#SAILING THE #CORPORATE #SOCIAL #RESPONSIBILITY #SHIP-#

  1. Does the requirement that directors act in the ‘best interests of the corporation’ inhibit corporate social responsibility? Should these duties be altered? In your answer make specific reference to sections of the Corporations Act 2001 (Cth) and consider at least two different theoretical/critical perspectives on the corporation.

Sailing the corporate social responsibility ship-

Corporate Social Responsibility (CSR) first sailed onto the corporate horizon around the start of the twentieth century.[1] Legislation began to enact a web of protections for the consumers and workers.[2] The sailing was not so smooth when those in corporate world had to answer to environmental protection lobby groups. [3]

Corporate Social Irresponsibility

Last year, the United Colours of Benetton drew criticisms when the fashion house collapsed in Bangladesh.[4]  Over a thousand vulnerable people lost their lives in the incident; many who were severely injured are left with no compensation.[5] Colours of Benetton originally denied their brand was actually manufactured on the premises of the disaster.[6]

We must be able to lift the corporate veil to ensure that corporations can’t shirk their social responsibilities any longer, especially to those suffering the effects of their deadly products or processes”.[7]

Lifting the Corporate Veil

When Directors consider the feminist perspective, it ensures adequate concern for the broader social interests of the corporation. It is in the best interests of directors to demand gender equality.[8] Directors who act in the company’s best interest are in no way inhibited by CSR.[9]  Set expectations are placed upon corporate directors to facilitate processes in the best interests of the corporation.[10]The recent debate surrounding CSR found it is attainable when best interests of the stakeholders are equally taken into consideration.[11] Directors who discharge their duties with care and diligence through  adopting CSR do ‘act in the company’s best interests’.[12] In the past CSR was often trumped by productivity maximisation; in light of economic change, and the recent shaky corporate climate, it is integral that directors endeavour to discharge their duties in good faith in the best interests of the corporation and for a proper purpose, I argue accordingly in line with-: [13]

The Corporations Act 2001 (Cth)

Section 181(1) of the Corporations Act states that:

“A director…must exercise their powers and discharge their duties: [14]

(a) in good faith in the best interests of the corporation; and

(b) for a proper purpose.

And

Section 182 and 183 basically provides-“directors are prohibited from improperly using their position…..to cause a detriment to the corporation.”[15]

“Directors who breach these provisions of the Act may attract a civil penalty under section 9 (4) B $200,000 (maximum) along with any compensation the court determines appropriate. The director may be suspended or disqualified from managing a corporation under section 206 C.[16]

Section 184 sets criminal penalties for Directors who act ‘recklessly’, or are ‘intentionally dishonest’ in their failure to exercise their powers in good faith and in the best interests of the company.”

In 1980 Engels examined corporate social responsibility and noted it is anchored in one’s political beliefs

“The resolution of nearly every issue of corporate social responsibility

depends heavily on one’s beliefs about how the political process operates

and one’s convictions about the ideal political process.[17]

Corporations are steeped political officialdom, and would not exist without legislative recognition.[18] Corporations are ‘artificial entities’ they are merely, ‘a figment of our legal imagination’ therefore they do not exist outside or prior to law- section 119 Corporations Act. A Corporation comes into existence on the day of the registration. All features granted upon registration are granted by the state, this concession or privilege is known as the corporate concession theory.

Primarily social factors have been recognised as a necessity in the maximisation of profits.[19] Traditionally, the best interests of a company were founded to minimise loss and maximise profits, whilst driving the share price up. [20]

Looking back in history to the larger than life 1980s, where ‘insincere’ CSR and recent governance crises such as corporate collapses and excessive ..self given remuneration….There is the emphasised need for much improved relationships between an organisation and its stakeholders in order to regain trust (Grossman).[21]

CSR provides an opportunity for companies to gain a competitive edge and a wide range of benefits to a wider range of Stake holders. [22] Whilst CSR is ‘a voluntary concept, there is increasing pressure called to balance negative impacts, CSR is the key issue for any organisation when aiming for long term sustainability.’[23]

Similarly the Australian Centre for Corporate Social Responsibility ACCSR- is mainly concerned with-[24] assisting corporations to build a competitive advantage and stakeholder wealth; through corporate social responsibility.[25]

Lately, a strong focus on the amendment of directors’ duties has taken the forefront. The extent into the activities untaken by directors in the interests of their stakeholders -needs to be completely clear.

Socialist feminism- looks beyond the company to the social needs of women.

Gender inequality is ever present in the corporate world.[26] There is a lack of transparency into gender equality remains troubling and although women out perform men academically often, they do not reach senior levels (Scholz 2012).

It is for these very reasons radical feminism argues corporations are concerned with self-interests and profit maximisation, we need to consider the corporate in obligations of care.

Scholz highlights an underpinning where women do 70 % of the world’s spending, yet almost 85% of fortune 500 company board positions, still are held by men.

Across the world many governments have now enacted regulations in an attempt to shatter the glass ceiling (Scholz 2012).  [27]

A Lady at the Helm

One lady who has shattered the corporate glass ceiling is Kathleen McLaughlin, the US President of retail giant Walmart. She has a personal passion about CSR.[28] McLaughlin, has a strong focus on fixing financial gender inequality through their “Women Economic Empowerment.” This initiative is a good blend of social feminist theory/economic theory – set to train and source $20 billion worth of products produced by businesses- owned by women.[29]

 Empowering women is a priority for Walmart… will make our business and our world stronger.  When you lift up women, you lift up families and whole communities and economies. The majority of our 245 million customers are women and women control more than $20 trillion of annual consumer spending globally (McLaughlin).[30]

 

A woman sets sails to head off ATO

Michelle DeNiese,[31] heads the ATO Corporate Tax Association,[32]  “CSR will fill in any gaps in our membership base” and improve their social relationships with the Tax Office.  “There is renewed vigour at the ATO.” DeNiese previously held position with Minter Ellison law firm from 2002- 2005.[33]

CSR has the capacity to influence consistent firm financial performance. The aggregate theory,[34] along with the corporate communitarian theory, the stakeholder theory as well as the feminist theories (socialist and radical) were considered in building the research framework in relation to CSR; and its effect, to possible firm financial performance. [35]

The onus of CSR,is now placed on corporations who manage to engage workers at economically efficient rates to ‘give back to the community.[36] BP, McDonalds, Shell and  Nike have long run CSR campaigns ( Crane 2007) and rolled them out in the communities they operate in.[37] Nike and Nestle who operate factories in third world countries are successfully balancing the interests between the ethics of sociability; and the company’s best interests. [38]

Therefore in conclusion; the requirement that directors’ act in the ‘best interests of the corporation’ do not inhibit CSR, they merely enhance it. These duties should be altered in line with the adopted theoretical perspective of the corporation they represent.

Corporate Australia needs corporate gender equality. [39]

 

 

 

.Editor’s Perspectives

[1] http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/rp9899/99Rp27

[2]http://www.mondaq.com/australia/x/126518/Consumer+Law/Australian+Consumer+Law+changes 2010

[3] Exxon Oil Mobil to pay $1.4 Million for Lousainna Oil Spill, Scientific American 26/8/14 and have been pulled into media since Exxon Valdez in Alaska 24 March 1989, there are hundreds of oil spills involving many different corporations around the globe happening since early last century.

[4] Andrew Johnson, ‘Facing up to the Social Cost: the Real Meaning of Social Responsibility.’ (2011) Griffith Law Review. At 221 …companies should identify and voluntarily neutralise the harmful effects their operations have on society.

[5] Many of the workers were women. – http://www.thewire.com/global/2013/05/benetton-finally-admits-its-role

[6] S 128(4) Corporations Act (Cth) 2001- a person is not entitled to make an assumptionin s 129, if at the time of the dealings, they knew…or suspected …the assumption was incorrect.- s 129(5) Brick and Pipe Industries Ltd V Life Nominees Pty Ltd (1992) 10 ACLC 253

[7] John Purcell is a policy adviser, Policy and Research Unit, CPA Australia.  Janice Loftus is a senior lecturer in accounting, Faculty of Economics and Business, The University of Sydney. [7]Corresponding author email: J.Loftus@econ.usyd.edu.au-Regulatory Developments in Corporate Social Responsibility: Directors’ and Officers’ Duties”

[8] The imbalance of female company directors needs to be bought into line with global reformation. Corporations Act (Cth) 2001 under s 201- Minimum number of Directors needs a gender percentage provision.

[9] Andrew Johnson found CSR contributes to economic efficiency.

[10] Greenhalgh v Ardene Cinemas [1945] 2All ER 719

[11] Dahl ‘A Prelude to Corporate Reform’ (1972), Business and society Review 17, ‘Corporate Power and Responsibility’ (1993) Parkinson, Quoted by Tim Peters GLS.

[12] John Shaw & Sons (Salford) Ltd v Shaw [1935] 2 KB 113

[13] http://www.law.unimelb.edu.au/files/dmfile/Should_Austalia_replace_s181_of_the_Corporations_Act3.pdf

[14] S 180 of the Corporations Act 2001 (Cth) provides directors must exercise their powers and discharge their duties with due diligence.

[15] As in the detriment of lives lost during production as in Bangladesh, who were mainly women.

[16] Magna Alloys & Research Pty (1975) CLC 40-227

[17]  D.L. Engel, “An Approach to Corporate Social Responsibility” (1979 – 1980) 32 Stanford University Press.

[18]  1720 Bubble Act

[19] An article published in the Deakin law Review, by Hugh Alexander Grossman entitled ‘Corporate Social Responsibility On Shareholder Primacy Theory’, outlines the outdated shareholder primacy theory is inadequate

[20] As held in the James Hardie case, Directors’ duties under Australian law currently clearly focus on the ‘interests of the company’ in this case, a director would fail in their duties if considerations were given to factors other than the maximisation of profits

[21] Grossman notes the collapses of Ansett, FAI, Harris Scarfe, HIH and One Tel. NSW Government- [21]http://toolkit.smallbiz.nsw.gov.au/part/17/84/362

[23] http://toolkit.smallbiz.nsw.gov.au/part/17/84/362

[24] July 28, 2014: Marketing and CSR: a new framework

[25]http://www.ascsr.com.au/

[26] Scholz.,M, K- Gender Inequality- 11/11/12-  Katie Scholz

[27] Norway requires 40% of directors be  France has a 20% female requirement for public boards in 2014, increasing to 40% by 2017; while in the U.S., public companies must disclose whether and how their nomination committees considers diversity in selecting directors, Katie Scholz –Gender Inequality 11/11/12

[28] Arkansas Business Tues Oct 10 2013, “ Kathleen McLaughlin to Lead Walmart foundation

[29] Empowering Women Together, a destination on Walmart.com that connects small women-owned businesses around the world with customers who are looking for products from women-owned businesses. Committed to training 1 million women – 800,000 in emerging markets, and 200,000 lower-income women in the US, to help them secure better jobs. Through the Walmart Foundation, we have funded or have funding in place for roughly 750,000 women (McLaughlin

).

[30] http://www.forbes.com/corporate-responsibility/

[31] Financial review 20/08/14- For the first time in its 25 year history http://www.ceoinstitute.com/resources/ceos-desk/blog-article/breaking-the-glass-ceiling

[32] Financial review 20/08/14 http://www.ceoinstitute.com/resources/ceos-desk/blog-article/breaking-the-glass-ceiling

[33]http://www.afr.com/p/national/professional_services/mother_of_two_cracks_glass_ceiling_hMTUPWdL6Sy09DDHlCT8K

[34] S 140 Corporations Act (Cth) 2001- Cameron v Hogan (1934) 51 CLR 358

[35] http://www.camac.gov.au/camac/camac.nsf/byHeadline/PDFSubmissions_2/$file/CPA_CSR.pdf

http://www.referenceforbusiness.com/management/Comp-De/Corporate-Social-Responsibility.html#ixzz3BbLlqCMS

[37] Communitarian theories- not purely public nor purely private, relate to a range of stakeholders, need policy look after the need of stakeholders

[38] Carroll, A.B., and A.K. Buchholtz. Business and Society: Ethics and Stakeholder Management. 5th ed. Australia: Thomson South-Western, 2003.

[39] Norway requires 40% of directors be  France has a 20% female requirement for public boards in 2014, increasing to 40% by 2017; while in the U.S., public companies must disclose whether and how their nomination committees considers diversity in selecting directors, Katie Scholz –Gender Inequality 11/11/12

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