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Directors Is An Institution Is Regularising

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Question:

Discuss About The Directors Is An Institution That Is Regularising?

 

Answer:

Introducation

Australian Institute of Company Directors is an institution that is regularising the membership to the directors in general has been discussed (Allen, & Kraakman, 2016). The membership is of non-profit in nature. The conception of non-profit membership has come into existence from the idea adopted by United Kingdom for the first time. In the year 1906, the Royal charter was formed and the idea of non-profit membership regarding the company director was adopted (Boxer, Perren & Berry, 2016). The Australian Government considered that idea in the year 1960. The Company director’s Association, which was converted into Australian Institute of Company Directors in the year 1990, governed the directorship in Australia. Australian Institute of Company Director is an international unit that has seven state branches. The organisation is comprised of four national directors, one divisional director each for the seven state divisions, and one Managing Director and Chief Executive Officer. The present MD of the association is John Brogden who is appointed for the post in the year 2015. In this report, there are certain provisions made that are throwing light on the different aspects of the AICD’s approaches regarding the duty of the directors towards the shareholders. The main theme of the report is to prepare a report to the AICD about the responsibility of company director towards the shareholder. There are certain issues relating to ASX affiliated company has been adjudged here.

 

Background of the case:

The case is dealing with the company related matter of an ASX affiliated company, where it was held that the interest of the shareholders must be placed over other stakeholders and a report is to be done to this effect. The company disputes are govern by the Corporation Act 2001 in Australia. The Act is comprised of several sections that are discussing the composition and function of the companies that are to be registered under Australia (Brennan, Kirwan, & Redmond, 2016). The genus of a company is stakeholders. The stakeholders are that part of the company, without whom it is not possible to run the company properly. Stakeholder includes the shareholders, directors, unions, and other related staffs of the company. Another term that is used in this subject is the shareholder. The shareholders are the species of a company. There are certain duties of a shareholder in the company affairs. They can purchase the share of a company and can sell them. They play an important role in the appointment of the company directors and the external auditors. They take active participation in the annual meeting of the company. Regarding their active part in the management of the company, their selection process has been mentioned in the company’s memo (Chassagnon & Hollandts, 2014). A person, whose name is registered under the company register, can only become the shareholder of the company. They can cast their votes regarding the appointment or removal of the Board of Directors and in case of reappointment of the directors also.

The term stakeholders are of important in nature (Choudhury et al., 2015). In the year 1983, the term was introduced. Stakeholder is conceptualised by Edward Freeman. The term denotes the related person regarding the management of the company. It is stated that a company cannot even work properly without the stakeholders as all the important personalities are part of stakeholders (Clayton, 2014). Shareholders are one of the most important part of that and due to that reason they get certain benefits that are provided by the company and by the directors too.

 Purpose:

The main purpose of the report is to come into a conclusion regarding the director’s duties in case of the shareholders. There are several provisions of Corporation Act 2001 has been attracted and certain sections like section 180 and 181 of the same Act has been mentioned by specifically stated all the relevant clauses that will help to come into a conclusion. It is to be find out the validity of the issue that the director of a company should owe due diligence and extra care to the shareholders and place their interest above all other stakeholders.

Scope:

The subject matter of the case is to decide a dispute whether the Director of a company owes a special duties to the shareholders. In this report, an effort regarding the determination of the matter has been discussed. This report has discussed many points regarding the stakeholders and shareholders and the duties of the Directors regarding the same and a justification for the notion has been discussed with a view to obtain the ultimate answer.

Problems:

In case of any successful project task, research is necessary and there must be certain research question that can help to come into a conclusion regarding the same. In this case, the research questions are as follows:

  • Does the director of an ASX affiliated company should give importance to the interest of the shareholders?
  • Do the shareholders play an important part in the company?
  • Does the director of a company should give benefit to the shareholde

Director’s duties:

The duty of the director should be clarified before discussing the main plethora of the case. A director of a company has following duties:

  • A director has some duties to the company as well as the shareholders of a company;
  • The director must be comply with the duties in good faith;
  • The directors must show a standard way to comply with the duties imposed on them;
  • The director should have an intention to promote the business;
  • The directors must not misuse his post inappropriately.

There are certain provisions regarding the promotion of the company that is one of the primary duties of the directors. In Hutton v West Cork Railway Company (1883) 23 Ch D 654, it was observed that the director should not demote the reputation of the company by simply any monetary matters. The acts of the director must be bonafide in nature. In Dorchester Finance Co. Ltd v Stebbing [1989] BCLC 498, it was observed that a director must show such due care which a prudent man do.

The director of a company should be responsible for the management of the company and should be work as a communication link between the administration of the company and the stakeholders (Hiller, 2013).

 

Solutions:

There are certain research problems that are to be resolved, discussed and analysed in broad way with sufficient provision regarding the same (Pettigrew, 2014). The first problem is to whether the directors should place the interest of the shareholders above all other stakeholders. The court’s decision regarding the same is negative in nature. According to various previous judgment, the court’s are of the decision that it is not necessary for the Directors to owe special duties to the shareholders. The directors should only take due care to the corporation. The reason behind the same is that the shareholders are a part of the corporation. There are certain other reasons behind the same (Walther, Morner & Calabrò, 2017). However, it should be kept in mind that the shareholders are the most important part of the stakeholders and for the betterment of the company, their assistance is needed. The share market portfolio is being determined by the investment procedure of the shareholders. Therefore, it is important to decide the share market strategies for the benefit of the shareholders. They are participated in the joining of the directors and meet the annual meeting of the company on regular basis. There are certain legal provisions regarding the membership of the shareholders as every person has no right to become the shareholder of a company. There are certain dissimilarities between the company and the shareholders. The shareholders are interested in the short-term investment, while the companies are opted for the long-term investment, as that will facilitate the ultimate gain for the interest of the company. However, that does not create any obligation regarding the same.  

Regarding the second problem, it can be stated that the role of the shareholders regarding the company are of variant in nature. They are responsible for the growth of the company. Law provides them ultimate power so that they can take active co-operation regarding the internal activities of the company. The management committee of a company is its Board of Directors. Shareholders are taking an active part regarding the appointment of them. Therefore, it can be stated that the shareholders are playing an important role in the management of the company.

The last problem regarding the topic is controversial in nature. The controversy regarding the matter takes place due to the contrasting opinions of the Court of law. In some cases, the courts are of the view that the directors are only responsible to the company and not to anyone. Therefore, it is not required that the directors must dispose certain special duties to the shareholders. On the other hand, there are certain notions that are attracted the separate character of a company, which states that a company is a separate legal entity from its member (Too & Weaver, 2014). In the well known decision of the Salomon v Salomon, it was stated by the court that the company is a separate legal entity and is not liable for the acts of its members.

ACRUX is an ASX listed company that is dealing with Pharmaceuticals product that has certain problem regarding the shareholders interest and the board of Directors of the company thought the shareholders are the part of the company and therefore, was not in the opinion to give them extra benefit. However, there are many cases where it has been stated that the company is separate entity. Regarding the works of the shareholders, it can be stated that the role of shareholders are of important in nature. Thus, they should be getting certain advantage from the company or from the directors acting on behalf of the company.

The Corporation Act 2001 governs the company law in Australia. As per the opinion of Hiller, section 181 of the Act provides certain provisions regarding the acts of the directors so that they can use their powers in good faith. The shareholders are an important part of the company. Therefore, the directors must owe certain duties to them.           

As per the provision of section 181 of the Corporation Act, a director should do their duties to the persons as per the provision of law and should not misuse their power. In this case, there are two sides of the topic. The positive part is that the directors owe duty to the shareholders and the negative part is that they have no duty towards the shareholders. By investigating the facts of the case laws, it is observed that the decision of the case law on the point that company is a separate legal entity is much more acceptable. In the case, MacLaine Watson v Department of Trade And Industry [1989] 3 All ER 523, the same notion has been taken into consideration and therefore, it can be stated that the director of a company should has certain duties towards the shareholders of a company by considering their role in the company.

 

Recommendation:

Following recommendation can be made in the light of the above discussion:

It is recommended that the shareholders are one of the main characters in a company or corporation. Therefore, they have the ability to get some special treat from the company or from the Director acting on behalf of the company.

It is recommended that shareholders are liable for the economic growth of the company. Therefore, some additional benefit should be given to them.

It is recommended that shareholders be not to be treated with other stakeholders in a same category. They play a vital role in the administrative work of the company and they are playing a vital role in the appointment of the directors. Therefore, they owe certain benefits from the Director of the company.

It is also recommended that the company is a separate legal entity and the shareholders are not to be included as a part of it. There is a rule under the Company Law that the shareholders are not liable for the debt of the company. Therefore, it can be stated that the shareholders are a part of the company but it has a separate legal interest and the Director must has to protect these legal rights of the shareholders.

It is also recommended that there are some provisions in the Corporation Act 2001 where it has been mentioned that the director of a company is needed to take care to the stakeholders and to the company. Shareholders are a part of the stakeholders. Thus, it is the primary duty of the director to protect the interest of the shareholders.

It is recommended that the shareholders have attended all the annual board meeting of the company. They have participated in the appointment meeting regarding the company’s board of directors. It is the reciprocal duty of the company to involve them in the decision-making committee in certain circumstances. Shareholders are participating in the constitution-making meeting regarding the company and therefore, it can be stated that they play an important role in the company.  

 

Conclusion:

Therefore, from the above discussion, it can be stated that the shareholders of a company are holding an important position in the management of a company and the director of a company must owe certain duties that are to be complied with good faith towards the shareholders. Under the provision of the Corporation Act 2001, certain duties by the directors are to be mentioned and there are certain case laws that are working as an evidence to the fact that the Director’s owes certain rights to the shareholders.

 

Reference:

Allen, W. T., & Kraakman, R. (2016). Commentaries and cases on the law of business organization. Wolters Kluwer law & business.

Boxer, R., Perren, L., & Berry, A. (2016). SME managing director and non-executive director trust relations: The dynamic interplay between structure and agency. International Small Business Journal, 34(3), 369-386.

Brennan, N. M., Kirwan, C. E., & Redmond, J. (2016). Accountability processes in boardrooms: a conceptual model of manager-non-executive director information asymmetry. Accounting, Auditing & Accountability Journal, 29(1), 135-164.

Bunger, A. C., Collins-Camargo, C., McBeath, B., Chuang, E., Pérez-Jolles, M., & Wells, R. (2014). Collaboration, competition, and co-opetition: Interorganizational dynamics between private child welfare agencies and child serving sectors. Children and youth services review, 38, 113-122.

Chassagnon, V., & Hollandts, X. (2014). Who are the owners of the firm: shareholders, employees or no one?. Journal of Institutional Economics, 10(1), 47-69.

Choudhury, S., Rodriguez, L., Curtis, D., Oler, K., Nordquist, P., Chen, P. Y., & Ray, I. (2015, October). Action recommendation for cyber resilience. In Proceedings of the 2015 Workshop on Automated Decision Making for Active Cyber Defense (pp. 3-8). ACM.

Clayton, M. (2014). Who are Your Stakeholders?. In The Influence Agenda(pp. 26-39). Palgrave Macmillan UK.

de Gooyert, V., Rouwette, E., van Kranenburg, H., & Freeman, E. (2017). Reviewing the role of stakeholders in Operational Research; A stakeholder theory perspective. European Journal of Operational Research.

De Silva Lokuwaduge, C., & Armstrong, A. (2015). The impact of governance on the performance of the higher education sector in Australia. Educational Management Administration & Leadership, 43(5), 811-827.

Deegan, C., & Shelly, M. (2014). Corporate social responsibilities: Alternative perspectives about the need to legislate. Journal of Business Ethics, 121(4), 499-526.

Hiller, J. S. (2013). The benefit corporation and corporate social responsibility. Journal of Business Ethics, 118(2), 287-301.

Khan, Y. I., Al-Shaer, E., & Rauf, U. (2015, October). Cyber Resilience-by-Construction: Modeling, Measuring & Verifying. In Proceedings of the 2015 Workshop on Automated Decision Making for Active Cyber Defense (pp. 9-14). ACM.

Pettigrew, A. M. (2014). The politics of organizational decision-making. Routledge.

Too, E. G., & Weaver, P. (2014). The management of project management: A conceptual framework for project governance. International Journal of Project Management, 32(8), 1382-1394.

Tricker, R. B., & Tricker, R. I. (2015). Corporate governance: Principles, policies, and practices. Oxford University Press, USA.

Walther, A., Morner, M., & Calabrò, A. (2017). The role of behaviorally integrated nominating committees in non-executive director selection processes. European Management Journal, 35(3), 351-361.

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