But we’re only a tiny part of the problem!

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The bankrupt philosophy underpinning the Morrison Doctrine

By David Salt

Seven suited powerbrokers sit in an air-conditioned board room discussing the morality of their business. Unfortunately, for them, their bank has been caught putting profits before people in manner which breaks the law and deemed morally repugnant. What are they to do?

David Pope, one of Australia’s leading political cartoonists, imagined what might have gone on in that boardroom. He suggested in his daily cartoon (in The Canberra Times, 24 November 2019) that maybe they could hide behind the argument of relativity: that their bank’s illegal money transactions were just a tiny fraction of the global total and that doing something different wouldn’t change the “child exploitation climate in the Philippines one jot”.

Of course, Pope was using the Westpac debacle to throw a light on the Australian Government’s hypocrisy in relation to our nation’s carbon emissions, something that is quite unmissable because he labelled this cartoon ‘the Morrison Doctrine’. That’s because Prime Minister Morrison used pretty much the same argument in defending his party’s approach to climate change. He said:

“Climate change is a global phenomenon and we’re doing our bit as part of the response to climate change – we’re taking action on climate change. But I think to suggest that at just 1.3% of emissions, that Australia doing something more or less would change the fire outcome this season – I don’t think that stands up to any credible scientific evidence at all.”
Prime Minister Scott Morrison*, in The Guardian

To paraphrase, the Morrison Doctrine says that our ‘sin’ is but a small part of the overall ‘sin’ and doing something about our sin wouldn’t make much difference to the global total. The unstated part of this train of logic is: therefore, we needn’t bother because doing something will cost us.

The Morrison Doctrine: Image by David Pope, courtesy of The Canberra Times

The Doctrine fails for some sins

Pope’s cartoon is a fabulous parody of our Prime Minister’s defence and it’s worthy of reflection on several levels.

First, the Morrison Doctrine didn’t work for Westpac. The bank’s CEO at the time, was reported to have told staff that mainstream Australians were not overly concerned about what had happened.

“This is not a major issue,” he said. “So, we don’t need to overcook this.”

But, as it turned out, he was dead wrong. Mainstream Australia was appalled at the behaviour of Westpac and within days our political leaders had sensed this and joined in with the mob calling for heads to roll.

Prime Minister Scott Morrison said “these are some very disturbing transactions involving despicable behaviour”. Attorney-General Christian Porter said “this is as serious as it ever gets”, while Home Affairs Minister Peter Dutton accused Westpac of giving “a free pass to paedophiles!”

Westpac’s share price plummeted, its CEO resigned and its Chairman brought forward his retirement.

So, in the case or Westpac and the Morrison Doctrine, ‘our little sin’ did count. Not doing anything (or much) was simply unacceptable and believing otherwise was a hanging offence.

But the Doctrine works for the Government

I think the reason the Pope cartoon stuck with me is because of the many questions raised by Westpac’s corporate failure compared to our government’s failure on climate change. The big question is: Why is the Westpac sin seen as an unacceptable moral failure (for which the board must be held accountable) when no-one is held accountable for the policy failure on limiting carbon emissions?

There are many answers to this: the Westpac failure was well documented and the lines of accountability crystal clear; whereas the climate failure is global in scale, complex and it’s very challenging to hold individual people, institutions or governments directly accountable.

The Westpac failure followed on shortly after the Banking Royal Commission which exposed the corrupt heart beating behind so many bank practices so the broader community was already sensitised (and outraged) by corporate malpractice. The Westpac malpractice gave us a target to vent our sense of injustice on.

And the Westpac failure indirectly involved possible sex trafficking and exploitation of children, a moral crime deemed unacceptable by society; whereas conservative governments everywhere are framing climate change as an economic issue and doing their best to discount the moral consequences of inaction. Former Prime Minister Tony Abbott, for example, summed it up best at the Liberal’s recent electoral victory when he said “Where climate change is a moral issue we Liberals do it tough. Where climate change is an economic issue, as tonight shows, we do very, very well.”

A tiny part of the problem (?)

But maybe the reason Pope’s cartoon got me thinking so much was because it played on one of the central articles of the climate denialist’s cant: that humans have only added a little to the greenhouse gases in the atmosphere which in themselves are only trace gases. A little on a little surely can’t be the problem the scientists are saying, can it (and definitely not something worth sacrificing economic growth for)?

Well, it depends. The science says it matters enormously. The science says little changes to the atmosphere fundamentally shifts the Earth system. However, setting aside the scientific consensus, a little sin might be completely unacceptable when it involves transgressing community norms like the sex trafficking of children.

But this ‘little sin’ of economic growth heedless of the consequences is drowning the little children of low lying Pacific islands? It’s also destroying the livelihoods of all those families that depend on the ongoing health of the Great Barrier Reef? This little sin is pushing the climate to the point where it undermines our food security.

“There has to be some understanding of accountability for when these things happen.” These aren’t my words, they are Scott Morrison’s but he was referring to the Westpac failure, not his own on climate change.

*Australia’s little bit: whenever anyone says to you Australia is pulling its weight in producing only 1.3% of global emissions (as our PM constantly does) politely point out at only 0.3% of the global population we are the highest per capita emitters in the developed world.

Main image: Image by cinelina from Pixabay

Is Corporate Social Responsibility an environmental ‘Dodge’?

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Why companies don’t make the environmental their top priority

By Peter Burnett

Corporate Social Responsibility has been in the news a lot lately. Corporates have been active in recent social debates, for example as advocates for same sex marriage and Indigenous recognition; and most recently when some companies backed September’s School Strike for Climate. This has prompted the Australian Government to push back, urging corporations to ‘stick to their knitting’.

In the USA, the high profile Business Roundtable, whose members are the CEOs of ‘leading American companies’ such as Tim Cook of Apple, recently dumped their long-held position that the purpose of a corporation is to serve shareholders, in favour of a commitment to ‘all of our stakeholders’ (their emphasis). This included a commitment to ‘protect the environment by embracing sustainable practices across our businesses.’

The ‘rules’ for corporations

Can a corporation really embrace sustainable practices if it is not in their immediate commercial interests to do so?

This is an issue with a long history (even longer than post-war discussions on this thing called sustainability). In the 1910s, on the back of the success of his Model T car, Henry Ford cut prices, gave his workers significant pay rises and started building a war chest to fund future expansion. But Ford hit the wall when he proposed putting an end to special dividends as a way of making his war chest even larger. Two of Ford’s shareholders, the Dodge brothers (themselves car makers), successfully sued Ford for such an audacious proposal. The Michigan Supreme Court forced Ford to continue paying the dividends on the basis that the company must operate in the interests of shareholders.

This case is often discussed as a key source of two key principles of corporate law, namely shareholder primacy and the ‘business judgement’ rule. And these are not just US principles, but are reflected in modern corporate law in Australia. Section 181 of Corporations Act 2001 requires directors to act in good faith in the best interests of the corporation, while  section 180 enacts the business judgment rule, in essence that directors meet their duty to act in the best interest of the corporation if they believe, rationally and after exercising due diligence, that they are so doing.

The net result is that, while directors must act in the best interests of the corporation, directors have significant scope to apply their best judgment in determining what those interests are.

However, acting in the best interests of the corporation effectively means acting in the interests of the shareholders, since they are its owners. Furthermore, since (almost all) shareholders are investors, acting in the corporation’s best interests pretty much means making money, or at least increasing shareholder value, as much as possible.

So, broadly speaking, corporations are in it for the money. They have a one-track mind. And, allowing some leeway for management discretion, shareholders are entitled to make sure it stays that way.

Corporations and voluntary action for the environment

What does all this mean in terms of caring for the environment?

Well, corporations often claim they will care for the environment, as the US Business Roundtable has just done. Further, corporations often acknowledge the need for a social licence, which is not quite the same thing.

Finally, corporations sometimes take voluntary environmental action at the behest of government. A recent example came in a statement by Trevor Evans, Federal Assistant Minister for Waste Reduction and Environmental Management, who said that creating a more circular economy in Australia is a responsibility shared between individuals, governments and industry. (Of course, industry mostly consists of corporations).

Despite the impression created by such statements, the bottom line is set not by business roundtables and ministers, but by the rights that the law gives to shareholders.

If a company is led by a visionary and the shareholders share the vision, almost anything is possible. Elon Musk for example has managed to spend hugely on his vision to accelerate the world’s transition to sustainable energy, pushing Tesla Corporation to the limits of viability through borrowing and even giving valuable rights away by opening patents to all-comers, without attracting shareholder litigation of the Dodge Bros v Ford type*.

Keeping out of ‘Dodge’ City

On the more likely scenario that there will inevitably be some modern Dodge brothers among the shareholders in any large company, how might a corporation take voluntary action for the environment without risking shareholder litigation?

For example, how might companies respond to Minister Evans’ call to share in responsibility for the circular economy without getting in trouble? The answer depends on whether the corporation is a direct participant in the circular economy, such as a recycler, or simply affected by it, say a department store.

It is in the commercial interests of a recycler to see the circular economy grow as it will increase demand for recycled products. Therefore the directors might justify going well beyond general industry engagement with government policy development. They might decide for example that the company will sell recycled product at a loss, or adopt unprofitable circular economy practices within its own business, to establish itself as an exemplar. They might even justify paying their employees a ‘recycling allowance’ to promote recycling at home and to spread the word on social media.

A department store, on the other hand, may not be able to justify any voluntary investment in circular economy practices, beyond some basic ‘greenwashing’ at the margins to support a general ‘we are environmentally responsible’ stance. In fact, it might be in the interests of an upmarket store to maximise the use of virgin materials and extravagant packaging, to enhance the overall ‘customer experience’. These interests might even lead it to oppose some circular economy initiatives in the name of customer choice.

So it’s horses for courses. Yet in either these examples or others, companies can only justify voluntary environmental action if there is a business case for that action. If companies go significantly beyond what a business case would justify, they are inviting challenge by our modern Dodge brothers.

So what’s the right approach?

In a recent commentary on the US Business Roundtable decision to adopt the ‘stakeholder value’ approach, company director and philanthropist Alan Schwartz argued that it is the job of companies to maximise their profits within the rules, and the job of governments to get the rules, including environmental rules right, for example by setting a carbon price (‘Why Friedman was right’ and the Business Roundtable wrong).

In his view, efforts by companies to go beyond shareholder interests in pursuit of broader stakeholder interests are likely to be no more than a sideshow.

Looking through an environmental lens, as we do in this blog, I think Mr Schwartz has it right. It’s much better to have clear and comprehensive environmental rules set by government than to rely on the social ambition of directors and the tolerance of investors.

Image: Arek Socha from Pixabay

* There is shareholder litigation over Tesla’s acquisition of solar panel manufacturer SolarCity, but this is based on other grounds.