The hand of the regulator on corporate ethics

Should companies be forced to comply with legislated CSR and human rights requirements? Sarah Sharples reportsGoogle's company motto used to be "Don't be evil". Then Google, Yahoo and Microsoft…

Promoted by Lawyers Weekly 11 June 2009 Corporate Counsel
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Should companies be forced to comply with legislated CSR and human rights requirements? Sarah Sharples reports

Google's company motto used to be "Don't be evil". Then Google, Yahoo and Microsoft were implicated, in collusion with the Chinese Government, for attempting to censor the internet. Users searching on the internet in China for information on subjects such as "Tiananmen Square" and "Tibet", found beautiful landscape pictures appearing on screen instead of the reality, said Justine Nolan, director of the Australian Human Rights Centre at the University of New South Wales.

The three companies faced a litany of negative responses, including shareholder resolutions and US Congress enquiries at which CEOs and legal counsel were required to front up, said Nolan, a panellist at a seminar on corporate social responsibility (CSR) held two weeks ago. The debate, hosted by Allens Arthur Robinson and the Australian Human Rights Commission (AHRC), examined whether CSR is failed rhetoric or a future remedy.

"[After] this and [the] two lawsuits that were filed against Yahoo, the [three] companies decided to commit to a voluntary initiative called the 'Global Network Initiative', which, I think, shows promise in respect of one human right in particular - in relation to freedom of opinion," Noland said.

"But this is how these companies got there - it took congressional enquiries [and] a couple of threatened lawsuits - and [in Google's case] this is a company that had as its motto 'Don't be evil'."

Nolan used the example of Google to demonstrate how, in her opinion, CSR has developed over the last 30 years - via a series of voluntary initiatives where companies proactively or reactively engage - but accountability is hard to enforce without clear standards.

Just as Australian companies must comply with financial reporting requirements under the Corporations Act 2001, CSR and human rights standards should also be legislated, argued Nolan.

"Companies really need to operate in a level playing field with transparent and consistent standards and this is, I think, where regulation has some validity," she told the audience.

"The more that we rely on companies to determine what corporate responsibility is and the extent of their responsibilities under it, I think it becomes murkier. It can't simply be a self-assessment tool.

"At the same time that the AWB [Australian Wheat Board] was paying $290 million in bribes to Saddam Hussein's regime in Iraq, it was also participating in the Australian Corporate Responsibility Index, where it was self-assessing how it was going on corporate responsibility and [said] it was doing fine," Nolan explained.

There have been some steps overseas to regulate aspects of CSR, including taking into account human rights. The UK Companies Act was amended to create a director's duty of loyalty, requiring consideration of certain stakeholder interests - such as employees, suppliers and the environment - and not just shareholders. In Indonesia, changes were made in 2007 to ensure companies whose activities impact on natural resources implement and properly budget for CSR.

Rachel Nicolson, senior associate at law firm Allens Arthur Robinson, agreed that many businesses still grapple with what is entailed in CSR, especially in relation to how human rights are relevant to corporate conduct.

She argued, however, that internal policies and external drivers - such as BankTrack, that monitors the activities of financial organisations, Oxfam, in establishing a mining ombudsman, and the United Nations Global Compact, which has 5000 companies from 120 countries as signatories to principles including human rights, labour, the environment and anti-corruption - meant that companies are held accountable.

"To use a financial sector example, if you look at Westpac, ANZ or NAB - all being Australian banks that have signed up to 'The Equator Principles' - it would be pretty difficult for those organisations to decide one day that they no longer want to comply.," she said.

"If you think it through they would face concerns from staff, shareholders, competitors, civil society, governments and international organisations and, of course, customers.

"But possibly more importantly, the internalisation of a commitment to a standard like 'The Equator Principles' (which aim to ensure financing of projects is socially responsible and reflect sound environmental management practices) means that the company no doubt does not want to walk away from that commitment.

"A huge amount of thought and resources and energy goes into adopting these commitments. They become a part of the company's practices but they also do become a part of the company's identity," Nicolson said.

Sally Herman, general manager of Corporate Affairs and Sustainability at Westpac, agreed that CSR required a sustainable strategy to be integrated into the DNA of an organisation, rather than regulating standards.

"At the moment, we are seeing some organisations and, in fact, some governments, saying that the only way out of where we are ... is to increase regulations. It is our view that the core of the current crisis is actually a failure of values and no amount of regulation can protect society from this," she said.

The debate over regulation of CSR and how far a company should go in terms of human rights protections is particularly timely, considering that the Government has launched a national consultation on whether a human rights act should be introduced in Australia.

Edward Santow, director of the Charter of Human Rights Project at the Gilbert + Tobin Centre for Public Law, advocated the proposed act as a benefit for business in establishing a set of CSR principles and a visible framework for accountability.

He told the Sydney seminar that the business community seemed reluctant to participate in the current debate - either believing it was irrelevant or would be costly for compliance.

"In the very first week of the national human rights consultation there were over 10,000 submissions received - that makes it the biggest public enquiry in Australian history ... However, to the best of my knowledge, only one major submission has been received from the business community - that was Telstra and that was in favour of a human rights act for Australia," he said.

"I think that crucial voice in this debate is lacking and I think it's absolutely important for the business community to become more engaged to see how a human rights act might impact on them, how it might help them in principles of sustainability, the protection of individual dignity and to fairness - to which many of them subscribe."

But Jeremy Baskin, a former political prisoner and director of the Cambridge Programme for Sustainability Leadership, argued that the debate should shift to a matter of sustainability rather than CSR.

"I think the most common rationales you hear when speaking to companies in a sense reveal that, most typically, companies engage in CSR because it enhances their reputation and brand value or because it's very important for skill retention and skill attraction towards the company," he said.

"I think one of the problems with the CSR mindset is that it is not linked to the core business enough. This is either because businesses are too comfortable, or businesses are not seeing some of the longer-term risks of the current path they are in ...

"There are two key stakeholders from the table - the environment because it's silent and future generations because they are absent - that are not here. And if we are to think about solving this conundrum about the incredible vitality of the market versus the short-termism of the system as a whole it seems that CSR is not a way forward in thinking about this problem."

Whether CSR and human rights issues become a "must have" part of the progressive business's agenda or a compulsory "must do" due to government regulation, remains to be seen.

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