The Differences in Corporate Governance Reporting at British Airlines and British Petroleum - Term Paper Example

Table of Contents Company Introduction 3 Corporate Governance: An Introduction One of the major evolutions that has taken place in the business world in the past one and a half decade is the area of Corporate Governance. Corporate Governance is defined as the “framework of rules and practices by which a board of directors ensures accountability, fairness, and transparency in the firm's relationship with its all stakeholders (financiers, customers, management, employees, government, and the community)” (BusinessDictionary.com, 2009). The development of this area has been affected by many theories such as agency theory, stakeholder theory, stewardship theory, transaction cost economics (Malin, 2007). The emergence of the concept of corporate governance can be attributed to certain events in the recent past which have shaken the business world. Accounting frauds such as Arthur Anderson, Enron, Satyam and World Com etc in the last decade resulted in loss of shareholder in the way the companies are governed. These disclosures along with the dot com bust which itself had its own share of corporate mis-governance made people loose confidence in the stock markets and the way that the companies are governed. The resulting market fall along with the tremendous impact on the society (loss of jobs, and damage to customers, and financiers) made it necessary to have a systemic framework which shall define the working of a public listed company. More recently, the financial slowdown of 2008-09 has once again raised concern over the governance of such large organizations. The greed to make profits while ignoring risks involved and the eventual loss to the society has made it necessary to have a strong board of directors which has the complete knowledge of the company's operations, policies and business. In a nutshell, the following reasons can be listed for the growth in importance of Corporate Governance: Need to regulate the working of various public listed companies, so that various stakeholders can take informed decisions. The need to have a set of standards that lay down a Board of Directors to oversee that the operations of a corporation are done in ethical and transparent manner. There have been many steps in setting out the standard for safeguarding the interests of the society and stop the occurrence of happenings like the Enron, Maxwell Communications and so on. Amongst the first one was the Cadbury report titled “Financial Aspects of Corporate Governance” published in the year 2002 (The Committee on the Financial Aspects of Corporate Governance, 1992). Subsequent standards were set up in the form of OECD Principles of Corporate Governance in the year 1999 and the Guidance on Good Practices in Corporate Governance Disclosure. Comparison of the Corporate Governance at British Airways and British Petroleum Company Introduction British Airways (BA) and British Petroleum (BP) are the two large UK plcs that we will be comparing for the purpose of this paper. British Airways, headquartered in Waterside is the flagship carrier of UK. The company is listed on the London Stock Exchange and is a member of FTSE 100 index. British Petroleum is amongst the largest energy group in the world. The company headquartered in St James is the largest company in UK. Like BA, it is listed on LSE and is a member of FTSE 100. Both BA and BP being the largest corporations in the country, they are expected to not only follow the Corporate Governance principles but also do something more than that to ensure fairness and transparency of their operations. Corporate Governance Reporting at BA BA has a BoD with 11 members of which 8 are non-executive directors, 2 executive directors led by a Chairman (British Airways Annual Report and Accounts, 2009). The CEO controls the management of the company. The roles of both the positions are described clearly in the Annual Report and the company website. The company's independent director is responsible for overseeing the chairman's performance and the appointment of new chairman when need arises. The roles and responsibilities of all the executive as well as non-executive directors are clearly defined in the Corporate Governance Section of the Annual Report. The Annual Report of the company has separate sections for the reports from the various committees such as the Audit Committee; Nomination Committee; Safety Review Committee; and Remuneration Committee. Each section has the details about the members, number of meetings of each committee, duties of the committee and the various takeaways from the meetings of the last year. The remuneration committee statement of the Annual Report has the details about the remuneration of the top management as well as the Board. Corporate Governance at BP As compared to BA, the structure of the board of the company with the number of independent directors and executive directors is not explicitly specified. In total, the board has 14 members (British Petroleum Annual Report and Accounts, 2008), a fraction of which is also in the management team of the organization. There is no clear distinction of the rights and responsibilities of the individuals holding a position in management as well as the Board. The Annual Report does have the information of the board governance principles, board members and the attendances of various members in the last year. The various committees that are defined are: Audit committee, Remuneration Committee, Safety, ethics and Environment assurance committee, and the Nomination Committee. The Annual Report does have the information about each committee's roles, activities, authorities, membership details and attendances along with the activities of the committee in the last year. The annual report does have a separate section on the remuneration structure of the members of Board of Directors which is more clear and transparent as compared to the remuneration statement in the Annual report of BA. Summary The Corporate Governance reporting at BA and BP has significant differences in-spite of the fact that both comply through the Combined Code. Sections such as details about the board structure is more clear and transparent in BA, while the section of remuneration of the Directors is more clear in BP. Both the companies have got reasonable good information about the various committees. The Annual Report of BA could have more information on the selection, training and terms of appointment. The Annual report of BP on the other hand can have more information on the board structure. Bot the annual reports missed out on one important area of Corporate Governance: Risk Management and Mitigation. A report of the various risks that the company is in and the mitigation mechanisms by the board in the Annual Report may have been very helpful to the stakeholders. References British Airways Annual Report and Accounts, 2009. [Online]. Available at: http://www.britishairways.com/cms/global/microsites/ba_reports0809/sitetools/downloads.html [Last Accessed on 26th January 20010] British Petroleum Annual Report and Accounts, 2008. [Online]. Available at: http://www.bp.com/extendedsectiongenericarticle.do?categoryId=9021605&contentId=7040949 [Last Accessed on 27th Jaunary 2010] BusinessDictionary.com. 2009. Corporate Governance. [Online]. [Updated on: 24th January 2010]. Available at: http://www.busines sdictionary.com/definition/corporate-governance.html [Last Accessed on: 24th January 2010] Malin, Chris, A., 2007. Corporate Governance, 2nd illustrated edition, Oxford University Press The Committee on the Financial Aspects of Corporate Governance.1992. [Online]. [Updated on 15th January 2002]. Available at http://www.ecgi.org/codes/code.php?code_id=132 [Last Accessed at: 24th Jaunary 2010]. Read More