Like what you've read?

On Line Opinion is the only Australian site where you get all sides of the story. We don't
charge, but we need your support. Here�s how you can help.

  • Advertise

    We have a monthly audience of 70,000 and advertising packages from $200 a month.

  • Volunteer

    We always need commissioning editors and sub-editors.

  • Contribute

    Got something to say? Submit an essay.


 The National Forum   Donate   Your Account   On Line Opinion   Forum   Blogs   Polling   About   
On Line Opinion logo ON LINE OPINION - Australia's e-journal of social and political debate

Subscribe!
Subscribe





On Line Opinion is a not-for-profit publication and relies on the generosity of its sponsors, editors and contributors. If you would like to help, contact us.
___________

Syndicate
RSS/XML


RSS 2.0

Enhancing shareholder value with social responsibility

By Shann Turnbull - posted Friday, 30 December 2005


The shareholder representatives would also control the external auditor as proposed by the National Association of Pensions Funds to the UK Government in December 2004 and subsequent meeting with UK Minister on December 13, 2004. To provide creditable basis for both shareholders and directors to evaluate management separate advisory councils are required for representing the various stakeholder constituencies nominated by the UK Government for furthering “Enlightened Shareholder Value”.

The ability of non-executive directors (NEDs) to obtain feedback and feed forward information from representatives of customers, employees, suppliers and the host community would provide a rich alternative source of information about the business and its management independent of management. Without such sources of information, NEDs are forced to rely on information provided by management to jeopardise and or frustrate the basic reason for directors being appointed to direct and control management.

Without an inclusive and systematic process for obtaining intelligence independently of management to evaluate the scope and integrity of management activities and their reports, NEDs do not have a believable basis to convince shareholders and stakeholders that they are carrying out their role as required by the law with “due care and diligence”.

Advertisement

The formation of separate advisor stakeholder councils to provide independent but expert and informed intelligence for directors creates a basis for directors to:

  1. creditably perform their duties with due diligence and vigilance;
  2. enhance shareholder value; and
  3. take into account the interest of customers, suppliers, employees and the community.

Separate councils are required to focus on the specific concerns of each class of stakeholder and to allow information to be kept confidential from other stakeholders. Stakeholders commonly donate resources to obtain representation when organising action against corporations so no payments would be needed to involve them when they have the incentive of protecting and furthering their commercial relationships.

Customers, employees and suppliers are strategic stakeholders because no company can exist or operate without them. They must therefore be considered an essential component of the “company as a whole” to whom directors owe their common law duty. On this reasoning there is no need to change the law to increase the duties of directors to achieve “enlightened shareholder value” as the statutory law already allows directors to use their powers for “a proper purpose”.

Because the survival and success of corporations is dependent upon strategic stakeholders it is very much in the interest of shareholders to have them recognised and bonded to the corporation independently of the directors. The protect and promote the interest of stakeholders, and the independence of their advise for the directors, the processes of establishing stakeholder councils would best be established through enabling provisions in the corporate constitution. Likewise the processes for establishing a shareholder committee established to mediate director conflicts of interest and the extent of discretionary public disclosure would also need to be set out in the corporate constitution or its by-laws.

In these ways corporations could enhance their ability to protect and further shareholder value as well as their social responsibilities while reducing the extent of their discretionary disclosure. The government and its regulators could then in turn relax a number of mandatory disclosure and auditing requirements for corporations who adopted constitutions that introduced shareholders and stakeholders as co-regulators. Provided directors resolved any problems raised in private discussions with representatives of shareholders and stakeholders the need for public disclosure on many matters could be avoided. After all the purpose of having corporate law, regulators, standards and codes are to protect shareholders and stakeholders. The objective should be to protect and nurture their interests so disclosure is not required.

Advertisement

As shown by a number of experiments and case studies such as “Why Good Accountants Do Bad Audits”, the most effective and compelling way to change the behavior of people is to change the institutional context in which they operate be they Nazis in Germany, US interrogators in Baghdad, or directors and auditors in any location. So instead of changing directors’ duties, the government should change the institutional architecture of corporate disclosure so this is managed by the users of the information and those that can act upon it rather than by those responsible for any unsatisfactory performance.

It is not rocket science as they say. The establishment of stakeholder councils and shareholder committees provide a way to change the institutional context of corporate reporting. They do so in way that richly increases the information available to NEDs while substantially reducing their need for public disclosure while greatly increasing the scope of public reporting to enhance the social accountability of corporations.

  1. Pages:
  2. 1
  3. Page 2
  4. All

Article edited by Peter Coates.
If you'd like to be a volunteer editor too, click here.

First published in Henry Thornton on November 21, 2005. This article is based on his submissions the Australian Joint Parliamentary Committee inquiring into Corporate Responsibility.



Discuss in our Forums

See what other readers are saying about this article!

Click here to read & post comments.

5 posts so far.

Share this:
reddit this reddit thisbookmark with del.icio.us Del.icio.usdigg thisseed newsvineSeed NewsvineStumbleUpon StumbleUponsubmit to propellerkwoff it

About the Author

Dr Shann Turnbull BSc (Melb); MBA (Harvard) is the Principal of the International Institute for Self-governance based in Sydney and a co-founding member of the Sustainable Money Working Group established in the UK. He is a founding life Fellow of the Australian Institute of Company Directors, Senior Fellow of the Financial Services Institute of Australasia, Fellow of the Governance Institute of Australia and Fellow of the Australian Institute of Management. He co-authored in 1975 the first course in the world to provide company directors an educational qualification and wrote Democratising the Wealth of Nations. His bibliography reveals he is a prolific author on reforming the theories and practices of capitalism.

Other articles by this Author

All articles by Shann Turnbull

Creative Commons LicenseThis work is licensed under a Creative Commons License.

Photo of Shann Turnbull
Article Tools
Comment 5 comments
Print Printable version
Subscribe Subscribe
Email Email a friend
Advertisement

About Us Search Discuss Feedback Legals Privacy