Corporate Governance refers to the process by which the corporations and the authorities exercising control over the company are responsible for carrying out business operations in manner that not only achieves the goal of the company but also cater to the need of the society altogether. a good corporate governance practice enables the company to build up confidence in the investors which in turn, encourages the investors to make significant investments in the company.
The ASX have laid out certain principles of good corporate governance practice and recommends all the corporations to follow the principle in order to ensure the company goals as well as the goals of the society are achieved. The ASX has stipulated under Principle 7 of the Corporate Governance that every organization must establish an appropriate framework that would recognize the risks associated with the business operations of the company and mitigate the risks.
The board of directors shall be considered as the members of such risk management framework who shall engage in various processes that would be deployed on identification of a risk, in order to mitigate such risk. In the event, the company fails to identify or mitigate the risks, it would not only affect the reputation and good will of the company in the society but it would also discourage the investors from making significant investments within the company.
In regards to the corporate governance practice of the company Ardent Leisure Pty Ltd in relation to the Dream World project, it is perceived that the company is not only alleged to have failed to identify the risks associated with its business operations but it has also failed to mitigate the risks. The Board of the company has not taken any initiative to implement measures after the Dream world incident that claimed lives of many patrons. This establishes the fact that the company had failed to act in compliance with the Principle 7 of good corporate governance, which required the company to identify the risks and mitigate the same.
The ASX has stipulated that the every company is required to establish a separate committee that would be engaged in recognizing the risks associated with the business activities carried out by the company. Principle 7 of good corporate governance requires the Board to examine the issues and implement precautionary measures with a view to mitigate the risks. The committee shall have three separate directors who are obligated to act in compliance with the legal rules and are entitled to work independently.
From the above discussion it can be inferred that the company Ardent leisure failed to establish a risk management committee as a result of which it as incapable of implementing any effective measures to mitigate the risks that as associated with the Dream world theme park. Apart from failing to establish a committee that would have identified the risks, the company had failed to initiate any effective action to deal with the post accident in the Dream World theme park. The Board of the company can be held responsible for the failure of the company to recognize the risks and mitigate the same.
It is imperative for every listed company to incorporate principles with respect to good corporate governance as it aims at ensuring the accountability of the employers and the employees of the company. It would further enable the company to attract the investors to make significant investments in the company. Ardent Leisure had failed to establish risk management committee and led to the causing of the accident and the company was unable to deal with the circumstances even after the incident had taken place. Further, the ASX stipulates that an occupier of any premises shall be responsible for any form of damage that takes place within the premises whether such damage is caused to human life or any property, the occupier shall be responsible to mitigate such risks. In case of Ardent Leisure, the company failed to act in compliance with the statutory rules stipulated by ASX and failed to avert the accident causing death of several patrons.
According to the rules stipulated by the ASX, every company is required to establish a risk management committee that would be responsible for recognizing the risks and mitigate them. The Board is required to implement effective measures with a view to mitigate the risks that arises from the business operation carried out by the company. The ASX has established the ‘if not, why not’ rule according to which the listed companies are permitted to refuse the laws stipulated by the ASX but the companies must provide adequate reasons for not accepting or following the rules of the ASX. If the company fails to provide necessary reasons for not following the rules, it shall be entitled to penalties of $1000000 as was observed in Sino Australia Oil and Gas Limited (Company) where the ASX imposed penalties on the company.
As discussed above regarding the significance of the principle 7 of Corporate Governance it can be inferred that the company Ardent leisure has failed to establish a risk management framework that would identify the issues or risks associated with the business activities and implement necessary measures to mitigate such risks and issues. The incident in the Dream world could have been averted if the company had an effective risk management framework to mitigate the risks, nevertheless, the company demonstrated a careless attitude towards the business activity carried out by the company. With the establishment of the risk management framework, the company would have been able to identify the socio-environment risks that were present in the Dream World theme park. Hence, it can be asserted that the failure on part of the company is the sole reason for the occurrence of the Dream world incident.
The incident that occurred was solely because of the incompetence of the company Ardent leisure that acted in contrary to the principle 7 of good governance. The incident not only affected the financial status of the company but also affected the reputation and the goodwill of the company in the society, which further had an adverse impact on the effectiveness and profits of the company. The company became financially vulnerable owing to the financial loss it suffered due to the occurrence of eth accident and the financial penalty that was imposed upon the company by the ASX. The company had deliberately exposed itself to the risk that would not have happened but for the company’s failure. The Dream World accident has adversely affected the reputation and net value of the company largely.
The ASX stipulated that the Board of Directors of every organization is required to act in the best interest of the company and ensure that they exercise due care and diligence while carrying out the business operations within the company. The directors are further required to exhibit necessary skills and expertise while making the decisions, which must be taken, in good faith and in the best interests of the company. Further, the directors are required to act in compliance with the laws stipulated by the ASX with respect to the incorporation of good corporate governance in a corporation.
The directorial duties discussed above are stipulated under section 180 of the Corporations Act 2001 (Cth) which obligates the directors to act in good faith and in the best interests of the company. The directors of the company are required to exercise due care and diligence while making decisions taking into consideration that the sole objective of the board is enhance the development of the organization.
the directors who are incapable of making decisions in the best interests of the company and they act in contrary to the interest and development of the company, shall be subject to civil penalties as laid down under section 1317 of the Corporations Act 2001 (Cth). Further, the directors are prohibited by the Corporation Act 2001 (Cth) to act in the personal interest of the directors. In case of a conflict of interests, the directors are required to give more priority to the interests of the company than their personal interests.
In the given case, it is established that the company Ardent leisure has failed to act in compliance with section 180 of the Act as well as the laws laid down under the ASX with respect to the good corporate governance. The Dream World incident was a result of the incompetency of the directors to act in compliance with the laws while they were of sound mind and capable of making decisions in the best interest of the company. It is evident from the conduct of the directors that they have infringed section 180 of the Corporations’ Act 2001 (Cth) and any prudent person would have acted in compliance with the laws stipulated by the ASX and the common law with respect to the directorial duties and the implementation of the corporate governance practice by the company. Hence, the directors of the Ardent leisure are entitled to penalties owing to its failure to deal with the incident that occurred in the Dream world.
In the given case, it has been observed that the company Ardent leisure Pty ltd did not initiate any actions after the occurrence of the Dream World accident. The company did not even contact the families of the deceased patrons where it is the fundamental right of any company to ensure that information with respect to any accidents caused due to a fault on part of the company must be made to the families of the injured persons. The company was required to initiate effective measures to deal with the situation after the Dream world accident but it failed to initiate any such actions instead it kept on providing explanations, trying to the shield its failure to implement a good corporate governance practice.
After being subjected to severe criticisms from the media, the company initiated necessary precautionary measures to ensure that such incident does not take place in the future. The Dream world par remained closed for 45 days as the company and police authorities were conducting thorough investigations to discover the primary cause of the accident and to deal with the cause. However, the fact that the accident would not have taken place if the company had established a risk management committee and mitigate the risks.
Ardent Leisure considers itself the as a leading entertainment company and it is a well-known fact that the company was a leading entertainment company whose reputation was affected due to the Dream world incident. The criticisms that the company was subject to, led the CEO of the company Deborah Thomas resign from her post as her position in company was criticized owing to her incompetency to implement necessary and effective measures to deal with the post accident circumstances in the Dream World Park.
The shares and stocks of the company have been adversely affected due to the incident in the Dream World Park. Due to the occurrence of the accident in the Dream World, the company had to concentrate more on the damage control measures and procedures. The investigation with respect to the accident had commenced following, which the company is engaged in damage control measures and closed the ‘Thunder River rapid’ ride that caused such accident. This entire phenomenon had caused deviation of the company from the other business operations, thus resulting in decline in the shares and stocks of the company.
The company had taken an initiative to establish a risk management committee that would serve the purpose of recognizing the risks associated with the business operations and mitigate such risks. The company asserts that it has initiated precautionary measures that would be implemented to ensure the safety in the business operations carried out by the company. However, despite the incident that took place due to the incompetence of the company to recognize the risks and mitigate them, the company persists to deny the fact that their policies must be reformed. It asserted that it was because of their policies, the company was able to retain the top position in the global entertainment industry.
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