Is it a bridge too far leading to the destruction of the profit-based entrepreneurial capitalism that has brought us our high standard of living? Or is it an acknowledgement that changing times bring changing ways, for better or for worse? Or is it simply that we are now so well-off we can afford to indulge in some anti-materialistic virtue-signalling that makes us feel good? Whatever the cause, the result is that increasing numbers of directors see a ‘social licence’ for their companies as paramount over the old priority of making a quid for their owners, the shareholders. These private sector bureaucrats who now run corporate Australia are not only satisfying their personal needs for redemption, they are also responding to mounting pressure from noisy and effective activists who use the new implements of social media campaigns and shareholder power (especially through industry super funds and on environmental matters) to press their sectional interests ahead of those of the bulk of dividend-seeking but otherwise passive owners.
Should companies require a social licence to operate? The fact that this question has become so serious that four of Australia’s top business leaders are being brought together by the Australian to deal with it in a public forum, indicates a need to address the lack of public trust in the big end of town engendered largely by damning evidence of finance sector corporate dishonesty and reinforced by Labor’s politics of envy in its campaign against the government’s company tax cuts.
There has always been a level of ‘social licence’ in the corporate sector. The limiting of personal liability by the very existence of a corporate structure means that society properly expects companies to behave in a socially acceptable way – and has the means to enforce its requirements through the Corporations Act, Asic and other regulators – even if too often ineffectively. Banks have always had obligations to behave in the public interest in exchange for their licence to accept deposits, no matter how frequently they ignored them. And mining companies see this as such a vital issue that last month’s International Mining and Resources Conference in Melbourne included a one-day ‘Social Licence to Operate Workshop’. Miners have long-since recognised that a project being in the national interest and possessing all the appropriate regulatory approvals is no guarantee of the social acceptance needed to protect it from political assault; an unspecified ‘social licence’ to operate is essential. Disruption by activist groups is only ever a Facebook post away.
But there are real concerns, expressed forcefully by the Australian Institute of Company Directors, about the Australian Stock Exchange turning ‘social licence’ into a more formal requirement: ‘The concept of “social licence” is highly subjective and will be interpreted differently by different stakeholders, as will the criteria… of being a good corporate citizen (e.g. paying a “living wage” or not engaging in “aggressive tax minimisation strategies”). These proposed changes [to ASX listing requirements] have caused significant concern amongst the director community. The new wording introduces concepts with broad, perhaps changing, interpretations, without referencing the legal and fiduciary framework of director duties – including acting in the best interests of the company’.
Corporate leaders strongly backed the call by new AMP chairman David Murray to ignore the ASX corporate governance principles and oppose ‘de facto laws being imposed on directors that are counter to the corporate laws’. Professor Bob Baxt in his 2016 text on directors’ duties held a similar view, noting that a fundamental principle of Australian company law is that directors owe their duty to the company and not to any other persons. But he also emphasised that it would be ‘foolish’ for directors, especially of publicly listed companies, to ignore stakeholder interests, which play a significant part in how companies must behave in order to prosper. And this year’s Principles of Corporate Law rejects the proposition that directors should be obliged to consider interests of employees, customers, contractors and the community when making decisions for the company; ‘There is no case law or corporations legislation in Australia that imposes that obligation’. The way things are going, there soon will be.