Sample Report On Company Law Report
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Not only public, but private service, too, is a public trust. It is so because any corporation today is organized with the investments, financial or otherwise, of people often outside the ambit of blood affiliations, which makes even unlisted corporations essentially a public concern. It is to this scope of accountability that the Board of Directors derives its legal accountability in discharging the responsibilities and duties as the supreme managerial authority in any corporation created under law today. The Board is ultimately answerable to its shareholders in the manner they manage the overall performance of the company.
In order to understand better the evolving legal jurisprudence governing the duties of the Board, this report discusses landmark legal rulings in Australian jurisprudence from the 1990s through the 2010s, which comprises the next four sections, followed by a brief analytical reflection of these developments of corporate responsibility literature, legal and common.
II. The 1990s Court judgment
Functions of the Board of Directors: In general, the Board has the following functions, as prescribed by AWA Ltd v Daniels (1992): (1) Oversight of the corporate affairs with greater responsibility; (2) Up-to-date knowledge of all matters involving the affairs of the company; and if such knowledge is too technical for non-executive directors, hire an expert/professional to provide specialist advice; (3) Fiduciary duties, i.e., reasonable care in the discharge of duties as imposed by equity (not by common law).
Specifically, the Board should: (1) Establish corporate objectives; (2) Appoint the Chief Executive Officer (CEO); (3) Oversee the executive plans in the acquisition and the organization of corporate resources, financial and human, with an ultimate goal of attaining corporate objectives; (4) Review regularly, within reasonable intervals, progress of the corporation towards its objectives. Moreover, the Board is entitled, without necessity of verification, to rely on the judgment, information, advice, and effective action of the Executive managers so entrusted; and without need of shifting functional roles to learn information accessible at the executive level.
The functions/roles of the Executive management (distinct from Directors): In the context of the case, the Executive management is expected to discharge specific and distinct functions/roles, such as: (1) Manage the day-to-day business of the corporation; (2) Establish business controls; (3) Communicate to relevant employees in writing, if possible, policies and strategies approved by the Board; (4) Implement to the extent required the policies and strategies approved by the Board; (5) Be knowledgeable in details of the figures, other information, and contracts entered into by the company, including its financial position; (6) Prepare its fiscal budget; (7) Oversee personnel affairs, not limited to employee hiring and dismissal;
The roles/duties/functions of the Managing Director (MD)/CEO: In general, the MD/CEO received from the Board delegated powers to manage the business of the corporation, providing continuous attention to its affairs. However, the case at point provided no specific functions for the MD/CEO.
The roles/duties/functions of the Chair of the Board of Directors: In general, the Chair of the Board of Directors possesses greater responsibility in performing the roles, duties and functions of the Board than any other director of the Board. Specifically, the Chair is primarily responsible in the: (1) Selection of agenda and documents to be attended to by the Board in matters of policy-making and advancing corporate interests; (2) Cooperation with the MD/CEO in the effective management of the corporation; (3) When the Chair is also the MD/CEO, ensuring that the functional demarcation between the two management positions remain intact, distinct, and well-functioning in order to avoid problems in communication that may lead to problems in the effective management of the corporation.
III. The 2000s Court judgment
The role/duties/functions of the Chair of the Board of Directors: The Chair of the Board of Directors, as prescribed by ASIC v Rich (2003), mostly based on the standard of care doctrine derived from community expectations and evidenced from non-legal jurisprudence (e.g. learned commentary and expert opinions), has the following functions greater and above the ordinary director of the Board: (1) Procedural duties: (a) chairmanship in Board meetings; (b) setting the agenda to ensure the performance of the Board’s statutory responsibilities;
(2) A leadership role in leading and managing the Board’s performance of duties and ensuring capability to perform and effectively perform such responsibilities: (a) keeping the Board adequately informed (e.g. requiring staff managers to provide financial summaries, adequacy in cash in lieu of debt levels, outstanding receivables); (b) monitoring the executive management (e.g. ensuring that right policies are being implemented); (c) ensuring appropriate and competent membership in the Board; (d) speaking for the Board inside and outside corporate functions; (e) pushing for the better position of the company; and (f) ensuring excellent performance of the Board as a whole;
IV. The 2010s perspective
Responsibilities of directors: The Board, individually and collectively, plays a crucial role in setting the corporate direction and tone towards the achievement of its business objectives. The directors’ primary responsibility consists of governing the company as agents of the shareholders with who they are accountable for (CAMAC, 2010).
Best practice of Board structure: No legal structure has been given to the directors other than the Board to discharge of their duties as the supreme managers of the corporation. However, within this legal limitation, directors historically assign some of them executive duties with its inherent disadvantages.
Demands and expectations on directors: Directors are expected to understand the business fundamentals of the company engaged with, including its market. They need to keep abreast with its financial state and performance. Non-executive directors may experience a disconnected from the issues on the ground unlike executive directors. However, even executive directors needs to distance itself from close contact in a complex organization, which only non-executive directors are positioned to attain.
Relationships of directors with management: The directors are primarily tasked to supervise the CEO in the engagement of the daily operational activities of the company. Thus, it is to the interest of the directors and the performance of their duties to continually engage the executives in order to adequately up-to-date with the events in the company. Consequently, it is a crucial matter to consider when appointing the CEO whose performance and capability will redound to the directors’ performance.
Effectiveness of the Board: While the executive directors are expected to bring to the Board a close insight into the operational matters of the company, non-executive directors are similarly expected to bring independence and inquisitiveness of mind to balance the myopic perspective of the former with the far-sightedness of the latter.
Legal duties and obligations of directors: Directors answers for their fiduciary and other legal obligations to their shareholders. They are required, in good faith, to exercise a degree of care (diligence) in performing their duties. However, the scope of the overall responsibilities of the Board makes it susceptible to many legal problems (e.g. employment equality rights; occupational health and safety; etc.). The complexity of the current statutes can take its focus from entrepreneurial agenda to compliance issues.
Object of accountability of directors: Directors are primarily accountable to their shareholders. The shareholders have the power over the corporate constitution and the appointive power over directors; thus, controls them based on performance. They can also hold the directors legally accountable for the long-term performance of the company.
V. Allocation of responsibilities of directors and senior management
Responsibilities of directors: Morison and Ramsay (2014) gathered the top 15 responsibilities reserved to the Board, which comprised more than half the top 20 companies surveyed and include (1) corporate strategic direction; (2) capital control and management; (3) remuneration policy; (4) approach to risk management; (5) supervision of the succession plan; (6) appointment and performance evaluation of senior executive management; (7) financial management and control; (8) approval and selection of external communication documents; (9) review and maintenance of governance P&P (policies & practices); (10) oversight of audit and internal control systems; (11) approval of financially large and complex transactions (e.g. acquisition and divestments); (12) evaluation of the Board’s performance and its composition; (13) Establishment of Board committees; (14) monitoring of management performance, and; (15) establishment and assessment of CSR initiatives.
Responsibilities of senior management: Due to their focus on the directorial responsibilities, Morison and Ramsay (2014) managed to mention limited and more general responsibilities for the executive management, such as: (1) operational management, subject to any specific authority delegated by the Board; and (2) financial reporting (e.g. financial statements that complies with currently accepted accounting standards).
The structure of the Board as the top supervisory management remains essential in the achievement of corporate goals in relation to the top executive (senior) management. The development of the role of non-executive directors, compared to the historical preponderant use of executive directors, provide a strategic advantage, which ensures that a far-sighted and long-ranged strategies are kept in the purview of daily operational realities. The executive directors are so close to the operational arena to easily lose sight of the long-term strategies; despite its advantage of providing the Board with a first-hand account in the commercial battlefield. However, such co-mingling of supervisor and executive functions are unnecessary complications that only high-caliber CEO-Chair of the Board can handle simultaneously without losing sight both of the short-term and the long-term perspectives.
Current best practices in corporate governance, however, move toward the minimization, if not outright removal of the functional complications at the top level of management; that is, increasing non-executive members in the Board to a large majority if outright dispensation of executive directors remained unattainable due to ownership issues (e.g. the CEO & Board Chair is the majority shareholder of the corporation). This development owes a lot from the burgeoning literature in management scholarship without significant help from legal jurisprudence. In fact, legal opinions on the issue of responsibility allocations between directors and senior managers are far behind in development compared to the academic and applied ones.
Landmark jurisprudence in the 1990s managed to cover only the fiduciary obligations of the Board towards the shareholders and the purely functional role of the Chair in running Board meetings (AWA Ltd v Daniels, 1992). The executive management was viewed primarily for its operational functions and functional responsibility to the Board. The 2000s jurisprudence provided no significant contribution in the furtherance of the legal literature in corporate governance other than clarifying the functional role of the Chair in holding a primarily procedural role (ASIC v Rich, 2003). Far less change had been noted in the responsibilities of the executive management. Neither the jurisprudence in the 2010s provided an original contribution in the advancement of the legal discourse. In fact, the Corporation and Markets Advisory Committee had to utilize the jurisprudence of the 2000s to make a ruling in a case placed before it (CAMAC, 2010).
Academic and applied management literature had pushed the limit of corporate governance to the hilt, upgrading the expectations upon the directors in plain management functions and into the leadership realms wherein directors, individually and collectively, are expected to lead the organization in bringing about the fulfillment of corporate objectives and strategic plans both short-term and long-term. They are no longer expected to function primarily as the executive oversight committee or demand accurate and timely information from the executives and institute controls on resource allocations. Instead, they are now expected collectively to spearhead the strategic direction of the business, establish self-monitored management and corporate performance assessments, and engage the organization in corporate social responsibility initiatives to address negative impacts socially, ethically, and environmentally.
The role of legal opinion in preserving the advances made in the academic and applied management fields cannot be overrated. In fact, it is crucial in preserving these advances.
ASIC v Rich  NSWSC 85.
AWA Ltd v Daniels (1992) 7 ACSR 759.
CAMAC. (2010, April 30). Guidance for directors. Sydney, AU: Corporations and Markets
Advisory Committee; pp.101.
Morison, R.G. & Ramsay, I. (2014). Responsibilities of the Board of Directors. Company and
Securities Law Journal, 32(1): 69-77.
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