We, the undersigned, are Australian citizens with decades of experience in many industries at the national and international level who believe this country needs better corporate governance to protect, foster and sustain our society and the environment. We believe a ‘new corporate culture’ can be achieved through more appropriate corporate structures and more efficient company reporting that will deliver improved public benefits while protecting profitability.

This Royal Commission has amply demonstrated there are fundamental flaws in the culture of many corporations operating in Australia including some of our most revered and trusted institutions in the banking, superannuation and financial services sectors. There is little doubt these flaws also extend to other industry sectors which would also benefit from governance reform.

With regard to the Terms of reference of the Royal Commission we believe that, at the very least, the evidence presented to the Royal Commission to date, clearly meets the requirements of paragraph d):

d) “whether any findings in respect of the matters mentioned in paragraphs a), b) and c):

(i) are attributable to the particular culture and governance practices of a financial services entity or broader cultural or governance practices in the relevant industry or relevant subsector; or

(ii) result from other practices, including risk management, recruitment and remuneration practices, of a financial services entity, or in the relevant industry or relevant subsector”

Since the nineteenth century corporations have been granted legislative protection through limited liability and perpetual succession but there is no requirement for any societal quid pro quo. This largesse promoted better access to capital and provided shareholder protection but sadly economic growth and company prosperity has been sometimes accompanied by malfeasance, corruption and detrimental impacts on customers, stakeholders and the community.

While some corporations take their social responsibilities seriously, most are still focussed on profit alone. This ‘Shareholder primacy’ focus leads to a drive to maximise short-term profits and extravagant performance-based executive remuneration. It has given rise to a short-term corporate focus that has encouraged and rewarded unethical behaviour at the expense of long-term corporate wellbeing and community trust.

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Corporations that take a ‘stakeholder primacy’1 approach have demonstrated time and again that on financial indicators they outperform other companies in their target market and in the wider investment environment. Companies with a focus on ‘public good’ or ‘public benefit’ as well as profits, yield superior performance across all the accepted indices2 . Stakeholder primacy means recognising a range of stakeholders and interests including corporation workers, the community, customers, suppliers, government, the environment as well as shareholders.

We believe that the draft definition of “a social licence” put forward by the ASX which was vigorously opposed by business leaders including from many of the very industries whose gross lapses in governance have been exposed by the Commission. Despite these objections that definition is a necessary but not sufficient step towards protecting society from the ulterior aims and ambitions of companies solely driven by shareholder interest.

“Preserving an entity’s social licence to operate requires the board and management of a listed entity to have regard to the views and interests of a broader range of stakeholders than just its security holders, including employees, customers, suppliers, creditors, regulators, consumers, taxpayers and the local communities in which it operates. “Long-term and sustainable value creation is founded on the trust a listed entity has earned from these different stakeholders. Security holders understand this and expect boards and management to engage with these stakeholders and to be, and be seen to be, ‘good corporate citizens’.”3

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We believe a more prescriptive approach is required to bring the general governance arrangements for all corporations operating in Australia to a more socially responsive model.

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New Corporate Governance Models