We Have Numbers Of Free Samples

Asbestos is a natural mineral that have been mainly used for commercial purposes for decades. The main reason for the popularity of asbestos is that it does not burn and is resistant to chemical damage, electrical damage and fire. However, asbestos often leads to severe health problems like mesothelioma and lungs cancer. In spite of the obvious impacts of asbestos on human health, asbestos were widely used in Australia. The government had started taking initiatives since 1940 to reduce the risks associated to working with asbestos. In fact, government health inspectors in Australia started warning companies about the dangers of asbestos but little efforts were observed among companies towards CSR to protect workers from the negative impacts of asbestos (Beekes et al. 2015)¹. James Hardie Industries Ltd., a company engaged in manufacturing building materials started labelling products with warning stickers’ since1960. The company also started paying for compensation to some of its workers and also ceased production of asbestos in the year 1987. The company further established a medical board and provided around $300 million in terms of assets to process compensation claims.

However, in spite of all such Corporate Social Responsibility initiatives, several cases were filed against James Hardie. Bernie Banton, one of the workers of James Hardie had suffered mesothelioma due to contact with asbestos. This worker later became the public face of legal battle against James Hardie. Bernie Banton was awarded $800,000 by the honorable court of law. Winnifred Brennan used to wash the dresses of her husband which were mostly covered with dust of asbestos. Her husband and five children later dies of cancer whereas Winnifred Brennan was affected by mesothelioma. The court of law awarded her with a compensation of $374,000 in the year 2001. On the other hand, Anita Steiner got exposed to asbestos fibres when parents were renovating the house with James Hardie products. She also got an undisclosed amount of compensation in 2007.

In the year 2003, it was found that the total amount of payable compensation was around $1.6 billion which was approximately six times than the original commitment made by the company of James Hardie.

1. Beekes, W., Brown, P. and Zhang, Q., 2015. Corporate governance and the informativeness of disclosures in Australia: a re‐examination.Accounting & Finance,55(4), pp.931-963.

The government, media and trade unions badly criticized the inadequate contribution made by the company towards the compensation fund. A public campaign was initiated against James Hardie. An inquiry was started by the NSW government in 2004 which finally held that James Hardie Company needs to pay compensation of around $2.2 billion to the affected persons. Later, the company after a tough negotiation agreed to pay $1.55 billion over the next 40 years.

The high court easily found out that 7 non-executive directors of James Hardie had breached respective duties as directors as they approved release of misleading information pertaining to the sufficiency of funding for the compensation purpose. All 10 defendants were banned by the ASX from becoming directors or managing affairs of any company for a period of 5-15 years. The monetary penalty was between $30,000-350,000. Highest penalty was imposed on Peter McDonald, the former CEO of the company.

Corporate governance refers to the set of rules, regulations, principles and procedures through which a Company is controlled and directed (Clapp and Rowlands, 2014)². Corporate governance is concerned with balancing the interests of the key stakeholders of a company such as shareholders, customers, employees, investors, suppliers and the government. The corporate governance of James Hardie Industries has faced several litigations and criticisms for its ineffective and dishonest corporate governance.

Corporate Social Responsibility (CSR) is a business approach that seeks to contribute towards sustainable development through delivery of economic, environmental and social benefits for all the major stakeholders (Korschun et al. 2014)³. CSR is mainly a concept. CSR indicates the accountability of an organization towards its activities. The inadequate contribution towards employee compensation fund and showing inflated figures about the fund is against the CSR values.

2. Clapp, J. and Rowlands, I.H., 2014. Corporate social responsibility.Essential Concepts of Global Environmental Governance, p.42.

3. Korschun, D., Bhattacharya, C.B. and Swain, S.D., 2014. Corporate social responsibility, customer orientation, and the job performance of frontline employees.Journal of Marketing,78(3), pp.20-37.

The section 181 of Corporation Act, 2001 relates to the belief and confidence on the officers including the director that all the authorities bestowed on them will be utilized in performing the duties to the best possible extent. The section emphasizes on good faith on the director and officers about exerting the power to best satisfy the interest of the corporation and purpose of the designation provided. However, in case of James Hardie Company, the directors have been found guilty of misrepresenting financial statements in respect of the compensation fund.

Section 182 emphasizes on avoiding misuse of position of the directors or the officers and staffs to hamper the interest of the corporation in any way. Even using position to fulfill owns interest needs to be strictly avoided else the same can incur civil penalties in Australia. Here, the directors are also held guilty as they have used their formal powers to influence the finance managers of the company to show inflated figures about compensation fund.

Section 183 deals with informational privacy handling at the corporation. Any person who gets access to any type of information being a director, officer or even any employee of the corporation has to be very particular in maintaining secrecy about the same. In no way should the information leaked even after completion of service life to avoid any legal penalty. The information cannot be used for any personal benefit or for any act that can hamper any system at the corporation. The directors of the company were aware about the low amount of contribution towards compensation fund but they did not share the information with any unauthorized person or outsiders.

Section 184 directly states that in any case where position held or information accessed is dishonestly utilized by the directors or any of the corporation employees from top to bottom hierarchy, the scenario is considered as criminal offence and legal proceedings are done in accordance to the gravity of the offence. In any case of failure to keep good faith of the position due to intentional fraudulent behavior or irresponsible nature, all such cases are treated as offence. The directors of the company had misutilized their powers associated with the position. The information pertaining to the compensation fund was also dishonestly utilized by the directors that were not in favor of the stakeholders.

Section 588G of the Corporations Act, 2001 is concerned with duty of directors’ duties towards prevention of insolvent trading by a particular company. This section is applicable if an individual is a director of a concerned company while a debt is incurred by the company, the company becomes insolvent at that time by incurring debt, there are strong grounds during that time to suspect the company of being insolvent and that time is on or after the implementation of this act. Here, failure of the directors in preventing the company from incurring debts was a dishonest act and thus a criminal offence under this section.

Australian Security and Investment Commission Act (ASIC) 2001 also applies to the current situation. ASIC as a federal regulator bears an obligation to carry on proceedings in the form of a model litigant as per the guidelines laid down by the Commonwealth Government (Mirvis, 2012)⁴. ASIC had argued before the honorable high court that though it has an obligation for acting as a model litigant however such obligation does not require calling all material witnesses. However, no major unfairness was observed by the court on the part of ASIC.

The results of the cases had both adverse financial and non-financial impacts on the company. As regard to non-financial impacts, the results of the cases in the form of holding the company as guilty and imposed penalties badly affected the goodwill and reputation of the company. The Corporate Social Responsibility (CSR) of the company was questioned. Corporate governance of the company was considered to the ineffective. Investors were very much hesitant to invest in the company. On the other hand, James Hardie found it quite difficult to raise loans from banks and financial institutions as the image of the company got badly affected. In addition to the above, the financial position of the company particularly the liquidity, gearing and profitability position of the company evidenced a sharp fall due to the compensations being given to the affected persons.

Thus, it would not be inappropriate to state that the results of the legal battles have major impacts on the business performance and strategy of the company. It was hard time for the company to get a turnaround. In addition, the company required to develop new & unique strategies in respect of marketing, finance and operations. The CSR and corporate governance policies of the company seem to be ineffective and lenient in respect of the health effects of asbestos. Such lethargic attitude of the board members had resulted to such negative consequences.

4. Mirvis, P.H., 2012. Corporate Social Responsibility.The Encyclopedia of Human Resource Management: Short Entries, pp.153-159.

It is advisable for the James Hardie Company to focus on cost reduction, aggressive marketing and redevelopment of its corporate governance and CSR strategies. Aggressive marketing is required to recapture its lost brand image and an Integrated Marketing Communication Program (IMCP) is needed for this purpose. Focus needs to be on eliminating non-value adding activities, wastages and defectives. A part of internal operations could also be outsourced to reduce costs. Also, a new model can be developed for corporate governance and CSR to restore confidence among the investors and other stakeholders.

[Download not found]

Download