The Australian’s columnist Janet Albrechtsen was right when she described the debate about new principles to improve the governance of our major corporations as “an extension of the culture wars”.
But that was all she was right about.
The gut-churning revelations from the banking royal commission and in the media – rip-offs of customers, boards turning a blind eye to possible criminal behaviour in their companies, lies told to regulators and obscenely large pay packets for executives – have truly horrified the public.
It’s no wonder the members of the ASX governance council thought they needed to do more.
The result is a much more explicit draft of principles and recommendations for companies to help focus them on what shareholders and the broader community expect of them.
After unanimous agreement on the council, these are now being circulated for consultation – yes, consultation – as the council’s chair, Elizabeth Johnstone made clear this week.
“The final form of the principles and recommendations will need to be approved by broad consensus of the members of the council,” she said.
For Albrechtsen and a group of predominantly white, male old-school company directors, the proposals to help companies address serious corporate failings, lack of diversity and reporting on climate change are just a “distraction”. Or worse, “a dangerous Left plot” to bring “the nanny state” to corporate Australia.
“Having successfully colonised other areas of our society, the Left’s long march through institutions now extends into corporate Australia,” warns Albrechtsen.
“An army of new activist regulators is steadily, and stealthily, imposing highly contestable social agendas on listed corporations using language that resembles psychobabble.”
Tell that to the policy holders at AMP who were charged fees for no service at all. Tell that to people who have lost their homes thanks to the banks lending them more than they could ever repay, in the interests of driving profits.
David Murray, a former chief executive of the Commonwealth Bank and now chair of AMP, said he would “not be guided by the ASX corporate governance principles where they either weaken accountability or distract the company to less important issues”.
He said the current guidelines had “contributed to what happened to AMP and others in the financial sector” through the proliferation of subcommittees chaired by independent directors that had fragmented the board’s work.
John Wylie, an investment banker said a corporate nanny state was driving directors away from owning shares in the companies they ran.
“The most important thing needed in Australian boardrooms today is for directors to think like owners of their businesses,” Wylie said.
The home affairs minister and champion of conservatism, Peter Dutton, whose portfolio does not include corporate regulation, has also weighed in.
He’s warned the business community that it is adopting the agenda of radical activists while remaining largely silent in debates over the economy and industrial relations.
“These companies are using company funds and brand equity to pursue pet political and social causes. Some businesses are now acting in the interests of special interest activist groups,” he told a legal conference on Saturday.
“The interests of shareholders are becoming secondary considerations, if they are being considered at all.”
So what’s so radical in these new ASX guidelines?
The guidelines cover the expected things: the need for independent directors, disclosure and reporting to shareholders, dealing with conflicts, and best practice dealing with bribery and other breaches.
But they also aim to strengthen reporting on sustainability issues such as climate change, diversity on boards and within their workforces (shock, horror: it recommends a target of 30% women on ASX boards), as well as a broader concept of ensuring companies operate with a social licence.
The document explains what it means by “a social licence”.
“Preserving an entity’s social licence to operate requires the board and management of a listed entity to have regard to the views and interests of a broader range of stakeholders than just its security holders, including employees, customers, suppliers, creditors, regulators, consumers, taxpayers and the local communities in which it operates.”
“Long-term and sustainable value creation is founded on the trust a listed entity has earned from these different stakeholders. Security holders understand this and expect boards and management to engage with these stakeholders and to be, and be seen to be, ‘good corporate citizens’,” the draft says.
The document includes a list of what might be expected of a company: respecting the human rights of its employees, paying a “living wage” to employees; maintaining a safe and non-discriminatory workplace; offering employment to people with disability; dealing honestly and fairly with customers and suppliers; not engaging in aggressive tax minimisation strategies; and generally engaging in ethical business practices.
And who are these dangerous lefties?
The submissions to the review were released on Wednesday and the big investors and superannuation funds, who currently have the $1.6tn of their members’ money invested in Australian equities, were the ones pushing for change.
One of the loudest advocates is Louise Davidson, the CEO of Australian Council of Superannuation Investors, which speaks for 38 major investors.
“Companies rely on a range of stakeholders to operate and succeed, including employees, investors, consumers and the community,” she told Guardian Australia.
“As long-term investors, our members want to invest in sustainable companies. Companies that build good relationships are more likely to succeed in the long term and be regarded as higher value investments.”
ACSI is supported by those notorious lefties in the Australian Institute of Superannuation Trustees and the Australian Shareholders Association, both of which suggest strengthening the draft guidelines.
Also supporting are the Financial Services Council, representing 100 of Australia’s retail and wholesale funds management businesses; Australian Super, First State and CBUS.
Then there is the corporate regulator Australian Securities and Investments Commission, which points out that the Commonwealth Bank had reported in its 2017 corporate governance statement that it complied with the current ASX governance guidelines, even though the regulator, APRA, had found significant shortcomings.
It wants to see requirements with teeth.
The guidelines work on a principle of “if not why not” – in other words if a company decides a particular guideline is not appropriate to its business, or it has other arrangements in place, it can explain to shareholders why it is not following the guidelines.
Lining up on the other side are the Australian Institute of Company Directors (representing directors) and the Business Council of Australia (whose members include 130 CEOs).
“We are concerned that concepts proposed to be introduced such as ‘social licence to operate’ and acting in a ‘socially responsible manner’ are subjective and will add unnecessary complexity and uncertainty,” AIDC said.
“With this in mind, we recommend that the document be reviewed to ensure that it appropriately reflects the legal and fiduciary obligations of directors.”
The Business Council of Australia said while it supported the concept of guidelines, they “should not attempt to prescribe corporate culture”. It said the meaning of a social licence to operate was ambiguous and the scope of obligations went far beyond the key legal obligations.
But that’s just the point. Shareholders, investors and the public expect more of corporations that control increasingly large parts of our economy and wield significant power and influence in our daily lives.
Australia has countenanced larger companies and concentrated markets to allow its corporates to thrive in global markets. The community expects something in return – and that’s for them to contribute positively to society.
Those directors and CEOs who say a social licence to operate is a peripheral should note: those advocating for a social licence are their owners.
If companies don’t respond through voluntary means, shareholders and the public will only become more active in demanding legislative change or driving change through their voting or purchasing power.
