In the global scenario, compliance with effective corporate governance practice is very crucial to survive in the environment because organizations that follow corporate governance practices enjoy a wider recognition in the market and sustain for a better future. The annual reports of Woolworths, Wesfarmers, and Bega Cheese have been taken into evaluation through this report. All these companies are listed on the Australian Stock Exchange and enjoy a mass recognition because of their corporate governance practices. Besides, these companies operational success in their respective fields clearly highlight the significance of corporate governance principles.
· Woolworths Ltd
The corporate governance statement and annual report of the company comprise of both financial and non-financial information. Furthermore, the corporate governance statement reflects detailed information of its complied principles that can easily assist users in their decision-making processes.
The company has a self-sustained composition of board that comprises of CEO and other non-executive directors (Woolworths limited, 2017). Moreover, such non-executive directors are primarily of independent nature and who together with the CEO possess a range of skills to assist the company in attaining its obligations.
The Board is responsible for reviewing strategic direction and approve the business or strategic plan of the company. It is also liable for financial oversight of the company by adopting the annual budget and capex plan. Further, it also reviews and monitors the management procedures for integrity of financial reporting. Besides, performance evaluation of board performance together with the directors is also conducted by the Board as its major role (Matthew, 2015). Moreover, it also has the role of accounting for social responsibility and remuneration planning of the company.
In relation to remuneration, the company gained the status of Gold-Tier Employer because of its effective remuneration approaches (Woolworths CG, 2017). All the directors of the company are awarded fairly on the basis of their obtained targets. Nevertheless, such remuneration process is managed by the people performance committee and there are three other committees namely nomination committee, sustainability committee, and audit, risk management, and compliance committee (Laux, 2014).
The nomination committee is liable for reviewing the composition and size of the Board and mix of skills, expertise, and experience. It also identifies and assesses director candidates for making recommendations. Besides, it also reviews succession plans for the Board (Woolworths CG, 2017). The audit and risk management committee are liable for monitoring and reviewing key processes and policies so that recommendations can be made. Further, it reviews and oversees the quality and efficiency of external audit. In addition, it also reviews the efficiency of risk management framework of the company. The sustainability committee is primarily responsible for overseeing health and safety policies of the company. It also oversees reputational influences of the company’s strategies and practices (Benabou & Tirole, 2010). Moreover, it also ensures whether the company has proper plans for dealing ethically and fairly with their customers, competitors, suppliers, and other stakeholders.
Woolworths has also disclosed material information regarding usage of non-IFRS financial information for better understanding (Woolworths CG, 2017).
Wesfarmers
The amount of details contained in the corporate governance statement and annual report are adequate and appropriate in nature because the company has disclosed all kinds of material information needed for decision-making on the part of users.
In relation to composition of board, the company has various directors who bring an effective mix of expertise, diversity, skills, and experience. Furthermore, gender diversity also forms part of such composition. It includes nine directors out of which eight are non-executive directors (Wesfarmer CG, 2017).
Nevertheless, when it comes to roles and duties, the Board is liable to approve the strategic direction of the company, guide, and monitor the management, and its businesses in the attainment of strategic plans. Besides, it also oversees good corporate governance practices by ensuring safeguard and enhancement of the shareholders’ interests while accounting for the interests of others including customers, suppliers, employees, etc. Moreover, the Board is also responsible for the day-to-day management of the company and its affairs. Further, it also facilitates in talent management and development through development of various committees.
In relation to remuneration, the senior executives consisting of members of the leadership team pursue a variable or ‘at risk’ segment as a part of their net remuneration package under a long-term incentive arrangement or annual incentive (Laux, 2014). Moreover, a mix of remuneration segments and performance measures are used in such incentive plans to determine the remuneration of executives.
In relation to committees, the company has four committees namely audit and risk committee, nomination committee, remuneration committee, and Gresham Mandate Review Committee (Wesfarmer CG, 2017). The audit and risk committee supervise internal control procedures and policies framed to safeguard the assets of the company and maintain the integrity of financial reporting. On the other hand, the nomination committee facilitates in consideration of directors who must be recommended to the shareholders for re-election processes (Lapsley, 2012). It also considers feedback from primary shareholders during the roadshow of Chairman. The remuneration committee reviews and makes recommendations in regard to fixed remuneration, long-term incentives, and annual incentives (Wesfarmer CG, 2017). It also reviews the transition and succession plans for the leadership team of the company. Further, it also supervises or reviews diversity targets and gender pay equity. Lastly, the role of Gresham Mandate Review Committee is to review and approve engagement terms of Gresham Partners to undertake corporate advice for the company or one of its entities.
Wesfarmers have not addressed non-IFRS financial information in its annual report for better understanding.
Bega Cheese
The amount of details in the corporate governance statement and annual report of the company is very minimal in nature in comparison to Wesfarmers and Woolworths. The company has not disclosed its strategies and approaches in a better way through its annual report that can create problems for stakeholders in decision-making processes.
In relation to board composition, the same consists of five supplier directors including one external director and the executive chairman who are independent in nature and who does not have any material relationship with the company or its associated undertaking (Bonson & Bednarova, 2015).
Moreover, in relation to the roles and responsibilities of the Board, they are liable to oversee the management of the company for the benefit of the shareholders and other stakeholders (Bega Cheese CG, 2017). Further, the Board’s role is to act in accordance with its surpassing duties to act fairly and honestly based on law so that interests of the company can be served. It also intends to act in accordance with the obligations and duties imposed by the Constitution of the company. Moreover, it is responsible for enhancing shareholder value, approve budgets, monitor and approve financial reporting, accounting for risk management approaches, determine dividend payments, etc.
In relation to remuneration of the company, the same of senior executives is reviewed on a yearly basis. Further, the details of remuneration of non-executive directors are also disclosed by the company to facilitate responsible and fair remuneration (Douma & Hein, 2013).
In relation to committee, the board has nomination, remuneration, and human resources committee (NRHRC) and audit and risk committee. In relation to NRHRC, the role of same is to set remuneration strategies for the company and ascertain the remuneration of the CEO and the executive chairman. Further, the audit and risk committee are responsible for overseeing financial reporting processes, internal control, non-financial and financial management of risks, and external and compliance audit (Bega Cheese CG, 2017). It also assesses the adequacy of controls and processes to manage and identify areas of significant risk. Such committee also monitors the company’s compliance with laws and regulations and whether the external auditors remain independent or not.
Lastly, Bega Cheese Ltd have failed to disclose or address non-IFRS requirements into its annual report that is a negative indicator.
Woolworths
In relation to board composition, the company has adequately fulfilled such corporate governance principle within its framework. The reason behind this can be attributed to the fact that majority of its directors are independent, and the chairman is also an independent director. Further, there is a nomination committee for overseeing the process of composition of board. Besides, the role of CEO and the chair of the company have not been exercised by the same individual. Nevertheless, this is altogether recommended by ASX Corporate Governance Principles and Recommendations.
Under ASX guidelines, it is recommended that the board must disclose its roles and responsibilities in an effective way together with processes to evaluate the executives’ performance that can allow users in making better decisions. Furthermore, in relation to board roles and responsibilities, the company has efficiently disclosed and established respective roles and responsibilities of the management and the Board (Woolworths CG, 2017). Further, it has also offered relevant information for evaluating the performances of its senior executives that is a positive indicator in relation to compliance with board roles and responsibilities.
In relation to board remuneration, the company has not established a remuneration committee and it has not clearly differentiated the process of executive remuneration from that of the non-executive directors’ remuneration. Therefore, the company must establish a remuneration committee to oversee the fulfilment of remuneration of executives and non-executives. Besides, disclosure of remuneration of CEO and senior executives must not be prioritized and instead, non-executive’s remuneration must also be disclosed. Moreover, this is recommended by the ASX principles.
In relation to board committees, the company has effectively complied to appointment of several committees that assists in attainment of organizational goals. However, appointment of remuneration committee must have been accounted for by the company to enhance remuneration approaches respectively (Bonson & Bednarova, 2015). Overall, the company has accurately fulfilled the requirements of efficient corporate governance principles within its framework apart from the fact that in relation to fair and responsible remuneration, there must be a remuneration committee that is absent in the company’s case (Woolworths CG, 2017). Besides, the company has only disclosed the remuneration of its CEO and senior executives and has failed to offer relevant information regarding the remuneration of its non-executive directors. Nevertheless, even though people and performance committee are present in the company for overseeing remuneration strategies, yet a remuneration committee must be present that can review and make proper board recommendations in regard to the same (Woolworths CG, 2017).
It is recommended that a company must disclose both IFRS and non-IFRS details in its report to enhance its meaningfulness and Woolworths has adequately catered to such requirement by disclosing both types of information.
Wesfarmers
In relation to corporate governance principles of Wesfarmers, it can be seen that the company has complied to various aspects of corporate governance to enhance its reputation in the entire industry. When it comes to board composition, the company has a chairman who is independent in nature. Besides, it has eight directors out of which seven are independent in nature (Cappelleto, 2010). Furthermore, the company has also established a nomination committee for overseeing the selection and recruitment processes of directors. Besides, Wesfarmers have also disclosed the procedure for evaluating the performance of its committees, board, and individual directors respectively (Wesfarmer CG, 2017). This facilitates in fulfilling the recommendations laid down under ASX principles.
In relation to board roles and responsibilities, Wesfarmers have adequately established various functions that are reserved to the board and those delegated to the senior executive directors. Furthermore, to fulfil such principle, the company has also disclosed material information of evaluating the performance of its senior executives (Elder et. al, 2010). Hence, the recommendations laid under ASX recommendations have been duly addressed.
In relation to remuneration strategies, the company has established a remuneration committee within its framework to review and make recommendations regarding such policy to the board. Furthermore, the company has also ensured that the committee oversees the process of disclosing the structure of remuneration of executives and has separately disclosed the remuneration policies for non-executive directors.
Furthermore, based on committees, the company has various committees that allow it to attain organizational goals but one of its non-executive director is also a member of Gresham Mandate Review Committee that clearly implies lack of independence (Wesfarmer CG, 2017). Therefore, the company must not ensure steps wherein its non-executive directors are also a member of its committee that highlights prevalence of material relationship that can influence the business operations. However, the roles and responsibilities of the committees are adequately disclosed by the company to ensure ethical and moral environment.
It must also be noted that the company has failed to account for non-IFRS information in its annual report that can degrade the principle of corporate governance of safeguarding integrity in financial reporting. Therefore, to facilitate proper corporate governance principle into the company’s framework, it must take steps to account for such non-IFRS details to enhance its corporate governance practices on a whole. It must also be noted that prevalence of such measures can allow users in making proper decisions related to investment and therefore, to facilitate proper disclosure measures, the company must not hesitate in disclosing such information (Caradonna, 2014).
Bega Cheese Ltd
Bega Cheese has also adhered to the corporate governance principles and recommendations within its framework to enhance its organizational effectiveness. When it comes to composition of board, the company has not adhered to the requirements of majority of independent directors in the board. This is because the company has supplier directors inclusive of the executive chairman and one independent director. Hence, it must ensure that majority of its directors are independent directors. Furthermore, independence of the company’s chairman is also compromised in nature because the executive role of the chairman overlaps with the role of the CEO (Bega Cheese CG, 2017). Hence, in this regard, the company must ensure that both chairman and the CEO are different persons performing distinct roles. However, the company has a nomination committee that is a positive indicator in this regard.
Furthermore, in relation to board roles and responsibilities, the company has accurately defined the same for the board and their committees.
In relation to remuneration processes, the company has appointed a remuneration committee that can assist in overseeing matters associated with the remuneration practices and policies of the company. In addition, it has also structured its remuneration in a way that allows it to disclose the processes of senior executives’ remuneration in one segment while disclosing the details of remuneration of non-executive directors in different segment. Furthermore, these non-executives are also not offered bonus payments or options.
When it comes to board committees, the company has committees namely audit, risk management, remuneration, and nomination committee (Bega Cheese CG, 2017). Besides, the roles and responsibilities of such committees are adequately disclosed by the company to address the ASX recommendations of corporate governance.
However, in comparison to Woolworths, the company has also not accounted for non-IFRS information in its annual report that is a negative indicator. Overall, the company has catered to all principles and recommendations of corporate governance except a few (Ferris et. al,2010). This is because ignorance of non-IFRS information cannot facilitate in balanced disclosure to the users that will prevent them in proper decision-making processes. Hence, the company must look after the same and incorporate it in its annual report.
Conclusion
All the three companies have properly complied with the requirements of corporate governance principles and recommendations except a few. Nonetheless, out of all the companies, Woolworths have been more efficient in addressing such principles and recommendations as it has addressed all the matters in an appropriate way. If Wesfarmers and Bega Cheese have disclosed non-IFRS details in their reports, and each had catered to the ASX recommendations properly, such scenario would have been avoided. Moreover, even though these companies are listed on the ASX, yet these must account for enhanced corporate governance practices so that users can rely upon the same and make relevant decisions thereafter. Besides, this report has also highlighted the significance of non-IFRS information that can facilitate in balanced disclosure, thereby establishing a moral or ethical corporate environment. Overall, all companies have not been reluctant in following effective corporate governance practices within their frameworks.
References
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Wesfarmer CG. (2017) Wesfarmer corporate governance 2017[online]. Available from: https://www.wesfarmers.com.au/docs/default-source/corporate-governance/2017-corporate-governance-statement.pdf?sfvrsn=2 [Accessed 4 May 2018]
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