Ideas@TheCentre – The Centre for Independent Studies

Ideas@TheCentre

Ideas@TheCentre brings you ammunition for conversations around the table.  3 short articles from CIS researchers emailed every Friday on the issues of the week.

The continuing political crisis

Tom Switzer

24 August 2018 | Ideas@TheCentre

As Australia welcomes its sixth prime ministership in nearly eight years, observers might be forgiven for thinking that we have developed a certain bloodlust when it comes to our political leaders. This week it was Malcolm Turnbull’s turn. His ouster followed mounting discontent with his government’s policies and a run of bad polls.

For many Liberals and conservatives, his removal was an act of self-preservation for the party ahead of a general election. But it also raises questions about the vicious nature of Australian politics.

The reasons for this are manifold. A hostile Senate all too often blocks important legislation. That makes it difficult for governments to govern. The political climate has become increasingly poll driven, which means politics as reported is a question of who is up or down rather than being seen as the site of policy and political debates. The 24/7 news cycle, together with noisy and polarising social media, has fostered the growth of so-called “infotainment” and sensationalism in political news. That makes it very difficult for any prime minister to implement a long-term productivity reform agenda that might kick start a new era of prosperity.

Australia has experienced 27 years of uninterrupted growth, yet all good things come to an end, usually sooner than you expect. Our miracle economy status seems to induce a level of complacency that is very worrying; the euphoria over the long boom is wearing off, to be replaced by sharp-edged realities.

We are now in a phase very different from 1983 to 2007 — the golden era of economic reform — one where the pace of the news cycle is faster, and the media beast has to be constantly fed. In such a volatile political environment, selling market reforms to create more opportunity and prosperity is more difficult than ever. These are dark days for liberals and conservatives.

Tom Switzer is executive director of the Centre for Independent Studies.

Curbing Corporate Social Responsibility

Jeremy Sammut

24 August 2018 | Ideas@TheCentre

A current school of thought urges a legal approach to stop public companies becoming involved in politically-contentious social debates via the means of ‘corporate social responsibility’ (CSR) that are only faintly, if at all, related to their business.

The thinking is that company directors and senior managers may be breaching their duty to shareholders under the Corporations Act, and abusing company’s commercial powers and resources, by failing to “pursue only the proper purposes of the company and to maximise profits within reason.”

The first problem with this approach, as explained in my new report Curbing Corporate Social Responsibility: Preventing politicisations – and preserving pluralism – in Australian business, is that (in general) CSR is legal.

Under existing company law, corporate decision-makers have a wide discretion over the consideration of non-shareholder interests, so long as the proper purpose is to protect shareholder’s interests in general.

The second problem is that even if the courts deemed CSR illegal — probably via protracted and expensive litigation — this outcome would be counter-productive.

The burgeoning CSR industry — consisting of the multitude of ‘social responsibility’ managers and consultants employed across the corporate landscape — is pushing for greater corporate involvement in politics, by urging government action to introduce mandatory CSR laws.

Such laws would revolutionise company law and corporate governance, by explicitly defining the competing and conflicting non-shareholder interests that directors could consider.

Such a regime would leave directors effectively unaccountable to shareholders — and would make the current level of corporate meddling in all kinds of social and political debates just the tip of the iceberg. .

The fear is that if a legal challenge to CSR succeeded, this would only fuel the campaign for mandatory CSR laws.

All things being equal in the present politically-correct political environment, this campaign would more than likely succeed, and give the CSR industry what it wants — a license to play politics with shareholder’s money.

Because the legalistic approach to curbing CSR is fraught with danger, this issue can be best addressed through the existing channels of corporate governance.

However, the major problem is that corporate leaders looking to push back against the ‘social responsibility’ trend are not currently guided by any alternative set of principles, policies or institutional framework to counter the well-established CSR doctrines and structures across business.

That’s why my report has proposed introducing a new principle into the language and practice of corporate governance, which would overly qualify existing CSR philosophies.

The ‘Community Pluralism Principle’ would remind directors and senior managers of the need to ensure that company involvement in social debates does not politicise their brands and reputations.

Inserting this principle into company constitutions — or into the Australian Stock Exchange’s good corporate governance standards — would also empower corporate decision-makers to ensure that companies remain pluralistic institutions that respect, reflect and serve the whole community equally

This means ceasing to meddle in politically-charged social issues on which there is no community consensus, in these increasingly polarised times.

Everything falls before politics

Simon Cowan

24 August 2018 | Ideas@TheCentre

Big businesses in Australia will not be getting their small tax cuts eight years in the future. That money will instead be ‘invested’ in health and education, along with any other spare dollar government can scrape together between now and then — and never you mind whether that’s good value for money or not.

The merits of company tax modelling have been debated since the last election, but no-one even bothers to ask whether health or education spending is efficient or effective. It’s popular and that is enough.

Of course had you not been paying close attention, you may not even have noticed the company tax cuts finally officially failed. All the focus and interest in policy has been sucked up by politics. Again.

CIS Board Member Alison Watkins noted ‘it’s really disappointing to see this instability’, particularly its effect on beneficial policies. I would go further: it’s deeply frustrating that policy development in this country has been held hostage for a decade by the kind of infighting and naked politicking that would embarrass student politicians.

It is not the role of a think tank to critique the merits of selecting one political leader over another. The CIS has always sent its research to decision makers of any political stripe, and indeed to anyone who might be interested in it. We will continue to do so in the future.

But too many good policies have been lost because politicians advocating for or against them have put base political considerations before good policy development. The case for company tax cuts is one of the more compelling in economic theory, yet the extent to which this debate has been hijacked by economic illiteracy is all too familiar.

Evidence backed, expert led policy is treated the same as something scribbled on a napkin on a flight back to Canberra. It would be one thing if the level of scrutiny applied to company tax cuts was applied to all government decision making — many popular but expensive programs would be cut — but it’s not.

Policy scrutiny too is only applied for political reasons. However, at some point it would behove those pursuing personal political goals to think about the national interest. After all, that is supposed to be the point.