World news – Business leaders cannot serve two masters: What went wrong at Australia Post – EconoTimes

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By Jason Harris

The idea is that they exist to help their shareholders by providing dividends and capital gains, ever the more the better.

Fifty years ago, Nobel Prize-winning economist Milton Friedman went so far as to argue that this was the only responsibility of corporations – to do as much for their shareholders as the law allows.

Nowadays, most boards no longer talk about the primacy of shareholders, but rather about the company’s interests, which include social licenses, stakeholder engagement, and community expectations.

But what happens when shareholders trying to tell boards of directors how to do their job?

From a legal perspective, they have to Directors of the company act in the best interests of the company and not in the (possibly short-term) interests of the shareholders.

If the shareholders are not satisfied with the decisions of the company, they have the option to replace the directors.

The directors, under the direction of the chairman of the board, have the ability to remove instructions and give instructions to the chief executive and senior managers.

The directors are indirectly accountable to shareholders as shareholders have the option of removing them from the board of directors In large publicly traded companies, this threat is often difficult to deal with, as large institutional investors tend to support the established management and do not have the resources or the will to actively monitor all companies in their portfolio, at least for that time they seem to be doing well.

But directors have no charter. They are legally required to act in the best interests of their company.

Decisions about how the company’s money should be spent and what it should pay its employees are solely decisions of management under the supervision and ultimately authority of the board of directors. </ But what if the company is a state company? What if only one shareholder (the government) appointed the entire board?

Legally, it makes no difference. The board of directors still has the power to refuse to do what the shareholder wants.

From a practical point of view, serving on the board of a state company is different from serving on the board of a non-government company.

Governance The boards of state-owned corporations are inherently politicized as the government can appoint and remove directors whenever it wants, for whatever reason, rationally or otherwise.

A new chief executive, Christine Holgate, changed that Business, opened new businesses, expanded offshore, achieved massive increases in sales and profits, and strengthened the company’s network of disaffected franchisees.

Instead of thanking her, the sole proprietor’s chief, Prime Minister Scott Morrison, said part late last year of their behavior as « nefarious and not nefarious ».

She had used company money to buy expensive gifts (watches) for employees who had contracts valued at hundreds of millions of dollars.

« That’s how appalled and shocked I was at this behavior – any company shareholder would be indignant if he did had seen this behavior of a CEO, « said the Prime Minister, » the CEO has been instructed to step aside and « if she doesn’t want to, she can go ».

In mainstream Australian corporations, the idea of ​​bonuses would be in $ 20,000 for employees who produce millions of dollars only raise their eyebrows if no bonus is paid.

Part of the problem is confused corporate governance. Australia Post’s board of directors did not have a clear framework for rewarding employees with rewards.

This left the board chairman to decide how to implement a proposal from the then chairman of the board to reward employees. Salary increases or new company cars may not have raised eyebrows, not like watches did.

However, handing out watches wasn’t against the rules. If the board had set sufficiently detailed guidelines for bonus payments, the managing director would have had clear rules to follow.

Without clear rules, the chairman and managing director should and could have worked as a team. In her statement on the Senate investigation, Christine Holgate said that when the then chairman bought the watches in 2018, he took part in a discussion about whether the bonuses should be given in the form of watches.

The subsequent chairman devoted to a complaint by the sole shareholder greater attention, although his legal duty was to the company rather than to its owner.

The more serious Crown Casino scandal clearly shows the problems that can arise when board members appear to bend over to the major shareholder and not support the company.

The old saying goes: « One person cannot serve two masters ». Directors’ duties are their companies.

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