Reece Australia Limited and Boom Logistics - Governance and Fraud - Case Study Example

Governance and Fraud Name: Course: Instructor: Institution: Date of Submission: 1. Corporate governance acts as a guide or framework of rules, systems, and processes within which authority is implemented and controlled by corporations. It is a mechanism employed by which firms, companies, and those in control are held accountable. It is not mandatory for the board of directors to adopt the model as a whole pack, but they can determine which practices listed in the model to adopt. Corporate governance guides how the objectives of the firm or company are set and how they can be achieved, and how to monitor risks and manage them. The purpose of ASX CGC principles and recommendations is to enable listed firms and companies to achieve good governance results, as well enable these entities to meet the expectations of the investors. Reece Australia Limited and boom logistics are listed as businesses that comply with ASX CGC principles and recommendations (AICD, n.d.). The first principle gives the chief executive officer and senior executive the mandate to lay a strong foundation for management of the corporation and they are accountable to the board. The board is mandated to oversee management and are responsible for establishing business strategies for the company. The structure of the board is key to every firm; the board has the experience and expertise to run the company to gain maximum profit. As per principles 2.1 and 2.4 the recommendation are, the board to comprise the majority of directors should be independent and, an independent chairperson. It also recommends that the board should establish nominated committee, of which Reece has not adhered to these recommendations. Boom Logistics has laid a strong foundation for management; its board has five directors comprising executive managing director and four non-executive directors. The C.E.O. and all the non-executive directors are independent in compliance with ASX corporate governance principles and recommendations. The board can establish committees it considers appropriate to assist it in executing out its duties, for instance, the board has established the following committees; audit committee, risk committee, nomination and remuneration committee and health, safety, environment and quality committee. Promote ethical and responsible decision-making is the third principle, Reece’s board has high emphasis on uprightness and truthfulness in all their professional deals. The board of Reece has established codes of conduct, where senior executives and employees are required to complete code of behavior training online to ensure Reece’s ethical reputation is maintained. Although there are no women on the board, 22% of the employees and 18% of the senior management position are held by women. Code of Conduct is available on boom logistics corporate website, the code of conduct provides directors and employees with guiding principles to them make sound decisions whenever they are identified as representatives of Boom Logistics. The company embraces gender diversity, which reflects the ASX corporate principles and recommendations 2010 in operation (ASX, 2010). Safeguard integrity in financial reporting is the fourth principle; the Reece audit committee comprises the majority of independent directors. The audit committee reports back to the board. It is responsible for laying down procedures to select and appoint an external auditor. The Committee is also mandated to reviewing and recommending to the board for the adoption of Reece Company’s half-year and annual financial statements. Boom Logistics chief executive officer provides written declarations to the board that the company’s records and financial statement are in order. The company has implemented a risk management structure as per ASX corporate governance principles and recommendations. Respect the rights of shareholders is the sixth principle, Reece provides a printed copy as well as post on their website its annual report. The annual report contains relevant information about the company’s business and operations during the year, changes in the state of affairs and any other disclosures as required by the corporations act. A relationship exists between a company’s shareholders, its board, its management and other stakeholders. ASX corporate governance lays a framework through which objectives of a company are set, and it establishes guidelines for attaining those purposes, from the set performance is determined (ASX, 2010). Considering boom logistics, corporate governance principles and recommendation, recommends the company to have a majority of the board members to be independent directors, the company complied and implemented the policy, the performance of the company improved. ASX corporate governance recommends companies to have a risk management committee, the primary objective of the committee is to monitor and identify financial, management of the material business and regulatory risks. If a company pinpoints the threat in advance and act accordingly, definitely the company will have better performance. Thus, the link between corporate governance and performance is directly proportional, such that, if the recommendations are adhered to, they will yield better performance. Boom Logistics and Reece Company have adopted the ASX corporate principles and recommendations partially. It means that they have adopted and implemented principals that they relate with, thus maintaining their performance. There are recommendations that do not work well with some companies. For instance, gender diversity is critical, but it also requires members who are equal to the task for a different position. Establishing independent committees to oversee a given task increases the wage bill. Therefore, not all ASX corporate governance principles and recommendations will increase performance. 2. The Boom Logistics Limited has experienced salary and performance growth for the FY 2011 and 2012. However, from 2013 through to 2015, the business has had challenges that lead to overhead cost-reduction. That is; the company has been forced to cut down employees among other people. In 2014, the salaries of the executives summed to 121, 066 while on June 30, 2015, the salaries summed to 98, 629. Over the years from 2013, the earnings of the executives have been reducing while in 2011 to 2012 increases were experienced. The financial performances of the CEO increase by 39%. The short-term incentives of the executives grew by 52% while the long-term incentives and performance pay rose by 66%. The salary pay improved by 25%, which totaled to $767, 205 (Morningstar). The executive directors, that is; the CEO’s of Reece Australia Limited has been increasing by about 36% while that of the Finance Director increases with about 50%. The short-term summary of the CEO’s occurs at 36% while that of the long-term wages and performance sums to 28%. The short-term salaries and performance of the Finance Director add to 25% while that of the long-term salaries amounts to 25%. Other executives such as the CEO Direct Reports adds to a stable increase of 58%. The short-term salaries of the CEO direct report sum up to 22% while the long-term salaries sum up to 20%. The short-term and long-term remunerations and performance of the incentives motivate the employees and reinforce the pay performance philosophy. The performance benchmarks for remuneration are clear as they are provided concerning how they occur for the executives. It includes the presentation of each end year remunerations for the executives. Increases in the gross profit for the organization leads to remunerations increases. Thus, the remunerations are appropriate as they show and motivate the executives to put more energy and motivation to meeting the goals of the firm. The increase in remunerations leads to an upturn in the performance of the executives in both companies (the Boom Logistics Limited and the Reece Australia Limited.) 3. Good governance first principle involves “roles and responsibility.” It increases the clarity of the roles of individuals and executives in the business. It ensures that everyone is aware of what they need to do to meet the goals of the organization (ASX) (AICD). The first ASX CGC principle is about laying solid foundations for management and oversight. It involves ensuring that every member of an organization are well aware that the roles and responsibilities of all boards and management are clear. It includes monitoring their performance to guarantee success. The second governance principles involve “the board composition.” It ensures that the people in the organization are the right people. That is; it ensures that the people hired help increases the success of the business. The second ASX CGC principle “structure of the board to add value” involves having a board that is effective to ensure they are capable of distributing roles and responsibilities efficiently. The principle is highly similar to the second principle of good governance as it ensures that the right people are employed in the business. The 4th good governance principle regards risk – recognition and management in the business also ensure that the corporate can meet the appropriate risks in the certain days. The ASX CGC, 7th principle regards “recognizing and managing risk in business.” It is similar to the good governance principle 4, which involves engaging in risk – recognition and management. The principles ensure that a business has a management framework for handling risks among other issues necessary to guarantee that all risks in business are managed. The fifth principle regards the “organization renal performance.” The code is bent on ensuring that the company focuses on the uses of resources in an organization. It is the process of ensuring that the companies meet their purposes, visions, and goals through assessing the true performance in the group. It focuses on the usage of input in the organization, output, efficiency and effectiveness among others. The 6th Good Governance principle focuses on “board effectiveness,” which involves guaranteeing the planning of the business of the activities of the board. It also pledges that the performance of all activities is definite. The seventh good governance principle regards “Integrity and accountability,” which involves ensuring the flow of information for effective decision-making. It also comprises accountability and transparency in the activities of the business. It is attained through providing the business compliances with all the legal and ethical obligations for increased success. The 5th ASX CGC principle regards “safeguard integrity in all reporting.” It is the principle that involves verifying and protecting the integrity of all compliance in the organizations. For instance, it encompasses ensuring the compliance of financial reporting in the organization and other forms of accordance in the business. The 8th principle is about “organization building.” It certifies that the board enhances the capabilities and capacity of the organization by training the employees and other activities. The 4th ASX CGC principle involves ensuring diversity in the workplace. Diversity is about ensuring gender diversity, age, ethnicity, and different cultural backgrounds among other diversities. Thus, both promoted organizational development (ASX, 26 ). 9th principle concerns culture and ethics where the board sets the ethical tone of the business. The tone set influences the decision-making of the organization. The third ASX CGC principle involves acting ethically and responsibly. It is the principle that ensures all people in the organization act in compliance with legal obligations among others such as ensuring honesty in the group among integrity and others. The 10th principle involves “engagement.” The board must warrant that the organization is effectively engaged with the interested parties. The 6th ASX CGC principle means “engaging with stakeholders.” It is the process that confirms people in the business observe and respect legal obligations among others including all the rights of the sponsors in an organization. It includes ensuring that the stakeholders are well informed regarding business governance and other issues (ASX, 31). The eighth ASX CGC principle of the CGC includes “remunerating responsibly and equitably in the organization (ASX, 36). The principles, as presented, involve ensuring that all employees in business are well remunerated to ensure they work motivated to meet the goals of the organization. It includes providing remuneration policies are followed among other issues that show the proper governance of a business. The principles from the two institutes are slightly the same on most of the issues they address. However, they differ due to how the principles are considered and employed in the organizations. The main difference between the principles is that the ASX CGC enhance the leadership role of the boards while the Good governance principles promote the good governance of business. References AICD, n.d. Ten Principles that Promote Good Governance. Good Governance Principles and Guidance for NFP Organizations. ASX, 2010. Corporate Governance Principles and Recommendations with 2010 Amendments. 2nd Edition: ASX Corporate Governance Council, pp. 1-52. Morningstar, 2016. Insider Trading Overview: CEO Compensation Ranking. [Online] Available at: http://insiders.morningstar.com/trading/insider-summary.action?t=BOL®ion=aus&culture=en-US&ownerCountry=USA [Accessed 30 3 2016]. Read More