Australia debating corporate ethics

Forcing companies to "do better" by the community could backfire and leave society worse off, the Business Council of Australia has warned.

In a submission to a parliamentary inquiry into corporate responsibility, the council -- which represents some of Australia's biggest firms -- warns that forcing business to do more by society was likely to fail.

The committee is considering suggestions to make companies responsive to people other than shareholders and to take into account their responsibilities to the community.

But the council, in its submission, says tinkering with the current voluntary links between business and the community could undermine the whole system.

A council survey found members of the organisation already spent around A$200 million ($219.01 million) a year on social and community programmes. One in five funded programmes worth more than A$4 million a year.

Spending on the environment by council members was almost A$300 million.

It said the business sector already plays a central role in the community, through providing employment and incomes.

Ultimately, a company had to respect its shareholders, but this did not mean it was at the expense of the wider community.

"It is important to remember, however, that a company's paramount obligation is to its shareholders," it said.

"The two are not mutually exclusive. It is in the interests of shareholders to have their company flourish and grow.

"This is only possible in a sustainable way when the corporation takes into account the interests of other stakeholders, and the broader community, to the extent that these interests are relevant to the corporation."

In its submission, the council warned that forcing companies to take account of community expectations would actually draw back from what they are doing now.

Instead of more interaction with the community, there was likely to be less.

"If a legislative requirement is put in place, the vast majority of these corporations will switch from this competitive and innovative approach to a compliance approach," it said.

"In other words, they will shift their attention from focusing on how best to engage with the community, to how best to comply with the requirements of the law."

The council said if a business was to disregard the interests of the wider community it would suffer problems. It was already in the interests of business to take into account community expectations and standards.

"In the view of the council, any company that has no regard for the interests of stakeholders other than shareholders, and the broader community will not flourish, or indeed survive, in modern society," it said.

"The reality is that corporations operate within the context of society and require good relations overall with that society if they wish to sustain themselves and grow."

The committee is due to report next year.

- AAP