Corporations Law

Topics: Corporation, Corporate social responsibility, Types of business entity Pages: 11 (1502 words) Published: September 10, 2014
1.0 Areas of law
Corporate social responsibility (CSR) has long been a touchy issue for governments not just in Australia, but around the world as well. Companies in Australia are governed by the corporation’s act, which outlines the legal capacity and power of a company. The Corporations Act 2001 (Cth) s 57A1, defines a corporation as a separate legal entity, that includes any corporate body and unincorporated bodies that may sue, be sued or hold property in the name of an office holder appointed for that purpose. In context of corporate governance, the main issue is with the current legislation is in regards to director’s duties. Under the Corporations Act 2001 (Cth) s1802, directors have a civil obligation to act with due care and diligence, with best interest of the corporation in mind. This civil obligation however, does not extend to certain classes of stakeholders other then shareholders. Modern day companies often have a great impact on society at large, through the various activities they conduct. Given the broad economic, environmental and social impacts they have, it is understandable that a push has been made for director’s duties to extend beyond shareholders, and include stakeholders at large. The Corporations Act 2001 (Cth) s124, also outlines the legal capacity and powers of a company. S 124(1) states, “ a company has the legal capacity and power of an individual both in and outside this jurisdiction”. A company can also be held primarily3 or secondarily4 accountable for torts and crimes. To think of a corporation as solely an instrument of business, fails to account for social changes, which has taken place over the past century. 5 It is therefore vital that amendments be made to the Corporations Act 2001 (Cth), so as to bring accountability and responsibility of corporations and directors up to date with societal change that has occurred over the past decade. 2.0 Problems associated with the law

The current law governing companies and directors outlined in the Corporations Act 2001 (Cth), only allow for calculated corporate social responsibility. According to the Corporations Act 2001 (Cth) s1816, directors are required to act in good faith and in the best interest of a company, and in appropriate circumstances may choose to take into consideration a range factors external to shareholders, only if they benefit the shareholders collectively7. As a result, companies may be obliged to consider CSR, only when it is likely to result in positive publicity, public approval, endorsements and goodwill; investor confidence and demand; and promote a positive impact on company share prices8. It is evident that the current Corporations Act 2001 (Cth) limits company director’s ability to adhere to CSR practices, as shareholders must receive some benefit from engaging in CSR9.

This can be seen through statements made by The Australian Shareholder Association pertaining to corporate donations in relation to tsunami relief efforts, where it stated directors have no approval for philanthropy, donations should only be made in situations where they are likely to benefit the company or shareholders through greater exposure10. Directors who seek to engage in CSR activities that do not directly benefit their companies or stakeholders would therefore be in breach of their director’s duties outlined in the Corporations Act 2001 (Cth) s18111, and this is where the the Corporations Act 2001 (Cth) falls short.

3.0 Recommendations & suggestions

Although there are absences of specific law regarding how companies should be socially responsible, new suggestions and recommendations may be implemented as a guideline for companies to be socially responsible. One of the suggestions is for companies to introduce triple bottom line reporting, principles of conduct and charitable contributions in their environmental record as to evaluate its responsibility performance12. However,...
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