Governing for better governance

It is a brave (but almost certainly doomed attempt) to reflect the concerns an increasing number of Australians have expressed over the actions of corporations both here and overseas. A 1999 poll for example found that over 90% of Australians want more from companies than just profit generation and job creation. Almost 50% felt that companies who were driven by compliance with existing law were not going far enough and should go beyond those laws. The same survey across 23 countries saw Australians having the highest expectations apropos corporate ethical standards. Australia's wide investment demographic ensures that these issues are becoming an important part of the market's destiny.

That these feelings have been generated in the absence of government prodding (in fact that government prodding has been in the opposite direction), attests to the organic foundations of the campaign for better corporate standards.

The arrival of an altered state in regard to company actions has come incrementally over the last 3 years. The first stage might be characterised as the era corporate ethics arrived in the investment world. In the US, money invested in ethically screened funds almost trebled between 1997 and 1999. At the same time, the UK ethical investment market expanded by almost 50% in one year (1997/1998). By 1999, US studies had confirmed the emergence of a new investor: one survey found that a majority of shareholders in the US factor ethics into their mix while another discovered that 1 in 5 shareholders in the US would sacrifice returns on ethical principles.

Overseas trends soon arrived on our shores. The second stage of the better corporate ethics trend is the establishment of a new mind-set in Australia. In a seminal report in 2000, produced by The Allen Consulting Group, the trend towards investing in ethical companies was plotted on a sharply upward-pointing swing. The report noted that "The Australian business and policy environment appears to provide fertile ground for the growth and expansion of SRI activity". Further, it was projected that "SRI (ethical investment) in Australia is on the verge of a transition from being a niche player to having a place in the mainstream"

The Allen group identified the foundations for the arrival and immanent establishment of the importance of high standards of corporate ethics. According to the report they were;

- Rising share ownership leading to increased shareholder awareness
- Growing wealth consciousness and experience with superannuation
- Growth in demand for choice of super fund
- Linkage of consumer activism with shareholder activism

The final stage may be symbolised as one which has seen ethical investment making a real impact. I recently addressed a forum for young corporate leaders during which the participants could write comments on a large computer screen for the whole room to see. The theme of the comments was quite extraordinary, reflecting an enormous gap between the mind-set of this generation of young leaders and the traditional approaches to business. So excited was I that I grabbed a note book and wrote some down. They are a snapshot of a changing mindset on corporations and the role of business.
- "Companies Have to Learn to Connect with Communities"
- "Finding common ground between companies and shareholders is vital
- "Measuring Intangibles is critical"
- "Corporations must connect with values"

That the ethical trend is having a significant impact was confirmed by a PriceWaterhousecooper's survey of top CEOs around the world earlier this year, which found that a majority believe non-financial factors are now significant influences on investment decisions.

It is this growing constituency that the Democrats bill is clearly aiming to serve. In Senator Bourne's second reading speech, a number of criticisms were made of the system as its has developed, particularly in the wake of the free trade and privatisation revolutions over the last 10 years. Particular scorn is reserved for the self-regulatory structures that have largely replaced government legislation. Says Senator Bourne, "As a general principle there is not mush evidence that self-regulation or voluntary codes have worked. I am often told that the benefits are hard to categorise and quantify, but when people say this, they usually mean benefits to the company..."

The spotlight on corporate ethics is being shone from a range of angles. That politics has begun to dabble in the push for better ethical standards at our companies can do no harm. However, the low likelihood that it will be passed into law, or that the government has the capacity to police it to the extent required makes the Democrats bill unfortunately unrealistic. But, perhaps the real strength of the bill is that it provides something of a blueprint for stakeholder groups including shareholders, for resolutions to be put to their companies.

     

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