“Telstra prepares for the worst as shareholders get cranky” is the title of a news article published on 12 October 2018 by the Sydney Morning Herald. It is a good example of an article that examines an issue revolving around the legal framework of cooperation and business in Australia.
As the title suggests, the subject of the article was Telstra and a looming confrontation with its shareholders. According to the author, the shareholders were unhappy with the management of the company and the decisions it made. For one, share prices had gone down and this means shareholders were losing, rather than gaining, value (McDuling 2018). When individuals purchase shares in a given company, their intention is to make profits in one way or another. Therefore, it can be disheartening when the share prices of an invested stock drop. Shareholders believe that it is the responsibility of the management to create value by making appropriate business decisions.
The article also shows that the shareholders were unhappy with some of the decisions that the management of the company was making. For instance, Telstra continued to offer executive bonuses despite dwindling returns (McDuling 2018). If the company is no longer as profitable as it used to be, one of the most reasonable things to do is to lower operating cost. Firms can achieve this by identifying and eliminating unnecessary expenses (e.g., bonuses). Without a doubt, executive bonuses within organizations whose returns are declining are undesirable because bonuses are tokens of appreciation. If a company is not as profitable as it should be, then employees may not deserve a bonus.
In the article, the author also indicates that the shareholders did not understand why the company was prepared to dismiss over 8,000 employees to save $2.5 billion annually in costs (McDuling 2018). The author notes that such a drastic move was a desperate effort by the management to deal with the real issues it was facing. It also seemed dishonest for the company to want to occasion mass unemployment in the pretense of cutting costs when top executives enjoyed excessive bonuses. The desire to save $2.5 billion per annum appears to be a less than genuine concern for the company as many alternative avenues for cost-saving exist.
Given the foregoing, shareholders were ready to rebuke Telstra’s board of directors at an annual general meeting that was scheduled for a Tuesday the week after the publication of the article. In the author’s own terms, Telstra shareholders were “cranky”, and could lead to a strike (McDuling 2018). Whatever the case, the looming showdown between the company and its shareholders was bad news for Andy Penn, the Chief Executive Officer. John Mullen, the company’s chairman, was also at a fix. In fact, he wrote a pre-emptive letter, a sign that all was not well at the company. The author also notes that it was the shareholders that approved the company’s new pay incentive that they are now rebelling against.
The issues highlighted in the article have important legal ramifications. Legislations by the Australian government and its states and territories exist to protect businesses, people, and the environment (Méndez, Pathan, and García 2015). The law also undergoes regular updating to reflect changes that occur in contemporary society. Business rules and regulations in Australia aim to, among other things, protect consumers, protect the environment, promote healthy competition, and safeguard the interests of shareholders (Qu, Percy, Stewart, and Hu, 2018). The laws govern, among other things, how organizations interact with their customers, suppliers, and other organizations. The law also outlines the rights and responsibilities of businesses and the desirable approaches to resolving conflicts.
The article appeals to Australia’s corporate governance framework, which consists of a matrix of legislation, standards, stock listing rules, and self-regulatory codes of practice. Notably, both the common law and the Corporations Law contain, in addition to other things, shareholder’s basic rights and the duties of company directors (Appuhami and Bhuyan 2015). The Australian Securities and Investments Commission (ASIC) oversees the country’s corporate governance framework. It has wide-ranging enforcement powers that enable it to execute its duties expeditiously (Miglani, Ahmed, and Henry 2015). Where necessary, individuals and or groups can also engage in private action to enforce the Corporations Law. These and other regulatory practices protect businesses, customers, shareholders, and suppliers. They also ensure that Australia’s regulations in the business sector resonate with international practice.
Companies in Australia have to have boards of directors whose functions depend on their circumstances as institutions. For instance, boards may appoint and reward CEOs, set goals, set budgetary controls, and monitor management performance among other things (Méndez et al. 2015). In the news article, it is clear that the board of directors had failed in one or more of its functions. The board had not set effective budgetary controls and did not monitor closely the performance of the management. Consequently, the company struggled with underperformed that resulted in a drop in the share prices. If the company had focused on setting and achieving goals and objectives, it should have been able to achieve more profits and better share prices.
Shareholders in Australia also enjoy a wide variety of rights and privileges. Through annual general meetings (AGMs), shareholders elect new directors and their remunerations. The shareholders also have a right to receive reports and announcements, dividends, and to participate in corporate actions raised by the company (Qu et al. 2015). Looking at the article under review, it is evident that the shareholders were acting within the law by demanding management responsibility and accountability. The shareholders are the clear bosses in any publicly-owned company because they can hire and fire directors at will if they think they do not contribute to the development of the company.
- Appuhami, R. and Bhuyan, M., 2015. Examining the influence of corporate governance on intellectual capital efficiency: Evidence from top service firms in Australia. Managerial Auditing Journal, 30(4/5), pp.347-372.
- McDuling, J. 2018. Telstra prepares for the worst as shareholders get cranky. [online] The Sydney Morning Herald. Available at: https://www.smh.com.au/
- Méndez, C.F., Pathan, S. and García, R.A., 2015. Monitoring capabilities of busy and overlap directors: Evidence from Australia. Pacific-Basin Finance Journal, 35, pp.444-469.
- Miglani, S., Ahmed, K. and Henry, D., 2015. Voluntary corporate governance structure and financial distress: evidence from Australia. Journal of Contemporary Accounting & Economics, 11(1), pp.18-30.
- Qu, X., Percy, M., Stewart, J. and Hu, F., 2018. Executive stock option vesting conditions, corporate governance and CEO attributes: evidence from Australia. Accounting & Finance, 58(2), pp.503-533.