Essay: Corporate Governance Principles For Listed Companies.

Board Structuring and Oversight

Question:

Discuss about the Evolution and Considerations in Corporate Governance.

The principles and recommendations set out in the practice of corporate governance is to ensure that the listed entities are likely to achieve good corporate governance outcome so that most of the reasonable expectation of investors are met. There are mainly eight principles as set out by the council and it comprise of board structuring to add value, laying solid foundations for oversight and management, safeguarding of entity in corporate reporting, act responsibly and ethically, making balanced and timely disclosure, remunerating responsibly and fairly, managing and recognizing risks and respecting the security holders rights (Asx.com.au 2018).

It is required by the corporate governance principle and recommendations that companies should make disclosure of any material exposure to environmental, economic and risks associated with social sustainability. As assessment of issues of material sustainability has been conducted by Slater and Gordon group. Moreover, it has been ascertained from reviewing of environmental, social and governance risks that a thorough review with respect to the indicators and aspects tabled in the Global reporting the company has conducted initiatives of “G4 sustainability reporting guidelines”. The role of remuneration governance during the reporting period is to ensure that Salter and Gordon limited meet the requirement of guidelines of council of ASC corporate governance comprising of recommendations and gender diversity principles (Beekes et al. 2015). Group also conducts regular reviewing of uncertainties and risks that could that would have an impact on objective achievement and business strategy. Group in a competitive environment for rewarding executives fairly adopts contemporary executive remuneration strategies. In addition to this, ethical responsibilities of organization have been fulfilled in accordance with code of ethics.

Mineral resources have designed safety strategies that focus on consolidation of making considerable improvement in the process of business. It is ensured by organization that critical risky activities are managed and identified with clear accountabilities for critical control verifications. Remuneration policy of Mineral resources is designed in such a way that it helps in addressing the stakeholder key concerns. Structure of remuneration is designed for creating strong link between performance that is based remuneration scheme and strategic priorities of company. Board in engaging with shareholders for understanding their concerns has invested considerable time and efforts. The aspect of strategy of company is maximizing creation of the long-term value of shareholders by way of generating superior return on invested capital. Creating of transparency between performance and direct linkage is the principle guiding remuneration decision of company (Donelson et al. 2015).

Corporate Reporting and Ethics

The board of Slater and Gordon group comprise of executive, non-executive directors and managing director. In financial year 2016, there were six non-executive director, one executive director, one managing director and company secretary.

As a part of process of recapitalization, Slater and Gordon group renewed the senior management and board in year 2017. This recapitalization provides the best opportunity for securing the employees, firm and client’s future. While there were six non-executive directors, one managing director and one executive director of the group. Within the firm, the diversity is shaped by variety of characteristics that encompasses different ways of thinking and enabling them to serve client in a better way to a diversified range of clients. At Slater and Gordon, the commitment of board is to maintain and create a workplace that is inclusive and diversified for retaining and attracting quality employees (Media.slatergordon.com.au 2018). Ethos of organization is based on profound, social justice and abiding by the respect for institution and law ensuring that legal system fairly and equally treat people. Responsibility of board is to ensure that interest of shareholders and overall strategy of business are aligned with the arrangement of remuneration strategy (Shimeld et al. 2017). Their commitment is to drive alignment between expectations of shareholders and arrangement of shareholders. Role of board as per board charter is defined as approving strategic direction of group.

The board of Mineral resources looks forward to continuously guide the company along the exciting path and the proven strategy will continue to benefit all shareholders of company. In September 2017, mineral resources appointed a female non-executive director intended to increase proportion of women in the team of senior leadership. There was improvement in gender diversity of business by developing gender diversity strategy. The composition of board for financial year 2017 comprised of non-executive chairman, managing director, two independent non-executive director, lead independent non-executive director and company secretaries (Tricker and Tricker 2015). While in year 2016, the board comprised of managing director, non-executive chairman, two independent non-executive director and company secretary. The board that helps in maintaining market alignment continuously monitors the remuneration policy. In year 2015, the member of board comprised of non-executive chairman, managing director, four independent non-executive director and company secretary. Policy of board is to conduct periodic review of approach used for remunerating non-executive director so that fees charged by them remain competitive (De Zwart 2015).

Board of Mineral resources focused on development of new business initiatives for generating significant future shareholder value and assisting growth of organization as a whole. The primary consideration of the board is capital allocation that takes into account various opportunities available and making investment for maximizing long-term shareholder value. It is identified by management and board of Mineral resources that achievement of objective of group requires to have an uncompromising commitment to environment performance, safety and corporate governance (Mineralresources.com.au 2018).

Remuneration and Risk Management

The management team and board members of Quintis are committed to high standard of practices of corporate governance. Practices of corporate governance of Quintis comply with the Corporation act, 2001, Company constitution, Australian securities exchange and other applicable regulations and laws.

Quintis also complies with the latest corporate governance principles and recommendations of council of ASX corporate governance.

The company has a written document policy on relevant procedures and information disclosures. Such procedures focus on continuous disclosure of compliance and making improvement in access to information to investors (Safari et al. 2015).

Workplace diversity is one of the important practices of corporate governance that recognizes the benefits of board and gender diversity incorporating retention of employees, high quality employees and deriving benefits from newly acquired talent (Cumming et al. 2016). The diversity strategy of Quintis deals with reviewing of succession plan for ensuring that there is appropriate focus on diversity and culture development that takes into account employees domestic responsibilities. Responsibility of Quintis also lies in monitoring, implementing and reporting on the measurable objectives that are established by human resources.

Company performs the application of practices of risk management strategies that helps in improving decision making, reducing uncertainty, protecting stakeholders, supporting the achievement of financial, operational and strategic objectives and ensuring of regulatory compliance (Council and Exchange 2014). Quintis ensure a strong risk management culture for maintaining the strategy of managing the risks.

The supply deal of Sandalwood grower Quintis with Galderma was terminated and the information about termination was not conveyed to the top management and board of directors. It was reported by Swiss dermatology giant dermatology that a formula used in the Benzac skincare containing pharmaceutical grade sandalwood oil was discontinued. This particular fact depicts the complete failure of corporate governance.

Valuation of TFS Corporation was questioned because of its unlikelihood of obtaining finance resulting from poor corporate governance practices, as it was believed that company does not have sufficient capital for maintaining plantations to maturity.  

The research report published by Glaucus triggered that corporate turmoil and price crash of Quintis marked and indicated the major assault of Australian soil through a new breed of hedge funds known short sellers. Such investors bet on the stock of company for publicizing their position. Such short sellers have been terrorizing companies that was witnessed in terms of attack on Quintis. Therefore, this particular incident corporate governance highlighted the need of board and management to be prepared for such short selling attacks. Management of Quintis was targeted because it misleads investors about operational and financial performance. Allegation was imposed on company that operation of company was done on Ponzi like structure that made the valuation of shares at zero (Donelson et al. 2015). Products such as Sandalwood that are used in perfumes, incense and traditional medicines take decade to grow. It was pointed out that Quintis relied on capital raisings to investors and pay debts indicating difficulty in cash flow. It was said that note generated by Glaucus littered an egregious and substantial inaccuracies. However, the call made by Glaucus was right that led to the collapse of stock by 78% that shook the confidence of investors.

Sustainability and Workplace Diversity

The dive in share price of Quintis resulting from suspected shortcomings imposed question on directors and executives. Investors of company were suspicious about note holder that was led by fund manager of US, BlackRock that pursued for gaining control over the company. This particular scenario questioned the shareholders possible prejudices. Quintis delayed the annual accounts by putting net assets at worth $ 317 million and valuing plantations at $ 437.6 and thereby offsetting debt of amount $ 460.7 million. A tumultuous year was followed after the collapse of organization that eroded sales and damaged confidence of investors and thereby putting the balance sheet of organization under extreme pressure. The shares of company were further shredded by raising concerns over the contracts of substance along with sales absence in China. Company relied on selling new plantations to outside investors with most of the five million trees quite long time away from harvest. This was done for supplementing revenue from sale of oil and sandalwood. Investors were deterred by negative sequence of events as most of plantation historically generated sales revenue (da Costa 2017).

The new plantations lead to booking of establishment fees of amount $ 86.9 million that in last year that is 2015-2016 recorded $ 20.1 million as the operating revenue was half to $ 97 million. Cash balance of Quintis had fallen to $ 25.4 million compared to $ 89.8 million in the last month. Quintis survived only on help it received from note holders, as it was unable to meet the discounting oil and interest bills on notes for raising cash.

Furthermore, two targeted the troubled sandalwood company, Quintis or three class actions of potential shareholders have the litigation backing because the company is headed to appear for court. The statement made by Quintis about billing of twenty year deal of supply of sustainably grown and pharmaceutical grade Indian Sandalwood oil to prestigious customers was completely at odds along with the statements made about the Galderma contract landmark significance. Failure of corporate governance was centered around the Quintis failure to make disclosure of the loss of long-term supply contract with Galderma and it intends to make recovery of loss that shareholders have suffered. Quintis withdrew the earning guidance in year 2016-2017 along with slashing the forecast of sales of products from range of $ 45 million to $ 55 million to $ 25 million to $ 35 million (Fowler, 2018). In the current situation, the failure of its corporate governance practices has resulted in occurrence of liquidity crisis. Therefore, the objective of organization is to go for recapitalization along with the facing the most critical time for sales of plantation to new sandalwood investors. Shares of Quintis remained suspended after it faced the corporate governance failure. A further disclosure was accompanied in the downgrade of company that since June, 2015, there was no shipping of oil by Galderma (Lcmfinance.com 2017).

References list:

Asx.com.au. (2018). [online] Available at: https://www.asx.com.au/documents/asx-compliance/cgc-principles-and-recommendations-3rd-edn.pdf [Accessed 28 Mar. 2018].

Beekes, W., Brown, P. and Zhang, Q., 2015. Corporate governance and the informativeness of disclosures in Australia: A re?examination. Accounting & Finance, 55(4), pp.931-963.

Council, A.C.G. and Exchange, A.S., 2014. Corporate governance principles and recommendations . ASX Corporate Governance Council.

Cumming, D., Leung, T.Y. and Rui, O., 2015. Gender diversity and securities fraud. Academy of management Journal, 58(5), pp.1572-1593.

Curti, F. and Mihov, A., 2018. Fraud recovery and the quality of country governance. Journal of Banking & Finance, 87, pp.446-461.

da Costa, A.P.P., 2017. Corporate Governance and Fraud: Evolution and Considerations. In Corporate Governance and Strategic Decision Making. InTech.

De Zwart, F., 2015. Enhancing Firm Sustainability Through Governance: The Relational Corporate Governance Approach. Edward Elgar Publishing.

Donelson, D.C., McInnis, J.M. and Mergenthaler, R., 2015. The effect of governance reforms on financial reporting fraud.

Fowler, C. (2018). Former Quintis boss returns as growers seek to take back control of sandalwood empire. [online] ABC Rural. Available at: https://www.abc.net.au/news/rural/2018-03-16/former-quintis-chief-returns-sandalwood-grower-takeover/9544926 [Accessed 28 Mar. 2018].

Lcmfinance.com. (2017). Momentum growing in Quintis class action | LCM Finance. [online] Available at: https://www.lcmfinance.com/momentum-growing-in-quintis-class-action/ [Accessed 28 Mar. 2018].

Media.slatergordon.com.au. (2018). [online] Available at: https://media.slatergordon.com.au/sgh-2016-annual-report.pdf [Accessed 28 Mar. 2018].

Mineralresources.com.au. (2018). [online] Available at: https://www.mineralresources.com.au/images/2017_Annual_Report(1).pdf [Accessed 28 Mar. 2018].

Safari, M., Mirshekary, S. and Wise, V., 2015. Compliance with corporate governance principles: Australian evidence. Australasian Accounting Business & Finance Journal, 9(4), p.3.

Shimeld, S., Williams, B. and Shimeld, J., 2017. Diversity ASX corporate governance recommendations: a step towards change?. Sustainability Accounting, Management and Policy Journal, 8(3), pp.335-357.

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