IMHO: The future of corporate governance: what if the trees had a say?

OPINION: Aotearoa New Zealand has been recognised globally for its leadership in many groundbreaking areas.  Women first won the right to vote here, a New Zealander was one of the first climbers to summit Mt Everest, and we are also one of the first countries in the world to recognise specific ecosystems as living entities and legal persons. These ground-breaking legal developments were led by Māori Iwi as part of place-based Tiriti o Waitangi settlements with the Crown. Under these settlements, the Whanganui River, Te Urewera, and Ngā Mounga (Mt Taranaki) will all have legal rights, privileges, and obligations similar to those held by other non-human persons, such as companies.  

Recognising a living ecosystem as a legal person is more than just a symbolic exercise – doing so has real world legal and practical implications. It raises pragmatic questions that impact on us all.  As directors who are involved with corporate governance, we must consider what these legal developments might mean for us too.  Imagine yourself sitting at the boardroom table, but instead of being appointed by a shareholder that is a company, you are there to represent a living ecosystem like a river, wetland, species or forest? 

In this article, we highlight four key implications of the extension of legal person-hood to living ecosystems, which might affect you sooner than you think.  Our reflections are borne out of a joint research project that we are conducting, as two legal academics at the University of Canterbury, and a practising lawyer involved in the future of corporate governance.  Our aim in presenting the following points to the members of the Institute of directors New Zealand is to stimulate discussion and promote greater understanding of a rapidly approaching future where an increasing number of living ecosystems are recognised as legal persons, and the impact that these changes will have on us as directors. 

Let’s turn to four key points and consider some likely implications:

1. An intergenerational perspective: Recognising a living ecosystem as a legal person raises the question of how humans can make decisions that are in the best interests of the ecosystem.  Too often, in corporate governance we focus narrowly on the short term, with Boards that are driven by the next quarterly profit report.  But if we were to act as representatives of an ecosystem with legal rights, we might need to pause and consider – what is the 100 year implication of a decision we make today?  What is the 1000 year implication?  Short term priorities dissolve when, instead of asking how many widgets we can produce or people we can employ today, we consider the intergenerational impacts that producing those widgets or employing those people would have on local environments and the communities that live in them.  This long-term, sustainability-oriented perspective may resonate with the worldviews and practices of many Indigenous peoples, who may already build intergenerational obligations into their corporate governance arrangements. We should take these ideas seriously, not merely to tick boxes, but in a deeper way, reflecting on what kinds of agendas we are advancing as directors.  If indeed we were appointed to represent a living ecosystem with legal subjectivity, we might need to grapple with hard questions about how to fulfil our obligations towards that ecosystem. 
2. Expansion of director duties – responsibilities to different entities: Our second observation relates to duties that directors should comply with.  One of the basic principles that assists directors in the fulfilment of their roles is that the law sets out certain duties that directors should consider when they sit at the boardroom table.  In New Zealand, these duties are listed in sections 131-137 of the Companies Act 1993, and they include acting in good faith and in the best interest of the company.  But have those duties kept up with a rapidly changing legal landscape that has already recognised the legal person-hood of certain living ecosystems?  A recent proposal to reform section 131 of the Companies Act would expand the list of considerations that directors may take into account when acting on behalf of the company. These proposed new factors include the environment, Te Tiriti, and others.  Perhaps we need an even more explicit provision, similar to those which apply where a director is appointed to the Board of a wholly owned subsidiary, but is still able to act in the interests of the holding company rather than the subsidiary.  That is, where a company director has been appointed by a Shareholder that is a living ecosystem recognised as a legal person, the law could require the director to act in the best interests of that living ecosystem itself rather than the company. 
3. Navigating conflicts: As an increasing number of living ecosystems are recognised as legal persons both in Aotearoa New Zealand and in other countries, it is possible that conflicts will occasionally erupt between these new legal entities and other legal persons. This may be especially the case for companies, given the ongoing influence of the shareholder primacy theory, which posits that the most important duty of a director is to maximise profits for the Company’s shareholders.  This approach may encourage directors to make choices that cause environmental harms, where profits are prioritised over other concerns.  In these situations, it is likely that a court would be required to balance the company’s rights against those of the living ecosystem that has been harmed, with both entities being formally co-equal under the law.  For example, it is foreseeable that in the near future, a judge might need to consider whether protecting a  living ecosystem’s right not to be deprived of life would justify undermining a company’s property rights.  This could occur, for instance, where preserving forest biodiversity requires destroying private property, such as mining equipment.  Additionally, questions remain unresolved about how to hold the human representatives of a rights-holding living ecosystem accountable if they make decisions that are not in the ecosystem’s best interests. 
4. Building relationships: Although it is possible that conflicts may arise between companies and living ecosystems where both are recognised as legal persons, there are also many potential benefits that could result from this newfound parity. For example, the extension of legal subjectivity to living ecosystems provides the basis for new forms of engagement and collaboration between companies and ecosystems, as well as the local communities that have been appointed as the human representatives of these ecosystems.  In this landscape, directors may find new opportunities to develop sustainable business models, in cooperation with iwi/hapū, local communities and broader social movements, that enhance their company’s long-term viability and impact.    

The recognition of living ecosystems as legal persons in Aotearoa New Zealand is significant, in part because these developments present us with new opportunities to rethink how we relate to one another and the places we live, both in our capacity as directors, and simply as human beings. This changing landscape invites directors to develop new kinds of relationships with living ecosystems and their human representatives, towards the end of realising diverse benefits for the companies they represent.  

About the authors

Dr Elizabeth Macpherson is an Associate Professor in Environmental and Natural Resources Law at the University of Canterbury. She researches comparative environmental and natural resources law, human rights and Indigenous rights in Australasia and Latin America – with a specific focus on freshwater and marine ecosystems. She has a PhD from Melbourne Law School and is the author of the award-winning book Indigenous Water Rights in Law and Regulation: Lessons from Comparative Experience (2019, Cambridge). She currently leads research projects on Riverine Rights: Exploring Legal Innovations on the Rights of Rivers (Research Council of Norway) and Law and Policy for Ecosystem-Based Management (Sustainable Seas National Science Challenge).

Dr David J Jefferson is a Lecturer at the University of Canterbury School of Law. David’s research examines how the law sets the terms for human interactions with the world beyond the human, including through the governance of biodiversity, biotechnologies, agricultural crops, and food. David holds a PhD in Law from the University of Queensland, a Juris Doctorate from the University of California, Davis, and a Master of Arts in Psychology from Suffolk University. He has received numerous competitive fellowships and grants to support his work, including a United States Fulbright Fellowship, a postdoctoral research fellowship under the Australian Research Council Laureate Fellowship “Harnessing Intellectual Property to Build Food Security”, and a University of Queensland Centennial Scholarship.

Steven Moe MInstD is a partner at Parry Field Lawyers based in Christchurch and works in corporate law providing advice to companies as well as charities and other for purpose organisations.  After three years working at a national law firm in Wellington, Steven spent 11 years overseas working for an international law firm in Tokyo, London and Sydney before returning to New Zealand at the start of 2016.  He is a director or trustee of six organisations and for one is chair - Community Finance, which has raised $100 million for social housing.  He is a member of the Edmund Hillary Fellowship and hosts a podcast on governance, leadership and entrepreneurship called Seeds as well as the IoD produced podcast Board Matters.

The views expressed in this article do not reflect the position of the IoD unless explicitly stated.

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