Ethical and socially responsible business practice - the distinction between legal compliance and ethical responsibility, corporate social responsibility (CSR), the triple bottom line, stakeholder management, and the implications of ethical or unethical practice for the business

What this dot point is asking

QCAA wants you to know the distinction between legal compliance and ethical responsibility, the concept of CSR, the triple bottom line framework, stakeholder management, and the consequences of ethical or unethical practice. Both IA1 and IA2 frequently include ethics and CSR content; the EA almost always includes a stimulus business scenario that requires ethics analysis.

The answer

Legal compliance v ethical responsibility

Legal compliance is meeting the minimum standards imposed by law. In Australia these include the Corporations Act 2001, Australian Consumer Law (ACL), Fair Work Act 2009, Privacy Act 1988, Modern Slavery Act 2018, and industry-specific legislation. Non-compliance triggers fines, executive prosecution and reputational damage.

Ethical responsibility is going beyond what the law requires because the business judges it to be the right thing to do. It includes CSR commitments, voluntary sustainability commitments above the legal floor, and proactive supplier audits.

The law is the floor, not the ceiling. A business can be legally compliant and still act unethically (the law often lags emerging ethical standards). A business can also act ethically beyond what the law requires - and many do.

Corporate social responsibility (CSR)

CSR is a business's voluntary commitment to operate ethically and contribute to society beyond its commercial obligations. CSR typically covers:

• Community. Local employment, community investment, sponsorships, charity partnerships.
• Environment. Renewable energy, waste reduction, sustainable packaging, emissions reduction.
• Workplace. Diversity and inclusion, mental health, wellbeing, parental leave above the NES.
• Marketplace. Fair supplier terms, ethical sourcing, modern-slavery due diligence.
• Governance. Transparent reporting, ethical leadership, anti-corruption.

Australian businesses publish CSR or sustainability reports annually. Larger entities are also subject to mandatory disclosure regimes (the Climate-related Financial Disclosure regime from FY25; the Modern Slavery Act reporting; WGEA gender-equality reporting for 100+ employee businesses).

The triple bottom line (TBL)

John Elkington's (1994) framework proposes that business performance should be measured against three pillars - people, planet and profit - not just profit alone.

• People. Social impact - employees, customers, suppliers, community.
• Planet. Environmental impact - emissions, water, waste, biodiversity.
• Profit. Economic performance - financial sustainability that funds the people and planet commitments.

The TBL is the dominant framework underpinning most CSR and sustainability reporting. It implies that a business is not "successful" unless all three are tracking well.

Stakeholder management

A stakeholder is any party with an interest in the business. The seven groups commonly identified.

Ethical management considers all stakeholders over the long term, not just shareholders in the short term. Stakeholder interests can conflict - cutting wages improves shareholder return but harms employees - and the manager's job is to balance them.

Implications of ethical or unethical practice

Ethical practice is increasingly a competitive asset.

• Brand strength. Customers prefer to buy from businesses they trust. Aesop, Atlassian and Patagonia have built brand equity partly on visible ethical practice.
• Employee engagement. Workers (especially under-35s) prefer to work for businesses with a purpose beyond profit. Atlassian's Pledge 1 percent shows up in employee survey data.
• Investor preference. ESG-focused investment funds in Australia hold over $1 trillion in assets; ethical practice expands the eligible investor base.
• Regulatory positioning. Going beyond legal compliance positions the business ahead of likely future regulation (the climate-related financial disclosure regime is a current example).

Unethical practice is increasingly a competitive liability.

• Financial cost. ACL penalties (Telstra $50m for unconscionable conduct, Volkswagen$125m for "dieselgate", PwC's multi-million-dollar remediation costs).
• Reputational cost. Brand damage that takes years to repair.
• Executive cost. CEO and executive departures (Rio Tinto Juukan Gorge, AMP, multiple Banking Royal Commission cases).
• Customer loss. Switching to competitors perceived as more ethical.

Worked Australian cases

Banking Royal Commission (Hayne, 2017-2019)

The Big Four banks (CBA, Westpac, NAB, ANZ) were found to have prioritised commercial outcomes over customer interest across mortgage, insurance and superannuation businesses. The fallout: billions in customer remediation, multiple CEO departures, structural reforms (the end of trail commissions for mortgage brokers, restrictions on cross-selling). The financial cost has been well over $10 billion across the sector.

Rio Tinto Juukan Gorge (2020)

Rio Tinto detonated explosives that destroyed 46,000-year-old Aboriginal rock shelters at Juukan Gorge in WA for an iron-ore expansion, despite multiple internal warnings. Result: CEO and senior leader departures, a parliamentary inquiry, restructuring of community-relations practice, and a Reconciliation Action Plan reset.

PwC Australia tax leaks (2023)

A senior tax partner shared confidential Treasury consultations on multinational tax law with PwC's commercial team. Result: divestment of the public-sector consulting practice (Scyne Advisory), departures of senior partners, a Senate inquiry, and substantial reputational damage to PwC globally.

Atlassian Foundation (ongoing)

Atlassian publicly committed to Pledge 1 percent (1 percent equity, time and product to charity) at IPO in 2015. Through to FY24 the foundation has contributed over $50 million through grants and Atlassian product to NGOs. The Pledge has been a recruitment and brand asset and has been copied by other Australian tech businesses (Canva, Culture Amp).