Which Stakeholders Can Currently Be Considered to Be Part of the “the Company” for the Purpose of the Director's Duty to Act in the Best Interests of the Corporation?

Topics: Corporation, Fiduciary, Board of directors Pages: 5 (1663 words) Published: March 31, 2010
which stakeholders can currently be considered to be part of the “the company” for the purpose of the director’s duty to act in the best interests of the corporation?

Company is a form of corporation and regulated by the Corporations Act. The legal significance of being as a company is it exists as a separate legal entity and dependent upon human beings to make decisions on their behalf. The person who makes or participates in making decisions that affect the whole or a substantial part of the company’s business can be defined as a director. The legal definition of director is stated under section 9 of the Corporations Act[1] which indicates that, it is more appropriate to look at the function of the people rather than at the job title itself. Duties are imposed on the directors to regular illegal behavior and ensure that they act for the benefit of the company. All directors and officers of a corporation are bound by a number of general law and statutes which include that: a) act in good faith in the interests of the company;

b) act for a proper purpose;
c) avoid conflicts of interest; and
d) retain discretion
Moreover, care, skill and diligence in the performance of their duties must exercised by directors. Stakeholder can be defined as a party that affects or can be affected by the actions of the business[2], which may be include shareholder, creditors, employees, customer, supplier and government. Under the principle of the company law, directors and officers owe duties to the company as a whole but not to the other person or group rather that shareholder as they are the residual owners of the company’s assets. As a result, it can be said that a scope is limited by the statutory duties to the company’ director and officer is to act the best interest of shareholder, any benefit is acting on the other group of the stakeholder (such as the creditor) will beyond the scope of director’ power. In addition, an essential problem might be arisen between the director and the shareholder is known as “agency costs” that is the cost incurred by company to ensure that the director (who manages the company) is acting on the behalf of shareholders (who is the owner of the company) and make decisions consist with their best interest. The duty will be breached by each director if there is no action done to avoid a conflict of interest[3]. A director can not use his or her power to profit personally interest at expense of the company. An action may be brought against the company where it has managed in an oppressive, unfairly prejudicial or unfairly discriminatory against shareholder’s interest. Therefore, it seems that the company (shareholder) is the only beneficiary by the regulation of director’s duties. In other words, the enforcement of director’s duties is for the benefit of the shareholders. (2) Should directors duties, and corporate responsibilities, be extended to a wider group of stakeholders? What are the lessons from the James Hardie and the Waterfront Dispute experience? It is a challenge for the current legal framework to consider a wider group of stakeholder’ interest, as in modern society that greater deal of business and activities conducted by a company. Elena suggests that balance between the different groups of stakeholders is essential to the long-term viability of the corporation and the long-term shareholder’s value can be increased by taking account of the other group of the stakeholder.[4] For example, an under market salary is paid to the employees or the employees are scheduled in an inefficient way will result in a decreasing of shareholder’s wealth as the productivity of the company is affected by the dissatisfied employees. Hence, according to the definition of the stakeholder, employee can be classified as a stakeholder who will maximize shareholder’ wealth in a long-term. As a result, the maximization of stakeholder’ value goal might not only be concentrated on the shareholder but the...
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