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BFA534 Introduction To Corporate Governance

tag 0 Download 8 Pages / 1,783 Words tag 23-09-2021


Case Study

With rising obesity levels around the world and a greater focus on health, there has been increased participation in the fitness industry. In Australia the fitness industry produced revenue of around a billion Australian dollars annually, with close to 3 000 fitness centres (McMalcolm 2013). In Japan the health club industry accounted for revenue of 6.8 billion Australian dollars in 2015 (Statista Inc.). Australia and Japan led the Asian-Pacific region for revenue in this area in 2015 (Statista Inc.). However at the beginning of the second decade of the 21st Century, growth in revenue in the industry in Australia slowed because of market saturation (McMalcolm 2013).

Joe Brooks is a veteran of the health industry, having managed, and then owned gyms and fitness centres in the Melbourne area since 1991. In 2005 he teamed up with a partner, Takashi Sato, to increase access to capital and help expand his successful business. Sato is originally from Yokohama in Japan, and as a wealthy businessman has many investments in Australia, Japan and some South East Asian nations. Sato met Brooks at one of the two Brooks Fitness centres in Melbourne’s east in 2002, where he went to work out. Sato was impressed by Brooks’ drive, charisma and confidence, along with his knowledge of the fitness industry. Although Sato was reserved and cautious by nature, the two first became trusted friends, and then business partners. They co-owned a chain of eleven fitness centres around Melbourne, which Brooks oversaw with a manager at each location. Sato was largely a silent partner.

While on a trip to the US in 2016 to select new exercise machines for the fitness chain, Brooks became aware of the potential of the ClassPass business arrangement that operates in 20 US cities. ClassPass offers unlimited lessons for a relatively modest monthly fee to allow clients to choose from a diverse range of fitness studios that included yoga, dance, martial arts, Pilates, strength training and other choices. Clients were limited to choosing no more than three classes from the same studio in a month. However they could take an unlimited number of classes from other studios while conforming to this requirement. The arrangement benefited clients by enabling them to trial exercise options and increase their awareness of what was available in an affordable way. Small fitness studios benefited too by having more clients aware of their offerings, and encouraging clients to trial classes, utilising slots that otherwise may have been vacant. The incremental cost of participating for the fitness studios was small. The aim was that some of the trials would convert into ongoing membership and future recommendations with a fitness studio (Greenwald 2015).

Brooks saw the potential of the scheme, and was aware that it was not implemented in Australia. He was able to confirm the scheme was not in use in Japan, either. After a sixmonth limited trial, the partners established their new business, SelectFit, which operated in Australia and Japan with managers in each nation, but was largely controlled from Australia by Brooks. Brooks had not travelled to Japan, but was confident the operation would be successful there. His networks in the Australian fitness industry and his ebullient and selfassured nature resulted in excellent take-up in Australia. Sato’s business contacts in Japan, and his reputation, led to SelectFit being embraced enthusiastically by fitness studio managers and customers there.

The partners started action to list their combined fitness interests on the Australian Stock Exchange (ASX) as an Initial Public Offering (IPO). They met the profit and asset tests of the ASX. The owners’ motivation for listing arose from wanting access to a larger capital market, to set up SelectFit in other Asian areas where there was no similar competition. Conforming with ASX’s advice on how to list as an IPO on the ASX, the partners appointed professionals to advise on SelectFit’s corporate structure, financial matters, marketing and distribution of securities, as well as communication strategies (for investor, public and government relations) and other legal matters.
Now the owners sought to retain specialist advisers on the requirements for compliance with the third Edition, ASX Corporate Governance Principles and Recommendations 2014, once their company is listed on the ASX. They want to learn about compliance and disclosure requirements relating to their first annual report once listed, and other key ways in which the corporate governance regulatory environment could affect them as a listed company. They wondered whether the corporate governance compliance requirements in Australia will detract from the benefits of listing on the ASX, and were concerned about any specific risks
that the future company may face.
You have been retained by SelectFit as a specialist Corporate Governance Advisor. Your brief is to present a written paper on corporate governance practice to SelectFit at its next company meeting. You are required to:

1. Outline how to maintain and establish good corporate governance once the company is listed, in accordance with the Third Edition ASX Principles and Recommendations 2014 and other relevant statements, law or guidance (and address any specific risks
SelectFit may have).

2. Discuss the advantages and disadvantages of corporate governance, demonstrating the benefits to the business as a listed entity in having good corporate governance, together with any disadvantages. 

3. Assist your client to understand the importance and benefits of adhering to the ASX Principles and Recommendations by referring to HIH’s situation. Inform yourself about 2001 HIH’s collapse before you start this assignment, by doing some searching
and reading. Two references are provided above on HIH to get you started.
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Total 8 pages

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