Corporate Governance
Corporate governance as the word suggests is the procedure, mechanism and the relations with the help of which the business firms direct, manage and control their operational activities. The principles and the structure of the companies recognise the distribution of the accountabilities and the rights among the various kinds of participants in the organizations. It is even inclusive of the processes and the rules that is used for the purpose of undertaking decisions in accordance to the corporate affairs. Corporate governance is even inclusive of the processes with the help of which the objectives of the organizations are constructed and thereby pursued in the aspect of the regulatory, social and the market environment. The process of governance is inclusive of the supervision of the actions, processes, policies and the decisions that are undertaken by the companies. The practices that are associated to corporate governance are impacted by the tries to stay in line with the interests of the stakeholders. The interests that are seen in the practices related to corporate governance of the current companies specifically in relation to accountability.
It is seen that each and every organization are in need of a corporate governance structure in order to maintain effective operational activities with the help of which competitive edge can be maintained. The companies are in the lookout for satisfying their associated stakeholders as rise in their extent of satisfaction is helpful in the development of proper and effective operational activities. Each and every companies and their management need to address their governance roles with the help of understanding the role of the board, the structure of the board and the role of the directors and the other management personnel. The governance is even inclusive of the understanding of the essential functions of the board and they are inclusive of monitoring, compliance, networking, decision making etc. The efficiency of the board is even understood with the help of corporate governance. The enhancement of the process of the board is even understood with the help of corporate governance process. It can therefore be said that corporate governance policies are essential for all the companies and hence these strategies need to be incorporated by the organizations in order to improve the operational activities and thereby satisfy the associated stakeholders.
The aspects that have been chosen is relevant to the objectives of Kogan as it is seen that this company has been looking forward to enhance their operational activity with the help of which the company is able to maintain competitive edge. The company has to establish several kinds of policies with the help of which they can monitor and take care of various kinds of actions thereby effectiveness can be maintained. The maintenance of these strategies is fundamental for the development of the company and therefore Kogan has been been making extensive strategies in order to enhance their level of corporate governance structure.
There are eight kinds of principles that are associated to corporate governance and each one of them would be explained in order to determine the effectiveness of corporate governance.
Fairness: This refers to the equivalent treatment of all the shareholders and therefore the companies undertake the action of protect the right of the shareholders. This assists the shareholders with the opportunity to gain efficient explanation for the violation of their authorities and rights.
Accountability: There are several codes that provides accountability for the Board of Directors towards all the shareholders and thereby acts as a guidance to the shareholders in order to undertake decisions and thereby supervising the activities of the management.
Transparency: It is the work of the firms to provide accurate and timely explanation of the information about all the facts and information that is associated to the operational activities that is inclusive of the financial scenarios, environmental and social parameters, ownership framework and free entry to these kind of information to all their stakeholders.
Responsibility: The companies are able to identify the powers and the rights of all the parties that are interested who are allowed by the applicable individuals or the form for the development and financial stability of their own.
Sustainability: It is the duty of the board to develop a guidance for the business in order to create value and therefore assign it in a fair manner and thereby reinvestment and the distribution to the stakeholders that is inclusive of employees, customers, directors etc.
Integrity: It is the role of the board to lead the organization in order to undertake the business in a transparent way and this in a way can withstand the assessments that have been made by the stakeholders.
Leadership: It is essential for the companies to have a board that would management the organizations. The companies need to course the organizations in order to meet the purpose of the business that would be related to the long and short term plan.
Capability: It is essential for the Board of the companies to have suitable combination of the skills, independence and experience in order to assist the members to discharge their responsibilities in an effective manner.
All the principles that have been addressed need to be incorporated in the corporate governance structure of the company as all these principles would be helpful in the development of better and effective plans and strategies with the help of which Kogan can attain their constructed goals and objectives.
The incorporation of these requirements would have a positive impact on the development of the company. The development of the concerned company is dependent on the effectiveness of the management. It is therefore due to this fact that the management has been looking to make changes in their corporate governance strategies. The application of these governance would be helpful in the construction of several kind of committees and these committees would be looking to take care of different kind of actions and activities so that the overall operational activity would be enhanced. The application of these standards would be helpful in the development of better decision making process for the company and these decisions would be use for the development of the operational performance. These standards are even helpful in the development of better relationship among the management of the company and their stakeholders. The application of these standards even leads to the development of a better management structure and thereby different kinds of committees can be created with the help of which the company would be able to take care of all the different aspects of the company.
The company has their own internal control procedure and after the assessment of the internal control procedure of Kogan and their corporate framework one can say that there are several elements that have not been satisfied by the company. It is seen that the company does not have a diversity policy and therefore they do not have a precise committee for the same. It is due to this fact that the company is unable to disclose these policies to the shareholders. Kogan does not even have a nomination committee and hence are unable to publish the reports at the end of reporting period. The nomination committee has the accountability to nominate any new managers and personnel and independent directors and it is even seen that the company therefore does not have independent directors within their management structure. As the company does not have a nomination committee, therefore the companies are unable to reveal the evidence and the processes the company undertakes to explain the issues related to the board successions and to make sure that the board has suitable balance of the experiences, skills, knowledge and diversity in order to discharge their accountabilities and duties in an effective manner. It is even seen that the company does not have a majority of the listed entities of the board to be the independent directors and therefore the company does not independent directors. Hence, the company needs to maintain independent directors in order to improve the operational activities of the business. Therefore, it can be said that Kogan needs to make changes in their corporate governance structure with the help of which the companies would be able to incorporate some of the requirements and principles that are existent in corporate governance in order to improve their operational activities and attain the goals of companies in a precise and timely manner.
Part 1:
Review of financial delegations and accountabilities within the company:
Expenditure or investment approvals:
The expenditure and investment approvals are granted by the Chairman. The chairman of Kogan provides that the level of inventory is set at the sustainable level and the administration remains confident that the future of the Kogan inventory investment can be funded through the company cash flow. The chairman and the board of Kogan have faith that the company would continue to generate strong revenue through making investment in brands, marketing and inventory.
During the year the Chairman of Kogan capitalized on the opportunities of the growth and the same is reflected through investment in efficiency and the ability of the company to attain scale. The expenditure and investment approvals are made by the Chairman of Kogan for constant investment in expanding the private label range where pre-existing online demand is created and the company can be the price leader with the stronger competitive advantage.
The investment approvals by the Chairman has created automations that has driven faster fulfilment of products and services. The investment approvals made by the chairman is based on the long term investment driven by data analytics. The management takes into the considerations the historical trend of cash constraint that limits investment.
The company secretary and joint company secretary of Kogan are responsible for the corporate governance. Furthermore, the board of Kogan is committed to the attainment of the highest standards of the corporate governance. The board of Kogan continuous to refine and enhance the framework of corporate governance together with the practices of making sure that the interest of the shareholders is met. The company is in compliance with the ASX corporate governance council and recommendations of the 3rd editions. The corporate governance statement summarizes the corporate practices of the Kogan and incorporates the disclosure that is required by the ASX standards. The senior management of the Kogan sets down the charter of the board along with the key responsibilities of the senior management.
The charter of the board articulates the divisions of the accountabilities among the board and the management. To further help the board in the executions of the responsibilities the board has created audit and risk management committee with each of the board committee setting out the charters. Additionally, the remuneration and the nomination committee is accountable for reviewing the potential candidates for the directorship and providing recommendations to the board. In compliance with the charter of the board, the appointment of the new directors of Kogan is made by the key terms and conditions that is relating to the appointment of the company secretary.
The loans and lending approvals are made by the directors in assessing the capability of the organization to constantly continue as the going concern. The directors of the organization possess the reasonable amount of anticipations that the company would continue to possess sufficient amount of financial resources to constantly meet its responsibilities. The loans and the receivables are the non-derivative financial assets that are subsequently measured by the directors prior to the approvals. The directors limit the facilities of the loan facility conditions and convent ants whenever applicable.
The sign off authorities of Kogan represents the Key Management Personnel that the possess the authorities of signing off of the group activities either directly or indirectly. This generally comprises of the directors and the senior executives of the company. The directors of the company are regarded as the sign off authorities that are in accordance with the resolution of company issue the authorised financial report. The directors are held as the sign off authorities relating to the taxation issue.
The directors are the sign off authorities of the legally enforceable right of setting off the deferred tax assets and liabilities associated to the income tax that is levied by the identical taxation authority. Furthermore, the key management personnel are held as the sign off authorities regarding the declaration of the dividend following appropriate authorization of the directors. The company describes that apart from the directors the key management personnel has the right of directing and controlling the activities of the entity either directly or indirectly.
Completion within the agreed-upon timeframes:
Following the assessment of the corporate governance requirements, investment approvals, loan approvals and signoff authorities is completed inside the agreed time frameworks. The company has undertaken the data-driven approach to constantly enhance the offerings by making sure that the correct measures are undertaken in the right time through the help of the right medium. The investment and expenditure approvals are undertaken by the management within the framework of 12 months of the calendar year and the loans approvals are also made within the timeframe of 12 months of the agreed timeframes.
Deadlines complying with the legislative requirements:
Taking into the deadlines to meet the legislative requirements of the Kogan an assertion can be bought forward by stating that the legislative requirements of the company is duly met within the assigned deadlines. Furthermore, the group assess the adequateness of the treatment of the IPO costs for the purpose of income tax depending on the legislative requirements of the Australian taxation office within the assigned deadlines.
Need for New Corporate Governance Procedure that could better meet the corporate governance requirement:
The new corporate governance procedure which can better meet the corporate governance requirement of Kogan is stated below;
A: Overseeing the Management of the Company: There should be a principal responsibility of the directors to oversee the organizations administration in the best interest of the shareholders. This would require the directors to assess the performance and oversee the progress and development of the senior management by taking appropriate actions, such as changing the responsibility and risk of business.
B: Establishing effective systems: Directors are accountable for ascertaining that the effective systems should be in place for the periodic and timely reporting to the board on the necessary matters of the organizations.
C: Frequency and Length of Meetings: The board chairman following the consultation with the board members should determine the length and frequency of the board meetings.
D: Frequency of Committee Meetings: The chairman of the committee in consultation with the other committee members should determine the frequency of the committee meetings that are consistent with the requirements that are set down in the charter of the committee.
The detailed internal control procedure for Kogan is stated below;
A: Identification of Risk and Analysis: The company should undertake the approach of recognizing the areas business risks and analysing the risks.
B: Limited segregation of duties: There should be no single accountability in the authorization of the transactions and custody of the effected assets of transactions. Kogan should implement compensation controls to ensure that the organizations objectives are met.
C: Control Activities: Control activities should be applied at every level in the group in compliance with the rules and policies over major processes that impact the reliability of the company’s financial reporting.
D: Information and Communication: Controls and procedure over the key procedure should effect the company’s financial reporting that are subjected to formal documentations.
A: Evaluation of internal control: The monitoring of internal controls requires Kogan to assess whether the internal controls are operating as intended and timely communications of deficiencies would help in taking corrective actions.
B: Periodic Checks: Separate assessment requires periodical checks of routine operations of the organizations. The company should include consistent management and supervisory activities, peer comparisons and trend analysis through internal and external data.
C: Implementing manual procedure: Manual procedure should be applied to engage human involvement in physically performing the internal control by Kogan.
A: Variations in Diversity Policy: Variations in the diversity policy is found where there is a requirement for relevant committee of the board to set forth the measurable objectives for attaining the gender diversity.
B: Variations in Nomination Committee: A variation in the nomination committee has been found where a minimum of three members is required to be an independent director.
C: Variations in audit committee: A variation in the audit committee has been found where a minimum of three members with all being non-executive directors with majority of them should be independent directors.
Purpose of the corporate governance recommendations:
Corporate governance refers to the structures and the procedures for implementing control and directing the organizational activities. It is associated with the relationship among the management, board of directors, controlling shareholders and other stakeholders. The primary purpose of the corporate governance is that it engages into the alignment of the long term goals of the shareholders, management and employees. This includes the recognition of civic duty to the benefit of the community in which the company operates.
The corporate governance system signifies the process through which the companies are directed and controlled. The board of directors of the companies are accountable for implementing governance of their organization. The role of the shareholders in the organization is to appoint the directors along with the auditors to make sure that the appropriate governance structure is maintained.
The responsibilities of the board comprise of setting up the organizations aims and objectives, offering leadership to bring into the effect, supervising the business management and reporting the shareholders regarding their stewardship. Corporate governance is regarding the activities of the board on how it operates and how it sets down the values of the organization. The purpose of the corporate governance is to distinguish from the day to day activities and operational management of the organization by the full-time executives.
The better corporate governance can create wider impacts on the non-listed sector since it is primarily about enhancing the transparency and responsibility within the current system. A better corporate governance makes sure that the corporate success and economic growth is maintained. The purpose of corporate governance is that it helps in maintaining the confidence of the investors which helps in raising the capital effectively and efficiently. The purpose of adopting corporate governance is lowering the cost of capital and creating a positive impact on the share price of the company. Good corporate governance reduces the wastage, corruptions, minimizes risks and mismanagement. Therefore, corporate governance is helpful in creating a brand formation and development. Additionally, corporate governance ensures that the organization is administered in a way that it fits into the interest of all.
The corporate governance principles are associated with the roles and responsibilities of the boards and managements. The corporate governance principles distinguish among the functions reserved for the board and those that are delegated to the senior executives. The corporate governance compliance is to evaluate the performance of the management to make sure that the shareholders have the access to the relevant information on timely and the regular manner. Critically, when the performance is measured in terms of the financial members, an incentive is available for the managers to control the numbers to earn more.
As stated by researchers the purpose of complying with the measures is based on both the performance based and accounting based for assessing the performance. Suggestions made by several researcher’s states that disclosing the functions of the senior executives and the procedure for evaluating the performance of executive directors is more likely to improve the transparency and lower the information asymmetry. Where organizations undertake the code of conduct and trading policy, they must introduce the standard of compliance and procedures to make sure that the policies are adequately applied. An internal review system must be in place to determine the compliance and effectiveness.
The corporate governance principles encourage ethical promotion and accountable decision making in the organizations. The corporate governance principles focus on the creation of code of conduct and inside trading policies and provides that organizations should actively promote ethical and accountable decision making. Disclosing the ethical issues and undertaking codes of conduct is strongly supported by the diverse participants together with the shareholders and board of directors. The framework of Corporate governance and compliance mechanism are regarded as tool that makes sure that the companies carryout the business with integrity.
All the non-audited services are subjected to the corporate governance process that are adopted by the organizations and it is reviewed by the audit committee to make sure that the non-audited services do not adversely impact the integrity and objective of the auditor. Furthermore, the board of the Kogan is committed in attaining and demonstrating the highest standards of the corporate governance. The board of Kogan continues to refine and enhance the governance framework and practices in place to make sure that the company meets the interest of the shareholders. The company complies with the ASX corporate governance principles and recommendations. This ultimately helps in summarizing the Kogan corporate governance practices and incorporates the disclosure that is required by the ASX principles.
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