Let’s Give Corporate Social Responsibility Some Teeth: Stakeholders, Derivative Claims and Unfair Prejudice

This paper considers how principles of corporate social responsibility can be implemented in the UK, via the expansion of the scope of the legal rules currently used for shareholder minority protection, namely derivative actions and unfair prejudice claims. This potentially allows breaches of the general directors’ duties, as well as other corporate conduct potentially damaging to the community, to be examined by the courts and remedied where necessary.

Currently the general directors’ duties contained in Companies Act 2006, ss. 171-177 are owed to the company. Enforcement of breaches of such duties, on behalf of the company, is based upon the principle of majority rule, requiring that the majority of directors or shareholders must support the decision to bring an action against the errant director. However, a derivative claim under Companies Act 2006, ss. 260-264 can be brought by individual or minority groups of shareholders, although permission must be sought from the court to continue the claim on behalf of the company. Individuals or groups shareholders may also bring an unfair prejudice claim, under Companies Act 2006, ss. 994-999, alleging that the company business is being conducted in a manner unfairly prejudicial to some or all of the company shareholders.

Corporate social responsibility (CSR) scholarship has demonstrated the importance of the inclusion, or at least consideration, of a wide range of stakeholder groups in the corporate governance process. Whilst justifications for CSR goals are examined and delimited here, the main issue considered is how CSR goals should be legally implemented. Questions considered include: when should workers or other stakeholders be permitted to bring an action on behalf of the company? How would a community action for unfair prejudice against the company work? Finally, the question of how vexatious claims could be prevented if such a scheme was implemented will be examined.