The Acceptance of Corporate Social Responsibility in Australia: An Analysis Based on the 'Enlightened Shareholder' Approach

By Ning YU 41430581

Sustainability

has

been

raised

worldwide

concerns

nowadays,

which

essentially identifies the global issue of deterioration of human and natural resources and the associated socio-economic issues, such as poverty and inequality (Brudtland 1987). The sustainability entails the Corporate Social Responsibility Sustainability (CSR), which an 'envisages alignment an integrated the approach to

involving

between

environmental,

social/community and economical objectives of the company', from which derives the need for companies to disclose their performance regarding CSR (Williams, Wilmshurst & Clift 2011). Based on the "Enlightened Shareholder" view, this essay argues that given lack of legislation, Australian companies will not necessarily sacrifice the social and environmental interests only in pursuit of profit maximization; instead, it will embrace social responsibility to the extent that enhances its shareholder value. This essay will first present an analysis of external pressures and internal positive motives for companies to integrate CSR into their business operations and culture, followed by description of current situation of adoption by Australian firms and finally the limitations of acceptance of CSR associated with 'Enlightened Shareholder' view.

As any attempts to explain a particular behaviour or activity is value-laden, it needs to be noted that this essay adopts a pragmatic view in explaining the attitudes of companies and management towards CSR, i.e. it is good for the

2/7

growth of shareholders' value in the long-run to consider relevant stakeholder interests. This view is called the 'Enlightened Shareholder' (Millon & David 2010). This contrasts with the traditional perception that management only focuses on share prices, even at the expense of externalities. It also differs from normative theories of CSR, which asserts that the companies should do the 'right thing' (Freeman 1984).

The adoption of CSR by Australian firms is a result of both external pressures and internal motives. The external pressure mainly comes from public scrutiny and criticism, due to the proliferation of the press, enhanced public awareness of CSR, and the more powerful NGOs. If a company is acting irresponsible, it might gain short-term benefits, but faces reputational risks in product, labour, and capital market, as well as significant litigation costs (Millon & David 2010). The Child Labour Crisis of NIKE exemplifies the negative impacts of media an community expectations (Islam & Deegan 2010). Nike has been accused of using child labor in the production of its soccer balls in Pakistan. Consumers expressed their anger about this conduct by boycotting the NIKE products. There is an example that reveals the NGOs' influence on business operation regarding environmental and human right issues. At BP's AGM in 2001, Greenpeace proposed to take more rigorous actions corresponding the climate change and to withdraw from the cooperation with PetroChina, which was to build a pipeline across Tibet (Frey 2002). Opponents posited large-

3/7

scale population transfer and local culture deterioration would incur (Millar & Macalister 2001).

Besides negative drivers to adopt CSR, a number of internal initiatives for companies to discharge their social responsibilities have been identified in various researches, the most vital ones are improving financial results, building good corporate image & relationship with stakeholders/community, and attracting and retaining talents (Adams & Zutsh 2004).

There is growing evidence that being socially accountable is positively related to improved financial returns. A meta analysis conducted by Orlitzky et al (2003), which incorporated 52 previous studies over a 30-years horizon, found a positive relation and states that,corporate virtue, in the form of social responsibility and, to a lesser extent environmental responsibility, is likely to pay off." In 2005, AMP Capital Investors analysed the financial performance of approximately 300 listed Australian companies from a 10 year period, and concluded that companies with a higher corporate social responsibility rating outperformed those with a lower rating by more than 3.0 % per annum over a 4 and 10 year period (Rey and Nguyen 2005). It was also discovered that CSR disclosure helped lower the cost of equity capital (Dan, Oliver & Albert 2011). Possible explanations of the boost in financial performance are that customers are willing to pay a premium for product or service, that investors recognize

4/7

the social ethical commitment by the company, and costs savings achieved through sustainability approaches (Byus, Deis & Quyang 2010).

Actively engaging in initiatives to improve relations with stakeholders and communities could also create value for the company, through good publicity and improved brand image, and finally obtaining competitive advantage from the recognition of customers. For instance, NAB participated in the Carbon Disclosure Project in 2005, which set a role model for corporations and increase its brand recognition (Tim 2005). Another example is that BHP Billiton undertakes a range of Community Development plans, addressing education, health and environment quality-of-life (BHP 2011). It also prepares the Sustainability Report in accordance with the Global Reporting Initiative G3 Sustainability Reporting Guidelines, including the Mining and Metals Sector Supplement. By doing so, they creates a image of responsible corporate and mitigates issues related to sustainability, environmental exploitation, and employee health and safety.

CSR can enhance the ability of firms to recruit highly motivated employees. This is vital to a company's survival in highly competitive business world today. In the research undertaken by Brekke and Nyborg (2008), it revealed that people with strong ethical motivation would seek employment in companys with CSR enactment. In contrast, irresponsible policies, such as

5/7

unreasonable bonus plan for directors in financial service industry and lack of consideration to environmental or occupational health and safety in energy industry, may impede a company from maintaining high employee moral, resulting in loss of human capital advantage (Adams & Zutsh 2004) .

It can been seen from the above analysis that Australian companies, without much legislation pressure, will embrace CSR as required by the external parties and the pursuit of benefits to increase shareholder values, which in fact, is also evidenced from the statistics regarding the CSR practices. KPMG (2005) found that out of the top 500 companies in Australia, the number of companies with 'sustainability reporting' increased from 65 companies (13%) in 2000 to 199 companies (24%) in 2005. However, the participation in CSR reporting was still low compared to other developed countries. According to the The State Chamber of Commerce (NSW) (2011), activities taken by Australian firms include inserting CSR into mission or policy statements; business ethics programs; employment policies; 'Green' policies; quality and environmental standards; customer-focused practice; work safety policies; social and environmental public reporting; community service; with employee non-profit

volunteering;

education

programs;

partnerships

organisations. These evidence shows that CSR is widely accepted in Australian, although the acceptance is lagging behind in the international society.

6/7

The nature of 'Enlightened Shareholder' view decides that the corporations will not be fully devoted to the public interests. There are several major limitations of Australia's deployment of CSR. First, research has shown that Australia approach CSR 'in a short-term, charitable and non-strategic manner that remains disconnected from their overall business strategy and goals' (Birch & Batten 2001, cited in Anderson & Landau 2006, p. 22). Second, as there are high costs associated with CSR and a lack of reporting requirements, Australian companies tend to perform a cost-benefit analysis before

undertaking CSR related activities. And a large percentage of companies simply ignore carrying out CSR and only consider it when they are performing financially well, which makes the commitment to CSR less persistent (Birch & Batten 2001). Finally, the disclosure of sustainability remains 'selective' (Adams & Frost 2004), with adverse information being undisclosed. This could be expected from the presumption that a company is self-interested and profit-driven. For example, in the research conducted by Charl and Chris (2010) in Australian Mining Industry, it is found that mining companies only voluntarily disclose CSR with consideration to their salient shareholders, i.e. the government, while they could further their disclosure into a wider stakeholder group consideration.

To sum up, this essay asserts that Australian companies will embrace CSR

7/7

responsibilities into their operations and culture to the extent that they maximise shareholders' value in the sustainable way, within the context of the enlightened shareholder approach. Externally, the company needs to cope with pressure brought by NGOs and the public for their socially irresponsibly conducts. Internally, company attempt to gain benefits, such as increased financial return, improved image, and talent retention. It also reveals the current situation of the adoption of CSR in Australia, which is still in its developing stage. Finally, it examines the boundaries brought by 'Enlightened Shareholder' perspective, which include relatively weak sustainability culture and avoidance of release of negative new. The way to integrate CSR into business is a 'journey', rather than a status. As stated by Legendre (2008, p. 49), 'Part of this process is to gradually integrate CSR into the business' overall strategy and objectives, aiming to achieve a point of total integration whereby sustainability is inherent to the existence of the corporation.'

8/7