A range of cases are currently before courts with a new raft of litigation focusing on transparency and ‘truth’ when it comes to business practices, stakeholder management and reporting, writes Honorary Fellow of the University of Melbourne Clare Payne.
As the new year gets underway, it’s interesting to think about what might change the way we think, shape our decision-making and shift things on the board agenda in 2022.
A driver of change is legal developments through new cases and legislation. A range of cases are currently before courts across jurisdictions, with a new raft of litigation focusing on transparency and ‘truth’ when it comes to business practices and reporting. The cases have been launched not just by advocacy groups, but also by consumers, an employee, a government official and investors.
The cases emphasise the need for boards to properly consider the points of view of different stakeholders and ensure that all published materials, from formal reports to advertising campaigns, are accurate.
Here are some of the cases I’m following that I think could shift business ethics this year and make their way up the board agenda:
Employee calls out their own employer on ‘greenwashing’
An investigation into Deutsche Bank AG's asset-management arm by the US Securities and Exchange Commission and German authorities continues following a whistle-blower claim (by the former head of sustainability) that it overstated its ESG credentials. This case is considered a ‘landmark probe’ and is being watched closely by the global fund management industry, and others. Desiree Fixler (the whistle-blower) has lost her German unfair dismissal claim, however the investigation into the claims about her employer continue.
Whilst it may be possible to win over investors and external stakeholders with sustainability claims (which are sometimes difficult to verify), businesses must also consider their own staff, who will have access to a fuller picture and therefore could become the organisation’s harshest critics. This can be helpful for those with genuine intentions for change, but presents a risk for those who are using the ‘green movement’ as a marketing tool rather than a way of doing business.
Greenwashing litigation extends beyond finance to corporates
Following a rise in alleged greenwashing cases worldwide, ranging from Ryanair (where it was determined an ad was misleading in February 2020) to the consumer-led claim against All Birds for exaggerating its sustainability credentials, Australia now has two cases of its own.
In November 2021, the Federal Court of Australia ordered the Commonwealth Bank to release documents to shareholders so they could check compliance with its own climate policies in relation to oil and gas projects. The case is considered ‘novel’, with experts predicting it could lead to a ‘new wave of strategic’ claims. The AFR reported that CBA’s directors and leaders are also included in the action, as the court ordered access to any documents considered by the board, committees, and executive team in its governance function regarding its 2021 climate commitments.
There is also a case in the Federal Court against Santos over its claims natural gas is clean fuel and that it has a credible pathway to net zero emissions by 2040. The case will argue Santos potentially engaged in misleading or deceptive conduct under both the Corporations Act 2001 (Cth) and Australian Consumer Law. Whilst some have criticised the case, it is likely to bring increased diligence to board practices as they sign-off on commitments and targets for the year.
Ongoing lessons from Elizabeth Holmes case
The case and conviction of Theranos ex-CEO, Elizabeth Holmes in early January gave us much insight to the practices of the world of venture capital and investing. Whilst they talked of the ‘start-up playbook’, such as creating hype and a fear of missing out in order to win investors, the more interesting point for boards and trustees is the exposure of a lack of due diligence by investors. In the rush to invest, many missed ‘red flags’ with the humiliating details of bad investments now on the record for those impacted to analyse and potentially launch further action.
Legislating disclosures to bring us closer to the truth
The drive for disclosure as a way to determine truth continues. The EU Taxonomy entered into force in July 2020 with the stated aim of providing companies, investors and policymakers with appropriate definitions for which economic activities can be considered environmentally sustainable. It is hoped the taxonomy will create security for investors, protect private investors from greenwashing, help companies to become more climate-friendly, mitigate market fragmentation and help shift investments to where it is most needed.
In December 2021, the New Zealand (NZ) Government followed suit by passing legislation making climate-related disclosures mandatory for large publicly-listed companies, insurers, banks, non-bank deposit takers and investment managers. Other voluntary reporting and disclosure frameworks continue to gain support with a push to adopt common metrics such as the IBC/WEF Stakeholder Capitalism Metrics Initiative.
Even if other jurisdictions don’t introduce further obligations like the EU and NZ, stakeholder expectations may force the same outcome, therefore boards would be wise to prepare regardless.
Three other cases of interest that could have ethical implications for board decision-making are:
- Right to repair rules to challenge accepted business models
Last year, US president Joe Biden gave an executive order for the Federal Trade Commission to create right to repair rules in response to anticompetitive practices. The rules will lift restrictions on using independent repair shops or doing DIY repairs of your own devices and equipment. This year, Biden gave an update supporting the changes. He was, “pleased to see the Federal Trade Commission unanimously announce that it would ramp up enforcement against illegal repair restrictions”.
For those in consumer goods, this shift will provide a challenge to business models and emphasises that boards should think ahead as to what is fair and reasonable in terms of business practices and models.
- Does your business have a greater responsibility to the public interest?
In June 2021, Ohio’s Attorney General filed a lawsuit claiming Google should be declared a public utility and therefore be subject to government regulation. The public interest aspects of this case will make for interesting reading for directors, particularly those with an interest in ‘purpose-led’ strategies.
- How much power does an employer have over employee choices such as vaccination?
Citigroup has set the end of January for all staff to be vaccinated or they will lose their jobs. The compliance rate is very high, but will those not intending to vaccinate (considered a small but vocal minority) take legal action, and what principles might be argued? Employers and boards should be watching with interest.
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