Governance in a Globalising World - Assignment Example

Governance in a Globalising World Professor’s Name University The City and State Date Governance in a Globalising World 1. Directors are not involved in company operations and hence should not be held responsible for the financial position of a company. The board of directors have a fiduciary responsibility of care to their company that constitutes of different components. Directors are not involved in company operations but individually and collectively have an obligation for the strategic direction and regulation/control of the company. This is part of the wider concept of corporate governance that encompasses accountability, authority, leadership, stewardship, direction, and control. Based on this there is increased concern on the responsibilities directors have in terms of the financial position of a company. One of the main examples of is the case of Murray Goulburn’s board of directors that was accused of breaching its continuous disclosure responsibilities by not informing the market earlier that the company would not achieve its profit estimates (Danckert, 2016). In this case, the board of directors should be held responsible for the company’s financial position in terms of not meeting profit forecasts. The board of directors has a dual mandate including and advisory and oversight obligation. The advisory obligation requires the directors consult with company management concerning strategic and operating direction. Again, the oversight obligation requires directors to monitor the performance of the firm while reducing costs and mitigating exposure to risks (Cheffins, 2015, p. 718). According to OECD, (2004) ,an effective board of directors fulfils both mandates and is thus accountable to the company and its shareholders. Directors are charged with developing different committees achieve their dual mandates. The audit committee is of great importance in ensuring the financial transactions and performance can be monitored and controlled. Therefore, the board of directors has an obligation to ensure that all rules and regulations are followed in financial reporting as well as disclosure. This requires the board to have adequate knowledge on financial and accounting issues. It also requires the company to offer oversight and advice on the operations of external and internal auditors, accounting policies, as well as discussing risk management approaches. Therefore, the board of directors can be held responsible for a company’s financial position since it offers strategic direction and control of the company operations. There is also a liability to indemnify or protect the company from making losses. Therefore, directors may not be responsible for the daily operations of the company, but have a crucial advisory and oversight obligation that makes them liable to the company and its stakeholders. 2. Shareholders have the right to sue companies if they lose money on their share investment. Corporate governance covers the provision of mandate and authority to direct and control the affairs of the company. For there to be a suitable balance, it is relevant to understand the roles of involved parties. The roles of directors, management, and external parties are well-defined. Nonetheless, the role of the shareholder is much less defined or clear. The shareholder may be regarded as the owner of the company, but does not acquire increased authority or mandate when compared to the board of directors. Shareholders are less limited in what they can do their company in terms of their shares or investment performance. The only well-defined and fundamental rights of shareholders are to elect directors and trade shares (Jhunjhunwala, 2011, p. 45). In addition, shareholders are also entitled to numerous rights in their capacity as shareholders. Shareholders have a right to vote on vital issues that include election of directors and major changes such as liquidation and mergers. Furthermore, shareholders have a right to proprietorship in a share of the company where shares increase in values as stock prices increase. Shareholders also have the freedom to transfer their ownership of the company by selling their shares to other investors or shareholders. They are also entitled to a claim on assets and to receive any profits paid out in the form of dividends. Shareholders also have the right to inspect corporate records and books and to be presented with an annual report on the company’s performance (Velasco, 2006, p. 407). Moreover, shareholders also have the right to sue the company for wrongful acts. Suing a company for wrongful by a shareholder is defined as class-action litigation (Velasco, 2006, p. 407). For instance, the Murray Goulburn company was sued by John Webster who is one of its shareholders for not disclosing sooner that the company would not meet the forecasted profit targets, thus a violation of its continuous disclosure responsibility (Danckert, 2016). This means that the shareholder has the right sue the company for wrongful acts. However, shareholders cannot sue the company if they lose money on their share investment. What may occur is that shareholders can seek the company to sue its directors for a breach of duty and seek to recover any monies lost for the company, but not an individual shareholder. This means that shareholders can force the company to seek a redress, that only serves to benefit the company from losses as opposed to recover losses for individual shareholders (Thompson, 1999, p. 215). 3. Shareholders who own the majority of company shares should hold the positions of CEO and or Chairman. Shareholders who own majority of the company should not hold the positions of CEO and or Chairman. The main reason behind this argument is based on substantially based on increased conflict of interest (Stimmel & Smith, 2003). In most cases, CEO’s and chairmen are the most influential individuals whether in the board or at the management level. They always have the authority and power to get things rolling or direct strategic changes or contributions. When it comes to voting rights, majority shareholders control increased voting power and establishment of the voting policies and rules. Therefore, the majority shareholders are increasingly more influential and empowered than the minority shareholders. However, minority shareholders may not enjoy such rights and authority. Basically, the central rights of minority shareholders is receiving dividends at a similar price to that of majority shareholders and receiving shares monies in the event the company is sold in the similar price as that of majority shareholders (Easton, 2013). This means that minority stakeholders do not primarily possess any empowerment on the strategic decision and changes for the company. This is especially when it comes to strategic issues such as mergers, new investments, or selling of the business (Turo, 2013). When a majority shareholder appointed as the C.E.O, they gain increased authority and power than far surpluses that of the common shareholder. As such, majority shareholders in their appointed positions use their authority to accomplish individual agendas. These positions are highly relevant in stimulating and encouraging debate on contentious issues that can be misused to pursue personal or limited interests that do not represent the overall needs of all stakeholders (Turo, 2013). For instance, Colonial First State quit its stock in the James Packer’s Crown Resorts on the basis of governance and board independence. One of the main issues cited was that the chairman of the company’s board was James Parker, the majority shareholder of Crown Resorts (Williams, 2016). This is because, the chairman as the majority shareholder used his authority to pursue and promote his individual interests, thus limiting the board’s independence (Ilmonen, 2015, p. 489). Although James Crown stepped down as chairman to avoid future conflicts, the board of directors still raised increased governance issues after it considered increasing advisory fees for consulting firm Consolidated Press Holding, a company owned by James Packer (Williams, 2016). Moreover, Parker was also succeeded as chairman of the board by the head of Consolidated Press Holdings. The appointment of majority shareholders as chairman or CEO is not effective in guaranteeing effective governance (Williams, 2016). This is in term of representing the interests of all shareholders and stakeholders. Moreover, majority shareholders tend to influence board independence and autonomy to act in the best interest of the company and its shareholders both majority and minority. 4. Superannuation (Pension) funds have the right and responsibility to influence the company by meeting with the Board of Directors. The governance of superannuation funds remains controversial especially in Australia. It is noted that good governance helps to compliment to pension fund yields (Ambachtsheer, 2007, p. 130). Superannuation funds are mostly under the direction of an independent director, which is consistent with global best practices in governance. The independent directors enhance decision making by offering objective perspective to issues of concern. Moreover, independent directors also hold other directors liable for their behaviours especially where there are conflicts of interest (Financial Inquiry System, 2014). This means that the independent directors are important in ensuring that the rights and interests of all members including the company are represented equally. Pension funds should therefore have the ability to meet with the board of directors as part of their responsibility and right. In some cases, members who are contributors tend to have voting rights while those with high pension savings lose their voting rights. Nonetheless, there is increased need to focus on enhancing the governance in superannuation funds. The funds have a right to meet with board directors and develop a strategic way forward that ensures effective coordination. Nonetheless, directors are liable to the pension fund based on member rights. Members have the right to sue a director if any of their contributions or investment is lost due to the misconduct of a particular director (Benson, et al., 2011, p. 190). Furthermore, there is need to identify all the interests of stakeholders and develop a manner of enabling increased cohesion among members and the board of trustees. Governance in the superannuation funds remains complex. However, it is equally significant to develop a substantial and effective mechanism that aligns the board of directors with the pension fund. This will ensure the strategic achievement of corporate governance goals in terms of reducing risks while cutting down costs. Besides, there is increased need to involve the board of directors in strategic planning as well controlling. Each strategic decision should be backed by the board of directors when members can easily access such information. What remains effective is the ability of the pension fund to acquire independent directors who have the ability to maintain and pursue mutual interests. Increased conflicts of interests are a major impediment to effective performance and operational efficiency in enhancing governance for pension funds. Independent directors are not biased and tend to support the overall interest of the company. This is the importance of ensuring that superannuation fund exercise their rights and responsibilities by meeting with the board of directors. References Ambachtsheer, K 2007, Pension Revolution: A Solution to the Pensions Crisis, John Wiley & Sons, Hoboken. Benson, KL, Hutchinson, M & Sriram, A 2011, Governance in the Australian superannuation industry. Journal of business ethics, vol. 99, no.2, pp.183-200. Cheffins, BR 2015, 'Corporate Governance since the Managerial Capitalism Era', Business History Review, vol. 89, no. 4, pp. 717-744. Danckert, S 2016. Class action filed against dairy giant Murray Goulburn. Available at: http://www.smh.com.au/action/printArticle?id=1009261440 [Accessed 30 May 2016]. Easton, M 2013, Don’t forget minority shareholders. Available at: http://www.companydirectors.com.au/director-resource-centre/publications/company-director-magazine/2013-back-editions/april/opinion-do-not-forget-minority-shareholders [Accessed 30 May 2016]. Financial Inquiry System, 2014, Governance of superannuation funds. Available at: http://fsi.gov.au/publications/final-report/chapter-2/super-governance/ [Accessed 30 May 2016]. Ilmonen, KR 2015, 'A Political Narrative of Nordic Corporate Governance: Shareholders, Stakeholders and Change of Control', European Company & Financial Law Review, vol. 12, no. 4, pp. 489-538. Jhunjhunwala, S 2011, 'Shareholders' Rights - An Overview', Indian Journal of Corporate Governance, vol. 4, no. 2, pp. 47-51. OECD, 2004. Principles of Corporate Governance. Available at: http://www.oecd.org/dataoecd/32/18/31557724.pdf [Accessed 30 May 2016]. Stimmel & Smith, 2003, Corporate Struggles: Who Has What Power When Push Comes To Shove?. Available at: http://stimmel-law.com/ru/article/corporate-struggles-who-has-what-power-when-push-comes-shove [Accessed 30 May 2016]. Sy, WN 2008, Superannuation fund governance: trustee policies and practices. APRA Insight, vol. 1, pp.2-17. Thompson, RB 1999, 'Preemption and Federalism in Corporate Governance: Protecting Shareholder Rights to Vote, Sell, and Sue', Law and Contemporary Problems, no. 3, p. 215. Turo, J 2013, How Being Both the Chief Executive and Chief Shareholder Doesn't Always Mix. Available at: https://www.entrepreneur.com/article/228362 [Accessed 30 May 2016]. Velasco, J 2006, 'The Fundamental Rights of the Shareholder', U.C. Davis Law Review, vol. 40, p. 407. Williams, P 2016, Colonial exists James Packer’s Crown citing board independence. Available at: www.smh.com.au/.../colonial-exits-james-packers-crown-cit [Accessed 30 May 2016]. Read More