Piercing the Corporate Veil 36 PIERCING THE CORPORATE VEIL: Greening Companies' Governance and Shareholder Activism ** Dr Mikiel Calleja* and & Professor Simone Borg Abstract The introduction of corporate criminal liability for environmental harm in various jurisdictions around the world has generated a myriad of legal obligations which engage the body corporate in preventing such harm. Nevertheless ownership of property does not entail a standard benefit and liability condition for corporate shareholders. Whereas commercial investments involve an element of financial risk, resulting in the upward or downturn of a given investment, the corporate veil has created a significant imbalance. Notwithstanding separate legal personality, shareholders exert substantial influence over the direction of a company and whilst they stand to profit from their investment, limited liability means that shareholders are liable only to the extent of that investment. In the environmental context, this presents two major threats. Firstly, companies are encouraged to engage in potentially hazardous behaviour in order to realize maximum profits. Secondly, the consequences of this behaviour is subsidised with the costs in excess of the company's assets placed on the public purse and/or victims of environmental damage. The law does, under exceptional circumstances, ignore this separation of identities and pierce the corporate veil. This paper seeks to illustrate that removing the insulation offered to shareholders through the veil piercing doctrine will motivate shareholders to exert greater influence over the conduct of their companies. The desire to mitigate the company's potential exposure to environmental liability will cause shareholders to instil environmental values into the corporate structure thereby reducing the volume of potentially hazardous conduct carried out by the company. * Dr Mikiel Calleja, Associate, Mamo TCV Advocates, LLB (2010, U of Malta); Diploma of Notary Public (2011, U of Malta); Doctor of Laws (2013, University of Malta); LLM in Environmental Law and Policy (2014, University College London). "Prof Simone Borg, Deputy Dean, Faculty of Laws, Head of Department, Environment and Resources Law Dep't, University of Malta; Diploma Notary Public, 1990; Doctor of Laws (1991, U of Malta); M Jur, International Law (1994, U of Malta); PhD (2009, Int'l Maritime L. Inst.).
37 7 IUCNAEL EJournal Introduction Jurisdictions regulate the corporate form in a variety of ways, however separate legal personality and limited liability are common to most.1 Separate legal personality means that the rights and obligations of a company are, at law, distinct from those of the persons who participate in it. Limitation of liability has the corollary effect of limiting the liability of those shareholders to the extent of their actual or promised investment and any potential dividend. As a result, potentially harmful behaviour may be instructed and carried out without repercussion, and the victims of the conduct are often left without an appropriate remedy.2 The failure of the victims in Grace3, for example, to obtain proper compensation shows that the corporate veil insulates harmful behaviour within corporate organizations. Insulation from consequence means not only that harmful conduct is not curbed, but that it is encouraged in the pursuit