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Shareholder profits vs human rights

Shareholder profits vs human rights

By Karin Derkley

Corporate Social Responsibility  

Human rights should not come second to shareholder profits, according to a visiting world expert in corporate governance. Chairman of the International Integrated Reporting Council and former Judge of the Supreme Court of South Africa, Professor Mervyn King, gave the Deakin Law Oration in which he said that directors must not be complicit in human rights and environmental abuses that arise because of a corporate model that prioritises maximising profits at any cost. Professor King said that since the Second World War international law has ruled that no state could override the rights of the individual to life, liberty and security of person. But companies had been exempted from this requirement and “continued to lawfully carry on business as usual, namely maximising allowed profit even if it was at a cost to society and the government”. This anomaly arose as a result of a ruling by the Michigan State Supreme Court in Dodge vs. Ford Motor Company 1919 that held that the Ford Motor Company had to be operated in the interests of its shareholders, rather than for the benefit of other stakeholders, including employees, customers or the wider community, he explained. “The concept of shareholder primacy was then reinforced by the Nobel Laureate economist Milton Friedman, who in the 70’s wrote: ‘The sole purpose of the corporation is to make profit without deception or fraud,’” Professor King said. “Tacit in that statement was that the company was not integral to society and that as long as the company was increasing its profits, without deception or fraud, it could do so at any cost to society or the environment.” The consequence was that until the end of the 20th century the governance of companies was focused purely on increasing the monetary bottom line even if it was at a cost to society and the environment. Now however, corporate leaders were rethinking the role of business in society, and recognising that there was both an ethical and economic imperative to ensure that development was sustainable. "Companies have to have a business strategy which results in long-term value creation in a sustainable manner,” Professor King said. "We have to achieve sustainable development that meets the needs of the present, without compromising the ability of future generations…to meet their needs." Just as there was a universal recognition of crimes against humanity, there should be universal recognition of wrongs against humanity by companies that focus purely on maximising profit at any cost instead of the long-term interests of all its stakeholders, he said. “Such focus is a moral necessity for those who come after us." Professor King chaired the United Nations on Governance and Oversight and was asked to rework the governance framework of various agencies of the UN. This led to the founding of the Global Reporting Initiative, of which Professor King became the chairman. In July 2000 the United Nations launched the 10 principles of its Global Compact, which led to the Sustainable Development Goals of April 2015 in which the UN stated that business has to be a part of a solution to the global challenges of people, planet and profit.

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