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Corporate Governance Mechanisms And Performance

  0 Downloads   |   11 Pages 2,721 Words   |   Published Date: 27/09/2017

Question:

Discuss about the Corporate Governance Mechanisms and Performance.
 
 

Answer:

Introduction

Corporate governance mainly refers to the procedures and the relation that controls and directs the corporation. Distribution of the rights and the responsibilities of the different participants in the corporation are identified by the governance structure and values (Tricker 2015).

The CEO is mainly the top executive who has the responsibility to deal with the operation and the management of the business. He is primarily responsible for managing the executive team that oversees the top-line directors and the managers. The board of directors, on the other hand, has the responsibility to ensure that Qantas meets the contracted mission necessities (Wu et al. 2015).

The Separate Roles, Duties, and Responsibilities

The board of directors of the Qantas Airways mainly consists of the majority of the independent Non-Executive Directors and the Chief Executive Officer. The Chairman needs to be an independent non-executive director who should be an Australian citizen. The boards of directors are responsible for appointing as well as removing the Chief Executive Officer that is the CEO. The primary responsibility of the board is to ensure that Qantas has a suitable corporate governance structure that mainly aims to generate and protect the values of the shareholder (Bainbridge 2015).

The responsibility of the board of directors is also to ensure that the Qantas Management is familiar with the legal and other obligation to all genuine stakeholders. The stakeholders are the group that includes the customers, suppliers, workers as well as the regulators of the government. These stakeholders are likely to feel a social, environmental, economical as well as the financial impact of the measures of Qantas. The Strategic direction is required to be set by the Qantas board of directors. The board of directors manages the oversight of the Qantas Group that includes the control and the responsibility. The board of directors monitors the performances of the Executive management. The boards of directors are also responsible for approving the structure of the compensation (Van den Berghe 2012).

The Board of Directors

Figure: The Board of Directors

(Source: African Development Bank 2016)

The responsibilities of the different board of directors and the CEO are as follows:

Independent Non-Executive Director

The name of the Independent Non-Executive Director is Maxine Brenner who was appointed in the year 2013 by the Qantas Board. She is mainly the member of the Compensation Committee as well as the Audit Committee. She is primarily responsible for assisting the board in regards to the financial reporting and the audit administration. This especially includes the reliability of the financial reporting of the Qantas Group. She is also responsible for assisting the Board regarding the compensation structure of the Non-Executive Directors. The Chief Executive Officer (CEO) mainly receives the equity incentive awards from the Independent Non-Executive Director (Boxer et al. 2014).

Jacqueline Hey was also appointed in the year 2013 by the Qantas board. She is mainly the member of the Audit Committee. As a result, her primary responsibility is to look into the efficiency of the enterprise-wide risk management structure of the Qantas group. She also deals with the observance with the legal and the regulatory requirement.

Professor Michael L'Estrange, also the member of the Independent Non-Executive Director was appointed in the year 2016 by the Qantas board. He is the member of the Health, safety as well as the environment and the Security Committee. As a result, he is responsible for assisting the Board in fulfilling the approach, plan and the monitoring of the responsibilities of the corporate governance. This is mainly in regards to the Qantas group that comprises of the health, safety, environment, business flexibility and the security matters.

William Meaneywas appointed in the year 2012 by the Qantas board, and he is mainly responsible for the compensation structure and the health, safety as well as the environment and the security measures. This is because; he is the member of the Compensation Committee and the health, safety, environment and the security committee (Boxer et al. 2014).

 

Pula Rayner is also the member of the Independent Non-Executive Director, and he was appointed in the year 2008. He is the member of the Compensation Committee and the Nomination Committee. As a result, besides assisting the board in the compensation structure, he is also responsible for the diversity obligation and the progression of the CEO.

Todd Sampson is the member of the Remuneration Committee and the Qantas Board appointed him in the year 2015. Hence, he deals with the compensation and the incentive structure and the tactical policies related to human resources.

Recommendation:

The board of directors should provide a capitalist leadership to the company within a framework of practical and effective control that facilitates risk to be reviewed and managed. The board of directors should set the strategic objectives of the company that will ensure the required human resources in place (Fernández-Gagoet al. 2016).

 The Audit Committee recommends the acceptance of the Annual Risk Management Statement by the Board. The Nomination Committee recommends a term of office for the board members of one or two years. The recommendation of the safety, health, environment and the Security Committee is to be referred to the board for approval (Abernathy et al. 2013).

The Chief Executive Officer (CEO)

The Chief Executive Officer that is the CEO of Qantas, Alan Joyce was appointed in the year 2008. He is the member of the Safety, Health, Security, and the Environment Committee. As a result, he is responsible for reviewing and mentoring the operational risk that comprises of the safety, health, security, environment and the business flexibility. The Committee is also responsible for undertaking the measures of the risk committee (Custodioet al. 2013).

The role and the responsibility of the CEO of Qantas include recommending the strategy of the company that will be supported by the yearly business policies. The CEO should act as the decision maker, thus making a recommendation to the board. The CEO must support the board during orientation and self-evaluation.

Conclusion

It can be concluded that the responsibility of the board of directors is to ensure that the Qantas Management is familiar with the legal and other obligation to all genuine stakeholders. The board of directors should provide a capitalist leadership to the company within a framework of practical and effective control that facilitates risk to be reviewed and managed.

Introduction

The corporate governance is a structure that deals with the rules and procedures by which authority are controlled by corporations. The framework and the practices of the corporate governance are vital to determine the cost of capital in the international capital market. The Australian Institute of Company Directors is a non-profit membership organization for directors. AICD has seven state divisions and an international business unit.

 

Good Corporate Governance Is Positively Associated With High Investor Returns

The company in Australia needs to be equipped to compete internationally. This, in turn, will help to maintain and promote the confidence of the investor in both Australia and overseas. Australia starts from the position of strength as far as corporate governance is concerned (Busheeet al. 2013).

The Coca-Cola Company is dedicated to good corporate governance, which encourages the long-term interests of shareowners, reinforces Board and management responsibility and helps build communal trust in the Company. The board of directors has established the effective governance in the company. The corporate governance materials of the Company, includes the Corporate Governance Guidelines, and the Certificate of Incorporation of the Company.

However, the mining company in Australia stood out as the worst sector for corporate governance. As a result, the long-term interests of the shareowners were not encouraged.

The principles and the recommendation of the corporate governance are as follows:

It is important to lay a solid foundation for the management and oversight – Under this principle, the companies should ascertain and reveal the respective roles as well as the responsibilities of the management and the board. The structure of a company must be designedin such a way that it becomes possible for the company to facilitate the board to provide a tactical guidance and efficient oversight of management. The structure should be intended to clarify the individual roles and the responsibilities of the members of the board and the senior executives (Tricker 2015).

 

Recommendation:

The companies should set up the measures that are reserved to the board and the measures that are delegated to the senior executives.

The companies should reveal the procedures to estimate the performance of the senior executives.

It is important to structure the board to add value – It is important for the companies to possess a board of a dynamic composition, size and obligation to sufficiently discharge the responsibilities and the duties. An effective board is one that assists the effectual release of the responsibilities imposed by law on the directors and adds value in a manner that is suitable to the particular circumstances of the company.

The board must be structured in such a way that it has a proper perceptive of the present and up-and-coming issues of the business. The board should also be able to persuade the enhanced performance of the company.

The majority of the board members should consist of independent directors. An independent director is mainly a non-executive director. He is not the member of the management, and he is free of any business that could significantly impede with the independent exercise of their decision.

The chair should be an independent director. The chair is mainly responsible for leadership of the board. The chair also facilitates the decisive contribution of all the directors.

The same individual should not exercise the role of both the chair and the executive officers. The responsibility should be clearly divided among the individuals.

The board should establish a nomination committee. The investors are promoted by the re-appointment of the board of directors. 

The companies should also reveal the procedures that will help to evaluate the performance of the board.

Corporate Governance

Figure: Corporate Governance

(Source: Van den Berghe 2012)

It is important to promote ethical and responsible decision-making – The companies should not comply with the legal obligation to make the legal and the moral decision. Good corporate governance will ultimately have need of the individuals with honesty. The confidence of the investors will be enhanced if the companies clearly eloquent the acceptable practices for directors and the employees. The company should elucidate the standard of the moral behavior that is required for the board and the senior executives (Ferrell and Fraedrich 2015).

Recommendation:

The companies should set up a code of conduct and unveil the code or a summary of the code. This should be done to establish the practices that are mainly required to sustain confidence in the reliability of the company. The overview of the code should also establish the accountability and the liability of the individuals to report the unethical practices.

The companies should establish a plan regarding diversity. The plan should mainly include the necessities for the board to ascertain the measurable objectives to accomplish gender diversity.

To achieve the gender diversity, it is important for the company to reveal the assessable objectives in each manual report (Christensen et al. 2015).

The promotion of the female employees should be disclosed in each manual report by the company

The safeguard of integrity in financial reporting – The companies should possess a framework that will help them to validate independently and safeguard the reliability of the financial reporting. As a result, the company requires putting in place a structure of review that in turn will help the accurate presentation of the economic position of the company.

An audit committee should be established by the board

The audit committee should consist of the non-executive directors and a majority of independent directors.

The audit committee should have an official contract.

A timely and a balanced revelation should be made – The companies should promote a timely and a balanced disclosure about all the resources that matter to the company.

The companies should ascertain written policies that are designed to make sure compliance with Australian Securities Exchange (ASX) Listing Rule (Reddy & Sharma 2014).

The rights of the shareholders should be respected – the companies should respect the rights of the shareholders. The shareholders must be empowered if the company communicates effectively with them.

 


A communication policy should be designed by the company to promote effective communication with the shareholders.

The companies should recognize and manage the risk – The companies should create a sound system that should be related to the omission of risk and management and internal control (Safari et al. 2015).

Recommendation:

The companies should establish the measures that will lead to the omission of risk and management as well as the administration of the material risk related to trade.

To design and implement the risk management, the board should design and put into practice the risk management.

Compensate fairly and correctly - It should be ensured by the companies that the level and composition of compensation should be sufficient such that the relationship to performance remains clear.

Recommendation:

A compensation committee should be established by the board

If the companies can follow these recommendations, in that case, the companies will be able to align a good corporate governance to maximize their investor returns.

The progress of the key capital expenditure, as well as the management of the capital, are supported and monitored by the board of directors. The corporate governance practices must progress in the context of developments both in Australia and overseas. The companies should not comply with the legal obligation to make the legal and the moral decision.

Conclusion

It has been concluded that the companies in Australia needs to be equipped to compete internationally. The companies must respect the rights of the shareholders. The companies should possess a framework that will help them to validate independently and safeguard the reliability of the financial reporting. The companies should also make clear the standard of the moral behavior that is required for the board and the senior executives.

 

Bibliography

Bushee, B.J., Carter, M.E. and Gerakos, J., 2013. Institutional investor preferences for corporate governance mechanisms. Journal of Management Accounting Research, 26(2), pp.123-149.

Christensen, J., Kent, P., Routledge, J. and Stewart, J., 2015. Do corporate governance recommendations improve the performance and accountability of small listed companies?. Accounting & Finance, 55(1), pp.133-164.

Ferrell, O.C. and Fraedrich, J., 2015. Business ethics: Ethical decision making& cases. Nelson Education.

Reddy, K. & Sharma, U. 2014, "Institutional antecedents of principle-based corporate governance practices: A case study of publicly listed companies in Fiji", Journal of Accounting & Organizational Change, vol. 10, no. 1, pp. 49-82.

Safari, M., Mirshekary, S. & Wise, V. 2015, "Compliance with Corporate Governance Principles: Australian Evidence", Australasian Accounting Business & Finance Journal, vol. 9, no. 4, pp. 3-19.

Tricker, B., 2015. Corporate governance: Principles, policies, and practices. Oxford University Press, USA.

Van den Berghe, L., 2012. International standardisation of good corporate governance: best practices for the board of directors. Springer Science & Business Media.

Abernathy, J.L., Herrmann, D., Kang, T. and Krishnan, G.V., 2013. Audit committee financial expertise and properties of analyst earnings forecasts. Advances in Accounting, 29(1), pp.1-11.

African Development Bank. 2016. Governance Structure - African Development Bank. [online] Available at: https://www.afdb.org/en/topics-and-sectors/initiatives-partnerships/africa50/about-us/governance-structure/ [Accessed 30 Jul. 2016].

Bainbridge, S.M., 2015. The Board of Directors. In The Oxford Handbook of Corporate Law and Governance.

Boxer, R., Perren, L. and Berry, A., 2014. SME managing director and non-executive director trust relations: The dynamic interplay between structure and agency. International Small Business Journal, p.0266242614550010.

Custódio, C., Ferreira, M.A. and Matos, P., 2013. Generalists versus specialists: Lifetime work experience and chief executive officer pay. Journal of Financial Economics, 108(2), pp.471-492.

Fernández-Gago, R., Cabeza-García, L. & Nieto, M. 2016, "Corporate social responsibility, board of directors, and firm performance: an analysis of their relationships", Review of Managerial Science, vol. 10, no. 1, pp. 85-104.

Tricker, B., 2015. Corporate governance: Principles, policies, and practices. Oxford University Press, USA.

Van den Berghe, L., 2012. International standardisation of good corporate governance: best practices for the board of directors. Springer Science & Business Media.

Wu, L.Z., Kwan, H.K., Yim, F.H.K., Chiu, R.K. and He, X., 2015. CEO ethical leadership and corporate social responsibility: A moderated mediation model. Journal of Business Ethics, 130(4), pp.819-831.

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