It has long been argued that in the real world, the fiduciary responsibility of directors is the only major duty. However there is now a debate about responsibility to other stakeholders and social and environmental concerns. With corporations having such a large role in society, can the narrow interpretation survive?
Background
The Australian Stock Exchange asserts that under current law companies have a range of obligations and that there is growing acceptance of the view that organisations can create value by better managing natural, human, social and other forms of capital. While the issue is being increasingly recognised, particular roles and responsibilities to improve performance are still debated. Business grapples with its core belief that it must maximise returns to the shareholder, the fiduciary responsibility enshrined in law, and consequently cannot bring distracting matters to the boardroom. Stakeholders who are proxies for external environmental or social impacts and related interests are not seen as central to a company’s motivations. Nevertheless there is discussion about changing corporations law to encourage businesses to have regard for the interests of stakeholders other than shareholders.
Corporate and Markets Advisory Committee Review (Aust Gov)
Parliamentary Joint Committee on Financial Services - Corporate Responsibility Inquiry
The Debate
Business generally opposes a regulatory approach favouring best practice guidance, or education. The Australian Conservation Foundation has called for changes to corporate law so that directors and trustees must consider social and environmental matters. NGOs have also supported clawback of incentive-based executive remuneration if a company incurs environmental or social liabilities for which provision was not made at the time they were caused.
Business Council of Australia submission to Parliamentary Inquiry
Australian Conservation Foundation submission to Parliamentary Inquiry
TEC Position
TEC supports increased legal clarity about director's wider responsibilities because corporations have a very significant social role and sustainability, corporate reputation and long tern financial results cannot be based on the short term fiduciary view.
TEC submission to Parliamentary Inquiry |
