Chris Bowen (Prospect, Australian Labor Party) Share this | Hansard source

I will take this opportunity to make a few brief comments on the report of the Joint Committee on Corporations and Financial Services entitled Corporate responsibility: managing risk and creating value. This was a very interesting and stimulating inquiry. The inquiry was initiated by Senator Wong. I would like to thank her for taking the initiative to refer this matter to the committee because it certainly did turn out to be an interesting inquiry. My particular area of interest in the inquiry was that of directors’ duties. The honourable member for Chisholm referred to the ongoing debate and the various submissions before the committee on directors’ duties. The motivating factor for that emphasis on directors’ duties was, as the honourable member for Chisholm indicated, the statements by the chairman of James Hardie that they had no choice but to take a very hard line with the victims of asbestosis because they were restricted in their directors’ duties to only acting in the best interests of their shareholders and not necessarily in the best interests of their employees or former employees. The chairman of James Hardie called for a safe harbour to allow directors to take the interests of other shareholders into view. Corporations Law is quite specific as to a director’s duties. It states:

A director ... of a corporation must exercise their powers and discharge their duties with ... care and diligence ...

Section 181 of the Corporations Act 2001 adds two other requirements. It requires directors to act (a) ‘in good faith in the best interests’ of their corporations, and (b) for a good purpose. The Corporations Act also sets out a business judgment rule. A director can rely on the business judgment rule to show that they have carried out their responsibilities. They need to show that they have made the judgment in good faith for proper purposes, did not have a material personal interest in the subject under consideration, informed themselves about the subject matter of the judgment to the extent they reasonably believed to be appropriate, and rationally believed that the judgment was in the best interest of the corporation.

It is fair to say that the majority of people making a submission to the inquiry did not support the view of the chairman of James Hardie that a safe harbour is required. The majority of people, including some very learned experts in the field, had the view that the current law was more than adequate to protect directors taking an enlightened approach to their decisions and taking into account the interests of other stakeholders as well as those of the corporation. Some, especially non-government organisations, called for a more prescriptive approach requiring directors to take other stakeholders into account and putting a positive duty on directors to act not only in the interests of the corporation but also in the interests of the wider society. That is not something that the committee or I support. That would open a Pandora’s box. It would raise a great deal of questions as to directors’ duties and bring in a great deal of uncertainty as directors went about their task of running companies. The Labor members of parliament on the committee decided not to recommend a change in directors’ duties at this time. We feel, however, that the issue must be kept closely monitored.

If it is necessary to go down this road, if it is necessary to clarify directors’ duties to remove doubt that directors have a responsibility to or an entitlement to act on behalf of other stakeholders, I personally would be attracted to the model adopted by the American Law Institute in rule 2.01(b) that directors and managers may have regard to ethical considerations that reasonably could be regarded as appropriate for the responsible conduct of their business. This was best outlined to the committee by Professor Paul Redmond of the Faculty of Law at the University of New South Wales. Perhaps unlike other evidence that the committee heard, Professor Redmond’s evidence put the case that there was not a rich elaboration of common law on this subject and that the guidance for directors is scant when one looks at the cases that have been before the courts in recent years. I must say I was very tempted by Professor Redmond’s argument, but we have decided to leave it for the time being. I stress that this matter may need to be re-examined if we see more directors coming forward, claiming to be straightjacketed by directors’ duties and claiming that they cannot act on behalf of other stakeholders such as people who have been very severely affected by asbestosis, mesothelioma and other diseases as a result of the actions of a corporation.

During this inquiry we were reminded of the very good work that has been conducted by corporations and non-government organisations in the field of corporate responsibility. I was attracted, for example, to the work of Oxfam and their international Mining Ombudsman. Oxfam agreed with my suggestion to them during the hearings that it would be better if this role were carried out by government and not by them—it would have more weight and more official status. One day we may get to the level where the international Mining Ombudsman is run by government and not by Oxfam. That is not to take away from the very good work that they do. Good work in corporate responsibility is being done by companies across the field in Australian industry.

I would like to thank the committee staff. This was an onerous inquiry. The travel was extensive. I think the committee made it to every capital city except Darwin to hear evidence, so the task was substantial. To Dr Marinac, to Kelly Paxman, to Stephen Palethorpe and to the other staff, I would like to add my thanks to those that have been expressed by other committee members. I commend the report to the House.

Debate (on motion by Mrs Gash) adjourned.

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