Curbing Corporate Social Responsibility

A current school of thought urges a legal approach to stop public companies becoming involved in politically-contentious social debates via the means of ‘corporate social responsibility’ (CSR) that are only faintly, if at all, related to their business.

The thinking is that company directors and senior managers may be breaching their duty to shareholders under the Corporations Act, and abusing company’s commercial powers and resources, by failing to “pursue only the proper purposes of the company and to maximise profits within reason.”

The first problem with this approach, as explained in my new report Curbing Corporate Social Responsibility: Preventing politicisations – and preserving pluralism – in Australian business, is that (in general) CSR is legal.

Under existing company law, corporate decision-makers have a wide discretion over the consideration of non-shareholder interests, so long as the proper purpose is to protect shareholder’s interests in general.

The second problem is that even if the courts deemed CSR illegal — probably via protracted and expensive litigation — this outcome would be counter-productive.

The burgeoning CSR industry — consisting of the multitude of ‘social responsibility’ managers and consultants employed across the corporate landscape — is pushing for greater corporate involvement in politics, by urging government action to introduce mandatory CSR laws.

Such laws would revolutionise company law and corporate governance, by explicitly defining the competing and conflicting non-shareholder interests that directors could consider.

Such a regime would leave directors effectively unaccountable to shareholders — and would make the current level of corporate meddling in all kinds of social and political debates just the tip of the iceberg. .

The fear is that if a legal challenge to CSR succeeded, this would only fuel the campaign for mandatory CSR laws.

All things being equal in the present politically-correct political environment, this campaign would more than likely succeed, and give the CSR industry what it wants — a license to play politics with shareholder’s money.

Because the legalistic approach to curbing CSR is fraught with danger, this issue can be best addressed through the existing channels of corporate governance.

However, the major problem is that corporate leaders looking to push back against the ‘social responsibility’ trend are not currently guided by any alternative set of principles, policies or institutional framework to counter the well-established CSR doctrines and structures across business.

That’s why my report has proposed introducing a new principle into the language and practice of corporate governance, which would overly qualify existing CSR philosophies.

The ‘Community Pluralism Principle’ would remind directors and senior managers of the need to ensure that company involvement in social debates does not politicise their brands and reputations.

Inserting this principle into company constitutions — or into the Australian Stock Exchange’s good corporate governance standards — would also empower corporate decision-makers to ensure that companies remain pluralistic institutions that respect, reflect and serve the whole community equally

This means ceasing to meddle in politically-charged social issues on which there is no community consensus, in these increasingly polarised times.