Describe about the Corporate Governance of Wesfarmers Ltd.
Corporate governance refers to the ways through which a corporation is governed. Therefore, it can be stated that this is a technique with the help of which, the companies are directed as well as managed and this depicts the fact of carrying the entire business as per the desire of the stakeholders. Besides, it can be seen that Harford et al. (2012) has stated corporate governance as the interaction between several participants in order to shape the corporate performance and the way of proceeding towards final. Therefore, it can be stated that corporate governance deals with determining the ways to take effective strategic decisions of the organization. This particular research work has tried to shed focus on reviewing the governance of the organization named Wesfarmers, Australia. Moreover, appropriate use of concepts, tools and techniques would be taken into account fir reviewing the structure, process as well as effectiveness of the governance of the organization.
Background of the organization
Wesfarmers is one of the leading and leading scheduled corporations in Australia with headquarters in Western Australia. The company has its miscellaneous functions in supermarkets, liquor, hotels as well as the conveniences stores, home improvement, office supplies, departmental stores and many more. From the company profile, it can be stated that Wesfarmers is one of the Australia’s principal private segment employers with more than 210,000 workers and has a shareholder base of something like 500,000 (Acharya et al. 2012). However, it can be stated that the major purpose of this corporation is to make available a reasonable return to its shareholders. However, it can be seen that the aim of this corporation is to keep happy the requirements of the consumers through the stipulation of the services and goods on an aggressive as well as specialized basis. Apart from that, they targets to provide a protected and gratifying operational atmosphere for the human resources by rewarding them with high-quality performance and arranging opportunities for the advancements. The management of the company acts with truthfulness and integrity in dealing both inside and outside the corporation. The founders of Wesfarmers were largely driven by the motto of sustainable success and in this regards, they largely focus on good corporate governance. Therefore, from the annual report, it can be seen that the Wesfarmers Limited Board is unswerving for providing an acceptable gain to their shareholders as well as pleasing its corporate governance compulsions, roles and responsibilities in the best interests of the organization and its (stakeholders sustainability.wesfarmers.com.au 2016).
Reviewing the governance of the organization
One of the organization principle says that the organization maintain robust corporate governance policies throughout their entire business. The corporate governance of Wesfarmers is a system consisting of rules, legislations, practices and procedures through which the organization is being controlled and directed (Akbar and Ahsan 2014). The organizational perception depicts that the value creation for shareholders and other stakeholders is vital for the success and sustainability of the company. The corporate framework of the company has been developed by the Wesfarmers Board and was strengthened by the corporate governance statement of the company.
The board of the company Wesfarmers is a strong supporter of good corporate governance. The governance board of Wesfarmers is committed to deliver a pleasing return of its stakeholders’ investment and it also commits to fulfill its corporate governance obligations and responsibilities in association with organization’s best interest and its stakeholders. The company complies with the second edition of ASX corporate governance council’s corporate governance principles and recommendations released in August 2007 with 2010 amendments (Darko et al. 2016).
Role of management and Board
The function of board is endorsing the strategic direction provided by the team. In addition, board is also responsible for guiding and monitoring the management group in the companyand their business for gaining the strategic arrangements and maintains a well-established governance performance throughout organizational practices. The aim of organizational board is to shield and improve the interest of their shareholders, in accordance to the interest of all the stakeholders of the company including suppliers, employees, customers and others (Australia 2012). In this context, it has been revealed that the board has committed for providing highest standard practices related to corporate governance and promotes the healthy background throughout their business involving a culture of compliance valuing the personal and corporate integrity into the organizational operation, ethical behavior, accountability and respect for others during the operations.
The managing director of the company is responsible for the management of day-to-day operations of the company Wesfarmers and its business processes. The managing director of the company is endorsed in this function by Wesfarmers Leadership team (Vidovich and Currie 2012).
Composition and Structure of governance board
The Company has been dedicated to ensure that the governance Board will continuously involve the directors who would be able to bring adequate mix of skills, expertise, experience and diversity to the decision-making by board. Currently, the Board comprises 11 directors involving 9 on-executive directors. The governance board has developed a Audit and committee, Remuneration committee, Nomination committee and a GM review Risk Committee for discharging its responsibilities.
The committee is also accountable for characterizing the appropriate applicant for filling the Board position, as the part of the Board succession planning in Nomination committee’s oversight. The Nomination committee’s responsibility is to make the schedule of the review of formal performance of the Board, the non-executive director and its committee (Klettner et al. 2014).
According to the commitment of Wes farmer’s board, the directors would judge the deliberations from Board independently and they would be free of any other business or relationship, as well as they would have the best interest towards the entire organization regardless of his professional objectives.
Remuneration and evaluation of senior executives
The organization Wesfarmers Ltd. and its executive remuneration framework has been concerned with influencing an effective culture through performance and relate the Group’s strategy and business objective achievement with executive pay. Finally, the organization is committed to generate satisfactory returns to the business shareholders (Chapple and Humphrey 2014).
The ASX principles including corporate principles and recommendations has been set by the ASX corporate Governance Council for achieving a good governance and related best possible organizational outcomes for meet the reasonable expectations of the shareholders and investors in most of the sustainable situation. The Board perceives that the adopted policies and practices of the company Wesfarmers in the current financial year follows the recommendations for the company in the previous ASX principle related outcomes (Hermalin and Weisbach 2012).
The company characterizes the significance of offering facilities to the shareholders and broader investment community for accessing the high quality information with up-to-date data, allowance for participating in the shareholders decision for the company initiatives and to provide the direction of two-way communication within the board, shareholders and the company, thereby leading to the organizational success tactfully.
The Risk and Audit committee reviews and evaluate the internal control processes and policies which have been developed for maintaining integrity of financial report and to preserve the group assets. The audit and risk committee supervises the engagement of external auditors for ensuring the accurateness of the external financial reporting (O'Byrne 2012).
The Audit and Risk committee is also responsible for formalizing the appointment of a new auditor, if an external auditor is needed to be replaced for his performance or independence reason or if any kind of discrepancies has been shown in his work.
The board has approved the risk management policy which includes all the overarching details of the risk management system, the risk management structure, reporting system, the cheif risk management responsibilities within board, the role of each member in the risk management group. The board would review, monitor and approve the system with internal control and compliance mechanism (Clarke and Branson 2012). The managing director and finance director of Wesfarmers assess the assurance provided by the board about the effective operation of Group’s external audit. The audit committee assesses and reviews the capabilities of the external auditors of the Group including their qualification, performance, independence, remuneration. The management team maintains and implements the internal control systems and risk management as well as develops reports for divisional risk compliance.
Importance of guiding the principles
Al-Bawab (2015) has stated that the guiding the principles of corporate governance have the idea to provide the organization the guidelines for the development irrespective of the types and the sizes. Going through the entire annual report of Wesfarmers, it can be seen that the first principle is that the responsible board of the company plays the major role in approving the vision, strategies and the purpose of the corporation. Therefore, the responsible board is required to perform sincerely for the best benefits of the corporation, so that the organization stays in the long run. The second principle states that the board of the corporation is responsible to set the ethical and cultural tone and this part is highly necessary for the international corporations (Aoki 2013).
After looking at the second principle, it is required to focus on the third principle that states that all the executive directors of the organization must exercise the independent judgment and provide independent oversight of the management. The fourth principle opines that the responsible board of the organization is required to have a proper and appropriate system of risk omission along with the internal controls applied in the appropriate position. The fifth principle gives emphasis on the point that the concerned board is responsible for the selection and appointment of CEO along with the continuing evaluation of the roles, responsibilities and performances. After focusing on the fifth principle, it is necessary to shift the focus on sixth principle (Blakelock and Whitney, 2015).
It can be seen that the responsible board of governance of Wesfarmers is accountable to make sure that the corporation and the responsible committee communicates with the stakeholders and all the members on a regular basis. Therefore, it can be stated that the decision making procedure of the board depends to some extent that they get proper and adequate access to information regarding the operations of the organization. Principle seven demonstrates that the board generally hands over certain functions to the administration (Claessens and Yurtoglu 2013). Following this, it can be stated that the seventh principle concentrates deeply on the overall performance of the board and tends to make sure that it is necessary to be regularly assessed. Therefore, it can be stated that these above mentioned principles of the organization are highly focused on from the management part of the organization. However, it is clear enough that the board of Wesfarmers is responsible to look at all these points and ensure appropriate procedures are followed to have sustainability in the long run (Bushee et al. 2013).
Critical review of the organization’s governance
The governance board of Wesfarmers is performing in an effective way. The organization is following the ASX corporate governance principles. One of the success factor of the company is that the organization creates value for their stakeholders, while paying a positive role in the community. The organization performs its business according to community and environmental principles which is helping the organization to sustain their growth and development constantly. The Board of Wesfarmers has complied with their corporate commitment. The organization has separated and clarified the role of each member in the group (De Kluyver 2013). The risk management team has successfully identified the financial and non-financial risk for the organizational success. On the other hand, the risk monitoring system is preventing the development of other kinds of risk. The diversity policy and recent improvements are showing that the organization is working effectively for meeting their performance objectives. The group policies and the gender diversity plan have significant positive impact upon the organizational performance.
In spite of a number of success factor, there are a number of areas which are weak and organization need to develop strategies for improving those areas. The area of leadership lacks diversity which may affect the employee satisfaction. In some reports, it has also been reported that equal payment of employees are not being followed (Kogut 2012). The company has committed that finding a cost efficient way is becoming harder for them which can affect their operation. In addition, the ethical sourcing is another challenge including transparency maintenance in supply chain.
Recommendations for suggested improvement
However, going through the entire research paper, in this part, it is necessary to provide some effective recommendations to the addressed issues in the organization. Initially, it can be stated that the management is required to use “Information Request List” in order to analyze the framework of the organization regarding good governance. Besides that, management of Wesfarmers is advised to incorporate the use of “Document Request List”, as this consists of necessity credentials, plans, policies, strategies and procedures of the organization. These two effective tools are suggested to use, as it is expected that use of these two tools might uplift the status of the company and lead it towards more productivity.
The organization has the opportunity for improving the women leadership and its representation throughout their business. The organization should attempt to increase diversity in the leadership positions for enhancing the probability of getting diverse ideas for business decision making. Development of an internal senior talent management program and considering the unique role and levels within the business is recommended where women leaders would represent their business. The gender diversity policy followed by the Wesfarmers Ltd. board will help implementing these.
In this assignment, the focus was the analysis and review of the corporate governance. The selected company was Wesfarmers which is a retail organization growing and performing its business successfully in its industry. The corporate governance areas of this company have been reviewed thoroughly. The role of Wesfarmers board and the responsibilities of each members of the board have been reviewed. The corporate policies developed and approved by the board have been described here. In this context they have committed to perform better in the coming year. The guiding principles including the ASX principles of corporate governance have been described in the context of the organization Wes farmers. Therefore, it can be stated that corporate governance is one of the major concepts for running any specific business, as good corporate governance makes sure corporate success along with the economic growth. Apart from that, corporate governance minimizes the amount of wastage, corruption along with risks and mismanagement. The critical review of the organization included the evaluation of the success factors and the weaknesses for the organization. Finally, some appropriate recommendation for improving their performance has been discussed.
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