Corporate Governance & Regulatory Process

Question 1

It has been argued that the law needs to expand the scope of directors' duties to incorporate Corporate Social Responsibility (CSR) obligations that go beyond acting in the interests of company shareholders.

What are the existing statutory legal responsibilities of directors with respect to CSR activities? Is there any legal justification for directors to engage in CSR activities?

Question 2

An audit committee is said to play an essential role in a company's corporate governance. It is seen, amongst other things, as being "a crucial component of effective corporate governance, serving to strengthen auditor's independence and providing an independent forum where issues relating to the audit can be referred on a timely basis". Enron, Worldcom and HIH all had impressive audit committees, yet these companies failed.

Are audit committees an essential feature of good corporate governance or are they pointless given their inability to prevent corporate failure?

Question 3

A group of former university friends who all graduated with various IT related degrees are now individually successful in their respective careers. They want to start an online web design business which was their dream at university. They think now is the right time to launch their business and plan to quit their current jobs to start a new company.

There are six people in this group:

1. John is a software engineer,
2. Peter is a computer network manager,
3. Paul is a management information system expert,
4. Mark is a programming language specialist,
5. David is a computer graphic designer, and
6. Chris is a computer science specialist.

All six group members are less than thirty years of age. Together they incorporate a company called "i-Design". All six of them are confident in their collective knowledge and skill regarding web design. They also believe they will be ideal directors and each of them plan to sit on the board as directors.

When Peter mentioned their plans for I-Design to his father, a professional company director, his father suggested that the group seek some professional advice on the formation and composition of i-Design's board of directors. You have a thriving corporate governance consultancy business and the group of six comes to you for advice.

Advise the potential board of i-Design whether or not they will indeed be an ideal board based upon the Australian Securities Exchange Corporate Governance Councils Principles and Recommendations. If not, why not, and what should they do?

Question 4

Karen, Bradley and Owen are old friends who decide to start a boutique winery company specialising in organic wines. They call the company Pure Nectar Pty Ltd. Owen is an accountant of some experience. Bradley is the managing director with long standing management experience.

Karen is an oenologist (specialist in wine making) and is a non-executive director.

One year into their venture Pure Nectar Pty Ltd starts to experience cash flow problems. Bradley and Owen do not explain this to Karen but proceed to prepare the required financial statements and present them at the directors meeting. They recommend that the company borrow $300,000 from Maverick Bank. The company's financial position does not improve and Pure Nectar Pty Ltd begins to suffer losses.

Maverick Bank appoints a liquidator. The directors, Karen, Bradley and Owen, are concerned that they will be held responsible for the losses.

Will the directors be held responsible for the company's losses under the insolvent trading provisions of the Corporations Act? Are there any defenses available to any or all of the directors?