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Corporate Governance in Australia : Assignment

   

Added on  2020-03-28

5 Pages1511 Words49 Views
INTRODUCTIONGood corporate governance in Australia prominently supports a board which is independent in nature, specifically with regards the companies which are listed in the ASX. As per the ASX Corporate Governance Principles and Recommendations 1, more than 50 percent of the members in the board should not be dependent or related in any way. If the board thinks that it would not follow the said recommendation, then it will have to state the reason behind the said decision1. The theory which talks behind the said statement is that the directors should not be prejudiced by anybody or such linkages in any manner which would intervene with theimplementation of their imaginative and autonomous judgement. As directors of IPO Insurance Limited, both Peter and Jane are legally bound and accountable to the company under the common law, fiduciary duties and statute law. There responsibility comprises of performing the duties in such a manner so as to ensure that there does not exist any conflict ofinterest, they perform their duties with care and diligence and for a purpose which is best suited for the health of the company and last but not the least, to use the position they hold and data they possess in a proper manner. Although a board can very well have a mix of executive and non-executive directors as there lies no such proof that a board with independent directors will only perform to the best interest of the company2. WHAT IS THE DUTY OF AN EXECUTIVE DIRECTOR (PETER IN THIS CASE) WITH REGARDS A COMPANY LISTED IN THE ASXExecutive directors are to perform dual functions, one of a senior executive such as CFO and the other of a board member. In the eyes of law, even if they are employees of a company on a full time basis yet they have to comply with the basic duties and responsibilities entrusted on the directors. The same is a common phenomena in companies which are listed in the stock exchange or even those whose scale of operations are large3. The role of an executive director and so that of Peter was a confusing one. The board of directors is a committee which is appointed to work in a manner which would be in the best 1Corporate Governance Principles and Recommendations, (2nd ed), ASX Corporate Governance Council, Sydney, 20102R Baxt,Duties and Responsibilities of Directors and Officers(20th ed), Australian Institute of Company Directors, Sydney, 20123Directors - What are my duties as a director? Australian Securities and Investment Commission<http://asic.gov.au/regulatory-resources/insolvency/insolvency-for-directors/directors-what-are-my-duties-as-a-director/#3>

interest of the shareholders. Generally, it is the CEO who is a part of the executive team of the board but there may be times when the CFO is also appointed as one. Further to this, thereare certain duties of being a part of the board which are not apt for an executive director to perform, such as a CFO serving on the audit committee. In Australia, an executive director holds a fiduciary duty towards the company. As per Section 181(1) of the Corporations Act 2001, a director is expected to perform his duties in good faith which is best for the health of the company. Thus Peter should perform his duties as an executive director with due care and diligence, honestly and must not mis-utilize the power of his position as a CFO4. As per the court case of Vines, the CFO who is also acting as an executive director, is expected to elevate issues for discussion with the board5. Last but not the least, it is the duty of a director to ensure that the financial records are maintained adequately and all the transactions are recorded transparently and correctly, else it would leadto contravention of the Corporations Act 2001. WHAT IS THE DUTY OF A NON-EXECUTIVE DIRECTOR (JANE IN THIS CASE) WITH REGARDS A COMPANY LISTED IN THE ASXAs per the Corporations Act 2001, a non-executive director is a person who is not an employee of the company. However, a non-executive director is not similar to an independentdirector as the latter not even has any relations with the company but for being a director unlike the former. But even then some of the basic duties which govern the executive directors, does govern the non-executive directors as well. The UK’s Higgs Review details non-executive directors’ as “custodians of the governance process.6” The main elements of the role and responsibility of a non-executive director includesdevelopment of strategy for the proposals, monitoring of the performance of the managementas to how successful it has been in meeting up with the aims and objectives of the corporationand how honest is the financial information being disclosed in the statements. A non-executive director also is generally a part of various other sub-committees such as Jane being4Corporations Act (2001) (Cth) s 181(1)5Vines was the CFO and executive director of GIO Group. See(2003) 48 ACSR 291for the judgment and[2007] NSWCA 75for the April2007 decision in the NSW Court of Appeal.6 Higgs D, Review of the Role and Effectivenss of Non-Executive Directors, Department of Trade and Industry, London, 2003, p 11.

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