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Conscience of Corporations




Ways in which companies function can cause a lot of problems to the environment and neglect human rights. Since these issues are subject to a lot of legal regulations yet are of public concern, why do companies still cause the most damage in these areas?

The core factor for this would be, because companies have a separate legal personality. This means that they can, employ people by their own judgements and standards within legal means, are able to sue and be sued and even enter a contract, all in their own name. 

This makes it even more vital that the corporate corpora uphold its own continuing rights, yet bear in mind how much it impacts the good of the public.
However, a subsidiary of the same company, in another country, could have a separate legal personality from their parent corporation. This creates a lot of leeway for underhanded operations. 

Therefore, if one company’s subsidiary, located in a country with poor environmental standards, damages the environment through its activities, there is close to no accountability held by the parent company. Besides, it may also be difficult to make claims against a subsidiary in a developing country, because they may not have the resources to compensate for the damages caused due to lack of legal provisions in that country relating to the environment.

An example of its practice in a case in real life was the Bhopal disaster. Union Carbide Corporation in America set up its subsidiary in India. It operated a pesticides plant which had a gas leak in 1984. Shockingly, 3,787 people died as a result, and some died later due to diseases that were created by the very incident. Unfortunately, safety standards were very low, but the parent company in the US were not allowed to be sued because, that subsidiary in India, was considered to be judged under a separate legal entity. This means that a British parent company, with a branch in Africa, could be aware that it employs children, but have no legal responsibility to do anything about it. 

Although, this law can be criticized for being unjust, the parent company should by every means at least, be able to influence its subsidiaries to prevent any action negatively impacts human rights or the environment. 

Due to the separate entity of subpoenas made possible, a middle road is created where parent company’s need not be held liable for their subsidiaries’ violation of human rights and/or detriment to the environment. 

Likewise, the duties of companies’ directors can also be a source of environmental issues. In countries such as Great Britain, Ireland, Australia and the US, it is a fiduciary duty of a director to act in the best interests of the company. Existence of these duties gives assurance to investors that their money will be dealt with for the primary purpose of making profit. 

This practice can, unfortunately, can negatively impact the environment, as directors would set their profit margins as their first priority. This corporate law prevents directors from acting in consideration of environmental protection. It could be argued, however, that a company with environmentally-friendly laws for their decision making, could in fact, motivate investors to want to invest in them more than any another company. However, in the real-world, it is unlikely, as investors are more focused on profit-making and most directors would rather not risk making expensive investments for just protecting the environment alone.

In any case, the long-term sustenance of a company’s success depends primarily on profit-making. In companies, where environmental protection standards are in place, it is by law, that directors should make decisions ensuring profit, even when there is a conflict between the two laws. Although, there are different laws in each country, this profit-making principle of law remains a common denominator. 

Therefore, one could argue, that as long as a director’s main priority is to focus on profit-making, there will be a continuous negative impact on human rights and on the environment. This would be the natural consequence of making decisions without seriously considering its ulterior affect. 

This makes it crucial to prioritise what is more important: money OR human life and the environment. However, laws make it difficult for directors of companies to make morally apt decisions. 

This is where public opinion comes into play. 

The public and investors can put pressure on companies to act with respect to human rights and the environment. 

This all comes with the hope that it would make a difference to ensure the protection of human life and our natural surroundings, without falling prey to the laws set by money-makers.


Also available at: https://theinflectionist.com/2016/02/25/conscience-of-corporations/