Business might feel they have
been liberated by all the talk about abolishing the carbon tax. But extreme
weather events can’t be abolished. They are tipped to get worse and worse and
worse. And with them the danger for company directors and officers grows higher,
because they have statutory
duties to act in the best interests of their company and with reasonable care
and due diligence. A failure to do so is an offence under the Corporations Act
for which directors and officers may be personally liable, according to a paper on Climate Change in Australia's board room by Liberty Insurance.
One of the major duties
of a director is to protect the assets of the company (the assets of
shareholders) and to address the risks underlying the company’s
business operations effectively.
In the event that a
legal action is brought against directors or officers for failing to discharge
their statutory duty to act in the best interest of the company, the directors
or officers may be able to invoke the operation of the “business judgment
rule”. Under this rule, directors can defend their action by saying that they
have discharged their duties to the company by having made an objective
judgment, in good faith, that they rationally believed was in the best interest
of the company.
If directors and officers of a company do not obtain adequate
information about climate change and fail to take appropriate steps to mitigate
the risks or maximise the opportunities available to the company, they might
potentially be in breach of their duty of care and diligence owed to the
company. In failing to make informed decisions in good faith, the “business
judgment rule” may not excuse their actions or inaction in an allegation of a
breach of duty. In our political and litigious climate, clear and effective communication is crucial
between the company and its stakeholders. Directors and officers need to ensure
that they communicate clearly with their shareholders, investors, employees, etc., so that there is a good understanding of the company’s strategic policies in
relation to climate change and the reasons for those policies.
A company may decide to do nothing at this
stage. The decision must be based on sound business judgments. All available
facts and reasons for such a decision must be carefully considered. Ignorant
inaction may lead to a breach of, amongst other things, directors’ duties to
act in the best interest of the company. Directors and officers may be exposed
to litigation from shareholders and investors unless they can show that they
have acted with due care and skill and in the best interests of the company.
The board has a duty to create sustainable business growth and return for the
company over time.
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