THE HAL CLOUGH LECTURE FOR 2002

Gary Johns Gary CORPORATE SOCIAL RESPONSIBILITY OR CIVIL SOCIETY REGULATION?

INSTITUTE OF PUBLIC AFFAIRS CORPORATE SOCIAL RESPONSIBILITY OR CIVIL SOCIETY REGULATION?

Introduction unable to do through the parliament and the courts. Corporations that indulge CSR, without Business corporations traditionally face two the express sanction of their shareholders, are groups which regulate their behaviour. The quite literally, misguided. marketplace, which includes business com- Some concepts of the corporation are so petitors, and government. Now there is a new misguided, they regard the corporation as no regulator, civil society, or more particularly more than a process for grievance-settlement in Non-Government Organisations (NGOs) such society at large. For example, as Greenpeace, Amnesty International the One of the most significant things that Councils of Social Service and the like. The tools companies could do to make themselves good that NGOs use to regulate business are very ‘stakeholder corporations’ is to ensure they give different to the market and government; they … rights to external review, to stakeholders are, in the first instance, neither price nor law. (and stakeholder groups) with legitimate Often they are just ideas expressed in a strange complaints about the company. The right to new language: the language of Corporate Social access justice—to be able to make claims against individuals and institutions in order to Responsibility (CSR) or its many aliases like advance shared ideals of social and political life Corporate Citizenship, the Triple Bottom Line, [my emphasis] and to rectify relations that have the Stakeholder Corporation and so on. This gone wrong—is an essential part of citizenship language, these ideas are seductive, they appear in a contemporary democracy.2 benign. But make no mistake—Corporate Social And further, Responsibility is really Civil Society Regulation We are unnecessarily constrained by the belief in disguise. that the representative institutions and legal Civil Society Regulation occurs where NGOs system of the state should be the exclusive or set the standards for business behaviour. even the primary, home of political deliber- Corporations choose to adopt or not to adopt ation.3 these standards at their risk. While governments These ideas challenge the corporation and the have the power of legislation, the ability of civil role it has fulfilled in the modern capitalist society organisations to regulate business economy, indeed even in the highly state- behaviour through naming and shaming is regulated modern capitalist economy. The view becoming more powerful.1 that all stakeholders have, prima facie, an CSR is a serious challenge to Australian entitlement to a managerial role in a corporation corporations and to the Australian electorate. It is regarded by some as ‘socialism by another is an assault on the interests and rights of ‘real’ name’.4 Indeed, a problem with CSR, in stakeholders, those who have invested in or are particular stakeholder theory, is the difficulty creditors of corporations. It occurs when of adjudicating between not only the demands managers bow to pressure from interests that of stakeholders who have a contractual relation- have no contract with the corporation, whether ship with the corporation, but those who do not. by way of employment, or supply of goods or All corporations accept the need to deal with services, or through ownership. CSR is also an traditional stakeholders, and the law provides assault on the interests of the electorate. It occurs the means of settling disputes with each. But by undermining the formal democratic con- CSR invites two further impositions. First, it sensus as to what constitutes reasonable business counts as a stakeholder anyone who wants a piece behaviour. It also occurs when governments of a corporation. To paraphrase one manager’s grant NGOs such status that it enables them to view, ‘a stakeholder is anyone who can do you set themselves up as judges of corporate damage.’ Second, it attacks the very purpose of behaviour. CSR proponents want to change the corporation—its commercial relationship society in ways that they have hitherto been with the market and its owners.

2 The Hal Clough Lecture for 2002 CORPORATE SOCIAL RESPONSIBILITY OR CIVIL SOCIETY REGULATION?

Corporations combat these misguided corporations are now more powerful than nation- ideologies with some difficulty. The ideologies’ states. Coca-Cola may be the biggest brand name proponents apparently want no more than to in the world, and it no doubt will fight to enlist the help of corporations to build a better protect its market and brand name, but in the world, one with less exploitation, or a sustain- final analysis it just makes soft drink! Coca- able environment, and so on. To be against CSR Cola’s power to change society is less than a is, therefore, to be a rapacious capitalist. The government with tax revenues a fraction of difficulties in fighting ‘goodness’ have become Coke’s assets. so apparent that some corporations have decided The one hope for corporations to keep civil to embrace ‘goodness’. Some engage in ‘stake- society regulation to a minimum is to work with holder dialogue’, or seek to work ‘beyond shareholders and government. Corporate social compliance’, or seek to enter a state of ‘corporate responsibility is no more and no less than an citizenship’. Corporations embrace these instrument used by non-corporates to gain dialogues as a means of enhancing their leverage over corporations for political purposes. reputation, or of at least avoiding damage to it. Any political control over corporations should No doubt, from time to time, some corporations be exercised by the Parliament and the courts use these dialogues for competitive advantage. and based on the broad consensus on which those Under current law, responsibility of the board processes rely. of directors and managers is to the shareholders; they have a fiduciary duty to them. The new CSR deal is that the fiduciary duty should be Responses to CSR extended to society, that entities other than the The issue for corporations, acting both indivi- owners should have some claim if the corpor- dually and in concert, is how to respond to civil ation fails to fulfil a socially desirable role. One society regulation. The wrong responses will of the real risks in incorporating the views of weaken the commercial purpose and strength too many, over and above contractual obliga- of individual corporations, the market sector as tions, is that it gives managers the opportunity a whole and the democratic regulatory environ- to neglect their fundamental duties. Acting for ment in which they operate. The right response different causes may provide an excuse not to will maintain the commercial purpose of deliver maximum shareholder benefit. corporations and the democratic nature of the No corporation wants to be singled out for regulatory environment. At the heart of the attack by NGOs for not being socially res- strategy is to make the NGOs prove their bona ponsible. Most corporate responses to CSR are fides: question the extent to which they represent designed to forestall the new ‘democratic anyone or anything; question the size of their dialogues’ and the interference in corporate membership; question the source of their funds; objectives they imply. They are designed to ward and question their expertise. In other words, off regulation. They may in fact just aid the question their standing and their legitimacy. introduction of ‘soft’ law, which in time turns There are four steps to this strategy: into ‘hard’ law. A primary assumption of CSR Support the resolution of issues, not organisations. is that governments—through the sale of Corporations should not fund those advocacy government businesses and some industrial and NGOs that undermine them. If they believe financial deregulation—have withdrawn from there is a need for engagement, then make their duty to protect citizens from the impact contact directly with the real interests involved, of the market economy. This misrepresents the for example locals, not with established political fact that corporate regulation has increased activists. If there are technical issues involved, substantially in the period of so-called deregu- then fund the science or the experts, not the lation. A second assumption is that international advocates.

The Hal Clough Lecture for 2002 3 CORPORATE SOCIAL RESPONSIBILITY OR CIVIL SOCIETY REGULATION?

CSR Lite CSR Gold CSR Premium

Corporate philanthropy Ethical investment Scientific credibility and positioning Reputation indexes Government involvement

‘Business as usual’ ‘Reputation games’ ‘Civil socialism’

Shareholders not affected Where stakeholders Shareholders/electorate Stakeholders not affected become judge and lose power jury, they gain power Stakeholders and civil regulators gain power

Foundations FTSE4Good Financial Services Reform Act ANZ Infrastructure Services Ethical investment WWF and The Great Barrier Reef Ansett Frequent Flyers Good Reputation Index Greenpeace and the Olympics CalPERS

Invoke a protocol. If it is worthwhile, or CSR Lite otherwise unavoidable to deal with NGOs, then do so through a protocol. A protocol requires These responses can be used against any the NGO to prove its standing by way of activities that constitute CSR. To better expertise or representation, and in so doing understand the nature of the challenge it is requires a disclosure of relevant NGO infor- worth recognising the enormous variety of mation to shareholders. activities that constitute CSR. The foregoing Disclose dealings with NGOs as a cost of diagram suggests three levels of CSR, ranging compliance. Inform the shareholders of the cost from lite to heavy. of civil society regulation as a cost of doing Some activities cause no essential disturbance business, not as a down payment on ‘corporate to shareholder value, for example, the disburse- citizenship’ or ‘social responsibility’. Do not ment of funds for charitable purposes through a argue a false case; argue that you obtained the Foundation. This is classic philanthropy, and least-cost solution to a compliance problem. such activities could be labelled ‘CSR Lite’. Fund the intellectual arguments against CSR. The These activities do not pretend to change the CSR bandwagon is already rolling through the nature of the business, it is a ‘business-as-usual universities and being discussed in various scenario’. Of course, there are business found- forums with the sponsorship of some corpor- ations that have become distinctly anti-business. ations. The resources that NGOs devote to The Ford Foundation and the Turner Foundation advocacy, in many cases their sole purpose, is come to mind. And a cautionary tale, even at probably as much as corporations, which have the Lite end of the spectrum: there is a tendency most of their money tied up in the business. for corporates to use the language of CSR for There is rarely a voice raised in criticism of CSR. marketing purposes. This encourages the media Those voices need to be assisted. and NGOs to push the barrow.

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For example, the ABC’s George Negus a business deal. It was mistaken to suggest it recently interviewed5 John Clarke, managing was anything other than that. director of ANZ Infrastructure Services on the bank’s investment in wind power. Negus asked, CSR Gold ‘Is this part of the whole triple-bottom-line thing … the whole social responsibility in CSR Gold represents medium-strength interfer- investment? ence in shareholder value. Of concern are schemes Clarke responded, ‘Well, certainly … we which generate measures of performance for the believe … we can get a balance and long-term investor under the rubric of CSR—for example, equilibrium between the community, the so-called ethical investment or a corporate environment and our stakeholders.’ Clarke was reputation index. Where these schemes are happy enough to use the language of CSR. His voluntary and transparent, there is not too much real answer as to why ANZ were in the business cause for concern. For example, the FTSE4Good of wind power came later in the interview. He Index measures corporation performance on said, ‘of course, you’ve got a long-term power environmental sustainability, relationships with purchase agreement with the retailers, which [is] stakeholders and support for universal human required under the renewable legislation.’ rights. The assessment is undertaken in a The triple bottom line or socially responsible reasonably objective manner by independent investment were not the motivating factors, they analysts. But even here there are problems. were only a convenient cover for an investment Embarrassingly, WorldCom was ranked in the made viable by legislation. The facts are clear top 50 companies in the world, and ranked 23rd but why hand political power to the ABC and in the USA as at June 2001. FTSE was not to the environmentalists when the economics are know then what it now knows about WorldCom, secure? The bank’s reputation is secure only as but having held itself out as an assessor of ethics, long as the investment is secure. The indulgence it is assumed it knew what it was doing. Of with fashionable statement hands power to those course, in this case, the same would hold true who want the corporation to do things that are for financial performance analysts. not, and should not be, its responsibility. Apart from the problems of poor prediction, Some uses of the CSR label are much more there is enormous scope to use information and brazen. In her presentation to the second misinformation to play ‘reputation games’. In National Conference on Corporate Citizenship such games, measures of performance become held in November 2000, Gina Hanson, corporate especially problematic where the claims are false, citizenship manager of Ansett Airlines, related and where those who set and judge the measures a scheme for soaking up Ansett’s massive liability of performance are not impartial. These in Frequent Flyer points. Hanson suggested that, problems are multiplied when the schemes are to relieve Ansett of the dual burdens of the points compulsory. and the many calls on Ansett for free travel from The issue of false claims becomes particularly persons in need, St Vincent de Paul should open problematic in ethical or socially responsible an FFP account. Customers could donate their investment. While the promoters of Socially points to the account, the needy could apply to Responsible Investment (SRI) funds maintain St Vincent de Paul to draw on them. The gain that there is no trade-off between financial for the airline was that the seats would be allotted returns and the pursuit of non-financial goals at non-peak times. ‘It would really help our such as environmental sustainability and labour business and ease our situation with regards to relations, their claims are based on outdated, accommodating customers by having those overseas research and fail to consider the extra points burnt up in other hours.’6 This was a management and screening costs associated with bright idea never acted upon, but it was patently SRI funds.

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Two Australian analysts, Ali and Gold,7 performance. Conversely, just three of the top provided the first independent examination of ten financial performers were ranked in the the performance of SRI funds in Australia. They top 20 in terms of social responsibility. found that excluding ‘sinful’ industries—such • Government protection and direction is good and as alcohol and gambling (which the majority of market competition is bad. Five of the top 10 Australian SRI Funds do)—between 1994 and most socially responsible corporations are 2001 would have resulted in a performance government-controlled. Two, Australia Post shortfall of 0.70 per cent per year, reducing the (ranked 1st) and Queensland Rail (ranked 5th), broad market return from 12.7 per cent to 12 are government-owned monopolies. Telstra is per cent. They also found that ‘investors in partially government-owned and heavily Australian SRI Funds generally face additional regulated. Holden and Ford are sustained by fee imposts, compared with investors in taxpayer subsidies. None of the top ten mainstream Australian, managed investment financial corporations are government-owned schemes or superannuation funds. This is largely or subsidised and all face vigorously com- attributable to fund managers passing on to petitive markets. investors the development and marketing costs • Funding social activists is a key to social for SRI funds and the fees paid to external service responsibility. Each of the highly ranked providers (primarily, index vendors and SRI socially responsible corporations donates research providers)’.8 In other words, the heavily to corporate social responsibility available evidence indicates that SRI funds groups (including many of the organisations impose a significant cost on, and yield a lower who acted as judges for the Index). Westpac net return to, investors than do non-SRI funds. (ranked 2nd), Alcoa (ranked 6th) and ING On the issue of impartiality, The Good (ranked 10th) are not simply generous Reputation Index published in The Sydney financial contributors, but are also strong Morning Herald and The Age attempts to measure promoters of the triple bottom line. Westpac the social, environmental, labour, ethical as well has taken the lead in promoting ethical as the financial and public relations reputations investment in Australia and ING has taken a of the top 100 companies operating in Australia similar approach around the world. One must and New Zealand. It is designed as a tool for at least suspect that their high ranking is a Civil Society Regulators and as a guide to reward for their contribution to the cause. corporations in their deliberations about The tussle between corporations and NGOs Corporate Social Responsibility. over corporate reputation has reached new In constructing the index, the Fairfax Press heights. It is now a game of cat and mouse, with adopted what is now the standard method- shareholders having to pay to bribe the civil ology—basing the index on the views of high- society regulators. profile NGOs, the likes of Greenpeace, Amnesty International, the ACTU and so on. And it CSR Premium included the views of most of the leading lights of the corporate social responsibility industry, The greatest potential to disturb shareholder like the St. James Ethics Centre. The IPA was returns and to let in the civil society regulators not invited to be a judge! An analysis of the occurs in CSR Premium. These cases may data9 shows that, according to the Index and involve private investment decisions based on therefore the CSR regulators: prejudice, or flawed legislation which purports • Financial performance and social responsibility are to do no more than assist disclosure but in fact inversely related. Only one of the top ten most imposes behaviour, or the improper use of socially responsible corporations is ranked scientific analysis, or where government simply among the top 20 firms in terms of financial hands its responsibility directly to an NGO. In

6 The Hal Clough Lecture for 2002 CORPORATE SOCIAL RESPONSIBILITY OR CIVIL SOCIETY REGULATION? these instances, those stakeholders who have Closer to home, and perhaps more serious, made no significant contribution to the the Financial Services Reform Act of 2001(FSRA)10 corporation’s activities gain power at the expense is a legislative step into the brave new world of of shareholders and creditors. They also gain CSR. The Act seeks to place open-ended moral power at the expense of the electorate through restraints on private investment decisions which, Parliament. These are instances of ‘civil if they were applied to individuals, would be socialism’. an outrage. The Act includes disclosure SRI investment managers fall well and truly provisions in the offer of financial products into CSR Premium when, in addition to designed to give prospective investors sufficient misleading investors on the costs and benefits financial information to decide whether or not of the fund, they deny their members investment to invest. opportunities, by pursuing other agendas. The provision applies particular disclosure CalPERS, the Californian Public Employees’ requirements to all superannuation, life Retirement System is the world’s largest pension insurance and managed investment products. fund. CalPERS has US$150 billion in assets and The requirement is that the financial institution has long been a champion of CSR causes. concerned disclose for every product the extent Unfortunately for California’s public servants, to which it has taken into account labour it also has a very poor investment record, losing standards and environmental, social and ethical around US$20 billion in the first two years of considerations. The requirement is thus imposed this decade. It was one of the largest investors on approximately $650 billion of Australian in, and losers from, Enron and WorldCom. savings, including the principal form of Earlier this year, at the instigation of its union government-enforced savings—superannuation. trustees, it withdrew its investment from a That may be reasonable if objective standards number of countries, in particular, Malaysia. It comparable with those for financial reporting, kept its investments in Argentina, and now where auditors are sued for incompetence and stands to lose considerable pension funds because gaoled for malfeasance, existed. Of course they of the collapse of the Argentinian economy. It do not. Nevertheless, disclosure requires the appears to have withdrawn funds from the institution to formulate and express its attitudes healthier Malaysian economy on the basis of and practices to matters that range from difficult labour standards issues. The assessment of labour to impossible to define. It is open to businesses standards was undertaken for CalPERS by an to state that they do not take these matters into unnamed NGO which did not publish its account in their investment decisions. No methodology. Clearly however, the methodology institution, however, will state that it does not was flawed because it did not recognise the facts take such matters into account—in part, because that Malaysian wages doubled in the 1990s and if they did, NGOs and the media would label that unemployment is below 3%. In fact, there them as unethical or anti-social. Silence would are around 1.7 million guest workers out of a be treated as guilt. More importantly, businesses workforce of just 6 million, so a lot of poor in reality almost always ‘take into account’ these people are being provided with employment issues to some degree, so a nil return would in because of investment in Malaysia. The most cases be untruthful. The normal invest- suspicion is that the report reflected the fact that ment selection processes involve winnowing out industry unions are discouraged in Malaysia fraudulent (that is unethical) propositions or (although enterprise unions exist) and Malaysia those with high risk exposures arising from their competes with California in electronics. In other corporate practices. NGOs would exert pressure words, US unions have used their members’ for highly detailed disclosure statements under funds, and the cover of CSR ideology, to indulge each of the headings and would seek to supervise in some old-fashioned protectionism. the behaviour of the institutions concerned

The Hal Clough Lecture for 2002 7 CORPORATE SOCIAL RESPONSIBILITY OR CIVIL SOCIETY REGULATION? against those written statements in ways An example of the improper use of science is favoured by those groups. the World Wide Fund for Nature (WWF)11 In the end, this is no less than an attempt, by campaign that lead to both the Commonwealth indirect and stealthy means, to impose new and and Queensland Governments recommending poorly defined community service obligations urgent and significant changes to land manage- and prescribed behaviours on business. By means ment practices in catchments that drain onto of legislation and mandatory guidelines, the the Great Barrier Reef. In June 2001, WWF corporate sector is obliged to undertake actions published a Great Barrier Reef Pollution Report (and report on them) that may adversely affect Card, which concluded that the Great Barrier its profitability and that it would not necessarily Reef was being threatened by land-based undertake voluntarily. The Act will encourage pollution. While the report made many significant distortion of investment decisions allegations of reef impact from agriculture, it and management effort to placate hostile groups, did not substantiate any of the claims. which have little financial stake in the The lack of substantiation did not dissuade institutions or businesses affected. the Queensland Government, which responded These provisions dilute the influence of to pressure from the WWF campaign by shareholders and the responsibility of corporate establishing a Reef Protection Taskforce. At its management to its shareholders. They also establishment, representatives on the Taskforce interfere with the market’s ability to direct asked that the current level of scientific activity to the things consumers most want, not understanding on impacts of terrestrial run-off by learning from identified market failures but on the Reef be provided. A science statement by imposing the preferences of organised was developed for the Taskforce to provide a minorities whose demands could provide an ‘consolidated view of our current understanding excuse for company boards and management for of the impacts of terrestrial run-off on the Great poor financial performance. In the extreme, it Barrier Reef World Heritage Area’. This might be used as an excuse for business failure document discussed threats to the Reef, but on the grounds that the corporation had focused, again provided no reference to actual damage perhaps very successfully, on ‘social respon- to the Reef. sibility’ criteria and had thus failed to make a Several Taskforce members noted this fact, profit. Failure to control labour costs might be with the following comments being made by equated with high labour standards. Zealous members: ‘So the widespread impact [of environmental performance might translate into terrestrial run-off] is not substantiated.’ ‘But the huge expenditure to avoid trivial environmental scientists have tried very hard to prove there is injury and so on. an impact.’ ‘Let’s not get hung up on the The expansion of these ‘bottom line’ concepts science.’ And this from the WWF member, is accompanied by the phenomenon of a growing ‘Let’s go forward on the basis of the precaution- list of interest groups which elect themselves as ary principle.’ At the insistence of several ‘stakeholders’. A stakeholder is traditionally a Taskforce members, the science adviser agreed person who has a stake, someone who has put to redraft the science statement. A revised up something of value to promote the enterprise science statement was issued with the comment in question and risks losing it. It equates those to the Chairman of the Taskforce that ‘We wish with ownership and contractual rights with to clearly point out that whilst there is no those with mere interests. It is this trend towards evidence of widespread deterioration, there is giving everyone a say in everyone else’s business documented evidence of localized deterioration that lies beneath much of the pressure for the on individual nearshore reefs’. FSRA provision. It is a perversion of the idea of This was the first statement from reputable democracy. It is a new form of corporatism. scientists clearly alleging an impact from land-

8 The Hal Clough Lecture for 2002 CORPORATE SOCIAL RESPONSIBILITY OR CIVIL SOCIETY REGULATION? based run-off on the Reef. Unfortunately for the possible. This reflected their role in the Bid, proponents, the scientific papers on which this their expertise in the environment, their ability conclusion was drawn provided no evidence that to tap a global network of knowledge and their agriculture or other land-based sources of run- ability to become involved whether we wanted them off were having an adverse impact on the Reef. or not [my emphasis].’12 The Reef Campaign came at the price of The Greens helped to establish the standards undermining scientific integrity. According to in all key performance areas, energy conservation, Professor Bob Carter of the Marine Geophysical water conservation, waste minimisation, Laboratory, James Cook University, ‘one of the pollution avoidance and the protection of the relatively new problems that faces us is that natural environment. A consortium of Greens governments are increasingly basing their lead by the Australian Conservation Foundation actions on advice provided by unnamed was paid $160,000 for their work by the NSW consultants, or on unrefereed reports from and Commonwealth governments to keep an eye government agencies ... This is a recipe for on the organisers. Greenpeace, true to its view disaster. Good science operates on a consensus on independence, did not accept government basis, using material that has been subjected to funds. The Greens were on the stage with rigorous peer review and published in journals SOCOG at the launch of various environment of international standing.’ It is a dereliction of initiatives, for example the CEO of Greenpeace duty for governments to devise standards for launched the waste strategies initiative with the water quality and run-off regimes without direct Minister for the Olympics. studies of impact. The issues could have been Essentially, the strategy of SOCOG was to resolved if governments had been prepared to invite the Greens into the tent. It was part of scrutinize the evidence in the published the ‘engagement strategy’ now common in the scientific literature and not just buy off the corporate sector. It used the language of NGOs. ‘stakeholder’ at its crudest. Stakeholder status An example where government simply was granted to the Greens because of the damage handed the whole show to green groups was the that the Greens could do to the Olympic image. Sydney Olympics. Environmental NGOs played It was also a ‘beyond compliance’ strategy, doing a key role in the development and delivery of more than the law required. The Olympic the environmental agenda of the Sydney Games showcased the best of the best, so Olympics. Greenpeace mounted a significant everything associated with the Games has to be Olympics campaign over 7 years leading up to the best of the best. Greenpeace used the Games the Bid and the Games. Greenpeace Inter- like any other business, to use the badge of the national and its office in Sydney, Greenpeace Olympics to push their product. In this case, Australia, actively participated in the 1993 bid however, they paid nothing and they delivered to host the Games, joining with government and nothing, except the threat of bad publicity. The industry in drafting the ‘Environmental strategy of engagement delivered power over Guidelines’, Sydney’s plans for an environ- programs and the judgement of outcomes to mentally-friendly Games. those who threatened blackmail. There was a Greenpeace adopted a ‘watch-dog’ role, which time when such behaviour was considered bad included monitoring the performance of form. Greenpeace stole a moral march on the organisers, offering advice and criticism and IOC and the governments, and the IOC, the fans reporting on the performance of Games and the taxpayers paid for it. organisers. SOCOG dealt with Greenpeace in a A proper acquittal of government funds number of ways. ‘SOCOG treated Greenpeace would ensure that public servants and tech- as an organisation with a legitimate interest in nically competent people were in the decision- the Games and involved them as much as making positions, albeit with advice from

The Hal Clough Lecture for 2002 9 CORPORATE SOCIAL RESPONSIBILITY OR CIVIL SOCIETY REGULATION? lobbies. The Sydney Olympics pushed well Legal status: The Constitution or Articles beyond the proprieties to indulge in an exercise of Association. These should be sufficiently of damage control and used funds for experi- detailed to prove the status of the organisation ments in environmental management that had and to identify office holders, along with the insufficient scientific scrutiny. structure of responsibilities and appropriate systems to ensure accountability. Conclusion Operating status: Proof that the organis- ation is voluntary in that the governing body is CSR comes in many guises; when corporations drawn from the organisation’s constituency and embrace it, they displace shareholder rights with members are not remunerated; is non-profit in ‘stakeholder’ wishes. When governments that surplus funds cannot be distributed to support it, they hand power to unelected groups members/shareholders; is non-government in that at the expense of voters. The intent of our it is independent from any Government. analysis is not to regulate civil society or to Membership: There must be a verifiable list prevent debate about the role and function of of the membership, in all categories in which corporations. But a power play where ‘civil they are available. That is, a list which society regulators’ bypass the shareholders, the distinguishes members—people with voting creditors and the electorate, needs to be rights—from supporters. The list should not be recognised and responded to. made public, although there should be evidence The sensible response to CSR is to approach that new membership is encouraged. issues on their merits and deal in proof and facts. Elections: Document the process whereby It is to deal with those who have legitimate the governing body is drawn from the organis- rights in the matters at hand, and real resources ation’s constituency; the process by which at risk. This approach does not undervalue members are able to be involved in the policy- collective decision-making or public goods, or formation process and the procedures to ensure the need for government intervention to correct that any member or supporter has free access market failure. In fact, it is designed to to, and ability to make copies of, all decisions incorporate the wishes of the owners of of the governing body. corporations and the electorate by holding up International affiliation: provide infor- to scrutiny those intermediaries who seek to mation on off-shore affiliates, associated parties; influence events and outcomes. on the degree of non-resident input in terms of The key tool for the scrutiny of the inter- board membership and general membership, mediaries, in particular advocacy NGOs, is the and extent of offshore funding. protocol. Where a government or a corporation Financial statement: The financial activities or a foundation judges that it is desirable that and financial position of the organisation should an NGO be granted standing or given access to be prepared in accordance with generally its resources, certain information should be accepted accounting principles and include: gathered, and made available respectively, to the significant categories of contributions and other public or to the shareholders or to the trustees. income; expenses reported in categories The protocol is the requirement to supply proof corresponding to the descriptions of major of standing and to make the information programmes and activities contained in the available to the owners, in return for the grant annual report; and all fund-raising and adminis- of standing. trative costs. The following information should be sought Use of funds: Money should be used in a and disclosed. It is similar information to that manner specified by the NGO when it asks which corporations disclose to their owners and donors (and when those funds are tax-assisted) the wider public as a matter of course. for donations. Information should be provided

10 The Hal Clough Lecture for 2002 CORPORATE SOCIAL RESPONSIBILITY OR CIVIL SOCIETY REGULATION? which shows the percentage of total income from undertaken, and whether research has been all sources applied to programmes and activities. assessed by independent peer review. The percentage of public contributions that has Shareholders, and the electorate working been applied to the programmes and activities through the formal channels of democracy, are the described in solicitations. allies of corporate CEOs in their struggles with Fund-raising: Solicitations and inform- civil society regulators. The protocol, the non ational materials must be accurate, truthful, and support of NGOs, the disclosure of dealings to not misleading. Solicitations shall include a clear shareholders and the support of those who description of the programmes and activities for assemble the arguments against the new regu- which funds are requested. lation are sensible ways to deal with the challenge. Claims to expertise: other than membership These are not easy matters for corporations, but interest. The qualifications, whether formal or the IPA is spending considerable energy on the by way of publications, of those who will speak issue and will continue to develop the arguments or act on behalf of the organisation in its and engage the public debate. The alternative, representations to the provider, research giving in, seems too expensive.

Endnotes

1 See Murphy, D. and J. Bendell, 1997. ‘The 7 Ali, P. and M. Gold. 2002. ‘An Appraisal of Politics of Corporate Environmentalism’, Socially Responsible Investments and the paper presented at the Business Responsibility Implications for Trustees and Other Invest- for Environmental Protection in Developing ment Fiduciaries’, Centre for Corporate Law Countries conference, September 1997, and Securities Regulations, The University of Heredia, Costa Rica, Universidad Nacional Melbourne. and UNRISD. 8 Ali and Gold. 2002, pages 30–31. 2 Parker, C. 2002. The Open Corporation: 9 ‘The Good Reputation Index 2001’, Sydney Effective Self-Regulation and Democracy. Morning Herald, October 22, 2001. Melbourne: Cambridge University Press, 10 See Hoggett, J. and M. Nahan. 2002. The 227. Financial Services Reform Act: A Costly Exercise 3 Parker, 2002, 7. in Regulating Corporate Morals. IPA 4 Barry, N. 1999. Anglo-American Capitalism Backgrounder. and the Ethics of Business. Wellington: New 11 See Marohasy, J. and G. Johns. 2002. ‘WWF Zealand Business Roundtable, 29. Says Jump: Governments Ask, How High?’ 5 ABC TV New Dimensions: Future. Interview http://www.ipa.org.au/pubs/ngounit/ with George Negus, 10 July 2002. wwffs.html 6 Hanson presentation in Birch, D. ed. 2000. 12 Otteson, P. 2001. ‘Greenpeace and the Proceedings of the Second National Conference on Sydney 2000 Games: What Are The Les- Corporate Citizenship, Rio Tinto and Deakin sons?’ Paper delivered at 4th IOC World University, Corporate Citizenship Research Conference on Sport and Environment, Unit. November, 16-17, 138. Nagano, Japan 3-4 November. Also inter- view with Peter Otteson, 26 June 2002.

The Hal Clough Lecture for 2002 11 CORPORATE SOCIAL RESPONSIBILITY OR CIVIL SOCIETY REGULATION?

About the Author

Gary Johns is a Senior Fellow and head of the Non-Government Organisation Unit of the Institute of Public Affairs. He is currently a recipient of the inaugural Fulbright Professional Award for Australian–United States Alliance Studies sponsored by the Department of Foreign Affairs and Trade, and is an Australian Citizenship Ambassador. He was formerly Special Minister of State and Assistant Minister for Industrial Relations in the Commonwealth government.

Dr Johns is the author of several IPA publications, the most recent of which was Government and Civil Society: Which is Virtuous?, a Senate Occasional Lecture delivered at Parliament House in Canberra on 23 August 2002. (Available as a PDF download from the IPA Website.) Before that, Gary wrote an IPA Backgrounder entitled Protocols with NGOs: The Need to Know, which was published in November 2001.

About the Lecture

This lecture is named after the founder and Chairman of the Clough Engineering group. Hal Clough has been a leading figure in the Western Australian business community for many years and during that time has been a strong supporter of economic freedom and the Institute. As John Hyde, a former Executive Director of the Institute of Public Affairs, once remarked of Hal Clough:

he has always clearly understood that a liberal social order, including its market economy, is dependent on an ethos, an idea, without which it will not function or survive.

The Institute is proud to host the annual Perth-based lecture in Hal Clough’s honour.

Institute of Public Affairs Limited (Incorporated in the ACT) ACN 008 627 727 Level 2, 410 Collins Street, Melbourne, Victoria 3000 Phone (03) 9600 4744 Fax (03) 9602 4989 E-mail [email protected] Website www.ipa.org.au

ISSN 1441–9017 PRICE $13.20 OCTOBER 2002

12 The Hal Clough Lecture for 2002