Evaluation of the Corporate Governance Codes and the Regulatory Framework - Assignment Example

Corporate Responsibility of the of the Critically evaluate the corporate governance s and the regulatory framework Corporate governance encompasses a framework whereby suppliers of finance are assured return on investment. All the influences are contained within corporate governance that might affect institutional processes. The private sector influences mainly comprise of customers, shareholders, unions, competitors, suppliers, employees, auditors and bankers. Stakeholder theory states that any organization is a system of many stakeholders who are responsible for providing necessary market and legal infrastructure. This form of infrastructure is necessary for exhibiting business activities and in turn value is created for stakeholders. There are multiple constituents included within stakeholder theory, apart from staying inclined towards just shareholders. Multiple stakeholders existing within business environment are employees, government, suppliers, customers, financial institutions, shareholders, competitors, trade unions, public interest groups, legal institutions, etc (La Porta, Lopez-de-Silanes, Shleifer and Vishny, 2000). Corporate governance structure of Nestle indicates giving equal importance to all stakeholders. The board of directors are responsible for handling all stakeholders and undertaking combined business strategy. Compensation principles of Nestle Group are taken into consideration by board of directors. Total compensation of executives and board members are thoroughly reviewed by shareholders. Stakeholder theory clearly demonstrates that all stakeholders would be given equal importance for obtaining stabilized firm position. Nestle has its business operations spread across the globe. The company handles its extended business base by giving importance to all stakeholders. Board Members are responsible for compensation plans but it is also thoroughly reviewed by other team members. Long term business purpose of the firm is retained by considering team interests and then implementing them into realistic plans. Good governance codes can be stated as a set of rules followed by top management in order to accomplish corporate objectives. These codes comprise of best mechanism which are related to other stakeholders as well as board of directors. Effective governance principles are established through governance codes. Governance codes do not possess any such legal binding but are necessary to influence board of directors so that they are able to control behaviour of top management. An appropriate regulatory framework is maintained by Nestle so as to guide overall operations of board of directors. These codes for the company resemble compensation benefits and welfare benefits for board of directors. Shareholder’s rights are also an essential part of corporate governance. In overall context, it ensures flexibility to shareholders in terms of casting vote or putting across their views or opinions. General meeting participation tends to enhance importance of shareholders within the company (Solomon, 2011). Duties of boards form the governance code of Nestle Group. This aspect states that top management has to perform certain duties towards other stakeholders. Decisions are taken by the top management but through consultation with other stakeholders. Long term sustainability can be achieved by providing value to shareholders. The corporate governance code which is adopted in Nestle is inclined towards transparency of information amongst all stakeholders. This helps the firm to operate smoothly in business environment and gain maximum expertise from other team members. Nestle as a company takes into account opinions of all stakeholders may that be employees or suppliers. Critical analysis of two corporate governance issues The corporate governance report of Nestle follows the Six Swiss exchange derivative on the guidelines that the organization has issued regarding corporate governance. Six Swiss Exchange is the main stock exchange of the Switzerland and as the company that is Nestle is incorporated in Switzerland and listed at the Six Swiss Exchange it has to follow the regulations that is given by or issued by the exchange (Haniffa, & Cooke, 2002). The Six Swiss exchange issues guidelines which the companies that are listed in the stock exchange must follow. Nestle is a public limited company and as per the directive of the Six Swiss Exchange that the shareholders should be having the final say about the company. The company has to follow the various directives that are issued by the stock exchange from time to time. The company additionally ensures that there is no duplication of information and in some sections of the report there is cross referencing to other report in order to avoid duplication. The consolidated financial statement that is reported by Nestle follows and complies with the IFRS as issued by the International accounting standards board and adheres to the interpretations as issued by the IFRS interpretations committee (Tam, 2000). In some places the report has also been extended to comply with the directives that are issued by the Six Swiss Exchange standards for financial reporting. There are various mattes of the corporate governance report that the best practices code issued by SIX Swiss Exchange focuses on. One of the areas amongst them is the executive remuneration. Regarding executive remuneration the Six Swiss Exchange recommends that the Board of Directors of the company should be entitled with the responsibility to pass the design of the compensation system at the Annual general meeting of the company and the shareholders of the company (Economiesuisse, 2014). It is recommended that the board of directors should be engaged in proposing independent and not executive members of the board for the purpose of election to compensation committee. It is stated that the compensation committee has a key responsibility in the process of implementation of stipulations as per the law, articles of association and meeting of the shareholders. The members of the compensation committee is required to develop the structure for the compensation of the members of the board and senior executives of the company while it acts on the guidelines as laid down by the board of directors in deciding the compensation policy. In line with these recommendations in Nestle the members of the board of directors is entrusted with the overall responsibility of deciding the compensation that are to be used. The approval for the compensation of the members of the board, chairman and the CEO comes from the board of directors. It is also stated that the compensation of the members of the board and the executive board is to be decided and is subject to approval given by the shareholders of the company. The chairman of the compensation committee is an independent and non executive member of the board. The members that are part of the compensation committee are elected by the shareholders of the company for a one year period and the chairman of the committee is elected by the board of directors (Tricker, 2012). The Six Swiss exchange committee recommends that the remuneration of the executive committee should comprise of both the fixed and variable components and the variable component should be tied to the performance and also it is stated that the performance of the executives as link to the variable pay of the executives should not be paid immediately but after a period of time. It is also recommended that the compensation should be objectively justified and comparable to the salaries at other companies. As per these recommendations Nestle ensures that the salary that is provided to the executives of the company is justified and is comparable to the salary at the other companies. The company also ensures that the salary consists of variable part that is tied to the performance of the company. The performance share unit plan that is aimed at allocating shares to the executives based on the performance is available to them only after a five year period comprising of three year vesting period and two years blocking period. As per the recommendation of SIX Swiss Exchange the board of directors of the company should be elected by the shareholders in order to provide strategic direction to the company. The primary function of the board of director should be non transferable. It is also recommended that the board of directors should have a well balanced representation and the no. should not be too small or too big. Nestle follows these recommendations with its members of the board of director except the Peter Bulcke are non executive members (Nestle, 2014). As per the composition of non executive board of directors, all of them except Chairman Peter Brabeck Letmathe are independent. There is diversity in the board in terms of origin and studies. As the company has operations in more than one country so some of the members have experience in more than one industry. It is also found that in 2005 Nestle combined the role of CEO and chairman to have a joint Chairman and CEO but it has since been relinquished in 2008 (Muthukumar, 2009). Evaluate the CSR practices of the chosen company Organizations always need to perform in a socially responsible manner. This is because it enhances corporate image in the industry. An organization can acquire economical benefits by operating in a socially sound manner. Political benefits and legitimacy can also be gained by firms through implementing CSR strategies. Social responsibility refers to meeting customer’s hopes or expectations, and it opposed to the concept of utilitarianism. The society could not have been survived if socially responsible people were not present. Sustainability in societal aspect has been accomplished with growing number of firms exhibiting CSR strategies. Stakeholders are highly responsible for encouraging such activities. There exists a primary social responsibility objective of all firms which is to perform business operations appropriately without engaging into any form of fraudulent case. Carroll’s typology clearly portrays specific dimensions of corporate social responsibility (Crane and Matten, 2010). These dimensions are economic responsibility, legal responsibility, ethical responsibility and discretionary. Economic responsibility is to manufacture such products or services which can be acquired by society at high profit margins. Legal responsibility is linked with fulfilling economic conditions but by being within legal framework. Ethical responsibility is all about ethical expectations of an organization, customers or other stakeholders. Philanthropy responsibility revolves around discretionary acts that ultimately contribute towards societal benefit. Sustainability is strongly correlated with corporate social responsibility approach. Sustainability is about imposing limits on environmental resources by social organization and current technology (Carroll, 2008). Human activities can ensure sustainable development only when present needs are efficiently fulfilled without compromising on needs of future generation. Nestle over the years have focused on sustainable development practices. This company is not only inclined towards gaining high profit margins but even takes into consideration society and its development. Ethical, legal and economic responsibilities are efficiently fulfilled by the company. Rural development, water and sanitation and nutrition are key aspects of corporate social responsibility performed by the company. The company works in collaboration with many NGOs so as to provide better life to backward community people. Rural development takes place in terms of collecting funds so that farmers and other people can have a decent lifestyle. In collaboration with NGOs, employee volunteering programs are also organized by the company. Employees engage with children so as to spread awareness regarding hygiene habits, nutrition, etc. Nestle takes into account ethical responsibility of Carroll’s typology. This firm undertakes best practices so as to ensure that there is less impact caused on the environment. NGOs and various other local authorities help the firm to execute waste management practices. It facilitates reduction of total waste generated through business practices. Water and sanitation projects are continuously ran by Nestle group and this is a mechanism to accomplish ethical goals. The company launches its products within affordability range of consumer market segment. However the main focus of the firm is not only on providing competitive products but also to enhance nutritional content in all those products. Best practices are incorporated by the firm in order to provide high nutritional base products to end customers. Influence of national institutional environment and other stakeholders in CSR policy The stakeholder network of Nestle is vast and it comprises of individuals in different fields of life. The stakeholders of the company ranges from people with whom the company interacts on a regular basis as part of the operations of the company to the public who are in a position to influence the company as matter of the post they are holding. The different groups of stakeholders as identified by the company are listed below. The company is committed to increase their level of engagement with these different levels of stakeholders in order to achieve business success. Academia, Employee, government, customers, Industry and trade association, communities, general public, non government organizations, suppliers, inter government organizations, shareholders, consumers, Reporting agencies (Nestle, 2012). The company encourages the different businesses of the organization to identify the most important stakeholders. The globally important stakeholders are coordinated centrally to forum of creating shared value so that they can express their opinion. The creating shared value is a forum that is organized by the company every two years. The latest was organized by the company in the year 2012 in New Delhi. In the latest CSV over 450 governments, business representatives and the civil society took part. The company organized CSV conventions every two year from 2007 that was held in the year Geneva, in 2008 was held Washington DC, in 2009 was held in Geneva and Kuala Lampur and in 2011 was held in New Delhi and London. The policy of Nestle on transparent interaction with the organization and authorities ensures that all the employees who are involved in engagement with the stakeholders understand the high level of transparency and professionalism as demanded by the company. It is also required that employees follow the approved procedures and the processes. The company is listed in the register of EU interest representation and follows the code of conduct that governs transparency and the legitimacy in the dealing of the company with the institutions of EU. In the USA as per the requirement of the law of the country the company files quarterly reports that outlines the engagement activity of the company that are available in line with the directives of the US congress in this matter. The company also became one of the signatory to Pan American Health Organization and statement by World Economic Forum on their statement on the reduction of dietary salt reduction in the people of America. The action was taken by the company as part of the commitment on the part of the committee in order to offer the company’s support for action on the Non- Communicable Diseases. The company is also committed to the acceptance of the corporate social responsibility norms and rules that are set up by the government of various countries. The company adheres to the rules and laws of the particular region or country in which the company or any of its subsidiaries operates. In recognition of the sustainability practices of the company the company has been awarded by different agencies. The company ranks in the Dow Jones Sustainability index as second in the industry in which it operates with a consistent score for its CSR activities year on year (Nestle, 2014). The company also engages with the world economic forum which is an independent organization to play an active role in engaging with different stakeholders in order to shape the global and regional agendas of the industries. So it is seen that the company does not only follow the rules as laid down by different governments and international agencies but also does something that is beyond the requirement of the in order to strengthen its commitment towards the environment. Recommendations After going through the process of studying the sustainability and responsibility at Nestle and the degree of corporate social responsibility that the company has achieved it is found that Nestle as a company adheres to the highest standards of corporate social responsibility and corporate governance. As the company is a global company that is engaged in its operations in different countries across the globe, the company has to take care of the responsibilities of various stakeholders associated with the company and regulations and law laid down by the governments of different countries regarding the corporate social responsibility measures. In both the issuers of corporate governance and corporate responsibility it is seen that the company adheres to the highest of standards. It is also seen that the company is listed in the Dow Jones sustainability index of the companies in the second position in its industry category as recognition to the social responsibility of the company. However the achievement of these fits by the company does not mean that there is nothing lefty to achieve for the companies. The corporate social responsibility is a dynamic matter and new rules and responsibilities are being set in years to come. There are several matters like nutrition, environment and sustainability, water, responsible sourcing, rural development, community development and human rights compliance which will require the attention of the company in future. In matters of environmental responsibility the company should be focussing on certain matters like food waste, natural capital climate change etc. In case of the nutrition the company can work towards the affordability and accessibility of quality food products to the people of the world. The company should work along with the leading NGO s of the world in order to prevent over and under nutrition of the children and also related micro nutrient deficiencies in people by undergoing and sponsoring research in this field. The company flouted a major corporate governance practice in the year when it chose to have a joint CEO and chairman. This practice was objected by the shareholders of the company but the company decided to follow the decision citing that the company had not found any other person suitable for the post. However this statement by the company was also objected by the shareholders of the company as it meant that the company had not paid careful attention to the succession planning and had failed to plan for the CEO post in advance. However, the company abolished the policy in 2008 with the person retaining the position of chairman and giving up the position of the CEO. The company is required to better its practices in the corporate social responsibility and the corporate governance practices so that the company does not encounter any future controversies in the corporate responsibility and corporate governance area. References Carroll, A. B. (2008). A history of corporate social responsibility: concepts and practices. Oxford: Oxford University Press. Crane, A. and Matten, D. (2010). Business ethics: managing corporate citizenship and sustainability in the age of globalization (Third ed.). New York: Oxford University press. Economiesuisse. (2014). Swiss code of best practice for corporate governance. Retrieved from https://www.six-exchange-regulation.com/download/admission/being_public/governance/scbp_en.pdf Haniffa, R. M., & Cooke, T. E. (2002). Culture, corporate governance and disclosure in Malaysian corporations. Abacus, 38(3), 317-349. La Porta, R., Lopez-de-Silanes, F., Shleifer, A. and Vishny, R. (2000). Investor protection and corporate governance. Journal of financial economics, 58(1), pp. 3-27. Muthukumar, R. (2009). Case Studies on Corporate Governance. Retrieved from http://www.ibscdc.org/businesscasebooks-pdfs/Corporate%20Goveranance.pdf Nestle., (2012). Nestlé in society. Retrieved from http://www.nestle.com/asset-library/documents/library/documents/corporate_social_responsibility/nestle-csv-full-report-2012-en.pdf Nestle., (2014). Compensation Report. Retrieved from http://www.nestle.com/asset-library/documents/library/documents/corporate_governance/corp_governance_report_2014_en.pdf Nestle., (2014). Nestlé in society. Retrieved from http://www.nestle.com/asset-library/documents/library/documents/corporate_social_responsibility/nestle-in-society-summary-report-2014-en.pdf Solomon, J. (2011). Corporate governance and accountability. New Jersey: Wiley. Tam, O. K. (2000). Models of corporate governance for Chinese companies. Corporate Governance: An International Review, 8(1), 52-64. Tricker, B. (2012). Corporate Governance: Principle, policies and practices. Oxford Read More