Aveo Group Limited: An Analysis Of Financial Management Policies And Corporate Social Responsibility

Financial management policies and corporate social responsibility

Question:

Discuss About The Project It Has Been Mentioned According?

This study is about Aveo Group Limited which has been in the field of re-establishing retirement communities for the last 25 years. Not only Aveo Group has re-established but also developed and managed the living of senior community. Aveo Group has accommodations all over Australia including the suburban areas, main country and coastal areas.

In this project it has been mentioned that according to the Four Corners study Aveo was accused of ripping off customers almost all of them elderly and vulnerable at its retirement villages. There are also allegations that Aveo had in place complex contracts and exorbitant fees.

Therefore this study aims to look into the inside happenings that lead to such a shameful result. Here in this project the financial management policies and practices with respect to their social responsibility and social outcome is evaluated and Aveo as an investment proposition has also been discussed.

Financial management policies of Aveo group Limited should be such that, it does not hamper the social duties performed or the responsibilities towards its environment in which it operates is not disturbed (Lanis and Richardson 2012). But in reality this might not be the scenario (Hilson 2012). In present times the situation is such that the economic, social and environmental concerns are becoming a mandate concern for the companies and in order to maintain it the entire system or operational hierarchy is required to be integrated or disintegrated as the case may be (Brigham and Houston 2012).

Generally there exists a positive relationship between financial management policies and corporate social responsibilities performed, but in case of Aveo Group Limited there exists an anomaly (Brigham 2014). Aveo Group Limited as a company neither could maintain financial management policies nor could maintain CSR because the financial policies were not in accordance to the stakeholder theory that is each and every stakeholder of business should be treated equally and should be given equal amount of rights in decision making of the organization (Brigham and Ehrhardt 2013). Now as a stakeholder is a part of the company, therefore his or her welfare falls under the domain of Corporate Social Responsibility, thus the CSR duties of Aveo were also hampered (Higgins 2012). This ultimately led to reduced profits and increase in the burden of liabilities which very naturally forced the company to rob its customers out of their money in the form of exorbitant fees and other means (Petty et al. 2015).

Anomalies in Aveo Group Limited

Experts in this domain of study are of the opinion that a good CSR record results in increase in employment or employment desirability in the company and also an increase in the rate of investment in the company (Mathuva 2015). But Aveo, in relation to this matter failed in both respects, that is, it neither had a good CSR record nor did it have a proper stakeholder theory to utilize, which led to further problems (Aguinis and Glavas, 2012).

Another cause that led to the downfall of Aveo Group Limited is that the statistical analysis might not be done properly, that is, it might not be free of errors and also the exclusion of investment from the research and development domain might be another reason (Epstein and Buhovac 2014). Some of the policies that are implemented by the company are Integrity in Corporate Reporting, Timely and Balanced disclosure and Security holder engagement. Integrity in corporate reporting refers to the policy in which the company has arranged to set up an Audit and Risk Committee which will work according to the laid down references approved by the Board of Directors. On the other hand Timely and Balanced Disclosure is another policy set up by the group in which there is a provision of communication policy as well, both of which are established with the intention of checking the compliance of the company operations with the periodical disclosure requirements of the Corporations Act and the ASX Listing rules (Edmans 2012). The last policy that is being discussed in this study is the Security holder engagement policy which has been established by the group keeping the stakeholder theory in mind. This policy aims to keep the security holders informed about the important decisions and major developments that is going on in the company. Now these three policies though appear to have a strong hold on the ethical and operational scope of the company did not really help Aveo in reducing its liabilities or increasing its profit. Though the policies were essentially created with an aim to enhance the operating profit of the firm and improve the level of CSR as well (Kim, Park and Wier 2012).

After the investigation conducted by the Four Corners, it came into light that the 11.5 percent plunge in share price of the company was due to the unreasonable fees claimed by the group from its customers. Shares of Aveo Group have observed a fine change of -0.40% or -0.01 in the most recent times. With time as the earning season comes to an end, investors look for companies which have a steady track record. Aveo Group Limited will surely loose on a huge base of investors for the negative feedback that has been published. Currently, the 14-day Average Directional Index (ADX) for Aveo Group is presently at 20.98. Generally an ADX ranging from 0-25 would mean that it is an absent or weak trend. A value of 25-50 would mostly interpret a strong trend. A value of 50-75 would mean a strong trend, and lastly a range of 75-100 would result in an extremely strong trend. ADX is particularly utilized to measure trend strength but not direction. The data calculates as per the exhibit has been given in Appendix (CSRHub – Sustainability and Corporate Social Responsiblity (CSR) ratings on over 17,487 of the world’s largest public and private companies., 2017).

Impact on profitability

In addition as per the data calculated on stock prices, the price has been taken from September 2015 till August 2017. There has been a vital fluctuation in the stock prices. However, as per the base line of 5% in the stock return, the fluctuation has been within the limit except the fluctuation in June which had crossed the base line and then further decreased as it has been accused of ripping the retirement villages which extended its volatility. On the contrary, the volatility has been received maximum in the last month that is August 2017, explaining the investment is not clear because of their fees and confusing contracts.

                                                                    Figure 1: Stock Returns of Aveo

On the other hand, the traded volume of Aveo has been fluctuating and showing the changes to be 92.69% in traded volume which creates an unpleasant environment for investment and that is why the fluctuations has been rampant. Also, because of the stock prices being wildly ranging the change in trade volumes has been irregular.

                                                                            Figure 2: Traded Volumes of Aveo

Mulpha an well known investor in Australia has suffered a loss due to the negative feedback going on, that came into exposure due to the publishing of Four Corners. Mulpha’s 22.6% strategic stockholding in Aveo did not prove to be profitable (Hu et al. 2015).

The report presented by Four Corners stated that the company had enough loopholes to fail drastically. The report also brought into light the fact that a number of policies and reforms that were established by the management of the company in the last ten years were not put into consideration that is they were not even implemented (Eyles, Wild and Eversole 2014). Aveo’s shares on the stock exchange of Australia saw a plunge of 11.5% after the exposure of the report. This forced Aveo to arrange for an emergency board meeting and hence announced a buy-back of 9%. It has also been claimed by the higher authorities of Aveo that no board meeting was held in reality. Mulpha though is of the opinion that the volatility of shares is the primary reason for the decision of buying back the shares.

Conclusion

Aveo Group Limited, as a result of the misdeed committed by the company led to total disaster both in terms of its goodwill and total revenue incurred or operating profit. As it has been observed in the study Aveo Group Limited though had implemented financial management policies but they were not in accordance with the corporate social responsibilities or duties that the company had to perform in the due course of time. Moreover the management policies introduced by the company like Corporate Reporting and Timely Balanced Disclosure were not implemented properly. All these factors added with the poor company regulations led the company to commit the unethical activity of robbing its customers off exorbitant fees and wrongly trying to remove the old tenants in order to bring new ones with more money. All these led to the downfall of Aveo Group Limited, one of the leading firms in Australia in the field of re-establishing retirement communities (McDougall, Barrie and Lange, 2017).

References

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McDougall, K., Barrie, H. and Lange, J., 2017. South Australia Retirement Village Survey 2016.

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