The paper, entitled Shareholder primacy: Is there a need for change?, invites public input about the principle that shareholders’ interests are “paramount in business decision-making”.
Governance Institute chief executive Tim Sheehy said community groups are labelling the ‘shareholders first’ focus of corporations law as a “deficient governance model” that puts short-term private interests ahead of the public good.
“With mounting community expectations that companies become more focused on the ‘common good’ and a growing awareness of the need for companies to take a longer-term view, it’s timely to re-open the debate on whether shareholders should still be ‘king’,” Mr Sheehy said.
“Today, more than ever, Australian companies and their directors are coming up against community expectations that directly clash with short-term goals of maximising profit,” he said.
“The central question is: who should make the ultimate call on which party’s interests take priority — directors or the government?” Mr Sheehy asked.
The Governance Institute pointed out its discussion paper also raises various options for “tackling this dilemma”, including amending the Corporations Act to adopt “expanded directors’ duties” similar to the UK Companies Act.
“UK law requires directors to consider the interests of a broad range of stakeholders beyond just shareholders — including employees, customers, the environment and the community, in order to foster a longer-term perspective in business decision-making,” Mr Sheehy said.
“This approach puts the onus on directors to judge whether shareholder profit or corporate responsibility should prevail when deciding what activities are in the best interests of the company,” he said.
