Discuss the expectation of the Corporate Governance Council that the majority of directors on the boards of ASX companies should be independent. In your discussion you should identify the arguments for and against the view that boards.
A company requires directors to take control of it. However, directors have a lot of tasks to control a company and they have more powers in leading it. The directors are required to obey the company’s law and use those powers for the interest of the company being led. It means that they don’t need to use those powers for the interest of themselves. For instance, the powers given to issue new shares in a company have to be applied with an intention of raising the needed capital that will be used in running the company’s business. Therefore, trying to issue powers to the cronies for friendship is highly forbidden and is the abuse of the company’s constitution or law and it is also a breach of duty.
According to the “A Guide to The Companies Act 2006”, the laws relating to the directors are not supposed to clash with the interest of others as well as the interest of the company. In other words, transparency is the big deal of business and relationship is important. The company being an artificial person may at times have no interest that differs from the interests of the people who are related to it, whether, you are a shareholder or the suppliers, employers or even the creditors. Hence, one has to take the wellbeing of a company to refer to the interest of the corporation, having no extensive requirements of what it means.
A board of directors is a composition of appointed people who together functions to oversee all the activities that are taking place in a company. It is a formal connection line that links the shareholders of a company together with the company’s mangers who are entrusted with the daily functioning of the corporation. However, the functioning of the board is determined by the kind of powers, task or duties and responsibilities that are given or delegated to them by the authority (Hodgins, M., & Shrives, P. 2011).
Vozikis, et al. states that the primary role of board of directors is to determine the company’s efficiency running through competitiveness and also giving a clear orientation of its functioning towards its growth and sustainability. The board of directors give a direction to the business taking place in a corporation with fairness and also give due regards to the shareholder’s value pertaining the venture. It has to rely on the board to ensure accuracy and time is kept on all relevant activities of the company that are issued to its stakeholders. In this regards, the boards is expected to arrange or put in order the system reports together with the standards of the disclosure (Vagliasindi, M. 2008). The discloser has to be fully reliable and also being accompanied by the necessary calculations of the accounting practices of the company’s operations. Therefore, to make sure that the information given for its shareholders is fair, the board is expected to live to its duty and functioning transparently (Fernando, A. C. 2006).
Rezaee, Z. (2009) provides that Board of directors need to create a favorable environment where the company can become successful in the areas of its future success in the business. It is expected to perform its tasks to ensure that it builds integrated and coordinated employees that are responsible for working towards reaching the set goals of the desired actual performance. In this case, directors have a duty to look after the functioning of the corporation in the most needed ways. A greater control of a company is necessary because it corporate entities for its raising concerns concerning the company’s failure, hence, proper monitoring is highly recommended (Keasey, K., & Wright, M. 2005).
Board of directors is also expected to ensure that the corporation structure as well as its capabilities is suitable for the implementation of the selected plan or strategy. They also need to give powers to the management in which they will monitor as well as evaluate the implemented strategies in the business plan. They need to ensure that the internal control of the business is effective. They also need to ascertain that communication within the senior management and communication with the shareholders are in order. They are needed to exercise accountability to their shareholders in the most responsible ways making sure that they are relevant whatsoever situation. As discussed above, board of directors have to ensure a good functional structure in a business, such structures are;
Furthermore, the other primary role of the Board of directors is look after all the affairs of the corporation which are in the position of entrust (CalabroÌ€, A. (2011). This means that they might misuse their powers with the aim of benefiting themselves at the expense of the corporation, and hence, at the cost of business’s shareholders. As a result, the law has a number of duties that is delegated to it, burdens and responsibilities ahead of the directors to prevent any form of abuse in the business. A lot of the corporation law can be noticed as a balance permitting the directors to take control of the corporation’s business with an aim of making a profit from it and forbidding them from misusing the freedom (Tricker, R. I., & Tricker, R. I. (2009). Also, directors are there to make sure that proper books of business account are well kept for references at any time they are needed. In this case the key roles the Board of directors in affairs of the company are;
Board of directors also acts as the most effective governing structure in terms of credit union in which they preserve it for future use. Directors are mostly known as a most crucial body that monitors the performance of the mangers as well as giving protection to the shareholder’s interest and thus, playing a vital role in the areas of internal governance. Because the directors are selected from the general membership or people, one vote basis is a rule that generates problem when the elected people do not the necessary expertise to the judgment. The capability of directors to execute the elected persons in the board is to monitor on corporation depends on the kind of the business and the skills required in it. Also, due to the fact that directors are elected or bring to power by members through the election process, they are required to maintain their membership obliged to the person who mobilize the votes on their behalves. As the directors grow, ahead of them becomes more sophisticated and even more risky that requires the professional managers and the most problematic situation comes occur. In other words, a lot of monitoring is needed as the company progress (Keasey, K., & Wright, M. 2005).
An outside director is also another term that is used to describe an independent director. Therefore, an independent director is a director who in his work-hold does not have material relationship or attachment which is not other than sitting on the fees. They don’t have shares in a company they are subjected in. on the other side, a non independent director is a director who is not involved in the daily duties or who is not a full time earning person of the corporation. The person doesn’t meet full criteria for the independence (Tomasic, R., & McQueen, R. (2002).
Palmiter, A. R. (2012) state that Nonindependent director does not work and even has never worked for the company at any point whatsoever. for example, A is a director of the company that sells timber 1 is the head of the president of the corporation named as 2 and no director of the corporation 2 has no authority to transact any business of the 2’s director’s board, they are not the supplier of any material or any customer to the company or even the officer to the company that is either a material supplier or is related to the material supply section of the company. Therefore, they lack any material business with the corporation. They are totally free from the business as well as their personal relationship to the business could be. They only carry out business to the interest of the company (Carter, C. B., & Lorsch, J. W. (2004).
In this case, if a corporation is incorporated under the Act 2001, the law provides for the importance of the responsibilities and the most effective duties o a company director as well as the other employees and the officers that fall under that legal legislation. The law states that the responsibilities of directors as well as employees are a relevant requirement which was founded by the common law. The law states that the company’s management needs to be corporate and be governed by the control of the Corporations Act provision which is applicable to the corporation usable law and rule which is also governed by the constitution of the corporation (Larcker, D., & Tayan, B. 2016).
The position of a leader such as the chairman in the independent directors is held by the same person unless in a situation of unusual state, for example, in time of CEO transition from one chair to the other. Better performance has been achieved through this method. However the mandate of the Board’s view that corporation’s corporate governance, principles, as the substantial of the company’s business skill of the boards members together with the Board’s culture to enter into a communication with the senior officials for the effectiveness of the combination of the Chairman and the CEO holding his position (Cornelius, P., & Kogut, B. M. 2003).
It is obligated that the chairman or CEO together with the other members to seek the correct approval from the board committee to which the everyday jobs has been assigned to each member before putting into consideration other outside members for profit entity.
Non-employee directors on the other hand must advise the Chairman of that board of governance as well as the nominating panel being considered for the election of the directors of another publicly-held corporation. therefore, the Corporate Governance together with its Nominating Committee to determine if the new panel is compatible with the old panel to proceed serving the organization. on the other hand, it the mandate of the Board that Non independent directors mat at time not serve other publicly-held organizations without the earlier approval by the panel or Board of Directors (Cornelius, P., & Kogut, B. M. 2003).
Yadav, S. N., & Khatri, P. V. (2013) states that better corporate governance is the goal of the board and the most excellent corporate governance practice does not only depend on the conflict between the shareholders and the greedy directors, however, it is about the philosophy and culture (ethos) of the company not putting aside the purpose of fulfilling the agreed targets or goals. These goals can be set by an entrepreneur who is responsible of starting a business. This starts a foundation of smooth running of a business.
The importance of the ASX Listing Rule 4.10.3 is to find out through requiring the entities to bring a comparison corporate governance tasks and also to the recommendations. Also it brings a comparison to the entities governance practices they do not match, to also disclose the reasons why they don’t conform. it acts to support the available entities to implement corporate governance tasks as suggested in their principles and Recommendations, however, it does not do it forcefully. in other word, it gives an entity the flexibility to accept different corporate governance tasks in case the boards has rendered the selected one more suitable or fits the intended situation (Cullen, L. M. 2002).
Principle 2 in the Corporate Governance deals with the ideas of giving back values to the board of governance. Many of the board members are independent directors. It helps the management to be controlled free and without any form of interference (Strange, R., & Jackson, G. 2008).
A Guide to The Companies Act 2006. (2008).
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Carter, C. B., & Lorsch, J. W. (2004). Back to the drawing board: Designing A corporate boards for The complex world. Boston, MA: Harvard Business School Press.
Cornelius, P., & Kogut, B. M. (2003). Corporate governance and The capital flows in The global economy. New York: Oxford University Press.
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Cullen, L. M. (2002). Determinants of the corporate governance disclosures by Australian listed companies subsequent to the introduction of ASX listing rule 4.10.3.
Fernando, A. C. (2006). Corporate Governance: Principles, policies, and practices. New Delhi: Pearson Education.
Hodgins, M., & Shrives, P. (2011). Business ethics and corporate governance. Harlow: Pearson Custom Pub.
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Larcker, D., & Tayan, B. (2016). Corporate governance matters: The closer look at the organizational choices and their consequences. Upper Saddle River (New Jersey): Pearson Education.
Palmiter, A. R. (2012). Corporations: Examples and Explanations. New York: Wolters Kluwer Law & Business.
Rezaee, Z. (2009). Corporate governance and ethics. Hoboken, NJ: John Wiley & Sons.
Strange, R., & Jackson, G. (2008). Corporate governance and the international business: Strategy, performance, and institutional change. Basingstoke: Palgrave Macmillan.
Tomasic, R., Bottomley, S., & McQueen, R. (2002). Corporations law in Australia. Leichhardt, NSW: Federation Press.
Tricker, R. I., Tricker, R. I., & Tricker, R. I. (2009). Essentials for board directors: An A-Z guide. New York: Bloomberg Press.
Vagliasindi, M. (2008). The Effectiveness Of the Boards Of the Directors Of State Owned Enterprises In the Developing Countries. Washington: The World Bank.
Vozikis, & Feldman, H. D. (n.d.). Entrepreneurship: Venture initiation, management, and development.
Yadav, S. N., & Khatri, P. V. (2013). Corporate Governance: Principles, policies and practices. New Delhi: Global Vision Pub. House.
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