INCREASED REGULATION will do little to encourage Australian companies to be more socially responsible, according to the peak body for governance professionals. It said last week that existing laws will do enough to keep directors honest.
Laws that now require directors to act in the best interests of the company already allow companies to take account of the impact of their decisions on stakeholders, Chartered Secretaries Australia (CSA) said. Arguing social responsibility should not be mandated in case it becomes a mechanical exercise, a mere box-ticking, CSA chief executive Tim Sheehy said companies in a high performance culture will do it anyway.
“Companies that ignore the long term social and environmental impact of their activities and refuse to participate in an ongoing dialogue with their stakeholders are putting their long-term future at risk,” said Sheehy. He suggested this should be enough to sway them to compliance.
Freehills partner Bob Baxt defended the views of CSA, arguing that “the law already provides plenty of scope for directors to do the right thing by their company’s social and other obligations”.
“All this proposed CSR would do is simply clutter up our corporate laws with unnecessary changes,” Baxt said in an interview with Lawyers Weekly.
“By and large, I think Australian companies have shown they are run with very much a social conscience in many situations, and the courts have been very willing in certain cases to concede that broader interests are stake and need to be taken account of,” Baxt said.
It is likely that a box-ticking approach will be created if further regulation is implemented, with directors becoming very conservative in the way they behave, agreed Baxt. “Clearly directors need to be careful in running their companies, [ensuring] that they don’t ignore the interests of the primary stakeholders in the company, which is basically the members,” he said.
Directors should see that if they are short-sighted, and focus on profits alone, they are unlikely to have a sustainable business, said CSA’s Sheehy. “By contrast, pursuing a bona fide CR policy can open up value creating opportunities, build customer trust and promote innovation — all of which give a company a competitive edge and builds a strong brand in the long run.”
Many companies are already “living and breathing” the values of CR though interaction with the communities in which they operate, said Sheehy. “Indeed, many companies are already reporting publicly on their CR performance using a number of widely-accepted benchmarking guidelines,” he said.
CSA does not support the introduction of measures to make corporate responsibility reporting compulsory, it said last week. The cost of compliance for small companies in particular are too high as there is no one-size-fits-all approach.
Freehills’ Baxt said he was also concerned about the pressures placed on ASIC and whether it would be able to enforce such laws. “If you have a positive duty put in the [Corporations] Act to require directors to take account of these broad social interests, I don’t know how ASIC would ever enforce such a law. How would ASIC be able to seek to enforce a law where directors haven’t looked at the environment … or whatever other interest groups were involved,” he asked.
“If there was a case brought where someone says ‘the directors of this company haven’t been socially cognisant of their social responsibilities’, what is ASIC going to do, how is it going to enforce that?,” said Baxt.
He argued that ASIC should not be criticised in these situations. “They might be criticised for their public relations spiel, but they shouldn’t be criticised for not bringing cases when they haven’t got the evidence to bring it.”