Corporate Law: Problems and Solutions Report

Introduction

In the last year, ASCI has investigated the company for two serious public disclosure issues. The first one is about the methods of waste disposal by one of the company subsidiaries. It has been claimed that, with knowledge of the firm, pollutant matter has been channeled into a local river, which has had negative consequences on the surrounding ecosystem. Secondly, it has been revealed that there have been several cases of sexual harassment, which have been covered up by the management with victims being discouraged from going public by being threatened with loss of employment. The Public Interest Disclosure Act 2013 (PID Act) came into effect on 15 January 2014.

The purpose of the PID Act is to promote the integrity and accountability of the Commonwealth public sector¹. The interest of the ASCI in implementing the PID Act is to ensure that those who make such disclosures are protected and the issues they reveal are properly addressed². This act will be applied in the investigation into the allegations, which were brought to the fore by employees of the business establishment.

Discussion of issues

The first issue addressed in this paper is about the allegations of water pollution, especially its effects on directors, managers, and shareholders. Ultimately, all stakeholders would be disadvantaged by the negative publicity. Shareholders will be affected given that when the reputation of the firm is tainted, the stock price is bound to decrease, consequently devaluing their investment in the firm. Allegations of harassment may not necessarily have as much effect on the share price, but they will affect the attitude of employees and potential staff. In the end, this may also have negative impacts on the staff morale, and shareholders will bear the brunt of the matter.

Managers and directors will be affected in both cases since the poor performance of the firm would reflect badly on their overall performance outcomes. As far as the harassment issue is concerned, personnel may even be accused of having been complacent to protect reputation, which will have legal consequences. Under “the Sex Discrimination Act in 2009-10, it is unlawful for a person to sexually harass another person in several areas, including employment, education, provision of goods and services, and accommodation”³.

In the pollution case, it may be found that managers were complacent to save the costs of proper waste disposal for their gain, which is contrary to Section 181 (1) of the Good Faith Act. This “imposes an obligation on officers to exercise their powers and discharge their duties in good faith in the best interests of corporations and for a proper purpose”⁴. The firm needs to come up with a policy to address these matters of public interest on behalf of the public.

Essentially, such policies are developed to ensure that when professional decisions are made, they are based on public rather than private interests. About the issues mentioned above, solutions can only be arrived at to the extent that they act to both maintain the integrity and sustain the confidence and judgment of the public. In this case, the conflict of interest emerges since the managers and directors who are tasked with dealing with the issues have a stake in them.

They will be held responsible should the firm be found to be breaking the law on both issues⁵. Ergo, they may be perceived as interested parties because they may not be completely objective to protect their reputations. Corporate laws are clear on matters of conflict of interest. Under the duty to avoid conflict of interests, it is stated that “every director must avoid actual or potential conflict between his or her duty to preserve and promote a company’s interests, and the director’s interests”⁶.

Principles for identifying and assessing conflicts of interest (PIRAC) can be used to develop solutions to the legal problems that arise as a result of the aforementioned issues. The first principle is proportionality. The question to be asked before one formulates a policy is about its effectiveness. Is it directed at the most common conflict, and does it account for the burdens and benefits that accrue from conflict of interest? The welfare of the workers who have been involved in harassment should be considered to ensure that they are provided with legal assistance. However, they should not be put under public scrutiny because it may result in stigmatizing both the victim and the accused on the basis that even the latter should be given the benefit of doubt.

The second principle is transparency. The conflict of interest policy must be considered for its accessibility and comprehensibility for all the individuals who need to read and apply it. In this case, employees who may wish to provide information about the firm’s activities will need to understand the policy because if the information directly affects them, then they will be viewed as interested parties. While the issues are being addressed, there must be accountability.

The conflict of interest policy should indicate the people responsible for implementing, monitoring, or enforcing it. In this case, the same people who have been accused of complacency are likely the same people who should implement the policy. Ergo, measures need to be adopted to ensure that they objectively do this without compromising the issues at hand to protect themselves. In the long-term, in the corporate sector, all the affected parties should be involved in finding solutions so that there can be an element of fairness. The self-interest policy should ensure that society does not suffer from the toxic impacts of pollution. It is only fair that they should be involved since they stand to lose the most if the issue is not addressed.

Conclusion

Ultimately, the issues must be addressed objectively by the organization. All stakeholders of the firm and members of society must also be involved because they are all affected directly and indirectly by them. The overall implications in the short term are likely to involve legal battles and some managers and employees may be fired if they are found to have been complacent or taken part in illegal activities.

Footnotes

1. Public Interest Disclosure Act 2013- C2013A00133.
2. Public Interest Disclosure Act 2013 (PID Act).
3. Sex Discrimination Act 1984 (Cth).
4. CORPORATIONS ACT 2001 – SECT 181.
5. .
6. CORPORATIONS ACT 2001 – SECT 182.