Questions Based on Corporate Governance

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Requirement

Question: Corporate Governance

Solution

ANSWER 1

Stakeholder  Group of James Hardie    Corporate governance responsibilities owed

Supervisory and joint board of directors.

This board consists only non-executive directors. The directors are appointed by the shareholders during the meeting of Annual General. The members of the supervisory board also have a right to vote for the selection of another member of the supervisory board. The corporate governance  responsibilities of this group of stakeholders are as follows- (Peacock, 2016)

  1. They have to approve the annual budget and the strategic plan which is being made by the managing board of directors.

  2. They have to approve the annual financial reports and accounts of James Hardie.

  3. They have to overlook the plans and policies which are being initiated by the managing board of directors.

  4. They have to approve the decisions which are made in order to issue the shares.

  5. They are responsible for selecting and removing the CEO and other members of managing a board of directors.

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Managing board of directors

This board consists only executive members, and they are appointed by the shareholders at Annual General Meeting. The corporate governance responsibilities of this group of stakeholders are as follows-

  1. They are responsible for allocating the organization's finances, operations, and general affairs.

  2. They have a responsibility to develop a strategic plan, annual financial budgets, operational activities and then implementing those strategies in order to reach the James Hardie’s goal.

  3. They have the responsibility to implement the strategic plan of James Hardie.

  4. They have a responsibility to make annual and quarterly reports, management reports, etc.

  5. They have to handle the risk which is being involved in the activities, and they have to ensure the compliance with legislation.

  6. They have to give a report of activities to the supervisory board of directors and audit committee of James Hardie.

The former managing board of director and joint board of director.
The corporate governance responsibilities of this group of stakeholders are as follows-

  1. The general affairs of James Hardie are being monitored by this group of stakeholders.

  2. They are responsible for giving and canceling the issue of shares.

  3. They are responsible to take the decision which is important to change to the identity of James Hardie.

  4. They are responsible for preserving external policies. 

Employees     Employees are the main stakeholders of the company as they are the only one who are responsible for running the business. They follow the instructions given by their management in order to reach the goals. They report the management about their work and discuss their issues as well. (Clarke, Dean, & Oliver, 1997)
Customers    Customers are also the main stakeholders of the company as they are the clients  for whom the company runs in order to satisfy them. The customers tell their demands to the companies in order to satisfy their personal needs and after fulfilling their needs, they are supposed to give the feedback so that the company can improve accordingly.

ANSWER 2

ASX Principle    Key corporate governance issue corresponding to that ASX Principle
The corporate governance council of Australian Stock Exchanges on March 31, 2007, implemented the principles and best practice recommendations on corporate governance. The companies which are listed in Australian Stock Exchange are supposed to report the authority that they will follow the principles and recommendations or not, and if they do not follow then, they have to give a reason. And this rule was implemented from the financial year- January 1, 2007. (Comino, 2016)
The key corporate governance issue of James Hardie in correspondence to that of Australian Stock Exchange principle and recommendation is- (Coutts, 2005)
The financial  year of James Hardie ended on March 31, 2007. And James Hardies was supposed to report according to the principles and best practice recommendations on corporate governance of Australian Stock Exchanges. In that report, James Hardie also commented that to what extent they followed the principles and best practice recommendations of Australian Stock Exchange for the financial year March 31, 2007. And it also showed all steps and procedures which were being followed in order to complete the best practice recommendations and principles with respect to Australian Stock Exchange. James Hardie adhered most of the Australian Stock Exchange principles and recommendations. The corporate governance issues were-

  • 1. James Hardie didn’t disclose the existent practices earlier.

  • 2. The employees complained that they were having health issues, but it was not clear that the issues were caused by the usage of asbestos or not and the James Hardie didn't pay any attention towards it.

  • 3. In 1938, Ministry of health report came which stated that asbestos is the only reason behind the health issues of the employees and the nearby mining companies but still James Hardie didn’t take any action.

  • 4. Employees claimed the compensation, James Hardie started investing in medical research compensation  foundation but didn’t provide enough funds to the foundation and didn’t take any further action.

  • 5. James Hardie cleared the claim of employees after 40 years and still didn’t clear the claim of the management.

Because of this issues, only James Hardie didn't follow the Australian Stock Exchange best practices recommendations and principles. The company also stated that they are making the section of corporate governance on their website soon and would show corporate governance practices and policies of James Hardie.
James Hardie operated under the various jurisdictions  like US Securities and Exchange Commission (SEC), Securities and Investment Commission (ASIC), etc.

ANSWER 3

ASX Principle    Actions company should have taken to comply with the ASX guideline
The corporate governance council of Australian Stock Exchanges on March 31, 2007, implemented the principles and best practice recommendations on corporate governance. The companies which are listed in Australian Stock Exchange are supposed to report the authority that they will follow the principles and recommendations or not, and if they do not follow then, they have to give a reason. And this rule was implemented from the financial year- January 1, 2007.
The actions which James Hardie would have taken in order to comply with the ASX guideline are as follows-

  1. When the employees complained that they were having health issues while working then at that time only the director of James Hardie should have taken an action in order to find the reason behind the health issues of the employees.

  2. In 1938, when the report of ministry health came and stated that the asbestos is the main reason behind the illness of employees, and the nearby mining companies, director of James Hardie should have taken a step in order to protect the main stakeholders of the company and the environment.

  3. When the James Hardie invested in medical research compensation foundation but stopped the progress then at that it should have provided enough funds to the investment for the welfare of the employees.

  4. James Hardie didn’t clear the claim of the management when the claim was re-estimated  after 40 years in order to pay the employees and this led to liability on the company to a great extent. In order to solve this problem, James Hardie should have taken the action before 40 years, and this would have helped the company to survive for a long run.

Therefore, James Hardie should have taken the immediate actions when the problem occurred, and this would lead the company to survive with less or no liabilities. (Holand, 2016)

ANSWER 4

Stakeholder Group of James Hardie    How long term interests of stakeholder groups were affected or exacerbate

  1. Supervisory and joint board of directors.

  2. Managing board of directors.

  3. The former managing board of director and joint board of director.

  4. Customers

  5. Employees

  6. Government 

The long-term interests of stakeholder groups were affected very badly and to a great extent by the decision of James Hardie’s director in order to continue the manufacturing of the asbestos based products. These stakeholder groups knew that the decisions they were taking would badly impact the environment 
They knew very well that the usage of asbestos would be very harmful as it resulted in lung cancer and other major diseases. Earlier they didn’t recognize the symptoms of the diseases but after 15 years in the mid-1960s, they understood the reason behind the diseases. Asbestos was used in industrial and domestic buildings, linings, sheeting of fibro, etc. and the asbestos was not only affecting employees, but the people around it were also getting effected, for example, demolition contractors . It was very difficult for stakeholders to make the decisions and to complete their responsibilities as they knew they were taking decisions by risking their lives. And in the late 1960s even employees claimed their compensation because they were working by risking their lives. Employees were losing their lives and the customers were losing their interest in the company, and the government was not taking any legal action, and James Hardie was not doing anything for the corporate governance.
(Hills, 2005)Therefore, the long-term interests of stakeholder groups were affected to a great extent, and they were forced to take decisions about the usage of asbestos by risking the lives and the nearby mining companies. They were only focusing on generating the profits and were not concerned about the health issues. The director of James Hardie also became ill because of the usage of asbestos but still he didn't stop the usage of asbestos in spite, of his ill health. And it took another 20 years to stop the usage of asbestos.
And when finally James Hardie decided to take an action to overcome this problem then it was surrounded by the case imposed by the ASIC with some allegations.

ANSWER 5

The decision made by the board of directors in 1960s is to sit quietly and ignore what was happening in the surrounding. As they ignored the medical implication which exposed the truth of asbestos and it further led to a problem when employees claimed the compensation and the directors didn’t take any action in order to solve the problem and this increased the liability  and it became difficult for James Hardie to survive. 
The decision was legal to some extent as there were no strict government rules and regulations for the corporate governance and because of this reason the only company didn't take any action. And if there was a strict law for the corporate governance in mid-1960s, we would have said that the decision was illegal, and the company would have taken an action for the betterment. There were no Business ethics in James Hardie as the directors were not paying any attention towards the controversial  issues of the company and they were taking it very lightly. And James Hardie was not taking the corporate social responsibility to a great extent. James Hardie didn't have any moral ethics as they were not paying any attention towards what was right or what was wrong and they were just ignoring the situations and problems, and it resulted in a closure of the company. (Watson, 2007)
The decision of the directors of James Hardie was not ethical  at all in mid-1960s. As the company was not concerned about the health and safety of employees, the human rights, etc. the company just ignored everything and keep producing till 1987. James Hardie didn’t have any business ethics as they were working unethically and were not doing anything for corporate governance and the company didn’t take any measures for the safety of the employees and the nearby mining companies. And people were getting major health diseases. James Hardie also didn’t have any moral ethics as the directors were completely ignoring what was right and wrong for the stakeholders and they were just busy in producing in order to generate profits. For example, when the employees complained that they are becoming ill because of asbestos and the management just ignored them, and this resulted to unethical behavior. (Govrik, 2016)

ANSWER 6

Specific Stakeholder Group    How did actions threaten James Hardie’s corporate sustainability

  • 1. Supervisory and joint board of directors.

  • 2. Managing board of directors.

  • 3. Former managing board of director and joint board of director.

  • 4. Customers

  • 5. Employees

  • 6. Government    

There are some actions of stakeholders which threatened James Hardie corporate sustainability are as follows:

  1. The directors of James Hardie didn’t take any action when the employee complained about the health issues and this stopped the company to achieve corporate sustainability.

  2. James Hardie decided to clear the compensation claim of employees after 40 years but didn’t clear the claim of the management and this didn’t allow the company to achieve corporate sustainability.

  3. James Hardie started the foundation of medical research compensation for the welfare of employees but didn’t raised the enough funds for the foundation and this became a major reason for James Hardie to not to achieve corporate sustainability.

  4. In the mid -1960s, there was no such law for the corporate governance and because of this the interference of government was very less. And this didn’t allow the company to achieve corporate sustainability .

Therefore, in order to achieve corporate sustainability the company should have taken immediate actions and should have focused more on corporate governance and the company should have focused more on business and moral ethics in order to retain the employees and they would not have claimed the compensation. 
But, James Hardie was not able to survive for a longer period of time and took away the lives of many employees and destroyed the environment and the nearby mining industries as well.

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REFERENCES

  • Benn, S., Dunphy, D., & Griffiths, A. (2014). Organizational change for corporate sustainability. Routledge.

  • Carroll, A. B., & Buchholtz, A. K. (2014). Business and society: Ethics, sustainability, and stakeholder management. Nelson Education.

  • Carroll, A. B., & Buchholtz, A. K. (2014). Business and society: Ethics, sustainability, and stakeholder management. Nelson Education.

  • Clarke, F., Dean, G., & Oliver, K. (1997). Corporate collapse. Cambridge, U.K.: Cambridge University Press.

  • Comino, V. (2016). Retrieved 2 September 2016, from http://James Hardie and the problems of the Australian civil penalties regime

  • Coutts, R. (2005). A review of Australian research into natural fibre cement composites. Cement And Concrete Composites, 27(5), 518-526. http://dx.doi.org/10.1016/j.cemconcomp.2004.09.003

  • Govrik, T. (2016). Retrieved 2 September 2016, from http://The James Hardie case: Risk, reputation and business ethics

  • Harford, J., Mansi, S. A., & Maxwell, W. F. (2012). Corporate governance and firm cash holdings in the US. In Corporate Governance (pp. 107-138). Springer Berlin Heidelberg.

  • Hills, B. (2005). The James Hardie Story: Asbestos Victims' Claims Evaded by Manufacturer. International Journal Of Occupational And Environmental Health, 11(2), 212-214. http://dx.doi.org/10.1179/oeh.2005.11.2.212

  • Hoffman, W. M., Frederick, R. E., & Schwartz, M. S. (Eds.). (2014).Business ethics: Readings and cases in corporate morality. John Wiley & Sons.

  • Holand, P. (2016). Retrieved 2 September 2016, from http://Trade unions and corporate campaigning in a global economy: The case of James Hardie

  • Holland, P., & Pyman, A. (2012). Trade unions and corporate campaigning in a global economy: 

  • The case of James Hardie. Economic and Industrial Democracy, 33(4), 555-579.

  • Holland, P., & Pyman, A. (2012). Trade unions and corporate campaigning in a global economy: The case of James Hardie. Economic and Industrial Democracy, 33(4), 555-579.

  • Moerman, L., & van der Laan, S. (2015). Exploring shadow accountability: The case of James Hardie and Asbestos. Social and Environmental Accountability Journal, 35(1), 32-48.

  • Peacock, M. (2016). Retrieved 2 September 2016, from http://Killer Company: James Hardie Exposed

  • Solaiman, S. M. (2013). The landmark James Hardie Case in Australia: a wakeup call for non-executive directors.

  • Tricker, B. (2015). Corporate governance: Principles, policies, and practices. Oxford University Press, USA.

  • Watson, T. (2007). Reputation and ethical behaviour in a crisis: predicting survival. JCOM, 11(4), 371-384. http://dx.doi.org/10.1108/13632540710843959

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