Existing Statutory Legal Responsibilities of Directors with Respect to CSR Activities
1.What are the existing statutory legal responsibilities of directors with respect to CSR activities? Is there any legal justification for directors to engage in CSR activities?
2.Are audit committees an essential feature of good corporate governance or are they pointless given their inability to prevent corporate failure?
3.Advise the potential board of i-Design whether or not they will indeed be an ideal board based upon the Australian Securities Exchange Corporate Governance Councils Principles and Recommendations. If not, why not, and what should they do?
4.Will the directors be held responsible for the company’s losses under the insolvent trading provisions of the Corporations Act? Are there any defenses available to any or all of the directors?
1.They have to act with honesty at all steps of their work. They have to make sure that they are not using any dishonest means. They have to be very diligent and also very caring. They have to make sure that they are being cared. For an instance, a CSR activity might include giving a part of the acquired profit for the needy and the orphans. The attitude of the Directors in this activity has to be very careful about the funds that they need or the kinds of restrictions that they must maintain. They must have a thorough sense of the upcoming dangers if any. There can be a danger that they need some more money than they thought they would need. So, they must keep this fund accumulated right from the beginning. There can be this threat that the employees are not supporting this idea as they think their salary might get affected. So, the directors have to keep themselves prepared for all these and be ready with the alternatives.
One such civil penalty is ASIC, management banning order etc. Directors are also responsible for implementing the rules among their delegates and are held responsible for the way in which the delegates are acting. Directors always have to act in the good faith. They have to exercise their power in the best and effective way and must also carry on their duties properly. They have to give the interest of the company or the corporation the topmost priority. All his decision must be for the welfare and in favor of the interest of the corporation. It is also a duty of a director to make sure that even if he gathers some company information while he is not serving the company or being an ex-employee, he must not make any improper use of that information for his own benefit.
Are Audit Committees Essential for Good Corporate Governance?
An auditing committee is indeed very essential for the overall welfare of the company. The corporate governance of the company will always depend on the proper working of the auditing company. It is essential for the protection of the companies from the financial crisis that takes place. It is because of the collapse of the companies like Enron, BCCI, Worldcom and many others that the need for a suitable auditing committee has become even more prominent. The corporate governance of the company depends on the decision, the reports and the decisions that are given by the board of directors. The failure of the Enron was because of the strange transactions that were going in the company and more because they were left unchecked. Though it was said by the then chairman of that company Ken Lay, that
“We cannot, I submit, be criticized
for failing to address or remedy problems that
have been concealed from us.”
Directors were not ignorant about the malicious transactions that were going on in the company. They knew that the some of their employees were using the sham and the outdated or illegal SPEs in the company and that these would cause some serious damage. They should have been much more careful. So, it is for this reason that a sound auditing committee has to be there so that the functions like the internal and the external audit and the general functions can be carried on properly. Internal audit has become one of the most important functions of the auditing committee. The auditing committee also chooses the external auditor and this is indeed a very important activity. The external auditor is asked to submit his proposals and then nominates them on their abilities. External auditors are either the CPA or the CA. The task of nominating the external auditors is one of the most important tasks of the auditing committee. So, this is directly linked with safeguarding the interests of the stakeholders. The auditing committee has to make sure that the external auditors are also performing their duties properly and independently. It also has to be seen that the proper amount f money is being paid to them and that there is no conflict of interest and the work is being carried on smoothly.
3.I would suggest to them that they can start the company i-Design with the expertise that they bear, but not immediately. They must take some more time to gather some extra manpower with some extra knowledge that will be needed for their business to survive. This technological know-how is good for the web designing company that they want to start. However, starting a business does not only depend on the subject matter expertise or the technological know-how. There are several other aspects that must be fulfilled to start a company. One among them is the ethical consideration. They must have a code of conduct that has to be maintained properly. The six members who want to launch their web design business currently possess the technological know-how in the field of computer programming, network security, and other aspects. However, they need to formulate all the legal and ethical considerations before they can start their business. They also need to have a board of directors and most importantly they must nominate auditing committee so that they can look after the audits both the internal and the external expenses. The structuring of the auditing committee has to take place properly. The committee members must be able to act freely and have to look after the kind of transactions taking place. The company i Design has to make sure that they are establishing some written code of conduct and written policies that are in compliance with the ASX listing rule. Before commencing the business it is important for them to make sure that the company is having a proper communication guide. It is based on this communication guide that they will carry on their communication with their stakeholders. They will have to conduct many meetings for the discussion of the overall good of the company. In order to carry on these meetings properly, they have to develop a proper communication process. They will use this communication method for talking with their internal and external stakeholders as well. They need to develop some kinds of communication methods that will help them to make sure that they are able to discuss all their policies and decisions to their stakeholders properly. They have to make sure that there are no unethical practices being carried on within the company. They will have to take some time in drafting the policies that will help in formulating the communication process and in setting their ethical considerations properly. They will also need some time in implementing the same.
Assessing the Potential Board of i-Design Based on ASX Corporate Governance Council’s Principles and Recommendations
They will have to recruit some other members who are experts in management and marketing and also in the Human resource aspects. This will be important as they have to make the survey if the market and the recent trends in the web designing sector. As they are a new business they will have to gather and recruit the best expertise that is available in the market. They will also have to get some innovative aspects that will attract the attention of the consumers that are not currently present in the web designing market.
4.The directors of the company will be responsible to some extent as they did not inform anything to the non executive official that is Karen. They themselves took the decision for solving the problems without forwarding their decision to the non executive director. This was wrong because the non executive director is one of the important parts of the auditing committee and must have been forwarded this decision. However it has to be noticed that both Owen and Bradley are managers of good experience so it is also not totally their fault that they have ended up taking the wrong decision. However they will not be held totally responsible for this as they thought that the company will remain solvent when they commend the business. They thought that they have enough experience to start with this project. They did not expect that the company can become insolvent at the end of the business. These directors can be protected under the duty to prevent insolvent trading statutory defences section 588H. It can happen that the directors Owen, Bradley and Karen thought that the company will flourish and will not suffer any losses. The company was also solvent while it was started. However the problems in the company started within the span of one year. There were some problems in the cash flow of the company after the company started running. So, the directors Own and Bradley had nothing to do as they did not know this would be the situation of the company when they started with it. Maybe there has been some problem in the cash flow of the company after it started and they did not have any idea about this previously. As the Directors had the proper information about the competency of themselves they thought themselves competent and reliable enough. Owen was an accountant of good experience and Bradley had some really long and good experience in the field of management and Karen was a skilled oenologist that is a winemaker. Moreover they were old friends and had some idea about the competency of each other at the time of launching their business. So they were of the opinion that they will do well and that the company will not go under any insolvency or debt.
However, it also has to be noticed that it was Owens’s and Bradley’s duty to consult the decision with Karen of taking some $300,000 cash from Maverick Bank. It could have happened that he gave some good or innovative idea to prevent the loss or the insolvency. So the directors can be held partially responsible
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