Corporate Social Responsibility: An Appeal to Enlightened Self-Interest CLARG Seminar 24 May 2007 Peter Seidel Partner, Public Interest Law Arnold Bloch Leibler Lawyers and Advisers

2 Definition and presentation summary No single definition exists. Arguably, involves process of a corporation considering and managing various social and environmental impacts consequent upon it’s activities, balancing need to maximise returns to shareholders with stakeholders’ interests. CSR has corporate decision making and corporate reporting aspects. No single approach to CSR.

3 Definition and presentation summary (cont.) Successful CSR does not require specific CSR amendments to the Corporations Act (CA). Mandating by specific legislation CSR into corporate decision making and reporting risks compliance only with minimum standards. Successful CSR requires management approach voluntarily adopted by a corporation because it is in the long-term interest of the corporation and its shareholders - an appeal to enlightened self-interest.

4 Common law and statutory fiduciary responsibilities of directors ‘Act In The Best Interests Of The Company’ Directors have considerable discretion Not confined to making decisions to maximize short term profits. s180 CA - Care, Diligence and Skill (“the business judgement rule”) Degree of skill reasonably expected of reasonably experienced person Informed on subject matter of judgment to extent believes is appropriate; and Rationally believes it’s in best interests of corporation. s181 CA - Good Faith Do not act arbitrarily or make improper use of information (see also ss182(1) and 183(1) CA). Do act honestly and in interests of company and do not act for personal advantage (see also s181(1) CA).

5 Common law and statutory fiduciary responsibilities of directors (cont.) Upshot of CA and Common Law Duties Discretion to take non-shareholder stakeholder interests into account if the circumstances are such that it is commercially justifiable to do so.

6 Other than via CA, how else is CSR regulated in Australia? Discrete legislation and policy Discrete legislation and policy best way of imposing additional CSR obligations on companies and directors e.g.: -environmental laws; -minimum rates of pay; -occupational health and safety; -anti-discrimination; and -equal opportunity. But law and policy are not immutable. Good law and policy requires strong Government leadership, reflecting and predicting the times to concentrate minds (e.g. Chuck’s suggestion – taxing undesirable activities like pollution).

7 Other than via CA, how else is CSR regulated in Australia? (cont.) CSR Reporting under ASX principles ASX 2003 Corporate Governance Council’s Principles of Corporate Governance and Best Practice Recommendations: - Applies to publicly listed companies. -Guide for corporate governance practice. -Voluntary, but any company that does not follow must explain why to both ASX and investors.

8 Other than via CA, how else is CSR regulated in Australia? (cont.) Media e.g. Indices rating companies according to CSR performance: -The Age and SMH have a Good Reputation Index, measuring the performance of Australia’s top 100 largest companies on management and ethics, employee relations and social and environmental impacts etc.

9 Commercial drivers/market forces Enhances reputation. Helps attract brightest and best. Pressure from NGOs. Pressure from a public becoming increasingly sophisticated in its awareness of corporate social and environmental impacts. But if public and private companies Public companies must demonstrate how support for the cause and discharge of company’s CSR responsibilities contribute to how it is perceived, to create a positive image, which contributes to maximising shareholder returns.

10 Commercial drivers/market forces (cont.) Anonymous giving cannot be justified by public companies. If no one knows about the initiative beyond those immediately benefiting from it, can’t ultimately contribute to shareholder wealth. Cf private/family owned companies.

11 Internal drivers Positive impact of CSR on motivation, commitment, loyalty, training – helps retain brightest and best. Upskilling.

12 Risks of further legislating for CSR Compliance approach - risks corporations acting to meet the minimum standards only. Risks subjecting directors to conflicting or competing fiduciary and statutory duties and obligations – what happens if shareholder and stakeholder interests diverge?

13 Successful CSR approach Consistent with firm’s culture, philosophy, history. Fully integrated into and shapes all aspects of operations. Not merely about compliance. Requires systemic, holistic and cultural “take up” within organisation, particularly by its leaders.

14 ABL’s approach Principles underlying CSR have traditionally guided ABL both in the management of the firm, motivation of staff, and in the work we do in the community. Firm philosophy Right thing to do. Acknowledge mixed motives.

15 Choosing clients ABL looks for a natural fit of vision and culture with: “Not for profit” Jewish, cultural, social justice causes. Various Indigenous communities and environmental NGOs, in particular.

16 Practice strategy at ABL Strategy has following features: -Work treated, performed, credited in same way as paid work -Client, not matter, focussed -Relationships, commitment driven -Clear support of firm’s leaders -Full time, partner co-ordinator -Clear policy, guidelines

17 Practice strategy at ABL (cont.) Targeted to areas of greatest need where firm’s skills, resources can be best utilised. All interested personnel can participate: lies like a transparency over whole firm. Annual audits carried out to formally measure associated benefits and give proper recognition to staff and clients. Occasional reports published.

18 Conclusion Profit is not compromised by practising CSR; to the contrary. CSR is rational business behaviour. Present legal/political systems, including processes for change, are sufficient to create ideal conditions for CSR. CSR is essential to long-term corporate sustainability – it must be part of any business plan, not a mere “feel good” adjunct to it, on the journey towards enlightened self-interest.