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Comments by Labor Members on the Corporate Code of Conduct Bill 2000
Intent of Bill
The Corporate Code of Conduct
Bill 2000 seeks to have Australian companies, operating overseas, act in
accordance with decency, rectitude, and high ethics. It contemplates they
will do this while carrying on business in an efficient, profitable and
professional way. It looks to the well being of workers, of residents, of the
environment, and of the society generally in those foreign countries where
Australian companies have a presence.
The objectives of this Bill are
noble ones and need realisation with due dispatch. The issue in contention is
the means by which they can be achieved.
Prescriptive Legislation
Legislation pertaining to the
regulation of companies in Australia is extensive. Should further laws be
enacted prescribing how they are to conduct themselves while operating
offshore? If the present Bill is passed how effective will it be in gaining
for people overseas what it seeks to accomplish?
Evidence given to the Committee
told of the formidable problems to be encountered in enforcing prescriptive
regulations on Australian companies in respect of their overseas operations.
Submissions to the Committee recommended as an alternative that the objectives
of the Bill be pursued by requiring companies to make public both the
principles according to which they operate abroad, and an ongoing account of
how they adhere to them. To ensure that corporations properly abide by these
requirements an audit should be undertaken regularly by an independent body.
If this strategy proves ineffective others can then be tried.
Australian Corporations and Principles
The principles according to which
Australian corporations ought conduct themselves overseas is a fundamental
issue for resolution in this matter. Should a company act solely in the
interests of its shareholders? Should it take heed only of the law of the
jurisdiction in which it operates? Should it, as the Bill requires, take
account of the well being of its workers, of the environment, of consumers, and
of people generally in the foreign country where it is carrying on business?
Answers to those questions depend upon what responsibilities a company ought
bear.
Growth of Corporate Power and its consequences
Corporations began as a vehicle
for economic gain. Their owners derived wealth through their operation.
Since then a great deal of law has developed to ensure these owners a just
return for their investments. Today people who manage companies are obliged
to do so for the good of those organisations and accordingly for the benefit of
shareholders. But there are other matters that ought be taken into account.
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Adolf A Berle and Gardiner C
Means first published “The Modern Corporation and Private Property” in 1932.
They prepared a revised edition in 1967 from which the following quote is
taken.
“The
institution (the corporate organisation) here envisaged calls for analysis, not
in terms of business enterprise but in terms of social organisation. On the
one hand it involves a concentration of power in the economic field comparable
to the concentration of religious power in the mediaeval church or of political
power in the national state. On the other hand it involves the interrelation
of a wide diversity of economic interests, - those of the ‘owners’ who supply
capital, those of the workers who ‘create’, those of the consumers who give
value to the products of enterprise, and above all those of the control who
wield power.
Such a great
concentration of power and such a diversity of interest raise the long-fought
issue of power and its regulation – of interest and its protection. A
constant warfare has existed between the individual wielding power, in whatever
form, and the subjects of that power. Just as there is a continuous desire
for power, so also is there a continuous desire to make that power the servant
of the bulk of individuals it affects. The long struggles for the reform of
the Catholic Church and the development of constitutional law in the states are
phases of this phenomenon. Absolute power is useful in building the
organisation. More slow, but equally sure, is the development of social
pressure demanding that the power shall be used for the benefit of all concerned.
This pressure, constant in ecclesiastical and political history, is already
making its appearance in many guises in the economic field.
Observable
throughout the world, and in varying degrees of intensity, is this insistence
that power in economic organisation shall be subject to the same tests of
public benefit which has been applied in their turn to power otherwise
located”. (pp.309, 310)
The power and influence of
corporations around the world has grown to the point where society needs to
ensure that they operate for the true benefit of people globally.
Accordingly, interests in addition to those of the shareholders must be looked
to as a matter of equity, justice and societal well-being. The activity of
companies is so vital to the well-being of nations that they must work and be
seen to work in the legitimate interests of people in all those countries in
which they have a presence.
Need for Right Conduct
Later in their work Berle and
Means wrote the following paragraph.
“The rise of
the modern corporation has brought a concentration of economic power which can
compete on equal terms with the modern state–economic power versus political
power, each strong in its own field. The state seeks in some aspects to
regulate the corporation, while the corporation, steadily becoming more
powerful, makes every effort to avoid such regulations. Where its own
interests are concerned it even attempts to dominate the state.
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The future may
see the economic organism, now typified by the corporation, not only on an
equal plane with the state, but possibly even superseding it as the dominant
form of social organization. The law of corporations, accordingly, might well
be considered as a potential constitutional law for the new economic state,
while business practice is increasingly assuming the aspect of economic
statesmanship”. (p.313)
At this point in time, what is
the best way of having an Australian company operating overseas act for the
true well being of the people in those countries in which it is carrying on
business? That it has a responsibility for doing so should not be in
contention.
Politics and corporate governance
In a free and democratic society
it is usual and befitting for political action to be taken to see to it that
the affairs of corporations are properly ordered. In 1994 Mark J Roe wrote
“Strong Managers Weak Owner: The Political Roots of American Corporate
Finance”. In his preface the author says:
“I show that
politics – democracy in general, and American democracy in particular –affected
the organisation of the large firm. The interaction between firms and
financiers was, and still is, mediated partly by politicians, and that
mediation in a democratic society is a central – and neglected – explanation
for the organisational forms we observe. Were the title not already taken, a
good one for this book would have been “The Visible Hand”, because the visible
hand of politics affected the structures of financial intermediaries, which in
turn affected the structure of the large public firm”. (p.x)
And again:
“I have a good
focus for this book – the interaction between politics and corporate governance
– and people with a focus can exaggerate their subject’s importance. While
corporate governance is one of the matters on the list of what determines
economic success or failure, it is only one, and it is probably a good way down
the list of importance. Similarly, while politics is one of the determinants
of corporate governance, it is only one, although, as it turns out, an
important one”. (p. xi)
It is open to Parliament to
legislate about the way Australian companies should comport themselves
overseas. Should it do so?
Code of Conduct
Companies carrying out their
functions in a foreign place should conduct themselves decently and in a manner
that does good and not harm to the people living there. They should have a
code of conduct aimed at achieving this. Such a code needs to be developed
and then adhered to in a way which is both apt and beneficial to the host
country. It would be difficult, and perhaps impracticable, for an Australian
legislature to effectively institute specific and prescriptive laws for
companies to obey as a means of achieving this end. On the other hand,
Parliament could appropriately and usefully pass legislation requiring
corporations operating overseas to publish a code of conduct by which they are
to act, and, then to furnish a periodical account of how they have measured up
to that code.
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O.E.C.D. Guidelines
The Organisation for Economic
Co-operation has set out guidelines for multinational enterprises. These
provide a basis for a code of conduct for Australian companies operating in
other countries. They are appropriate principles for good corporate
behaviour, both at home and overseas. They are advanced here in the context
of a discussion about the way multinational enterprises should behave abroad.
Need to act well and according to Code
Once companies establish their
codes of conduct they need to operate in accordance with them to achieve their
purpose: that is to act not only profitably but also with decency, with
efficiency, with energy, with rectitude, and to the benefit of the society
within which they work.
Corporations will operate in this
way if the people running them are men and women of ability, informed with a
culture of integrity, and determined to have their companies succeed both
economically and ethically. Government regulation would not be an issue were
this the situation throughout the corporate sector: where it is not the
question arises.
In any event Australian companies
operating overseas ought report at home on how they adhere to their codes of
conduct. This allows the community here to ascertain the way in which they go
about their tasks in a world where this nation is not only a participant in
trade and commerce but a global citizen.
Corporation ought give an account
of the profits and losses they make, of the wages and conditions they provide,
of the impact they have on the environment, of whether they have advantaged or
disadvantaged the civil life in the foreign countries within which they work.
Audit by Government
The reports provided by
corporation ought be regularly audited by a Government department or
departments (for example the Department of Employment, Workplace Relation and
Small Business) as determined by ASIC having regard to the content of the code
and the competencies of the department.
Australia’s responsibilities and Australian’s standing and
Government involvement
Government represents society and
society is entitled to know how a company based in Australia is conducting
itself when carrying on business abroad. The various parts of the world
community are more and more impacting on each other and governments are
incurring increasing responsibility for how their citizens and organisations
conduct themselves overseas. Australia as a leading exponent of the rule of
law, both at home and abroad, and accordingly needs to look to the way its
companies comport themselves in other countries. Moreover it is right and
proper that Australians seek to ensure that their international standing is
high.
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Race to the top
The phrase “race to the top” may
well be used to encapsulate the thought that were Australian companies
operating overseas obliged by law to develop codes of conduct, and to give a
regular account to a government authority about how they adhered to them, the
competition which would thereafter develop to become the best would lead to a
marked improvement in the comportment of such corporations generally.
Government Action
The intent of the Corporate Code
of Conduct Bill 2000 is right and proper. In so far as its strategy is to
establish a set of prescriptive regulations as a means of realising this
intent, its time has not yet come. At this stage the best way for Parliament
to deal with the matter is to:
- require Australian companies operating overseas to develop appropriate
codes of conduct which are to encompass in them the relevant O.E.C.D.
guidelines.
- require those companies to give a regular account of how they adhere to
those codes.
- have the codes developed by the companies and the accounts given by them
of how they adhere to those codes audited by a relevant government department.
_____________________________ ___________________________
Mr Bob Sercombe,
MP Senator Stephen Conroy
______________________________
_________________________________
Senator
Barney Cooney Mr Kevin Rudd, MP
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