Company Law — Lecture 7

1. Company Law — Lecture 7 • Decision-making and company management • Division of powers • Role of company officers • Corporate governance

2. Decision-making and company management • Making decisions about, among other things, • the company’s operations (business and activities) • the company’s capital structure • the company’s internal structure and the relationship between participants • How does the law allocate that decision- making power and regulate its exercise?

3. Division of powers • Power to make decisions is divided between • the shareholders in general meeting • the board of directors • Division depends on the constitution and general principles of company law

4. Directors’ broad power of management • Usually, directors have general power of management: eg the default rule in s 128 of the Companies Act 1993 • Confers power on the board to manage the company or supervise its management

5. Shareholders cannot override directors • Two organs of the company: shareholders in general meeting and the board of directors • One cannot interfere with powers of other — Automatic Self-Cleansing Filter SyndicatevCunninghame; John Shaw & Sons • What options are available to shareholders who disagree? • Under organic theory, actions of the organs are attributable to the company

6. Role of company officers • Directors • Executives

7. Board of directors • Acts collectively • Special role of • managing director • chairperson • committees of the board • Executive and non-executive directors

8. Functions of directors • Precise function depends on the company • In a smaller company, directors may have sole responsibility for conduct of the company’s business • In a large, diversified company, directors may have a more supervisory, policy-centred role

9. Corporate governance • The way companies are directed and managed • Berle and Means thesis: separation of ownership and control in large companies • In all single director/shareholder companies and many smaller companies, the owners and managers are the same people and (except where relationships break down) do not have divergent interests • In larger companies and relationship breakdowns, divergence is more likely • Corporate governance rules are rules to minimise and manage that divergence • Many investors require companies to adopt corporate governance practices that promote accountability on the part of directors and executives

10. Corporate governance and listed companies • NZX Corporate Governance Best Practice Code 2003 and FMA, Corporate Governance in New Zealand – Principles and Guidelines (2004) • NZX Listing Rule 10.5.5(i) requires disclosure in annual reports of the extent to which corporate governance practices differ from the principles set out in the NZX Code

11. Corporate governance (cont) • Balancing different considerations — performance and conformance • Do particular corporate governance practices make companies more profitable? • What is “good” governance? • Corporate governance mechanisms