A while ago I did a university subject, it may have been marketing 101 (nearly 30 years ago, so ‘I don’t recall’ which subject). One piece of learning I took away is companies have no ethics. What appears to be ethics is whatever is required to maximise return to the shareholder. If a company appears to be ethical, it is because it has determined that appearing ethical gives a better return than not appearing ethical. Companies will behave illegally if the penalty (in courts and in the communities eyes) is likely to be less than the profit. This is especially evident in disposing of waste - regularly exceeding set limits and getting fined is cheaper than doing the right thing. The duty to shareholders is written into company law so by breaking one law the company is obeying (for them) a greater law.
If jblakkarly had done that course, corporate lying would not be a surprise. It would be expected.
It takes on an interesting colour when directors’ duties under the Corporations Act is taken into account. They are required by the Act to act in the best interests of the corporation and its shareholders, which may well include lying if necessary. Indeed, they may be open to legal action if they don’t thus act. There are arguments to the effect that acting for the broader social good is in effect the ‘best interests of the company’ but they don’t really form part of the law.
Separately from this, but related to the topic, is the question of whether directors can be held criminally liable for the acts of the company (such as fraudulent misrepresentation). It’s pretty hard to make it stick — I think that if it were easier to hang criminal liability on directors we might well see a sudden improvement in their ethical standards.
One of the fundamental duties of a company director, indeed the very first, is to act honestly.
So I very much disagree with your assertion that directors are bound by the corporations law to act in the interests the company and shareholders to the point where lying could be a necessary part of doing business.
The wording of section 181 of the Corporations Act is below. It is highly unlikely that this provision would either compel a director to lie or condone such lying.
181 Good faith—civil obligations
Good faith—directors and other officers
(1) A director or other officer of a corporation must exercise their powers and discharge their duties:
(a) in good faith in the best interests of the corporation; and
(b) for a proper purpose.
Note 1: This subsection is a civil penalty provision (see section 1317E).
Note 2: Section 187 deals with the situation of directors of wholly‑owned subsidiaries.
(2) A person who is involved in a contravention of subsection (1) contravenes this subsection.
Note 1: Section 79 defines involved.
Note 2: This subsection is a civil penalty provision (see section 1317E).
Perhaps lying is putting it too strongly, but not by much. Directors’ fiduciary obligations are to the corporation and to their shareholders — but they have no such duty to the public. If they need to fudge the truth for the benefit of the company, that’s proper behaviour from the point of view of the Corps Act. If they tell the whole unvarnished truth and the stock price tanks as a result, shareholders can sue. It’s a fine line they have to tread.
(1) A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive. (2) Nothing in the succeeding provisions of this Division shall be taken as limiting by implication the generality of sub-section (1).
TRADE PRACTICES ACT 1974 No. 51, 1974 - SECT 53
False representations.
A corporation shall not, in trade or commerce, in connexion with the supply or possible supply of goods or services or in connexion with the promotion by any means of the supply or use of goods or services- (a) falsely represent that goods or services are of a particular standard, quality or grade, or that goods are of a particular style or model; (b) falsely represent that goods are new; (c) represent that goods or services have sponsorship, approval, performance characteristics, accessories, uses or benefits they do not have; (d) represent that the corporation has a sponsorship, approval or affiliation it does not have; (e) make false or misleading statements concerning the existence of, or amounts of, price reductions; (f) make false or misleading statements concerning the need for any goods, services, replacements or repairs; or (g) make false or misleading statements concerning the existence or effect of any warranty or guarantee.
The act applies to directors as well as staff. The law is fairly clear, but it can only be enforced if there is evidence. This is why if I usually put things in writing. If I have a phone conversation with someone from a store, I make notes, or as lawyers call them: “contemporaneous notes”. I will quote as close to verbatim as I can recall immediately after the conversation what the company representative said in response to my question, along with the question. If it comes down to their word versus mine, such notes give significant weight to my word in the eyes of the law.
Companies recording customer conversations for “quality and training purposes” are really recording them for legal quality purposes, to protect themselves. Such recordings can be used against them though, because they are discoverable.
If you speak to a company that tells straight out lies, tell them you need to record the conversation on your phone “for quality and training purposes…” watch their response.
Oh yes they do. For many companies, the shareholders are the public, and look out any listed company management that fails to tell shareholders the truth.
It would be very helpful if contributors could share their corporate legal knowledge (beyond Google search and personal interpretations). It’s becoming difficult to understand what’s fact and what’s personal opinion in this conversation.
On disengaging, I would ask that Choice consider spending the upcoming Easter egg tasting budget on getting a clear legal interpretation from a suitably qualified lawyer, covering listed and private company directors.
It seems to me that this is fundamental thing to understand for a consumer advocate organisation, especially when dealing with campaigns. Thanks.
The Utilitarian justification used by Companies of lying for the ‘greater good’ has its own pitfalls; dishonesty has consequences: loss of reputation, loss of trust, loss of customers, and being exposed by Choice. Go @jblakkarly!
Any company that is subject to the “continuous disclosure” obligations will find the opposite. If the directors withhold material information and that information emerges later on anyway then shareholders can sue - and this has happened. (It doesn’t matter whether the share price tanks or skyrockets - there will still be winners and losers either way. The market must be kept fully informed.)
An acquaintance once mentioned that, from when her children were young, she would talk to them about how each ad was designed to trick people watchers into purchasing. And how the psychology of advertising worked. She hoped to innoculate each of them from the impacts of advertising in general.
As adults, all three ended up working in advertising.
