Does business have social obligations? Don't be silly

"Yes, business has social obligations, and I can say that with absolute honesty," said Christopher Skase from Majorca. Well, he may have! He may have even said it with a straight face. The fact is you ask a silly question you get a silly answer.

The fashionable business of business social responsibility – known more formally as Corporate Social Responsibility – is just a reflection of the impatience of self-appointed activists to tell everyone in business – and in government – that the world should be run the way they prefer. Two outbreaks of such arrogant nonsense occurred recently.

The first was an attempt by The Sydney Morning Herald and The Age newspapers to hijack corporate reputations by assigning measures of reputation to Australia’s ‘best’ 100 corporations. Each was rated on a number of factors, which were combined to form the "Good Reputation Index". The Index purported to measure corporate performance on employee management, environmental performance, social impact, ethics, financial performance and market position. The judging was undertaken by eighteen ‘influential’ organisations, such as the Ethnic Communities Council, Greenpeace, Amnesty International, the St James Ethics Centre, the Institute of Chartered Accountants and the Public Relations Institute of Australia.

Leighton Holdings was ranked number one on the Index, and the Commonwealth Bank was ranked 70. However, the Commonwealth Bank’s financial performance, as rated by the Institute of Chartered Accountants, was number one on return on shareholders’ equity, and price/earnings ratio. Why did it slide 69 positions on the Good Reputation Index?

Here is just one of many silly reasons why. On the Environment Performance section of the Index, Leightons, who may actually make a bit of mess building things, was rated more highly than the Commonwealth Bank, which does little of environmental consequence. Why was the bank marked down? Because Greenpeace, the Australian Conservation Foundation and the Wilderness Society could barely distinguish the performance of Leightons and the Commonwealth Bank. However, the Victorian EPA scored a zero for the bank on its ‘effective communication with the public on its environmental performance’. What would the bank have to communicate about? Leightons won because they have to communicate on this criterion, the bank loses because it does not!

The Index simply gathered the opinions of those who have an interest in gaining some leverage over activities of corporations, but who have no direct interest in their operations. The Good Reputation Index has proved to be opinion dressed up as fact. It has more to do with setting up advocacy groups as opinion-makers than with a desire to evaluate the performance of corporations. It has precious little to do with actual performance of tasks that corporations need to undertake in order to fulfill their obligations to their customers, shareholders, and their workforce and to society through their legal obligations.

To our second example of silliness.

The Australian Democrats' Corporate Code of Conduct Bill 2000 is being scrutinised by the Parliamentary Joint Statutory Committee on Corporations and Securities. The Bill aims to regulate the activities of Australian companies overseas in the areas of human rights, environment, labour and occupational health and safety. My advice to the Committee is to scrap the Bill. It says more about the Democrats' agenda than about corporate behaviour. It is the next instalment in a much bigger game, to make global moral activists the rule-setters and monitors of corporate behaviour.

The Second Reading Speech of Senator Bourne is a scandal of unrelated diatribes in search of problems, problems to which her Bill provides no solutions. She recalls the cyanide spill at the Australian owned Esmerelda mine in Romania. But the Romanian government fined Esmeralda. Consequently, the company no longer exists. Of what use is the Bill? She recalls the environmental damage caused by the Ok Tedi mine. BHP is, in effect, a joint partner with the PNG government in this venture. If it pulls out the PNG government will seek another, possibly less able partner, to pursue the venture. The Bill suggests that the Australian government should legislate for the PNG government, an overt piece of imperialism. What of the rights of other nations to establish their own regimes for corporations and make their own judgements about development and the environment?

The Bill establishes a series of standards of conduct for corporations of the most general kind. These standards are to be reported to the Australian Securities and Investment Commission and in turn to the Parliament. Based on these general standards, not only will a person suffering a loss or damage because of the action of a corporation have a cause of action, ‘an association of persons whose principal objects include protection of the public interest’ may bring an action.

What is the public interest in these instances? The Bill borrows the 1999 European Union standards for European Enterprises operating in developing countries. Presumably a EU multinational, operating in Australia, could have a complaint brought against it by an Australian, based on the EU Code of Conduct. That complaint may mean that Australians using European conventions may sideline the interests of other Australians, especially the taxpayer. To the extent that NGOs complain about multinationals, globalisation, and the loss of sovereignty suffered by nations, the Code of Conduct may well inhibit rather than enhance one concept of public interest, national sovereignty.

There are questions we should ask of business. Does the company comply with the law? Does it fulfil product claims? How does it handle the bad times, like customer complaints, product recall, employee compensation, product liability and so on? Is there sufficient information available about its operations to make informed consumption and investment decisions?

The business of social responsibility for business is all about rent-seeking. There are enormous obligations which businesses currently fulfil by law. Any more than these and we risk destroying the reason business is a target in the first place. It creates wealth.