Cities in a Globalizing World - Assignment Example

Governance in a globalizing world Name: Course: Instructor: Date: Q1. Directors are not involved in company operations and hence should not be held responsible for the financial position of a company. Discuss. 10 marks According to the case of Salmon vs. Salmon and co, it was held that the company was a separate legal entity from its owners thereby limiting the owners from being called upon to pay the debts of the enterprise. From this, a company is an independent legal body, headed by directors. In legal business terms, a director is an individual bestowed with the management of the company. After the initial stages of company registration and formation by promoters, the directors are appointed, or the promoters are awarded to be the promoters of the company. A director also has a right to own shares in the company thereby being owners of the company. A company director is expected to act in good faith on behalf of the company and with a sense of purpose. Although the directors are not directly involved in operations of a company, they take part in ensuring that their junior manager’s actions are in line with the company’s obligations. The directors oversee the operation of the business through the company’s CEO and thereby they are involved in the company’s operations. On the issue whether the Directors should be held liable for financial position of the company depends on many factors since by law, the directors cannot intentionally take any activities that would lead to the company's debts to upsurge or either goes unpaid (Bosch, 2013. Pg102) The factors include; Favoritism-If in case the directors show any favoritism towards any particular supplier of any creditor. This will show that the Director is influencing the company’s financial position thereby being held liable the financial position of the company in case of issues like insolvency. Director’s actions. According to the law, the company directors are expected to act in good faith and with a sense of objectivity towards the company’s’ objectives. If any director fails to meet his or her essential duties of about law, they are probably supposed to face severe personal liabilities and job disqualification as a director of a limited company or even in the future. The directors’ action about dividends is also important. If the director continues to pay shareholders dividends while the company is insolvent or in financial fallout just like in the case provided, the shareholders were in the right position to institute legal charges on the directors (Robertson, 2012, p.95). The directors may also be held fully liable for financial position of the company on may other instances that may include, •Applying fraudulent methods to raise the funds needed to repay creditors, for example, obtaining financing using any misleading or through inaccurate information just like in the case provided. • Usage, application or withdrawal of company funds for non-business activity; this is a major offense known as misfeasance, and the directors are held liable. • Entering into a personal guarantee with any stake holder in the company and then later breaching its' terms. • Undertaking disposal of company assets at a loss even after advises from company financial managers. Q2. Shareholders have the right to institute legal proceedings against companies if they lose money on their share investment. Discuss. 10 marks A shareholder is the legal owner of a company. The shareholders and directors exist in an agency relationship. Since a company may have hundreds of shareholders, they cannot all take part in the management of the company as they may not have the required expertise to run the company. For this reason, the shareholders appoint directors to act on their behalf to manage the company. On the management of the company, the directors are expected to perform their duty with due diligence and with utmost good faith in protecting and maintaining the shareholders’ funds. Under company law and the Act of 2006, the shareholders have several rights on the company; All shareholders enjoy the legal right to receive notice of any general meetings and to attend them. This will include any Extraordinary General Meetings and Annual General Meetings, but does not go into meetings of the company directors. Shareholders also have the right to vote at the General Meeting. Apart from this right, the shareholders also have a right to; Right to receive dividends declared by the Directors Right to receive salient information about a company. Rights to inspect company’s books of accounts. Rights to the inspection of statutory books and the company’s constitution. Concerning legality of the shareholders constituting legal suits against Directors when they lose funds, it’s a No; this aspect is in under section 260 to 264 of the 2006 Act. The shareholders can only constitute legal proceedings on the Directors under exceptional situations. Since the company directors act as agents of the shareholders, there are instances where loss of money may allow the shareholders constitute legal charges upon them. The circumstances include, Where there is a report of fraud on the side of the Directors Where the Directors have engaged in illegal business or any activity not stipulated in the company’s memorandum and article. In the case of gross negligence by the Director leading to the loss of funds by the shareholders. In the case of giving a misrepresentation to the public knowingly or after without consultation by the shareholders. In relation to the 2006 company’s Act, section 260-264, a member of the company (shareholder) has a right to seek relief from the court on behalf of other members. Section 1 of the Act defines a member of any individual or a person to whom the company shares have been transmitted or transferred by operation of law. A claim may thereby be brought to a wider but still limited range of circumstances discussed. The legal suit may result in an actual or proposed act or omission involving negligence, default or t breach of duty and even breach of trust by a company director or against any director or even against relevant third party or both (Kirton, 2013, p.75). In order for a shareholder file or bring a legal suit against a company Directors, it must be shown that: The given shareholder filing the suit on behalf of the corporation or other shareholders had stock ownership at the time or during the period of the act complained of or during the undecided litigation being brought. The shareholder bringing the legal suit must show clearly that he or she represent the shareholders interest and not just his or her personal interest. Before filing any derivative suit, a shareholder or shareholders must make a written demand to the directors about their complaint and their expected course of conduct. Then, in case the directors fail to take action, the shareholders will now have the full right to seek remedy from the court. The Corporation must be named as being the defendant even if the suit was instituted on behalf of the Company. The Courts would be expected to dismiss the law suit if the disinterested directors affirmed that the transaction was not illegal and was done in utmost good faith, on a balanced basis and even if it harmed the company, there was no any fraudulent or unlawful conduct (Chakrabarty, Chand & Roy, 2012). 3. Shareholders who own the majority of company shares should hold the positions of CEO and or Chairman. Discuss. 10 marks Chief executive officers and company chair persons are always elected democratically at a company’s AGM. In most companies, Just like James Parker holds 53% of Crown investment, it is a difficult ordeal to vote him out from being the chairperson. In several private corporations, it is always a very easy task for the majority shareholder to be the chairperson of the company since he or she may have more say in the company. But in public corporations of any given size, the case is not the same. Large corporations have market capitalizations adding up in the hundreds of billions of dollars. Their chief investors may include other large institutions, hedge funds, pension funds, mutual funds, and commercial banks, all of which have adequate financial resources to hold very big blocks of shares. This aspect brings a notion of smaller the company, the more likely that the company Chairperson or CEO will be the majority shareholder and the reverse is true. There exists a big risk in a scenario where a small-company CEO is not the majority shareholder; the company may need to consider very carefully the viewpoint of the individual, or the group, that does hold the given position. Although some major company investors are comparatively passive, others take a very active role, and the majority stockholder often has the ability to swing critical votes, for example, during an election of company officers or during the decision on whether or not to merge or acquire another company. In case a majority shareholder feels the CEO or the director is not meeting the needed requirements of the job, he or she can also demand the Chairman or CEO's resignation and also force a vote on the issue. This statement doesn’t mean that it is so necessary that the majority shareholder must be the Chairman of the company, but that they (majority shareholder) have the higher chances of getting that position of either the CEO or the company’s shareholder. Q4. Superannuation (Pension) funds have the right and responsibility to influence the company by meeting with the Board of Directors. Discuss. 10 marks. Being a member of a pension scheme or superannuation funds is one of the fundamental obligation of any employee of a company or shareholder. The Australian government is advocating that more citizens should try belonging to one or more pension schemes for a better retirement. Meeting with the company’s board of directors is a fundamental right of marketing by these enterprises. Since some insurance companies are also the pension players, they have many a time met the company’s Directors in order improve their marketing. The company shareholders or their employees have a sole right to determine the pension scheme that they may want to belong to. This right should be influenced by the pension company meeting their Board of Director since some may not be comfortable with the pension schemes offered by these enterprises. The pension companies may only meet the company directors under the following circumstances, When marketing their policies to the leaders as individuals and not necessarily to convince them to allow the employees become members of the scheme. A way of trying to give a general overview of their pension plans and different policies of the firm. The pension companies are under no obligation to meet the Board of Directors in any way whatsoever to influence the company. In case the Company meets the board the following may occur. I. In the case of any loss by the shareholders resulting from the board relying on the information given by the pension company, the Directors will be held personally liable for such action. II. In case there was proof that the directors never acted in utmost good faith and was unduly influenced by the insurance company, shareholders can institute criminal charges on such directors. III. In case such pension schemes were entered into by the directors with an aim of accruing personal benefits from it, then shareholders have the rights to replace such director. The directors are agents of the shareholders. They need to try and maximize both the shareholders wealth and the profits. In doing so, there always occur a problem in the agency since these two goals always contradict as one is a long term goal, and the other is a short term. In case the directors decide to pursue the wealth maximization goals which include belonging to a good pension scheme program and taking better insurance covers for the company, there may be a reduction in the dividends to be paid to the shareholders hence there will be a conflict. It is therefore advised that the Directors be more careful in their decisions and choices to avoid issues with the company owners. References. Bosch, H. (2013). Shareholders' rights. Melbourne, Vic.: Information Australia. CHAKRABARTY, B., CHAND, P., & ROY, A. (2012). Public administration in a globalizing world: theories and practices. Thousand Oaks, Calif, Sage Publications. DAS, T. K. (2011). Strategic alliances in a globalizing world. Charlotte, N.C., Information Age Pub. FERGUSON, Y. H., & JONES, R. J. B. (2002). Political space: frontiers of change and governance in a globalizing world. Albany, State University of New York Press. KIRTON, J. J. (2013). G20 governance for a globalized world. Farnham, Surrey, Ashgate. LÉAUTIER, F. (2006). Cities in a globalizing world: governance, performance, and sustainability. Washington, DC, World Bank. OATLEY, T. H., & WINECOFF, W. K. (2014). Handbook of the international political economy of monetary relations. http://public.eblib.com/choice/publicfullrecord.aspx?p=1718221. ROBERTSON, S. L. (2012). Public private partnerships in education: new actors and modes of governance in a globalizing world. Cheltenham, UK, Edward Elgar. Read More