Management Communication Issues - Assignment Example

FINAL ASSESSMENT Name Course Tutor University City and State Date Question 1 In Australia, directors are appointed officially, while others assume the role. The latter are called de facto directors. Regardless of how they gained the power, they are both subjected to the same duties. These duties differ from one country to the next due to the variations of constitutional laws however; there are some roles that are similar across most nations. In Australia, a director is expected to exercise the duty of care and diligence. He or she should act with care towards the company by making its welfare a top priority. Moreover, a director has the duty of acting in good faith. He or she should avoid conflict of interest and when conflicts arise, the director is required to reveal them to the board, after which, the various ways of managing that conflict should be discussed. This fidelity to a company is known as fiduciary duty, it is the highest known form of honor of the law (AICD 2016). In the same light, a company director should not use his position improperly. That is, the director is entrusted with the morality of not using his position to gain personal advantage or extend the benefits to another third party. The final duty is based on the restraining from improper use of information. Directors get access to sensitive company information during board meetings for the purpose of giving them a deeper organization perspective which is intended to be instrumental in making more informed decisions. Due to these sensitive revelations, a company director has the duty of safeguarding this information and not using it for personal gain or to enable a third party to benefit from it. In line with the duties of a director, it is evident that they do not handle the day to day operations of a company. They are only involved during board meetings and their overall purpose is to offer guidance and monitoring of the company (Shanmugan and Jun 2016). The advised guidance is implemented by those who are involved in daily operations of a company. These daily activities ultimately determine the success or failure of a company and hence its financial position. As a result, financial responsibilities squarely rest on the shoulders of these daily operators and not the directors. Nonetheless, the directors of the Murray Goulburn milk company knew that the firm would not meet its targets but then decided to withhold that information from the shareholders (Danckert 2016). Consequently, they broke two fundamental duties of a manager which include the duty to act with diligence, and also the role of properly handling information. Due to this unique case, the shareholders were right to hold the Board of Directors responsible in some extent for the financial health of the company. Question 2 For most companies, it is a primary objective to participate in the stock exchange and have people buying their shares. In some countries, companies are allowed to have different classes of shares but in most nations, only ordinary shares exist (Company law club, 2016). A shareholder is anyone who owns the shares of a company. Being a shareholder comes with its own set of rights. These rights are usually outlined in the Companies Act or a company’s constitution. Normally, there are six main rights. The first one is the right to vote. In most circumstances, every share translates into one vote, especially for ordinary shares class. These votes are usually casted to remove directors who are underperforming (Mitchell 2009). Additionally, shareholders have the right to profits according to the number of shares they hold as well as dividends; however, the latter are not always guaranteed (Velasco 2006). The board of directors usually announces when the company decides to pay the dividends and all the shareholders get their chunk. In order for shareholders to review the companies finance health, they reserve the right to receive financial reports. Nowadays, companies are expected to announce their financial reports publicly but a shareholder can still request an in depth record. The requests can also be extended to obtaining information about the number of shares owned and the privileges that come with them. Another right deals with the transfer of ownership. Shares can be easily liquidated, hence making them easy to be traded to other people at will. In some cases, when an individual owns a significant amount of shares, they will need to go through a deeper process in order to offload them but in the case of small chunks of ownership; the trading can be done instantly. Even more, shareholders have the right of ownership of a company. This means that in the events that a company is liquidated; they are entitled to their share of the money obtained. Prioritization goes to the major shareholders first during such a scenario. Finally, there exist a right which allows the shareholder to sue a company if it engages in wrongful acts. The right to sue is important in this context; it allows the shareholders to take the company to court in a number of particular situations. Most times, shareholders sue the company under class-action lawsuits; however, single shareholder complaints are also viable in court. Several situations exist in which a shareholder has the right to sue a company. Shareholders can sue a company so as to restrain it from taking an action that is unlawful or that contradicts with the company’s constitution (How to law 2016). Conversely, shareholders can sue to mandate a company to take an action that its constitution requires it to take. Even more, a court order can be applied to highlight a breach of duty owned to the shareholders. Also, in the case where a company treated its shareholders unfairly, the victims have the right to sue. Finally, an organization can be sued in order to be subjected to the inspection of their financial records. None of these rights allow the shareholders to sue the company in the case of losing on their investments. Those who buy shares understand that it is a gamble and a risk. Resultantly, they do not reserve the right to seek compensation when the risk does not pay off. As a matter of fact, in the case of trading shares, shareholders hold the power to sell or buy at any point as long as the markets are opened. This means that they have the chance to steer away once they sense that a loss is imminent. Due to this, the outcome of their investment is flexible on their end, therefore, if they choose to wait and risk, then they should not hold the company accountable. Regarding the Murray Goulburn’s situation, the shareholders filed a class-action lawsuit on the basis that the company’s Board of Directors misled the investors by not revealing that the organization was far from achieving its targets (Danckert 2016). The Board did contrary to the laws governing companies’ disclosure of information to the relevant parties and hence served with a law suit. Question 3 Conventionally, majority shareholders are those that own more than 50% of a company’s outstanding shares. Mostly, these people are the founders or in the case of old companies, the descendants of the pioneers. Having such a big chunk of the shares comes with a lot of influence in the organizations major decisions. Being a majority shareholder earns a person or the ownership group the chairman role in the company. Small companies have the CEO as the majority shareholder or at times the sole shareholder in the event where the company is self-funded. When it comes to a big corporation with a market capitalization of billions of dollars, the scene changes whereby, shares are owned by wealthy investors, pension funds, hedge funds and other big investment groups (Streissguth 2016). These groups have the ability of purchasing a majority of the shares from the founder or the owners. Also, shareholders usually appoint the board of directors, which in turn appoints the companies administration. It would not take much reasoning to realize that the majority shareholder holds the most power in that chain of command. The power to remove a CEO from his position rests with this shareholder. In the event that the CEO is also the majority shareholder, then new dynamics manifest themselves. As a benefit, the decisions will be made a lot faster without the usual delays of approval across the many levels of governance. Similarly, the fact that the CEO’s interests aligns with those of the major shareholder, who in this case is the same person, also accelerates the decision making process. On the other hand, when a company’s chairman is also the CEO, then the company tends to over depend on him or her. This phenomenon manifests itself on the case study of Colonial and James Parker’s Crown Resorts. James Parker has so much control over the decisions made by the company primarily due to his 53% holding on the outstanding shares (Williams 2016). If he was also the CEO, the situation would only have worsened. CEO’s pay for instance, is determined by the board of directors, since the chairman has a big say in this matter, it would only present a conflict of interest if he or she was also the CEO. Furthermore, it could be argued that the CEO deals with the day to day activities while in contrast, the shareholders are interested in the big picture perspective of an organization. A time comes when the big picture does not integrate well with the strategies of the siting CEO, this would lead to major conflicts and power plays in the situation that the CEO is also the majority shareholder. This reason only emphasizes why the Chairman, majority shareholder, should not hold the office of the CEO too. Question 4 Superannuation funds, otherwise known as pension funds, are created by continuous funds cut from the salaries of its members to cater as their support during retirement. Employees, organization and unions normally set up these funds for their workers and members. In Australia, they are known as superannuation funds and they are encouraged by the government through tax benefits. In addition, the government has put in place the option for employees to channel a portion of their salary to the fund. This option is however optional and hence employees participate in it voluntarily. As with pension funds, the money is only accessible to the owners after they satisfy the requirements of a retirement. During the course of making contributions, the superannuation organizations invest that money in various sectors including buying of shares. Due to the vast resources in possession by the funds, these organizations can acquire significant percentages of company shares; this easily makes them the majority shareholders. Such positions come with the perks of control and influence. This power has led to the raise of shareholder activism. Shareholder activism occurs when the parties that own shares exercise their power and try to influence change in the operation of a company (Thomas 2008). This behavior leads to the company being forced to respond to the demands of the shareholders. As a consequence, the company’s board switches its role of guidance to that of compliance (Featherstone 2014). Shareholders usually do this to get their way in matters especially those concerning the payment of dividends and also high salaries at the expense of low profits paid out. Evidence of these is visible where the Crown initiated talks with pension funds to act on privatizing the casino company (Williams 2016). This is an act by shareholders that would drastically influence the future of the company thanks to the vast resources of pension funds. In conclusion, since shareholders control the Board of Directors, a meeting with a resourceful fund, such as the superannuation fund, would be a sign of a major change in the making. References AICD 2016, Wgat are the duties of directors? Australian Institute of Company Directors. Available from: < http://www.companydirectors.com.au/membership/the-informed-director/what-are-the-general-duties-of-directors> [31 May 2016]. Company law club 2016, What rights does a shareholder have? Company Law Club. Available from: [31 May 2016]. Danekert, S 2016, ‘Class action filed against dairy giant Murray Goulburn’, The Sydney Morning Herald 16 May, n.p. Featherstone, T 2014, Riding the new wave of activism. Australian Institute of Company Directors. Available from: [31 May 2016]. How to law 2016, The rights, powers and liabilities of shareholders. HowtoLaw. Available from: < http://www.howtolaw.co/the-rights-powers-and-liabilities-of-shareholders-392233 > [31 May 2016]. Mitchell, LE 2009, The legitimate rights of public shareholders. 66 Wash and Lee Review. Available from: . [31 May 2016]. Shanmugam, SM and Jun YK 2016. Company financial statements can be hazardous for directors. Mondaq. Available from: [31 May 2016]. Streissguth, T 2016, Is the CEO of a company always the majority shareholder? Hearst Newpapers. Available from: < http://smallbusiness.chron.com/ceo-company-always-majority-shareholder-75787.html > [31 May 2016]. Thomas, RS 2008, ‘Public pension funds as shareholder activists: A comment on Choi and Fisch’, Vanderbilt Law Review, vol. 61, no.1, pp. 1-7. Velasco, J 2006, ‘The fundamental rights of the shareholder’, University of California Journal, vol. 40, no. 407, pp.407-467. Williams, P 2016, Coloanial exits James Parker’s Crown citing board independence. The Age. Available from: < http://www.theage.com.> [31 May 2016]. Read More