Corporate Governance and Social Responsibilities

Question: Discuss about the Corporate Governance and Social Responsibilities. Answer: Introduction This study is based on the subject area of corporate governance and social responsibility. In order to get better knowledge over the subject, the case study of James Hardie is selected for this study. The analysis of the case study of James Hardie provides a clear view of the corporate responsibilities and corporate governance activities of a business organization. In this study, the corporate governance responsibilities, corporate governance issues as well as the actions taken by the stakeholders of James Hardie are evaluated and analyzed in the answers of six different questions. At the end of the study, the conclusion is derived by jotting down the findings in overall study. Identifying various stakeholders of James Hardie and corporate governance responsibilities of the company Stakeholder Group of James Hardie Corporate Governance Responsibilities Owed by Directors of James Hardie Employees The primary corporate governance responsibility of the directors at James Hardie is providing healthy working environment at the workplace. At the same time, it is also the duty or corporate governance responsibility of the directors to inform the employees about the possible harm while working within the organization (Tricker 2015). Apart from these, the directors at James Hardie are also responsible for ensuring sufficient compensation package that will be given to the employees for any kind of physical damage caused by the activities of the company (Azeez 2015). Investors The directors of James Hardie also have some corporate governance responsibilities towards the investors. The first corporate governance responsibility is to provide all relevant information related to the business activities and financial position of the company to the investors. Along with that, it is also the responsibility of the directors to file the actual return on the investments on time in the annual report of the company (Galloway 2016). Shareholders Towards the shareholders, the directors of the company are also responsible. It is the corporate governance responsibility of the directors to provide all information in detail to the shareholders along with the investors. At the same time, the cost structure of the company and the investments made by the company in different areas are also needed to be disclosed to the shareholders (Moerman and van der Laan 2015). Apart from that, the directors also need to provide the pros and cons of the business activities of the company to the shareholders. Government Towards the government, the corporate governance responsibility of the directors is to provide each detail of the financial performances of the company like they provide the information to the shareholders and investors (Anderson and Lama 2015). Along with that, it is also the responsibility of the directors to ensure that the company is maintaining the rules and regulations like, Corporation Act 2001, provided by the government of the country or state. Society The corporate governance responsibility of the directors towards the society is to maintain the healthy environment, where the company is having its plant. At the same time, the corporate governance responsibility of the directors is to ensure that the company is producing and delivering of better quality products (Galloway 2016). Customers The directors of James Hardie are responsible to provide each detail of the products to the customers, while selling the products to the customers. If the product is including any harmful element or material, then also it is essential to disclose that fact also along with the possible harmful effect of the product (Lama and Anderson 2015). Corporate governance issues at James Hardie ASX Principles Key Corporate Governance Issues Corresponding to that ASX Principles Lay solid foundation for the management and the oversight of the company The board of directors at James Hardie failed to develop proper policy so that the management of the company can manage the operations properly. Due to this particular problem, the business operation of the company was ceased by the government authority. The corporate governance policies of the company concentrated more on enhancing the profitability and tried to conceal the unethical business of the company. Therefore, the ASX principle has not been properly followed by James Hardie (Sharma 2015). The company must promote the ethical and responsible decision-making for the business operation The board of directors or the higher management at James Hardie failed to promote the ethical and responsible decision-making. As the management of the company was aware of the negative impacts of manufacturing asbestos-based products, they should have disclose the fact to the employees and needed to provide proper compensation to the employees (Du Plessis, Hargovan and Bagaric 2010). However, there was nothing mentioned in the reports of the company regarding the asbestos related issues. At the same time, the corporate governance policies had not included any such compensation until the case of workers compensation occurred in the year 1939 (Jameshardie.com.au 2016). The company must safeguard the financial reporting integrity The company failed to safeguard the financial reporting integrity also. In the year 2001, James Hardie declared that the company will meet the liabilities and all of the future and past claims and at the same time, it will provide required fund to the Medical Research Compensation Foundation or MRCF. In 2006, it was founded by KPMG that the company had not funded MRCF with required amount, but the activities of the company had not break the legal boundary. However, the company had not made reliable estimates and misleads the public statements (Moerman, L., and van der Laan 2015). The company must provide respect to the rights of the shareholders The corporate governance policies at James Hardie showed that the company has provided proper respect to the rights of its shareholders. However, in reality, the company had misled the financial statements. The company stated that the liability of asbestos-related diseases is A$1.5 million. However, the company used A$30 million shareholders fund in order to meet the liability. At the same time, company had not disclosed that the MRCF is underfunded until it was founded by KPMG. These show that the rights of the shareholders were ignored by the company (Wan 2015). The company must recognize the possible risks and try to manage them The higher authority at James Hardie was aware about the fact that the manufacturing of asbestos-related products is injurious to health of the employees as well as for the neighbors of the manufacturing plants. However, until 1939, the company corporate governance had not included any policy related to the management of the risks. Moreover, the company had not stopped its asbestos-related products manufacturing and did not provide required compensation and did not provide required fund to the MRCF (Jameshardie.com.au 2016). The company must provide fair remuneration and responsibility It is one of the primary principles of ASX that the company should provide fair remuneration and responsibility to the employees. However, the company had not paid proper remuneration to its base level employees as per the risk that the employees bear during the manufacture of the asbestos products (Boggio 2016). Actions that James Hardie could have take ASX Principles Actions that the company should have taken to comply with the ASX guidelines Lay solid foundation for the management and the oversight of the company (Council 2007) The board of directors of the company that is James Hardie should have disclose the possible negative impacts of manufacturing the asbestos-related products in the annual report and at the same time, the management could have stated the proper measures to manage the impacts in the corporate governess policies of the company. If the company had taken this action, then negative impacts of companys activities would have been clear to the government and the other stakeholders of the company (Rainford 2015). At the same time, the stakeholders of the company would have been aware about the steps to manage the situation. The company must promote the ethical and responsible decision-making for the business operation (Council 2007) In order to meet the guidelines provided by ASX, the directors of James Hardie could have stop the usual procedure of manufacturing the asbestos-related products and could have start more improved procedure that is less harmful. At the same time, the company needed to take proper decision regarding the compensation scheme to the employees (Gopalan and Guihot 2015). Along with that, as the work of the base-level employees was full of health-related risks, the company needed to provide high wage to the employees. These decisions or actions would have been more ethical because these show that the company is responsible towards its employees. The company must safeguard the financial reporting integrity This particular guideline of ASX could have been followed by the company by stating all the actual financial figures in the financial statements of the company. The company needed to provide more fund to the MRCF. If it was impossible for the company to provide more fund to MRCF, then the company could have at least mention the actual funded value in its financial statements. At the same time, the management needed to consider reliable estimates and mentioned that in the financial reports. These actions would help the company to maintain the transparency of its financial activities (Lindgren and Phillips 2016), which would enhance the trusts of the stakeholders on the activities of the firm. Along with that, maintenance of proper financial transparency could have save the company from any kind of operational guilt. The company must provide respect to the rights of the shareholders (Council 2007) In order to provide proper respect to the rights of the shareholders, the company could have disclosed the actual costs structure of it to them. The matter of underfund of the MRCF could have been disclosed in front of the shareholders. These actions would have increased the reliability of the shareholders on the activities of the company (White 2015). The company should not have done misleading communication with the shareholders because if a company misleads the shareholders, it becomes impossible to attract new shareholders towards the company. The company must recognize the possible risks and try to manage them In case of James Hardie, the company knew that its business activities are injurious to the health of the employees and the other people. however, in order to manage the matter in a better way, the company could have disclose the real impact of asbestos-products manufacturing on the health of the employees. Along with that, the company also could have mention how the employees can get rid of this problem (Gopalan and Guihot 2016). For this, the company could have provided extra medical facilities and allowances to the employees for taking care of their health. This action would help the organization in better management of the risks. The company must provide fair remuneration and responsibility (Council 2007) In order to maintain this principle or guideline, the company could have increase the remuneration packages of the employees after the disclosure of the fact that the manufacturing activities of James Hardie is having negative health impacts. If the company had done this, then the employees might not claim for extra compensation and the brand image of the company could have been maintained (Lindgren and Phillips 2016). Effects of the decisions taken by the directors of James Hardie on the long term interests of each stakeholder Stakeholder Group of James Hardie How long term interests of stakeholder groups were affected or exacerbated Employees Due to the continuation of the manufacturing the asbestos-based products during 1960s to 1987, the health of the employees degraded more and the effects of the unhealthy working environment remained for 15 to 30 years after the employees exposed to the asbestos dust. At the same time, the employees were in loss of proper amount of compensation for their health issues (Boggio 2016). Investors As the company announced that it is liable for the manufacturing of unhealthy asbestos-based products and responsible for the health issues of the employees, the investors believed that the company will act ethically and meet the liabilities. Due to this the investors continued their investments (Moerman and van der Laan 2015). However, the company did not stop the production. At the same time, the company also misstated the financial figures in the annual report. Due to which the investors did not get proper return and as the company continued the operation, which negatively affected its reputation (Rainford 2015). For this, the financial performance of the company declined. Shareholders The company withdrew excessive amount of money from the shareholders fund for meeting the liability, however, actually, the liability was less. This affected the return percentage of the shareholders. Along with that, due to the controversies, the share value declined and company had to pay high amount of money as penalty. This again decreased the income of the shareholders (Du Plessis, Hargovan and Bagaric 2010). Government Due to the continuation of the operational activities from 1960s to 1987 and underfunded the MRCF, NSW sate government charged A$4.5 billion from James Hardie for Final Funding Agreement. At the same time, with the support of Australian Taxation Office, the Asbestos Injuries Compensation Fund Limited received high annual income from the company (Wan 2015). Society The environmental condition of the places beside the manufacturing plant of James Hardie declined due to the continuation of the production. This affected the health of the people in the society became weak and they were affected by the lung cancer and many other diseases. Comment on the decision taken by the board of director in mid 1960s In mid 1960s the higher authority of James Hardie disclosed the asbestos-related diseases information to its employees and announced that the company will pay the liability and compensation to the employees for their health issues. However, the company continued the operations or the manufacture of asbestos-related products. As per the KPMGs report, the financial decision taken by the management or the board of directors of the company was under the law. However, the estimates made by the company were not proper (Jameshardie.com.au 2016). From the legal point of view, the activities and decisions of the company were right. However, if the analysis is made from the moral ethical point of view, then it can be clearly said that the activities of the company were unethical. The higher authority of the company was always aware of the negative effects of the production of asbestos-related products, but they never disclosed the fact (Lindgren and Phillips 2016). In fact, the management did not even provided proper compensation to the employees for their health issues. Moreover, after 1939, when the workers compensation case happened, the company did not stop its operation and it announced that it will meet the liabilities. The production of asbestos-based products not only affected the health of the employees, but it also affected the health of the people in the society (White 2015). On the other side, the company had also provided misleading statements in its reports. Therefore, by considering all of these matters, it can b e stated that the activities or the decisions taken by James Hardie were morally unethical. However, from the business ethics point of view, it can be said that the decisions taken by the management of James Hardie were in favor of the business growth of the company. The board of directors of the company highly concentrated on increasing the profitability and maintaining the business growth, which were ethical from business point of view. However, as it misled its employees, it was against the business ethics (Boggio 2016). Identifying the effects of the actions taken by stakeholders on James Hardies sustainability The activities done by James Hardie were morally unethical and due to that different stakeholders of the company had taken different actions. These actions affected the corporate sustainability of the company. The effects of the actions taken by the stakeholders of James Hardie are discussed below: Specific stakeholder group How did the action threaten James Hardies corporate sustainability Government The state government in NSW claimed total amount of A$4.5 billion from the company for the Final Funding Agreement. At the same time, the company was also charged by the Injuries Compensation Fund Limited to pay a percentage on its free cash flow and capital percentage on an annual basis. These charges affected the financial position of the company. At the same time, due to the breach of the Corporation Act 2001, the investigation has been carried on the corporate structures of the company in different countries. All of these affected the reputation of the company. At the same time, the JHIL shares of the company were cancelled and the company was failure in the proper disclosure of information. Due to this, the company was penalized. As the reputation of the company was highly affected, the company failed to gain the competency in the market and as a result, the sustainability of the company came in to unstable situation (Tricker 2015). Employees The employees of James Hardie demanded for proper compensation and as the government of the country was in favor of the employees, the company was bound to meet the liabilities or pay the compensation. This increased the cost structure of the company. Due to this, the financial and market position of the company was badly affected (Azeez 2015). Conclusion In this study, it has been identified that the operational activities of the company that is James Hardie were morally unethical. The interests of the stakeholders of the company were negatively affected due to the unhealthy and unethical business operations of the company. The study has found out that James Hardie continued its unhealthy production activities after knowing that the production will affect the health of the employees as well the people in the outside area of the manufacturing plant. It has also been identified that the company has not maintained the ASX principles in the proper way. However, the study has mentioned about some essential steps, that the company or the management of the company could have taken in order to manage the situation in a better manner. At the same time, the study has found out that due to the unethical business activities of James Hardie, the stakeholders of the company have taken several steps, which affected the sustainability of the company. Reference list: Anderson, W., and Lama, T. 2015. Company characteristics and compliance with ASX corporate governance principles. Azeez, A. 2015. Corporate governance and firm performance: evidence from Sri Lanka.Journal of Finance,3(1), 180-189. 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