Analyse the fact that the director of a Company must owe due care to the shareholders who are playing an important role in the administration of a Business or Company.
Australian Institute of Company Directors is an institution that provides non-profit membership to the directors (Too, & Weaver, 2014). This organisation has derived its origin from the Institute of directors of United Kingdom. It is established in the year 1960. It consists of 4 national directors, seven representatives who are elected from the divisions, one Managing director and a CEO (Lokuwaduge & Armstrong, 2015). At present, John Brogden is the CEO as well as the MDD of the same. It works on international basis.
There are two types of members are present in a company. They are the shareholder or the stockholder and the stakeholder. Shareholders are the individuals who are buying shares but are not liable for the debts of the company (Chassagnon & Hollandts, 2014). They form a part of the company. There is a legal outline present in respect of the membership of a company. A person can be a shareholder only if his or her name is included in the company’s register. The shareholders enjoy certain rights regarding their post. They can buy or sell the respective shares at any time and they have a right to cast their vote regarding the appointment of the directors of a company.
Stakeholders are regarded as that class of person without whom a company is merely exists (de Gooyert et al., 2017). Edward Freeman first coined the term stakeholder in the year 1983 (Clayton, 2014). Simply, stakeholders are included all persons who are related to the company. They govern the activities of a company. Stakeholders include directors, employees, unions and even the shareholders of the company. In other work, it can be stated that stakeholders are the genus whereas the shareholders are the species. Though the term stakeholder includes all the parties involved in a company work, there are certain differences laid down under the term (Brennan, Kirwan, & Redmond, 2016). An instance can be that the customer’s liability is less than the liability of the employees of the company.
The report is aimed to find out the validity of the statement that the director of a company has certain duties towards the shareholders and the interest of the shareholders must be keep above other stakeholders.
The main purpose of the report is to analyse the fact that the director of a company must owe due care to the shareholders who are playing an important role in the administration of a business or company.
A research has been made with an intention to come into a conclusion to the fact that whether a director of a company should place the interest of the shareholders upon all other stakeholders or not.
It is a fact that the shareholders are playing an important part regarding the appointment of a company director. Therefore, a reciprocal duty accrues from the part of the directors as against the shareholders. Shareholders are the part of the corporation. In this regard, it can be stated that the directors owes certain duties towards the company as well as the shareholders. However, there are certain cases cropped up where the court has expressed their consent against the fact that the directors owe any right against the interest of the shareholders. The courts are supported the fact that the directors must have the duties for the company or the corporation. The reason behind the same accrues from the idea that if the company will make profit regarding any transaction, the shareholders will also benefited from the act. Therefore, it is not needed to concentrate on the interest of the shareholders in general.
There are certain procedures that draw an outline regarding the engagement strategy of the shareholders. There are certain approaches that can specifically describe the development process of the shareholder’s engagement strategy (Clayton, 2014). It is important to maintain a respected relationship between the company and the shareholders. A transparency should be maintained in such cases. Shareholders are the most important part of the stakeholders. They are responsible for the betterment of the company. It is utmost duty of the shareholders to buy and sale the stocks of the company and the company’s growth is depending on the same. Apart from this, the shareholders are take participate into the annual meetings and play an important role in the appointment of the directors. The director of a company has also such duties towards the shareholders. This is the utmost duty of the director to secure the interest of the shareholders. The company always try to engage the shareholders in the company’s management.
There are certain reasons that clarify the question why the shareholder’s interest should be keep before all other stakeholders. There are certain functions of the shareholders that placed them a higher post. They take an active participation regarding the appointment of the director and the external auditor. If there is any necessity regarding the changes in the provision of the corporation. Even, in case of the changes regarding the constitutional changes, the shareholders are actively participated in the same. It has been mentioned earlier that the shareholders purchase the stocks of a company. Therefore, the assets of the company are very much depending on them.
A director of a company owes certain duties regarding their posts and the statute of law mentions that. It is the primary duty of the directors to be loyal to the company and retain a good faith over the same. In Australia, the directors have some fiduciary duties that are to be maintained by them. These duties include good faith; avoid any conflicts regarding the interest of the company with others, and not to misuses their power in any illegal way. The duties of the directors are codified under the law. As such there are sufficient provision regarding the violation of such duties.
Sometimes, there can be certain conflictions regarding the interest between the company and the shareholders are to be seen. The most common difference is that the shareholders are opted for the short-term gain whereas the companies are concentrating on the long-term process. Therefore, the directors should have to tackle the same with necessary actions. However, to maintain a perfect working atmosphere, it is important for the directors to communicate with the shareholders in an effective way.
A director must show loyalty to the shareholders with a view to create a friendly relationship with them. He must maintain a standard of care in case of the shareholders (Hiller, 2013). He should not misbehave with the shareholders and let them informed about every meeting. Shareholders are actively take part in the meetings. Even, if the meeting is for the appointment of new director or re-appoint the director, they should be informed in a well-mannered condition. A director should assist the shareholders with all possible way.
It has been previously mentioned that the stakeholders are the most effective body in case of the administration of a company. They are liable to appoint the directors and they are also liable for the termination of the same. It is to be noted that the directors of a company have certain regarding the company and sometimes, they have to take some broad decisions for the interest of the company. The Corporation Act 2001 deals with the provision regarding the director-stakeholder relationship. Section 181(1) of the Act prescribed certain ways so that they could apply their rights and duties with good faith (Hiller, 2013). As stakeholders are a part of the company, it is clear that the future interest of them is based on the fate of the decision made by the directors. However, there are certain conflictions in this regard. As per the conception of Sheldon Leader, company is a separate legal entity and thus, the interest of the company and the stakeholders are not similar in nature. On the other hand, Blair and Stout had expressed their views in favour of the statement that the interest of the stakeholders is depended on the company.
Methods are the systematic approach towards the conclusion of a question that how to come into a conclusion regarding the problem and how to identify the necessity of the same by making certain investigation.
In case of any research method, there are three types of proposal. They are: Exploratory, descriptive and hypothesis. In this case, the hypothesis investigation is to be made (Tricker, & Tricker, 2015). The basic fact of the hypothesis research is to discuss the subject matter in concrete. The case is based on the fact that the director’s liability for securing the interest of the shareholders is to be taken into consideration. It is the duty of the director to perform his duty with due care and diligence. He must act in good faith. There are certain dilemmas that have to face by the directors. The dilemmas arose during the course of business. Every shareholder wants to get maximum benefit from the company. Therefore, they are of the view to have short-term propositions from the company. On the other hand, the companies are of the view to retain the company’s profit by way of long-term base propositions. The shareholders have a right to buy or sell the shares of the company. Therefore, they want to make the profit by investing money behind it, but if the company will not give them sufficient benefits, there can be a chaos arises. The term stakeholders include the director, shareholders, union, and other working staffs of the company. Among them, role of the shareholders are important, as they are responsible for the betterment of the company. The future of the economic outsource of the company depend on them.
There are several cases that denotes that there is necessity to take extra care for the shareholders as they are the part of the company. In Salomon v. Salomon & co. Ltd., the question was raised whether the company is a separate legal entity or not and the director should has to maintain different duty to the company or not. It was held that the company is a separate legal entity and the shareholders are a part of it. It was also held that the company is even separate from the person, who composes it. It has been stated by the court of law that the duties of the directors does not mean the duty of the company. The same precedent is applied on the facts of the MacLaine Watson v. Department of Trade and Industry. Therefore, the directors must have some duties towards the shareholders and that should be dome with highest priority.
Conclusion:
Therefore, from the discussion, it can be stated that there is a confliction present regarding the statement that whether the directors have responsibilities to the shareholders above other stakeholders. The courts of Australia are of the view that the company’s interest is different from the shareholder’s interest and there is no specific duties are prescribed under the law for the interest of the shareholders. Even the Corporation Act has contained certain provision regarding the director’s duty towards the shareholders.
References:
Allen, W. T., & Kraakman, R. (2016). Commentaries and cases on the law of business organization. Wolters Kluwer law & business.
Boxer, R., Perren, L., & Berry, A. (2016). SME managing director and non-executive director trust relations: The dynamic interplay between structure and agency. International Small Business Journal, 34(3), 369-386.
Brennan, N. M., Kirwan, C. E., & Redmond, J. (2016). Accountability processes in boardrooms: a conceptual model of manager-non-executive director information asymmetry. Accounting, Auditing & Accountability Journal, 29(1), 135-164.
Bunger, A. C., Collins-Camargo, C., McBeath, B., Chuang, E., Pérez-Jolles, M., & Wells, R. (2014). Collaboration, competition, and co-opetition: Interorganizational dynamics between private child welfare agencies and child serving sectors. Children and youth services review, 38, 113-122.
Chassagnon, V., & Hollandts, X. (2014). Who are the owners of the firm: shareholders, employees or no one?. Journal of Institutional Economics, 10(1), 47-69.
Choudhury, S., Rodriguez, L., Curtis, D., Oler, K., Nordquist, P., Chen, P. Y., & Ray, I. (2015, October). Action recommendation for cyber resilience. In Proceedings of the 2015 Workshop on Automated Decision Making for Active Cyber Defense (pp. 3-8). ACM.
Clayton, M. (2014). Who are Your Stakeholders?. In The Influence Agenda(pp. 26-39). Palgrave Macmillan UK.
de Gooyert, V., Rouwette, E., van Kranenburg, H., & Freeman, E. (2017). Reviewing the role of stakeholders in Operational Research; A stakeholder theory perspective. European Journal of Operational Research.
De Silva Lokuwaduge, C., & Armstrong, A. (2015). The impact of governance on the performance of the higher education sector in Australia. Educational Management Administration & Leadership, 43(5), 811-827.
Deegan, C., & Shelly, M. (2014). Corporate social responsibilities: Alternative perspectives about the need to legislate. Journal of Business Ethics, 121(4), 499-526.
Hiller, J. S. (2013). The benefit corporation and corporate social responsibility. Journal of Business Ethics, 118(2), 287-301.
Khan, Y. I., Al-Shaer, E., & Rauf, U. (2015, October). Cyber Resilience-by-Construction: Modeling, Measuring & Verifying. In Proceedings of the 2015 Workshop on Automated Decision Making for Active Cyber Defense (pp. 9-14). ACM.
Pettigrew, A. M. (2014). The politics of organizational decision-making. Routledge.
Too, E. G., & Weaver, P. (2014). The management of project management: A conceptual framework for project governance. International Journal of Project Management, 32(8), 1382-1394.
Tricker, R. B., & Tricker, R. I. (2015). Corporate governance: Principles, policies, and practices. Oxford University Press, USA.
Walther, A., Morner, M., & Calabrò, A. (2017). The role of behaviorally integrated nominating committees in non-executive director selection processes. European Management Journal, 35(3), 351-361.
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download