1

The 9th annual University Governance and Regulations Forum Rendezvous Grand Hotel, Melbourne

16 and 17 September 2014

STRATEGY AND PLANNING Role of Council in the Strategic Management and Planning

Transcript of address

By

Dr. Steven Stern, University General Counsel and University Secretary, Adjunct Professor, Victoria Law School, College of Law & Justice,

Victoria University

What this presentation covers This presentation focuses on the role of university councils in the strategic management and planning of their universities. It examines what are governance and management-decisions; what is strategic management and planning; the issue of whether managing back office and support staff is a matter for councils and, if so, to what extent; the issue of transparency and accountability; the impact of Acts of Parliament, common law and equity; and Commonwealth, Territory and State-based comparisons of universities’ Acts. What is governance? Governance denotes the mechanisms, processes and relations by which the body corporate is controlled and directed. It involves the distribution of responsibilities and rights within the corporate structure and in respect of relevant outsiders. For example, what are the comparative roles of directors, senior managers, other employees, creditors, auditors and, regulators? In a business, customers are important. There may be other stakeholders. At a university, key stakeholders include students and graduates. Governance denotes the rules and procedures for making decisions which determine the strategic and overall direction of the body corporate.1 1 Reference: http://en.wikipedia.org/wiki/Corporate_governance

2

What is management? Management coordinates the efforts of people. It coordinates the deployment of financial, technological and natural resources. In a small family and investment company, governance and management might be expected to be undertaken by the same person or body. For example, no demarcation between governance and management ordinarily would be expected in a proprietary limited company with a single shareholder and a single director. By contrast, with a large national or transnational company a demarcation between governance and management is likely to be standard practice. For example, once there is a business being conducted and there is a view to profit, demarcation between governance and management becomes increasingly likely. With a listed public company, such a demarcation is likely to mandatory. In a public university established by an Act of the Commonwealth, Territory or State Parliament, a useful definition would appear to be that governance denotes setting the general or strategic direction of the university, and monitoring, overseeing and reviewing the university’s progress in achieving the requisite targets; and management denotes the assessment, control and deployment of diverse resources available to meet the set targets.2 What are the salient features of different types of decisions? In a university it is the council’s responsibility to set the general direction of the university. The vice-chancellor is responsible to manage the affairs of the university. So the everyday operations of the university are under the control of the vice-chancellor. Council must set the general direction of the university. Council must oversee the vice-chancellor’s administration. Council must monitor, oversee and review the management and its performance. Council must approve the significant activities of the university. Why is the difference important? A company or other body corporate ordinarily is constituted by its membership. The traditional view is that the board of directors is merely the delegate or agent of a general meeting of a body corporate. So not only is the general meeting able to elect the board and remove directors from the board. Traditionally the general meeting was able to direct the board with

2 References: http://en.wikipedia.org/wiki/Management R P Austin and I M Ramsay, Ford’s Principles of Corporations Law (15th ed 2013) pages 225-227 paragraph [7.040] LexisNexisButterworths

3

respect to how it is to manage the company’s affairs. For example, if a major acquisition or disposal was being canvassed, the general meeting could direct the board whether or not the proposal was to proceed. So traditionally a general meeting was able to exercise all the company’s powers. It had the capacity to control the directors. In a tightly knit proprietary company, a capacity of this nature might continue to be appropriate. Once there are innumerable shareholders who are buying and selling shares in this and other companies for investment purposes, to obtain returns via dividends and ultimately to maximise profits on any share sales, the context becomes substantially different. Management powers have had to be vested in the board. The general meeting appoints and may dismiss the board replacing it with other directors, but company constitutions typically provide that the company’s business is managed by or under the direction of the board. Where the size and complexity of a company’s business reaches a high scale, increasingly the company has had to appoint executives and delegate management powers to those executives. A public university established by Act of Parliament often is prescribed to be constituted by a membership comprising enrolled students, graduates, staff and emeritus professors. While “convocations” of such persons may be consulted on some key decisions, and may also elect members to council and to other governance bodies (such as an Academic Board), it is considered that intrinsically they are unable either to govern or manage the university. A crucial consideration is to determine whether the demarcation between governance and management is mandated by law or whether it is merely good practice. For example, it can be considered good practice that there be a substantial degree of delegation of many of the board’s management functions. There is the “commonsense approach to the functions of the board of a large company”.3 It “can be expected to take into account that the company is too big to be supervised and administered by the board except in relation to matters of high policy”. 4 The old law was that a director was “justified in delegating to and trusting the officers of the company”, unless the director was “aware of circumstances so plain that no-one with any degree of prudence would rely on the judgment, information or advice of the officer concerned”.5 This old law “does not accurately state the duty of directors whether executive or not in modern company law”.6 Directors have to guide and monitor the company’s management in a general sense. However, “a detailed inspection of day-to-day activities” is not required.7 3 Ibid page 227 4 Ibid 5 Ibid page 226 6 Ibid 7 Ibid page 227

4

What are the sources of governance rules?

The sources of governance rules are first Acts and other legislation. For example, in the case of a company, there first would have to be resort to the Act under which the company was incorporated: i.e. the Corporations Act 2001. In the case of a public university established direct by an Act of Parliament, the primary source of its governance rules are to be found in the terms of that Act. For example, in the case of the University of Sydney, there ordinarily first would be resort to the terms of the University of Sydney Act 1989. This Act establishes the University. It provides that the University consists of a Senate, a Convocation, the professors and full-time members of the academic staff of the University and such other classes of the staff of the University as the by-laws may prescribe, and graduates and students of the University. Given the membership composition, unlike say the usual companies and incorporated associations, general meetings of members and their resolutions generally would not have the same kind of governance impact. For example, the students by general meeting do not appoint the Senate. It is provided that the University is a body corporate under the name of the University of Sydney. The object of the University is prescribed there as the promotion, within the limits of the University’s resources, of scholarship, research, free inquiry, the interaction of research and teaching, and academic excellence. The functions of the University are set out: for example, a principal function for the promotion of its object is the provision of facilities for education and research of university standard. It has such other functions as the commercial exploitation for the University’s benefit. It is provided that these functions may be exercised within or outside the State, including outside Australia. The Act provides that the Senate has the control and management of the affairs and concerns of the University. The Senate may, in relation to any matter or class of matters, or in relation to any activity or function of the University, by resolution, delegate all or any of its functions (except the power of delegation to any member or committee of the Senate; any authority or officer of the University (including any advisory council constituted for an academic college). Resolutions and the terms of any delegations are pivotal. The Senate may make by-laws, not inconsistent with the Act, for or with respect to any matter that is required or permitted to be prescribed or that is necessary or convenient to be prescribed for carrying out or giving effect to the Act. The subject matter on which by-laws may be made includes the management, good government and discipline of the University.

5

The Act provides that the Vice-Chancellor is the principal executive officer of the University and has the functions conferred or imposed on the Vice-Chancellor by or under this or any other Act. This illustrates how a broad range of other legislation might also become applicable to University Councils in their roles with respect to the strategic management and planning of their universities. The Vice-Chancellor is a member of the Senate. An Acting Vice-Chancellor is taken to be a Senate member while so acting. Senate members must act in the best interests of the University. Each Senate member must act honestly and exercise a reasonable degree of care and diligence in carrying out his or her functions. A Senate member must not improperly use his or her position. A Senate member must not make improper use of information acquired because of his or her position. A Senate member must disclose material interests. A person must not, because of his or her religious or political affiliations, view or beliefs, be denied admission as a student of the University or taken to be ineligible to hold office in, to graduate from or to enjoy any benefit, advantage or privilege of the University. A student or graduate of the University or a member of staff of the University is entitled to be exempted by the Senate, on grounds of conscience, from membership of the body corporate of the University or of Convocation, or both. In addition to legislation, there is custom and practice, as frequently enunciated in the general common law decisions of courts or by courts in their application of equitable principles. For example, it has been decided that members of a body corporate have a right to receive truly informative notices of meetings of members.8 Another example is a decision that members have a right to have their voting rights protected against improper action by directors, and that this protection extends to improper dilution.9 The Listing Rules of the Australian Securities Exchange provides a major source of governance rules for listed public companies and other listed entities. Traditionally companies had a memorandum of association which was to deal with basic matters of importance to outsiders as well as members. Articles of association contained more detailed governance rules. It had been easier to amend the articles than a company’s memorandum. From 1 July 1998, in Australia the requirement for a company to have a memorandum and articles of association was abolished. Companies which were in existence then could retain their memorandum and any articles of association. Companies could choose to adopt a constitution. Alternatively, companies could choose to be governed by the replaceable rules in the Corporations Act 2001. Public companies listed on the Australian Securities Exchange must have a constitution. Other companies might want to address various matters not covered by the replaceable rules. In

8 Kaye v Croydon Tramways Co [1898] 1 Ch 358 9 Residues Treatment & Trading Co Ltd v Southern Rhodesian Ltd (No 4) (1988) 14 ACLR 569

6

other instances, companies might find the terms of at least some replaceable rules to be inappropriate.10 Strategic management and planning What is it? It provides overall direction. For this purpose, there has to be an assessment of the internal and external environment, and of the competition. Major goals and initiatives must be formulated. Policies and plans must be developed. These have to be designed to achieve the corporate objectives. There is then the issue of implementing the plans. For this purpose, resources must be allocated. Then there has to be the monitoring of performance, and the oversight and review of progress in achieving the plans.11 Underlying principles: contrast with operational management There is a need to create a unique and valuable market position. For this purpose, “trade-offs” have to be made by choosing what not to do. Create a “fit” by aligning corporate activities with one another to support strategy. Systematically find, formulate and develop doctrines to ensure long-term success. Operational management is concerned primarily with improving efficiency and controlling costs. Operational management occurs within the boundaries set by corporate strategy. Managing back office and support staff University Councils are established by Act of Parliament. Does the Corporations Act 2001 apply to Council? It very well might: e.g. Bond University, the Australian Catholic University and the University of Notre Dame. Does Council appoint staff; e.g. Australian National University Act 1991, section 9 (Council has the entire control and management of the University – its powers include to appoint staff). Council is to act in all matters concerning the University in the way it thinks will best promote the interests of the University; e.g. Australian National University Act 10 R P Austin and I M Ramsay, Ford’s Principles of Corporations Law (15th ed 2013) 198 and 200; paras [6.011] and 6.020] LexisNexis Butterworths 11 Reference: http://en.wikipedia.org/wiki/Strategic_management Nag, R.; Hambrick, D. C.; Chen, M.-J (2007). "What is strategic management, really? Inductive derivation of a consensus definition of the field" (PDF). Strategic Management Journal 28 (9): 935–955. doi:10.1002/smj.615 Ghemawat, Pankaj (Spring 2002). "Competition and Business Strategy in Historical Perspective". Business History Review (Harvard Business Review); Hill, Charles W.L., Gareth R. Jones, Strategic Management Theory: An Integrated Approach, Cengage Learning, 10th edition 2012; Lamb , Robert, Boyden Competitive strategic management, Englewood Cliffs, NJ: Prentice-Hall, 1984

7

1991, section 9. Contrast where Council has the general direction and superintendence of the University; e.g. Monash University Act 2009, section 8(2)(b). Before the 2009 Act, Council employed staff of Monash University; e.g. Monash University Act 2009, section 70 (a person employed immediately before the commencement date by the Council under the old Act continues to be employed); Monash University Act 1958, s 22 ((Council may appoint and at any time dismiss all professors members of the teaching staff officers and servants of the University). Transparency Transparency denotes the disclosure of material information, its clarity and accuracy, and in timely manner. Material claims should reflect precise qualifications about the expected validity of information. It is necessary to identify who are the “stakeholders”; e.g staff, students, graduates, creditors? There should be limited use of technical terminology, industry jargon, fine print, complicated mathematical notions and verbose documents. There needs to be lucidity and comprehensibility, with a seamless transfer of meaning. Disclosure has to accomplish strategic objectives. It must be intentionally shared, not ad hoc; being systematically available and accessible. There must be a perception of received information, which is perceived to be quality information. Transparency addresses and avoids corporate scandals and increase trust; e.g. of investors.12 Accountability Accountability is a central aspect of governance. It emphatically arose to address problems in the public sector, in non-profit bodies and particularly for profit corporations. The concept of accountability has expanded well beyond just being called to account for one’s actions. It denotes an account-giving relationship. There is an emphasis on proper accounting practices. The absence of accounting means an absence of accountability, but accountability is more than just accounting as it denotes the existence of proper practices and relationships.13

12 Reference: Schnackenberg, A., Tomlinson, E., 2014. Organizational Transparency: A New Perspective on Managing Trust in Organization-Stakeholder Relationships. Journal of Management DOI: 10.1177/0149206314525202. http://jom.sagepub.com/content/early/recent 13 Reference: Clarence A. (February 1939). "The Quest for Responsibility". American Political Science Review (The American Political Science Review, Vol. 33, No. 1) 33 (1): 1–25. doi:10.2307/1949761. JSTOR 1949761; Williams, Reyes(2006) Leadership accountability in a globalizing world. London: Palgrave Macmillan; Mulgan, Richard (2000). "'Accountability': An Ever-Expanding Concept?". Public Administration 78 (3): 555–573. doi:10.1111/1467-9299.00218.chedler, Andreas (1999). "Conceptualizing Accountability". In Andreas Schedler, Larry Diamond, Marc F. Plattner. The Self-Restraining State: Power and Accountability in New Democracies. London: Lynne Rienner Publishers. pp. 13–28. ISBN 1-55587-773-7. http://en.wikipedia.org/wiki/Accountability; Sinclair, Amanda

8

With respect to “accountability”, as with an “ideal” of “legality” in the administrative law context, it has been said to have “a large element of circularity”.14 Accountability has been given as an example of “ideals” that “are stated at such a level of generality as to be criticised for their vagueness, ambiguity or circularity”.15 In this context, “accountability” has been described as “a relatively recent arrival”.16 Use of the term “accountability” has ranged “from political accountability, to legal accountability, or accountability to regulators or auditors, or the duty to explain or make amends”.17 It is possible to identify “six critical questions about accountability relationship, summarised by asking who is accountable, to whom, about what, by what processes, according to what standards, and involving what effects”.18 The impact of Acts of Parliament, common law and equity Usually, it has been Acts of Parliament which have established universities and their governing councils in Australia. So it is imperative to identify if an Act of Parliament has established a university and, if so, what Act. There is then a broader exercise of identifying the Acts of Parliament under which universities and their governing councils operate, or which might apply to those operations. For example, there is the Bond University Act 1987 (Qld). Section 3(1) provides that: The function of the university company is to pursue, within the limits of financial resources available to it, the objects provided by its memorandum of association, and in particular, the university company may award and confer degrees, diplomas and other awards of a tertiary education institution. Section 11 provides that: “It is declared that the university company alone is responsible for and has authority over the provision of education within Bond University and shall not be subject therein to the direction of any person.”

(1995). "The Chameleon of Accountability: Forms and Discourses". Accounting, Organizations and Society 20 (2/3): 219–237. doi:10.1016/0361-3682(93)E0003-Y 14 Mark Aronson, Bruce Dyer and Matthew Groves, Judicial Review of Administrative Action (4th ed 2009) page 1 para [1.10] Thomson Reuters, Pyrmont NSW 15 Ibid n 2 16 Ibid citing C Harlow, Accountability in the European Union (2002) 6 Oxford University Press 17 Ibid 18 Ibid citing J Mashaw, “Accountability and Institutional Design: Some Thoughts on the Grammar of Governance” in M Dowdle (ed), Public Accountability: Designs, Dilemmas and Experiences (2006) Chapter 5, page 118, Cambridge University Press

9

So we can identify straight away that the Corporations Act 2001 is applicable because of these references to the university company. We might compare for example the Monash University Act 2009, section 3 (Monash University is established as a body politic and corporate). Monash University is directly incorporated itself by Act of Parliament. Common law is the ancient law of England based upon societal customs recognized and enforced by the judgments of the Exchequer, King’s Bench and Common Pleas Courts, which eventually assumed jurisdiction over disputes previously decided by manorial or local courts, whose jurisdiction was limited to specific geographic or subject matter areas. It spread to other countries colonized by England. The decisions are based on prior judicial pronouncements rather than on legislative enactments. Where legislation applies in governing a dispute, the Court’s interpretation of that statute determines how the law is applied. Otherwise, common law courts rely on their predecessors’ decisions in resolving actual disputes, rather than an abstract code of law.19 Equity is a systematic category of rights and procedures to provide fairness, unhampered by the narrow strictures and other technical requirements of the old common law. The rules of equity arose where the strict limitations of the common law would not solve all problems, so Courts of Chancery were set up to provide remedies through the royal power. Equity prevailed over common law. Common law and equity courts have since been fused into one court system, with a general principle that equitable rules were to prevail over common law rules in the event of a conflict.20 How common law and equity can apply In Commonwealth Bank of Australia v Friedrich and Ors,21 it was decided that a person seeking properly to perform the duties of a company director must understand and apply criteria against the background of the whole of applicable legislation and the principles of common law and equity which govern a director’s duties and their discharge. This case was cited in 1990s by the Australian Vice-Chancellors’ Committee in governance seminars to university council members and university secretaries. It was cited by Justice Middleton in Australian Securities and Investments Commission v Healey.22 Justice Middleton decided that there was a core, irreducible requirement of directors to be involved in the management of the company and to take all reasonable steps to guide and monitor the company. The case also illustrates how

19 http://legal-dictionary.thefreedictionary.com/Common+law 20 http://dictionary.law.com/Default.aspx?selected=646 21 (1991) 5 ACSR 115 22 [2011] FCA 717, at paragraphs [117], [118] and [148]; (2011) 83 ACSR 484, at pages 511-2, and 517

10

persons in the university sector [that is, in universities established by Act of Parliament] who are not members of governing councils and do not have such statutory duties as those of skill, care and diligence, might nevertheless become personally liable.23 Corporations Act 2001 A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they were a director or officer of a corporation in the corporation’s circumstances; and occupied the office held by, and had the same responsibilities within the corporation as, the director or officer.24 A “corporation” does not include a “public authority” or “an instrumentality or agency of the Crown in right of the Commonwealth, in right of a State or in right of a Territory”.25 Accordingly, universities established direct by an Act of Parliament of the Commonwealth, a State or a Territory should not be “corporations” under the Corporations Act 2001. A director is an essential component of corporate governance. Each director is placed at the apex of the structure of direction and management of a company. The higher the office held by a person, the greater the responsibility that falls upon him or her. The role of a director is significant as their actions may have a profound effect on the community, and not just shareholders, employees and creditors.26 There is a core, irreducible requirement of directors to be involved in the management of the company and to take all reasonable steps to be in a position to guide and monitor the company. There is a responsibility to read, understand and focus upon the contents of those reports which the law imposes a responsibility upon each director to approve or adopt.27 Whether a director has taken “all reasonable steps” will depend on the circumstances of the case and will differ depending upon the entity, the complexity of the entity’s business, the internal reporting procedures within the entity and the nature of the task the director is obliged to undertake. The standard of “all reasonable steps” is determined objectively by reference to the particular circumstances of the case. It requires, as a minimum, that directors take a

23 For liability generally with respect to directors and other officers of companies, see e.g. Shafron v Australian Securities and Investments Commission [2012] HCA 18; 88 ACSR 126; and Australian Securities and Investments Commission v Hellicar & Ors [2012] HCA 17; 88 ACSR 246 24 Corporations Act 2001, s 180(1) 25 Ibid, s 9 (definition of “corporation” and of “exempt public authority”; and s 57A (definition of “corporation”) 26 Australian Securities and Investments Commission v Healey [2011] FCA 717, [14]; (2011) 83 ACSR 484, 491 per Middleton J 27 Ibid [16]; 491

11

diligent and intelligent interest in the information either available to them or which they might appropriately demand from the executives or other employees and agents of the company.28 Directors are required to take all reasonable steps to place themselves in a positon to guide and monitor the management of the company. A director must become familiar with the fundamentals of the business in which the corporation is engaged. A director is under a continuing obligation to keep informed about the activities of the corporation. Directorial management requires a general monitoring of corporate affairs and policies. A director should maintain familiarity with the financial position of the corporation.29 Each director armed with the information available to him or her must focus on matters brought before him or her. He or she must seriously consider such matters and take appropriate action. This task demands critical and detailed attention. It is not just “going through the motions”. Nor is it sole reliance on others, no matter how competent or trustworthy those others may be.30 Directors cannot substitute reliance upon the advice of management for their own attention and examination of an important matter that falls specifically within the board’s responsibilities. No member of the board could delegate or abdicate that responsibility to others.31 Where a company secretary has duties of care and diligence, and the company secretary also is general counsel, it is not possible to divide the duties and responsibilities being performed as those of company secretary and general counsel. The retainer of external solicitors ordinarily does not extend to providing advice with respect to the general duties of care and diligence on the part of directors and other officers.32 Minutes are a formal and near contemporaneous record (adopted by the board as an accurate record) of the proceedings at a meeting. Minutes are evidence of what they represent. They are more than a foundation for some further inference. Pointing to other ways in which events may have occurred does not, without more, falsify the minutes.33

28 Ibid [143] and 162; 516 and 521 29 Ibid [166]; 512 30 Ibid [174]; 525 31 Ibid [175; 525 32 Shafron v Australian Securities and Investments Commission [2012] HCA 18; 88 ACSR 126 33 Australian Securities and Investments Commission v Hellicar & Ors [2012] HCA 17; 88 ACSR 246

12

Commonwealth, Territory and State based comparisons of University Acts A common feature is that the councils are the governing bodies of the university. However, does council have the management and control of the university or only the general direction and superintendence of the university? Subject to this distinction, generally each university council is responsible for approving and monitoring systems of control and accountability of the University; overseeing and monitoring the assessment and management of risk across the University; overseeing and reviewing the management of the University and its performance; and appointing and monitoring the performance of the Vice-Chancellor as chief executive officer. Issue of delineation between governance and management Is there a clear delineation between the Vice-Chancellor’s responsibility to manage the affairs of the University and the Council’s responsibility for the governance of the University and oversight of the Vice-Chancellor’s administration? Illustration from Commonwealth Act “The governing authority of the University is the Council.”: Australian National University Act 1991, section 8. “Subject to this Act and the Statutes, the Council has the entire control and management of the University.”: Ibid sub-section 9(1). The Council is to act in all matters concerning the University concerning the University in the way it thinks will best promote the interests of the University.” Ibid section 9(2). “The powers of the Council include, but are not limited to, the power to appoint persons (whether members of the staff of the University or not) to positions of responsibility within the University.”: sub-section 9(3) Illustration from Territory Act “The affairs of the University are to be conducted by the Council.”: Charles Darwin University Act, sub-section 8(1). “All acts and things done:

(a) by the Council; or

(b) in the name of the University with the express or implied authority of the Council,

13

are taken to have been done by the University.”: Ibid sub-section 8(3). Illustration from Act of the State of Victoria “The Council: (a) is the governing body of the University; and (b) has the general direction and superintendence of the University; and (c) subject to this Act, the university statutes and university regulations, may exercise all the

powers, functions and duties of the University: Monash University Act 2009, section 9.

With respect to paragraph (c), it has to be read subject to the Act as a whole. In the Minister’s Second Reading Speech, the Minister told Parliament that the role of university councils in the State of Victoria was to be clearly delineated from “the vice-chancellor’s responsibility to manage the affairs of the university”.34 This provision therefore should be read as giving the the Council of Monash University the legal capacity to do whatever the University were able to do within its powers, functions and duties. It is intended to operate as a precautionary measure where what is known as the ultra vires rule continues to apply to statutory corporations such as universities established by Act of Parliament. Unlike companies incorporated under the Corporations Act 2001, statutory corporations “have no legal capacity beyond that necessary for the purposes for which they have been created unless the statute shows a legislative intention to create a corporation with a wider capacity”.35 For example, they do not have “the full capacity of an individual”.36

Illustration from Act of the State of New South Wales “The Senate is the governing authority of the University and has the functions conferred or imposed on it by or under this Act.”: University of Sydney Act 1989, sub-section 8(2). “The Senate:

(a) acts for and on behalf of the University in the exercise of the University’s functions, and 34 E.g. Hansard: Legislative Assembly (Wednesday, 25 November 2009) page 4237 35 R P Austin and I M Ramsay, Ford’s Principles of Corporations Law (15th ed 2013) page 885; paragraph [12.050] LexisNexisButterworths 36 Ibid

14

(b) has the control and management of the affairs and concerns of the University, and

(c) may act in all matters concerning the University in such manner as appears to the Senate to be best calculated to promote the object and interests of the University.”: University of Sydney Act 1989, sub-section 16(1A).

Illustration from Corporations Act 2011 “The business of a company is to be managed by or under the direction of the directors.” Corporations Act 2001, sub-section 198A(1). “The directors may exercise all the powers of the company except any powers that this Act or the company constitution (if any) requires the company to exercise in general meeting.”: Ibid sub-section 198A(2). In broad, terms, a company’s constitution can displace or modify replaceable rules: Ibid section 135 (except with a proprietary company while the same person is both its sole director and sole shareholder). Case study –Managing back office and support staff It depends on terms of applicable Acts. For example, are staff employed by the Council? Does Council have the entire control and management of the University? Where the answer is “yes” to both such questions, there is a separate issue of appropriate delegation. Managing back office and support staff by Council is at best problematic and might well raise issues of law. Conversely, because of their responsibilities, Council members do need to raise legitimate concerns with management in respect of how they are being serviced as soon as reasonably practicable should any substantial problems be emerging in this regard. To illustrate, except where specifically provided otherwise or precluded in particular kinds of instances, generally directors are entitled to rely upon others. This general reliance is appropriate except where they know, or by the exercise of ordinary care, should know, facts that would deny reliance.37

37 E.g. Australian Securities and Investments Commission v Healy [2011] FCA 717, [166]; (2011) 83 ACSR 484, 522

15

Conclusion Council’s role varies with terms of applicable Acts. Council has primary responsibilities out of which it cannot delegate. These primary responsibilities include strategic direction and planning. The extent to which Council can manage the University’s affairs depends on the terms of the university Act. Managing staff may be outside Council’s functions, say, e.g. Victorian universities. There is an exposure to liability from common law and equity. Therefore, it is not only the Acts which are relevant. There is the importance of custom and practice. Acceptable practice is relevant, but not decisive, in determining the standard of care.38 For example, the extent to which the actions of a non-executive director accorded with the practice accepted in the relevant field is relevant in assessing the extent to which the particular director’s actions may have fallen short of the mark.39

38 Ibid [182]; 527 39 Ibid [208]; 531