Directors’ Duties under the Corporations Act
A closer look at the Australian Corporation Act (2001) reveals that the act is designed to focus on work environment and how directors should work in ensuring that the best interest of the company is met. For example, one of the area focused is the Workplace health and safety (‘WHS’), whereby the directors are expected to set the tone of caring for employees’ safety. The Federal Competition and Consumer Act 2010, on the other hand, prohibit directors from engaging in anti-competitive arrangements, misuse of market power and exclusive dealing. The anti-competitive provisions are found in the Competition and Consumer Act 2010. Directors who violate these provision can be imprisoned for up to 10 years. As far as consumer protection is concerned, directors are not expected to engage in false or misleading representations. The consequences of this violation, as witnessed in ACCC v Halkalia Pty Ltd (No 2) (2012) FCA 535 is detrimental to the directors. Other laws guiding director’s conduct include Federal Spam Act 2003, Do Not Call Register Act 2006 and Federal Fair Work Act 2009. These laws are designed to ensure that the directors work to the best interest of the company. However, the big question that forms the basis of this paper is: Should directors’ duties under the Corporations Act 2001 (Cth.) only be directed to the interests of the corporation and its shareholders, or include the interests of employees, the environment and the community?
A closer look at Australian Corporation Act clearly suggest that it is supporting what is called corporate egoism. This is a case where the director of a corporation is expected to focus in profit generation and focus less on the impact of business on the other stakeholders. For example, section 181 of the Australian Corporation Act, director is expected to exercise their powers and discharge their duties in good faith in the best interests of the corporation and for a proper purpose. In fact, section 184 of the act states that directors who do not do to the best interest of corporation are liable to be punished. Directors who contravened the law, according to section may get a penalty of up to $200,000 and may order the person compensate the company for any loss as a result of the contravention [Part 9.4B]. This is exactly what corporate egoism advocates. In the classical version, this concept was developed by the ideologue of liberalism Milton Friedman. According to Friedman, the social responsibility of business is to maximize profits using available resources, while observing the established “rules of the game”. Within the framework of this concept, social responsibility is equated with the fulfillment of social obligations imposed on businesses by the state (timely payment of taxes, payment of wages, fulfillment of other obligations provided for by law). This concept maintains that the corporation cannot be considered a bearer of moral properties. First of all, the corporation must follow its goals. Managers who make decisions must also proceed from the goals of the organization, rather than from personal interests and beliefs. Friedman believed that only private owners and top managers could be subjects of responsibility, who after receiving income from the company’s activities can engage in private charity, but not the company as a whole. Here, the figure of the owner (top manager) is clearly separated from the enterprise, in this sense, the image of the company and its owner are not unified, and the company’s management cannot influence the decision-making and reproduction of its image in society. It is worth noting that the owner, interested in increasing his incomes, is not a subject of social welfare development, giving out for social responsibility only compliance with the law. In this sense, any employee who remits income tax, regardless of his convictions and civic position, can be called socially responsible. This concept of the social responsibility of business is rather narrow, not considering a number of social conditions for the reproduction of capital as a target function of business. Corporate egoism, which is advocated by the Corporation Act is not effective in modern times. Companies and directors should exercise what is called corporate altruism and if it is impossible to exercise corporate altruism, corporations and directors should exercise what is called reasonable egoism.
Corporate Egoism vs Corporate Altruism
Within the framework of corporate altruism, social responsibility is treated more broadly and, in addition to the implementation of legally fixed social obligations, includes the participation of business in social programs and charity. Within the framework of this concept, the company is the subject of responsibility as a social community, where the owners cooperate with managers, personnel, suppliers, consumers, representatives of the public, and social responsibility are the result of their joint actions. In other words, a company is a socio-economic system in which the goals and functions of society must be reproduced by the internal environment, its structural elements in close interconnection, be associated with the interests of the whole society.
The weak side of this concept is, first of all, that the main objective function of the business in the form of the desire to obtain more and more profits is mixed and dissolved in the public interest. Thus, the business structure as a separate subject of these relations “sacrifices” its own interests, consisting in making profit from the main commercial activity, in favor of realizing the interests of the public, among which the desire to equal distribution of the resulting aggregate product in the society is not the last. In addition, the society itself as a social environment of business is extremely heterogeneous – it consists of a multitude of social groups formed on a variety of grounds, whose representatives are interested in relations that are beneficial to them with socially responsible business. Obviously, that the business is not able to establish relations with all groups. In this case, we are talking about establishing selective links with the most important groups in this particular situation (in addition to the state), and not with the whole society. Finally, we should not forget about the company’s interest in its stable position in the market, which is achieved through profit maximization by any socially permitted methods
From these positions the third concept – the concept of “reasonable egoism” – is more balanced. It emphasizes that the social responsibility of business is part of a business strategy that contributes to the consolidation of the company’s position in the market in the long term. The company reduces its current profits by investing in social projects, but in the long run conditions are created for the stability of the company’s profits. This is due to the formation of a favorable social environment for the company’s employees and strengthening the image of the organization as a whole. In this sense, the company’s social image is subordinated to corporate goals and is its integral part. At first glance, the company spends part of the profits on various public projects, which looks like charity. However, each company carefully selects which social projects it should invest its funds in, and which ones should be ignored. In other words, in the field of social responsibility of the company only those projects come into play, the realization of which creates social conditions for the expanded reproduction of all types of capital of this company. Here we are talking about selective links of business with the social environment, when the company chooses whom it should deal with, and from whom it will be preferable to refuse. Thanks to this selective approach, a number of key problems in the environment of the social environment are solved, which makes such an understanding of the social responsibility of the business mutually beneficial both for himself and for the social environment. which ones should be ignored. In other words, in the field of social responsibility of the company only those projects come into play, the realization of which creates social conditions for the expanded reproduction of all types of capital of this company. Here we are talking about selective links of business with the social environment, when the company chooses whom it should deal with, and from whom it will be preferable to refuse.
Corporate Altruism – Social Responsibility as a Business Strategy
The concept of “corporate altruism” is most consistent with the ideal of all-round development of society, however, in the conditions of acute competitive struggle in the market, companies position themselves not as social systems, as market agents seeking to reduce costs and maximize profits, resorting to the exploitation of the first model of social responsibility. And only enterprises that have the means and strategy of long-term development consistently form their social image in the external environment, which is converted in conditions of financial and political instability into a positive economic effect based on trust, recognition of the company by consumers, counteragents, partners and the state.
Corporate altruism and reasonable egoism are key elements of corporate social responsibility. It should be noted that corporate social responsibility is currently one of the strategic tool for fostering not only economic benefits but also sustainable development. Absolutely every businessman knows that one of the main tools that affect the economic result is advertising. It is she who primarily determines the degree of consumer awareness in the goods and services offered to him. But advertising gives a huge push only at the beginning of the release of goods or services to the market. Then there are two most important areas that contribute to the promotion of the product. First – the offered goods should like. The second -This is the attitude of the consumer to the company that provides the goods service. For a better understanding, we propose to present a situation in which the consumer is aiming to acquire something. And this “something” suits him. But there is a competitor that offers a similar product for about the same price. And then in the selection process comes the individual attitude of the consumer to the manufacturer. That’s where all the forces expended by the company on CSR begin to bring already material income. And most importantly, this effect has a chain reaction. That is, if you do not spoil your reputation, the company can count on a regular customer in the long term and the entire product line.
Through corporate altruism, corporations will be able to create an enabling platform for investors and improving relations with the state. The state and investment companies are increasingly paying attention to corporate-responsible companies. The awareness of investors and financial institutions today is so high that only the most ardent enthusiasts will believe that they can hide their shortcomings. As a result, these organizations often prefer a more stable business. A company with a good reputation is much easier to find the necessary investors, which is confirmed by the ongoing social and environmental programs.
Reasonable Egoism – Selective Links of Business with Social Environment
For example, in the US there are several investment funds that give their preference to “green enterprises”. Because they have a good reputation not only from the social and environmental side, but also from the state and other partners. So, the Calvert Online fund recognizes that “today’s environmental and social issues can become problems tomorrow. Therefore, investments in companies which are ready today to address the issues of tomorrow – is not just a “good thing”, it is justified from a business point of view
Corporate social responsibility, which is a product of corporate altruism and reasonable egoism fosters employee’s motivation because it enable directors create a friendly and conducive atmosphere. When conducting internal CSR, you need to pay attention to the “atmosphere” within the company. To achieve these goals, the company’s management must have a strong team. A friendly and friendly atmosphere for employees is not the least important in this issue. Even low-cost signs of attention and concern from management, for example, in the form of corporate events, can significantly affect the cohesion and communication skills of employees. It is worth noting that the more your employees are satisfied with the provided working conditions, the higher the rating among those who wish will be arranged for you to work. And as a result, the employer will have the opportunity to choose the most qualified and promising employees. In order to train the employee, the necessary skills in the work requires considerable time. Basically, it takes from a month to one year. It is during this period, according to researchers at Moscow State University, that the employee adapts and establishes ties with the leadership and the team. In the case of dissatisfaction of employees with social responsibility activities within the company, the risk of their dismissal at their own will increase. A large “turnover” in companies contributes to the deterioration of its reputation in the employers’ market and to a decrease in efficiency. Therefore, it is clear that no one will want to lose an already held employee. Just to improve these indicators, we propose the introduction of internal CSR. And as a result, with due attention to their responsibilities to employees,
An international study conducted by Grant Thornton also demonstrates the importance of applying socially responsible business management methods, which become the basis for creating a successful team of employees
Companies that implement CSR, to date, it is much easier to find business partners among European, Asian and American countries than companies that are skeptical of social responsibility. For example, the city of Togliatti, where a representative of the company General Motors said that GM will cooperate with suppliers from Russia only if the condition is fulfilled: as an example, their form of management will correspond to the quality specified in the application. This example clearly demonstrates the direct connection between a good reputation and the opportunity to establish mutually beneficial cooperation, which is especially important for the entry of Russian enterprises into the international market. This is by no means the only example. As you know, China is aimed at partnering with Russia. Most recently, an agreement was reached on the gas supplies from Russia to China. In accordance with the agreement, Russia and China agreed to provide the most favorable conditions for companies involved in the creation of projects, construction and direct use of infrastructure to fulfill the contract, that is, the “Siberia Power” gas pipeline. It is very important that the parties should exempt from taxes and duties materials that will cross the border of these countries for the construction of an underwater crossing of the gas pipeline across the Amur River. The amount of this contract is approximately $ 400 billion. Also, Russia and China agreed to work towards settlements in rubles and yuans in the energy sector. It is easy in this situation to see the benefits in the cooperation of companies at the international level.
It is not worth mentioning the importance of having the opportunity to enter foreign markets. Companies are easier to find consumers if it is represented on a large geographic area. More products can be realized and thereby increase revenue.
Conclusion
The purpose of the report was to determine whether directors should only be directed to the interests of the corporation and its shareholders, or include the interests of employees, the environment and the community. The findings revealed that it is possible to consider the social responsibility of business only from the position of an integrated approach that considers all aspects of the development of both the company and the socio-economic environment in which it operates. It cannot be assumed that modern company is affected only by external or only internal factors, because both acts simultaneously. In this case, business should be viewed as an integral system having a certain internal structure, functional links and methods of reproduction, which is an integral part of the system of society. and others act simultaneously.
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