AMP Capital was applauded last year when it committed to selling $600 million worth of shares that did not meet its ethical guidelines. However, barely a year after announcing it was getting rid of its direct and indirect interests in tobacco and landmines, AMP was itself ejected into a basket of “untouchables”.

Australian Ethical announced in May it was divesting itself of AMP shares in the wake of searing revelations from the Financial Services Royal Commission.

Billions of dollars were wiped from the value of AMP after the public and investors discovered the wealth manager charged “fees for no service” and steered people into investments that rewarded their financial planners, at the expense of the clients.

Head of ethics research at Australian Ethical, Dr Stuart Palmer, says there were a number of reasons behind the decision to divest, “… but specifically, a senior decision made within the financial planning business to charge clients fees for services they weren’t receiving. They knew it was wrong, they knew it was illegal.

“There were people in the business saying we need to stop doing this, and they kept doing it at a senior level”, he says.

The Royal Commission into Financial Services has been exposing the rot eating away at some of our biggest and most powerful corporations and has reenergised an ongoing debate about what is the actual purpose of business and who it serves.

Palmer says legal cases in the US established shareholder primacy a century ago, with the primary responsibility of business interpreted as creating profits for shareholders.

“Since then, and before then, there has been a debate about whether that is right, whether there are other ways of thinking about corporations having independent interests and responsibilities to all their stakeholders, including shareholders, but also employees, customers, suppliers and society”, says Palmer.

“None is necessarily dominant over the others, but they need to be balanced in the interests of all.”

This discussion about the role of the corporation is being weighed up at all levels, including by the chairman of NAB, Ken Henry, who delivered a speech in March saying that it was not enough for companies to use the “pursuit of profit” to explain away their contribution to negative consequences, such as greenhouse gas emissions and other forms of pollution.

“If that’s the best we can do, then we shouldn’t wonder that we find it so difficult to occupy positions of trust and respect in society. Neither should we wonder that politicians of all political colours have such an uneasy relationship with us”, he told a gathering of the Australian Institute of Company Directors.

This was a debate that the Commonwealth Bank non-executive director, Harrison Young, was alluding to when he wrote last year, “banks should not be profit-maximising institutions. They have duties to the community that oblige them to forego a certain amount of upside”.

Judith Fox, the CEO of the Australian Shareholders Association, says she is aware of increasing numbers of companies and boards having this discussion.

“I’m seeing a lot of conversations that ultimately are all about how something needs to change in the way we operate”, she says.

“I think we are one of those transition periods where there has been a social norm that the purpose of a company is shareholder return and that has been accepted in markets worldwide for four decades”, she says, adding the realisation that companies should stand for more than just profits may come as a surprise to people whose knowledge of economics does not extend further back than US economist Milton Friedman’s pronouncement in 1962 that there is only one social responsibility of business and that is to make money.

Friedman wrote in Capitalism and Freedom:

“There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”

Fox says the current debate about the role of the corporation is a return to the concept, popular in the 1930s – that business had a social role to play as well.

Professor of Human Rights Law at Sydney University, David Kinley, agrees that many people’s attitudes are formed by what they have experienced in the past 20 years.

“It is what they have seen since the 80s, which has been a long – until 2008 [the start of the Global Financial crisis] – largely uninterrupted boom period.”

Kinley says Scottish economist and philosopher Adam Smith would be horrified to see the societal cost of rampant free marketeers.

Smith had written in The Wealth of Nations, nearly 250 years ago:

“… that individual acts of economic self-interest combine, through the ‘invisible hand’ of market forces, to further the best interests of society at large”.

Says Kinley, “So, he certainly would be turning in his grave to see all this wealth, so much of it is now concentrated in the hands of the few. Yes, we are better off than we were 200 years ago. Unquestionably. But by God, it’s been at a big cost to the notions of equity and fairness.

“And [investor] Warren Buffett says often – and he is the second richest man in the world – he said he is amazed there are not more people with pitchforks heading for the rich like him because he can’t see how they don’t appreciate this appalling inequality.”

Kinley, author of Necessary Evil: How to Fix Finance by Saving Human Rights, says he is not advocating some sort of Socialist revolution, but remaking the “financial, commercial, corporate neoliberal system that we now have one that works better for people as a whole”.

“If you don’t do that, you have a bubbling up of disquiet, of resentment, that no matter what happens – even things like the global financial crisis – the rich, the powerful, the banking, the financial system, they sail through it, on the back of public funds that bailed them out because they had to be saved. When people ordinary people look at that, they say, ‘How is that fair?’.

“So you get the reaction of, ‘Well, let’s vote in somebody who is willing to drain the swamp, you know, shake up the area and I don’t care if he’s mad or narcissistic or a nincompoop. You put him in there in the White House and just see what happens.’

“These sorts of reactions are almost desperation. I don’t think they are logical, I don’t think they are at all laudable, but you see why people are doing it.”

While there is evidence ethical investments outperform the average large-cap Australian share funds over three, five and 10 year time horizons, Kinley maintains corporations and their executives should be ethical because it is the right thing to do, not because it might make them money.

“What I would suggest what all of us want to do in the morning, truly, is to stand in front of the mirror as you’re brushing your teeth and say, ‘I’m proud of what I do or at least I can see why I do what I do and it is something that is worthwhile’.

“You don’t want to look in the mirror and think, ‘Oh I’m making a lot of dosh, but Geez it is dodgy’.”

This article was originally written for The Ethics Alliance. Find out more about this corporate membership program. Already a member? Log in to the membership portal for more content and tools here.