Corporate Governance: Directors' Duties and Independent Directors

This article discusses the duties of directors and independent directors in corporate governance. It covers the rules, issues, and applications related to corporate governance. It also provides insights into stakeholder interests and monitoring functions. The article cites relevant cases and legislation to support the discussion.

Running Head: CORPORATE GOVERNANCE
CORPORATE GOVERNANCE
Name of the Student:
Name of the University:
Author Note

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Answer A
Issue
The issue indentified in this situation is that does directors duties takes into consideration stake
holders rather than shareholders? The issue is also to identify that whether companies should
have responsibility to the stakeholders
Rules
The directors while making decision for the organization as a part of their duties are imposed
with various obligations and duties under the legal system. These duties primarily mandate the
directors to base their actions in the interest of the company as they have a fiduciary relationship
with the company.
On the other hand the principles of corporate governance are placed in a company whereby the
company is asked to take into consideration
The due diligence and care duty present a guideline before the directors that their actions should
show a reasonable degree of care and diligence. Reasonable signifies what a reasonable person
would consider as being appropriate in the situation under section 180(1) of Corporation Act
2001 (Cth).
The duty of “good faith”, “best interest” and Proper Purpose” present guidelines before the
directors to acts honestly. The term “best interest of the company” does not within its express
meaning take into consideration interest of the stakeholders.

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In the case of ASIC v Hellicar [2012] HCA 17 it had been stated by the court that the directors of
failing to purse profits for the company will fail to comply with section 181. The best interest of
the company can be considered as an interest of creditors when the company is bankrupt.
Application
There are various stakeholders who are involved in a business other than the business itself and
its shareholders which include suppliers, investors, consumers and the community as a whole.
The provisions of section 181 as discussed above state that the directors have to act in the
company’s best interest. The interest does not take into consideration stakeholders expressly.
However it has been argued by Keay (2014) that the best interest of the company also means its
reputation in the society. Thus even if the provisions of section 181 do not expressly state that
the company has to take into consideration interest of the stakeholders there is an implication
that the functions of the company must not harm its reputation in the society. Thus to pursue
compliance with the section of the legislation the interest of the community may be taken into
consideration to maintain the reputation of the company within the society.
In addition the interest of the stakeholders such as the public who wants to invest in the company
is also protected via provisions such as section 674 and 728 of the CA. This is done by asking the
company to make continuous disclosures in relation to a disclosure documents which may affect
the opinion of the public for making the investment. The latter section provides that no
misstatement should be provided and no omissions can be made in relation to disclosure
documents such as a prospectus which may risibly affect the share price.
Conclusion

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Thus it can be stated that even though indirectly the duties of directors address other stakeholders
interest.
Answer B
Issue
Whether independent directors sufficiently perform their monitoring function when they not
have time and the comprehensive information of the company business
Rule
It has been provided through recommendation 2.5 of the ASX corporate governance principles
that the chair has to be an independent directors. The same individual should not exercise the
role of the chair and the chief executive.
Where the chair is independent it may lead to a culture of openness and also provides for
constructive challenge which enhances the chance for diverse views to be taken into
consideration by the boards.
The relationships which affect the status of being independent includes substantial shareholder,
executive employee for the last three years, supplier or customer, employee of professional
consultants, contractor, family ties and being a director for the long time
The corporate governance principle in the USA allows the CEO and the chair to be the same
person.

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Principle 2.4 provides that the board should in majority be made up of the independent directors.
A independent director will be a person present in the board of directors if such person is free
from any in position, interest, relationship or association which may influence or may be
perceived to influence the capacity of providing an independent decision in relation to the issue
before the board and act for the company’s best interest.
Application
The primary objective for which an independent director is appointed is to supervise the
functioning of the board of directors. It has been argued by Watts (2015) that experienced
directors are required for the purpose of taking effective functioning of the corporation. An
effective independent director is a person who is non executive but is engages, challenging but
supportive and independent along with being involved.
However there have been may instances where it has been seen that the independent directors
have not been successful because of the lack of knowledge which is possessed by them. They are
dependent on the information which can only be provided to them by the management. The
personal qualities of a person cannot be compelled by a regulation. It has also been provided that
independent directors may lack expertise. Thus a board in order to be effective requires a proper
mix of non-independent and independent directors so that proper expertise, experience,
intelligence and sense of ethics and responsibility may be attained by the board of directors. The
incorporation of independent directors challenges conventional wisdom while ensuring that
collegiality of the board room is not destroyed. They also ensure that high-level decision-making
is not dominated by issues arising out of intra-family dynamics.

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Therefore it can be stated that even where the independent directors do not have time and the
comprehensive information of the company business independent directors sufficiently perform
their monitoring function as they being into the board various other benefits which make the
executives directors function in a proper manner.
Conclusion
Thus it can be concluded that independent directors sufficiently perform their monitoring
function even if they do not have the required expertise.

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References
ASIC v Hellicar [2012] HCA 17.
Corporation Act 2001 (Cth)
Keay, A.R., 2014. Directors' Duties. Jordans.
Watts, P.G., 2015. Directors' powers and duties. LexisNexis NZ Limited.