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1. Explain the relevance of the stakeholder theories and legitimacy theory for explaining or predicting a board’s voluntary disclosure decisions.

2. Show how boards seek to use voluntary disclosures as a way of maintaining legitimacy.

3. Use theory to illustrate why boards make voluntary disclosures, and to whom.

Overview of Navigator Global Investments

This capstone is developed with the aim of carrying out an analysis and examination of the voluntary disclosures of a public listed company for determining its governance and ethical outlook. This is mainly carried out for the purpose of depicting the true value of the company to the business specialists such as corporate governance practitioners, corporate accountants, investors and others. In this context, the report ahs mainly presented a short description of the selected company followed by examination of its corporate governance policies. The evaluation of the corporate governance policies is undertaken by examining the Board composition and remuneration of the Board members. The report has them discussed about the orientation of Board mainly on the basis of its composition and focus. Lastly, the report has presented a discussion in relation to the evidence presented by the company for ensuring its legitimacy. The company selected for the purpose is ASX listed entity that is Navigator Global Investment (NGI).

Navigator Global Investments Limited (ASX: NGI) is a recognized listed Australian holding company of the US-based Lighthouse Investment Partners (LLC). LLC is known for creation and managing of global hedge fund solutions for different type of clients worldwide. The main objective of the company is to provide innovative investment solutions for portfolio management of hedge fund assets. The key strength of the company can be attributed to its proprietary managed accounts program that enables it to manage funds of its clients adequately and deliver then specific services. NGI is created with the purpose of protecting the investor’s funds and grow within Australia as a leading company for managing hedge fund solutions. The company manly provides investment management products and services to the investors. The company seeks to manage the investor’s assets through the use of diversification from traditional markets. The use of innovative hedge fund strategies helps the company in efficient management of hedge portfolio of its clients (Navigator Global Investments: About Us, 2018). 


It carries out its business operations on the principles of innovation, partnership, safety and transparency. The company consists of about 96 staff across the world and has major offices in New York, Hong Kong and Brisbane. It was developed with the initial name of HF Holdings Limited but changed it to Navigator global Investment Limited from the year 2017. It was done by the Board of Directors mainly to establish its wider business strategy and promoting the use of diversification in its operations rather than only emphasizing on its previous operations of hedge fund management. The company has realized huge growth in its Assets Under Management (AUM) facilitated by new inflows from its growing client base ad positive investment performance of its parent LLC company. It has developed and established an effective framework of corporate governance that enables it to protect the interests of its clients and seeks their attention by enhancing transparency and accountability within their business operations (Navigator Global Investments: Corporate Governance Statement, 2018).

Corporate Governance Policies of Navigator Global Investments

Composition of Board Members

Currently board composition consists of five directors and it has been found that majority of them are independent directors. There are three independent directors and two dependent directors. Looking the below table of board composition it has been found that chairperson of board of directors is an independent director. Please look the below table to better understand the board composition:

Remuneration report

All the non executive directors (Dependent or independent), executive director, and executives are paid for full year as per their KMP. Here, KMP refers to the key management personnel that have authority and responsibility, whether directly or indirectly for planning, controlling and directing the activities of the group. Below is the list of directors and executives that are covered in the remuneration report.

 

(Annual Report: NGI, 2018)

NGI has defined set of objectives in context of Group remuneration policy. These objectives are discussed below:

  • Remuneration policy must be such that helps to support the business strategy of Group. It can be achieved through attracting, retaining and rewarding the quality directors and executives
  • To policy should such that it reflects the duties and responsibilities of each individual
  • To promote the culture that aims to reward the performance through maintaining the reputation and integrity
  • To encourage performance and results that helps to retain the client and shareholder interest (Annual Report: NGI, 2018)

The remuneration of directors and executives are relatively low fixed remuneration and very high opportunity to earn the variable remuneration as the major component of total remuneration. The remuneration of directors and executives consists of three parts; they are fixed remuneration, variable remuneration and non monetary benefits. It can be seen below:

 

(Annual Report: NGI, 2018)

Below report shows the total remuneration of all directors and executives:

 

(Annual Report: NGI, 2018)

Immediate priorities of the company and actions taken

The main priority of the NGI is to look forward to grow with the big acquisition of client assets from the Mesirow Financial’s Multi-Manager Hedge Fund Business (MAS). The complete acquisition has provided the company with $5.39 billion of assets under management and apart from the assets company has received certain other benefits. NGI has drafted plan to work with such new assets so that new technologies can be introduced and a path of new journey can be started with close relationship with the Mesirow as a partner. The second priority is to grow business in Japan and Middle East including North America. After the acquisition of MAS there was significant increase in the number of new client relationship. In order to maintain the relationship with the new clients NGI has decided to provide extra care to work with new clients and look forward to ensure that they continue to receive a high level of service and support (Annual Report: NGI, 2018).

Board orientation can be described as the process of providing important information in relation to the roles and responsibilities of the Board of an organization. It can be described as a framework that is developed mainly with the objective of providing pertinent information regarding their roles and responsibilities. This type of Board orientation for NGI can be selected on the basis of its composition, focus and key communications. Shareholder-agency orientation can be said to exist when there is majority of independent directors appointed by the shareholders on the basis of agency theory. The focus of the Board is to maximize the return for shareholders and the key communication strategy used is remuneration report and financial statements. However, if there is a shareholder-stewardship orientation then board mainly comprises of non-independent directors as the focus is to promote the internal growth of the company. The key communication used in such an orientation is chairperson’s report and cash flows. On the other hand, there is stakeholder-managerial branch orientation in which there are major independent directors who are the powerful stakeholders of the company. The key communication used in such type of orientation is voluntary disclosures. In addition to this, there is a stakeholder-ethical branch orientation in which majority of the board members are independent directors who are appointed mainly to reflect the stakeholders, diversity for promoting stakeholder engagement. The key communication strategy is voluntary disclosures having focus on the CSR disclosure practices (Afza, 2014). 

Board Composition and Remuneration of Board Members


The most likely orientation of the Board for Navigator Global Investments (NGI) on the basis of its composition and focus can be stated to be shareholder-agency. This type of orientation can be described with the use of agency theory. As per the theory, the Board of the company holds the position of principal responsible for hiring agents such as business manager and executives for carrying out its operational activities. This type of orientation states that if there is majority of the independent directors present in the Board of a company who are appointed by shareholders then there is shareholder-agency orientation. This is because shareholders who act as principal have the aim of realizing higher returns and thus have appointed independent directors largely in the Board for reducing the managerial stakes. The independent directors are the non-executive directors that help the company in improving its credibility and governance standards. An independent director does not possess any materialistic interest within company operations and is only entitled to receive remuneration determined for directors. Thus, it can be stated on the basis of this theory that Board occupies a major role of providing directions to the management of the company for carrying out the daily functions. The agents on the other hand hold the responsibility of acting in the best interest of the principal (Davies, 2002).

The shareholder-agency orientation can be stated to be present within NGI Company on the basis of proportion of dependent and independent directors present in the Board composition. The Board comprises of five directors out of which three are independent non-executive directors and one is a non-executive director and the rest one is CEO of the company and is also an executive director. Thus, it can be said that there is majority of the independent directors present in the Board structure and thus there is a stakeholder-agency orientation. There is reduced managerial stake within the Board and as such shareholder possesses a controlling interest over the business returns (Navigator Global Investments: Corporate Governance Statement, 2018). The Board of directors largely presents the shareholder-structure of a company. As such, majority of independent directors present within the Board of NGI do not have any interest in the business outcomes and therefore there is a controlling interest of the shareholders. The focus of the Board in such a type of orientation is to drive the returns realized by the owners, that are, the shareholders by reducing managerial stake within the company ownership (Aguilera, 2008).

Evidence Presented for Ensuring Legitimacy

The Board of directors mainly consists of the members who do not possess any interest within the operational activities of the company. They are only entities to receive remuneration as that provided to the directors and do not have any stake in the profits generated by the company. As such, the overall profit realized by the company is distributed among the shareholders thus maximizing the returns created for them. The major goals of the Board in such type of orientation can be regarded as addressing effectively the needs of the shareholders by enhancing their dividends and promoting business growth and profits. The key communication strategies sued by the Board for attracting investors in such a type of orientation is development of remuneration report, income statement and balance sheet. The remuneration report depicts the compensation provided to the different members of the Board such as independent and non-independent directors. The income and balance sheet depicts the profitability position of the company and thus promoting investment from the investors to support business growth and development (Aguilera, 2008). 


However, it can be said on the basis of this type of Board orientation present within the company that the board lacks diversity and is largely controlled by the shareholders. This can negatively impact the interest and welfare of its other stakeholder by motivating the shareholders to adopt unethical means for deriving higher profits. The Board focus is to meet the shareholder needs rather than addressing effectively the expectations of all stakeholders (Navigator Global Investments: Corporate Governance Statement, 2018). The high degree of control of the shareholders can induce the adoption of non-ethical practices for maximizing the return for them by creating large business profits.  The Board will be manly concerned to adopt the actions and practices that disclose information that helps in maximizing the profits generated for business by realizing capital from the investors. This is because investors seeking to invest in the company may analyze the balance sheet and income statements for determining its profitability position and assessing the retunes that they derive in future over their investment. Thus, it can be said that there is a likely risk in relation to ethical outlook of the company on the basis of its board orientation (Desender, 2009).

Legitimacy can be defined as set of assumptions and perceptions that the actions of an entity are desirable, appropriate or proper within the context of socially constructed system of norms, values, beliefs and definitions. It means actions of company must be drafted in such a manner that it does harm the society norms, beliefs, and values. So it can be said that legitimacy theory is based on such idea that entity must ensure that it works in boundary set by the society in order to perceived that their activities are legitimate (Deegan, 2002). In order to prove that activities of organization are in best interest of society it is essential provide a detailed disclosures regarding the same with actions to be taken to resolve any unethical activity taken.

It is the duty of board to provide such disclosures that helps to make society consider company a legitimate corporation. Disclosures must be regarding what actually has been done to promote the society and what actually company will do for society. It means disclosures are nothing but a communication with society to prove that company is a legitimate entity. In case society has concern with the actions, any value or symbols of legitimacy than it is the duty of directors to provide the sufficient disclosures regarding what company is doing for all such issues (Deegan, Rankin & Tobin, 2002). 


There is no sustainable report prepared by the NGI that indicates board has no concern regarding the disclosures made to the society. There is no evidence that NGI has carrying its business in sustainable manner as no disclosures have provided either in annual report or separate sustainable report. It is certain that actions of the company have wide impact on the society in either way and it is the responsibility of company to handle them with priority. So it is important that company should make voluntary disclosures about the facts and actions taken in relation to any environmental hazards that occur due to negligence. On looking at the disclosures made in the director report it has been found that NGI Group is not subject to any particular or significant environment regulation under Commonwealth (State or Territory Legislation) (Annual Report: NGI, 2018). It can be said that by such disclosure directors have revoke their responsibility towards the society and they are carrying out the business to maximise their self interest (Milne & Patten, 2002).

Conclusion

It can be stated form the overall discussion carried out that NGI though has established and indicated the presence of a  strong corporate governance policies has a negative ethical outlook. This can be stated on the basis of its orientation of Board which is largely dominated by the independent directors appointed on the behalf of shareholders and only focuses on maximizing the returns for the owners. As such, the Board is not concerned about protection of interests of all its stakeholders and emphasises only on creating value for the shareholders. Also, the Board does not undertake any voluntary disclosures in relation to the initiatives taken by for protection of society and environment as illustrated by examining its legitimacy context. Thus, it can be said that NGI ethical outlook is not largely positive on the basis of its legitimacy and orientation of Board. 

References

Afza, T. (2014). Theoretical Perspective of Corporate Governance: A Review. European Journal of Scientific Research 119(2), pp. 255-264.

Aguilera, R. (2008). An organizational approach to comparative corporate governance: Costs, contingencies, and complementarities. Organization Science 19(3), 475-492.

Annual Report: NGI. (2018). Retrieved October 3, 2018 from https://www.navigatorglobal.com.au/site/PDF/1874_0/2018AnnualReport 

Davies, P. (2002). The Board of Directors: Composition, Structure, Duties and Powers.  Retrieved 3 September, 2018, from https://www.oecd.org/daf/ca/corporategovernanceprinciples/1857291.pdf

Deegan, C. (2002). Introduction: The legitimising effect of social and environmental disclosures a theoretical foundation. Accounting, Auditing & Accountability Journal, 15(3), 282-311.

Deegan, C., Rankin, M., & Tobin, J. (2002). An examination of the corporate social and environmental disclosures of BHP from 1983–1997. Accounting, Auditing & Accountability, 15(3), 312-343.

Desender, K. (2009). The relationship between the ownership structure and the role of the board. Retrieved 3 September, 2018, from https://www.business.illinois.edu/Working_Papers/papers/09-0105.pdf

Ghoshal, S. 2005. Bad management theories are destroying

Ghoshal, S. 2005. Bad management theories are destroying

good management practices. Academy of Management

good management practices. Academy of Management

Heracleous, L. (2010). Rethinking Agency Theory: The View from Law. The Academy of Management Review 35(2), pp. 294-314.

Learning & Education, 4: 75–9

Learning & Education, 4: 75–9

Milne, M. J., & Patten, D. M. (2002). Securing organizational legitimacy: An experimental decision case examining the impact of environmental disclosures. Accounting, Auditing & Accountability, 15(3), 372-405.

Navigator Global Investments: About Us. (2018). Retrieved 3 September, 2018, from https://www.hfaholdings.com.au/site/about/corporate-governance

Navigator Global Investments: Corporate Governance Statement. (2018). Retrieved 3 September, 2018, from https://www.navigatorglobal.com.au/site/PDF/1899_0/2018corporategovernancestatement?IncludeUnapproved=81072676

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