The history and development of environmental law
International Environmental Law
Making International Laws
Milestones in International Environmental Law
Principals of International Environmental Law
Institutions that Influence Environmental Law
What is environmental law ?
Are there state environmental laws and policies as well?
Domestic Environmental Law
Strategies for Domestic Environmental Policy
Environmental Impact Assessment and Environmental Law
What is Environmental Governance?
What is Corporate Governance?
What is Project Governance?
What is Fair Governance?
What is Global Governance?
Processes and Governance?
Impact of Corporate Governance?
Parties to Corporate Governance?
Corporate governance mechanisms and controls?
Internal corporate governance controls?
Corporate Governance and the Duties of Company Directors?
How does the company manage & monitor corporate governance?
Summarised Environmental Case Law
Environmental Acts & Regulations in Western Australia
Appendix 1 CRIMINAL NEGLIGENCE
Appendix 2 CARBON GOALS
Appendix 3 – KYOTO AGREEMENT
References and further reading
This institution accepts no responsibility for the attitudes or actions of our graduates. The
education you receive through this course in no way guarantees your actions in the future
will always be as they should be. Your actions in your profession, or in any other situation
where you apply what you have learnt here, will be affected by many things other than
just the learning from this course. The success or failure of a graduate is dependant upon
not only what they learn in this course, but also, what they learn in studies elsewhere
(formal and informal), as well as personal qualities and attitudes.
The history and development of environmental law
Environmental law as we now know it has really only developed over the last twenty years.
This is not to say that there was no environmental law before this date - there has always
been environmental law but not necessarily with a conservation focus.
When European settlement came to Australia all the law of England automatically became
Australian law and all land in Australia became 'Crown land', which of course, included the
environment. All property rights that private individuals in Australia hold, originally came
from the Crown (now the Australian Parliaments). All land must be managed by
Governments according to law.
In general, most 19th and early 20th century law relating to the environment was aimed at
developing and exploiting it. There was no restraint on clearing land for settlement or
mining. Rather, it was more common for the land owner to be required to clear the land or
extract minerals from under the surface. The law at this time reflected economic
development and expansion.
There was some limited reserving of land for public recreational purposes - but there was
no emphasis on conservation. Rather, the creation of national parks or state forests was
done more for economic reasons, such as tourism, especially when the land was of little
use for agriculture or development. In the late 19th century there were some attempts at
conserving water resources and making them publicly owned, partly for its own sake, but
more for irrigation and agricultural use .
By the 1960's, the foundations for environmental law as we now know it were laid. There
were town planning laws in place which, although not concerned with environmental
protection did show some concern for conservation. These laws created structures for
controlling the use and development of land. By the 1970's and 1980's, however,
environmental protection became an important issue in land use and development.
The effects of pollution and environmental degradation were becoming obvious by the
1960' s and laws were passed to control pollution and try to prevent pollution and
degradation in the future. This led to a widening of the role of environmental law to include
a greater variety of mechanisms for responding to environmental issues because
environmental law became more forward looking.
Various areas of environmental law in the 1970's therefore, included the obligation to take
environmental consequences into account (for example, environmental impact statements
were required in various Mining Acts in the 1970's). This form of positive environmentalism
(protecting the environment for the future, not just trying to rectify environmental
degradation after it has happened) has continued into the 1980' s and the 1990' s.
International Environmental Law
Be aware of the international legislation relevant to environmental assessment
International law rests on the doctrine of sovereignty and equality of states. In an ideal
world, this would probably be fine. However, there are obviously big differences between
countries and this fundamental feature of international law means it has some serious
limitations. For example, there is no established central legislative authority, and no
compulsory, or even widely used, judicial system.
International law also does not have an enforcement agency as such. Beyond these
limitations, however international environmental laws do exist and they do have an impact
on environmental impact assessment. It is important to be aware of the international basis
of environmental laws, even if you only deal with domestic laws in your home country.
Making International Laws
There are basically two ways to make international law: treaties and customary
Treaties usually originate from negotiations between a number of countries. Basically, the
text of a treaty will be agreed upon first. Then the countries that agree to the treaty will sign
it. Treaties are only legally binding to countries that have consented and signed them.
After signing a treaty, each country will then ensure that they have the legal, financial, and
administrative mechanisms in place to honour the Treaty. Once these national measures
have been put in place the states are then in a position to notify the Depository(the state or
institution formally holding the list of parties) that it wishes to be bound by the treaty. This
is known as ratification. When a certain number of ratifications
are received, the Treaty will then come into force.
International Customary Law
The International Court of Justice defines International customary law as "general
Practice accepted as law". This means that countries do a certain thing because they
Regard themselves as legally obliged to do it.
Hard vs Soft Law
Hard laws include Treaties and International customary Law. Countries are obliged to
follow hard law under pain of sanction from the international legal system and community.
In contrast, soft law is usually made up of nonbinding instruments that set guidelines for
future action, or through which states commit themselves politically to meeting certain
Examples of soft laws include the 1972 Stockholm Declaration and the 1992
Rio Declaration. These soft laws are very well known and in some cases, certain
principles may be said to have crystallised into "harder" obligations representing
customary law. Other, subsidiary sources of international law also exist. These include
doctrine, judicial decisions, general assembly resolutions, and opinions of international
Milestones in International Environmental Law
The 1972 Stockholm Conference was a real turning point for the environment. A
number of recommendations were made, and as a result, the United Nations
Environment Programme (UNEP) was established. UNEP plays a big part in
organising environmental meetings and negotiations. A follow-up to the Stockholm
Conference was held in 1982 in Nairobi, which spurred the U.N. to set up the World
Commission on Environment and Development, chaired by Gro Harlem Brundtland,
then Prime Minister of Norway. Its 1987 Report "Our Common Future" placed the
concept of sustainable development into the realm of international environmental
The 1985 Vienna Convention for the Protection of the Ozone Layer. The very real
and apparently imminent threat of depletion of the ozone layer by commercially
produced chemicals, principally chloroflurocarbons (CFCs), prompted the
convening of a conference in 1985 to negotiate the Vienna Convention. The format
chosen was a framework convention: general obligations and institutional
framework were laid down by the Treaty, to be made more specific in the future by
the negotiation of detailed protocols (or subtreaties open to the parties to the main
The discovery of the ozone hole over Antarctica led to intense intergovernmental
negotiations and resulted in the Montreal Protocol on substances that deplete the
Ozone Layer in 1987. The Protocol called for a freeze on the production and
consumption of CFCs and halons at 1986 levels, followed by a 50 percent reduction
in CFC use by industrialized countries over a ten-year period. Developing countries
were allowed to increase their CFC consumption for a period of ten years. The
Protocol was deliberately designed as a flexible and dynamic instrument-countries
were allowed to select the most economic mix of reductions, with incentives to
reduce the most harmful chemicals.
In 1992, The Rio Summit, (or the Conference on Environment and Development.)
was held. It resulted in a number of things:
a. Agenda 21 - which was seen as an action plan for the next ten years
and into the 21st Century
b. The Rio Declaration on the Environment and Development
c. The 1992 United Nations Framework Convention on Climate Change,
which was to provide a framework for the negotiation of detailed
protocols on further issues, such as controls on the emissions of
greenhouse gases (particularly carbon dioxide) and deforestation
d. The 1992 Convention on Biological Diversity, aimed at arresting the
alarming rate at which species were disappearing through pollution
and habitat destruction
e. The Non-Legally Binding Authoritative Statement on Forests.
Principals of International Environmental Law
There are several principles of environmental law that have evolved since the Stockholm
The precautionary principle. Principle 15 of the Rio Declaration spells out that if
serious environmental damage is possible, positive action to protect the
environment should not be delayed until irrefutable scientific proof of harm is
available. We should exercise precaution. A very important part of this principle is
that a body may need to prove that their actions will not cause environmental
damage - before they actually do anything. It has been incorporated into many
recent environmental treaties, including regional treaties such as the 1992
Maastricht Treaty on European Union, the 1992 Paris Convention on the North East
Atlantic, the Helsinki Convention on the Baltic, and global environmental treaties
such as the UNFCCC, the Convention on Biological Diversity, and the 1995 United
Nations Agreement on Straddling Fish Stocks and Highly Migratory Fish Stocks.
Sustainable development. The 1987 Brundtland Committee Report defined
sustainable development as "development that meets the needs of the present
without compromising the ability of future generations to meet their own needs". It
recognizes the need to leave future generations an environment that will provide for
Common but differentiated responsibility. This means that whilst countries may
have a common responsibility, it is differentiated. For example, Article 4 of the 1992
UNFCCC, places an obligation on developed countries to reduce greenhouse gas
emissions by specific amounts. Developing countries are only obliged to implement
these commitments to the extent that developed countries have met their
commitments to provide financial resources and to transfer technology. Developing
countries can participate in the Clean Development Mechanism, which allows
countries to cooperate on specific projects to reduce greenhouse gas emissions –
so whilst they share responsibility with developed countries, it is differentiated.
Environment Impact Assessment (EIA) is related to the precautionary principle in
that it is designed to find out whether a certain future action will result in
environmental damage. Environment Impact Assessment is really governed at a
domestic law level. On an international scale, EIA was first discussed at the
Stockholm convention, before being written in to Agenda 21 from the Rio
Declaration. This calls on countries to assess the suitability of infrastructure in
human settlements, ensure that relevant decisions are preceded by EiAs, take into
account the costs of any ecological consequences and integrate environmental
considerations in decision making at all levels and all ministries. The requirement
for EIA is also included the 1991 U.N. Economic Commission for Europe (ECE)
Convention on Environmental Impact Assessment in a Trans-boundary Context, the
1992 Biodiversity Convention and the 1991 World Bank Operational Directive 4.01.
Environmental Impact Assessment is becoming even more significant due to the
right of access to information on the environment and the right of public
participation. Public participation was highlighted in Principle 10 of the Rio
Declaration which states that environmental issues are best handled with the
participation of all concerned citizens. This participation is made more powerful
because of the right that public people have to access environmental information.
Institutions that Influence Environmental Law
The UN can only really make recommendations - it is up to the member countries to
actually adopt their own policies. However, the UN is the most influential
intergovernmental organisations in the development of International environmental law.
The articulation of policies and treaties by the UN is usually a big step toward worldwide
adoption of environmental policies, and the UN sponsors several programs that have a
significant impact on international environmental laws.
The World Bank provides a large amount of funding for projects in developing countries.
Prior to the 1980s, the World Bank was criticised for funding projects without due
consideration of the social and environmental impacts of such projects. In 1987, the World
Bank underwent a major restructure, and an environmental department was formed. In
1989, it introduced an Environmental Assessment (EA) policy. This policy applies to any
Bank-financed or implemented project if there is the potential for that project to result in
adverse environmental impact. It is also designed as a tool to improve project performance
and to enhance the quality and sustainability of projects.
Basically, any project considered for funding has to be rated as:
Category A - these projects have the greatest potential for adverse environmental
impact and a full environmental assessment must be done by the borrower
Category B - A limited assessment of specific impacts is required
Category C - Such projects are unlikely to have environmental impacts, so no
assessment is needed
Category D - No assessment is needed because the project is actually focussed on
The World Bank also adopted several new environmental policies during the 1990s. In
2001, the World Bank adopted another strategy to include environmental concerns in its
decision making. This strategy aims to promote environmental improvement as a
fundamental element of development and poverty reduction strategies. This means the
World Bank will introduce national level environmental analyses to look at environmental
priorities and trends. It will also work towards improving the environmental outcomes of
Global Environment Facility (GEF) Established in 1991, the GEF funds projects that focus
specifically on environmental protection. The 167 members of the GEF meet once every
four years to top up the fund.
The GEF Council is made up of 16 representatives from less developed nations,
representatives from more developed nations and 2 representatives from economies in
transition. The majority of projects that have received funding through the GEF have been
those that address the loss of biodiversity and climate change.
European Union (EU)
The European Union is made up of 15 countries in Europe. It has the authority to
negotiate treaties without ratification from its member countries. The EU wants to
achieve the free movement of goods, capital and people across its member states. No
state can set environmental standards that would keep another member state from
competing in its markets or keep its firms from competing in other states markets.
Northern European countries have in the past had stricter environmental laws than those
in the southern region. From an environmental standpoint, many people are concerned
that northern European countries will have to downgrade their environmental legislation as
part of their membership of the EU.
What is environmental law ?
Environmental law can cover anyone or more of the following:
Legislation which relates to the development and use of natural resources.
Legislation to protect the environment.
Legislation to manage or administer the environment.
Environmental law involves the tension between the development and disposition of
natural resources and the conservation of natural resources together with environmental
planning and protection. Consider the following example of this tension:
A mining company wants to develop mining in an area that is environmentally
and culturally valuable. Those wishing to oppose the development could
invoke law that requires planning permission and therefore the opportunity to
oppose the development; have the area declared a park or reserve for
conservation purposes; or have the area protected because of heritage or
aboriginal cultural reasons. In short, those wanting to stop or restrict the
mining development would use law designed to protect the environment and
the conservation of natural and cultural resources.
What is the 'environment?'
This is not a simple question. A person's understanding of what the
environment is, depends upon a person's values. For example, a
conservationist would see the environment more in terms of the natural
environment, a town planner may see the environment in terms of heritage
issues, whereas workers in the health and safety field concentrate on the
'work environment' (eg. environmental contaminants).
In general terms the 'environment' can be defined as land, water and air as
well as vegetation, artificial structures, fish and animals.
It is important to remember that different Acts use different definitions of what the
environment is according to the purpose of the Act in question.
In comparison to most other areas of law (for example, property law, contract law, family
law) environmental law is a twentieth century invention. It is one of the fastest developing
areas of law. Environmental law is mostly found in statute law and very few environmental
principles have originated in the common law. In fact, there are very few environmental law
statutes that are more than 20 years old!
Environmental law is a complex and interlocking body of statutes, common law, treaties,
conventions, regulations and policies which, very broadly, operate to regulate the
interaction of humanity and the rest of the biophysical or natural environment, toward the
purpose of reducing or minimizing the impacts of human activity, both on the natural
environment for its own sake, and on humanity itself. Environmental law draws from and is
influenced by principles of environmentalism, including ecology, conservation,
stewardship, responsibility and sustainability. From an economic perspective it can be
understood as concerned with the prevention of present and future externalities.
Areas of concern in environmental law include air quality, water quality, global climate
change, agriculture, biodiversity, species protection, pesticides and hazardous chemicals,
waste management, remediation of contaminated land and brownfields, smart growth,
sustainable development, impact review, and conservation, stewardship and management
of public lands and natural resources.
While many countries worldwide have since accumulated impressive sets of environmental
laws, their implementation has often been woeful. In recent years, environmental law has
become seen as a critical means of promoting sustainable development (or
"sustainability"). Policy concepts such as the precautionary principle, public participation,
environmental justice, and the polluter pays principle have informed many environmental
law reforms in this respect (see further Richardson and Wood, 2006). There has been
considerable experimentation in the search for more effective methods of environmental
control beyond traditional "command-and-control" style regulation. Eco-taxes, emission
trading, voluntary standards such as ISO 14000 and negotiated agreements are some of
Environmental law is concerned with balancing environmental concerns of the public
generally, with the rights of a property owners (individual, business and governmental) to
develop and use their property. It is reflected both in explicit environmental laws and other
statutes and regulations, such as local building codes, zoning ordinances, condemnation
policies and land use restrictions. State and local environmental laws reflect local policy
and priorities, which vary from place to place, resulting in conflicts between localities on
environmental laws, enforcement and compliance.
Several spectacular environmental disasters, like the 1989 grounding of the oil tanker
Exxon Valdez and the resulting oil spill, the hazardous waste problem of the Love Canal in
Niagara Falls, and nuclear reactor accidents (Three Mile Island in Pennsylvania and the
Ukraine’s Chernobyl in 1986) have generated awareness.
Are there state environmental laws and policies as well?
Yes, absolutely. The lion’s share of implementing the federal regulatory programs rests
with state and local governments. The reasoning for this is that environmental problems
often require special understanding of local industries, geography, housing patterns, etc.
So to that end, all states have environmental agencies; some are separate agencies and
others are part of state health departments. Regulatory authority and information about a
particular environmental problem also varies among state agencies.
Many states have enacted mini-NEPA, Clean Air and Water Acts, or CERCLA acts. In
some cases, these state and local standards are more rigorous than the federal
requirements. For example, more than half the states require their own environmental
impact statements before they will permit industrial growth, and many have developed
their own provisions for monitoring air quality (e.g., vehicle emissions testing, and vapor
recovery systems at gas stations). California, for example, requires an environmental
impact statement for both public and private projects.
Domestic Environmental Law
Domestic law (or national law) refers to the legal system governing a specific state or
country. As outlined in the last lesson, environmental assessment is included in
international law, but the actual nuts and bolts of what is required, and how requirements
can be met within a country and its territories is decided by domestic law. For example,
some domestic laws in force at present are:
Australia - The Environment Protection and Biodiversity Conservation Act 1999
Canada - The Canadian Environmental Assessment Act 1995
United States - National Environmental Policy Act 1970 Textbooks that report on
methods of environmental assessment are nearly always country-specific, and it
would take a very large book indeed to record every domestic law relating to
environmental assessment around the world! Therefore, environmental consultants
need to have a good working knowledge of the domestic laws in their country, as
well as a grasp of the overall requirements of international environmental laws.
Evolving Domestic Law
Domestic environmental law developed partly in response to the failure of property and
other domestic or regional laws to address concerns arising from real or potential negative
impacts of development. Many were put into place only after specific events that
endangered public health or communities. In the 1970's, the environment became a key
issue for large segments of the global community, and became permanently linked to
issues of social justice and human rights. Since then, environmental law developed
rapidly, both nationally and globally. To a degree, domestic and international
environmental law have grown along similar lines and helped shape and reinforce each
Some states have been slow to formulate environmental laws, or even to acknowledge
existing or incipient environmental problems. As international aid and funding become
more tied up with environmental, as well as economic and social practices, and domestic
and international awareness of environmental issues grows, more states are addressing
these concerns in domestic laws. One development arising from the growth of domestic
and international law is the formation of separate institutions or bodies that are responsible
for implementing and enforcing domestic environmental laws.
Where several states have formed a union (such as The European Union), member states
may formulate domestic and group laws. For example, the Maastricht Treaty on European
Union (1992) has provided a legal basis for EU development of cooperative system of
environmental law which allows members to seek action for breaches by the European
Court of Justice in Luxembourg, Such states may also have separate domestic
environmental laws, subject to limitations imposed by their membership in the Union.
One recent trend affecting environmental legislation in the E.U. is the development of an
IPC or integrated pollution control approach that seeks to manage and maintain the health
of the whole ecosystem rather than its separate parts (air, water, flora, etc).
Pioneered in the U.K., this approach has been adopted in the E.U., and it reflects an
increasingly holistic perspective of environmental issues, and recognition of the intrinsic
interdependence and interaction of all parts of an ecosystem. One of its goals is to avoid
contamination from one area of pollution to another.
In 2003, twenty one Eastern European countries, some formerly members of the former
Soviet Union, agreed upon an environmental statement of cooperation involving
coordination of environmental standards and laws and exchange of information about
illegal activities, especially transportation of illegal wastes to Western Europe.
Over time, legislation is reviewed and amendments are made to domestic environmental
law in response to changing political, social and economic factors and changes in goals
and technology. It is very important, therefore, that the environmental consultant remain
conversant with current necessary local, state and federal legislation and keep up to date
with any changes and current local requirements regarding environmental standards and
Strategies for Domestic Environmental Policy
Some or all of the following strategies may be applied to domestic law. Not all countries or
regions will utilise these or all of them, but they are commonly-used mechanisms in the
application of environmental law.
Establishment of Environmental standards
Environmental standards articulate the specific requirements in this area of the law
regulating a community. To be practicable, they must set specific limitations to activity in
and upon the environment, and may include:
Standards for control of water, air, and soil contamination
Emission standards, stipulating limits to discharges and emissions into water and
Technology standards, which may limit the age, condition, quality or kind of
Civil liability - Individuals or organisations may be held liable under the law for harm
caused by failure to exercise reasonable standards.
Criminal liability - Individuals or organisations are liable if shown to intent to act illegally.
Strict liability - Individuals or organisations are shown to have acted illegally,
Environmental impact assessment
The purpose of EIA is to prevent problems by considering potential impacts and effects of
a project, alternative strategies, and strategies for mediating damage in the decision
making process. In general, environmental laws require that an EIA be prepared for any
proposed development. An EIA might be required in the application of the other strategies,
This requirement stipulates that a person cannot enter into a project that may harm the
environment without prior authorisation, which usually takes the form of a permit or licence
issued by a regulating authority.
A law is only as effective as it can be enforced to ensure compliance. Enforcement
Identification of those breaking environmental laws
Prosecution of violators
Deterrence of violation of environmental law.
Successful enforcement also involves educating the community about the law and
possibly, monitoring to identify violations. While these functions may be assigned to
various bodies, responsibility and accountability may also fall onto the government.
Environmental Impact Assessment and Environmental Law
Environmental impact assessment can be defined as a process used to identify and
predict the impact on the biophysical environment and on people's health and wellbeing, of
legislative proposals, policies, programs, projects and operational procedures, and to
interpret and communicate information about the impacts.
There are well established requirements for Environmental Impact Assessments around
the world. Environmental Impact Assessments were first introduced in the United States in
1969 after the enactment of the National Environmental Policy Act (NEPA), which
stipulates that all major federal impacting activities which could have significant effects on
the quality of the natural and man-made environment shall be subjected to the publication
of an Environmental Impact Statement (EIS). By the 1980's the majority of European
States were introducing EIA procedures. Today, over 120 countries have Environmental
Impact Assessment policies, laws, regulations and guidelines.
Environmental impact assessment is usually called for in domestic law, but it is included in
international law. For example, the 1992 Convention on Biodiversity, calls for EIA
procedures that allow for public participation for projects that are likely to have significant
adverse effects on biological diversity. It also calls for arrangements to ensure that the
environmental consequences of programs and policies that are likely to have significant
adverse impacts on biological diversity are duly taken into account.
What is Environmental Governance?
Environmental governance means to establish management methods and systems
required to protect the environment and to promote concrete activities that will eliminate
environmental risks and increase corporate value from an environmental viewpoint based
on unified environmental policies.
What is Corporate Governance
Corporate Governance is the set of processes, customs, policies, laws and institutions
affecting the way a corporation is directed, administered or controlled. Corporate
governance also includes the relationships among the many stakeholders involved and the
goals for which the corporation is governed. The principal stakeholders are the
shareholders, management and the board of directors. Other stakeholders include
employees, suppliers, customers, banks and other lenders, regulators, the environment
and the community at large.
What is Project Governance
The term governance as used in industry to describe the processes that need to exist for a
Participation by both men and women.
Participation could be either direct or through legitimate intermediate institutions or
Participation also means freedom of association and expression on the one hand
and an organized civil society on the other hand.
Rule of law
Good governance requires fair legal frameworks that are enforced impartially.
Full protection of human rights, particularly those of minorities.
It also means independent judiciary and an impartial and incorruptible police force.
Decisions taken and their enforcement are done in a manner that follows rules and
Information is freely available and directly accessible to those who will be affected
by such decisions and their enforcement.
Institutions and processes try to serve all stakeholders within a reasonable
Need of mediation of the different interests in society to reach a broad consensus in
society on what is in the best interest of the whole community and how this can be
It also requires a long-term perspective for sustainable human development and
how to achieve the goals of such development.
Equity and inclusiveness
Ensuring that all members of society feel that they have a stake in it and do not feel
excluded from the mainstream.
This requires all groups, and especially the most vulnerable to have opportunities to
maintain or improve their well being.
Effectiveness and efficiency
Processes and institutions produce results that meet the needs of society while
making the best use of resources at their disposal.
It also means sustainable use of natural resources and the protection of the
Governmental institutions as well as the private sector and civil society
organizations must be accountable to the public and to their institutional
In general organizations and institutions are accountable to those who will be
affected by decisions or actions.
A basic practical example of good governance would be where a member of a committee,
with a vested interest in a topic being discussed at committee, would absent themselves
from the discussion and not attempt to exert influence.
What is Fair Governance
A fair governance implies that mechanisms function in a way that allows the executives
(the "agents") to respect the rights and interests of the stakeholders (the "principals"), in a
spirit of democracy.
What is Global Governance
In contrast to the traditional meaning of "governance", some professionals have used the
term "global governance" to denote the regulation of interdependent relations in the
absence of an overarching political authority. The best example of this in the international
system or relationships between independent states. The term can however apply
wherever a group of free equals need to form a regular relationship.
Processes and Governance
As a process, governance may operate in an organization of any size: from a single
human being to all of humanity; and it may function for any purpose, good or evil, for profit
or not. A reasonable or rational purpose of governance might aim to assure, (sometimes
on behalf of others) that an organization produces a worthwhile pattern of good results
while avoiding an undesirable pattern of bad circumstances.
In the 19th century, state corporation laws enhanced the rights of corporate boards to
govern without unanimous consent of shareholders in exchange for statutory benefits like
appraisal rights, to make corporate governance more efficient. The concerns of
shareholders over administration pay and stock losses periodically has led to more
frequent calls for corporate governance reforms.
Since the late 1970’s, corporate governance has been the subject of significant debate
around the globe. Bold, broad efforts to reform corporate governance have been driven, in
part, by the needs and desires of shareowners to exercise their rights of corporate
ownership Over the past three decades, corporate directors’ duties have expanded greatly
beyond their traditional legal responsibility of duty of loyalty to the corporation and its
In the first half of the 1990s, the issue of corporate governance received considerable
press attention due to the wave of CEO dismissals by their boards.
In 1997, the East Asian Financial Crisis saw economies severely affected by the exit of
foreign capital after property assets collapsed. The lack of corporate governance
mechanisms in these countries highlighted the weaknesses of the institutions in their
In the early 2000s, the massive bankruptcies led to increased shareholder and
governmental interest in corporate governance.
Impact of Corporate Governance
The positive effect of good corporate governance on different stakeholders ultimately is a
strengthened economy, and hence good corporate governance is a tool for socio-
economic development. After East Asian economies collapsed in the late 20th century, the
World Bank's president warned those countries, that for sustainable development,
corporate governance has to be good. Economic health of a nation depends substantially
on how sound and ethical businesses are.
Parties to Corporate Governance
Parties involved in corporate governance include the regulatory body (e.g. the Chief
Executive Officer, the board of directors, management and shareholders). Other
stakeholders who take part include suppliers, employees, creditors, customers and the
community at large.
In corporations, the shareholder delegates decision rights to the manager to act in the
principal's best interests. This separation of ownership from control implies a loss of
effective control by shareholders over managerial decisions. Partly as a result of this
separation between the two parties, a system of corporate governance controls is
implemented to assist in aligning the incentives of managers with those of shareholders.
A board of directors often plays a key role in corporate governance. It is their responsibility
to endorse the organisation's strategy, develop directional policy, appoint, supervise and
remunerate senior executives and to ensure accountability of the organisation to its
owners and authorities.
The Company Secretary, known as a Corporate Secretary and often referred to as a
Chartered Secretary if qualified by the Institute of Chartered Secretaries and
Administrators (ICSA), is a high ranking professional who is trained to uphold the highest
standards of corporate governance, effective operations, compliance and administration.
All parties to corporate governance have an interest, whether direct or indirect, in the
effective performance of the organisation. Directors, workers and management receive
salaries, benefits and reputation, while shareholders receive capital return. Customers
receive goods and services; suppliers receive compensation for their goods or services. In
return these individuals provide value in the form of natural, human, social and other forms
Key elements of good corporate governance principles include honesty, trust and integrity,
openness, performance orientation, responsibility and accountability, mutual respect, and
commitment to the organization.
Of importance is how directors and management develop a model of governance that
aligns the values of the corporate participants and then evaluate this model periodically for
its effectiveness. In particular, senior executives should conduct themselves honestly and
ethically, especially concerning actual or apparent conflicts of interest, and disclosure in
Commonly accepted principles of corporate governance include:
Rights and equitable treatment of shareholders: Organizations should respect
the rights of shareholders and help shareholders to exercise those rights. They can
help shareholders exercise their rights by effectively communicating information
that is understandable and accessible and encouraging stakeholders to participate
in general meetings.
Interests of other stakeholders: Organizations should recognize that they have
legal and other obligations to all legitimate stakeholders.
Role and responsibilities of the board: The board needs a range of skills and
understanding to be able to deal with various business issues and have the ability
to review and challenge management performance. It needs to be of sufficient size
and have an appropriate level of commitment to fulfill its responsibilities and duties.
There are issues about the appropriate mix of executive and non-executive
directors. The key roles of chairperson and CEO should not be held by the same
Integrity and ethical behaviour: Ethical and responsible decision making is not
only important for public relations, but it is also a necessary element in risk
management and avoiding lawsuits. Organizations should develop a code of
conduct for their directors and executives that promotes ethical and responsible
decision making. It is important to understand, though, that reliance by a company
on the integrity and ethics of individuals is bound to eventual failure. Because of
this, many organizations establish Compliance and Ethics Programs to minimize the
risk that the firm steps outside of ethical and legal boundaries.
Disclosure and transparency: Organizations should clarify and make publicly
known the roles and responsibilities of board and management to provide
shareholders with a level of accountability. They should also implement procedures
to independently verify and safeguard the integrity of the company's financial
reporting. Disclosure of material matters concerning the organization should be
timely and balanced to ensure that all investors have access to clear, factual
Issues involving corporate governance principles include:
oversight of the preparation of the entity's financial statements
internal controls and the independence of the entity's auditors
review of the compensation arrangements for the chief executive officer and other
the way in which individuals are nominated for positions on the board
the resources made available to directors in carrying out their duties
oversight and management of risk
Corporate governance mechanisms and controls
Corporate governance mechanisms and controls are designed to reduce the inefficiencies
that arise from moral hazard and adverse selection. For example, to monitor managers'
behaviour, an independent third party (the auditor) attests the accuracy of information
provided by management to stakeholders. An ideal control system should regulate both
motivation and ability.
Internal corporate governance controls
Internal corporate governance controls monitor activities and then take corrective action to
accomplish organisational goals. Examples include:
Monitoring by the board of directors: The board of directors, with its legal
authority to hire, fire and compensate top management, safeguards invested
capital. Regular board meetings allow potential problems to be identified, discussed
and avoided. Whilst non-executive directors are thought to be more independent,
they may not always result in more effective corporate governance and may not
increase performance. Different board structures are optimal for different firms.
Moreover, the ability of the board to monitor the firm's executives is a function of its
access to information. Executive directors possess superior knowledge of the
decision-making process and therefore evaluate top management on the basis of
the quality of its decisions that lead to financial performance outcomes, ex ante. It
could be argued, therefore, that executive directors look beyond the financial
Remuneration: Performance-based remuneration is designed to relate some
proportion of salary to individual performance. It may be in the form of cash or non-
cash payments such as shares and share options, superannuation or other
benefits. Such incentive schemes, however, are reactive in the sense that they
provide no mechanism for preventing mistakes or opportunistic behaviour, and can
elicit myopic behaviour.
External corporate governance controls
External corporate governance controls encompass the controls external stakeholders
exercise over the organisation. Examples include:
demand for and assessment of performance information debt covenants
managerial labour market
The terms governance and good governance are increasingly being used in development
literature. Governance describes the process of decision-making and the process by which
decisions are implemented (or not implemented). Hereby, public institutions conduct public
affairs, manage public resources, and guarantee the realization of human rights. Good
governance accomplishes this in a manner essentially free of abuse and corruption, and
with due regard for the rule of law.
Good governance defines an ideal which is difficult to achieve in its totality. However, to
ensure sustainable human development, actions must be taken to work towards this ideal.
Major donors and international financial institutions, like the IMF or World Bank, are
increasingly basing their aid and loans on the condition that reforms ensuring good
governance are undertaken.
Good governance can be understood as a set of 8 major characteristics:
2. Rule of law,
5. Consensus orientation,
6. Equity and inclusiveness,
7. Effectiveness and efficiency
These characteristics assure that:
Corruption is minimized,
The views of minorities are taken into account and
That the voices of the most vulnerable in society are heard in decision-making
The Australian Stock Exchange through its Corporate Governance Council states a
Lay solid foundations for management and oversight
Structure the Board to add value – Effective size, composition and commitment
to discharge its duties and responsibilities
Promote Ethical and responsible decision making
Safeguard integrity in decision making
Make timely and balanced disclosure
Respect the rights of shareholders
Recognise and manage risk
Encourage enhanced performance
Remunerate fairly and responsibly and
Recognise legitimate interests of shareholders.
Corporate Governance and the Duties of Company
A director of a company, when exercising powers or performing duties as a director, must
exercise the care, diligence and skill that a reasonable director would exercise in the
same circumstances taking into account, but without limitation,
(a) the nature of the company; and
(b) the nature of the decision; and
(c) the position of the director and the nature of the responsibilities undertaken by him
How does the company manage & monitor corporate
Management and monitoring corporate governance and indeed their own performance is
essential to good governance. The challenge often faced by a Board is what are the
respective areas and level of focus to satisfy its corporate, legal and stakeholder
obligations. The following diagram identifies four governance roles and related activities or
key focus areas.
External Accountability to Set Strategic
Focus Stakeholders Direction
Monitor Results Set Policy
Past / Present Future Focus
Within this, the two left-hand quadrants are described as the conformance elements of the
roles and activities, with the two right-hand quadrants being the performance elements.
The conformance roles are concerned with the board checking that the organisation and
its management have observed both externally and internally imposed constraints and
operating requirements and targets. The performance roles are about the board’s role in
enhancing the organisation’s performance, and the performance of management.
As the ground continues to shift, an increasing number of corporate and public sector
organisations are recognising the importance of reputation as a key asset. Reputation is
built from within the organisation through sound practice, applied ethics and a genuine
commitment to quality.
More than ever, organisations are understanding that their capacity to form an
active and positive partnership with the community is fundamental to their future position.
This is not a partnership dominated by sponsorship and brand exposure exercises, but
one that explores the impact of the organisation itself.
Does the organisation contribute in a positive way to a shared future? Does it
regard the expectations of its employees and non-financial stakeholders as being equal to
those of its financial stakeholders?
A strong favourable reputation is built by everyone from the chief executive down. This
chapter introduces the concept of reputation and broadly discusses the increasing
relevance of reputation to all parts of business activity.
There is a growing body of knowledge on corporate reputation, but the term continues to
be ill-defined. This is partly because reputation is an intangible factor, the result of an
organisation's capacity to meet the expectations of all of its internal and external
stakeholders. If we examine the progress of contemporary theories on corporate
reputation, it is only five years ago that discussion centered on redefining the term and
expanding its relevance as a core part of business practice.
Much of the work from academics in the late 1990s, brought to our attention the factors
that collectively contributed to reputation. The definition is important in that it formally
acknowledges what we had all known intuitively, that reputation was more than public
relations it is a comprehensive range of a company's activities as relevant to reputation.
These include areas such as market position, financial performance, brand management,
social responsibility and business strategy.
This also draws attention to a company's relationship with its community stakeholders in
the context of reputation building and enhancement.
While scholarly works draw our attention to community stakeholders and social
responsibility, works have failed to give sufficient emphasis to the global groundswell of
stakeholder activism and the growing culture that companies now find themselves
operating within. Business and public institutions are experiencing unprecedented
expectations for greater accountability and public disclosure on matters that are perceived
to impact on globally sustainable economic development.
Recent corporate history
In recent times many Australian corporate sector organisations and increasingly
government and public sector agencies have sought to maximise their control over their
own reputations. Initially, most organisations attempted to adapt established public
relations and brand management strategies to ensure that the organisation was seen as a
worthy corporate citizen by investors, customers and, in the case of governments, by
It wasn't long, however, before this approach started to be greeted with increased
scepticism by the Australian public. By 1999, Australians were starting to seriously
question the ethical behaviours of many of their corporate Icons.
The most significant issue at the time was a crisis known as the "cash for comment"
scandal that primarily involved the banking industry, but also implicated other Australian
corporate icons, Telstra and Qantas. For the banks, in particular, the crisis presented a
major embarrassment. At a time of unprecedented profit, resulting partly from massive
downsizing of staff and branch closures, the banks were exposed in a massive scandal
alleging the payment of large sums of money (in excess of $1 million) to popular talk show
hosts in return for positive comments about their industry. At the very same time one major
bank released the "Make it Happen" advertising campaign, which drew on community
values and collective empowerment. The timing couldn't have been worse; it perfectly
illustrated the lack of sensitivity corporate Australia had developed towards its community.
The scenario demonstrated the point very clearly; in the new landscape, organisations had
to ensure that their own houses were in order before an advertising campaign riding on
themes of empowerment could be truly effective. More recently, episodes of corporate
fraud and gross dysfunction both in Australia and overseas have contributed to the rapid
unravelling of corporate integrity in the public domain and, as a result, companies and,
indeed, governments that allow it to happen are rapidly losing control of the agenda. A
new social force is at play, a force that stems back to and questions the role of
corporations in global society.
There is increasing evidence to suggest that while many companies are starting to take a
broader approach to reputation, a large number have yet to effectively manage the issues
raised by the corporate social responsibility debate. There is confusion and many
companies admit to being under siege from ethical investment screening funds and
research organisations pursuing responses to surveys to determine levels of company
performance in social responsibility areas. Nevertheless, it is increasingly apparent that a
paradigm shift is occurring. Companies are increasingly recognising that they need to
act. Many are establishing senior executive positions in community and stakeholder
relations to drive the agenda and establish company-specific strategies, evidence of which
can be seen in the increasing release of social impact data through company-specific
social reports and public surveys such as the "Good Reputation Index" published by
Fairfax (Grossman, 2000)in The Age and The Sydney Morning Herald.
Once we realise the importance of the political and social settings reputation, we then
need to take into account the economic aspects prevail; there are a number of contributing
factors in this regard.
Unreasonable pressure on companies to produce an ever-increasing, upward performance
cycle, increased speculation in share and money markets and potentially damaging
executive options schemes have contributed to the creation of unreasonably inflated
expectations for corporate financial performance. This, in turn, has created a setting of
increased pressure on chief executives to be less transparent in their reporting.
This pressure, coupled with perceptions of exploitation in developing countries where
International Monetary Fund (IMF) and World Trade Organisation (WTO)policies have
inhibited the capacity of sovereign states ensure the best options for their people as well
as criticism of companies for rationalising staff and OHS initiatives for short-term gain, has
created a situation where the groundswell of public opinion is increasingly anti-corporate.
This public opinion is progressively being influenced by special interest groups and non-
government organisations (NGOs), many which enjoy a credibility that corporations and
governments cannot match.
The ultimate outcome of this dynamic is that many investors are increasing seeking to
place their funds into organisations that can demonstrate enhance social responsibility. As
well as an increasing focus on standards of corporal behaviour and governance, there are
global trends towards ethical an screened investment index models. Socially responsible
investments (SRIs) are gaining prominence and such trends are influencing many
companies to adopt a stronger and more managed approach to reputation as a valuable
corporate asset. In Australia, SRIs are currently much less entrenched than they are in
British and American markets but, nevertheless, their presence is adding to the pressure.
The ethical investment agenda is only part of the financial equation.
If we assume that in the current sociopolitical setting corporate sociopolitical responsibility
is the prevailing factor that appears to be increasingly contributing to an organisation's
reputation then, by this rationale, an organisation that can demonstrate reasonable
degrees of financial performance in combination with socially responsible behaviour will, in
the longer term, enjoy the rewards of a strong, sustainable reputation. Such an
organisation might reasonably expect that it will benefit from ongoing support from all of its
community-based stakeholders and, thereby, continue to prosper through ongoing support
from its customer base, its employees and its investment public.
Good reputations are earned and ultimately they are judged from many
perspectives. The fact that reputation can be perceived by a range of audiences
adds to its complexity. From a perspective which brings all of these audiences
together, reputation might be best defined as the distinguishing point which defines how an
organisation is recognised by its internal and external stakeholders for its capacity to
maintain the esteem and integrity of its employees, control the quality of its services or
products, minimise its environmental footprint, deliver sound financial performance,
maintain a beneficial social impact and demonstrate an open, transparent approach to
public reporting and corporate governance.
This definition draws us to recognise that responsibility for corporate reputation goes well
beyond the scope of public relations practitioners. This is not to say that public relations is
not an essential part of the mix or that, indeed, the public relations role might not be
widened to give greater attention to the management and coordination of stakeholder
relations and reputation strategy. The fact remains that reputation is equally relevant to
financial leaders, HR managers, the corporate board and the company secretary, among
At this stage there is some value in examining the range of issues, terms and
definitions which all fit under the wider umbrella of reputation. A new vocabulary is entering
our domain; terms like sustainability, ethics and governance, transparency, social
reporting, triple bottom line and stakeholder relations can all be deemed to have relevance
to the wider parameters of reputation. Reputation is an intangible outcome, an important
indicator of a company's interface with its stakeholders. Triple bottom line reporting, social
reporting, sound corporate governance and ethics practices, quality goods or services,
effective management systems, satisfactory financial performance and the integrity of HR
systems represent the range of tangible actions which deliver reputation worthiness.
In summary, reputation is a convenient collective term which, by its very nature, unifies the
myriad of demands and expectations for excellence. It is the point from which we might
evaluate a company's capacity to maintain a strong, long-term position.
As well as defining reputation, it is equally important to recognise three Critical facts about
1. First, reputation worthiness can only be appraised by an organisation's full range of
stakeholders, rather than the company itself. The appraisal process must include all
internal and external stakeholders whether they are adversarial or positive in their
attitudes. A company that is selective in its stakeholder engagement processes will
not obtain a true picture of its standing.
2. Second, no two organisations are the same; every organisation has different factors
at play that collectively contribute to reputation. The notion of one model is a
distraction from the real agenda. There is no "Holy Grail" in pursuit of factors that
contribute to reputation other than the organisation's own capacity to recognise the
full range of risk categories that contribute to its reputation.
3. Third, reputation is not static. It is subject to variation in accord with the social and
political norms and expectations of the day. When Sydney Myer, the founder of
what was to become Australia's largest retail enterprise, travelled around the
regional city of Bendigo as a door-to-door salesman in Australia's formative years,
he was never questioned about the environmental impact of the goods he sold, nor
did customers ask about child labour and the human rights of those who
manufactured the goods. One only has to compare his circumstance with that of
Nike when it was accused of labour exploitation in Asia to recognise how much the
landscape has changed to the point where the long-term financial impact of
stakeholder activism is an issue that requires serious management and response.
Relevance of stakeholders
If we accept that the general definition of corporate stakeholders has gone beyond
financial, customer and employee bases to embrace community-based groups, it is not
unreasonable to expect that this shift will in the longer term be a positive development
which will enhance dialogue and lessen the distrust that exists between many business
and community groups. In our current setting a corporate stakeholder might be a special
interest group or regulatory authority that exists only to bring attention to a specific issue,
such as the environment, human rights or equal opportunity.
The broadest definition of a stakeholder might be an ordinary citizen who has no formal
relationship with a company other than to expect it to contribute in a positive way to a
sustainable and safe future. In a global context, this is a huge ask. Companies are held
increasingly accountable through worldwide communications systems that have the
potential to turn local operational problems into global matters. More than ever, companies
need risk management systems for reputation which make everyone across the
organisation accountable for actions and policies that will allow the company to build and
maintain a credible reputation.
The stakeholder concept is inextricably linked to corporate social reporting. A company
that does not understand the expectations of its internal and external stakeholders will not
be in a position to properly address social responsibility factors. Stakeholder engagement
underpins an organisation's capacity to establish strategies, to plan and effectively report
on social responsibility matters. Ultimately, if an organisation does not take a serious,
comprehensive approach to mapping, classifying and learning more about its
stakeholders, its social reporting will not move beyond the public relations paradigm. In
particular, a company's stakeholder base might be made up of a number of special interest
groups, particularly NGOs, that have the capacity to heavily influence general public
opinion which, in turn, impacts on consumer and investor decisions.
The increased incidence of stakeholder activism draws our attention to the fact that in our
contemporary setting, stakeholders carry new levels of esteem in the corporate landscape.
Many commentators would argue that this esteem is in fact too great, that many
community-based stakeholders do not understand the complexities of business. Not so;
these stakeholders are increasingly well-informed. Such criticisms usually derive from
companies and business groups defending their positions. Clever businesses, and there is
a rapidly increasing number of these, recognise that if they really want to improve, there is
great benefit from dialogue and engagement with their harshest critics.
Independently facilitated stakeholder dialogue is increasingly being used by companies to
gather viewpoints and expectations. These sessions are often formally structured and
frequently involve highly regarded public individuals who are engaged to act as facilitators.
Terms of reference are usually prepared for each dialogue process and distributed to all
parties at the time of invitation; this defines the independence of the facilitator, and
provides ground rules for the conduct of dialogue. It is not uncommon for these forums
to be regarded by all parties as an enlightening experience.
Stakeholder dialogue sessions usually involve more than adversarial stakeholders. It is not
uncommon to involve supply chain, manufacturing and retail stakeholders, government
regulators and revenue collection agencies, financial partners, shareholders, human rights
activists and environmental groups. Around the dialogue table, stakeholders - and it should
be kept in mind that there is massive variation in stakeholder attitudes and expectations
- begin to better understand the complexity of the situation the company finds itself in.
Moreover, the company starts to recognise that there are many changes, many of them
relatively minor, that could be made to start the long process of addressing stakeholder
demands and concerns.
Stakeholder dialogue processes have far greater integrity when the independence of the
facilitator can be verified. This independence allows the company to demonstrate that it is
an equal partner in the dialogue process.
Effective dialogue occurs when the company comes to the table as an equal with its
stakeholders; this is not the case if the company itself facilitates stakeholder engagement.
When companies seek accreditation against global standards for social and ethical
accountability, such as the AA1000standard (ISEA, 2000), it is necessary for them to
demonstrate fully independent systems for stakeholder engagement and participation. This
includes an open invitation process that is not selective and does not exclude stakeholders
There is a risk that some of the activities that are deemed by companies to be "stakeholder
dialogue" have the potential to put stakeholder organisations in a position where they feel
they are being exploited and used as part of a wider public relations agenda. If this occurs,
the company will have lost a valuable opportunity for both formal and casual dialogue in
the longer term.
For government and public sector agencies, stakeholder dialogue has the capacity to be
confused with normal consultative practice. Many public sector agencies are well
experienced in community consultation, but these practices do not constitute stakeholder
dialogue linked to reputation. It is not uncommon for governments and their agencies to
identify and engage with stakeholders on a special case or policy issue; this is not the
same as stakeholder dialogue which questions and discusses the operational practices
of the department or entity itself.
Many public sector organisations might well be lulled into a false sense of knowing and
understanding their stakeholders; while this might be so in relation to specific issues, there
is much benefit to be derived from evaluating how closely the entity consults with internal
and external stakeholders on matters such as ethics and governance, workplace practices,
environmental performance, and broad social impact in areas such as human rights .
Reputation risk management
Corporate and public sector entities are increasingly seeing the link between risk
management and negotiated stakeholder expectations. The widening of the concept of risk
is in itself an interesting development and one that is closely linked to longer-term factors
that will contribute to reputation.
German philosopher Ulrich Beck (Beck, 1999) argues that risk is a concept derived from
industrial society, that pre-industrial hazards were more likely to be deemed as "strokes of
fate" or "acts of god". He argues that we are now moving to a position of "uninsurability";'
that the established tradition of no-fault insurance is not sustainable in the longer term.
Essentially, he is arguing that" acts of man" and the impact of the industrial system are
emerging as equal to "acts of god".
The impact of litigation, the untenable financial position created by prohibitive insurance
premiums and ultimately failure to obtain insurance cover at all, means that companies,
professionals and individuals will need to take direct responsibility for their actions; this is
also a matter for government legislators.
Many companies already self-insure and have done so for a considerable time but, for
those that don't, Beck's theories provide a sobering thought for organisations that consider
social impact to be irrelevant to them. In Beck's future world, one court case is sufficient to
bring a global entity to its knees.
Need for risk management
As extreme as it might be, Beck's viewpoint gives emphasis to the increased need for
companies to establish risk systems to control social, environmental and workplace risk. If
we examine risk management systems in regard to workplace practices, it is evident that
many organisations now have established systems, but the continued incidence of death
and injury to employees indicates that current practices are insufficient.
The disaster at Esso's Longford, Victoria, plant in September 1998and before that the
1991Coode Island fire, also in Victoria, indicate that safety factors do have the capacity to
not only impact on the corporate entity but also on the wider community. Longford
precipitated the total failure of gas supplies for two weeks and the Coode Island fire
created a major risk to public health and pollution in the city of Melbourne and its
As with all forms of risk analysis, reputation risk systems require independent
processes to measure and report on performance. Only then can an organisation appraise
its current position and move forward. The critical benefit to companies of an enhanced
reputation risk management framework is that it provides a system to manage
responsibility and control risk in all areas. Such systems need to impose clear disciplines
upon an organisation to take into account stakeholder viewpoints and better anticipate the
expectations of regulators.
The result is that risk management for reputation can sharpen performance and enhance
an organisation's capacity to respond to third party pressures.
Companies able to effectively manage, measure and, thereby, demonstrate an improved
reputation performance, should be able to attract increased business, customer and
investor support, and overall higher asset values.
Individual responsibility and integrity
The risk and responsibility dynamic cannot be fully discussed without raising the important
issue of individual responsibility. While an organisation has wider responsibilities to control
and reduce risk, it is also the case that individual employees in particular have a
responsibility to raise concerns and maintain internal dialogue with employers to monitor
and control risk.
Unfortunately, the settings for such internal dialogue are often adversarial.
This, in itself, illustrates how underdeveloped many of our organisations are in this regard.
Individual responsibility, or at least the capacity for individuals to act in a responsible
manner, is heavily linked to ethical practice frameworks, internal systems to protect
whistleblowers and executive performance systems.
Similarly, if individuals are not genuinely protected, valued and supported by the
organisation when concerns are raised, the organisation will not benefit and grow. In the
longer term the integrity of individuals - particularly from management.
We are all broadly aware of the considerable rhetoric in the marketplace where companies
broadly commit to a sustainable future and, through this, seek to maintain and enhance
their reputations as good corporate citizens.
But for many there is a considerable gap between rhetoric and reality; few companies
currently provide evidence of formally verified measurement systems that use third party
auditors to attest to the company's genuine commitment to improve.
Given that measurement and verification systems are expected for financial reporting, it is
not unreasonable that companies might adopt similar practices to demonstrate their social
responsibility credentials. In the contemporary setting where intangibles, such as trust,
ethics, corporate culture, employee satisfaction and welfare, environmental behaviour and
community benefit, are increasingly relevant, some companies are starting to address the
need for more rigorous systems to evaluate and measure performance from the
perspective of all stakeholders.
Within Australia, resource companies - where the degree of environmental exposure has
been high - have established social responsibility management systems and processes to
identify and try to meet their environmental and social stakeholders' expectations; but their
task is difficult and complex. Over recent times there has also been activity in the
Australian banking and energy sectors.
To date, companies in Australia have not demonstrated a commitment to formal
accreditation systems, preferring instead to develop their own systems to identify, measure
and report on social responsibility and reputation. This is not unreasonable given the
uniqueness of their situations, particularly in the resources sector, where native title
negotiations and dialogue with indigenous groups has evolved as a highly contentious
area which requires highly specialised approaches that seek to maintain the integrity and
equity of all parties.
A global standard: AA 1000
Some of the most proactive and rigorous of approaches to stakeholder engagement have
resulted from companies undertaking very formal processes in order to obtain
accreditation against the world's first global standard for social and ethical accountability,
the AAIOOO, set by the London-based Institute for Social and Ethical Accountability
(ISEA).At this early stage it is evident that, in most cases, companies pursuing AAIOOO
accreditation are doing so because they been subject to very significant and highly
adversarial stakeholder activism. Companies like British American Tobacco, Nike and
McDonalds have established global initiatives and stakeholder dialogue systems, which
will lead to accreditation in order to address major concerns about their corporate
The AA1000 Standard requires a company to demonstrate that it has successfully
undertaken a rigorous process of engagement and dialogue with all of its stakeholders.
This requires the company to identify its stakeholder base and design a dynamic feedback
cycle, which results in the company's integration of stakeholder demands and expectations
for performance into its public reporting system. Furthermore, the process requires the
company to demonstrate that:
it has not been selective in inviting stakeholders to participate;
it has undertaken a comprehensive process to actively encourage all stakeholders
to participate in dialogue; and
the company has positioned itself as an equal party in the dialogue process.
Perhaps the most significant element that distinguishes the AA1000 from other standards
is its rigorous expectation for the stakeholder dialogue process to be externally verified.
Other standards take different pathways towards guiding corporate best practice. These
include the Global Reporting Initiative, which provides benchmark guidelines with sector-
specific descriptions, and the 15014000, which is derived principally from the quality
As the social responsibility paradigm continues to expand, verification and audit standards
for social reporting remain relatively ill-defined. If standards are to be effective, it is
important that those creating or monitoring the standards have the credentials to do so.
While the expectation for independent verification is established, there are currently no
official standards in place for auditing procedures for social reporting in the Australian
corporate and public sectors. An increasing number of major accounting firms are active in
the social reporting marketplace but, to date, the lack of an agreed compliance standard
for social reporting verification practices reduces their capacity.
The Reputation Index
The Reputation Index (Grossman, 2000), first published by Fairfax in The Age and The
Sydney Morning Herald under the title "Good Reputation Index", is establishing an
increasing presence as a form of public measurement and accreditation for corporate
social responsibility. The Reputation Index takes the top 100 companies from Business
Review Weekly's annual list of financially largest organisations in Australasia and
evaluates their performance according to the following:
ethics and corporate governance;
financial performance; and
management and market focus.
Individual research groups are involved in the survey.
Published annually as a lift-out supplement to both newspapers, the Reputation Index has
two important characteristics. First, it is based on the view that stakeholder groups
generally reflect the diverse views held in our society and are, therefore, in a good position
to provide a comprehensive overview of corporate performance. Secondly, the Reputation
Index is fully transparent in that it publishes the findings of each research group
It is not until the end of the process that the findings are brought together for the purpose
While the overall construct is designed to allow each individual research group involved in
the survey to develop its own methodology and criteria, these are fully communicated to
companies at the start of the year-long research process and published as an integral part
of the final result. This allows the researchers to examine the individual performance of
companies against each separate criterion. It also brings to the public domain the priorities
and viewpoints of many community- and professionally-based organisations that frequently
influence public opinion but often, for one reason or another, have remained outside the
consultative frameworks set up by business itself.
Not all of the research groups selected to participate in the Reputation Index are anti-
business. Groups are selected for each category according to their ability to undertake the
task and their representative profile. Within the environmental category, groups and criteria
reflect the fact that the environment sector has relatively common characteristics. The
opposite is the case in the social impact category where research groups reflect the
broader range of issues that fall within the category (eg human rights, philanthropy,
welfare and education partnership).
Increasing recognition as starting point
While it is not an official system for accreditation, the Reputation Index is being
increasingly used by companies to demonstrate their reputation worthiness as socially
responsible organisations. As an opinion survey, the Reputation Index brings to the public
domain the views of stakeholder and expert groups in the community about corporate
performance and provides a forum for open dialogue. Its processes encourage
information-transfer between Australia's top 100 companies and those groups or
organisations that frequently give direction to public debate.
Just as formal accreditation systems are limited in their capacity to take into account other
factors relevant to reputation, the Reputation Index is also limited, in this case to the
perceptions and opinions of stakeholders. But it does provide a starting point for dialogue
and open debate about the importance of corporate performance in areas where investors,
consumers and the general public demonstrate increasing interest. Many companies
recognise that it also provides a broad sociopolitical monitor of an organisation's current
position in this debate.
Some companies have questioned the ability of research groups to understand and fully
comprehend the complexities of contemporary business practice.
Alternately, many research groups are active in expressing their concerns that in an
increasingly global economic and political setting, the Australian corporate sector is not
sufficiently focused on policies that will lead to a sustainable society.
Ultimately, regardless of such argument, all of the groups selected to participate have valid
opinions and the Reputation Index provides a forum for those opinions to be publicly
declared. The Reputation Index and, equally, the comprehensive research process it
demands of individual research groups and companies involved, promotes enhanced
dialogue and awareness for both sides of the debate. Even the levels of non-participation
by some companies are in themselves a finding; they tell us about the levels of
commitment or understanding some companies have towards the issues and themes
raised in the Reputation Index.
With regard to participation levels, it is interesting to note that there has been a steady
increase in active company participation in the Reputation Index over the three years of its
publication. This demonstrates the growing awareness of social responsibility factors as an
important part of overall reputation.
Reputation and financial indicators
It is not unreasonable to assert that social responsibility factors will never replace financial
performance as the best indicator of a company's overall performance. Financial
performance has always been, and will continue to be, the primary means by which
corporate performance is judged.
The problem for companies is that the market has become increasingly short term in its
focus. Investors have become used to upward growth spirals, which most companies
cannot reasonably maintain. In addition to this, the corporate sector continues to be under
pressure from investment and superannuation fund managers seeking financial returns for
rapidly ageing populations, adding further complexity to the financial versus social
responsibility debate. The real issue, however, is that in the longer term companies that do
not adopt practices that deliver a sound reputation as socially responsible corporate
citizens are more likely to place their financial performance at risk.
Commentators who argue that the current social responsibility debate gives too much
power to community-based groups tend to present social responsibility as an alternative to
financial performance. A better alternative is to consider the capacity of the company to
integrate social responsibility an reputation issues in order to enhance and protect its
financial position. In the long term, companies will find it necessary to demonstrate their
contribution to a sustainable society if they are to maintain their own economic an financial
The current growth of ethical investment products and SRI funds is only part of the debate.
While many commentators refer to the growth of investment practices in this area and fund
managers readily indicate that these funds have out performed other indexes, the
contemporary ethical investment landscape is a contributing factor rather than a driver of
the financial performance debate.
The problem for ethical investment is that, in the bigger picture, it has missed its mark; not
surprisingly, despite the existence of such investment products, the overall impact of
ethical and socially responsible investment on global financial markets is relatively low.
Contemporary approaches to ethical investment and SRI funds centre on negative
screening systems to either remove or downgrade companies according to their
performance against certain criteria. Screens differ considerably, but most centre on
indicators for environmental impact, social impact, ethics and corporate governance.
Screening criteria tend to ignore big picture economic issues like a company's contribution
to national revenue, productivity and levels of employment. These factors are important if
we are to truly appraise sustainability.
By screening certain companies or sectors out of their funds, most ethical investment
providers satisfy their customers' desire to support corporate organisations that can be
deemed, for one reason or another, to be contributing in a positive way to society. This is
not altogether without effect on individual companies, but the overall impact is minimised
by the failure of major institutional investors to engage fully with the approach. As a result,
short-term shareholder value continues to dominate financial markets as the contributing
factor to a company's overall position.
An analysis of the Reputation Index shows that financial performance and overall
reputation worthiness have the lowest correlation. This demonstrates the weakness of the
financial argument in relation to reputation and ethical investment. Interestingly, employee
management is the area of highest correlation. But it would be a brave company that
ignored the inherent dangers linked to poor management of corporate governance,
environmental impact, social impact and workplace practice. As we have witnessed in
recent times, there are a number of companies that no longer exist and many
shareholders, customers, employees and contractors whose lives have been destroyed by
corporate failure to address wider management issues that directly relate to reputation
Research shows that the vast majority of companies are challenged by management
issues linked to social responsibility, reputation and ethical investment. Many companies
have taken a defensive position that equates to short-term crisis management; these
companies usually lurch from one crisis to another. Others are increasingly taking up the
challenge; they are establishing proactive strategies linked to their early reputation risk
management systems to gather information and establish public reporting systems, which
attempt to be more transparent and are more comprehensive than previous models.
Response to the challenge
A very small number of companies have taken leadership in their attempts to integrate
social responsibility and financial performance. These organisations have recognised that
the onus rests with them to demonstrate their capacity to be responsible organisations. In
this context they are attempting to move shareholder expectations towards longer-term
enduring value rather than short-term profit which is likely to be less sustainable (British
Petroleum and Westpac Bank, for instance).
Throughout 2002 we witnessed the release of a number of major corporate social reports
that use a variety of approaches to the reporting challenge. Each has as its foundation the
company's desire to present information about its performance against negotiated
stakeholder expectations and to provide a rationale to motivate investors into considering
the longer-term benefits of sustainable economic development. Furthermore, the trend
indicates that, for the first time, many of these social reports carry equal integrity and value
as financial reports; each audited and put to community stakeholders and financial
stakeholders as equal audiences for the company's public reporting system.
In the BBC's Reith Lectures, British Petroleum's chairman, Sir John Browne,
"Companies are radically altering their annual reports to include detailed information
about environmental and social performance alongside their financial accounts.
Performance is now measured on many dimensions and success is defined in a
holistic way ... One of the great gains from the connected economy is transparency -
because that is the key to confidence and trust, and for the granting of permission by
society for companies to pursue their activities and to continue to make progress"
The corporate humility expressed by Browne gives hope for a future where companies and
communities can move forward in a setting of mutual respect and shared understanding.
In our current setting, there is no doubt that organisations seeking to build and retain
strong reputations are under increasing pressure to behave as responsible community
partners. Forward-looking companies and public sector agencies recognise the value of
community appraisal. Many appreciate that, in our current setting, social responsibility is a
vital platform for reputation worthiness.
Reputation is built around an organisation's capacity to openly report on its impact and
contribution to society. This new form of social and ethical accountability will challenge
many business executives who will be pressured to establish a more reasonable balance
between financial and social performance. Only then can true reputation worthiness be
appraised; the task is great and many will be humbled along the way, but the pressure to
deliver in all areas will continue.
Summarised Environmental Case Law
CAL TEX OIL (AUSTRALIA) PTY LTO V HOLROYD
(1983) 49 LGRA 77
LAND AND ENVIRONMENT COURT OF NSW
Planning law - Development consent - Ancillary use
The applicant operated a service station with appropriate consents upon land which was zoned to
permit such a use. Shops were not permitted within the zone. The service station sold certain retail
products, but this was permissible provided such sales were ancillary to the use of the land as a
service station. The applicant was granted development consent and building approval to expand
the retail sales area, subject to such retail sales being ancillary to the use as a service station. The
applicant sought a declaration that the premises be able to sell an expanded range of retail
products, in the nature of a convenience store,
in addition to the use as a service station. The applicant argued that the concept of a service
station had changed to that of a convenience store which not only provided car services but also
non-petroleum convenience items which necessarily supported its service station business.
HELD: The change in public habits and popular concept of a service station did not alter the
meaning of a service station or other planning terms in planning instruments. The expanded sale of
retail goods changed the previous character of this use as ancillary to the primary use as a service
station, to a separate and additional use as a convenience store.
 2 WLR 53
HOUSE OF LORDS
Common law - Rylands v Fletcher- Natural and non-natural
use - Pollution - Foreseeability of risk
The appellant company used a solvent in the manufacture of leather. By reason of numerous
spillages over time, the solvent escaped into ground water and seeped into the respondent water
company's borehole, polluting the water and rendering it unfit for consumption. In the lower court,
actions in nuisance and negligence were dismissed. An action based on the rule in Rylands v
Fletcher was also dismissed as the trial judge considered the storage and use of chemicals for use
in tanning was natural. On issue during the appeal was whether the use was natural or non-natural
and, if the rule in Rylands v Fletcher applied, whether liability under that rule was strict or whether
foreseeability was required.
HELD: The storage and use of the solvent was a non-natural use of the land and the rule in
Rylands v Fletcher applied. Storage of substantial quantities of chemicals on industrial land is an
almost classic case of non-natural use. To recover damages under the rule, the harm must have
been foreseeable. In this case, the evidence had not established that the circumstances of the
pollution of the bore water by the solvent was foreseeable. The appellant was, therefore, not
DRUMMOYNE MUNICIPAL COUNCIL V MARITIME SERVICES
(1991) 72 LGRA 186
LAND AND ENVIRONMENT COURT OF NSW
Planning law - Environmental assessment - Whether 'likely to
significantly affect' environment - Environmental impact
A company operated a marina at Drummoyne on the western edge of Sydney Harbour. The
company applied to the respondent for additional mooring sites and extensions to its jetties. The
application fell under Pt V (ss 110-115) of the Environmental Planning and Assessment Act 1979
(NSW). Section III relevantly provides that in considering an 'activity', a determining authority shall
take into account to the fullest extent possible all matters likely to affect the environment. Section
112 relevantly provides that a determining authority shall not grant an
approval in relation to an activity that is likely to significantly affect the environment unless an
environmental impact statement ('EIS') has been prepared. A report made by one of the
respondent's assessment officers concluded that the proposal was likely to significantly affect the
environment in its current form. However, if the application was granted subject to certain
conditions, the proposal would not significantly affect the environment. The respondent granted the
application, subject to the recommended conditions, without an EIS being prepared. The Council
brought an action claiming, inter alia, that ss 111 and 112 of the Act had been breached by the
HELD: The approval breached Pt V of the Act. The respondent had to form its view on whether the
activity was likely to significantly affect the environment on what was actually proposed in the
application. It could not base this decision on conditions it could impose to modify the proposal and
so reduce its environmental impact. In view of the evidence, it was likely that if the respondent had
correctly performed its duty under ss 111 and 112, it would have found that the activity was
probable to significantly affect the environment (following the Jarasius case ). Therefore, on the
facts, it was not reasonably open to the respondent to form a view otherwise.
Environmental Acts & Regulations in Western Australia
Western Australian Environmental Acts
Environmental Protection (Landfill) Levy Act 1998
Environmental Protection Act 1986
Western Australian Environmental Regulations
Environmental Protection (Abattoirs) Regulations 2001
Environmental Protection (Abrasive Blasting) Regulations 1998
Environmental Protection (Clearing of Native Vegetation) Regulations 2004
Environmental Protection (Concrete Batching and Cement Product Manufacturing)
Environmental Protection (Controlled Waste) Regulations 2004
Environmental Protection (Diesel and Petrol) Regulations 1999
Environmental Protection (Domestic Solid Fuel Burning Appliances and Firewood Supply)
Environmental Protection (Fibre Reinforced Plastics) Regulations 1998
Environmental Protection (Goldfields Residential Areas) (Sulfur Dioxide) Regulations 2003
Environmental Protection (Kwinana) (Atmospheric Wastes) Regulations 1992
Environmental Protection (Metal Coating) Regulations 2001
Environmental Protection (NEPM -NPI) Regulations 1998
Environmental Protection (NEPM-UPM) Regulations 2007
Environmental Protection (Noise) Regulations 1997
Environmental Protection (Recovery of Vapours from the Transfer of Organic Liquids)
Environmental Protection (Rural Landfill) Regulations 2002
Environmental Protection (Unauthorised Discharges) Regulations 2004
Environmental Protection Regulations 1987
Appendix 1 CRIMINAL NEGLIGENCE
Appendix 2 CARBON GOALS
Appendix 3 – KYOTO AGREEMENT
BY PAUL MURRAY
The ABC's four part series
This week's final episode examined the nails in the confirm that saw Mr Howard's stubborn attempt
to remain in power turn into his political funeral.
One of the sharpest nails was climate change. Not only did it get under the government's guard as
the emerging political issue, but it highlighted the generational divide between Mr Howard and
Kevin Rudd - and their ways of politics.
Presenter Fran Kelly set the scene for last year's climactic showdown:
Kelly: For the past decade, John Howard had argued ratifying the Kyoto Protocol was pointless
unless the world's biggest emitters, the US and China, signed up.
Howard: If we had gone the full bore on Kyoto, we could've put our industry at a competitive
disadvantage against competitor countries like China.
Kelly: By his fourth term in office, this argument was washing over voters. The domestic tide had
turned against John Howard.
The irony in that exchange was exquisite given the page one lead in the Australian newspaper that
day. Garnaut warns: Don't go alone on global warming, was the headline. Here was the Rudd
Government's key adviser on climate change hired before the election for use as a battering ram
against the Howard team's intransigence - giving John Howard's anti-Kyoto message.
"No country acting alone, not even the biggest emitters of greenhouse gases, the US and China,
can cause the risks of dangerous climate change to fall substantially
by its own actions alone," Professor Garnaut said.
Mr. Howard's Kyoto caution had two elements:
he declined to set an emissions reduction target before the election, promising a 2020 clean
energy target instead, and he refused to countenance Australia going it alone or without the
developing countries playing a significant role.
On the basis of Mr Rudd's difficulties now, you'd have to say Mr Howard was right. But in the
politics of the time, he was wrong.
This was Environment Minister Peter Garrett in April 2007 in the lead-up to the election:
"We haven't set a figure for a 2020 target cut. But here's how you'd achieve it. I mean the first thing
is that you've got a significant percentage of emission reductions that you can take from demand
management and energy efficiency.
"Now what the figure is, you know, different reports say, but it's somewhere in the 20, 25, 30 per
cent figure. "
Labor went to the election with a pledge to sign Kyoto, a figure plucked from the sky that it could
reduce total carbon emissions to 60 per cent of their 2000 level by 2050 and a vow to release a
2020 target this year, which it will on Monday.
Signing Kyoto was an empty gesture given the Howard government's agreement and success in
meeting the protocol's first targets. But millions of Australians were sucked in by it.
The 2050 target was a scam. It came with no science, no economics and no Australian context.
But it worked politically with an uninformed and fearful electorate swept along on a tide of green
enthusiasm and without much thought for the consequences.
Mr Rudd is now being pushed inexorably towards Mr Howard's realistic position by the same
concerns that drove his predecessor's cautious approach. Mr Garrett's fanciful 20-30 per cent
figure is no longer in contention, if it ever was. Professor Garnaut is telling the Government it
should be more like 10 per cent.
And that's the difference between dragging down the economy or not.
"Within principles designed to reduce global emissions through convergence over time towards
equal per capita entitlements, a reduction of 10per cent from 2000 levels by
2020 in Australia would represent a full proportionate contribution to a global effort to hold
concentrations of carbon dioxide equivalents to 550ppm," Professor Garnaut said.
"It would represent a larger per capita reduction than was required of the US or the European
Union. It would represent a larger per capita reduction for Australia than the
European Union's implementation of its proposed unconditional commitment to reduce emissions
by 20 per cent from 1990 levels."
At this week's climate change talks in Poland, the warm inner glow among activists about Kevin
Rudd had worn off. Australia attended without a promised 2020 target.
"We were all so happy last year in Bali when the Rudd Government was elected," Canadian
activist Steven Guilbeault said. "The first thing they did was to ratify the
Kyoto Protocol and come to Bali to present the ratification instrument for Australia.
" now it seems that it is Groundhog Day because they are trying to wriggle their way out of putting
their number on the table ‘
"Frankly, all of us at the Climate Action Network are baffled by the fact that some countries like
Canada, Japan, New Zealand and even Australia are trying to pretend this
didn't happen in Bali, like we haven't already agreed that what is needed is 25 to 40 per cent."
References and further reading
Australian Master OHS and Environment Guide 2003
Butterworth’s Environmental Law by Chris Diekman