Principle 7 Of ASX - An Overview Of Its Implementation And The Consequences Of Non-Adherence Essay.

Principle 7 of ASX

Question:

Disuses About The Australian Security Investment Principle?

The Australian Security and Investment Commission’s Principle 7 states that it is the rightful duty of a company’s head directorial board to identify risk and devise measures to undertake the task to correct/reduce them. In case if a company is incapable of identifying and dealing with the risk detected, not only will it affect the company as a whole but also affect its stockholders. Such neglect may also affect the society, consumers and the current as well as the potential investors and employees as a whole[1].

Certain propositions were kept by the ASX in regard to the topic at hand, one of marketing requires that the top directorial board make their stand and contribute to the formation of a committee which will solely dedicate itself to risk management. The committee will prioritize the handling of risk in all efficiency by conducting yearly reviews the framework of risk management and insure its absolute readiness by implementing any new changes required[2]. Three members will be appointed as directors and will be bestowed with the power to deal with their task in utmost independence.

It has been stated by the ASX that the directorial board in the company are required to disclose what necessary auditory details related to its build and overall functions in running of the organization. It is necessary that the company reveal any auditory material that might lead to a potential social, economical or environmental jeopardy and state the measure that it would implement for their necessary corrections[3].

In the scenario that is provided to us, it was seen that the directorial committee of a company called the Ardent leisure is condemned for causing a small disaster and not having made any corrective measures for the correction of their failure. It has further been confirmed that the company had not only failed to realize the risk that it had undertaken but didn’t bother to take measures for its mitigation in any way.

It is known that if an accident were to occur in particular premises, all the damage caused by the said incident falls on the shoulders of the current occupier. Hence, the lives that were claimed resulting to the said accident in our case are to be tackled by Ardent leisure. Any framework adopted for the management of a potential mishap caused by a risk might have prevented any anomaly in the first place[4].

Case Study of Ardent Leisure

The crisis that happened before the occurrence of  the Dreamworld incident might have been dealt with if certain identification measures were in work. It can also be said that the measures might have prevented several casualties. If a certain degree of Professionalism was shown by the company, the disaster might have been prevented and the deceased and their families might have been at peace. Not only did the incident lead to a socio-economic and environmental loss, but it also had a bad effect on the company’s goodwill[5].

It is the legal obligation of the directorial board of a company to implement measure for the identification and handling of risk related to any financial or accounting task and to also prepare a framework for the management of risk as said in the Section 7 under the good corporate governance. It was previously discussed that the company is required to start up a committee with purpose to deal with the said task of assigning, finding and dealing with the supposed risk that might lead to future anomalies and accidents as in the case that is provided to us[6]. It was further said that this committee has the independence to prioritise only on the risk factor and work on the mitigation of any potential risk by taking a select few measures as in making the company cooperate by asking them for the full disclosure of all the documents that show risk, whether they be social, environmental, economical or financial.

In this incident, it is seen that the company, Ardent leisure was supposed to rightfully established a team in order to deal with the Dreamworld incident and to address the issues that had now taken disastrous turns. Since such a team was never created, post crisis issues remained untouched and undealt with in that instance since the team could have taken measures for reconciliation and betterment by upholding the principle 7 of ASK, which as read before deals with the risk management and finding and rectifying any sort risk that a company is liable to face in the near future events. As said before, if the presence of such a committee have resulted to a more sophisticated and handled approach to the risk at hand and the incident might have been suppressed, the damage could have been reduced extensively, or it might have never happened to begin with. So, it can be stated that the organisation not only failed to uphold the Principle 7 of ASX, but failed as a company to do right to the society and the men working for it[7].

Legal Obligations of Directorial Board

It was obvious that Ardent Leisure would have to face the legal authorities and suffer consequences for its actions of showing complete disregard for the risk framework of risk management and the importance of identification and correction of risk. It didn’t only face competitive disadvantage in the market but the infringement of Provision 7 of ASX for the good corporate governance resulted to its downfall[8]. Heavy losses will be faced by the company caused by certain unwanted risks that added onto the already crippling burden. The shock value the company’s goodwill was tremendous as investors would now refuse to purchase its stock or invest on the company in any way. In the non-appearance of a system that would establish proper risk management, the employees will be less accountable and will submit low quality work, leading to a massive decline in productivity.

The policy of “If not, why not” of the Australian Security Exchange allows a company the right to refuse the policies of ASX if, and only if the company has a valid and a logical standpoint on why it wouldn’t want to accept them and has policies that would be of better use for the protection of the risk factor. It is the job of the Chief Compliance Officer of the ASX to deal with the companies that refuse to follow its standards of ASX and know it full well and have no answer to the reason why. It would seem that these companies never applied for ‘If not why not’ or, they agreed to follow ASX principles but broke the rules nevertheless, though the aggrieved is given a chance to go for its defence in the ASX Appeal Tribunal^[9]. If in case there is a breach of law, then a penalty of $250000 is extracted, there is also a smaller penalty of $1000000 for the breach of Austra Care rules. In this case, ASX is entitled to issue penalties on the Ardent Leisure for breach of civil laws and disqualify the directors.

It is expected of the directors of an organisation to have act on their duties with absolute supervision and rigour, taking their directorial duties towards the stockholders and the organisation very seriously. It is expected that the director shows his supervision and rigour as any other person with a right mind would do sitting in a director's position, states the Section 180 of the Corporation Act 2001[10].

Consequences of Breaching the Legal Obligations

The breach of this law will lead to civil penalties with respect to the section 1317 of the act, as this section assigns important directorial under the common law. All decisions taken by a person on a directorial stand will always be considered legal, taken in good faith and legitimacy as in the Business Judgement Rule[11]. It is required that all the decisions taken by directors are made rationally with the sole purpose to of welfare and company's overall benefit. It is expected that a reasonable person would take the right actions with regard of the company’s best interest[12].

In the Australian Securities and Investment Commission (ASIC) v Cassimatis [2015]^[13], It was stated that if section 180 of the act was breached  then it would be the case of infringement by the part of the director and inconsistent decision making system of the company. It was stated that the directors having less obligations to work under, they have to make sure is to follow the primary obligations that are imposed upon them by the common law and exercise their duties in a consistent fashion as in ASIC v Matiner Corp [2015]^[14].

It has already been made clear that in this case the said company, Ardent Leisure, breached the principles laid down by ASX in regards to the risk management. It was observed in Matiner’s case, establishment of a violation of the section 180 of the corporations act 2001,  it must be proved that the company that is blamed has made a breach of the ideals stated in the common law by a prudent person.

In case of Ardent Leisure, since the director was a prudent person to begin with, the breach of the section 180 of the act, as read previously, it has been said that the person has to be of right mind in order to commit a breach of the law, so, in Ardent’s case, it is quite natural that the director was quite sane and the decisions made by the company were of little significance relating to the risk that resulted to the disaster, and so, it will be considered and further penalties will be imposed upon the company under section 1317 counting in the losses suffered by the company financially.

After facing much hate and criticism after the disastrous incident that led to the unforeseen deaths of many of the company’s patrons and also innocent civilians, the CEO of Ardent Leisure Pvt. Ltd., Deborah Thomas gave a resignation from her post. It is a well known fact that the company was known for its primary goal of spreading the entertainment sector across the United States and had gained much fame being one of the leading producers in the industry. It was noticed that the stock prices of the company had had a significant decline of 7.8% post the accident of the Dreamworld. Currently, the company is engaging itself in procedures to control the excess damage caused by the incident[15].

The authorities of the company claim to be working in order to sum up certain important factors and root out the actual cause of this devastating accident with significant help from the Police. The accident caused the company a loss of $49.4 million and has left it in a dire state. The company involved itself into working on the safety and precautionary measures that are to be taken in the coming future and so, the park remained closed for 45 days.

The company did the courtesy to rightfully admit to their disregard and utter failure in taking steps and acting with care and rigor within 48 hours of the accident, and also agree to the fact that if measure were taken beforehand, the incident might have been prevented. The company opted for support and professionals to deal with situation at hand, some of them included the ex police officer Mike McKay from Queensland and Deloitte, Graeme Newton, a crisis management expert. The company is now doing its best to insure safety by examining rides and making taking proper measures[16].

The ride that led to the unforeseen disaster, ‘Thunder River Rapid’, was shut down, not to be used again. In such events, where the relatives of many are in jeopardy, the principles of the Ten Commandments should be followed[17]. The principles clearly state that in case if a person dies, their family must be contacted in that very moment, though, it was seen that Ardent Leisure had decided to totally ignore such important rules in the first place. Yes, the company did take steps that included private collaboration schemes and introduction of risk management, but it was only after the incident happened. Though, it seems Ardent Leisure is still acting in defense stating that their Robust policies made them one of the most successful entertainment producers that are out there in the open market since 1981.

References

Baxt, R., and Fletcher, K.L., Fridman, S., Corporations and Associations Cases and Materials on, (Butterworths, Australia, 10th edition, 2008)

Booth, Simon A. Crisis management strategy: Competition and change in modern enterprises.(1^st Edition, Routledge, 2015)

Ciro T, Symes C, Corporations Law in Principle LBC Thomson Reuters, (Sydney, 9th edition 2013)

Fisher S, Anderson C, Dickfos, Corporations Law – (Butterworths Tutorial Series, 4th Edition Butterworths, Sydney 2014)

Harris J, Butterworths Questions and Answers Corporations Law:, (LexisNexis, 3rd Edition Sydney 2009)

Harris J, Corporations Law, (LexisNexis Study Guide 1st edition 2008).

Li, G, Riley, S. Applied Corporate Law: A Bilingual Approach  (LexisNexis 1st Edition 2009).

Parker, Clarke, Veljanovski, Posthouwer, Corporate Law, Palgrave 1st edition 2012

Tomasic, R.,Jackson, J.,Woellner, R., Corporations Law - Principles, Policy and Process (4th Edition Butterworths., Sydney, 2002).

Vermeesch,R B, Lindgren, K E, Business Law of Australia (Butterworths, 12th Edition, 2011).

 zpatrick, Symes, Veljanovski, Parker, Business and Corporations Law; (LexisNexis 3rd edition 2017

[1] Baxt, R., and Fletcher, K.L., Fridman, S., Corporations and Associations Cases and Materials on, (Butterworths, Australia, 10th edition, 2008).

[2] Parker, Clarke, Veljanovski, Posthouwer, Corporate Law,( Palgrave 1st edition 2012).

[3] Ciro T, Symes C, Corporations Law in Principle LBC Thomson Reuters, (Sydney, 9th edition 2013).

[4] Li, G, Riley, S. Applied Corporate Law: A Bilingual Approach (LexisNexis 1st Edition 2009).

[5] Harris J, Corporations Law, (LexisNexis Study Guide 1st edition 2008).

[6] Tomasic, R.,Jackson, J.,Woellner, R., Corporations Law - Principles, Policy and Process (4th Edition Butterworths., Sydney, 2002).

[7] Vermeesch,R B, Lindgren, K E, Business Law of Australia (Butterworths, 12th Edition, 2011).

[8] zpatrick, Symes, Veljanovski, Parker, Business and Corporations Law;( LexisNexis 3rd edition 2017).

^[9] Pearson, Gail. Failure in corporate governance: financial planning and greed’ (2016) 13(2)  Handbook on Corporate Governance in Financial Institutions 185.

[10] Corporation Act 2001 (Cth)

[11] Fisher S, Anderson C, Dickfos, Corporations Law - Butterworths Tutorial Series, (4th Edition Butterworths, Sydney 2014).

[12] Harris J, Butterworths Questions and Answers Corporations Law:, (LexisNexis, 3rd Edition Sydney 2009).

^[13] [2015] NSWSC 1744

^[14] [2015] 327 ALR 95 at [144]

[15] The Guardian. (2017) <https://www.theguardian.com › World › Australia › Dreamworld>.

[16] Dreamworld’S Parent Ardent Leisure Is In Damage Control (2017) NewsComAu https://www.news.com.au/finance/business/other-industries/dreamworld-parent-company-ardent-leisure-in-crisis-after-fatal-theme-park-accident/news-story/00c3d7a283c19e05427f273bb3a44e39

[17] Booth, Simon A. Crisis management strategy: Competition and change in modern enterprises. (1^st Edtion, Routledge, 2015).