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Making business accountable

Issue 18 | November 2006

Taking a stand: Mr Wayne Gumley says ecological considerations must be integrated into company decision-making.

Report: Natasha Whalley
Photography: Greg Ford and Melissa Di Ciero

Wayne Gumley from Monash's Department of Business Law and Taxation wants company directors to be obliged to consider the wider social and environmental consequences of their operations.

'Over the last 50 years, humans have changed ecosystems more rapidly and extensively than in any comparable period in human history, largely to meet fast-growing demands for food, fresh water, timber, fibre and fuel.'

This alarming statement included in the United Nations Millennium Ecosystem Assessment, completed in 2005, highlights the urgent need for a stronger framework to protect the Earth's vital ecological services, Mr Wayne Gumley from Monash's Department of Business Law and Taxation says.

Mr Gumley contributed to a submission to the recent parliamentary inquiry into corporate social responsibility. He advocated reforms to directors' duties under the Corporations Act, so they would be obliged to consider the wider social and environmental consequences of their operations.

The inquiry has now made its final report, recommending the current range of directors' duties should not be changed. However, it recognised that "corporate responsibility is an issue of critical importance in Australia's business community", and that "by international standards, Australia lags in implementing and reporting on corporate responsibility". Accordingly, the inquiry made a series of recommendations to encourage voluntary uptake and disclosure of corporate responsibility activities.

Mr Gumley says a legal problem highlighted by the James Hardie inquiry was that many directors felt constrained from making a choice in favour of stakeholders -- at the expense of shareholders -- by the statutory duty to act in the interests of the corporation.

"This 'shareholder primacy' approach to decision-making by directors should now be viewed as an anomaly in our complex modern society, where corporations are clearly responsible for a wide range of social and environmental outcomes," Mr Gumley says.

"For protection of ecosystem services in Australia , the prevailing wisdom is that specific regulatory strategies are adequate. However, the evidence from biological scientists and reports like the Millennium Ecosystem Assessment show that this approach has failed."

"For example, the stringent biodiversity protection rules that we have under federal and state legislation are effectively revoked by the Regional Forest Agreements that cover most of our biodiversity-rich native forests, due to the political influence of the woodchip industry. Another example is the reluctance of governments to take strong action against plastic bags due to self-interested lobbying by the major retailers."

Mr Gumley says these examples demonstrate why specific legislative schemes are unlikely to provide an effective response to the current range of environmental problems in Australia in the face of increasing influence of corporations in natural resource management.

"The traditional view of corporations law is that it should be confined to regulation of the internal relationships between a corporation and its directors and shareholders," Mr Gumley says.

"However, this view was developed in an era when slavery and child labour were permitted by law and European traders enjoyed access to seemingly unlimited natural resources from the continents of the 'New World'.

"It is long overdue for reform. Just as we no longer tolerate abuse of racial minorities or children, we should no longer tolerate abuse of ecosystems."

Mr Gumley says the environment has traditionally been viewed by business as a government matter; however, the declining role of the public sector in a global economy means that ecological considerations must now be integrated into all decision-making processes -- public and private.

Despite some promising voluntary initiatives by companies such as Interface and VicSuper, Mr Gumley says it is increasingly evident that the combination of global population increase and rapid growth of the consumer lifestyle have led to human domination of the Earth's ecosystems.

"This has created a crisis in resource consumption, water shortages, deforestation and unprecedented species extinction rates, along with the prospect of irreversible climate change," Mr Gumley says.

"This pattern of economic development and associated environmental impacts is largely driven by corporations and capital markets with an outmoded shareholder primacy focus.

"Until corporations are required to account for ecological and social impacts of their operations, the trends identified by the Millennium Ecosystem Assessment are unlikely to be reversed."