Thursday, 27 December 2007

Should the Corporations Act 2001 (Cth) be revised?

Should the Corporations Act 2001 (Cth) be revised to require directors to take into account the interests of specific classes of stakeholders or the broader community when making corporate decisions?

To answer this it must be understood where the responsibilities of the directors are going under the Act as it stands at present.

In studies done by the Australian Securities (formerly Stock) Exchange (ASX) ,on listed companies, they found no evidence to suggest the current Act deters companies from the incorporation of "corporate social responsibility" [CSR] and the reporting that comes along with it. They go on to report the current legislation seems to have room for the directors to include and sustain their accountability to their stakeholders. In looking at this accountability to the stakeholders it must be mentioned here that quite possibly, rather than the legislation, it is the financial and commercial impetus that is guiding this accountability to their stakeholders.

Therefore the ASX found the necessity for legislative change was unclear on the face of increasing interests by the public companies in CSR in particular their reporting and meeting the demands of their stakeholders*. It must be emphasised here the corporations involved with the ASX are all the listed corporations and not the private ones who will also be affected by any possible changes in legislation.

In looking at the present duties of the directors as laid down in the Corporations Act 2001 (Cth)* Section 180(1) states a director must discharge their duties with the care and meticulousness any reasonable person would use. In Section 180(2) it is stated the directors must meet a duty of care when making business decisions and that it is “in good faith for a proper purpose”*.
Another group felt the Act should be revised to require directors to take responsibility for the specific classes of stakeholders and their interests when they are making decisions which may have broad implications to the community in which they exist as well as to their other stakeholders such as clients and employees.* As stated:
…in order to genuinely protect non-shareholder constituencies, legislation would need to be passed to mandate directors to consider non-shareholder interests in situations where there is conflict with the interests of shareholders and the shareholder profit maximisation objective.

The Advisory Committee organised by the Commonwealth to study and respond to the CAMAC Discussion Paper felt a revision of the Act was not necessary in light of the fact the present legislation allowed enough flexibility for the directors to take into account recognition of their stakeholders and the specific needs of each group*.

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