Industrial Relations Commission - Case Study Example

Name of student Professor’s name Course name 25th September 2013 Adolf & Means state that in modern corporation and modern business world, the owners and controllers of a business corporation exist as separate identities (6). This separate identity enables each party to have a bird’s view of the operations of the other party. In a corporate governance setup, the owners will be more knowledgeable about the operations of the business if they are not fussing around with the operations of the business. The same applies to the other party. Those who control the business enterprise (management personnel) are able to work even better without having to worry about how the structures of ownership operate. However, the two parties crash at times and lines have to be drawn between the owners and the people who control the company. This paper explores how the owners (shareholders) use different mechanisms to control the activities of the corporate controllers (managers and directors). Various arguments from Australian case laws and corporation laws will be used in this argument. Distinction of roles between owners and controllers Many people invest in companies that they do not have a direct role in the operations of the same on a day to day basis (Mulili and Wong 14). Matter of fact, most of the people who buy equity into various companies do not have full information about how the companies operate on a daily basis. They are more concerned about the returns on their equity and the revenues that the company is making. When people invest money into a business, it is because they are truly hopeful that their investment will pay off and they might be in a position to gain from their returns. They want to have as much returns from the resources that they invest in a business within the shortest possible period of time. They are more keen on payback periods and turnover ratios than on other more intricate factors as running of the organizations. The controllers or rather the management on the other hand are tasked with much more than the role of profit generation. Sometimes you may find that the owner of an organization is also among the controllers but in public corporations which form the basis for this argument, the owners, modestly called the shareholders, tend to shy away from the control part of the business. Rather, they hire and entrust professionals, called the management to do this for them. Management primary role is to make money for these owners. However, they are also tasked with other roles such as ensuring that the company retains its perpetuity and competitive advantage even in the future. Avenues of conflict between the owners and the controllers Due to the forms of pressure of ensuring that the company is profitable even in the future, sometimes the management may make some decisions which do not completely fall along the lines and likeness of the owners and it is here that the conflict between the two parties arises. At other times, the owners may think that the management of the company is misappropriating the resources that they have at their disposal. As owners, this gets them very concerned because they are the ones who are likely to shoulder the loss arising from this misappropriation of resources. They keep a keen eye on the conduct of these professionals and they demand that they conduct themselves in a manner that will protect the interests of the owners at all times and in a way that justifies the salaries that they draw from these companies. So how does the owners ensure that the management is kept to their toes to make sure that they do not bring losses to them? The following paragraphs detail the mechanisms that are used by the owners to compel and control the conduct of the management of the companies that they own. Mechanisms used to control the conduct of management by the owners There are several ways through which owners can manage to control the way the management of their companies operate. These are detailed here. Holding annual general meetings and voting Its within the charters of law, the corporation law in Australia to require a company to hold an annual general meeting every year. In this meeting all the stakeholders of the company are to be invited. There are several issues and activities that are carried out during these general meetings held on an annual basis depending on when the fiscal year of the company ends. This meeting provides the shareholders with a number of important opportunities. The first opportunity is to know of the financial standing of the company. They are provided with information relating to how the company has been operating throughout the year. Dividends could also be issued to the various shareholders in accordance to their levels of equity. They also get the chance to discuss and even vote upon the future of the company on matters related to market expansion, rebranding, mergers, change of names, expansion into different operation lines among other issues that would affect the future operations of the company. In this meeting, the owners get to vote in or vote out the board of directors (Corporations Act 2001-6C 85). This goes along the company’s laws as well as the corporation law in Australia which dictates that for companies which have a board of directors, they shall be conducted on an annual basis or on a basis that all parties agree to and pen down in their company manifest (Corporations Act 2001-250E 331). Publishing of financial reports The shareholders of a company require that the management publishes the financial reports of the company on an annual basis (Australian Accounting standards board 1). The reports indicate all the activities that the company has been engaged in during this period and all the projection for the next year are supposed to be made public and accessible. This is the report that the owners use in their assessment of whether their resources have been put to good use or not. If the reports are good, they can conclude that the company is performing quite well and as such, they may decide on their investment option in the company which may include increasing their portfolio. If the reports are not good, they may decide to pull their investments out of the company and invest somewhere else. The shareholders have the full rights of accessing all the information pertaining to the performance of the company at request. When they need to know how the company is performing, they request for information on the same and the management should ensure that it avails this information to them. Sometimes, some dishonest managers cook up figures in a bid to try and excite the investors and make them believe that the company is either doing well or doing badly off so that they investors may get forced to make decisions that would favor the management. This is a crime according to the law and it is punishable through the decrees of law. Such cases do actually happen. The following example highlights this point better. Example: Case law- Australian securities and investments commission v MacDonald- Corporate governance lessons from James Hardie The New south Wales supreme court was required to determine whether management of James Hardie industries limited had breached the statutory laws outlined in the corporation act of Australia 2001when they approved a release to the Australian securities exchange a defective media statement on the company’s restructuring. They accused the directors of releasing false and deceptive statements to the Australian securities and investment commission. The case looks at the roles and the various responsibilities that officers and directors of companies, and in this respect the James Hardie company in ensuring that they acted according to the set rules in the Australian corporation act “… highlights the responsibilities of the board, chief executive officer and general counsel of listed companies to ensure compliance with the law. ..” (Hargovan 984).The case was held that the management of the company did indeed breach the rules and codes of conduct through provision of misleading information that could affect largely how investors portrayed the company. Removal from office of non- performing management employees Having understood that the shareholders are the owners of the company and those who control it, the management are the people employed by these shareholders, when they do not deliver on their job, they are fired from office immediately. In some companies, there are set rules that govern how the non performers are removed from office. However, in some cases, these rules may not necessarily be followed in circumstances that the owners may feel that continued maintenance of the personnel would be detrimental to the business interests and the profit making objective that they have in place. People who get fired from companies and feel that they have been dismissed without having the proper procedure followed are given the right, under the case laws of Australia to sue their employers. Example: case law- Paul Michael McGrath v. Sydney Institute TAFE Such is a case described under the case law, Industrial Relations Commission of New South Wales between Mr. Paul Michael McGrath and his employer Sydney Institute TAFE for undeserved dismissal. The applicant wanted his employer to ensure his … “reinstatement and monetary compensation from date of dismissal at usual salary rate.”(1). The judge listened to the argument from both sides, argued the case based on both theoretical and abstract empirical facts and concluded that the owners of the company had a right to dismiss the applicant “I therefore dismiss this claim for want of jurisdiction.” Industrial Relations Commission of New South Wales (1). In the above case, Paul was dismissed by his employer after the employer ascertained that his conduct was not in sync with the goals and objectives of the institute. The ruling in favor of the company shows that indeed shareholders of a company have more power than the management. This is one of the mechanisms through which owners may put a check on the conduct of their management. When the management realize that they may be removed from office by a simple majority of the shareholders, they tend to become more responsible and act in a manner that protects the interests of both parties. Consultation In many companies, the management is only allowed to make independent decisions pertaining a certain business transaction that involves a certain stipulated amount of money. Beyond this amount, the management cannot make the decision independently. They have to consult the shareholders. The shareholders will look at the scenario, evaluate the pros and cons of the proposed business decision and decide on whether to give these managers the green light or not. Some major decisions such a mergers, acquisitions and even dissolution are matters that cannot be handled without the consent of the shareholders. This goes a large way to prevent the management from derailing the operations of the company through driving their own selfish interests. Conclusion The above discussion has shown that in a corporate governance setup, both the owners and the management need each other so that the goals of the company can be achieved. It has also been shown that the owners most likely are not engaged in the process of daily running of the companies. For this reason, they must find other ways to ensure that they control the conduct of the management as a way of safeguarding their resources invested in the company. There are various mechanisms of doing this and they have been discussed in this paper. These have been identified as Australian accounting standards board and Australian corporation act. It has also been established through examples of case laws in Australia that the disputes arising from these parties are resolved in accordance to the Australian corporation act. The best way to ensure that the objectives of the companies have been met and every party has benefitted is through working together in harmony and trusting in the honesty and capacity of the other party. Works cited Adolf, Berle & Means, Gardiner. The modern corporation and private property. New Brunswick: New Jersey, 2009. Print. Australian Accounting standards board. Developing, issuing and maintaining Australian Accounting Standards and related pronouncements.2013. Web. < http://www.aasb.gov.au/ > Australia. Corporations Act 2001. Act No. 50 of 2001 as amended. Canberra: 2001. Print. Hargovan, Anil. Australian securities and investments commission v MacDonald [no 11]- corporate governance lessons from James Hardie. 2009. Web < http://www.mulr.com.au/issues/33_3/33_3_12.pdf > Industrial Relations Commission of New South Wales. McGrath v Managing Director TAFE. [2012] NSWIRComm 1006. 2012.Web < http://www.austlii.edu.au/au/cases/nsw/NSWIRComm/2012/1006.html> Read More