Anil Hargovan

Principles of Contemporary Corporate Governance: Stakeholders in corporate governance and corporate social responsibility

What we are witnessing is a shift in the content of the shareholder value norm, so that it comes to represent the idea that shareholders exercise their powers not as representatives of the market, but as agents of society as a whole. The corporate governance of the future will be centrally concerned with how this idea is worked out in practice. Simon Deakin, ‘The Coming Transformation of Shareholder Value’ (2005) 13 Corporate Governance: An International Review 16 To create an enduring society we need a system of commerce and production where each and every act is inherently sustainable and restorative. Business will need to integrate economic, biologic, and human systems to create a sustainable method of commerce. As hard as we may try to become sustainable on a company-by-company level, we cannot fully succeed until the institutions surrounding commerce are redesigned. Paul Hawken, The Ecology of Commerce (Harper Business, revised edn, 2010) xii Introduction As touched upon in Chapter 1, contemporary commentary on corporate governance can, in general terms, be divided into two main camps: those who consider corporate governance as being about building effective mechanisms and measures to satisfy the expectations of the variety of individuals, groups and entities (collectively, ‘stakeholders’) that inevitably interact with the corporation, and those who focus on it in relation to the narrower expectations of shareholders (shareholder primacy). This chapter focuses on the first of these objectives, with attention being given to the stakeholders of the company, how the law influences corporations to recognise and protect the interests of these stakeholders, and the relationship between these stakeholders and the underlying objective of companies of achieving and maintaining good corporate governance. Steve Letza, Xiuping Sun and James Kirkbride explain the difference between the two corporate governance paradigms, ‘shareholding’ and ‘stakeholding’, as follows: Such a division hinges on the purpose of the corporation and its associated structure of governance arrangements understood and justified in theory. On one side is the traditional shareholding perspective, which regards the corporation as a legal instrument for shareholders to maximise their own interests – investment returns. A three-tier hierarchical structure, i.e. the shareholder general meeting, the board of directors and executive managers, is given in company law in an attempt to secure shareholders’ interests …

Principles of Contemporary Corporate Governance: Enforcement of directors' duties

There are no qualifications for being a company director. Even directors of listed companies do not have to take any examinations … In principle, anyone can become a director. One might therefore think that the duties of an office so unexacting in its qualifications would be simple and easy to ascertain. In fact, this is far from the case. In fact, the duties of directors can be discovered only by examining at least three different sources which lie like strata one above the other. The bedrock is the duties which directors owe at common law, or more precisely in equity, simply because they are managing other peoples property. Over that layer has been imposed a number of specific statutory duties intended to reinforce the duties at common law. And over that layer has been imposed still further duties under various self-regulatory codes, which are also intended to reinforce the common law duties in areas not thought suitable for legislation. Lord Hoffman, ‘Duties of Company Directors’ (1999) 10 European Business Law Review 78 The governance of a public company should be about stewardship. Those in control have a duty to act in the best interests of the company. They must use the companys resources productively. They must understand that those resources are not personal property. The last years of HIH were marked by poor leadership and inept management. Indeed, an attitude of apparent indifference to, or deliberate disregard of, the companys underlying problems pervades the affairs of the group. Report of the HIH Royal Commission (Owen Report), The Failure of HIH Insurance – Volume I: A Corporate Collapse and its Lessons (Commonwealth of Australia, 2003) xiii–xiv Introduction The Australian Securities and Investments Commission (ASIC), as the primary corporate regulator, has had some spectacular successes, as well as failures, in enforcing the civil penalty provisions underpinning breach of directors’ duties under the Corporations Act 2001 (Cth) (Corporations Act). ASIC has played an active role in enforcing civil penalty provisions against directors and officers.

Principles of Contemporary Corporate Governance: The concept ‘corporate governance’ and ‘essential’ principles of corporate governance

It is necessary only for the good man to do nothing for evil to triumph . – Attributed to Edmund Burke (18th-century English political philosopher) – The Australian , Monday 6 December 2004, 4, reporting on the most favoured phrase of quotation-lovers, as determined by an Oxford University Press poll The meaning of corporate governance Generally Corporate governance is as old as the corporate form itself, although Tricker correctly points out that the phrase ‘corporate governance’ was scarcely used until the 1980s. In the first edition (2005) of this book we pointed out that there is no set definition for the concept of corporate governance. This has not changed. Commentators still speak of corporate governance as an indefinable term, something – like love and happiness – of which we know the essential nature, but for which words do not provide an accurate description. Many have attempted to lay down a general working definition of corporate governance, yet one definition varies from another, and this often leads to confusion. Early attempts to define the concept of corporate governance appear in the United Kingdom Cadbury Report (1992) and the South African King Report (1994), defining corporate governance as ‘the system by which companies are directed and controlled’. That seems not particularly helpful in clarifying the meaning of corporate governance. Over the past decade or so, there have been further attempts at a definition, bringing in additional aspects or elements under the term ‘corporate governance’.