Enhancing Corporate Operations and Social Accountability

Abstract

In response to public outrage over inadequate compensation for victims poisoned by asbestos the Australian Parliament set up an inquiry into Corporate Responsibility in 2005. This paper presents a submission dated September 12 and a supplementary submission of September 25. The second submission further develops the recommendations with answers to questions raised from the UK Financial Reporting Council and relates them to the UK 2005 White Paper on Corporate Law Reform.

The recommendations illustrate: (a) How the interests of shareholders and directors can be protected and furthered while promoting corporate social responsibility and (b) How the law, regulations, codes, and the cost of compliance and information reported by companies can be reduced by corporate constitutions transferring reporting obligations from directors to stakeholder representatives of those concerned with triple bottom line issues. The submission recommends: (a) No change in directors duties, (b) A reduction in the scope of information provided by directors by replacing some of their reports with information from stakeholders who extend the scope of corporate reporting, (c) The Minister in charge of corporation law having the power in exceptional circumstances to allow directors to be replaced with nominees of stakeholders and (d) stakeholders appointing their own separate auditor to report on the value of their company on a non going concern basis for unsecured creditors.

The recommendations are relevant for non-trivial corporations in the private, non-profit or government sectors. Separate stakeholder councils elected by employees, customers and suppliers including host community infrastructures services provide a systematic basis to improve operations by providing directors with information independently of management to direct and monitor management and the business. The councils and a shareholder committee provide a basis to reduce the quantity of information reported by directors with an increase in the scope of public corporate reporting while significantly reducing the quantity of information reported to matters of contention. The shareholder committee manages director conflicts, including control of the auditor, and the conduct of shareholder meetings. The possibility of directors being nominated by stakeholders rather than shareholders provides a compelling incentive for shareholders to support social responsibility by their directors.

Keywords: Advisory Councils, Corporate Constitutions, Corporate Social Accountability, Self-enforcement, Stakeholders, Shareholder Committee

JEL Classification: G34, G38, K22, L29, M14