Law7057 Corporate Governance | About Assessment Answers

2. Is there anything that the company can do to manage the public relations?
   
   
3. Based on these facts, do you think there is any evidence of a breach of directors’ duties general law or statutory? Hint: are former directors subject to directors’ duties?

Answers:

1.

The definition of sexual harassment differs from one jurisdiction to another in Australia, however, under section 28A Act sexual harassment is making of unwelcomed sexual advances or requesting sexual favours or exhibiting sexual conducts and the circumstances being known to a reasonable person would conclude that there was an offence or humiliation or intimidation of the harassed person. Under Section 28B of the Sex Discrimination Act, it is unlawful to engage in sexual harassment.

Employers have the responsibility of providing work environment that is free from any violence or harassment including sexual harassment. Even though, the sexual harasser is personally responsible for his or her own action, the employer might still be found to be vicariously liable for the harasser’s actions in circumstances where the employer failed to provide safeguards to prevent or avert sexual harassment. The safeguards are to prevent acts of sexual harassment and protect the company or organisation from serious and damaging effects of sexual harassment at workplace.

Some of the safeguards the employer can put in place include developing a policy clearly prohibiting any form of sexual harassment, continuous training employees on the forms of sexual harassment and their identification, developing sexual harassment resolution mechanisms to deal with the complaints and providing consequences or remedies for sexual harassment. Employers should also stop over-rewarding male go-getters. The employer bears the burden of showing that it has put in place necessary safeguards or taken necessary steps to prevent sexual harassment.

In the circumstances where a formal sexual harassment complaint has been made to the employer should at least record statements of eh complainant and the alleged sexual harasser, statement of any witness, conduct investigation into the allegations. The employer should keep confidential the statements, the investigation, the findings of the investigation and any documents retrieved from the investigation. In circumstances where the investigation determines that there was a sexual harassment the employer should record the finding in the employees personnel file. The employer should also keep safe the findings of the investigations, the recorded statements and any other relevant information for a period of time as the same may be requested by the Commission in case the complaint decides to make a formal complaint with the commission. This can also diminish the employer’s liability.

2.

A company’s reputation is its biggest asset and is what makes it stand out from the crowd and attractive to its clients. A crisis, such as a sexual harassment claims, can damage the reputation of the company and bring the company to its ruins. Such crises are likely to affect the company financially and to some extent, bring the company to its end. However, with proper public relations the company come out strong and with less damage. Public relation protects the reputation of the company by influencing the opinion and behaviour of the public.

Fox Production Pty Ltd reputation is tainted by claims of sexual harassment; however, with effective public relations the damage to its reputation might be trivial. The company will have to make available information relating to the sexual harassment, the effect of the harassments and how the company intends to resolve the complaints. In order to ensure the information is presented in a proper and effective way the company may appoint trained spokesperson to attend to its addresses to the public. At this difficult moment, the company has ensure they have all the facts, remain honest, show care and sincere and not to overlook the power of common sense. The company will have to act quickly in order to mitigate any reputation damage by the allegations of sexual harassment.

The company has to ensure that its staff. Clients and stakeholders are well updated on the happenings. It should not give too much attention to responding to the media to the extent of ignoring the employees, clients and stakeholders. At all cost, the company should not attack the complainants even if the complaints are inflammatory. The company or the person handling the company’s public relations should avoid speculation but ensure that at all time he/ she has enough facts. The person or the company has to acknowledge the problem, issue an apology and explain the measures being taken to ensure the same doesn’t recur.

3.

Facts

Fox Productions Pty Ltd was founded in 1975 by Eddie Sandow and is involved in the production of print, TV and online advertisement. Eddie Sandow retired as CEO of the Company in 2016 and Gabrielle Brown became the new CEO. The Board of the company consists of Gabrielle Brown, Tom Gleeson, Silvia Clapper and Bill Batchley. An employee of the corporation, Parvey, has been accused of sexual harassment. The accusation has been published in the newspaper and the harassed employer has threatened to take legal action. In the board meeting, it is discovered that Parvey has been sexually harassing and assaulting women in the workplace for many year with the knowledge of Eddie Sandow and that the company expects to receive many more complaints from present and past female employees making similar allegations.

Issue

The issue is whether the directors breached their duties to the company.

Rule

The Corporation Act and the corporation’s constitution bestows the power to manage the company is bestowed on the directors. The Corporation Act, under Section 198A, places the management of companies under their directors. The power to manage the company can only be limited by the Act or the companies’ constitution. Therefore, duties and responsibilities are for the promotion of the shareholders’ interest and for the benefit of the shareholder. They must apply the power, duties and responsibilities for the benefit of the beneficiary rather their own.

Shareholders liabilities are limited to their shareholding. A company is thus considered from its shareholders and as such the assets owned by the corporation and liabilities owed by the corporation remain the corporation’s. Therefore, directors are more likely not to be found liable where the act is done on behalf of the company and in good faith. However, there are circumstances directors of the company may be found liable for certain acts or omission. At all times, the directors have to ensure that interest of the company comes first and not theirs. A director found to have breached his/ her duty to the company is liable and may be made to compensate the company or sentenced to serve a prison or pay a fine.The director’s duties are both common law and statutory. The following are some of the statutory duties:-

Duty to act with care and diligence

Section 180 places on the directors a duty to employ reasonable degree of care and diligence in the conduct of their duties and responsibilities to the company. The standard is based on the standard of reasonable man in the position of the director. This duty also calls upon directors to act in good faith when making business judgment. The director has to ensure that his personal interests do not cloud the judgment and that the judgment is made upon reliance on proper information and facts. The judgment should be reasonable and appropriate in the circumstances and for the benefit of the corporation. The courts are reluctant to interfere with director’s judgment where the judgment is within the director’s powers and responsibilities. However, if the director has breached any law in making a judgment or acted beyond his powers the courts are likely to overturn the judgment and find him to have failed in his duties to the company.

Duty to act in good faith

Section 181places on every director or officer of the company a duty act in good faith in discharge of their duties to the company. They should, at all time, act in the best interest of the company. Directors are like agents of the company and as such are expected to be of high integrity. While acting as such agents, directors have only the interest of the company at heart and not any other interest. The interest of the company should be steering wheel and not his personal interest. This duty is based on the other duty that at all times directors of a company should bear highest honesty intheir duties and responsibilities. Honesty and integrity is the cornerstone business ethics.

Improper use of position

Section 182 of the Corporation Act encourages proper use of company position by its officers. Directors and other company officers such as secretary and other employees are prohibited from using their position for their own personal gain and to the detriment of the company. The positions are for promoting the business of the corporation and should only be for the benefit of the corporation. The directors should use their position to abuse corporate opportunity.

Use of Information

The Corporation Act, under Section 183, forbids a corporation’s directors or other officers including other employees from using information obtained in such position for personal benefit to the detriment of the company. The information should be to further the interest of the corporation and the corporation can recover any personal benefit. This duty and the duty not to use improperly their position are fiduciary in nature. The directors, as fiduciaries, should not use their position or information gained from their position to obtain unauthorised benefit. Directors of a company should, at all times, use their powers for the benefit of the company and not to obtain some private advantage. The duties are to the company and in the company’s interest.

Duty of disclosure

Section 191 of the Corporation Act places a duty on a director to lay bare any material interest he has in the affairs of the company. The disclosure should be made to other directors. This duty supports the main duty of directors to the company, that is to always ensure that interest of the company comes first and all acts are for the benefit and interest of the company.

Former directors

Section 183 of the Corporation Act provides that former directors of a corporation should not use information they gained as directors of the corporation for their benefit or to the detriment of the corporation. Former directors are also liable for their actions or omission during their appointment as directors of the corporation. In Australian Securities and Investment Commission v Hellicar and Others, the High Court found former directors liable for their actions during their directorship. The liability of former directors for the acts they did does not cease with ceasing to be directors. They continue to be liable for such past actions.

Conclusion

The directors acting on the company’s behalf and in the company’s interest owe the company some duties being both common law and statutory. Breach of these duties attracts certain consequences including claim for damages, civil claims and criminal claims. Eddie Sandow as founder, CEO and director of the corporation owed the corporation the duties under the Corporation Act. He failed to exercise reasonable diligence and care in making business judgment and failed to act in good faith towards the company. He failed to have the company’s best interest while undertaking his duties. He was aware of the sexual harassment issues but decided to ignore them to the detriment of the company. He was aware that such actions were illegal and are likely, if known, to bring down the company. This was a dereliction of duty and to act in the best interest of the company at all times.

References

Bottomley, Stephen. The constitutional corporation: Rethinking corporate governance (Routledge, 2016)

Coffee Jr, John C., Hillary Sale, and M. Todd Henderson "Securities regulation: Cases and materials." (2015)

Finch, Vanessa, and David Milman Corporate insolvency law: perspectives and principles. (Cambridge University Press, 2017)

French, Derek, Stephen Mayson, Stephen W. Mayson, and Christopher L. Ryan Mayson, French & Ryan on company law (Oxford University Press, USA, 2014)

Ginzberg, Eli. The institutions of private law and their social functions (Routledge, 2017)

Hannigan, Brenda. Company law (Oxford University Press, USA, 2015)

McQueen, Rob. A Social History of Company Law: Great Britain and the Australian Colonies 1854–1920 (Routledge, 2016)

McLaughlin, Susan. Unlocking company law (Routledge, 2015)

Tomasic, R., Bottomley, S., & McQueen, R Corporations law in Australia (Sydney: Federation Press, 2002)

Tricker, RI Bob, and Robert Ian Tricker. Corporate governance: Principles, policies, and practices. (Oxford University Press, USA, 2015)

Robert B. Duties and Responsibilities of Directors and Officer (The Australian Institute of Company Directors, 2005)

Case Law

Australian Securities and Investment Commission v Hellicar and Others [2012] HCA 17

Statutes and Legislations

Corporation Act, 2001

Sex Discrimination Ac

[1] Sex Discrimination Act

[2] Bottomley, Stephen. The constitutional corporation: Rethinking corporate governance (Routledge, 2016)

[3] Coffee Jr, John C., Hillary Sale, and M. Todd Henderson "Securities regulation: Cases and materials." (2015)

[4] Finch, Vanessa, and David Milman Corporate insolvency law: perspectives and principles. (Cambridge University Press, 2017)

[5] French, Derek, Stephen Mayson, Stephen W. Mayson, and Christopher L. Ryan Mayson, French & Ryan on company law (Oxford University Press, USA, 2014)

[6] Ginzberg, Eli. The institutions of private law and their social functions (Routledge, 2017)

[7] Hannigan, Brenda. Company law (Oxford University Press, USA, 2015)

[8] McQueen, Rob. A Social History of Company Law: Great Britain and the Australian Colonies 1854–1920 (Routledge, 2016)

[9] McLaughlin, Susan. Unlocking company law (Routledge, 2015)

[10] Tomasic, R., Bottomley, S., & McQueen, R Corporations law in Australia (Sydney: Federation Press, 2002)

[11] Tricker, RI Bob, and Robert Ian Tricker. Corporate governance: Principles, policies, and practices. (Oxford University Press, USA, 2015)

[12] Corporation Act

[13] Corporation Act

[14] Robert B. Duties and Responsibilities of Directors and Officer (The Australian Institute of Company Directors, 2005)

[15] Corporation Act 2001

[16] [2012] HCA 17