Corporate culture and the search for authenticity

In February 2019 the Australian Stock Exchange released the fourth edition of its Corporate Governance Principles and Recommendations. At its core a critical question: whether a social licence to operate is needed to accompany legal obligation? If reliance on corporate reputation alone is sufficient, as suggested, what form should it take? The ASX opted for a precautionary approach. All could be resolved, it insisted, if a board could “instil a culture of acting lawfully, ethically and responsibly.” This is progress, albeit limited. As seen in all too many cases in the finance sector and beyond, the financial costs of legal penalties are often written off as price of doing business. This undermines both its deterrence effect and respect for the rule of law itself. One can be compliant with the law but behave in an unethical and irresponsible manner. Demanding the articulation and keeping of promises matters. The ASX notes that “values are the guiding principles and norms that define what type of organisation it aspires to be.” In formulating those values, “a listed entity should consider what behaviours are needed from its officers and employees to build long-term value for its security holders. This includes the need for the entity to preserve and protect its reputation and standing in the community.” Notwithstanding the circulatory argument that privileges shareholder value, its justification comes from the footnoted reference to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry Interim Report. The Royal Commission had argued that “to preserve and enhance a reputation... the enterprise must do more than not break the law. It must seek to do ‘the right thing.’ What this means in practice is not teased out, either in the accompanying guidance or, indeed, by the Royal Commission itself in its final report beyond a six-level normative framework. In the absence of jurisprudential precedent just what is “the right thing”? What constitutes adequate “seeking”? Does equating a social licence to operate to an undefined form of reputation risk management meet the requisite test for a court of law or the court of public opinion? In the absence of prosecutions, or tangible impact for breaches of community expectation, there is an inevitability to a rational descent into cynicism? The ASX’s minimalist approach stands in sharp contrast to the Organisation of Economic Cooperation and Development (OECD). The OECD has launched a global campaign to renegotiate a “new intergenerational social contract to restore the confidence of citizens in their institutions.” As its Director General, Angel Gurria, warned in June 2018, an approach based “superficial changes” would be insufficient, counterproductive and dangerous. “The truth is this won’t work. We are beyond the quick fixes to address the discontent of the masses.” To this end the OECD Director of the Directorate of Financial and Enterprise Affairs, Greg Medcraft, was despatched to the annual northern spring meetings of the International Monetary Fund and World Bank. He used a panel discussion on 12 April 2019 in Washington, DC to explicitly link “value” and “values”.