Ethics and shareholders

By Simon Longstaff

A version of this article was first published: The Sydney Morning Herald and The Age - 28 August 2004

On assuming the Chair of the building products group, James Hardie, Meredith Hellicar offered what I believe to have been a sincere expression of regret that the company had under-funded the foundation that it had established to compensate victims of asbestos-related diseases.

Yet, in expressing her regrets, Ms Hellicar went on to make the point that company directors have always to act with an eye to the interests of shareholders.

The fact of the matter is we can't wish away our legal and fiduciary duties. As much as we would like to, in many respects, at the end of the day we're custodians on behalf of the shareholders. We have obligations to our shareholders. I think that perhaps that's been forgotten in all of this.

In making this observation, Meredith Hellicar highlighted the fact that many company directors, and their advisers, operate in an environment of what might be called 'structural irresponsibility'. Conventional wisdom is that their job is simply to act always to increase the wealth of shareholders, providing only that the means they employ are lawful.

Additional ethical considerations are considered to be 'optional extras' ... good to consider - just as long as they don't get in the way of achieving the primary goal. This helps to explain the tone of regret and frustration that can be heard in Ms Hellicar's comments. She seems to be saying, "we know what it would be right to do, but we can't. Our duty to our shareholders comes before any other consideration that we might hold in mind for individuals".

The same kind of structure seems to bind the approach taken by many professional advisers. Their refrain is that if it's lawful and in line with the instructions of my clients, then it's okay.

Thus, the foundations of 'structural irresponsibility' are laid. The legal obligation of directors, advisers and so on all conspire to bring about a collective 'washing of the hands' when it comes to broader ethical obligations of a kind that should be owed by one human being to another. Perhaps more than most, those who sit on the Board of James Hardie will know the details of the truly terrible deaths suffered by the victims of diseases like mesothelioma. As human beings they cannot help but be moved by their plight. Yet, as company directors we are told that none of this can be taken into account - unless it coincides with the interests of shareholders.

The James Hardie case raises a host of fundamental issues that deserve serious consideration. They include the need for a comprehensive review of the legal privilege of limited liability - not in order that it be repealed but rather, that we might recalibrate our ethical understanding of what this privilege entails.

More immediately, we should test the assumption that shareholders are mono-dimensional wealth seekers who care relatively little about the means by which they are enriched. And most importantly, we need to review any laws that effectively limit company directors from taking into account proper ethical considerations that any moderately decent human being would acknowledge as being important.

Far from being at odds with the interests of shareholders, I believe that ethically mature and responsive companies (and the people who are their underlying reality) will flourish.