Corporations Law

Corporations Law 1. 0 Areas of law Corporate social responsibility has long been a touchy issue for governments not Just in Australia, but around the world as well. Companies in Australia are governed by the corporation’s act, which outlines the legal capacity and power of a company. The Corporations Act 2001 (Act) s AAA, defines a corporation as a separate legal entity, that includes any corporate body and unincorporated bodies that may sue, be sued or hold property in the name of an office holder appointed for that purpose.

In context of corporate governance, the main issue is with the current escalation is in regards to director’s duties. Under the Corporations Act 2001 (Act) asses, directors have a civil obligation to act with due care and diligence, with best interest of the corporation in mind. This civil obligation however, does not extend to certain classes of stakeholders other then shareholders. Modern day companies often have a great impact on society at large, through the various activities they conduct.

Given the broad economic, environmental and social impacts they have, it is understandable that a push has been made for director’s duties to extend beyond warehouses, and include stakeholders at large. The Corporations Act 2001 (Act) sass, also outlines the legal capacity and powers of a company. S 124(1) states, ” a company has the legal capacity and power of an individual both in and outside this jurisdiction”. A company can also be held primarily or secondarily accountable for torts and crimes.

To think of a corporation as solely an instrument of business, fails to account for social changes, which has taken place over the past century. 5 It is therefore vital that amendments be made to the Corporations Act 2001 (Act), so as to ring accountability and responsibility of corporations and directors up to date with societal change that has occurred over the past decade. 2. 0 Problems associated with the law The current law governing companies and directors outlined in the Corporations Act 2001 (Act), only allow for calculated corporate social responsibility.

According to the Corporations Act 2001 (Act) asses, directors are required to act in good faith and in the best interest of a company, and in appropriate circumstances may choose to take into consideration a range factors external to shareholders, only if they benefit the warehouses collectively. As a result, companies may be obliged to consider CARS, only when it is likely to result in positive publicity, public approval, endorsements and goodwill; investor confidence and demand; and promote a positive impact on company share prices.

It is evident that the current Corporations Act 2001 (Act) limits company director’s ability to adhere to CARS practices, as shareholders must receive some benefit from engaging in CARS. This can be seen through statements made by The Australian Shareholder Association pertaining to corporate donations in relation to tsunami relief efforts, here it stated directors have no approval for philanthropy, donations should only be made in situations where they are likely to benefit the company or shareholders through greater exposure.

Directors who seek to engage in CARS activities that do not directly benefit their companies or stakeholders would therefore be in breach of their director’s duties outlined in the Corporations Act 2001 (Act) assess, and this is where the the Corporations Act 2001 (Act) falls short. 3. 0 Recommendations & suggestions Although there are absences of specific law regarding how companies should be socially responsible, new suggestions and recommendations may be implemented as a guideline for companies to be socially responsible.

One of the suggestions is for companies to introduce triple bottom line reporting, principles of conduct and charitable contributions in their environmental record as to evaluate its responsibility performance. However, according to the s 181 of the Corporations Act 2001 (Act) directors of the company should prioritize needs of the company for proper purposes by exercising their powers and duties in good faith. Also, the

Australian government may introduce a rule that requires registered companies to participate in a policy in which each company need to design a Corporate Social Responsibility Committee that will observe every activity conducted and how will it impact those other than the shareholders, specifically the employees, suppliers, customers and also the environment. The company would then have to participate in a policy in which it is required to be publicized on its own website.

Although it may be contradicting to the directors’ best interest for the company, by spending an mount on volunteering programs, such as the hunger project to help extinguish famine in poor countries, it also helps the company to build a better image that in turn, could be advantageous to the directors. 4. 0 Issues of importance The push for company reporting to include CARS related information in annual reports is of utmost importance, given the prominence of corporate influence in today’s society.

The recommendation to implement triple bottom line reporting would increase the extent to which companies are taking responsibility for the consequences of their actions, in relation to corporate activities that touch on environmental or other issues of community concerned The implementation of the policy requiring companies to establish a corporate Social Responsibility Committee are also essential in the push for more CARS friendly law reforms governing Australian companies.

Greater transparency in relation to social and environmental impacts of companies has been called for by community groups, given the success of corporations as vehicles for productive enterprise. The degree of accountability displayed by companies in their course of business pertaining to social and environment issues are understandably a matter of public interest, due to modern day companies having a large environmental and social impact on external stakeholders in the course of their activities. . 0 Foreign solutions for CARS A similar issue has been addressed in the United Kingdom in regards to the degree that the directors may take into consideration on its responsibility to other individuals besides its shareholders. As it was being evaluated by the country’s Department of Trade and Industry, the issue had resulted in the establishment of the Companies Act 2006 (I-J) (companies Act’) that constitutes the first codification of directors’ duties.

Based on the Companies Acts 172, it has been maintained that the directors are obliged to take considerations of the interests held by individuals other than the shareholders, employees, customers and also the environments 5. Nevertheless, the provision claimed that the directors are required to function in a way that the success of company can be improved, which will then prompt the directors on its duties in protecting the interest of the shareholders.

Also, in India, he government has come up with the introduction to the policy of a two-percent Corporate Social Responsibility law that promotes company to be charitable by having two percent from profit earned each financial year to be spent on government-approved projects that may consist of environmental sustainability and education that are leaning towards development of the nation as a whole. Companies are liable in designing its own committee of corporate social responsibility to aid in observing, reporting and preventing any activities that may harm the society and environment.

Each report is then to be disclosed in the company’s website as required by the policy. 6. 0 Views on suggested reform policies In relation to the proposed reporting reforms pertaining to CARS, we are in agreement that the implementation of the suggested changes would be in the best interest of companies, their directors and wider stakeholders at large. The Corporations and Markets Advisory Committee has stated in their report that it does not support the revision of The Corporations Act 2001 (Act), in relation to the inclusion of CARS under director’s duties.

The proposed amendments have been seen to fail in providing directors with meaningful clarification, whilst risk obscuring the accountability of directors. It is their belief that that the most effective response to concerns arising from time to time pertaining to the environment and social impact of business behavior, is through the setting of specific legislation directed to the problem real 8. However the Corporations and Markets Advisory Committee have identified a number of issues in relation to the implementation of environmental and social reporting elicits.

Issues relating to discrepancies that may arise in relation to comparability, market advantage and cost have been identified. In regards to the comparability of company reports, it has been argued that additional mandatory reporting is necessary to ensure comparability of non-financial reports. Further more, it has been identified that enhanced mandatory reporting would reduce selective positive-only reporting, thereby only benefiting responsible companies by improving their standing among risk analysts.

Lastly, concerns have been raised by companies in geared to costs that will have to be incurred due to additional mandatory reporting. There has been a general consensus among companies that additional mandatory reporting will be too costly, however others have argues that such additional reporting could in fact reduce costs, through the standardization of reporting requirements. Having considered these statements, we still belief that the best approach in relation to company CARS reporting, is through the introduction of separate policies which are to run concurrently with the Corporations Act 2001 (Act)