The socio-economic responsibilities of corporations


The state is not the only threat to human rights. Corporations in the form of juristic persons can also constitute a threat to human rights. Unfortunately this has happened in the past and continues to occur. Companies in the form of juristic persons control the well-being of millions of people and create employment. They however have the potential to make an important contribution to social and economic justice in South Africa.

In the previous Companies Act, before the extant one Act 71 of 2008, human rights and the values in the Constitution were virtually ignored. This has changed fundamentally with the new Companies Act of 2008. Section 7 (a) of the Companies Act of 2008 gives express recognition to the constitutional imperative of bringing company law within the constitutional framework as explained by M Gwanyana in a detailed article in the Potchefstroom Electronic Journal of 2015.

In this regard, sections 7 and 8(2) of the Constitution do not only apply to the state only, but individuals, and juristic persons. This is clear from these two provisions of the Constitution, read together. Section 8(2) states that the Bill of Rights applies to ‘a natural or a juristic person if ‘taking into account the nature of the right’.

Section 7(a) of the Companies Act, referred to above, is a very bold step considering what happened in the past and it means that the Bill of Rights and constitutional values should become an important matter of policy for corporations.

This means that in the process of interpreting the Companies Act and related legislation section 7 of the Companies Act, which states that one of the purposes of the Act is to ‘promote compliance with the Bill of Rights as provided in the Constitution, in the application of company law’. Furthermore section 158 of the Companies Act supports the idea of a purposive/value based method and theory of interpretation stating inter alia, that in interpreting ‘a court must develop the common law and … must promote the spirit, purpose and objects of this Act’. 

This is more or less the same wording as found in section 39 of the Constitution which deals with interpretation. This is also an important change brought about by the new Companies Act of 2008. The reason this is that the old or traditional approach to interpretation was not favourable to the promotion of human rights.

In this regard the directors of the company play crucial roles in the operation of their companies and must promote the ‘best interests’ of their shareholders. As a result of the explanation above, it is submitted that law must be interpreted and indeed developed not just to promote shareholders in a narrow sense but to promote human rights set out in the Constitution as required by section 7 of the Companies Act.

According to section 165 read with regulation 43, private legal interests in the company of shareholders can be protected if the court is approached in this regard. Private rights is a wide concept covering rights and even potential rights. These could involve individual human rights.

This section has the potential to prevent human rights abuses. In this regard persons can if necessary approach the courts. So for example, where a construction company wishes to develop a piece of land and development could violate fundamental human rights of persons living in the area, using a derivative action they may be able to approach the court to attempt to get relief.

An important aspect of the Companies Act in respect of human rights is the establishment of a social and ethics committee referred to in section 72. Although this is regulated by regulation 43, only specified companies are required to establish such a committee, such as State owned companies, public companies and other specified ones.

The function of such a committee is to monitor the company’s activities in regard to any relevant legislation, relating to social and economic development.
Regulation 43, referred to above, covers issues of equality, prevention of corruption and unfair discrimination. This is a very important initiative on the part legislature in the realisation of human rights, although limited to certain types of companies only. A problem with the above committee is that it is set up by the company itself and it lacks enforcement mechanisms. 

The Companies Act is still relatively new and the impact of human rights on actual operation remains to be seen, bearing in mind that the ‘shareholders interests’ remains dominant to maximise profits and that there may be conflict between the different stakeholders. There is however a need for the courts to change from a conservative to a more activist approach by means of purposive interpretation and developing the common law in a manner that promotes human rights in the operation of companies.

This has indeed occurred in the international sphere where there has been a challenge to the narrow understanding of the responsibilities of companies as profit making entities. This new approach is referred to as the ‘triple bottom line approach’ which recognises that companies have a greater responsibility than merely making profits.

So for instance, in the famous Pharmaceuticals Manufacturing case the Constitutional Court reaffirmed that the Constitution is the supreme law and that all law, including the common law regulating companies, derives its force from the Constitution and is therefore subject to constitutional control. Companies are thus required to respect and protect human rights to the extent that these are applicable to them. They must realize that they can’t compromise existing human rights in the pursuit of profits. If they do so, such action is open to challenge in the courts.

A collaboration in this regard is required between the State and companies in general. In general the courts ought to be more liberal in approach as applies in other branches of the law, where values of dignity, equality and freedom are recognised and will thereby give corporations and their operations a constitutional legitimacy.

The Companies Act, as indicated above, must be purposely/value-based interpreted to give expression to the human rights set out in the Constitution. In is conceded that besides human rights there are other objectives such as entrepreneurship and efficiency. A clash may occur between these objectives. In this regards the courts must give guidance.

Profitability which is absolutely necessary for a successful company, may clash with social responsibility. The Courts should be guided by section 7(d) which makes it clear that companies are also ‘a means of achieving social benefits’. A blind eye can no longer be turned to violations of human rights by companies.

Companies have both rights and responsibilities. A new era is required of ‘just business’ rather than ‘profits at all costs’.  This is a great challenge to the business world and all those involved, because companies do not exist in a vacuum. Virtually all the large public corporations are through their social and ethics committee are involved in socio-economic outreach. Perhaps what would be beneficial would be the setting up by the world of business of an umbrella organisation to coordinate such activities, as was created in 1977 with the creation of the Urban Foundation involving, inter alia, Harry Oppenheimer, Anton Rupert, Clive Menell and Judge Jan Steyn.

There are many very enlightened and very competent persons in the world of business in South Africa, who can take a leading role and infuse the values of the Constitution into the operation of their corporate ventures. This will not only contribute to social justice, but also contribute to social and political stability, which is a climate in which business can flourish. South Africa is a country of infinite potential and business corporations and their leaders have a fundamentally important contribution to make in this regard.

George Devenish is Emeritus Professor at UKZN and one of the scholars who assisted in drafting the Interim Constitution in 1993.