Corporate Governance in Australia Essay Example

  • Category:
    Business
  • Document type:
    Case Study
  • Level:
    Undergraduate
  • Page:
    1
  • Words:
    699

5 Corporate Governance and Marriott

Corporate Governance in Australia

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Corporate Governance and Marriott’s expansion into Australia

Corporate governance can be defined as the framework of standards, systems, rules and procedures within and by which regulatory bodies exercise their control in corporations. This encompasses the systems by which corporations together with those in management and control are called to account for their activities. As a matter of fact, corporate governance significantly influences the manner in which objectives and strategies of the company are set and achieved, as well as how performance is enhanced and optimised. Effective corporate governance mechanisms allow corporations to create value through innovation, entrepreneurship, exploration and development. Such mechanisms ensure that accountability is maintained through control systems that commensurate with the risks associated with the business (ASX, 2010).

Standards of corporate governance in Australia

Corporate governance practices in Australia are constantly evolving in the light of the dynamic circumstances of a company and must be customized to match those circumstances. In addition, corporate governance must evolve in a global context, especially given that operation of large corporations is global in nature. Thus, there is no particular model of good corporate governance. This report notes that Marriot’s expansion into Australia and its intention to be listed on the ASX must be done in accordance with corporate governance standards in the ASX. The ASX Corporate Governance Council’s is responsible for issuing standards and recommendations on good corporate governance. The minimum standards are binding and must be adhered to but the recommendations are not mandatory and cannot, in themselves, avert corporate failure or poor risk management practices or even poor corporate decision-making in particular. Instead, they are aimed at providing a reference point for corporations with regards to their corporate governance structures and practices (ASX, 2010).

Why is it important to Marriot?

Corporate governance structures and practices are important factors in determining a company’s cost of capital in an international capital market. Even as, Marriot plans to be listed on the ASX, as a global company it must be well equipped to compete globally and to uphold and encourage investor confidence both in Australia and globally. In an examination of the practices of corporate governance practices in Australia, the country starts from a position of strength. Compared to other enhanced corporate governance rules in the US, as outline by the Sarbanes-Oxley Act, Australia plays in the top league. However, it is important to note that corporate governance must continuously be periodically reviewed to ensure they continue to reflect high standards of transparency and accountability both locally and internationally. Marriot will have to operate under strict listing procedures and after being listed, and among other things they will be required to provide a statement in the annual
report disclosing the extent to which they have adhered to the corporate governance policy recommendations made by the Corporate Governance Council in the reporting
period (ASX, 2010).

In case Marriot fails to follow all
the recommendations, the company will be required to point out the recommendations that have not been followed
and respectively give reasons for doing so. In Australia, annual reporting does not reduce the company’s
obligation to disclosure it financial activities under ASX. Marriot will also be required to establish written policies
designed to ensure that it fully complies with ASX Listing Rule disclosure standards and to promote accountability at a senior executive level of the company (ASX, 2010).

Cost of Capital

Capital is the money used by a company to finance its business. The capital can come from investors in the form of common stocks of the company (known as Equity capital) or from funds borrowed from lending institutions or other instruments, known as debt. The cost of capital is largely the cost of doing business (Ruback, 1998). ASX assists listed companies to reduce their cost of capital through maintaining of efficiency in the market and ensuring that the listing conditions under the Corporations Act are followed by listed companies.

References

ASX (2010). “Corporate Governance Principles and Recommendations with 2010 Amendments”. Retrieved May 3, 2011 from http://www.asxgroup.com.au/media/PDFs/cg_principles_recommendations_with_2010_amendments.pdf

Ruback, R. S. (1998). Marriott Corporation: The Cost of Capital (Abridged). Harvard Business School 9-289-047, Rev. April 1, 1998.