Australia’s authorities prefer to nudge company managers into best practice
In 2006, two government inquiries into directors’ duties and sustainability reporting by the corporations and markets advisory committee (Camac) and the parliamentary joint committee (PJC) on corporations and financial services put corporate responsibility firmly on the agenda in every boardroom in Australia.
That year was a turning point in the short history of corporate responsibility in Australia. Previously, corporate malfeasance dominated the headlines and did nothing to improve Australia’s reputation as a place to do business.
The 2010 publication World Guide to CSR notes a number of catalysts for change, such as BHP Billiton’s failed mine tailings dam in Papua New Guinea in the 1990s, business failures HIH and One-Tel in the early 2000s and, topping them all, James Hardie’s scheme to avoid liabilities for asbestos compensation.
Both the Camac and PJC inquiries drew virtually identical conclusions. Camac said: “Social responsibility, like effective corporate governance, can be seen as part and parcel of the way a company’s affairs are conducted.” The PJC found that an increasing number of Australian companies were already voluntarily employing responsible corporate approaches.
Since Australia’s Corporations Act provided sufficient scope for directors to consider stakeholder interests, as well as those of shareholders, the PJC found that modification to Australian company law was neither required nor advisable.
“Because of these inquires, nobody today would argue that CSR was of no or little interest to company directors,” said Dr Leeora Black, managing director of the Australian Centre for Corporate Social Responsibility.
Reporting risk
Australia does not currently have any specific legislative requirement for companies to publish sustainability reports. Nevertheless, companies may be required to disclose sustainability related information under a range of legislative and regulatory requirements.
In 2007, the Australian Stock Exchange (ASX) conducted a review that broadened the definition of risk to include environmental and social issues. This has been taken very seriously by business leaders.
The ASX corporate governance council’s revised Corporate Governance Principles and Recommendations (2007) says listed companies must consider relevant sustainability matters within the description of potential material business risks.
And from July 2008 the National Greenhouse and Energy Reporting Act has mandated many corporations to report their greenhouse gas emissions, energy consumption and production figures.
Although Australia is not particularly well known for shareholder activism, the federal government has started to oil the wheels of shareholder democracy.
In February 2011, the government, led by Julia Gillard, said it was applying a “two strikes test” as part of its crackdown on executive pay, introducing a package of measures into parliament that will give shareholders the opportunity to remove directors if the company’s remuneration report receives a “no” vote of 25% or more at two consecutive AGMs.
Parliamentary secretary to the treasurer David Bradbury says that while Australia’s system is relatively strong, the global financial crisis has highlighted corporate remuneration issues. “In particular, it illustrated the dangers of remuneration structures that focus on short-term results, reward excessive risk-taking and promote corporate greed,” he says.
In March 2009 the government curbed golden handshake payments to departing executives and directors and asked the Productivity Commission – an independent research and advisory body on a range of economic issues – for a broad review of Australia’s remuneration system. Bradbury says most of the commission’s recommendations were being implemented.
The package eliminates conflicts of interest by prohibiting directors and executives from voting their shares on remuneration issues. New transparency requirements will apply to remuneration consultants, who could also face conflicts of interest. The measures, if passed, will come into effect on July 1.
Funding change
In 2007, the federal government provided A$2m (£1.2m ) funding to the St James Ethics Centre, an independent non-governmental organisation, over a period of three years to establish the Responsible Business Practice Project.
The Centre, which ran the Australia’s Corporate Responsibility Index until giving it up this year, launched and ran a website – the Hub of Responsible Business Practice – designed to expand the number of Australian companies engaged in identifying and adopting more responsible business practices, and to consider options to improve and refine corporate social responsibility tools.
“You could look at all these initiatives individually and say ‘more could be done’, but collectively they have really helped to move the dial on the broad-based acceptance of the corporate responsibility agenda,” Black says.