Social Licence to Operate and Directors' Duties: Is there a Need for Change?

Abstract

Directors’ duties have received renewed focus in Australia in the aftermath of the Banking Royal Commission, with questions arising as to whether directors need more leeway – or increased obligations – to take stakeholder interests into account. At the same time, the concept of social licence to operate was omitted from the final fourth edition of the ASX Corporate Governance Principles and Recommendations, issued in February 2019. In the UK a new Corporate Governance Code and a new Guidance on Board Effectiveness were enacted in July 2018 with emphasis on the long-term sustainability of companies. Questions arise as to exactly what the contested concept of social licence to operate entails, whether embracing social licence to operate would necessitate reform of directors’ duties and whether any lessons can be learnt from the UK experience in these respects. This article addresses these questions, arguing that the UK model of increased reporting and adoption of a Guidance on Board Effectiveness may provide solutions for Australia.

Keywords: directors' duties, company law, ESG, corporate social responsibility, social licence to operate

JEL Classification: K10, K20, K22