Framework Features of Corporate Governance of Virgin Australia - Case Study Example

Framework Features of Corporate Governance of Virgin Australia Name Tutor Course Date Framework Features of Corporate Governance of Virgin Australia Introduction Delegating strategy and enhancing prospects of a long term success for an organization while taking into consideration the risks that are involved and the environmental impacts of its operations are the core pillars of corporate governance. The members of proper governed organization have a clear understanding of the objectives of the organization and what is expected of them. This implies that corporate governance ensures that organizational goals are well directed and by so doing it is likely to ensure efficiency and produce effective outcomes. Basically, corporate governance is very crucial in a number of significant ways. It is a central factor which plays a key role in ensuring creation, conservation and enhancing the value of shareholders. Maintaining strong corporate governance is also associated with enhancing organizations to achieve a good working environment for employees. This article provides frameworks of corporate governance structures, policies, practices and principles of Board of Directors of Virgin Australia. Virgin Australia is an airline company that began its operations in 2000 as Virgin Blue in Australia. Corporate Governance Frameworks Qualities of governance processes are very fundamental for effective operation of agencies and business organizations. Good governance relates to performance. This refers to how agencies employ governance arrangements to generate positive impacts on the general performance of the company as well as ensuring delivery of goods, services and programs. Conformance is also another critical component of corporate governance. According to Grantham (2011), conformance refers to the mechanisms through which agencies employ governance arrangements to ensure its congruency with the demand of law, expectations of community, published standards, openness and accountability. Accountability refers to the ability to be answerable for the decisions as well as having appropriate mechanisms in place that enable the agencies to adhere to every applicable standard. Openness on the other hand refers to the transparency or having clear understanding of the roles and responsibilities as well clear procedures of making decision and exercising authority. Virgin Australia’s Corporate Governance 1 Board Charter Corporate governance practices and policies have been established throughout the financial years to ensure smooth running of operation strategies. Virgin Australia has well established recommendations that are streamlined to the outlined principles of governance which are stated in the Corporate Governance Section of Virgin Australia’s documents (Virgin Australia Annual Financial report 2014). The first recommendation which is aligned to or can be viewed as the first principle .performs the function of laying foundation for both the management and the oversight. This recommendation is constituted with the board charter and the board committee. The basic role of the Board is to ensure provision of strategic guidance for the company and play a key role of overseeing the management. The chief executive officer (CEO) has been delegated the authority to run the day to day activities of the management over the entire group. The CEO is mandated the authority to delegate powers entrusted to him as he deems fit. The directors are authorized to seek legal or independent professional advice from advisors who are suitably qualified before they consult with the chairman. Board Composition Currently, the board is constituted of ten directors five of whom are independent non-executive directors and includes the chairman. One is a managing director who is also the CEO. One of the directors was nominated by the Air New Zealand (ANZ) to be their representative. One director is a representative of the Etihad Airway, another was nominated by and represents Singapore Airlines and the final one was nominated by and represents the Virgin Group. All the nominated representatives are non-executive directors. The responsibility of the nominated committees is .to make recommendation to the board regarding the size of the board .as well as the appointment and re-election of directors. 2 Board Committees The Board Committee is constituted by the Board to provide assistance to help it in the performance of its responsibilities. It may also establish other committees to help it ion discharging its duties. The report of the Commonwealth of Australia (2003) elaborates that committees are very instrumental in enhancing the effectiveness of the Boards via further detailed oversight platforms and supervision of the management of the risks that are essential to the prosperity of the entity. In the 2014 financial year, the Board committee had four committees of directors which have been currently established in the organization. They include the audit and risk management committee, nomination committee, the safety and operation risk review committee and finally the remuneration committee. 2.1 Audit Process The Audit and risk management committees comprises of the mainly of independent directors. The policy statement of Virgin Australia (2014) specifies that a director is considered independent de bending on the ability to invest and prioritize their bets interest into serving the company and its shareholders in such a way that the director is capable of practicing objective independent judgment. This committee also has independent chair and at least three members who are financially literate. It is also a basic requirement that two of the members should have relevant working experience and qualifications. The major responsibility of the audit and risk management committees is to assess and review the integrity of financial reporting. In addition, they keep in check the performance of both internal and external audit. This entails examination of the independence, qualifications and the charges of the external audit. They review the policies that govern risk management including their risk profiles, processes and insurance cover. Finally, they ensure compliancy with regulation authorities by reviewing compliance frameworks (Virgin Australia Holdings Ltd, 2014). 2.2 Remuneration Practices The remuneration committee only comprises of the non executive directors who are majorly independent. The committee also has an independent chair and at least three members. The secretary of the company is also expected to act as the secretary of the committee unless stated otherwise. Remuneration practices in Virgin Australia’s operations involve review of performance practices and their outcomes for the CEO and the Group Executives, establishing the policies through which the Group Executives are recruited, retained or terminated. They also perform the function of recommending diversity objectives to the Board (Virgin Australia Annual Financial report 2014). 2.3 Nominated Committee The nomination committee is similarly made up of non-executive members only. Its composition is also made up of an independent chair and at least three other members. Unless otherwise determined by the by the committee, the secretary of the company also acts as the secretary of the committee. Some of the function of the roles and responsibilities of nominated committee include the inducing and enhancing ongoing development of directors. They perform the appraisal of the directors individually as well as its constituent committees. They also plan the succession processes of directors and CEO (Virgin Australia Annual Financial report 2014). 2.4 Safety and Operation Risk Review Committee It has a similar composition as the other committees. The major roles and responsibilities include overseeing the health, safety and security risks. They also ensure maintenance of best practices in the management of operational safety. This entails compliance with regulatory and legal authorities and the control of internal systems. They establish operational risk management system and ensure its operation. Additionally, they monitor serious investigations and actions associated with remedial. Value Addition The second principle entails structuring the Board to enable value addition. One of the critical aspects of corporate governance that well experienced directors usually tend to achieve is to generate the best out of the boards. The board carries out annual assessment of the board has performed in a given financial year as well as that of its committees and constituent individuals. Additionally, the board also engages the external performance evaluations which are facilitated and performed on regular intervals. In the entire financial year of the year ended 30 June, 2014, the board composition of Virgin Australia was made up of seven directors who were well structured to enable achievement of organizational objectives. Of the seven directors, five were independent non-executive directors and this included the chairman. There was one non executive director. The non-executive director was nominated by the Virgin Group to be their representative. The other director was the CEO who was also the managing director. Engagement with the Stakeholders One of the established principles of corporate governance of Virgin Australia is aim and fostering the respect for the rights of the shareholders. In essences, almost every structure or aspect of governing the operation of the company is constituted of independent directors who are eligible to present the best interests of the company and that of its shareholders. In addition, Virgin Australia has a well established platform that allows connection and engagements with its stake holders. Such a venue includes established internal Investor Relation (IR) function. The main objectives of IR include ensuring that the market is consistently informed about the position of the organization, its strategy, operations and outlook. IR also maintains communication as well as credibility with the investors, shareholders, analysts, business partner and regulatory bodies. In addition, they keep the board and management informed about the developments of financial markets and the perception of analysts and the investors. Ethical Challenges to the Governance Practices Armstrong (2004) explains that ethics have gain significance and have become vital component of corporate governance. The issues revolving corporate social responsibilities (CSR) are increasingly being addressed by the corporate governance researchers. Hirani (2014) observes that CSR is performing the social responsibilities without considering financial constraints and beyond laid down legal obligation. In addition, Birch (1998) agrees that corporations, business or business-like organization have cultural, social and environmental obligations to the communities they operate in or seek to operate in. this also entails economic and financial responsibilities to the shareholders and immediate stake holders. In other words, it refers to the ability of an organization to make decisions, pursue policies or act along the lines that are in incongruence to the values of the society they are operating in (Arjoon2005). There is a significant connection between ethics and governance. According to Francis (2000 P 9), “Corporate governance has come to imply good both in the moral and non moral sense.” In this instance, the non-morale perspective entails making decisions that are efficient and allocating resources appropriately. It also entails other vital aspects such as enhancing strategic planning. It the morale point of view, corporate governance is viewed as a tool for promoting ethical climate that is morally appropriate in its own capacity (OECD, 2012). In connection to the ethical issues, Virgin Australia has performed relatively well. The organization has establishes principle that govern the code of conducts of all the organizational member and promoting fairness, integrity and honesty. The company articulates what it considers as acceptable business practices for all its members. However, the structure of the organizational management of the Virgin Australia lacks the policies that enhance their commitment to the corporate social responsibilities. The organization does not have laid down community initiatives within its corporate governance structure. This implies that the issues associated with social responsibilities are either sidelined or vaguely linked to operation strategies of the company. Unless the current corporate governance system is restructured, it may not be able to accommodate such ethical issues. For instance, the current structure can be re-organized to create room or committees that will perform the roles and responsibilities of ensuring conformity with the objectives and values of the society. Conclusion A good corporate governance system is very instrumental in enhancing effective operation of agencies. Good governance is strongly associated with organizational performance since agencies can employ governance arrangements ton generate the desired outcome. The article has demonstrated that the corporate governance structure of Virgin Australia is well aligned so as to achieve the desired objectives. The company has well established strategies policies that lay solid foundation for management and the oversight, structure the board so as to enhance addition of value to the organization, promote ethical and responsible decision making the integrity in financial reporting, respect the rights of its shareholders and internal investors as well as ensure their engagements, recognize risks and manage them effectively and ensure fairness in remuneration exercises. The company performs well in ensuring ethical practices are adhered to by establishing guidelines to ensure the codes code of conduct of all the organizational members including all directors, employees and contractor working for the company are manned with the spirit of fairness, integrity and honesty. However, thy company has not established structure with its management to the corporate social responsibilities which is a global ethical issue. List of Reference Armstrong, A, 2004, Ethical Challenges to the Governance Practices of Corporate Leaders in the 21st Century. Available from Arjoon, S, 2005, Corporate Governance: An Ethical Perspective, Available from < https://sta.uwi.edu/conferences/financeconference/Conference%20Papers/Session%205/Corporate%20Governance%20-%20An%20Ethical%20Perspective.pdf> [March 11, 2015]. Birch, D E, 1998, Corporate Citizenship: Awakening the Possibilities. First national Conference on Corporate Citizenship, Melbourne, Deakin University. Commonwealth of Australia, 2003, Review of the corporate Governance of Statutory Authorities and Office Holder, Available from < http://www.finance.gov.au/sites/default/files/Uhrig-Report.pdf > [March 11, 2015]. Francis, R D, 2000, Ethics and Corporate Governance: An Australian Handbook. ydney, University of New South Wales. Grantham, J 2011, Corporate Governance Framework 2011–2015: Strengthening our commitment to Performance Improvement, Available from < http://deta.qld.gov.au/corporate/governance/pdf/corp-gov-framework-2011-2015-deta.pdf > [March 11, 2015]. Hirani, S 2014, Analyzing the nature of leadership role & Expectation, Available from [March 11, 2015]. OECD, 2012, Survey on Corporate Governance Frameworks in the Middle East and North Africa, Available from [March 11, 2015]. Virgin Australia, 2014, Annual Report Corporate governance statement: Virgin Australia’s Corporate Governance Framework, Available from [March 11, 2015]. Virgin Australia Holdings Ltd, 2014, Audit and Risk Management Committee Charter Available from [March 11, 2015]. Read More