Corporate Social Responsibility Principles and Recommendations

Question: Discuss about the Corporate Social Responsibility Principles and Recommendations. Answer: Introduction: Any kind of activities in which business engaged has both positive and negative impact. Stakeholders are very important part of organisation. If stakeholders are there organisation is there. Primary stakeholders of James Hardie are employees, managers, shareholders investors, whereas secondary stakeholders are public, media, ASX ASIC. Recently High Court of Australia found that directors of James Hardie breach their duties. Following are the brief details of stakeholders and duties of directors towards stakeholders: STAKEHOLDER Group of James Hardie Corporate Governance Responsibilities Owned Workforce (employees families of employees of James Hardie) Employees are the arm of any company. In this case asbestos does not only effect employees of the company but also affect their family. Following are the duties of directors and their senior management towards employees: Directors have philanthropic responsibilities towards the employees and their families. Directors also own ethical duties towards the employees of company. Ceased the use of asbestos and the products in which such dangerous substance is used but company manufacture the product till 1987. Give compensations and reliefs to the employees who suffer from the asbestos. Directors of James Hardie give more preference to the profit maximisation instead of social benefits. Directors make misleading statements for the establishment of MRCF. It is the duty of the senior management to maintain sufficient funds in MRCF. But company admits on later stage that MRCF is underfunded ( customers Customers are one of the pillars on which an organisation stands. In this case company knows very well that bricks contained the material asbestos, which is harmful for its customers. It has a serious health effects which cause lung disease, lung cancer asbestosis. Following are the duties of directors of the company towards customers: Duty to maintain sufficient fund in MRCF but company fails to maintain sufficient fund in MRCF. Ceased the production of the products in which asbestos is used. Responsibility towards customers is same as company owns towards its employees because both the groups of stakeholders are directly in the contact of asbestos. Shareholders Generally in high profile companies directors work for the interest of their shareholders. It is the duty of the director that they maximise the wealth of their shareholders. Shareholders are the most important group considered by the companies. Following are the duties of directors towards shareholders: Increase and safeguard the value and investments of shareholders. Make timely and fair disclosures to the shareholders of the company. Take proper and fair consent of the shareholders in the important decisions of company. In this case directors of James Hardie follow the theory of Friedmans in which directors objective is to maximise the profit, minimise the cost and social responsibility is of government. ASX ASIC Directors of the James Hardie required to file full and fair disclosures to both ASX i.e. Australian stock exchange ASIC i.e. Australian Securities and Investments Commission. High court held that management of James Hardie means 7 directors breach their duties by providing misleading information to the ASX regarding the availability of fund in MRCF. It is the duty of the directors that they provide fair information to the ASX. Duty of director to disclose deed of covenant between MRCF and JHIL (ASIC, n.d.; Ethics, n.d.). These principles are formulated and advised by the Australian stock exchange and apply to only those entities which are listed on the ASX. Following are the principles of corporate governance: Principle 1 Lay solid foundations for management and oversight- Every organization must lay down the roles and responsibilities of their board of directors and also take preventive measures to monitor and evaluate the performance of its board. Principle 2 - Structure the board to add value- organization must ensure that their board is of appropriate size, directors have skills and they are able to perform their duties. Principle 3 - Promote ethical and responsible decision-making- board of director must take ethical and responsible decisions. Principle 4 - Safeguard integrity in financial reporting- organizations must have process to verify the integrity of their reporting. Principle 5 - Make timely and balanced disclosure- entities which is listed with the ASX must make all the fair disclosures to ASX on time. Principle 6 - Respect the rights of shareholders- organizations should provide appropriate and timely information to their shareholders so that they can enjoy their rights. Principle 7- Recognize and manage risk- organizations must ensure risk management process in their operations and have effective mechanism to check that framework. Principle 8- Remunerate fairly and responsibly- remuneration policy of organization is very important, company must have paid remuneration to its directors and senior management as per the legal framework and it must be sufficient so that quality of directors can be maintained. Following are the issues of James Hardie case which are related to the corporate governance principles: ASX Principle Key Corporate GOVERNANCE Issue CORRESPONDING to that ASX Principle Principle 3 Promote ethical and responsible decision-making- board of director must take ethical and responsible decisions. In this case management of James Hardie follows the theory of Friedmans narrow approach. According to the theory responsibility of director is to maximize the profit and minimize the cost, and social responsibility is of political parties and government. James Hardie knew about the symptoms of asbestos through the claim of their own employees in 60s but it takes 20 years to ceased the product. Board of directors of James Hardie takes many unethical decisions, High Court held that management of James Hardie are alleged for breaching of their duties by giving the wrong information to Australian stock exchange about the funds in MRCF. Board of directors of company does not take proper information from the management of company and approve the resolution. Directors of company act on the advice of management. Principle 5 Make timely and balanced disclosure- entities which is listed with the ASX must make all the fair disclosures to ASX on time. In this case directors of James Hardie breach their duties and five allegations are there for which they are alleged: In 2001 they provide information regarding establishment of MRCF, which was false. Does not make disclosures in relation to deed of covenants between MRCF and JHIL. Misleading information related to future obligation is involved in scheme of arrangement. Misleading presentations in 2002 related to MRCF. Fail in fulfilling their duties of care and diligence regarding cancellation of shares and provide information to ASX ASIC. ASIC commence civil proceedings against the 7 non-exective directors of the company, 3 executive directors of the company cs/general counsel of JHIL in 2007 u/s 180(1) of the Act. ASIC put allegations that directors failed to excersice their duties related to providing information to ASX (Norton Rose Fulbright, 2012). In answer 2 we discuss the principles of corporate governance and also the actions taken by the directors of the company. Abovementioned principle 3 principle 5 i.e. Promote ethical and responsible decision-making Make timely and balanced disclosure respectively. In this question discuss about the actions taken by the company to comply with the principles of ASX. Following is the brief discussion: ASX PRINCIPLE ACTIONS COMPANY SHOULD HAVE TAKEN TO COMPLY WITH THE ASX GUIDELINE Principle 3- Promote ethical and responsible decision-making This principle state that if directors of the company want to make decisions which are legal as well as ethical then company must give preference not only to legal obligations but also ethical principles. Following are the action which James Hardie must take to comply with the ASX guidelines: Company must lay down the standards for ethical behaviour for their board of directors and make ensure that directors follow those standards. Directors of the company take legal decisions and consider the interest of all stakeholders group. Company must lay down the code of conduct and ensures that directors of the company follow that code of conduct (ASX, n.d.) Principle 5- Make timely and balanced disclosure This principle states that companies must give fair and timely disclosures in the authorities. In this case James Hardie make many misleading statements to the ASX regarding the funds of MRCF. Following are the actions that company has to take while complying with the guidelines: Company must place a mechanism to ensure that timely and accurate information is disclosing to the authorities. Company must ensure that information which is giving to the authorities government is fair, clear and factual. Company must make proper disclosures regarding the financial position and other material information to the ASX. In 19th century James Hardie was founded. In 20th century it became an iconic company in Australia for manufacturing the products which are based on asbestos. Products sold by James Hardie are made of asbestos which cause dangerous lung disease. In 1939 James Hardie gets its first compensation case from worker, but till 1960 James Hardie did not give information about the hazardous effect of asbestos to its employees and even after 20 years company ceased the use of asbestos. Government inspectors informed about the effects of asbestos at the site but still asbestos is used in manufacturing of fibre by the company. Jamie Hardie is one of the largest users of asbestos. These effects are not only affected the employees of the company but also affect their family members, neighbours or contractors, etc... STAKEHOLDER Group of james Hardie HOW LONG TERM INTERESTS OF STAKEHOLDER GROUPS WERE AFFECTED OR EXACERBATED Employees and their family members Employees of the company and their family members get badly affected with the impacts of asbestos. This product caused many lung diseases such as lung cancer, asbestosis. Some of the cases are: Employee of company Bernie Banton was suffered from asbestosis mesothelioma during the employment period in James Hardie. Court held that award of $800,000 and a separate undisclosed amount must be grant to the banton as compensation. Another case is of Winnifred Brennanwho washed her husbands cloth which contain asbestos fibers and get infected with mesothelioma. Her 5 childrens and husband are already dies from cancer. In 2001 brennan get compensation of $374,000(lawgovpol, n.d.) Customers Customers of the James Hardie also get infected and suffer from the fiber of asbestos. Following are the case which explain how customer gets affected with the use of products of James Hardie: In 2007 Anita Steiner gets reward of unspecified amount because she get infected with the fiber of asbestos during the time when her parents used the products of James Hardie for renovating their house. Company Directors There is huge reputation damage to the company. Former directors of the company take a huge risk by not providing fair disclosures to the ASX, which affect the market value of shares as well as the reputation of the company in long run. Unfair information provided by the directors of James Hardie cause damage to the company first and then to the stock exchange. Brand image of James Hardie also get affected very badly. Directors reputation and career also get badly affected with their decisions. They ruin their career and reputation by their decisions. James Hardie discloses wrong information to the ASX about the funding of MRCF. Due to which ASIC commence proceedings against James Hardie and penalize the company. According to the investigation of ASIC, case of james hardie includes 3 countries (US, UK AUSTRALIA) and it includes 348 documents 72 examinations. In 2001 company restructured the business and creates a fund for asbestos sufferers and make false statement about the funds to the ASX (Financier Worldwide, 2012) It appears in the case that James Hardie sacrifice social interest on the cost of profit. Before commenting on the decision of James Hardie directors in mid-1960s, we discuss about the history of James Hardie. In late 19th century company was founded and in 20th century it becomes a successful company in Australia. Company was engaged in the mining and manufacturing of products which are based on asbestos. These products commonly known as fibre and they were very popular in expanding cities and it was cheaper then brick, but James Hardie manufacture these fibres from asbestos which are known for the causing lung diseases even in 1930 as per report of Ministry of Health in 1938. The first case of compensation from worker was filed in 1939 with James Hardie but company does not inform their employees about the harmful effect of asbestos and the liability provision till mid-1960. The liability provisions are up to A$1.5 million. Company take 20years to cease the product and manufactured it till 1987. Effects of asbestos are discussed on international level; it includes many lung diseases and specially mesothelioma, lung cancer and asbestosis. Company know about the effects of asbestos in 1930 but still it does not inform its employees till mid-1960 about the health complications and liability provisions regarding asbestos. James Hardie receive many claims from their workers in 1960 but still they continue to manufacture the product till 1987 which shows they sacrifice the health and lives of their employees on the cost of profit. There is a boom period of fibres from 1960-1970 and company chooses financial advantage over societys benefit and continue the manufacturing the products based on asbestos and ignore the warnings related to health of their employees. In 1970 when there is a death of the employee, which rise the voice of the public related to asbestos issues (the Australian Asbestos Network, n.d.). James Hardie does not behave ethically at that time, decisions of directors of James Hardie shows a greedy face of organization which maximize the profit of the company while minimizing the cost but they ignore their employees health and also not provide them fair compensation for putting their life on risk. If we talk about business ethics in this case directors of the company take professional decision and increase the wealth of their shareholders but taking care of one stakeholder group they neglect the other stakeholder group that are workforce. In this case directors of James Hardie totally ignore the moral values and take a risk on the life of their employees. Every organization wants to make profit and their main goal is profit maximization but there are some other goals too. Anglo American says every company must make profits but not on the cost of their employees health. Anglo American makes various principles on security of employees and human rights (Business Case Studies, n.d.). From the above discussion we can say that James Hardie does not make ethical decision that time and put their employees life on risk for the profit maximization goal and also company does not give fair compensation to their employees and make false statements regarding establishment of fund. Stakeholders are very important part of an organisation infect they are the drivers who drive the organisation in a right way, but if drivers does not drive correctly accident is confirmed. This is something happened in the case of james Hardie in which stakeholders of company took wrong decision which effect the reputation and society very badly. Stakeholders like shareholders, directors and senior management of the company took some decisions which threaten the companys ability to achieve the corporate sustainability. Some actions are briefly discussed here: SPECIFIC STAKEHOLDER GROUP HOW DID ACTIONS THREATEN JAMES HARDIES CORPORATE SUSTAINABILITY Directors Officers As we discussed in answer 5 former directors of the company took wrong decisions for profit maximisation. As we earlier discussed in 1939 first case of compensation was filed with the company but till mid 1960 directors of the company does not inform the employees about the effects of asbestos and liability provisions related to asbestos. It takes 20 years to company to cease the manufacturing of asbestos products which cause many deaths of employees and their family members. Later on company make false statements regarding the funds of MRCF to ASX which effect the reputation of company in long run and also decrease the market value of its shares. Directors of James Hardie make one more decision and decided to get separated from the subsidiaries on which asbestos related claims are high in number in 2001. In relation to this decision they set up a foundation which aim is to compensate the sufferers and make a research for the cure of this disease. company make statement to the stock exchange (ASX) that foundation has sufficient funds to meet the claims but in reality the statement found wrong because there s short of $1.3 billion (Board Matters, n.d.). ASIC commence proceedings against the company and penalize the company for their actions. In February 2007 ASIC start civil proceeding against the company and investigate the directors of the company specially related to MRCF and found directors guilty (Sydney morning herland, 2012). Many directors of the company resigned from the company. There are many lessons for other directors and officers from the case of James Hardie: Before passing any resolution it is necessary for the board of directors of the company to take necessary information from the management of the company. In this case before approving the resolution regarding funding of MRCF board of directors of James Hardie must ensure from their management that the funds are available or not. If decisions of directors are depend on the advice of management and third parties then it is a duty of each director of the company to check, review and understands that information provided by the management or third party. Directors are not free on the ground that management of the company does not provide actual or complete information to them. It is the duty of director to check and confirm the information provided by the management before approving the resolution. Directors of the company must be familiar with the matter conducted in the meeting by go through the material provided to them. But in case of James Hardie it was found that two directors give their confirmation on telephones without reading the material. Follow the practices of good corporate governance by propose resolution in the meeting of board of directors. Company must maintain a set of document regarding the matter conducted n a meeting. And also maintain complete minutes of the meetings(Blake Dawson, 2009 Ashurst, n.d.) It is necessary for every organisation to consider the benefit of the society also otherwise company cannot go in long run. Customers interest is the most important criteria but James Hardie ignores this. References: ashurst. James Hardie High Court Appeal Decision. Retrieved on 23rd August from: file:///C:/Users/Guest/Downloads/Company%20Law%20%20Governance%20Update%209%20May%202012.pdf. ASIC. 07-35 ASIC commences proceedings relating to James Hardie.Retrieved on 23rd august from: https://asic.gov.au/about-asic/media-centre/find-a-media-release/2007-releases/07-35-asic-commences-proceedings-relating-to-james-hardie/. ASX. Corporate Governance Principles and Recommendations with 2010 Amendments. Retrieved on 23rd august from: https://www.asx.com.au/documents/asx-compliance/cg_principles_recommendations_with_2010_amendments.pdf. ASX. Corporate Governance Principles and Recommendations. Retrieved on 23rd august from: https://www.asx.com.au/documents/asx-compliance/cgc-principles-and-recommendations-3rd-edn.pdf. Blake Dawson. (2009). Company Law Governance Update. Retrieved on 23rd august from: file:///C:/Users/Guest/Downloads/Company%20Law%20and%20Governance%20update%20-%208%20May%202009%20(1).PDF. Board Matters. High Court finds James Hardie directors breached their duties. Retrieved on 23rd August from: https://www.boardmatters.com.au/newsletter/high-court-finds-james-hardie-directors-breached-their-duties. Business case studies. Business ethics and corporate social responsibility. Retrieved on 23rd august from: https://businesscasestudies.co.uk/anglo-american/business-ethics-and-corporate-social-responsibility/what-are-business-ethics.html#axzz4IJx540q7. Ethics. The james hardie case: risk, reputation and business ethics. Retrieved on 23rd august from: https://www.ethics.org.au/on-ethics/blog/june-2012/the-james-hardie-case-risk,-reputation-and-busines. Financier Worldwide. (2012). 10 Questions. Retrieved on 23rd August from: https://www.financierworldwide.com/implications-of-the-james-hardie-judgment-for-directors-in-australia/#.V7_nlE197IU. Lawgovpol. Case Study: James Hardie and Asbestos. Retrieved on 23rd august from: https://lawgovpol.com/case-study-james-hardie-and-asbestos/. Norton Rose Fulbright. (2012). The James Hardie Decisions: Australian Securities Investments Commission v Hellicar Ors [2012] HCA17; Shafron v Australian Securities Investments Commission [2012] HCA 18. Retrieved on 23rd august from: https://www.nortonrosefulbright.com/knowledge/publications/66582/the-james-hardie-decisions-australian-securities-investments-commission-v-hellicar-ors-hca17-shaf. Sydney Morning Herland. (2012). James Hardie Directors Lose Final Appeal. Retrieved on 23rd August from: https://www.smh.com.au/business/james-hardie-directors-lose-final-appeal-20121112-298v1.html. The Australian Asbestos Network. James Hardie. Retrieved on 23rd august from: https://www.australianasbestosnetwork.org.au/asbestos-history/asbestos-work-3/james-hardie/.