Corporate Governance: Directors' Duties and Independent Directors

Running Head: CORPORATE GOVERNANCE
CORPORATE GOVERNANCE
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Author Note

1CORPORATE GOVERNANCE
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.

2CORPORATE GOVERNANCE
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