Directors' Duties and Responsibilities towards Stakeholders in Australia

This article discusses the general and specific duties of directors towards the corporation and other stakeholders in Australia. It also covers the responsibilities of directors as provided in different statutes and regulations. The article emphasizes the importance of ethical and responsible behavior in the operations of corporations to benefit society as a whole.

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Introduction
A company is an artificial person created by law, the operations and the management of
which, is undertaken by either the members of the company, or the directors. The members of
the company are vested with the powers of the election of the board of directors, who in turn
are entrusted with the responsibility of the management of the affairs of the entity as per the
section 198A (1), of the Corporations Act, 2001 (Cth)1. Generally, some of the main
functions of the directors of the company are overseeing the daily processes of business
management, implementation, and formulation of the business policies, strategies, and goals,
meeting the various compliance requirements on behalf of the company; and reporting the
results of the activities of the company to the members and the other stakeholders. The chief
duties of the directors are however prescribed in the sections 180 to 184 of the Corporations
Act, 2001, as established in ASIC –v– Cassimatis2. These are referred to as the general duties
of the directors, as referred to in the case law of Elliott v ASIC3.
General duties towards the Corporation
As per the section 180 of the Corporations Act, directors are required to exercise care and
diligence while they discharge the managerial functions of the entity4. Thus, the directors
must take care of the assets and the property of the company and make sure that the business
functions are taking place smoothly, within the framework of the industrial and other laws.
The same was established in the case law of ASIC v Wizard5.
1 Corporations Act, 2001 (Cth).
2 (No 8) [2016] FCA 1023
3 10 VR 369; 205 ALR 594.
4 Corporations Act, 2001, s180.
5 (2005) 145 FCR 57; 219 ALR 714.

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Section 181 of the said act requires the directors to act in the good faith6, which means that a
director must take the decisions that are in nature of the best interests of the company. As the
directors are in a fiduciary relationship with the company, they must not let the conflict of
interest over rule the trust and faith placed by the corporation over his or her position. The
duty was accorded in the case law of AWA Ltd v Daniels t/as Deloitte Haskins and Sells7.
The third general duty is prescribed in the section 182, which states that a director must not
make an improper use of the position in the company8. The duty was established in ASIC v
Fortescue Metals Group Ltd9. The improper use can take place when a director enters into the
arrangements, which would result in the personal enrichment for him, any of his relative or
any of his acquaintances. Lastly, the general duty as laid down in the section 183, states that a
director of a corporation must not make the improper use of the information that has been
obtained by him during discharge of his managerial functions10. The duty was also
pronounced in the judgement of Commonwealth Bank of Australia v Friedrich11.
Thus, it can be said from the above listed duties that a director must act in accordance with
the general duties only, which have been prescribed taking into the interests of the
corporation. The specific duties of the director does not say anything about the answerability
of the directors towards the other stakeholders connected to the company, namely the
employees, community suppliers, regulators, and the society and environment as a whole. As
a result, a wrong inference may be drawn by the persons as to the directors duties are limited
only to the performance of the above listed general duties.
6 Corporations Act, 2001, s181.
7 (1992) 7 ACSR 759.
8 Corporations Act, 2001, s182.
9 (2011) FCAFC 19.
10 Corporations Act, 2001, s183.
11 (1991) 5 ACSR 115; 9 ACLC 946.

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Other responsibilities of the directors
However, a thorough reading of the Corporations Act, gives an insight that director duties are
not limited only towards the shareholders and the corporation. Some of the other
responsibilities, which the directors must consider while serving the corporation, are as
follows.
Firstly, as laid down in the section 190 of the Corporations Act, if a director delegates his
duty as per the provisions of the section 198D12, further to any other person, director would
still be responsible for the acts that have been performed because of delegation13. Thus,
directors would be held responsible on behalf of the person on whom such delegation is
made.
Secondly, as prescribed by the section 191, directors of the company are required to ensure
proper maintenance of financial books and records14. This is in nature of the responsibility to
report the transaction to all the stakeholders in a reliable and reasonable manner. The
reporting and the presenting of the financial statements cannot be done properly, unless the
same are prepared in accordance with the prescribed laws, accounting standards
Thirdly, as prescribed by the section 208, directors of the company are required to disclose
their personal interest to the market. This section enables the various stakeholders to know
the nature and kind of personal interest they possess in the corporation’s shares, property,
contracts and arrangements and more.
12 Austlii, Corporations Act 2001 - sect 198D (2018) <
http://www5.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s198d.html>.
13 Corporations Act, 2001, s190.
14 Corporations Act, 2001, s191.

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Fourthly, the section 205 G requires a director to disclose their interest in relation to the
related party transactions and contracts15. This becomes essential when a related party of a
director is the beneficiary of any arrangement or is a party to a contract. The nature of
contract may be on lines of any services being provided by the related party to the company
and in return getting the remuneration for the same, or transactions in terms of the purchase
contracts of assets, stock, or any other property. Further, the related party may be appointed
at executive positions of the company or may be an auditor of the accounts of the company.
The same are required to be disclosed in the annual reports and the financial statements, to
give the various stakeholders the idea of the personal interest of the directors in terms of both
the quality and the quantity.
Further, to add, a director is required to lodge the necessary information with ASIC, in
respect to the affairs of the company and the conduct of the executives, from time to time.
This is again a regulatory requirement and is necessary to be complied with as required by the
regulators.
According to the section 674, directors of the corporation are mandatorily required to make
disclosures of information that may affect the share prices of the company16. This is because
as the directors also sometimes possess shares, it must be ensured on their part that they are
not enriching themselves from the position held by them.
Lastly, as prescribed by the Section 1043A, of the Corporations Act, the directors are
required to ensure on their part that they are not party to the insider trading arrangements,
whether intentionally or intentionally, through any other party or own behalf17. This is
because as the directors have access to the necessary information of the operations, policies
15 Corporations Act, 2001, s205.
16 Corporations Act, 2001, s674.
17 Corporations Act, 2001, s1043A.

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and the changes in the company, the same can vitally affect the share prices of the company.
In order to protect the interests of the shareholders, regulators, debt holders, suppliers and
other stakeholders, it is the responsibility of the directors to maintain the confidentiality of
such vital information.
Responsibilities as provided in the different statutes
As the corporations are a part of the industry and the society, a number of laws and
legislations govern the operations and the management of the same. A number of the Federal,
State, and the Territory statutes regulate a company and its operations in Australia, to guide
their conduct and behaviour towards various stakeholders. The various laws and the
responsibilities are described as follows.
Consumers: For instance, the consumer protection laws such as Competition and Consumer
Act 2010, is laid down in order to protect the right of the consumers while dealing with an
entity18. A corporation is required to ensure that the consumers are provided quality products
at competitive prices.
Employees: Health and safety laws such as like the Fair Work Act, 2009 are specifically laid
down to ensure the healthy working conditions for the workers and the employees of the
organisation. Some of the other laws prescribed for the employees are Equal Opportunity Act
2010, which are enacted to ensure that the employees are not discriminated on the basis of
race, colour, religion, sex, nationality, origin, pregnancy or marital status, disability and age19.
The section 789FD of the Fair Work Amendment Act 2013 (Cth), the Sex Discrimination Act
1984, Disability Discrimination Act 1992, and more such statutes have been enacted to
18 Competition and Consumer Act 2010.
19 Australian Human Rights Commission, Workplace discrimination, harassment and
bullying (2018) < https://www.humanrights.gov.au/employers/good-practice-good-business-
factsheets/workplace-discrimination-harassment-and-bullying>.

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protect the employees from bullying, harassment, sexually offensive and partial conduct at
the workplace20.
Environment: In Australia, the State and Territories are responsible for most environmental
matters. Thus, the corporations are required to work within the framework of the rules and
the pronouncements of the Environment Protection Authority of each of the state, depending
upon the region of operations of the entity.
Others: Various other laws that are required to be abided by the directors and the entity are
environmental laws, taxation laws, marketing laws in terms of the regulations on the
advertisements, and more demonstrate a director’s duty towards the various regulators and
the communities.
In addition to the above legislations, listed companies are also required to abide by the ASX
Corporate Governance Council Principles and Recommendations, as laid down by the
Australian Stock exchange, in the year 200321. These are mandatory for the listed companies
and are prescribed on the lines of the fair dealings, transparent business practices, and the
improved governance practices. These principles mandate the companies to conduct their
operations ethically and responsibly, while safeguarding integrity in financial reporting,
ensuring the payment of proper and fair remunerations, respecting the rights of the security
holders and more. Globalization and the corporate governance trends also require the
companies to be ethically responsible towards the range of communities they are dealing
with. Thus, the companies are actively engaged in the preparation and presentation of their
respective sustainability reports. The sustainability initiatives are not just part of the goodwill
20 Victorian Equal Opportunity & Human Rights Commission, Discrimination –
Workplace (2018) <
https://www.humanrightscommission.vic.gov.au/the-workplace/workplace-discrimination>.
21 Australian Stock exchange, Corporate Governance Principles and Recommendations
(2018) < https://www.asx.com.au/documents/asx-compliance/cgc-principles-and-
recommendations-3rd-edn.pdf>.

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enhancement process of the company, but also are required to be done as part of the societal
responsibilities of operations.
Thus, as per the discussions conducted in the previous sections, it can be concluded that
though the general responsibilities of the company as being listed under the sections 180 to
section 184 of the Corporations Act, 2001, requires the directors to act in the best interests of
the corporation. However, the duties and responsibilities of the directors are just not limited
to towards the corporation and its members, when it comes to the practical and actual
application. A number of additional duties as prescribed in the various sections of the
Corporations Act, as listed above highlight the director’s responsibilities towards the other
stakeholders group as well. These include the employees, suppliers, consumers, regulators
and the environment too. In addition, it can be said that a corporation cannot succeed in long
run, by overlooking the interests of the society as a whole. This is because profit earning and
shareholder maximisation is just one side of the coin. The other side of the coin is inculcating
ethically sound, moral behaviour in the operations of the corporation, to benefit the society as
a whole.

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Bibliography
Articles/Books/ Journals
Australian Human Rights Commission, Workplace discrimination, harassment and bullying
(2018) < https://www.humanrights.gov.au/employers/good-practice-good-business-
factsheets/workplace-discrimination-harassment-and-bullying>.
Australian Stock exchange, Corporate Governance Principles and Recommendations (2018)
< https://www.asx.com.au/documents/asx-compliance/cgc-principles-and-recommendations-
3rd-edn.pdf>.
Victorian Equal Opportunity & Human Rights Commission, Discrimination – Workplace
(2018) < https://www.humanrightscommission.vic.gov.au/the-workplace/workplace-
discrimination>.
Cases
ASIC v Cassimatis (No 8) [2016] FCA 1023
ASIC v Fortescue Metals Group Ltd (2011) FCAFC 19.
ASIC v Wizard (2005) 145 FCR 57; 219 ALR 714.
AWA Ltd v Daniels t/as Deloitte Haskins and Sells (1992) 7 ACSR 759.
Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115; 9 ACLC 946.
Elliott v ASIC 10 VR 369; 205 ALR 594.

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Others
Austlii, Corporations Act 2001 - sect 198D (2018) <
http://www5.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s198d.html>.
Competition and Consumer Act 2010.
Corporations Act, 2001 (Cth).