Corporations and Business Law

Introduction

Public registered companies in Australia have regulations in terms of the payments to senior executives and directors. Shareholder regulations might be in the form of certain rules that are being used in the company such as the remuneration that is received by the important management people in the company. Other rules require the payment of certain types of benefits to the employees but , they are not given a mandate to determine how much is to be given to the employees. Certain forms of regulation, in addition, include the guidelines which the company can choose to use or not to use and there might be a requirement to explain the reasons such as, “if not, why not” should the company choose not to adopt certain practices (Francis 2007).

The corporate structure in Australia was in the past meant to increase corporate profit and increase shareholder wealth. However, advancements in corporate structure of the co employees has changed. The recent corporation Act has created direct relationship with such as the employees, customers, suppliers and the members of the communities in which the company operates (Gospel & Pendleton 2001). With the need to increase the operations of of employee rights with regard to their wages has been the subject of concern. Researchers, claim that any company cannot sustain itself without having that companies are unsustainable without clear guidelines on those people who hold a stake in company performance and who are the employees (Guest & Peccei 2001).

A recent study that ranked the employees and the shareholders in terms of shared risk, concluded that there is a disproportionate share of the risks and the gains of the company that are shared among the shareholders and not the employees (Harris, Hargovan & Adams 2011). According to Hill (2005) there is an increase in “shareholder primacy” in regard to corporate governance. and this has had a great effect on the way corporate employees are being viewed. It is clear that the interest of the shareholders is of great importance most especially those interests that are characterized by the changes in the market that affect the operations of the company and its structure. This is an indication that decisions made by the top management in any company favor the short-term financial values of the shareholders that is as a result of the changes in the capital markets where the there is the direction towards fixed share prices and short term returns to the company.

Methodology

The survey targeted the company senior management who are responsible for the decisions of the company. The survey was conducted through a self-evaluation form that was given to 3,000 company shareholders. The survey had a total of 45 questions that tested the attributes and the opinions of the shareholders while trying to get relevant information regarding the given company. Based on the analysis of the features of the market and other relational state systems, there was an established means used to categories the companies to either belonging to the public or private limited group.

In approaching the influence of such decisions made by private or public companies, several issues were considered such as the representation of shareholders in a decision committee, and the level the shareholders have in institutional investment (Hopt & Wymeersch 1997). This was vital since it would enable the comparison of the different responses from the different companies in order to come to a conclusion on the issue of the Aussie Air company dilemma. In this paper, I shall present a survey finding on the following question: Are the decisions made by the Aussie Air company in the interest of the shareholders or to all the people involved in the development of the flight company? Or do the shareholders understand the Corporations Act fully?

Is the Decisions made by the Aussie Air of Self-Interest?

It is suggested that the decisions made by the shareholders are for their benefit and for the companies alone while the employees are rarely involved in the gains. This assumption was tested through asking the shareholders to rank the stakeholder issues in terms of their priority. The survey used a scale to assess the effect of the important stakeholders over the decisions made by the Aussie Company. These were important in helping the research develop an appropriate advice for the employees of Aussie Air based on the Corporations Act in Australia.

The corporations Act’s main purpose is to provide guidelines that are used by both employees and employers to enable them to seek appropriate measures in case of a breach of the guidelines by any party. To demonstrate the priority of the shareholders above the employees, the survey considered another study by the Australian College indicated 74 percent of directors were given the priority when coming up with the decisions of the company. Therefore, it is evident that the decisions made by the Australian companies are in the interests of the company.

Do the Aussie Air Shareholders Understand the Corporations Act?

This question was answered through the use of the Likert scale where the shareholders were asked to demonstrate their knowledge of Australian Company Law. The shareholders of Aussie Air would rate the extent of their understanding on a scale of one to ? to show that they have a clear understanding of the Corporations Act and five to show that they have no idea on the company law. The results indicated that the shareholders had a clear understanding of the Corporations Act in Australia and how it worked and, therefore, they were aware while coming up with their decisions regarding the company.

They believed that the Corporations Act gave them the powers to make decisions that were of benefit to the company and, therefore, the legitimacy of the shareholders’ interests remained a high priority in their decisions. The shareholders had the discretion to have an influence on the management including deciding on the salary of the employees if Aussie Air Company and satisfying the demands of the shareholders were vital to the directors of the company. Therefore, there was a larger proportion of directors who agreed on the priority of the company unlike the negligible proportion that did not agree with the interests of the employees to the company. Shareholders often communicate with directors on the best practice for the company and this more so influences the directors’ decisions on company issues. The directors in the public company more so make decisions under the influence of the directors while in the private companies it is the shareholders who make the decisions decisions. Therefore, the employees need to understand that the Australian Corporation Act gives the shareholders the power and legitimacy they need in running their companies.

The Aussie Air Company directors, therefore, understand that the law has given them the powers to act in the self interest of the company, disregarding any views of the public. However, this was not the case with the survey results. A good proportion indicated that 38.2 percent comparing the best interests of the company with the interests of the employees as a way of achieving the long term interests of the company. However, 60 percent of the board of directors understood that acting in the interest of the company is met through the balance of the stakeholder interests and those of the company something that was seen on the board of directors meeting in Aussie Air’s decision.

However, since the decisions of the directors are for the benefit of the company, they do not even realise that they are obliged to act in particular ways by the corporation law and they, at times, act out of selfish claims.

Discussion

Corporation Act

In Australian law, a company has the powers and discretion to change its constitution through a special resolution under s176 of the Corporations Law (Mitchell & Sonnenfield 2007). The companies are limited however, in the application of such principle by the principle of equity. The principle of equity states that the company shareholders and decision makers cannot come up with decisions that were not there when the company was formed, or, decisions that were not part of the employment agreement regarding salary allowances. This limit is there to prevent any form of mistreatment by the management of the employees such as the one being practiced by the Aussie board of directors (Saguchi 1998).

The principle of equity requires company directors to exercise some level of loyalty and fairness in their decisions regarding company success and does not allow for bullying of employees. Clearly the issue of employee bullying has been on the rise in Australia and, therefore, it is high time the employees know their rights under the Corporations Act and the principle of equity. Nevertheless, the board of directors in their decision to transfer the employees to PNGair would have acted in good faith for the benefit of both the company and the interest of the employees.

It is clear that the board used their powers in self interest and did not act honestly with regard to the principle of equity. These actions under the principle of equity are further supported in section 232 (2) of the Corporations Law that gives the employees a say to exercise their legal rights in case of abuse from the company management (Australian Corporation Legislation 2011). According to this section, the court shall consider that the company had acted for the benefit as a whole. “As a whole” here implies the employees, the customers, contractors and the community that constitute the company, as without these the company would not exist (Tomasic & Bottomley 1993). Even though the current Corporations Law in Australia does not require the directors to take the interests of the employees into account, there is an absence of legislative recognition of such a clause and, therefore, the directors are required to take into account other interests of the company.

According to this Act, the directors have the powers to exercise their interest for the benefit of the company, but this can be reviewed in case a case goes to court. The need to act in the interest of the company as a whole, brings on board the obligation to act within the company’s constitution that may not have such laws dealing with the mistreatment of the employees as in the case of Aussie Air employees. The directors of the Aussie board should be advised that they have limits within which they are to exercise their discretion and, therefore, the employees have the right to sue the company for the breach of the company constitution.

Section 232 (2) of the Corporations Act shows the need for loyalty when making decisions for the company (Australian Corporation Legislation 2011). This section gives the company directors the obligation to act honestly at all times in the event of the discharge of their duties. The Aussie board of directors did not act honestly in the exercise of their duties and the decision to transfer the senior managers and the pilots did not come under clear circumstances. It is clear that the board had asked the employees about a pay cut and since they refused , the board was not supposed to act without the consent of the employees in coming up with the new decision. The case law, therefore, calls for the directors to act in good faith in the discharge of their duties.

Conclusion

Corporate governance and Australia’s Corporations law have been on a great collision. Even though several cases have been decided based on this law, there are still loopholes in the Act (Hill 2005). However, the Australian Law gives the directors powers to act in the interest of the company and, therefore, cases of breach of duty would be critically analyzed by the courts. Nevertheless, involving the employees in decision making for the benefit of the company is vital in realizing the company goals.

The key to effective decision making is to ensure that there is a balance between the various stakeholders in the company such as the shareholders, consumers, suppliers and the employees. This is seen as lacking in the Aussie company as the decisions are based on the high profile employees only. This ensures transparency and accountability in decision making in Aussie Air. The results of my discussion further show that the use of both the stakeholder and the shareholder concepts in decision making. It seems that the decisions of the Aussie company are forced onto the employees and this is not a good company culture created by the top management.

The need for the stakeholder being considered in the decision making should be a goal for reform in Australian corporate governance. The senior managers and the pilots of the Aussie Air company have, therefore, the right to sue the shareholders and the directors of the company since, as an employee, everyone is entitled to certain rights and these should be protected and observed by everyone in the company.

However, the case might not be an easy one, since the corporations law of Australia gives the company directors the powers to make decisions based on the benefits to the company. The employees should, nevertheless, base their case in terms of being bullied in the workplace an act from which they need protection by the law.

References

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