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Closing the Citizenship Gap


Photo Credit: Brett Jordan


By Robert C. Hinkley

June 16, 2023


We should be concerned, but not surprised, by the recently exposed lack of integrity exhibited by one of the world’s leading accounting firms while advising the Australian Tax Office. It’s another case of business acting out of self-interest in a manner that undermines democratic government.


Where is the integrity when big companies knowingly continue to:

  • emit greenhouse gases that cause global warming and the current climate emergency,

  • mass produce and distribute products which kill millions of people every year,

  • exploit sweatshop labour in the third world, or

  • follow a business model whose success is designed to set people against each other through the spread of misinformation?

The best we can say about these activities is that they’re not illegal. That’s not the same as acting with integrity or being a good corporate citizen.


There is no integrity in operating a business that knowingly continues to cause severe harm to the environment or other elements of the public interest.


Lack of Citizenship


Governments provide security for their citizens by passing laws that, among other things, contain the severe harm corporations can cause to the environment and other elements of the public interest.


Sometimes it can take years, or even decades, before such laws can be enacted. During this period, the preservation of the environment and public interest depends on citizenship--the sense of right and wrong that, even though no law requires it, causes citizens to refrain from inflicting severe harm.


When companies are issued charters by government, they obtain all the rights of citizenship but aren’t restricted by any of its obligations. Existing corporate law (Section 181 of the Australian Corporations Act)[1] only requires directors to act in the best interests of the corporation.

What’s missing is any requirement to protect the environment and other elements of the public interest. Consequently, when no law is in place prohibiting it, Section 181 encourages corporate directors to pursue their company’s interests even when it causes severe harm to the planet and other citizens.


In our modern world where huge companies employ modern technology that can cause severe damage, this is a serious problem.


Conventional Wisdom


Over the past four decades it has become conventional wisdom that companies should be left unregulated as much as possible in order to boost the economy and create jobs.


As successive governments have allowed business to have its way, corporate destruction has intensified. To many citizens, it now appears that government is in league with business against them. People are losing faith in democracy. Worse, they are losing hope in the future.


The conventional wisdom needs to be re-thought.


Code for Corporate Citizenship


Protecting the environment and other elements of the public interest on the one hand, and pursuing corporate profits on the other, should not be considered mutually exclusive. Both can exist together, but if only one can exist, protecting the environment and the public interest from severe harm must take priority.


Corporations only exist because government sponsors their creation. When they cause severe damage to the public interest, democracies must be able to rely on company management to make them stop (at least until a law can be passed demanding it).


The way to achieve this is to impose a new obligation on company directors. In addition to their existing duty to serve the best interests of their corporation, these additional words should be added to Section 181:


“but not at the expense of severe damage to the environment, human rights, the public health and safety, the dignity of employees or the wellbeing of the communities in which the corporation operates.”


These words will change the goal of directors from simply making money, to making money only in ways that don’t cause severe damage to the environment or the four other specifically mentioned elements of the public interest.


It’s not too much to ask.

Impact


This change will plug the gap (i.e., the “citizenship gap”) in the existing system where government is slow to protect the public interest from severe damage and business is encouraged to continue harming it.


It will encourage all businesses (not just those causing severe harm) to monitor and continually reduce anti-social behaviour wherever possible. Senior managers and all other employees will quickly become aware of the directors’ additional responsibility and will incorporate it into their business plans, risk management, and operations.


Whenever new plans raise the potential of severe harm, the Code will empower corporate personnel to speak up. Early warning (before large amounts are already invested) will make it much easier for directors to act in their company’s best interests and safeguard the public interest at the same time.

By making corporations better citizens, big companies inflicting severe harm on the environment and other elements of the public interest will no longer be considered normal or acceptable. The Code will increase everyone’s expectations regarding business behaviour. That will go a long way toward restoring faith in democracy and hope in the future. -------------------------------- [1] Which section has counterparts providing essentially the same thing in the corporate laws of every other jurisdiction around the world.

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