Corporate Governance: Concepts and Practices Essay Example

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    Business
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    Assignment
  • Level:
    Undergraduate
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    5
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Corporate Governance 14

Corporate Governance

Table of Contents

Executive Summary 3

Importance of corporate governance criteria 5

Critical Review 7

Recommendations 11

References 13

Executive Summary

In the last decade, the corporate world has experienced fundamental changes in the manner in which entities are managed. Amongst the many critical issues that have arisen in the last decade, accounting frauds that have been reported seem to be the most disturbing. Companies like Enron and WorldCom have made headlines for engaging in accounting fraud. This has pushed regulators in the sector to emphasize on the importance of corporate governance. Corporate governance rides on the need for organizations to put into considerations the needs of all the stakeholders before undertaking any decision. One of the key pillars of corporate governance is ethical standards. Organizations are laying a lot of emphasis on ethical behavior as the main strategy for sustainable productivity.

This report focuses on Woodside Petroleum Company in the light of corporate governance. The report evaluates the principles and practices that the company has put in place in trying to conform to the requirements of corporate governance. The report seeks to critically assess the extent to which the company has implemented these policies and principles. In the same way, it seeks to establish how the company has complied with the Corporations Act which highlights the provisions that companies have to comply with in relation to corporate governance. In this process, practical steps that the organization has put in place in compliance with corporate governance are explored. At the end, some recommendations are given on how the company can improve its corporate governance.

Introduction

Woodside Petroleum Limited is one of the publicly traded companies listed on the ASX. It has been in operation since 1954 over which it has established itself as the largest dealer in gas and oil products. In assessing the issue of corporate governance, this company seems to be familiar to the majority of the Australian population. In less than a decade ago, the company was involved in a controversial contract with the Mauritian government which put the company on the spotlight for the wrong reasons. The subsequent audit of the contract later on revealed that indeed the government was poised to lose a lot of funds as a result of entering into a contractual obligation with Woodside Company. Surprisingly, this situation is not an exception to this company. The company has been found on the receiving end when it comes to controversial bidding and lobbying. In Australia, quite often the company has been accused by various regulatory agencies as a result of taking part in what is termed as unethical trading practices.

Having pointed out some of the issues this company has been accused of, it is important to emphasize that most of these activities contravene the laid down corporate governance policies and guidelines. Corporate governance emphasizes on the mutual benefit in the process of carrying out trading activities. The interests of all the stakeholders are taken into consideration in the process of carrying out business transactions. This has been put in place to ensure that the company does not capitalize on its profit-making agenda and forget its other objectives. Whenever it gets to a point where it is quite clear that there is a violation of the corporate governance principles of the company, shareholders will always raise their complaints to the responsible sources. This can be during the annual general meeting of the company. Through such forum, shareholders and other stakeholders are free to express their concerns over the corporate governanceissues or related matters.

Importance of corporate governance criteria

Organizations may differ based on various grounds. Such grounds could be the nature of activities that these organizations are involved in, which literally determines its objectives. In the same line, companies use different criteria to evaluate their corporate governance. The uniqueness of the criteria adopted is actually dependent on the priorities set by the main stakeholders of an organization (Shean 2010, p. 199). They are responsible for determining the growth of the organization putting into consideration the various prevailing factors in the business environment. These policies and guidelines act as a benchmarking tool for the organization to realistically evaluate its corporate governance. This is very critical especially in the current market environment, which has proven to be not only competitive, but also dynamic. For this reason, companies are forced to put in place mechanisms to ensure that proper relationship is maintained with the key stakeholders of the company (White 2008, p. 403).

Woodside Company’s corporate governance strategy is focused on fostering a culture that is defined by strong ethical observation and integrity. The company has noted the significance of corporate governance consideration in relation to attaining long term sustainable productivity. The company strongly believes in value creation through a strong ethical background that determines how operations are undertaken in the organization. The company’s corporate governance charter indicates that it has put in place critical principles and practices to guide in its operations. On regular basis, the company reviews its policies and principles in order to ensure convergence with the laws and regulations. This provides boundaries within which employees and other key stakeholders like the suppliers, contractors ought to operate within (Sharp & Stock 2005, p. 65). The objectives of the company are achieved within these parameters in order to ensure appropriate compliance with the corporate governance guidelines.

Besides the various policies and laws that the company has put in place, Woodside being a publicly listed company is expected to comply with a number of provisions guarding the operations of the publicly traded companies (Tricker 2011, p. 391). Part of the provisions is from the Corporations Act of 2001. In addition, there are also other Australian regulatory agencies whose main function is to provide specific guidelines for the publicly traded companies. The ASX Corporate Governance Council provides detailed recommendations regarding corporate governance rules that companies ought to comply with (Bricker B 2012, p. 61). On regular basis, this body monitors the operations of companies to ensure that the provisions on corporate governance are complied with. According to the information provided on Woodside’s website, the company has complied with all these guidelines pertaining corporate governance. The recent annual report released by the company in early 2014, the company revealed that it has complied with the related provisions on corporate governance.

Regardless of whether the corporate governance principles are issued by the company itself or the regulatory body, they are very important. All the principles provided are used for benchmarking purposes and for this reason, it makes it easier for third parties to assess the overall performance of an organization in relation to corporate governance (Sharp & Stock 2005, p. 54). In essence, these principles and laws make it possible for various stakeholders to trigger litigations in the situation where they feel the management has failed in complying with the relevant corporate governance guidelines. This can be well understood from the agency theory perspective. According to agency theory, the management has been given a mandate in organization to run its operations on behalf of the shareholders. Nevertheless, quite often incidences have been recorded where the company engages in unacceptable activities which leads not only to financial loses on the part of the shareholders, but also tainting of the overall image. For this reason, the shareholders appoint directors to work on their behalf to ensure that the management is complying with the corporate governance principles as a basic requirement in safeguarding the assets of the organization (Kang, Cheng & Gray 2007, p. 205). In the situation where the company has been involved in these unacceptable activities, the shareholders are able to provoke legal processes to ensure that those held responsible are held accountable to their actions.

Critical Review

Quite often, when the term impunity is used, references are made in relation to corporate affairs. Woodside Company has designed a very impressive corporate governance charter. Opening the company’s website leads one to clearly designed corporate governance principles that highlights how serious the company is when it comes to compliance with corporate governance. In addition, the annual financial report also emphasizes the company’s commitment in complying with corporate governance principles put in place. To a certain extent, this is anticipated because the company must showcase its operations as clean in order to ensure long term sustainability (Shean 2010, p. 198). This has been found to be selling points and therefore the company must portray good image as regards corporate governance.

In spite of the strict measures that the company has put in place in relation to corporate governance, it has beeninvolved in activities that go in contrary with the provisions of corporate governance. Journals have recorded that indeed between 2006 and 2013, the company has been accused of many activities that have gone in contrary with corporate governance provision. In fact, it was last year in April that the court was informed of how the company discriminatorily underpaid some of the workers in some parts of the country. The facts that were presented in the court show that those workers who were being underpaid were foreigners. Similarly, in the year 2009, the company was accused of giving malicious public statements with the motive of trying to convince the regulatory bodies to give the company free carbon permit. The fact that it was later proven in a court of law that indeed the company got involved in such unethical activities show the company is not committed to adhering to its corporate governance provisions.

The basics in corporate governance emphasize on balancing the interest of all the stakeholders of any given organization (Bricker 2012, p. 71). In this case, since the company got involved in some dirty activities, it is clear that it never considered the interests of some of the stakeholders to the company. For instance, underpaying workers indicates that the company is not keen on meeting the needs of its employees. Such information will not only ruin the morale of workers, but in the same way change the attitude of other stakeholders towards the company operations (Leblanc & Gillies 2003, p. 6). This is a clear contravention of the guidelines provided in relation to observing ethical conduct. This shows that some of the employees are not undertaking what they are supposed to be doing in the organization. According to the rules of corporate governance, this points to a serious lapse in the manner in which operations are undertaken in the organization. It is important to highlight the fact the company has the board of directors; chaired by the chairman to the board whose main role is that of oversight (Kang, Cheng & Gray 2007, p. 196). The board is supposed to perform oversight function without necessarily interfering with the operations of the organization.

The fact that the shareholders have appointed an oversight body and yet is failing its responsibility arouses the suspicion of direct involvement of the board of directors. Any time the board fails in providing its oversight roles opens up the door for a new board to be appointed (Kang, Cheng & Gray 2007, p. 199). In extreme cases of this nature, the management of the company could be liaising with the board and therefore swindling the company indirectly. It is interesting to note that such flaws are taking place even after the company has put in place mechanisms to ensure the oversight body performs its functions appropriately. For instance, the company has granted the independence of the board of directors in order to facilitate their functions. The board consists of only one employee of the company to ensure that there is no room for compromise. This is in line with the principles of corporate governance which limits the number of employed members of the board to two (Kang, Cheng & Gray 2007, p. 204). It is clear that the company has played its part in ensuring that the board of directors’ is very independent.

In spite of the criticism leveled against Woodside Petroleum Company, it is also important to appreciate that it has put in place mechanisms to ensure corporate citizenship. This has been achieved through environmental awareness and overall ethical practices. The company has invested quite a substantial amount of resources in fostering its social responsibility objective. The information provided on the company’s website indicates that indeed the company is financing several projects in the communities around in order to help people within those communities deal with social issues facing them. For instance, there is a program that has been put in place to support early childhood development. This is meant to support the less-privileged children in the community to access early childhood development services required. In addition, the company’s calendar indicates that there are other programs like, ‘unearthing scientific potential of young minds’, ‘ngura nyingu art exhibition 2013’. These are just some of the programs that the company is using as a way of giving back to the society. This clearly portrays the fact that the priorities of this company extends beyond profitability (White 2008, p. 402). The company is concerned with the affairs of the indirect shareholders like the overall community. Part of the company’s net profit is appropriated into financing the community development projects. This is based on the understanding of the need to ensure long term sustainability of the business.

From the information gathered, the commitment of the company in complying with corporate governance goes beyond the various programs that have been highlighted above. The company is keen on fostering constructive relationship with the communities within which it carries out its operations. This is in tandem with the expected practices for market leaders like Woodside. At the same time, for Woodside to be established as a leader in upstream oil and gas industry is based on its capacity to attract and retain highly competent staff. This is important putting into consideration the fact that corporate governance factors all stakeholders of any given organization (White 2008, p. 406). The organization boasts of its ability to attract the best talents that have been the driving engine behind innovation and creativity in the company. The human resource function of the company embarked on tedious process of seeking to unearth the best strategies for employee retention in 2013 and this shows the efforts the company is putting in place to reduce employee turnover. Lastly, this being a company dealing with exploration, environmental concern cannot go unmentioned. The company has also indicated its commitment to ensure environmental protection. The company has invested a lot of funds to promote research and development with the aim of seeking to find appropriate ways of carrying out environmental friendly production.

Similarly, sustainable operation seems to be critical in the company’s strategic planning. The company has emphasized the fact that it is concerned not only about today’s productivity, but more important is long term. All the programs that have been put into place with the view of investing in the community are geared towards ensuring sustainable productivity. With this kind of focus, it makes it a bit easier for the company to strengthen its control measures for ethical behavior. Inasmuch as this is likely to take more time, the company will be able to address the core factors for corporate governance in the long run. Therefore, the company seems to be on the right track in relation to attaining sustainable productivity. The various unethical activities that the company was reported of having taken part will fade away if the company sticks to working sustainably. This makes it possible for the company to put the needs of the community and other stakeholders into consideration in every undertaking that it is involved in.

Recommendations

As pointed out in the last part of the above section, the company is on the right course of ensuring sustainable production in spite of the various unethical activities that the company has been accused of. It is very possible for the company to turn its image into a better one. In order to attain this, the company ought to put in place a number of considerations. The shareholders must instigate an audit into fraudulent trading activities that have been reported against the company. Those responsible for such dealings ought to be held accountable. This will serve to publicly portray that indeed the company is committed to fighting unethical practices. In addition, the company will be required to ensure high levels of transparency and accountability. This in line with the previous issues raised against the company in relation to fiduciary deals. The company must ensure that key processes like contractual arrangements must be done with a lot of transparency. This can also be achieved through proper reporting procedures in the organization. Besides, the company ought to ensure that its goals are aligned with the interests of all stakeholders including the suppliers, contractors, employees, shareholders, the government, the community, the customers, etc. This is quite paramount if the company has to attain corporate governance goals. This helps to reduce conflicting of objectives of the organization. These are just some of the guidelines that the company can put in place to ensure that it meets its corporate governance objectives.

References

Bricker B 2012, Corporate Governance: Principles, Policies and Practices, 2nd edn, Oxford University Press, Oxford, pp. 63-85.

Kang, H, Cheng, M & Gray, SJ 2007, ‘Corporate Governance and Board Composition: diversity and independence of Australian boards’, Corporate Governance: An International Review, vol. 15, no. 2, pp. 194–207.

Leblanc, R & Gillies, J 2003, ‘The Coming Revolution in Corporate Governance’, Ivey Business Journal, September/October, pages 1-11.

Nicholson, G.J & Kiel, GC 2007, ‘Can Director of Studies Impact Performance? A case-based test of three theories of corporate governance’, Corporate Governance: An International Review, vol. 15, no. 4, pp. 585–608.

PAIB 2004, Enterprise Governance – Getting the Balance Right, International Federation of Accountants, NY.

PAIB 2009, International Good Practice Guidance- Evaluating and Improving Governance in Organizations. International Federation of Accountants, NY.

Shean, R 2010, ‘Good Governance – a tool for better management and outcomes’, Journal of the Chartered Secretaries, vol. 62, no. 4, p. 196-204.

Sharp, CA & Stock, H 2005, ‘In search of a program logic for the evaluation of corporate governance and organizational performance’, Evaluation Journal of Australasia, vol. 5, no. 2, pp. 48-59.

Tam, O K & Tan, MG 2007, ‘Ownership, governance and firm performance in Malaysia’, Corporate Governance: An International Review, vol. 15, no. 2, pp. 208–222.

Tricker, B 2011, ‘Reinventing the limited liability company’, Corporate Governance: An International Review, vol. 19, no. 4 , pp. 384-393.

Tricker, B 2012, ‘The Cultural Dependence of Corporate Governance’, Keeping Good Companies, vol. 64, iss.1, pp. 27-31.

White, DS 2008, ‘Acting in the public interest’, Journal of the Chartered Secretaries, vol. 60, no. 7, pp. 401-407.