In 1970, Milton Freidman wrote his seminal article in the New York Times Magazine, arguing the sole purpose of business (and by extension business executives) is to maximise shareholder profit (Freidman, 1970). Since that time, Freidmans views have spread around the world and for many years were largely unchallenged in countries such as Australia. More recently, a trend has emerged for business leaders to believe they have a wider obligation to those whose lives companies affect.

In 2016 the board of the Commonwealth Bank of Australia (CBA) attempted to introduce a people and community measure into the companies executive bonus scheme (Durkin, 2017). In spite of a passionate defence by CBA director Harrison Young, the proposal was slapped down by sceptical shareholders at the 2016 Annual General Meeting (AGM).

You have left university and now work for a large fund manager (institutional investor) that owns shares in many of Australias largest listed companies. Noticing a trend for Australian boards to introduce soft non-financial metrics for executives bonus schemes, your employer wishes to develop a clear position on the issue that will determine how it casts its votes at company AGMs.

Required

In your report you will use academic literature to describe and explain two models and underlying theories of corporate governance; and discuss the role of executive remuneration, identifying competing perspectives.

You will then use diverse sources of information including academic literature, to critically evaluate Australias corporate governance environment, and trends in executive remuneration, identifying the implications of different views and shifting opinions where applicable.

Finally, based upon your analysis, you will advise your employer how you believe they should vote at company AGMs when the subject is soft non-financial performance targets for executive remuneration.

Durkin, Patrick (2017, March). Boards must decide between shareholders and stakeholders. Boss Magazine.

Freidman, Milton. (1970, September). The social responsibility of business to increase its profits. The New York Times Magazine.