Below is Chapter 4 of our ‘Company Title Essentials’ booklet. To read the other chapters of our booklet, click the links below:
- Chapter 1 – The basics
- Chapter 2 – Purchasing and selling shares in a company title building
- Chapter 3 – Governance and management
- Chapter 5 – Obligations, renovations and records
- Chapter 6 – Rights, duties and disputes
- Chapter 7 – Dispute resolution
- Chapter 8 – Levies
- Chapter 9 – Conversion to strata title
- Chapter 10 – Company title developments
The role of Company Managers and Building Managers
Company Managers
Most companies appoint external managers to collect levies and manage the day-to-day operations of the building. Frequently, these managers act as the company secretary, and serve as an interface between the company and its professional advisers. A good company manager can make the directors’ lives a lot easier.
Building Managers
Some larger buildings with extensive common property employ building managers who attend to maintenance, cleaning, and concierge duties. If you engage a building manager, you may need to comply with employment laws regulating minimum wages, leave and other entitlements. Directors of companies who fail to comply with these laws are exposed to significant personal liability.
The board or a sub-committee should review the performance of the company manager and building manager and the terms of their contracts on an annual basis.
Directors obligations
Directors have several important duties, which must be observed. These may be derived from the constitution, the Corporations Act 2001 (Cth), the common law and equitable principles relating to directors of companies.
They include duties to:
- Act with due care and diligence. For example, a director must be reasonably acquainted with the structure of the company and its financial position and must make a reasonable effort to read and seriously engage with all documents or reports that come before the boad;
- Maintain the confidentiality of board discussions. While this does not prevent the publication of the minutes of meetings in an approved form, a director would breach this duty if he or she discloses information to unauthorised individuals;
- Disclose and avoid conflicts of interest. For example, if a director owned a construction firm and the company was considering doing major renovations which could be carried out by that firm, the director would be required to inform the board that he or she is the owner of a construction company and excuse himself or herself from any board discussions on the issue;
- Not misuse information. For example, the director in the previous example could not use information about the proposed renovations, obtained at a board meeting, to generate a business opportunity for his or her company;
- Act for a proper purpose. For example, the director in the previous example could not vote in favour of a resolution to undertake certain renovations for the purposes of providing his or her construction firm with additional revenue; and
- Act in good faith and in the best interests of the company. For example, a director may be found to have breached this duty if he or she proposed a resolution that was in the interests of a group of shareholders on a particular floor of which he or she was a member, but to the detriment of the interests of the company.
Board culture
Board culture is one of the favourite topics of modern corporate regulators. It refers to the practices, principles, and processes that a board adopts when conducting its business.
A positive board culture can help to ensure that the building is run efficiently and effectively.
A negative board culture can lead to friction and inefficiency.
Each director must commit to some basic values to ensure that a positive board culture is upheld. A few such values stand out:
Civility
The culture of a board will be toxic if directors do not conduct themselves in a civil manner. This means that each director should be polite, courteous, and respectful in all their dealings with other directors. For example, directors should not be demeaning or insulting, should not attempt to monopolise discussion, and should not advocate their opinions in a zealous or aggressive way. Bullying is not acceptable. By maintaining civility, each director helps to create a productive space in which different views can be expressed and mutual decisions can be made. It is particularly important in the context of residential buildings, in which directors often have to live alongside each other.
Inclusivity
The board should not be divided into factions or interest groups. As a director, you should engage with all other directors in an appropriate manner. You should not deal with board issues with a small sub-group of directors outside board meetings.
Diligence
A positive board culture requires every director to attend all board meetings punctually, having read and understood all of the relevant board materials. Directors need to do their homework and get the basics right. If these things do not happen, meetings can quickly become long-winded, disjointed and frustrating, and important details and deadlines can be missed.
Accountability and Integrity
As a director, you must recognise that you are all ultimately responsible to the company’s shareholders. In this respect, you must endeavour to conduct yourself at board meetings in a manner consistent with the interests of its shareholders.
It is also a good idea to keep shareholders informed about what happens at director’s meetings. Some boards put out shareholder information newsletters after every board meeting or have question and answer or information sessions once every few months. Being transparent can be a good way of avoiding conflict and potential legal disputes.
A sub-committee of the board could be set up to draft a board code of conduct, which will help all board members come to grips with the key components of a positive board culture.
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Booklet: Company Title Essentials
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The information contained in this post is current at the date of editing – 3 April 2024.