Corporate social responsibility and micro-economic reform

There is no doubt that Australia is suffering from some confusion about where it goes next in relation to the place of business in society and the place of Australia in the world. Globalisation, while not new for this country, is posing challenges. There are concerns about the so-called branch-office economy, as though both the syndrome and the fear of it are new. There are concerns about rural and remote regions being left behind. There are also concerns about a possible re-regulation of Australian business. That the Australian Competition and Consumer Commission got a remarkable increase in its budget this year points to its popularity in Canberra on both sides of politics.

Business was a major architect of micro-economic reform in Australia. This was because a consensus emerged among those who did business in this country that a parochial, closed and over-regulated Australia would see it consigned to becoming an irrelevant backwater. This consensus still remains. Most business leaders would agree that the consequences for business of Australia re-regulating and protecting anew its tiny markets would be low growth and capital flight. That said, it follows that business should become critically interested in the state of its particular and collective social relationships, and expert in managing them.

The Legitimacy Gap

Those of us in the more socially contentious sectors of business know that quite profound challenge to the legitimacy of our businesses has been afoot for some time. The mining sector has probably lived longest with the knowledge that its basic legitimacy will be contested for as long as it pretends to live only in narrowly operational, economic and financial dimensions.

I would refer you to what happened to Australia’s shiny new, globally competitive resources sector of the 1960s by the 1970s and 1980s. It became seen as Australia’s No.1 environmental aggressor and its chief oppressor of Aborigines. You will recall all of the bumper stickers on students’ cars "Land Rights – Not Mining" in that era. Without quite meaning to, Australia’s most efficient and competitive industry found itself the symbol of White Australian guilt and Aboriginal activists’ views of what was wrong.

Now, of course, the mining industry has adjusted and responded, or is in the process of doing so. Far from being the target of the bumper stickers, the major miners are in the process of developing historic partnerships with Aboriginal people all over Australia. My company, Rio Tinto, through its aluminium subsidiary, Comalco, has recently agreed the Western Cape Communities Co-existence Agreement with the Aboriginal people of the areas connected to our Weipa bauxite deposits. This is the first major brownfields agreement the Group has entered into, and it comes on top of three major agreements for new mines, greenfields agreements and over 25 exploration agreements.

It is only now that we look back and ask ourselves why it took so long.

I say this because those of us in the mining industry can see the same processes taking place in the newly de-regulated, or privatised, sectors of the Australian economy. Clearly, there were winners and losers from de-regulation, but the experience of the losers has the potential to overwhelm the experience of the winners. From the experience of the mining industry, this is a fairly standard operating reality. Other sectors, such as pulp and paper, telecommunications, gaming, and so on have all experienced emerging and comparable alienation or distrust.

How do we capture this sense of social disconnection with business? This is often unclear in the particular, but in general it has to do with unrequited expectation founded upon poorly articulated assumptions of an Australian sense of social obligation. In other words, it’s all very well if Australian businesses do well, perform better, provide cheaper products, and go offshore successfully – that’s what business is supposed to do. It’s all very well if the customer is better served, but is that all there is? What business does for me as a customer is one thing, but what does business do for me as a person, for you and those people over there? Is business all there is to business?

Business Didn’t Matter Before

It is hard to imagine that the current focus on corporate social responsibility in this country would be so acute was it not for the fact that business must matter now. This is unusual in the Australian context. Traditionally, business does not matter or at least business does not matter as much as other things. In Australia, sport matters. Government matters. Politics matters. Private and voluntary activity matters.

A list of National or State honours still shows how little business matters. A brief look at the list will show that business does not matter like science, or jurisprudence, or civil service, or even architecture and a host of professions including trade unionism.

How did business achieve its traditional invisibility in Australia? There’s not the space here to go into the history, but it is something of a long story that runs as counterpoint to the triumph of the mixed economy and its subsequent dismantling in pursuit of micro-economic reform and international competitiveness.

The Mixed Economy

What was the mixed economy and when did it peak? We can say broadly that the mixed economy was the Australia of the mid-1960s, where import-substituting industrialisation had reached the limits of the domestic market, where the basic wage could still provide a general safety net outside the social welfare system, where credit was rationed and allocated according to socially approved criteria, where infrastructure commonly used by the wider population was publicly-owned, and finally, where the costs of this system on Australia’s export sectors were able to be compensated to an extent through farm and regional cross-subsidies and universal education, health and pension provision.

More broadly, what business did, from the community point of view, was far less important than what the politicians did to ensure that Australia’s relatively narrow wage dispersion was maintained, that full employment was achieved, that markets were protected for domestic suppliers and that families could plan and prosper around relatively stable assumptions of career employment, achievable home ownership and cheap public infrastructure.

In this context, where the mixed economy provided, business kept up its end as an integral part of that mixed economy. The idea of a set of separate or parallel obligations for business was weak when the mixed economy provided. Equally, while the mixed economy provided, the standing of business was also weak. Business did not matter.

After Reform, Business Matters

Now – it’s different. The mixed economy as we knew it is dead. Tariff protection has mostly gone. The labour market is not exactly deregulated, but no longer functions in isolation from the international economy as once it did. The public enterprise sector is mainly sold, although less so in some States than others. More generally, Australia’s elaborate, traditional systems to provide for social ends through the re-organisation of production are gone. Similarly, the counter-balancing compensating systems are also gone, or are in the process of being dismantled.

For instance, the traditional compensation for the costs of tariff protection paid to the efficient, exporting agricultural sector in the bush by the protected cities are going or gone. One can hear the anguish this is causing. No less anguish is emerging in the cities, where the infrastructure subsidies that underpinned Australia’s post-war suburban lifestyles, such as the subsidies of power and water provision, and enabled more to enjoy the suburban lifestyle, are also in the process of being removed.

Production has been restored to the market. In the process, business has been given back vast areas of discretion hitherto denied or compromised or qualified by social ends and interventions. So for the first time in many decades in Australia, perhaps for the first time since the devastating 1890s Depression, business matters again. The main game now involves the decisions businesses make. This is why notions such as corporate social responsibility have emerged the way they have, when they have, with all of the political risks they carry if business does not get it right.

Business is the Beneficiary of Reform

There are numerous versions of how the reforming of the Australian economy came about and who or which sectors it benefited. One undoubted element, however, was the influence of Australia’s newly emergent globalised businesses and the executives who ran them.

Business was always going to be the major beneficiary of reform, although its leaders sitting on assets in the sectors that weren’t going to survive, such as heavy machinery, some chemicals, and so on, didn’t think so. The major attraction, of course, was lowering high-input costs for Australian companies wanting to participate in international markets. But there was more to it as well. Reform, it was hoped, would produce more business-like decisions from those making infrastructure investment decisions. The arguments for reform were largely run by business organisations, using business arguments, stressing business opportunities on one hand and business costs if the reform mettle was not grasped on the other.

What Is Expected of Business in the New Australia?

It is easy to over-rate the social alienation caused by the extent of change in post-war Australia beginning in the mid-1980s. The Hugh McKay group, for example, has become specialist in eliciting and recording uncertainty, fear of the future and bitterness. This in turn is being fed back through mass media which reported even during the dot-com boom last year that while Australians have never been better off and their economy never more buoyant nor more healthy, the dwindling masses of middle Australia were apparently preoccupied by mainly private interests, having retreated to the bosom of the family, hurt and bewildered by the hard knocks of a tougher, less forgiving nation.

All this is interesting, but hard for business to respond to. But let’s look more generally at the sort of response one might reasonably expect from business. The most obvious responses are those that are within the gift of business to carry out. So, they could be employment responses or operational responses, or responses that will contribute to ensuring business sustainability, and for which can be established a clear business case.

More broadly, however, business must begin to cover to some extent, the terrain previously covered by the mixed economy. This is not to say that business should pretend to be a government, or replace government. Rather, business should expect that it cannot remain unseen in the shadows, it will need to be involved, and above all it will need to have strongly developed business cases for a broad dimension of social involvement.

Broadly, these sorts of activities are what a number of companies in the resource sector are already doing, and if they are among the first it is because they saw it coming earlier in that industry. But other companies in other sectors will catch up and are in the process of doing so right now.

In this sense, corporate social responsibility is an emerging, catch-all set of new business systems which project businesses into the respective communities and audiences of importance to them and which demonstrate deliberately that there is more to business than just business. This is new for Australia, and it may mean we are on the verge of introducing a corporate dimension to many hitherto public or predominantly social areas of Australian life.

There remains, however, a glaring caveat here. By and large, business operates within the area of common business and community interest. We do so because our shareholders require it. We cannot expect them to tolerate management simply giving away company resources because that was thought to be a good idea. So we limit our activity to the overlap between the business and the community interest because it makes sense and passes the credibility test.

What Should Business Encourage Other Sectors To Do?

Business will be involved in community support more deeply and more prominently in the 21^st century. But it will look to others for where it can find common cause with its own interests. For their part, through a vast and heterogenous private foundation sector, wealthy Australians will inevitably become more involved in community support. Sometimes there will be strings attached, sometimes there won’t. There is no doubt that as adjustment to the new Australia proceeds, private community support will significantly outweigh corporate support and become the dominant partner with government here, as it is in the United States.

We are on the threshold of developing new alliances for business to meet its corporate social responsibility obligations in Australia. Alliances with private philanthropy are one dimension. In Rio Tinto’s case, we have organised some key philanthropic affinity networks with some of Australia’s leading private philanthropic family funds. They can do more if we are involved and vice versa. We have also agreed memoranda of understanding with Federal Government departments. For its part, for instance, Rio Tinto has entered into important bilateral relationships with environmental and community NGOs to ensure appropriate networks and outcomes. These include associations with bodies such as WWF, Earthwatch and so on.

Of course, what publicly listed companies can or should do is bound by the restrictions that a rational business case must still apply. Compare this to the discretionary spending available to, say, a family-owned company. In this situation a family business can make absolutely capricious decisions about the sort of community relationships it will support. But these in the end may have more to do with the family than the business.

Conclusion

In the guise of talking about 21^st century enterprise I have spoken instead about 20^th century enterprise and what lessons it holds for the way business should manage its social relations in the century to come. I suppose that the first point is that unless business does manage its social relationships, then some friendly or less friendly government will come in and do it instead. So, the threat of re-regulation is constant and urgent. This said, it doesn’t have to be the case that business leaves its major relationships to others. In a more de-regulated world, the importance of the social relationships and social positioning developed by business is even more critical.

In my view, a 21^st century enterprise will know these things and will have the capability to manage them. It won’t take the mistakes of the mining industry to demonstrate what has to be done. The signposts are already with us.