Ms Anna Burke (Chisholm, Australian Labor Party) Share this | Link to this | Hansard source

It gives me great pleasure to make some further remarks on this valuable and, I would say, far-reaching, timely and adventurous report entitled Corporate responsibility: managing risk and creating value. Some of the feedback so far is that it has been a very good report, well received by business and that we are setting up for things in the future. Often in this place we are creating legislation after the event, so it is quite nice to be ahead of the game in some respects.

I do want to say, though, that it is quite frustrating to be involved in so many committee reports that are ignored by this parliament. I have been involved in several really good, long-reaching and breathtaking reports that have just sat on the shelf and nobody has paid any attention to. So I hope that, in this area of corporate social responsibility, some people will take note and actually put into implementation some of the 29 recommendations that are contained in this report.

At the outset, what do we mean by corporate social responsibility? It means many things to many different people. On a flippant level, people think of a corporation being a good social citizen by donating money to philanthropic services. Many corporations came along and said what great citizens they were because they had donated their staff’s time to various charities. That is laudable but it does not mean that they are a corporately responsible organisation. Labor members of the committee asked for this inquiry because corporations are changing. Some of our corporations nowadays are larger than, and have greater wealth than, some nation states. They are entities that can have a significant impact upon our society, our culture, the environment and even upon political process.

The massive growth in business and international trade make the external impacts of corporations greater than ever, and with that comes costs, as well as benefits, to society. To put into context what we mean by this, I quote from the supplementary report by Labor members:

The Labor members consider that corporate responsibility is fundamentally an issue of sustainability. Corporate responsibility is not primarily about charity or company philanthropy. The World Business Council on Sustainable Development provides a useful definition:

“Corporate [social] responsibility is the commitment of business to contribute to sustainable development, working with employees, their families, the local community and society at large to improve their quality of life.”

So we say this is going to be the reach of corporations. We believe, in the long run, that they should look at reporting upon these initiatives; indeed, it is in their own best interests. In a speech at the Massachusetts Institute of Technology, BP Group Chief Executive, Lord Brown, recently 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.

So businesses at the highest level are recognising that they do have responsibility to our society at a greater level. When we look at corporate social responsibility we ask: who are the stakeholders who must be considered when people are making reports? Who are the individuals that these corporations should be considering, engaging with, talking with and getting back to?

Much of the information before the committee looked at environmental impacts. This is vitally important and I do not dispute that at all. One of the things that did disappoint me greatly was that, when corporations look at their responsibilities in the wider context of society, very few actually looked at their employees as being part of the stakeholder group who should be taken into consideration. Indeed, there were many reports about who should be considered in these groups. ‘Stakeholders’ has a very flowing meaning and can have different looks. We need to look at this in a comprehensive manner and say: ‘Yes, various organisations get a tick—a big, gold star. They are great corporate social citizens, at one level, because they have donated money to a charity or because they have made some changes to the environment after ravaging it by whatever means.’

But they did not look at the whole picture; they did not look at the impact upon their staff. I think this is one of the failures of much of the work that has gone on here. It should be about all stakeholders within the corporate social responsibility framework and not just one. You do not just get to pick and choose and say, ‘We’re good corporate citizens because we have done this bit.’ You must be a good corporate citizen across the board. A similar comment was made by the Australian Centre for Corporate Social Responsibility:

The Australian Government may have numerous ways in which it encourages corporate social responsibility, but a lack of coherence and focus of initiatives and policies makes this difficult to ascertain.

The point I am getting at is that we do not know what we are after and what we are making people do. One of the fundamental findings of this report is that we need good government leadership to say what good corporate social responsibility is, what you need to do to report and what measures you should be reporting on, and these measures should be validated. So many of these reports say, ‘We’ve been great corporate social citizens because we undertook this initiative.’ But there is no validation of the reports to say that the community found that there was a benefit or a service, or that companies, particularly those involved in the mining sector, had left the environment in the way they said they had.

One of the other issues investigated at length in this report was directors’ duties. At the time, the committee was looking extensively at James Hardie and the claim made by one of their senior executives that they could not provide compensation because it would be in breach of their directors’ duties. If they provided funds to the people who had been injured, this would actually be against what they needed to do as directors because it would obviously reduce shareholder value. Much of the evidence before us was to say that, no, directors’ duties are not that limited, that they do have what is known as the ‘enlightened self-interest test’ and that there was no need to change the law. The committee came out with this, but I think this is a thing we need to do as a watching brief.

Indeed, we need only look at the waxings and wanings of James Hardie to say that directors’ duties should be put more clearly under the spotlight. I think it is beholden upon all of us who are now shareholders, by virtue of one thing or another, to also accept the duty of ensuring that directors are fulfilling their obligations not only to us as shareholders but also to the wider society. Never again should we have a corporation saying, ‘We can’t pay compensation to staff we have maimed, and many of whom we have killed through neglect, because it’s going to take away from shareholder value.’ Their staff were stakeholders and they had a responsibility to them. I would like to quote again from the Labor Party’s supplementary report. It states:

While this committee cannot make a definitive determination as to the legal parameters of existing directors’ duties in practice, Labor welcomes the ‘enlightened self interest’ interpretation of directors’ duties put forward by a range of business and legal witnesses. We hope such an interpretation is representative of the understanding and practical exercise of directors’ duties in future.

As I say, it will be a watching brief. The committee report states:

The committee is of the view that the Corporations Act permits directors to have regard for the interests of stakeholders other than shareholders, and that amendment to the Corporations Act is not required.

Indeed, this is the case at the moment, but there is no case law on it. Nobody has taken that further step of going to the law and asking, ‘Is this the actual interpretation of it?’ Some very interesting witnesses came forward on this part. But we will need to monitor it. Hopefully, we will never again have a situation like James Hardie, in which directors have less responsibility towards their employees—stakeholders—than they have toward their shareholders.

The committee found that we need to encourage sustainable reporting, that we need to encourage businesses at all levels to take it up and that we need to provide parameters in which they can do this. There were many examples of how reports are currently made, what initiatives are looked at, what is reported and what is not reported. The committee was strongly supportive of the GRI measure that is currently being used throughout Europe, but we need to see if it is applicable to Australia. A great deal of the information said that, if we go with mandatory reporting, we will just have a ‘tick a box’ approach in which corporations can say, ‘Yes, we’re good to our staff, we’re good to the environment, we’re good to this and we’re good to that.’ I dispute that, but that seemed to be the weight of evidence coming back to us. But we need to set some benchmarks. We certainly need the government to lay down some foundations that say: ‘This is the way to do it; this is how good businesses will do it in the future.’ Indeed, good businesses are doing it now.

Again, the report says:

The committee takes the view that although it is not appropriate to mandate the consideration of stakeholder interests into directors’ duties, or to mandate sustainability reporting, there is a need to seriously consider options to encourage greater uptake and disclosure of corporate responsibility activities.

One measure that we could start with would be to encourage government departments to be doing their own reporting, and we heard that while there are measures whereby government departments are encouraged to do that, particularly in the area of procurement—and particularly green procurement and green waste—very few of the Commonwealth departments are doing this. The report says:

Of particular interest is an example from overseas: the United Kingdom industry-led organisation Business in the Community, a network which works with business to develop practical and sustainable solutions to manage and embed responsible business practice.

I think this could be adopted now and we should ask the Australian government to look at the recommendations in the report and provide seed funding for such a network in Australia.

Harry Jenkins (Scullin, Australian Labor Party) Share this | Link to this | Hansard source

Before proceeding with business, and without wishing to embarrass the Clerk of the Committee, the chair wishes to indicate that by the wonder and means of information technology, the Assistant Votes Officer, who is cocooned somewhere in the bowels of this building, has advised the Chair that the member for Chisholm spoke with leave of the committee as the original proposer of the motion and has not closed the debate. The Chair has acted in the belief, confidently, that the Main Committee had no objection to such course of action.

Mark Baker (Braddon, Liberal Party) Share this | Link to this | Hansard source

I also rise to speak on the report of the Joint Committee on Corporations and Financial Services entitled, Corporate responsibility: managing risk and creating value. The committee’s inquiry closely examined the increasingly important corporate governance issues facing Australian companies today.

In the past, the corporate world often relegated corporate responsibility from an environmental and social perspective to one or two paragraphs in their annual reports. Generally, the view was that the only thing of value to a business was the bottom line—that is, financial profit or loss—and social and/or environmental issues were not given due consideration. In the past, corporate responsibility was not viewed as profit-making within the business structure, and subsequently was not considered an important aspect of business operations. Increasingly, however, corporate responsibility is being viewed with much greater emphasis and importance by Australia’s business community and, indeed, by corporations globally.

Often the term is applied somewhat erroneously to describe charitable deeds by a company—a donation to a good cause or sporting sponsorship, for example—but corporate and social responsibility should go well beyond that. The term is best described in practice as a company or organisation considering, managing and balancing the economic, social and environmental impact of its activities. This is also referred to as triple bottom line reporting or accounting, and our committee found that over the past decade corporate responsibility has moved and developed practical mechanisms for companies to assess and manage their non-financial risks and maximise their long-term financial value.

We have seen in recent years how companies are increasingly coming under pressure from consumers and their own shareholders to consider the social and environmental impacts of their business decisions. We have witnessed a new group of investors who believe in the concept of socially responsible investments, challenging companies to consider their ethical and moral obligations to the community. Thus, the demand for greater corporate responsibility is being driven at contrasting ends of the corporate world by consumers and investors.

One example which best underlines my strong view on corporate responsibility is the manner in which vegetable growers have been treated by some in corporate Australia. When the fast-food chain McDonald’s chose early last year to cut a contract for potatoes from my electorate in north-west Tasmania in preference to imports, it raised in many of my constituents’ minds the question of whether such corporations do have a social conscience. That decision by McDonald’s has had long-term ramifications for the vegetable industry not only in Tasmania but throughout Australia, particularly when one considers it was all done for an estimated additional profit of $4 million Australia-wide or just a few extra cents per packet of french fries. It gave rise to the fair dinkum food campaign, which I am proud to support, and it brought attention to the failure of large corporations to support the communities from which they profit.

My complaint against a corporation such as McDonald’s is that they did not once stop to consider, as a major buyer of produce in Australia, that they have a duty to consider the effect their actions would have on the long-term viability of an important industry such as Australia’s vegetable industry, nor did they stop to consider the effect their actions would have on other communities within Australia.

Another example of where I suggest there is an opportunity to encourage a greater sense of corporate responsibility is the wholesale destruction of rainforests in such places as the Amazon and Borneo. Also, in my home state of Tasmania, the local forest industry, which employs directly and indirectly over 10,000 workers, adheres to world’s best practice: it sets a standard. However, the Tasmanian forest industry has to compete with imports from overseas, timber that has not been harvested in accordance with the world’s best practices, timber that has been harvested from forests using the ‘cut and burn’ method, where no attempt is made to renew the resources and where dangerous workplace practices are the norm.

We have to compete at home as Australian furniture and paper manufacturers look for the cheapest timber. I believe there is a case for Australian companies to decide that they will only use timber that has been harvested in accordance with world’s best practice. Thinking globally, there is a case to be made to other countries to be more discerning in their choice of timber and woodchips. Recently I visited a 100-year-old timber mill in my electorate and one of the directors made an interesting remark on those who protested against the forestry industry. He said that protesters would be out in the streets with their placards one day and buying a piece of furniture the next day made from timber that originally was a tree in the Amazon rainforest, whose trees, in a frightening manner, are being wiped out in grave numbers.

We all hold the environment close to our heart, but there is a real inequity here. In my view, this is certainly a case where many companies at the national and international level should come under some pressure to ensure that the wood products that they are buying are from a renewable resource harvested in accordance with world’s best practice.

Corporate responsibility is not about dictating to companies that they cannot make decisions that are in the best interests of their shareholders but about encouraging companies to consider the social and/or environmental impacts of their actions as part of the decision-making process. Along with that comes transparency in their annual reports. Along with that comes a movement away from their only emphasis being on profit and the financial aspect of reporting.

Throughout this inquiry many of the companies and directors involved demonstrated that they are prepared to listen to the views of stakeholders, which was refreshing. This reinforces the finding of our committee’s inquiry that the vast majority of Australian company directors are moving forwards, not backwards. This view essentially allows directors to consider and act upon legitimate interests of stakeholders other than shareholders to the extent that these interests are relevant to the corporation. One could never give a better example than the mining industry, especially with Australia’s vast resources. Some have described corporate responsibility as an insurance policy, a defence against bad publicity from perhaps unrelated events or decisions. The public, however, is becoming more and more cynical of corporate philanthropy, so it goes beyond that. Corporate responsibility in Australia is still in its developmental stages and, in the course of the inquiry, the committee was encouraged by the evidence of increasing engagement by Australian companies and government agencies with sustainable practices and sustainability reporting.

However, as a nation and as a country we still have a long way to go. There is still much progress to be made and it is important that the Australian government and the Australian Securities and Investments Commission, where appropriate, continue to monitor this progress. The committee strongly supports further successful engagement in the voluntary development and wide adoption of corporate responsibility. The committee believes that the recommendations contained in this report will play an important part in progressing the future of corporate responsibility in Australia and making our great nation even better.

Chris Bowen (Prospect, Australian Labor Party) Share this | Link to 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.