Dreamworld Tragedy: Legal & Corporate Analysis
Added on 2020-02-18
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Running head: RISK MANAGEMENT Risk Management Name of the studentName of the universityAuthor note
1RISK MANAGEMENT a)One of the most important duties of the board of directors of a company that is listed is todetermine the risk and stipulate a framework that is proper in order to address them. Principle 7of the Australian Securities and Investment Commission lays this down as a primary duty of theboard of directors of an incorporated company1. When a situation arises where the directors of anincorporated organization fail to identify the risk and plan ahead, it results in substantial lossesfor the consumers, employees, creditors, shareholders and the society in general.2 The board ofdirectors of a listed company must form a minimum of one committee to primarily determine therisks and thereafter address the risk in a way that they see fit. This duty of the board of directorshas been recommended by the Australian Securities and Investment Commission. Threeindependent directors must be incorporated in the committee. The recommendations of theAustralian Securities and Investment Commission further stipulates that it is the duty of thiscommittee to oversee the risk management structure of the corporation each year so that they canbe accountable to it3. If the company is exposed to environmental, economic or social risks, it isthe duty of the listed corporation to disclose material facts about such risks and mechanism bywhich the company intends to deal with these risks. According to the current situation, acompany named Ardent Leisure Ltd has suffered huge financial losses in respect of a leisurepark owned and controlled by them naked Dreamworld Leisure Park. A ride failure occurred atthis leisure park and this failure caused a tremendous accident that resulted in the death of a fewpeople. It is a well established matter of law that accidents are beyond anyone’s control includingthe owners of a leisure park. However, in the presence of safety measures that are proper, majoraccidents can be effectively averted and its results can be subdued to a substantial extent. It has1Latimer, P, Australian Business Law CC, 2017 Edition.2Council, ASX Corporate Governance, and A. S. Exchange. "Corporate governance principles and recommendations . ASX Corporate Governance Council." (2014).3 Graw, Parker, Whitford, Sangkuhl and Do, Understanding Business Law 7th ed LexisNexis Butterworths, 2015.
2RISK MANAGEMENT been claimed that the company was unable to properly address the situation after the accident.This feature of the case makes the company liable to pay damages to all the people who havesuffered as a result of the accident. Hence, Ardent Leisure Ltd. has to pay damages to thevictims. It can be positively established that if Ardent Leisure Ltd. has a proper risk managementsystem in place, this accident could have been averted. In addition to this, if the company claimsthat accidents are beyond anyone’s control, a proper risk management system would haveminimized the effects of the accident. However, in the absence of any proper risk managementsystem, the lives of the people were literally at stake and they eventually died. This resulted in atremendous loss of goodwill of the corporation. In addition to this, it resulted in massivefinancial and social loss for the company. Therefore, it can be established that the accident was adirect result of the board of the company to identify and mitigate the risks in respect of theaccident.b)The above-mentioned recommendations are a part of principle 7 of the Good CorporateGovernance Recommendations. By this principle and obligation has been imposed on everyincorporated organization to determine and oversee risks by incorporating a proper frameworkfor risk management.4 According to the principle one or more committee may be formed by acompany for advanced identification of foreseeable risks and a proper framework for effectivelyaddress such risk. If Dreamwork Leisure Park had a competent risk management team in place,the effects of the accident could have been efficiently minimized and lives could have beensaved. Principle 7 also recommends that every company must disclose all relevant risks ofrunning a business. If this recommendation of principle 7 would have been followed in a proper4Tricker, RI Bob, and Robert Ian Tricker.Corporate governance: Principles, policies, and practices. Oxford University Press, USA, 2015
3RISK MANAGEMENT manner by Ardent Leisure Ltd, the accident could have been prevented or at the very least, thecasualties could have been limited. Hence, it can be positively established that Ardent LeisureLtd. has violated the provisions of principle 7 of Good Corporate Governance Recommendationsof ASX.5Conduct in contravention of principle 7 attracts legal consequences. It also results incompetitive negativity for the company that is found to be in contravention of the principle.Failing to determine the risks and properly address such risks is a huge detriment to thecompany’s interests.6 The organization has to suffer huge losses as a direct result of the accidentsthat occur for the lack of any proper risk management framework in place.7 In addition to this,these accidents show the organization in a bad light which eventually eats away at the value ofthe corporation in relation to society. This results in a reluctant attitude in respect of thecompany’s investors. Furthermore, employees cannot be held accountable for any accident whenthere is no proper risk management framework in place. This results in reduction of productivityand the quality of services provided by the employees8.The responsibility to start legal proceedings against Ardent Leisure Ltd in respect ofviolation of the rules laid down by the ASX lies with the Executive office of the ASX. Thecompanies are fee to not incorporate the provisions of principle 7 into its constitution9. However,in case a company decides not to follow the provisions of principle 7, such company has toprovide a proper explanation for it10. Decisions regarding the enforcement of actions lie withChief Compliance Officer of the ASX. Thereafter, an appeal lies with the ASX appeal tribunal.5Pritchard, Carl L., and PMI-RMP PMP.Risk management: concepts and guidance. CRC Press, 2014.6Council, ASX Corporate Governance. "Corporate Governance Principles and Recommendations, 3rd edn (ASX, Sydney)." (2014).7Glendon, A. Ian, Sharon Clarke, and Eugene McKenna.Human safety and risk management. Crc Press, 2016.8 Fitzpatrick, Symes, Veljanovski, Parker, Business and Corporations Law; LexisNexis 3rd edition 20179 Davenport, S and Parker D, Business and Law in Australia, Thomson Reuters, 201210 Redmond, P., Companies and Securities Law - Commentary and Materials, Law Book Co., Sydney, 5th, 2009.
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