Economic Interest and Corporate Social Responsibility

This paper discusses the Australian Corporation Act and the concept of corporate social responsibility. It analyzes the concept of corporate egoism, corporate altruism, and reasonable egoism. The paper also explores the question of whether directors’ duties under the Corporations Act 2001 (Cth.) should only be directed to the interests of the corporation and its shareholders, or include the interests of employees, the environment and the community.

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Economic Interest and Corporate Social Responsibility
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Executive Summary
The ever-changing business environment calls for review and amendments of some of the
corporation acts and laws. One of the corporation Acts that is vulnerable to the effects of the
dynamic business world is the Australian Corporation Act. The Act was designed in favor of the
company’s shareholders. Under the Act, the role of director is to exercise their powers and
discharge their duties in good faith in the best interests of the corporation and for a proper
purpose.
Introduction
A closer look at the Australian Corporation Act (2001) reveals that the act is designed to
focus on work environment and how directors should work in ensuring that the best interest of
the company is met. For example, one of the area focused is the Workplace health and safety
('WHS'), whereby the directors are expected to set the tone of caring for employees' safety. The
Federal Competition and Consumer Act 2010, on the other hand, prohibit directors from
engaging in anti-competitive arrangements, misuse of market power and exclusive dealing. The
anti-competitive provisions are found in the Competition and Consumer Act 2010. Directors who
violate these provision can be imprisoned for up to 10 years. As far as consumer protection is
concerned, directors are not expected to engage in false or misleading representations. The
consequences of this violation, as witnessed in ACCC v Halkalia Pty Ltd (No 2) (2012) FCA 535
is detrimental to the directors. Other laws guiding director’s conduct include Federal Spam Act
2003, Do Not Call Register Act 2006 and Federal Fair Work Act 2009. These laws are designed
to ensure that the directors work to the best interest of the company. However, the big question
that forms the basis of this paper is: Should directors’ duties under the Corporations Act 2001
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(Cth.) only be directed to the interests of the corporation and its shareholders, or include the
interests of employees, the environment and the community?
Discussion
A closer look at Australian Corporation Act clearly suggest that it is supporting what is
called corporate egoism. This is a case where the director of a corporation is expected to focus in
profit generation and focus less on the impact of business on the other stakeholders. For
example, section 181 of the Australian Corporation Act, director is expected to exercise their
powers and discharge their duties in good faith in the best interests of the corporation and for a
proper purpose1. In fact, section 184 of the act states that directors who do not do to the best
interest of corporation are liable to be punished. Directors who contravened the law, according to
section may get a penalty of up to $200,000 and may order the person compensate the company
for any loss as a result of the contravention [Part 9.4B]. This is exactly what corporate egoism
advocates. In the classical version, this concept was developed by the ideologue of liberalism
Milton Friedman. According to Friedman, the social responsibility of business is to maximize
profits using available resources, while observing the established "rules of the game". Within the
framework of this concept, social responsibility is equated with the fulfillment of social
obligations imposed on businesses by the state (timely payment of taxes, payment of wages,
fulfillment of other obligations provided for by law)2. This concept maintains that the
corporation cannot be considered a bearer of moral properties. First of all, the corporation must
1 Corporations Act 2001 (Cth.) s. 181
2 Thorton, Joseph and John Byrd, ‘Social Responsibility and the Small Business’ (2013) 19(1)
Academy of Entrepreneurship Journal 41.
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follow its goals. Managers who make decisions must also proceed from the goals of the
organization, rather than from personal interests and beliefs. Friedman believed that only private
owners and top managers could be subjects of responsibility, who after receiving income from
the company's activities can engage in private charity, but not the company as a whole. Here, the
figure of the owner (top manager) is clearly separated from the enterprise, in this sense, the
image of the company and its owner are not unified, and the company's management cannot
influence the decision-making and reproduction of its image in society. It is worth noting that the
owner, interested in increasing his incomes, is not a subject of social welfare development,
giving out for social responsibility only compliance with the law. In this sense, any employee
who remits income tax, regardless of his convictions and civic position, can be called socially
responsible3. This concept of the social responsibility of business is rather narrow, not
considering a number of social conditions for the reproduction of capital as a target function of
business. Corporate egoism, which is advocated by the Corporation Act is not effective in
modern times. Companies and directors should exercise what is called corporate altruism and if
it is impossible to exercise corporate altruism, corporations and directors should exercise what is
called reasonable egoism4.
Within the framework of corporate altruism, social responsibility is treated more broadly
and, in addition to the implementation of legally fixed social obligations, includes the
3 Touboulic, Anne, and Helen Walker, ‘Love Me, Love Me Not: A Nuanced View on
Collaboration in Sustainable Supply Chains’ (2015) 21(3) Journal of Purchasing & Supply
Management 178.
4 Zhang, Min, Lijun Ma, Jun Su, and Wen Zhang, ‘Do Suppliers Applaud Corporate Social
Performance’ (2014) 121(4) Journal of Business Ethics 543
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participation of business in social programs and charity5. Within the framework of this concept,
the company is the subject of responsibility as a social community, where the owners cooperate
with managers, personnel, suppliers, consumers, representatives of the public, and social
responsibility are the result of their joint actions. In other words, a company is a socio-economic
system in which the goals and functions of society must be reproduced by the internal
environment, its structural elements in close interconnection, be associated with the interests of
the whole society6.
The weak side of this concept is, first of all, that the main objective function of the
business in the form of the desire to obtain more and more profits is mixed and dissolved in the
public interest. Thus, the business structure as a separate subject of these relations "sacrifices" its
own interests, consisting in making profit from the main commercial activity, in favor of
realizing the interests of the public, among which the desire to equal distribution of the resulting
aggregate product in the society is not the last7. In addition, the society itself as a social
environment of business is extremely heterogeneous - it consists of a multitude of social groups
formed on a variety of grounds, whose representatives are interested in relations that are
beneficial to them with socially responsible business8. Obviously, that the business is not able to
5 Standley, Nathan, ‘Lessons Learned from the Capitulation of the Constituency Statue’ (2012)
4(2) Elon Law Review 209.
6 Swan, Peter, ‘Market-Based Regulation of Freight Transportation: A Primer’ (2011) 50(1)
Transportation Journal 91
7 Victorian Ombudsman, Corrupt Conduct by Public Officers in Procurement (2011) Report
8 Stout, Lynn, ‘The Toxic Side Effects of Shareholder Primacy’ (2013) 161(7) University of
Pennsylvania Law Review 2003.
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establish relations with all groups. In this case, we are talking about establishing selective links
with the most important groups in this particular situation (in addition to the state), and not with
the whole society. Finally, we should not forget about the company's interest in its stable position
in the market, which is achieved through profit maximization by any socially permitted methods9
From these positions the third concept - the concept of "reasonable egoism" - is more
balanced. It emphasizes that the social responsibility of business is part of a business strategy
that contributes to the consolidation of the company's position in the market in the long term10.
The company reduces its current profits by investing in social projects, but in the long run
conditions are created for the stability of the company's profits. This is due to the formation of a
favorable social environment for the company's employees and strengthening the image of the
organization as a whole. In this sense, the company's social image is subordinated to corporate
goals and is its integral part11. At first glance, the company spends part of the profits on various
public projects, which looks like charity. However, each company carefully selects which social
projects it should invest its funds in, and which ones should be ignored. In other words, in the
field of social responsibility of the company only those projects come into play, the realization of
which creates social conditions for the expanded reproduction of all types of capital of this
9 Sun, William, Jim Stewart, and David Pollard, Reframing Corporate Social Responsibility:
Lessons from the Global Financial Crisis (Emerald Publishing, 2010).
10 Veiko Lember, Rainer Kattel, and Tarmo Kalvet, Public Procurement, Innovation and Policy
International Perspectives (Springer, 2014).
11 Thomas Measham, and Stewart Lockie, Risk and Social Theory in Environmental
Management (CSIRO Publishing, 2012).
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company12. Here we are talking about selective links of business with the social environment,
when the company chooses whom it should deal with, and from whom it will be preferable to
refuse. Thanks to this selective approach, a number of key problems in the environment of the
social environment are solved, which makes such an understanding of the social responsibility of
the business mutually beneficial both for himself and for the social environment13. which ones
should be ignored. In other words, in the field of social responsibility of the company only those
projects come into play, the realization of which creates social conditions for the expanded
reproduction of all types of capital of this company. Here we are talking about selective links of
business with the social environment, when the company chooses whom it should deal with, and
from whom it will be preferable to refuse14.
The concept of "corporate altruism" is most consistent with the ideal of all-round
development of society, however, in the conditions of acute competitive struggle in the market,
companies position themselves not as social systems, as market agents seeking to reduce costs
and maximize profits, resorting to the exploitation of the first model of social responsibility. And
only enterprises that have the means and strategy of long-term development consistently form
their social image in the external environment, which is converted in conditions of financial and
12 Tate, Wendy, Lisa Ellram, and Kevin J. Dooley, ‘Environmental Purchasing and Supplier
Management: Theory and Practice’ (2012) 18(3) Journal of Purchasing and Supply
Management 173.
13 Taylor, Davis, and Chad Miller, ‘Rethinking Local Business Clusters: the Case of Food
Clusters for Promoting Community Development’ (2010) 41(1) Community Development 108
14 Tschopp, Daniel, and Ronald Huefner, ‘Comparing the Evolution of CSR Reporting to that of
Financial Reporting’ (2015) 127(3) Journal of Business Ethics 565
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political instability into a positive economic effect based on trust, recognition of the company by
consumers, counteragents, partners and the state.
Corporate altruism and reasonable egoism are key elements of corporate social
responsibility. It should be noted that corporate social responsibility is currently one of the
strategic tool for fostering not only economic benefits but also sustainable development.
Absolutely every businessman knows that one of the main tools that affect the economic result is
advertising. It is she who primarily determines the degree of consumer awareness in the goods
and services offered to him. But advertising gives a huge push only at the beginning of the
release of goods or services to the market15. Then there are two most important areas that
contribute to the promotion of the product. First - the offered goods should like. The second -
This is the attitude of the consumer to the company that provides the goods service. For a better
understanding, we propose to present a situation in which the consumer is aiming to acquire
something. And this "something" suits him. But there is a competitor that offers a similar product
for about the same price. And then in the selection process comes the individual attitude of the
consumer to the manufacturer. That's where all the forces expended by the company on CSR
begin to bring already material income. And most importantly, this effect has a chain reaction.
That is, if you do not spoil your reputation, the company can count on a regular customer in the
long term and the entire product line.
Through corporate altruism, corporations will be able to create an enabling platform for
investors and improving relations with the state. The state and investment companies are
15 Tran-Nam, Binh, Chris Evan, and Phil Lignier, ‘Personal Taxpayer Compliance Costs: Recent
Evidence from Australia’ (2014) 29(1) Australian Tax Forum 137
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increasingly paying attention to corporate-responsible companies16. The awareness of investors
and financial institutions today is so high that only the most ardent enthusiasts will believe that
they can hide their shortcomings. As a result, these organizations often prefer a more stable
business. A company with a good reputation is much easier to find the necessary investors,
which is confirmed by the ongoing social and environmental programs.
For example, in the US there are several investment funds that give their preference to
"green enterprises". Because they have a good reputation not only from the social and
environmental side, but also from the state and other partners. So, the Calvert Online fund
recognizes that "today's environmental and social issues can become problems tomorrow.
Therefore, investments in companies which are ready today to address the issues of tomorrow -
is not just a "good thing", it is justified from a business point of view
Corporate social responsibility, which is a product of corporate altruism and reasonable
egoism fosters employee’s motivation because it enable directors create a friendly and conducive
atmosphere. When conducting internal CSR, you need to pay attention to the "atmosphere"
within the company. To achieve these goals, the company's management must have a strong
team. A friendly and friendly atmosphere for employees is not the least important in this issue.
Even low-cost signs of attention and concern from management, for example, in the form of
corporate events, can significantly affect the cohesion and communication skills of employees17.
16 Theyel, Gregory, and Kay Hofmann, ‘Stakeholder Relations and Sustainability Practices of US
Small and Medium-Sized Manufactirers’ (2012) 35(12) Management Research Review 1110
17 Swan, Peter, ‘Market-Based Regulation of Freight Transportation: A Primer’ (2011) 50(1)
Transportation Journal 91
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It is worth noting that the more your employees are satisfied with the provided working
conditions, the higher the rating among those who wish will be arranged for you to work. And as
a result, the employer will have the opportunity to choose the most qualified and promising
employees. In order to train the employee, the necessary skills in the work requires considerable
time. Basically, it takes from a month to one year. It is during this period, according to
researchers at Moscow State University, that the employee adapts and establishes ties with the
leadership and the team. In the case of dissatisfaction of employees with social responsibility
activities within the company, the risk of their dismissal at their own will increase. A large
"turnover" in companies contributes to the deterioration of its reputation in the employers'
market and to a decrease in efficiency18. Therefore, it is clear that no one will want to lose an
already held employee. Just to improve these indicators, we propose the introduction of internal
CSR. And as a result, with due attention to their responsibilities to employees,
An international study conducted by Grant Thornton also demonstrates the importance of
applying socially responsible business management methods, which become the basis for
creating a successful team of employees
Companies that implement CSR, to date, it is much easier to find business partners
among European, Asian and American countries than companies that are skeptical of social
responsibility. For example, the city of Togliatti, where a representative of the company General
Motors said that GM will cooperate with suppliers from Russia only if the condition is fulfilled:
as an example, their form of management will correspond to the quality specified in the
application. This example clearly demonstrates the direct connection between a good reputation
and the opportunity to establish mutually beneficial cooperation, which is especially important
18Rhode, Deborah, ‘Ethics by the Pervasive Method’ (1992) 42(1) Journal of Legal Education 31.
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for the entry of Russian enterprises into the international market. This is by no means the only
example. As you know, China is aimed at partnering with Russia. Most recently, an agreement
was reached on the gas supplies from Russia to China. In accordance with the agreement, Russia
and China agreed to provide the most favorable conditions for companies involved in the
creation of projects, construction and direct use of infrastructure to fulfill the contract, that is, the
"Siberia Power" gas pipeline. It is very important that the parties should exempt from taxes and
duties materials that will cross the border of these countries for the construction of an underwater
crossing of the gas pipeline across the Amur River. The amount of this contract is approximately
$ 400 billion. Also, Russia and China agreed to work towards settlements in rubles and yuans in
the energy sector. It is easy in this situation to see the benefits in the cooperation of companies at
the international level.
It is not worth mentioning the importance of having the opportunity to enter foreign
markets. Companies are easier to find consumers if it is represented on a large geographic area.
More products can be realized and thereby increase revenue.
Conclusion
The purpose of the report was to determine whether directors should only be directed to
the interests of the corporation and its shareholders, or include the interests of employees, the
environment and the community. The findings revealed that it is possible to consider the social
responsibility of business only from the position of an integrated approach that considers all
aspects of the development of both the company and the socio-economic environment in which it
operates. It cannot be assumed that modern company is affected only by external or only internal
factors, because both acts simultaneously. In this case, business should be viewed as an integral
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system having a certain internal structure, functional links and methods of reproduction, which is
an integral part of the system of society. and others act simultaneously.
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Bibliography
Corporations Act 2001 (Cth.) s. 181
Rhode, Deborah, ‘Ethics by the Pervasive Method’ (1992) 42(1) Journal of Legal Education 31.
Standley, Nathan, ‘Lessons Learned from the Capitulation of the Constituency Statue’ (2012)
4(2) Elon Law Review 209.
Stout, Lynn, ‘The Toxic Side Effects of Shareholder Primacy’ (2013) 161(7) University of
Pennsylvania Law Review 2003.
Stout, Lynn, The Shareholder Value Myth: How Putting Shareholders First Harms Investors,
Corporations, and the Public (Berrett Koehler Publishers, 2012).
Sun, William, Jim Stewart, and David Pollard, Reframing Corporate Social Responsibility:
Lessons from the Global Financial Crisis (Emerald Publishing, 2010).
Swan, Peter, ‘Market-Based Regulation of Freight Transportation: A Primer’ (2011) 50(1)
Transportation Journal 91
Tate, Wendy, Lisa Ellram, and Kevin J. Dooley, ‘Environmental Purchasing and Supplier
Management: Theory and Practice’ (2012) 18(3) Journal of Purchasing and Supply
Management 173.
Taylor, Davis, and Chad Miller, ‘Rethinking Local Business Clusters: the Case of Food Clusters
for Promoting Community Development’ (2010) 41(1) Community Development 108
Theyel, Gregory, and Kay Hofmann, ‘Stakeholder Relations and Sustainability Practices of US
Small and Medium-Sized Manufactirers’ (2012) 35(12) Management Research Review 1110
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Thomas Measham, and Stewart Lockie, Risk and Social Theory in Environmental Management
(CSIRO Publishing, 2012).
Thorton, Joseph and John Byrd, ‘Social Responsibility and the Small Business’ (2013) 19(1)
Academy of Entrepreneurship Journal 41.
Touboulic, Anne, and Helen Walker, ‘Love Me, Love Me Not: A Nuanced View on
Collaboration in Sustainable Supply Chains’ (2015) 21(3) Journal of Purchasing & Supply
Management 178.
Tran-Nam, Binh, Chris Evan, and Phil Lignier, ‘Personal Taxpayer Compliance Costs: Recent
Evidence from Australia’ (2014) 29(1) Australian Tax Forum 137
Tschopp, Daniel, and Ronald Huefner, ‘Comparing the Evolution of CSR Reporting to that of
Financial Reporting’ (2015) 127(3) Journal of Business Ethics 565
Veiko Lember, Rainer Kattel, and Tarmo Kalvet, Public Procurement, Innovation and Policy
International Perspectives (Springer, 2014).
Victorian Ombudsman, Corrupt Conduct by Public Officers in Procurement (2011) Report
Zhang, Min, Lijun Ma, Jun Su, and Wen Zhang, ‘Do Suppliers Applaud Corporate Social
Performance’ (2014) 121(4) Journal of Business Ethics 543
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