Question

Christine, Sharni and Mandy are the directors of Layabout Ltd, a company that manufactures camping equipment. Sales are falling and the directors are worried about the future prospects of the company. At a directors’ meeting it is resolved that a marketing campaign to promote the company’s products will be put out to tender. Part of the campaign will involve television advertising and Christine wants the company to employ her husband Sunil to appear in television commercials as he has experience modelling and has taken acting lessons. It is expected that Sunil will be paid $100,000 by Layabout Ltd to be the ‘face’ of the company in the television commercials.

REQUIRED

Describe the procedure under the Corporations Act the company and Christine must follow in order to employ Sunil for the advertising campaign.

Answer 1

This is a case where there is a potential conflict of interest of the Director and Company. Christine as a director of the company wants to influence a decision to employ her husband Sunil to appear in the television commercial as he has experience in modelling and taken acting lessons. Sunil if employed by Layabout for the marketing campaign will receive $100,000 for this contract.

The issue here is Sunil might or might not be the best fit for the television promotion for Layabout and if he is given the contract only due to the influence of Christine then it goes against the interest of the Company since Company might not get proper value from this promotion. However if Sunil can really do a good job and has proper credentials for this job then it might benefit the company. However an impartial assessment needs to be done for the decision.

Corporations Act clearly defines conflicts of interest in the corporate activities. However it is advised that each organisation should have a conflict of interest policy, which clearly defines a conflict of interest in the organisation’s context, and what to do when one arises – with options open to the director with the conflict of interest and the board, depending on the nature of the conflict.

As per Corporation act the director should make full disclosure about the potential conflict of interest.So in this case Christine should make full disclosure to the board about the nature and extent of the interest and how the interest does, or may, in the future relate to the affairs of the company.

After having made the full disclosure about the conflict of interest Christine should ensure that the informed consent of the full board of directors is obtained and that there has been a consideration by the board of whether the proposed proposal to engage Sunil for the television commercial is of benefit to the company.

Also as per the Corporation Act Christine should not participate in this decision making by the Board since she has a conflict of interest in the outcome related to this decision.

If the board of directors evaluate the proposal without any bias and influence from Christine and decide on the proposal it will be in the best interest of the share holders of the company.