BUSINESS AND CORPORATIONS LAW Essay Example
3CORPORATE GOVERNANCE OF THE PUBLIC COMPANIES IN AUSTRALIA
Recommendations related to the public companies in Australia
22 September 2015
It is basically agreed that incompetence corporate governance in Australia has been the reason for failure in for some corporate in the country. In order to strength the corporate governance of the public companies in Australia, the Australian Securities Exchange (ASX) has inaugurated some essential recommendations. In particular, the ASX have been given the mandate to recognize the limitations to a good Governance of the public company. In addition, ASX has been given the obligation to scrutinize and recommend the way to make the corporate practices more effective. These recommendation by the ASX council has served an important role in addressing the weakness and enhancing the improvement of the public companies in Australia. More so, the recommendations have been seen as a way that can be used to promote and advice on the issues that are related to good Corporate Governance of the public organizations in Australia.
The reviewed edition of the recommendation have a total of eight principles and as well as twenty nine recommendations. In the edition, the recommendations are set to act as guidelines that are purposeful in upgrading the public companies. As such, the key objective of the reviewed edition is to offer guidelines to the companies so as to attain resourceful corporate governance outcomes. Therefore, the prime objective of this paper is to discuss the purpose of the recommendations that were issued by the ASX council and the application of these recommendations to the small private companies.
Question 4a) Explain what was the purpose of these recommendations is, why they were introduced and what issues they were trying to overcome.
To start with, the new edition of the recommendation was released the year 2014 and came into effect on the same year. Therefore, the release of these recommendation served numerous purposes to the public company in Australia (Www.chartedaccounts.com 2015). First, the new edition of the recommendations changed the issue of the social and environmental risks that were recognized across the public companies. Basically, the recommendations focused on addressing the concern of the society, the workers, and the government. In this context, the changes released by the ASX council ensured that the stakeholders that are concerned with the business operation are protected against any negative effect that the company may come across. It is this in this purpose that the government also wanted to enhance that businesses continue and operate successfully.
Secondly, the release of these recommendations by the ASX served with the purpose of improving diversity in the workplace. In this the current edition, the changes in the release included updated sanction on diversity. These sanctions have been improved to allow companies to hire relevant workers with the act of gender equality in the place of work. The recommendations approved companies to provide a report on the subject of gender equality rather than reporting on the positions that are held by men and women in the workplace. Importantly, with such recommendation there will equality in the public companies hence the entities become improved in the line of operation.
Also, the release of the changed edition has importantly ensured that the public is aware of the independent of the directors. As a result of reviewed recommendations, the companies is supposed to report to the ASX any change regarding the independent directors. In this case, the ASX monitors the directors’ status and any transformation regarding their independence. Additionally, the recommendations were important because they enhanced the formation of a committee that is used to deal with the risks related to the companies (Www.chartedaccounts.com 2015) the committee that was identified by the ASX is supposed to work independently, and it has the mandate for applying a risk management outline. The risk management framework is to enhance transparency and assess the risks that the have been taken by the companies. Also, through the new recommendations the public was open to know the investors related to the public companies. The corporate practices of the public companies are correctly disclosed in the governance network sites. This allows the companies to reveal their governance where all members of the public can review.
Importantly, the recommendation and principle that were released by the ASX have played in enhancing that each company should have well organized audit department. The purpose of the audit department is to help the companies in evaluating and humanizing the company’s internal operations. The employee nominated to work as the head of the audit department, was given the obligation to work independent in ensuring that the board members sustain an open flow of information so as the board is aware of the company operations. On the other hand, the recommendations served the purpose of enhancing that the public companies has an inspired and effective team of board members. The AXS council proposed that the formation of a committee would be suitable in enhancing the board members are dynamic and as well as motivated. More so, the corporate of public companies believed that with a Nomination Committee, the directors of these companies will be transparent. The committee key purpose is to ensure directors are inspected in the case of hiring and re-hiring.
Reasons for the AXS introducing the recommendations.
The key drive for the corporate was to offer the purposeful guidelines to the AXS recorded companies. Also, the corporate introduced the recommendation so as to ensure that the recorded entities follow the rules and regulation so as to attain the corporate objectives. As the changed recommendations were released during world financial crisis and much consultations were done before implementation. Therefore, there are key reasons that enacted the formation of the recommendation to be followed by the registered entity. The reasons are as follows;
To start with, one of the key reasons that contributed to the introduction of these recommendations was to enhance and disclose the transparency in the entities that were recorded by the corporate. In this case, the corporate focused on building an accountable team of the board. This could have been triggered by the fact that some of the board chairs in the public entities may tend to become unreliable with the functioning of the public companies. Therefore, corporate recognized that it was essential for AXS entities to follow numerous recommendation so as to ensure that the members are transparent with the financial matters that are related to the listed entities. In any entity, honesty is the key drive to the success of the business. Thus, with the recommendation the secretaries of the entities will work with total honesty regarding the financial dealings of the company.
The other reason that lead to the introduction of the recommendations was because the corporate wanted the list of companies in the ASX to be headed by accountable secretaries. Regarding the matter of the company listed by the AXS, the chairperson is required to a person who is accountable. The chair should be accountable to the board members and advising the members on the issue related to the general control, and coordination. More so, it is the obligation of the entity secretaries to enhance that the board members are familiar with the development of the directors.
Also, another reason that contributed to the introduction of these recommendations was motivation. In any business, the sign of motivation can be identified in various ways. As such, in the corporate governance it was realized that the board members would be motivated to the introduction of the recommendations. This was attained through the creation of a committee that was obligated to review the process of hiring directors. As a result, with a motivated team of board members, the listed companies will attain its objectives and be successful in operation.
Another reason that lead to the introduction of the recommendations was the effect listed entities to the stakeholders. The stakeholders included the workers, members, local people and the government. The recommendations introduced so because the operation of the entities could have imposed negative effect the stakeholders. Such effects included the environmental and economic risks as well as the social risks. Eventually, when a business is exposed to the mentioned risks, it can be hampered in the attainment of its goal. With the recommendations, the corporate viewed these risks to be manageable. Therefore, being one of the main reason for the introduction of the principles and recommendations.
The issue that the Corporate Governance tried to overcome
The introduction of the recommendations by the corporate was viewed as a move that allowed different business owners and companies to offer valuable understandings on governance issues. As the recommendations acted as guidelines to the various business that were brought together by the Corporate Governance. For a long time, the recommendations that were introduced by the governance act as a motive to overcome some drawbacks affecting the entities that are listed on the ASX. Therefore, the key issue that the corporate wanted to overcome were as follows.
To start with, the issue that the corporate tried overcome was business failure. In the case of poor management, any entity either private or public will not succeed. Business failure can be as a result of internal and environmental weakness. Therefore, the ASX realized the need for improving the corporate governance of the businesses by introducing recommendation that were compliable to business. Moreover, the inauguration of the committee in the listed business that are governed by the ASX, can be viewed as one way of improving the business operation and preventing the failure of the entities managed by the corporation. It is this issue that the corporate governance has tried to overcome in the managing the listed entity.
On the other hand, with the recommendations, the corporate governance wanted to overcome the issue of poor decision making in the businesses. The destiny of any business is lied on the hand of the decisions that the managers are implementing. As such, in most cases the public entities are characterized by the poor and wrongful decision. Therefore, the corporate governance that was formed by the ASX tried to overcome the problem of poor decision in the entities. The most appropriate way to enhancing good decision was done through the creation of committees that would worked together with the board of the business registered with the council. With the issue of the poor decision implementation dealt with, any business can improve and operate to achieving its objective.
Another issue that the corporate wanted to overcome was the issue of business compliance. Any business operating in any country should comply with the law of business. As such, this is applied to any entity either public or private. Business should comply with the rule of taxation and registration. Also, the people working in these businesses should also comply with rules guiding any entity. Therefore, the corporate tried to advice the entity registered on the relevant issue of compliance. In this case, the corporate enhanced the business operate in legal doings and the employees working in the entities are trustworthy, accountable and as well as transparency. Lastly, with the business complying with the law, there will be the promotion of good governance performance in public entities in Australia and these businesses will be aligned as the best business in the world.
Question 4b) Explain why many of these recommendations about corporate governance would or could not apply to small private companies.
Basically, private companies are owned and managed by a reasonably small number of members. In addition, to the ownership of small private companies, the government cannot claim the ownership of a private business (Wheelwright, 2010). It is the mandate of the members of the private business to trade in their share in the exchange market. In other words, the private companies are owned and operate privately, and they are not managed by the state. In some cases, the private business are referred to as unlisted entities. Although, the private companies are less noticeable than the public business, private entities have a key significant in the economy across the globe. In the issue of shareholders, private entities shares are exchanged publicly. In a better understanding, private businesses is owned by the founders and the investors trading with the businesses.
Therefore, as the word suggest, private companies cannot comply with the recommendations imposed by the corporation governance. In the earlier discussed question, we have identified that the ASX council act as the backbone of the public entities. As such, in every task that the public business undertaken the corporate governance is involved in one way or the other. To a better understanding, it is clear that ASX corporate governance is a key council in the management of the public businesses. The governance is involved in the operation of public companies through the introduced recommendations. However, these recommendations cannot be applied to the private businesses because of a numbers of reasons (Loewen, 2008). As such, these reasons that cannot allow private business to comply with the corporate governance recommendations include the following;
To start with, private business does not have broad report requirements. Thus, the obligation of reporting the issue of transparency is less comprehensive. Therefore, the private companies cannot apply the corporate governance recommendations, because transparency is of the requirement of the public entities by the corporate. In contrast with the public entities, transparency is done in a broad manner. For instance, the corporate governance requires the public business to publish the financial report in regular basic. The corporate governance authorizes the public company to show the level of transparency through issuing a financial report. On the other hand, the private company is not required to reveal details regarding their operations. More so, private businesses are not entitled to reveal their financial record to the public. This is a requirement by the corporate governance council. Thus, they cannot apply the recommendations applied by the corporate council.
Private business cannot apply the corporate governance recommendations simply because the recommendations suggests that public business should file certain materials relating to the yearly general meetings. In Australia, the public entities have an obligation to comply with corporation rules that governance their operations. For such rules to be followed the recommendation by the corporate governance has to be put in place. Basically, the report on meetings will hugely affect the accounting record of the company. However, as private companies has different ways of reporting the yearly general meeting with their accounting standard being overlooked by the private counsel involving the entity.
Furthermore, private business cannot apply the corporate governance recommendations because of the state of ownership. In this case, private enterprises are owned by the founders and as well as the owners. However, corporate governance recommendations manage the business that are owned by the government, investors as well as the local community. More so, corporate governance recommendations suggest that a business can be operated by the public agencies. As it is a different case, in the private enterprises the owners are the one who is in charge for the management of the business and as well as the control of the business surpluses. In simple terms, the owner of the business is the only figure who is entitled to the capitalization of the private entity.
Lastly, private enterprises cannot apply corporate governance recommendations because the entities are more focused with growth and expansion. On the other hand, the corporate managing the public business pay much attention to serving the public in an honesty manner. In a research that has been carried out, it show that private companies’ key focus is to expand. In some case, expansion for private company has been arguably viewed as an objective. However, the corporate expect the company to have the objective of serving the public with fairness. Eventually, it is clear that the private entities invest more maintainable than the public enterprises. This is driven by the fact that private business refers growth and expansion as the key objectives for their operation (Putney, 2008).
Finally, what cannot make the private companies apply the recommendation by the corporate governance is the market domination. It is proven that private companies dominate the market. As such, the recommendation may hold back the private enterprises in the case whereby the company wants to dominate the market with a new improved product. Reason being the corporate may take a longer process in offering the private company a go ahead signal in the case of expanding their market.
In conclusion, therefore, for better management, the AXS recorded enterprises should review and maintain the recommendations that are governing the public companies. As such, the council should emphasis more on the measures that will enhance the growth of the public businesses. Moreover, the council should introduce the recommendations that are positive in order to facilitate the accountability and the transparency of the secretaries, the chair and as well the board members working in the entities. Accordingly, the council should put more focus on introducing recommendations that will ensure market dominance by the public entities. Finally, any mistake in the public entities should be reviewed, and new recommendations embraced.
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