Dr Kirrily Jordan’s call for transparent appraisal of the effectiveness of the Australian Employment Covenant (AEC) to create 50,000 jobs for indigenous Australians, launched by Andrew Forrest and Kevin Rudd two years ago, is timely. But underpinning any assessment of the AEC, should be a broader scepticism about the shibboleth of corporate social responsibility.
In blunt terms, imagining that corporate Australia would employ Aboriginal people out of the goodness of boardroom hearts is as wrong-headed as thinking that all those burgers are actually cooked by a cheery red-headed bloke called Ronald.
It’s obviously a good thing if Aboriginal job seekers have access to real employment in the commercial sector. But let’s not pretend that private enterprise giving jobs to Aboriginal people with suitable training was ever going to be motivated by faith or charity. This perspective is not radical but conservative and legalist: simply put, the legislatively prescribed function of corporations is to maximise returns.
As Leon Davis, former CEO at Rio Tinto — a leader in the development of effective indigenous employment strategies — and a man never far from the news once freely acknowledged, the case for corporate social responsibility is both “hard headed” and “entirely rational”, because when businesses “are seen as modern and responsive … costs are reduced, regulatory risks are lowered and brands enhanced” (the quoted is referenced here). In a famous article in The New Yorker in 1970, Milton Friedman wrote:
…in practice the doctrine of social responsibility is frequently a cloak for actions that are justified on other grounds rather than a reason for those actions.
To illustrate, it may well be in the long run interest of a corporation that is a major employer in a small community to devote resources to providing amenities to that community or to improving its government. That may make it easier to attract desirable employees, it may reduce the wage bill or lessen losses from pilferage and sabotage or have other worthwhile effects. Or it may be that, given the laws about the deductibility of corporate charitable contributions, the stockholders can contribute more to charities they favor by having the corporation make the gift than by doing it themselves, since they can in that way contribute an amount that would otherwise have been paid as corporate taxes.
In each of these — and many similar — cases, there is a strong temptation to rationalise these actions as an exercise of “social responsibility.” … this is one way for a corporation to generate goodwill as a by-product of expenditures that are entirely justified in its own self-interest.
Friedman’s analysis is in this respect essentially right. There ain’t any such thing as a free lunch and corporations will only do what is in their business interest. The AEC is a case in point. Under the scheme, in essence Forrest and other participating business leaders were undertaking to do little more than provide jobs for Aboriginal employment seekers with appropriate training qualifications — hardly a trial in a nation where skilled labour is in short supply. And much of the heavy lifting in training and placing indigenous job seekers under the AEC is done by Commonwealth agencies.
I’ve met Forrest a couple of times and there is no doubt he is a charismatic character who inspires confidence in his ability to crash through. But Forrest’s Fortescue Metals Group, like every other public company, is bound by the requirement to maximise returns for shareholders. Corporations simply do not do something for nothing. If you really want business to engage in some activity that will cost it money, you need good regulations or market incentives to make it so.