Companies law should go beyond voluntarism

The global financial crisis demonstrates the importance of the sensible regulation of markets and companies.

A recent Human Rights Watch report shows that corporations have a major impact upon human rights, but limited consideration has been given in South Africa to corporate responsibility in this area. Corporate law and constitutional law are largely separate disciplines.
But, if we are serious about protecting individual rights, it is important to consider the necessity for law reform in this area.

The law considers a company a ­distinct entity separate from those who own it, so the risk to shareholders is limited and the company can continue operating irrespective of changes in membership. This status also insulates companies from taking responsibility for the dire impact on human rights and the environment that the profit motive may encourage.

Recent initiatives encourage the recognition of corporations’ social responsibilities beyond profit. The King II Report on corporate governance speaks of measuring company performance in terms of a “triple bottom line”: financial, social and environmental. The dominant discourse in South Africa on the issue has focused on corporate social responsibility, where corporations donate money towards social development - essentially a form of corporate goodwill.

Human rights require that we go beyond this purely voluntaristic model. They impose duties on agents in society to respect, protect, promote and fulfil such rights. Our Constitution recognises that these obligations are not the state’s alone, but also bind juristic persons such as corporations. This constitutional framework offers a fundamental change in how we conceive of the company, and requires concomitant law reform.

The new Companies Bill, now before Parliament, should incorporate this new vision. Most important is the imposition of a fiduciary duty on company directors to act with due care and skill to ensure the company meets its rights obligations. Such responsibilities would include exercising due diligence to ensure individuals’ fundamental rights are not harmed. Non-financial reporting obligations should also be imposed, along with a state monitoring mechanism.

Two other important law reforms are required. Many corporations based in South Africa have operations in other parts of Africa, where human-rights protection is often weaker. Such corporations should be liable in South Africa for complicity with violations of rights in other African countries. A similar statute exists in the United States (the Alien Tort Claims Act), allowing for civil claims against corporations for serious violations of international law beyond US borders.

Companies often seek to avoid responsibility for the actions of subsidiaries or subcontractors. Law reform should also place a responsibility on principal companies to take reasonable steps to become aware of subsidiaries or subcontractors’ activities, failing which they could be held liable for their rights violations.

The law should help ensure that companies do not simply benefit shareholders but society as a whole. It is time for binding obligations to be placed on corporations for the realisation of fundamental rights.

Dr David Bilchitz is senior researcher, South African Institute for Advanced Constitutional Law. This article is based on a report drafted by the centre. A conference on business and human rights will be held on November 3 at the Wits University Club dealing with the possibilities for law reform in this area. For more visit