Acting in the 'best interests of the corporation': CBCA amendment codifies director considerations

The Canada Business Corporations Act (the "CBCA") has long required directors to "act honestly and in good faith with a view to the best interests of the corporation." However, the meaning of this statement is far from clear – in making a decision is a director to be focused solely on increasing shareholder value or is it necessary to consider how a decision may impact a broader spectrum of stakeholders?

In 2008 the Supreme Court of Canada addressed this uncertainty in BCE Inc. v 1976 Debenture Holders. In that decision, the Court made it clear that a director's ultimate duty is to the corporation; however, that is not necessarily synonymous with maximizing shareholder value. Rather, in some circumstances a director may consider the interests of other stakeholders including employees, creditors, consumers, governments and the environment to inform his or her decisions and discharge his or her duties. If a court proceeding is later brought by a group of stakeholders to challenge a decision of the board, the courts will give proper deference to the director's judgment if they considered these ancillary interests and the action falls within a range of reasonable alternatives.

More than 10 years later, the Canadian government has amended the CBCA to effectively codify the Court's decision in BCE. Subsection 122(1.1) of the CBCA now provides that, in carrying out their duty to act in the best interests of the corporation, the interests considered by directors and officers may include (but are not limited to) shareholders, employees, retirees and pensioners, creditors, consumers, governments, the environment, and the long-term interests of the corporation. As with the Court’s statements in BCE, this new provision is permissive rather than mandatory; that is, directors are not obligated in every case to consider any or all of these interests. However, where there are potentially conflicting interests, it would be prudent for directors to consider the range of interests at stake and to keep evidence of such consideration.

Overall, the BCE decision and the amendment recognize that the director’s duty is not narrowly shaped by a single interest. Rather, there may be a number of interests at stake in any given decision, which may even be in conflict, and no single interest trumps another by default. This differs from the approach in the United States, where a director's primary concern is to maximize shareholder value. The Court in BCE accepted the trial judge’s statement that, when directors are faced with conflicting interests, they might have no choice but to approve transactions that are in the best interests of the corporation but which benefit some groups at the expense of others. In other words, there is not necessarily a perfect decision. However, in assessing competing interests, directors should consider, first, whether any group or interest is unfairly prejudiced, and second, whether there is an alternative course of action which eliminates or minimizes this prejudice while still being in the best interests of the corporation. There may not be any such course of action; however, as the Court stated in BCE, because the interests were considered, the court should defer to the business judgement of the directors.