15 November 2005
Mr John Kluver
Corporations & Markets Advisory Committee
GPO Box 3967
SYDNEY NSW 2001
Dear Mr Kluver
Director's Duties and Corporate Social Responsibility
The Group of 100 (G100) is pleased to respond to the request for comments on director's duties and corporate social responsibility.
Our responses to the questions are set out below:
|1.||Should the Corporations Act be revised to clarify the extent to
which directors may take into account the interests of specific classes
of stakeholders or the broader community when making corporate
No. The G100 considers that mandating change is unnecessary in view of the current Corporations Law and other requirements. In many of these areas, as evidenced in the Business Council of Australia findings, the imperative is to remove regulatory duplication and contradictions rather than to impose another layer of requirements which may inhibit progressive behaviour on the part of companies and directors. The best encouragement for entities is to create an environment in which experimentation with reporting in this evolving area is able to flourish. In a competitive environment the priorities and reporting of leading companies will induce improved reporting by other companies in response to changes in community expectations. This is unlikely to occur under a mandatory regime.
This approach is consistent with the view of Samuel A.Di Piazza, the
co-chair of the World Business Council for Sustainable Development
'Beyond Reporting' project that 'leading companies build sustainable
businesses by embedding strong governance and corporate responsibility
into their strategies and culture. By earning the trust of their
employees, communities, trading partners and the capital markets,
companies with a culture of corporate responsibility are able to
generate value where others cannot'.
|2.||Should the Corporations Act be revised to require directors to
take into account the interests of specific classes of stakeholders or
the broader community when making corporate decisions?
G100 considers that directors are required to consider broader interests
in addition to those of shareholders under their current obligations.
Directors have a first duty to the interests of the company and would be
derelict in their duty if they did not seek to ensure the long-term
financial performance and health of the company. It is only by doing so
that a company will continue to grow and add value to the community in
which it operates. In order to do so directors must ensure that the
company continues to give appropriate recognition to the concerns and
expectations of the community. In the normal course of events this
includes consideration of the impact of the company's activities on the
communities in which it operates.
|3.||Should Australian companies be encouraged to adopt socially and
environmentally responsible business practices and if so, how?
Yes. While there may be instances where directors have abrogated their
responsibility the G100 believes that, in the vast majority of cases,
directors take account of a broad group of stakeholders including
shareholders, credit providers, employees, regulators, government and
the community in discharging their obligations. This is also emphasised
in Principle 10 of the ASX Corporate Governance Council recommendations.
An awareness of the expectations of the community will engender
appropriate behaviour in the general course of events.
|4.||Should the Corporations Act require certain types of companies to
report on the social and environmental impact of their activities?
No. At present there are no formal reporting requirements other then requirements in respect of matters to be dealt with in the directors' report. The G100 considers that the current position is appropriate at this stage of development in respect of corporate sound responsibility reporting. Specifying requirements and imposing a 'one size fits all' approach is likely to impede promising and innovative developments. In addition, in respect of listed companies, good reporting practice should lead to discussion of corporate performance on these matters in compliance with requirements for a review of operations and financial condition.
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