become the mainstream approach of global companies. Though some of the expressed concern may be part of the discourse of political correctness, there does appear to be a significant shifting of opinion among executives. At the confluence of these multiple emerging initiatives and trends towards greater corporate social and environmental responsibility, there is emerging a dynamic stakeholder model for driving enlightened shareholder value (or more expansively, stakeholder values). This article examines how the duty to promote the success of the company offers legal encouragement to pursue responsible strategies on the part of directors and managers, and how legal and moral liability is converging. Similarly, the effect of the modern prudent investor rule is that institutional investor decision-makers are given latitude to follow a wide range of diversified investment strategies, provided their choice of investments is rational and economically defensible, they may sustain a portfolio balanced by environmental, social and governance criteria.