The voluntariness and mandatoriness of Corporate Social Responsibility under the Nigerian Law PDF

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The latter gives an overview of the role of ICC in enforcement of international human rights while the former paper gives a better understanding on the impracticability of the doctrine of separation of powers in Nigeria base on the neutralisation and or usurpation of political powers in Nigeria hidi...

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AN ANALYSIS OF CORPORATE SOCIAL RESPONSIBILITY IN CORPORATE GOVERNANCE AND ITS LEGAL IMPLICATIONS

OLUSEGUN MODEYIN SOLOMON 13/40IA076

BEING A SEMINAR PAPER SUBMITTED TO THE FACULTY OF LAW, UNIVERSITY OF ILORIN, ILORIN, IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE AWARD OF MASTERS IN COMMON LAW

AUGUST, 2021

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ABSTRACT It is no longer a secret that the objective of establishing a business is for profit, in other words, companies or corporate bodies except those under Part F of Companies and Allied Matters Act, 2020 are purposely established to get profit. It can be said that the profit realized by a company belongs only to the company. It is also important to note that there are some responsibilities that the company owes itself, the shareholders and stakeholders as can be seen in stakeholder and shareholder’s theories of corporate governance. Corporate Social Responsibility is in line with stakeholder theory which believes that the company is not only responsible to its shareholders but stakeholders inclusive, this is because, the company owes some responsibilities to the employees, society and other stakeholders who have helped it in realizing its objectives. There are various codes of governance like the Organisation for Economic Cooperation and Development 2015 Code of Corporate Governance for Banks and Discount Houses and Guideline for Whistle Blowing in the Nigerian Banking Industry 2014. Issued by CBN, Code of Corporate Governance for Insurance Industry in Nigeria 2009- Issued by the National Insurance Commission (NAICOM), Code of Corporate Governance for Pension Operators 2008.- Issued by PENCOM, Code of Corporate Governance for Telecommunication 2014- issued by the Nigerian Communications Commission (NCC) etc. It is against this background that this dissertation analyses and examines the legal implication of Corporate Social Responsibility in Nigeria. It is the findings of the dissertation that despite the good intention of various codes on corporate governance in Nigeria which recommend Corporate Social Responsibility, the Codes put no binding force on same. Companies and Allied Matters Act, 2020 also looks at the interest of both the shareholders and stakeholders. This dissertation concludes that Corporate Social Responsibility objectives will go a long way in creating a cordial relationship between the directors, shareholders and stakeholders just like it has done for some companies like Dangote Cement that constructed over 30km road in Obajana-Lokoja Road, or MTN who has been granting Nigerians scholarship among other companies who engage in Corporate Social Responsibility. So, corporate bodies are encouraged to look at the positive effect such as cordial relationship and responsible image Corporate Social Responsibility will have on them.

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1.0.0 INTRODUCTION The concept of Corporate Social Responsibility is no longer new in corporate governance, this concept takes its form from the good objective of the corporate governance which especially the stakeholder’s theory of corporate governance which only not look at the roles of the directors of companies with the shareholders but to take recognizance of the stakeholders of the companies who makes the objectives of corporate entities achievable. Corporate Social Responsibility is a process that is concerned with treating the stakeholders of a company or institution ethically or in a responsible manner. B y ‘ethically or i n a responsible manner,’ we mean; treating key stakeholders in a manner that is deemed acceptable according to international norms.1 Social includes economic, financial and environmental responsibility. Stakeholders exist both within a firm or institution and outside. The wider aim of social responsibility is to create higher and higher standards of sustainable living, while preserving the profitability of the corporation or the integrity of the institution, for peoples both within and outside these entities. The key is how profits are made, not the pursuit of profits at any cost.2 Hence, Corporate Social Responsibility is a process to achieve sustainable development in societies. It is a business approach that contributes to sustainable development by delivering economic, social, and environmental benefits. 3 This study analyses the concept of Corporate Social Responsibility and its legal implication in Nigeria.

1 Micheal H, A Planetary Bargain: Corporate Social Responsibility Comes of Age (Macmillan,UK, 1998), p.13 2 Ibid.

3 Mihaljevic M and Tokic, I, ‘Ethics and Philanthropy in the Field of Corporate Social Responsibility Pyramid’ (2015) 11 Interdisciplinary Management Research, p 799-807

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1.1.0 BACKGROUND OF THE STUDY There is no universal definition of Corporate Social Responsibility (CSR). Consequently, various definitions as to the nature and concept of Corporate Social Responsibility were attempted to feature a more recognizable definition of the concept. Hence, there is a broad consensus that a definition of Corporate Social Responsibility contains two major principles which are: Philanthropic and Trusteeship principles. Philanthropic principle can be said to be a company discharging a social service i.e. engaging in social activities by themselves and by encouraging philanthropic activities, which can be in the form of resolution of chosen social problems of the community without any direct monetary benefits.4 Trusteeship principle on the other hand, perceives directors as trustees for shareholders, creditors, employees, consumers and the wider community.5 The director as a trustee to these stakeholders cannot be overemphasized this is so because there are some standards of role he played out for each stakeholder. For instance, the director’s responsibilities for the shareholders and creditors of the company is of their monetary interests while that he owes to the employees, consumers and the community are much more broad than monetary terms. CSR may also be defined as an obligation of organization and manager to make decisions which both promotes interest of an organization and improves the interest of the society as a whole.6 Brief Historical Background of Corporate Social Responsibility Corporate Social Responsibility (CSR) did not evolve consciously as a concept, but practices of companies made it become a trend. The early roots of corporate social responsibility can be 4 Mitchell A et al, ‘Philanthropy and Corporate Social Responsibility: is giving enough to truly be ethical?’ (2013) 7(1) International Journal of the Academic Business World, p 83-84 5 Gopinath C, ‘Trusteeship as a Moral Foundation for Business’ (2005) 110(3) Business and Society Review, p. 23

6 Mihaljevic M and Tokic, I, ‘Ethics and Philanthropy in the Field of Corporate Social Responsibility Pyramid’ (2015) 11 Interdisciplinary Management Research, p 799-807

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found in the actual business practices of successful companies in the eighteenth century. A notable example is the Cadbury chocolate makers in the United Kingdom (U.K) that prospered in the 1870s and moved in 1879 to a ‘Greenfield’ site which came to be called Bourneville, some miles from the centre of Birmingham where the original factory was situated. The opening of the Cadbury factory in a garden heralded a new era in industrial relations and employee welfare with joint consultation being just one of the initiatives introduced by pioneering Cadbury brothers. By 1899, the Bourneville factory had trebled in size with more than 2,600 employees and was managed scientifically with analytical laboratories, advertising and cost offices, a sales department, works committee, medical department, pension funds, education and training for employees. In 1900 George Cardbury established the Bournville village to promoting housing reform and green environment and demonstrating today’s CSR message ’successful business in successful communities.’7 The end of the Second World War ushered in rapid population growth as well as precipitous and multi-dimensional industrialization. These served as incentives to production and distribution systems to steeply boost manufacturing to satisfy the burgeoned demand. The world has since been unable to reverse that trend in production and consumption. Instead, following the emergence of the middle class in countries like China, India, Indonesia and Brazil, consumption has sharply risen in recent years. The rate of consumption of finished products has intensified the pressure on the world’s natural resources and environment. It has further resulted in increased emissions of greenhouse gases as well as in indiscriminate exploitation of natural resources at the expense of the host communities of those resources and the future generations.8 This has led to

7 Katsoulakos P et al ‘Historic Perspective of the CSR Movement’ (2004) www.csrquest.net/uploadfiles/1D.pdf accessed on 26th August, 2021 8 Ibid.

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various environmental and social problems, such as the destruction of flora and fauna, deforestation, pollution of the biosphere, diseases and social imbalance and instability. It has consequently made supply chains risk-prone and seemingly unsustainable. These situations have led to the need for responsible and sustainable ways of exploiting and consuming resources, so that the interests of both the present and future generations are preserved and realisable. From the 1970s onwards, the world’s consciousness of these issues has gradually heightened.9 It is important to note that the main promoter of the ideas of corporate social responsibility is the United Nations. Quite natural in this context is of course the draft agreement to comply with the World leading international corporation’s social responsibility. The project was hailed by UN Secretary General Kofi Annan at the World Economic Forum in Davos, December 31, 1999. It includes the following principles of corporate social responsibility:10 Human rights - Commercial organizations should support and respect internationally recognized human rights, and not to be associated with human rights violations.11 Standards of work - Businesses must recognize the right of workers to form associations and bargain collectively, and to adhere to the following principles: the abolition of all forms of forced labour, the actual elimination of child labour, the abolition of all forms of discrimination in employment and vocational training.12 Ecology- The business community should be focused to carry out pre-emptive measures to

9 Yahaya Y, et al, ‘Corporate Social Responsibility in Nigeria’s Oil and Gas Industry: the Perspective of the Industry’ (2013) 3(2) International Journal for Process Management and Benchmarking, p. 23

10 Firuzas. S. Madrakhimova, ‘Evolution of the concept and definition of Corporate Social Responsibility’ (2012) 8(2) Global Conference on Business and Finance Proceedings, p. 2 11 Ibid. 12 Ibid.

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avoid environmental problems, to carry out steps with a more responsible attitude to the environment, to promote the development and diffusion of technologies that reduce the negative impact on the environment.19 Anti-corruption- The business community should work against corruption in all existing forms, including bribery and extortion13 Legal responsibilities- Legal responsibility should be aimed at improving the enforcement of the legal framework of the territory in which the company markets.14 Planetary (global) responsibility- Planetary responsibility implies voluntary compliance with international standards of social responsibility.22 Environmental Responsibility- Environmental responsibility is aimed at the formation of such social responsibility standards that combine harmonious.15 Relationship demands of consumers and society with the rational use of natural resources and competitive ways of business, effective management of the environment and public health from the production of environmentally friendly products, etc16 Cultural and ethical responsibility- Cultural and ethical responsibilities of business requires not only compliance with the relevant territory the cultural and ethical traditions, but also the non- action that runs counter to existing norms of morality (the economic interests of corrupt lobbying practices, the use of double standards to employees or other stakeholders regardless of activity or the country, etc.). Philanthropic responsibility- Philanthropic responsibility should be directed to the support 13 Ibid. 14 Ibid.

15 Firuzas. S. Madrakhimova, ‘Evolution of the concept and definition of Corporate Social Responsibility’ (2012) 8(2) Global Conference on Business and Finance Proceedings, p. 4 16 Ibid.

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and development of the society and of the individual marginal groups through voluntary participation in social programs, including through social investment.17 This draft agreement was definitely a ‘mile stone’ in bringing CSR into the forefront of companies objectives and into the consciousness of their ‘minds’, this movement has been infused into practice for most companies, creating the kind of impact that can make a difference to sustainability to our world and the quality of life of the present and future generations.18 Modern CSR was born during 1992 Earth Summit in Rio de Janeiro when United Nations sponsored recommendations on regulation were rejected in favour of a manifesto for voluntary self-regulation put forward by a coalition of companies called the World Business Council for Sustainable Development (WBCSD). Its version of events was endorsed by the US, the UK and other Western governments.19 Corporate Social Responsibility in Nigeria In Nigeria, economic responsibility still gets the most emphasis while philanthropic is second, followed by legal and ethical responsibilities. The low priority for legal responsibilities is according to the study20, not due to the fact that Nigeria companies ignore the law but the pressure for governance and CSR is not so immense. CSR in Nigeria is aimed towards addressing the peculiarity of the social economic development challenges of the country (poverty alleviation, health care provision, infrastructure development, structure, education, etc. and would be informed

by social cultural Influences (e.g. communalism and charity). This

might not necessarily reflect the popular western standard/expectations of CSR (e.g. consumer 17 Ibid. 18 Ibid. 19 Adeyanju O. D ‘An Assessment of the Impact of Corporate Social Responsibility in the Nigerian Society: the Examples of Banking and Communications Industries’ (2012) 1(1) Universal Journal for Marketing and Business Research’, pp. 017-043 https://universalresearchjournals.org/ujmbr accessed on 26 August 2021 20 Ibid.

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protection, fair trade, green marketing, climate change concerns, and social responsible investments.21 According to the report 22there are many reasons for this. Firstly, the socio-economic needs of the Nigeria societies in which companies operate are so huge that philanthropy has become an expected norm. Companies also understand that they cannot succeed in societies that fail. Secondly, many Nigerian societies have become dependent on foreign aid and there is an ingrained culture of philanthropy in Nigeria. A third reason, according to the report, is that CSR is still at an early stage in Nigeria, sometimes even equating philanthropy.23 1.2.0 STATEMENT OF THE PROBLEM The concept of Corporate Social Responsibility (CSR) under the Companies and Allied Matters Act (CAMA) has perhaps been of tremendous influence on the nature of CSR practices in Nigeria. The CSR conception amongst Nigerian corporate managers in terms of gifting or philanthropy is probably directly attributable to CAMA provisions. By virtue of section 43 of CAMA, all companies are said to have the powers of a natural

person of full capacity

including powers to make donations in line with the provisions of its memorandum and articles of association. More so, a company is prohibited to give gift to political parties or to fund political associations or towards any other political purposes. This, again, can only mean that if such corporate donation is not towards any political ends or purposes and provided not otherwise prohibited by the company’s constitution (memorandum and articles of association), such corporate gifts will be intra vires, lawful and legitimate. In other words, CAMA recognizes CSR but the extent of it should be within the confine of CAMA and or the 21 Ibid. 22 Adeyanju O. D ‘An Assessment of the Impact of Corporate Social Responsibility in the Nigerian Society: the Examples of banking and Communications Industries’ (2012) 1(1) Universal Journal fo Marketing and Business Research’, pp.017-043 https://universalresearchjournals.org/ujmbr accessed on 26 August 2021 23 Ibid.

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Constitution of such companies. CAMA appears not to provide sufficiently conducive ideological support for effective CSR practices in Nigeria. CAMA adopts the traditional shareholder primacy model of corporate governance whereby corporate responsibility towards stakeholder group such as the employees, creditors, local communities, suppliers is afforded very limited chance. 24 It is for instance statutorily codified that: Directors are trustees of the company’s moneys, properties and their powers and as such must account for all the moneys over which they exercise control and shall refund any moneys improperly paid away, and shall exercise their powers honestly in the interest of the company and all the shareholders, and not in their own or sectional interests.25 Furthermore, the combined effects of the provisions of section 305 (4) and (9) of CAMA also buttress the assertion of very limited support for CSR in Nigeria especially in terms of employee rights. The sub-sections provide: (4) The matters to which the director of a company is to have regard in the performance of his functions include the interests of the company's employees in general, as well as the interests of its members. (9) Any duty imposed on a director under this section shall be enforceable against the director by the company. From the above provisions, sub-section 4 appears to enjoin corporate managers to consider, have regard for and balance employee related issues and interests in making corporate decisions. However, sub-section 9 makes it abundantly clear that while these employees may believe that their interests are being taken into account in the promotion of the success of the company, they should not however attempt enforcing this right because they will fail since only the company (that is the shareholders) can sue if this right is violated or perceived to have been

24 CAMA 2020, s. 279 25 CAMA 2020, s. 283(1); Haston (Nig) Ltd v. ACB Plc (2002) 12 NWLR (Pt. 782) at 623

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violated by corporate managers. This statutory provision is not strange at all as it is only a confirmation of section 305 (9) of CAMA and codification of the long standing common law principle of minority protection rule established in the case of Foss v. Harbottle.26 So, it can be submitted that although there are various laws in Nigeria that enjoin corporate bodies like section 305(4) and (5) of CAMA 2020 to be responsible to the employees and the society by contributing their quota to their welfarism and wellbeing, however some of these laws lack enforcement and implementation.27 Flowing from the above, the feasibility or otherwise of Corporate Social Responsibility working in Nigeria rests on these three questions below: 1. What are the limits of donations that a corporate entity gives out to its stakeholder under the Nigerian law? 2. What are the reasons for the unenforcement of Corporate Social Responsibility in Nigeria? 3. What is the type of corporate governance mode adopted in Nigeria and why? 1.3.0 RESEARCH QUESTIONS The study is to provide answer to the following questions; 1. What are the various types of corporate models: the advantages and disadvantages of 26 (1943) 2 Hare 461, 69 E. R. 199 Ch; see a...