House debates

Wednesday, 21 June 2006

Committees

Corporations and Financial Services Committee; Report

4:56 pm

Photo of Ms Anna BurkeMs Anna Burke (Chisholm, Australian Labor Party) Share this | | Hansard source

On behalf of the Parliamentary Joint Committee on Corporations and Financial Services I present the committee’s report entitled Corporate responsibility: managing risk and creating value together with evidence received by the committee.

Ordered that the report be made a parliamentary paper.

by leave—I am pleased today to be presenting such a large, detailed, important and timely report. I would like at the outset to thank, most particularly, Kelly Paxman, the secretary of our committee, and Mr Stephen Palethorpe, the principal research officer, who did an extraordinary amount of work on this report during some difficult private circumstances. He managed to produce an outstanding report. We heard from many extraordinary witnesses over many days. It is a report that I hope many people in this place will take note of. I would like to start by quoting from one of the witnesses:

Under this shareholder-oriented model ... no more is expected of businesses than that they obey the rules as they go about their core function of generating profits.  ... Positive advocates of the shareholder-oriented firm assert that maximising profit within a framework of laws is both the most ethically appropriate behaviour of business managers and the most socially desirable, because it leads to the best economic and social outcomes. This view has been stated by Milton Friedman, who argued 40 years ago that “... there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game.”

The negative view of shareholder orientation presumes that corporate ethics is an oxymoron. In this view nothing better than greed can be expected of business operators and pursuit of owners’ interests will be at the expense of the wider community, so a system of laws and regulations is necessary to force corporations to behave according to the community interest. An oft-quoted observation from the 18th century British jurist Edward Thurlow sums up this view summarising the hopelessness of expecting unselfish behaviour from business: “Did you ever expect a corporation to have a conscience, when it has no soul to be damned, and no body to be kicked?”

I think fundamentally that sums up what we were looking at in this inquiry: do corporations have social responsibilities and do we need to look at expanding the roles of directors’ duties to take them beyond their fairly narrow bounds of creating profits for shareholders or to the more extended end of enlightened shareholder interest?

I think many witnesses said that corporations today are very different from corporations of the past. They are now larger, create more assets and are more influential than ever before. The influence of corporations now extends well beyond economics and wealth creation and includes significant social, cultural, environmental and political impacts. The pervasive growth of business and international trade make the external impacts of corporations greater than ever, and with this has come costs as well as benefits to society.

Indeed, today we see some corporations with a greater asset base than some countries, and I am not talking about just small countries. They have also had an impact upon many communities in no small way. Some corporations have made very significant environmental impacts. Nowadays we require businesses to be more than just generators of profits; we need to see businesses being good corporate citizens. They need to take that to heart not just in the sense of social responsibility but also in the sense of business responsibility. Recently, Lord Browne, BP Group Chief Executive, in a speech at the Massachusetts Institute of Technology, stated:

Good, successful business is part of society, and exists to meet society’s needs. That is the purpose of business at the highest level.

I think this rings true throughout business. Corporations need to do more than just make profits. They need to actually examine the impacts they have upon a greater stakeholder group. Obviously, defining ‘corporate social responsibility’ is a fairly onerous task. Many people think it is merely a philanthropical exercise: a corporation donates a large amount of cash to someone; therefore, they are a good corporate citizen. Or, in the more extreme example, they donate their staff’s time and they call themselves a good corporate citizen. Corporate social responsibility is greater than that. We need to ensure that we have directions for businesses to follow.

We have some very good examples of businesses taking their initiative and lead. We have seen some good examples coming out of Europe, but inside Australia there are some businesses which are acting upon this. But business leaders must introduce a systematic approach to managing and improving the consequences of social and environmental outcomes of their business operations. If we are to continue achieving economic growth and want to ensure that that growth is sustainable, business will be called on to better integrate sustainable behaviours into their operations. It is in their interests to do so. It is also in the interests of directors to go beyond the narrow definition that we saw during the James Hardie dispute where they said, ‘No, we can’t provide compensation because it would be in breach of our directors’ duties.’ They need to go beyond that and they need to understand that they have a duty to all stakeholders. I think that was the worst example we have seen of directors’ duties being used in that very narrow frame. We do not have a lot of corporate law to demonstrate what are or are not directors’ duties. While it stays as is and the report has not recommended we change that, we need to take a watching brief on it.

Labor initiated the inquiry into corporate responsibility for three reasons. First, parts of the business community in Australia were actively engaged in the re-emerging debate about the role and responsibilities of the corporation in society but government was not. Second, progress by Australian business on the whole regarding integration of corporate responsibility approaches appeared fragmented and lagged behind that of comparable international economies and trading partners. Thirdly, widespread progress by Australian businesses in the integration of sustainable business practices is expected to lead to greater social and environmental benefits, equip those businesses to better manage impending non-financial business threats and prepare them to seize emerging market opportunities.

The report is very long and there are very detailed recommendations. I would recommend that people read the report. It is very disheartening to go to all this trouble and find that nobody reads it and that the government does not reply to it. It is a very good model for businesses and corporations to look at. I think most businesses want to do the right thing. They want to be socially responsible, but they need to understand what that is. It is more than just saying, ‘We’ve donated money.’ It is more than just filling out another prospectus or report and saying, ‘We’ve done this.’ The outcomes need to be measurable. We need to see more than them just stating, ‘These are the things that we have done.’ We need to see the statements they make with respect to the environment, society and, more particularly, that their staff is looked at and is measured and that what they are asserting is true.

Nowadays, investors are looking at companies for ethical investments. They are actually making decisions about where they will place their money. They need to know that it is going into ethical businesses. Employers are also looking to go to corporations where they believe that they have good social responsibility and that they are good corporate citizens. We need to know that people are making judgments on fact and not based on just some nicely written documentation. I commend the report to the House. I move:

That the House take note of the report.

Photo of Harry JenkinsHarry Jenkins (Scullin, Australian Labor Party) Share this | | Hansard source

The debate is adjourned. The resumption of the debate will be made an order of the day for the next sitting.