Corporate Governance Principles And Practices In Australia: A Case Study On Woolworths Limited

Introduction and Background

Discuss about the Corporate Governance Principles for Woolworths Limited.

The corporate governance principles indicate the crucial set of principles that have been established in order to facilitate the smooth operations of business that have been carried out by the corporate entities. Moreover, it has been found out that the controlling of the business operations is a key contributing factor in regards to the success of the business entity. In regards to the corporate entities it has been found out that the existence of the corporate governance principles has led to the improvement of the essential structures of business. The body that establishes and controls the governance principles in the business entities is the Board of Directors. However, it should be noted here that the indirect stakeholders of business has a restricted opinion in regards to the establishment of the essential principles.

This particular study has been aimed at focusing on the corporate governance principles that is followed by the corporate entities in Australia and the particular corporate entity that has been chosen for the purpose of the study is Woolworths Limited. Furthermore, for the proper analysis of the governance structure imposed within the entity, the corporate governance statement and the annual report of the particular business entity of Woolworths Limited has been evaluated for the particular financial year of 2017(Beekes, Brown and Zhang 2015).

The governance principles that have been applied by the corporate entities in Australia is applicable in case of all the listed entities whether or not the entities have been working within the  boundaries of Australia or outside Australia. The term corporate governance can be described as the rules frameworks, processes and systems which facilitates the exercising of the required degree of authority in regards to the business operations of the firm (Beekes, Brown and Zhang 2015). The eight principles that have been utilized for the purpose of conveying the core values of the governance principles are as follows:

• Establishment of the required foundations in regards to management and oversight – it has been further stated by the corporate governance body in Australia that all the listed organizations in Australia will have to establish and result in the disclosure of the responsibilities of the Board of Directors and the management of the organization along with the procedures that has been utilized for the purpose of monitoring and evaluating their job and the particular activities executed by them. The corporate governance statement for the financial year of 2017 facilitates the information that the management of the selected corporation has resulted in the proper compliance with this principle with the particular procedure of disclosing the particulars of the Board of Directors along with the roles that they have to play. Furthermore, sufficient information has also been provided in relation to the meetings that are held by the Board along with the structure of the Board.
• Optimum focus should be put upon the Board’s structure for the purpose of adding value – the Board’s value should be focused upon. Moreover, the composition of the Board is also an evaluating factor. The management body of the Woolworths Group has successfully resulted in the compliance with the particular norms that have been established and states the composition of the Board of Directors. Furthermore, it has been stated in the corporate governance statement of the corporate unit that the Board of Directors of the Woolworths Limited comprises of a majority of the independent non-executive directors along with the CEO of the organization.
• Restriction of the actions to the ethics and responsiveness – the ASX Corporate Governance Principles state that the primary duty of a corporate listed entity is that a listed entity should result in business operations that reflect an optimum degree of ethics and responsiveness. This has been successfully fulfilled by the corporate entity of Woolworths Limited.
• The financial report of a corporate entity should reflect a degree of integrity – the financial report is a report that is prepared by all the listed entities for the purpose of reflecting the business operations that have been carried out by the business entity and the financial position of the organization in this regards. It must be mentioned here that the annual report of a listed entity should facilitate the reflection of an optimum degree of clarity and integrity in order to help the investors, stakeholders and other users of the financial statements to obtain the required business information from such reports that further help in the entities taking the important economic decisions. The annual report of Woolworths Limited for the financial year of 2017 indicates the fact that the accounting statements have been prepared in accordance to the Australian Accounting Standards Board. This means that the financial report holds optimum degree of integrity and clarity.
• Disclosures that have been balanced and timely in nature – the disclosures that form an essential part of the accounting statements of any corporate entity reflects the major procedures and the effects of materiality on the value of the securities along with the prices. This has been correctly adhered to by the Board of Directors of the particular company of Woolworths Limited. This refers to the fact that the management of Woolworths Limited has disclosed enough information in regards to the notes of the financial statements that have been included in the financial report of the corporate entity.
• The security holders should be given the required degree of respect – it has been stated by the ASX Corporate Governance principles that it is the primary duty of all the corporate entities to respect the shareholder rights by giving them with the required financial information that further helps them to exercise their rights successfully. It has been further stated that the financial report should be prepared in accordance to the Australian Accounting Standards Board. The management of the corporate unit of Woolworths has stated in the annual report of the company that the accounting statements have been prepared in accordance to the Australian Accounting Standards Board. Furthermore, the auditor’s report that has included in the annual report has stated the fact that the financial statements have been prepared in accordance to the Australia Accounting Standards Board. Thus, automatically facilitating the providence of respect to the rights of the shareholders of the company.
• Management and recognition of risk – it has been stated by the ASX Corporate Governance principles that it is the primary duty of all the corporate entities to develop a sound framework in regards to the management of risk. It can be evidently stated here that the management of Woolworths Limited has resulted in the development of a risk management framework that has been disclosed in the annual report of the corporate entity as material business risks. The aspects of the risk management framework that has been included are compliance risks, financial risks, operational risks and strategic risks. Therefore, it can be ensured that the corporate entity of Woolworths Limited has complied with the ASX corporate governance principles.
• Remuneration should be fair and responsible – the particular structure in regards to the remuneration should be fair and responsible so that the executives that belong to the highest degree of cadre can be attracted and retained in a particular organization. A good remuneration structure should result in the providence of the required degree of motivation to high quality senior level executives. Furthermore, a good remuneration structure facilitates the alignment of the interests of the management of a particular organization with the interest of its shareholders thus facilitating the welfare of the business stakeholders. In regards to the chosen entity of Woolworths Limited the corporate governance statement reveals the remuneration structure of the firm which further states that the corporate entity has adhered to the ASX corporate governance principles (Tricker and Tricker 2015).

• The auditor of the corporate entity has performed the risk assessment procedure by the particular understanding of the entity. The assessment of risk is an essential procedure as it mitigates the occurrence of issues like material misstatements in the books of the firm. The Woolworths Group is one of the largest retail entities in Australia and has been experiencing increased customer satisfaction for a last few years. The last recorded percentage has been 78%. The business has been governed by the general business and civil law. The major strategy of the corporate entity has been to focus upon the supermarket industry in Australia. The particular aim of the corporate unit is to focus upon good quality product at a cheaper rate(Tricker and Tricker 2015).

            The tools that have been utilized for assessing the risk of the corporate entity are common size statement and financial or significant ratios. The computations are as follows:

Common Size Income Statement
Particulars	2013	2014	2015	2016	2017
Amount ($ mill)	Percentage	Amount ($ mill)	Percentage	Amount ($ mill)	Percentage	Amount ($ mill)	Percentage	Amount ($ mill)	Percentage
Revenue	58674	100%	60952	100%	60868	100%	58276	100%	55669	100%
Cost of revenue	42913	73%	44475	73%	44345	73%	42677	73%	39740	71%
Gross profit	15762	27%	16478	27%	16524	27%	15599	27%	15929	29%
Operating expenses
Sales, General and administrative	11380	19%	11962	20%	5511	9%	12964	22%	13134	24%
Other operating expenses	10765	18%	11172	18%	18567	31%	12033	21%	11686	21%
Total operating expenses	22146	38%	23134	38%	24078	40%	24997	43%	24820	45%
Operating income	-6384	-11%	-6656	-11%	-7555	-12%	-9398	-16%	-8891	-16%
Interest Expense	410	1%	278	0%	255	0%	246	0%	194	0%
Other income (expense)	10009	17%	10449	17%	10877	18%	11004	19%	11217	20%
Income before income taxes	3215	5%	3515	6%	3068	5%	1360	2%	2132	4%
Provision for income taxes	960	2%	1057	2%	930	2%	520	1%	650	1%
Minority interest	5	0%	7	0%	-9	0%	-1113	-2%	60	0%
Other income	5	0%	7	0%	-9	0%	-1113	-2%	60	0%
Net income from continuing operations	2255	4%	2458	4%	2137	4%	840	1%	1482	3%
Net income from discontinuing ops	10	0%		0%		0%	-3188	-5%	111	0%
Other	-5	0%	-7	0%	9	0%	1113	2%	-60	0%
Net income	2259	4%	2452	4%	2146	4%	-1235	-2%	1534	3%
Net income available to common shareholders	2259	4%	2452	4%	2146	4%	-1235	-2%	1534	3%

Common Size Balance Sheet
Assets	2013	2014	2015	2016	2017
Amount ($ mill)	Percentage	Amount ($ mill)	Percentage	Amount ($ mill)	Percentage	Amount ($ mill)	Percentage	Amount ($ mill)	Percentage
Current assets	6226	28%	7175	32%	7661	34%	7427	33%	6994	31%
Non-current assets	16024	72%	17030	77%	17676	79%	16075	72%	15922	72%
Total assets	22,250	100%	24,205	100%	25,337	100%	23,502	100%	22,916	100%
Liabilities
Current liabilities	6,866	31%	7,558	34%	9,169	41%	8,993	40%	8,824	40%
Non-current liabilities	6,084	27%	6,122	28%	5,036	23%	5,728	26%	4,216	19%
Total liabilities	12,950	58%	13,680	61%	14,205	64%	14,721	66%	13,040	59%
Stockholders’ equity	9,300	42%	10,525	47%	11,132	50%	8,781	39%	9,876	44%
Total liabilities and Equity	22,250	100%	24,205	100%	25,337	100%	23,502	100%	22,916	100%

The table suggests the fact that the liquidity position of the corporate unit is at stake as the current ratio has been diminishing. The common size statement on the other hand reflects the fact that the administrative and selling expenses has been fluctuating over the years indicating a potential risk(Tricker and Tricker 2015).

Conclusion

The particular conclusion that can be arrived at after the discussion in the preceding paragraphs that the particular corporate entity of Woolworths Limited has certain areas like the liquidity position which should be focused upon by the auditor. However, the corporate entity has strictly adhered to the ASX Corporate Governance Principles.

References

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Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and practices. Oxford University Press, USA