Some writers argue that management should pursue not only profit maximisation but also other “noneconomic goals” that “enhance the welfare of employees or some segment of the public”. 396 Furthermore, corporate managers often do no not take into account the fact “that a company is only as good as its people”. Very often, employees “have a much greater stake in the company than most of the shareholders”, as “they depend on it for their careers, their livelihood and, eventually, their pensions”. 397
Venter notes that a company should be viewed as a separate entity wherein many conflicting interests need to be reconciled, such as those of its shareholders, creditors, employees, consumers and environmentalists. 398 Thus, one needs to examine the need for the modern day company to change its nature by moving away from its historical norm where its sole purpose is to attain as much profit as possible
395 Ibid.
396 Vagts, above n 2, 38.
397 Kendall & Kendall, above n 102, 39-40.
398 Venter, above n 357, 9.
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to a system, which recognises the rights of other bodies other than only the rights of its shareholders.
It needs to be recognised that, with regard to corporate law, ownership involves responsibilities as well as rights. This means that directors of companies need to discharge their social responsibilities to society and they therefore have a social obligation towards all with whom they deal including the employees of companies.
These sentiments had already been expressed in The White Paper on Company Law Reform, published by the English Conservative Government, as far back as in 1973.399 Subsequently in 1977, The English Committee of Inquiry on Industrial Democracy (Bullock Report) indicated that modern corporations needed to take into account the interests of its employees as well. 400 The view set out in the Bullock Report is that a corporation must balance all of its main goals, such as profit, growth, size and employment opportunities, so that each one of these goals does not, in any way, impinge upon the growth of the other.
Since a company in law is an entity with its own legal personality and, as such, affects all of those persons who participate in it, it is worthwhile to consider some of the interesting statements taken from various systems in order to appreciate the views of courts and of academic writers.
In Unocal v Mesa Petroleum Co, the Supreme Court of Delaware viewed a corporation as an enterprise, which consists not only of its shareholders, but also of its employees, creditors, customers and the community. 401 This means, therefore, that the court recognises that a corporation has more obligations than merely being a profit-making entity. Hence, the corporation has economic and sociological functions other than merely a business one.
Furthermore, in Peso Silver Mines Ltd (N.P.L) v Cropper the court stated,
(a) classical theory that once was unchallenged must yield to the facts of modern life. In fact, of course, it has. If today the directors of a company were to consider the interests of its employees no one would argue that in doing so they were not acting bona fide in the interests of the company itself.
Similarly, if the directors were to consider the consequences to the community of any policy that the
399 The White Paper on Company Law Reform, published by the English Conservative Government, 1973 (Cmnd.5391, 5).
400 Bullock Report, above n 256.
401 Unocal v Mesa Petroleum Co., 493 A 2d 946 (1985), 955.
company intended to pursue, and were deflected in the commitment to that policy as a result, it could not be said that they had not considered bona fide the interests of shareholders. 402
A concern started to be expressed by the courts as to how a company could possibly expect to prosper if its employees and other interested stakeholders were dissatisfied with the running of the corporation. Lord Wedderburn has noted, however, that in his opinion, the English courts in their application of equity, have generally remained very conservative in their approach by assuming that the only goal of corporate responsibility is that of profit-making. 403
Furthermore, Schmitthoff notes,
... a fundamental change has taken place in the concept of the company. The company is no longer regarded as an instrument of profit maximisation for the sole benefits of its shareholders. It is generally recognised that the company as an economic unit consists of a combination of several interests, namely those of the shareholders as providers of capital, of the employees as providers of labour, of the creditors and of the public as such. The concept of the company as an instrument of economic capitalism has thus developed into one of the enterprise as an instrument of a new social order. The modern concept of enterprise is founded on the theory of social responsibility. 404
Consequently, in continental Europe, the company is not simply regarded “as a piece of financial real estate”. Its main aims are rather to ensure that employees are given the “scope and space to develop and to live useful, fulfilling and rewarding lives”. 405
In South Africa, Venter notes that it is important that corporations begin to acknowledge and discharge social as well as business responsibilities. 406 Thus, within modern South Africa, the social responsibility dimensions of a company must start taking firm root in order to assist in meeting the aspirations of the masses.
Furthermore, Venter refers to Sullivan’s 1977 demand that certain companies direct considerable amounts of money towards social upliftment programmes in South Africa. 407 Sullivan stated that
402 Peso Silver Mines Ltd (N.P.L) v Cropper, 56 D.L.R. (2d) 117, 154-5.
403 Venter, above n 357, 15, See also Lord Wedderburn, “The legal development of corporate responsibility”, in Hopt & Teubner (1985) Corporate Governance and Directors' Liabilities, Walter de Gruyter, Berlin, New York, 3.
404 Ibid. See also CM Schmitthoff (1981), Commercial Law in a Changing Economic Climate, 2nd edn, Sweet & Maxwell, London, Great Britain, 9, n.42.
405 Kendall & Kendall, above n 102, 40.
406 Venter, above n 357, 17.
407 Ibid. See also LH Sullivan, “Foreign investment: statements of principles for U.S. firms in S.A.”, The Independent Trade Union Guide '89, 187.
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(these principles) provide the most comprehensive standards for enlightened corporate behaviour in South Africa. Furthermore the implementing programme of reporting and task groups of companies has proven to be the most effective corporate change agent in South Africa.
By obliging companies to direct monies towards social rather than business needs, Sullivan created a transition in the companies affected to the extent that those companies could never revert to the traditional perceptions for which they were designed to further only profit-making goals for the shareholders.
Venter is of the view that the interests of the majority of large companies in South Africa have already changed from being those of solely profit-making enterprises to ones in terms of which there is recognition of their obligations towards the interests of employees and other interested stakeholders in the company and, as a result thereof, a new social order is being created. 408 In this regard, Innes CJ in O'Callaghan N.O. v Chaplin notes,
(i)t is the duty of a court- especially of an appellate tribunal- so to administer a living system of law as to ensure- without the sacrifice of fundamental principles- that it shall adapt itself to the changing conditions of the time. And it may be necessary sometimes to modify, or even to discard, doctrines, which have become outworn. 409