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CAMAC Report - The social responsibility of corporations

In December 2006 the Government’s Companies and Markets Advisory Committee (Committee) released its report - 'The social responsibility of Corporations'.

The Committee’s report followed its consideration of responses to its November 2005 Discussion Paper Corporate Social Responsibility.

The Committee was originally asked to consider the following questions:

  • Should the Corporations Act be revised to clarify the extent to which directors may take into account the interests of specific classes of stakeholders or the broader community when making corporate decisions?
  • Should the Corporations Act be revised to require directors to take into account these interests when making corporate decisions?
  • Should Australian companies be encouraged to adopt socially and environmentally responsible business practices and if so how?
  • Should the Corporations Act require certain types of companies to report on the social and environmental impact of their activities?

The Committee’s report also takes into account the findings of the Parliamentary Joint Committee on Corporations and Securities (PJC) inquiry in relation to corporate responsibility and triple bottom line reporting issues. Following consideration of submissions and public hearings, the PJC released its report Corporate Social Responsibility: Managing risk and creating value in June 2006.

The Committee’s report does not support revising the Corporations Act either to clarify or require directors to take into account the interests of specific classes of stakeholders or the broader community when making corporate decisions. The Committee considers the established formulation of directors’ duties is sufficiently flexible to take relevant interests and community considerations into account. In the Committee’s view the most effective response to concerns that arise from time to time about the environmental and social impact of business behaviour, and where the market is judged unable to respond satisfactorily, is through specific legislation directed to the problem area. In its view these kinds of laws can produce a consistent approach to environmental or social issues applicable to all relevant entities. The Corporations Act does not have sufficient coverage.

The Committee recognises the importance of disclosure as a way of encouraging responsible conduct, but considers the form and content of this kind of reporting is still in a state of evolution. It expressed its view that Section 299A of the Corporations Act, which provides a general framework for reporting on relevant environmental and social issues, should be extended beyond listed public corporations to all listed entities. It does not see a need to extend the Corporations Act to go further than this in requiring companies to report on the social and environmental aspects of their business.

The Committee comments that government provides the public policy settings in which companies operate and provides boundaries for corporate behaviour through legislation. There are however, several “light touch” ways in which Government could facilitate or encourage Australian companies to recognise the benefits of appropriate engagement with their environmental and social context. They include:

  • Taking a “whole-of-government” approach to policies and administrative arrangements that have implications for responsible corporate behaviour.
  • Providing an example to the private sector through public agency and disclosure standards.
  • Promoting engagement with relevant issues through information and education and encouraging the corporate sector on international codes and guidelines.   

The role of corporate social responsibility/sustainability issues and their relation to risk was one of the issues considered by the ASX Corporate Governance Council (Council) in its Consultation Paper on proposed revisions to the 2003 Principles of Good Corporate Governance and Best Practice Recommendations. The CAMAC and PJC processes form part of the background to the Council review. Submissions on the Council’s proposals closed on 9 February 2007.

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