Every organization consists of a number of stakeholders that have varied business interests with the organization. In order to govern the conduct of the organizations, a number of statutes have been formulated across various nations. The rules, regulations, statutes together fall in the ambit of the concept called the “corporate governance.” Corporate Governance refers to the set of practices, laws, policies that guide the behavior of the organization to bring about the overall positive value addition in the society (Tricker, 2015). The corporate governance practices are aimed at enabling the management of the enterprises to be transparent, fair, and accountable towards the range of the stakeholders. A corporate governance structure of an entity has several components namely the people, policies, roles, and structures (Carroll and Buccholtz, 2014).
The following report is aimed at analyzing the corporate governance structures of the two organizations namely the Hugo Boss and the Burberry Group PLC. While the former is a popular British luxury fashion brand, the latter is a German luxury fashion brand. Hence, the report will shed light on the differences and the similarities of the UK and German corporate governance practices. In addition, an evaluation would be done to answer the question that whether the global convergence of the corporate governance code is necessitated.
The entity Burberry Group Plc. is a popular British luxury fashion brand, the headquarters of which are situated in London. Thomas Burberry founded the entity in the year 1856 (Burberry, 2018a). It is listed on the London Stock Exchange and is the manufacturer of fashion accessories, cosmetics, women’s, men’s and children fashion clothes. The company falls in the ambit of the UK corporate governance code. As per the latest financial reports of the year 2018, the entity has earned a revenue of GBP 2733 million. Therefore, the entity is a major player in the fashion industry.
The entity Hugo Boss AG is a German luxury fashion brand which was established in the year 1924 by Hugo Boss and hence the name. The headquarters of the entity is located at Metzingen, Germany. The company also is the manufacturer of the Men’s and Women’s wear, shoes, accessories, fragrances, eyewear, and watches. The entity sells its products under the two brand names HUGO and BOSS. The company had delivered the group sales of Euro 2693 million in the year 2017 (Hugo Boss, 2018a). As the company is headquartered at Germany, it is required to follow the German code of conduct.
Both the companies are biggest competitors to each other, but are governed by a separate code of conducts and therefore differ in terms of the corporate structure.
The corporate governance structure of the entities is governed by the location of the entity. As mentioned above, the company Burberry follows the UK Corporate Governance Code, as updated and published by the Financial Reporting Council (FRC) in the month of April 2016 (Burberry, 2018b). In addition, it follows the UK Financial Conduct Authority (FCA) Listing Rules. Further, the corporate governance provisions of the Companies Act 2006 are also complied with.
The UK corporate governance code states five main principles for corporate governance namely the leadership, effectiveness, accountability, remuneration and the relations with shareholders (Financial Reporting Council, 2016). The main feature of the UK corporate governance code is the “comply or explain” approach. Thus, the UK code prescribes principles can be complied with, and if an alternative means can be justified, the same can be followed by explaining the same. The explanation should be indicative of the fact that the actual practices are consistent with the principles, and the rationale for the action.
In contrast to this, the German Corporate Governance Code describes the significant statutory requirements for the management and supervision of the corporations on the German stock exchange (German Corporate Governance Code, 2018). The code contains the combination of the national and international standards for good corporate governance in the public listed entities. This code is in addition to the accounting framework and the other legal requirements. It is significant to note that the listed German corporations are required to issue a statement of compliance that is known as the Corporate Governance Statement that states that the code has been complied with along with the incidental recommendations.
Thus, it would be right to state that the geographical location of the entity plays a significant role in the determination of the applicability of the corporate structure rules. While the Hugo Boss is mandatorily required to follow the structure and principles of the German Corporate Governance Code, the Burberry is either required to follow the UK code or explain the rationale of not following it.
The German code for corporate governance requires the listed German corporations to follow a dual board management system. Thus, the entities are required to have a management board in addition to the supervisory board. While the management board is responsible for the management of the affairs of the company under the leadership of the Chair, the supervisory board is entrusted with the responsibility of appointing, supervising, and advising the management board.
Mr. Mark Langer who is the Chief Executive Officer heads the current management board of the company Hugo Boss. There are three other board members namely Mr. Bernd Hake, Mr. Yves Muller and Mr. Ingo Wilts (Hugo Boss, 2018b). As a whole, the management board is responsible for the management of the corporate functions like Corporate Strategy, Communication, Human Resources, Legal Compliance, Wholesale, Finance and Taxation matters, Risk and Insurance Management, Creative Management, and others.
The Chairman, Mr. Michel Perraudin and the Deputy Chairman, Mr. Antonio Simina head the current supervisory board of the Hugo Boss (Hugo Boss, 2018c). There are ten other members, which together constitute the supervisory board of the company. The supervisory board of the entity has further established various committees to perform its functions efficiently and effectively. These committees are the Audit Committee, the Working Committee, the Personnel Committee, the Mediation Committee, and the Nomination Committee, as required by the statutes.
According to the UK code of corporate governance, there have been prescribed five principles. According to the first principle of leadership, an effective board should head an entity, and there should be a clear division of the responsibilities among the board members. Accordingly, its board of directors comprising of a Chairman, a CEO, a CFO, seven non-executive directors, and a senior independent director manages the entity Burberry (Burberry, 2018c). The entity has special decisions and matters reserved for the approval of the board, for instance, the decisions with respect to the corporate strategy, internal control system, major capital expenditure, and transactions, annual budget, operational plans, and other such key matters.
Similarly, to the structure of the Hugo Boss, the board of director of Burberry function through a number of committees, such as the remuneration committee, audit committee, and the nomination committee. In addition, the committee engages the third-party advisers and independent professional experts to guide them in discharging their responsibilities and functions.
Board diversity is one of the key issues in modern corporate governance. This is because the diversity in the board enables more accountability and equality in the employment, and this is a means to challenge the stereotyping against gender and race (Bear, Rahman, and Post, 2010). The companies of today are thus paying more attention towards strong female presence as well as the individuals belonging from the ethnic minority groups in their corporate board structure. While the entity Burberry has five women out of eleven members on its board, the Hugo Boss has three women on its supervisory board. Thus, the board of directors of both the entities has diversified board structures.
Another key element of a strong corporate governance framework is the accountability of the board. The board accountability refers to the taking of responsibility for the activities of the entity (Mallin, 2011). In addition, it includes the fair, transparent, and balanced assessment and presentation of the position and the prospects of the organization to the shareholders (Andrews, 2017). The large organizations must provide a strategic report of the key developments, negative and positive attributes of the business operations to the stakeholders. The report must comprise the key elements like the present position and the future prospects of the entity.
In response to the accountability element of the sound corporate governance structure, the company Burberry has presented various facets of business operations in the form of chairman’s letter, key performance indicators, risk and viability report, corporate governance report, report of the audit committee, director’s report, director’s remuneration report among others. Similarly, the entity Hugo Boss has presented the report of the supervisory board, business activities, and group structure, management reports on the matters like group strategy, employees, research and development, risk and opportunities and others in its annual report (Hugo Boss, 2018d).
Thus, both the companies have followed a different set of code of corporate governance rules and framework, but have comprehensively presented the board diversity and board accountability in their annual reports, for the evaluation by the stakeholders and as required by the respective statutory regulations.
As evident from the case studies of the Burberry and Hugo Boss, the corporate governance structure vary from country to country. The mechanism is based on the political, social, and economic situations of respective countries. However, the underlying principle is the same that is to strike a balance between the interest of the public and other stakeholders, and the entity. In recent times, the phenomena like that of globalization have opened new gateways for the investors, to access the capital market and entities beyond the borders. This has called for debate for whether a global convergence of the corporate governance code is necessitated and possible.
In response to the above, it is significant to note that one major argument in against of the global convergence of the corporate governance code is that these are based on the accounting and legal requirements for the corporations (Aguilera and Crespi-Cladera, 2016). These legal requirements vary from country to country. For instance, while the companies in the UK follow the Companies Act 2006, the German companies are required to abide by the German Company Law. Another few arguments that support the divergence in the codes of corporate governance are the differences in the ownership and board structures across the nations, securities regulation, the role of banks and large financial institutions in the entities, the role and size of the stock markets, degree of involvement of the government and other incidental aspects.
However, researchers who back the convergence of the codes globally, argue the points like globalization, liberalization of the business practices in the global markets and role of the international organizations in the promoting the corporate governance practices.
Hence, it would be right to state that convergence of corporate governance principles though backed by theoretical principles, lack base in practical implementation.
Conclusion
As per the discussions conducted in the previous parts, it can be stated that corporate governance is a collection of the procedures and processing that is a means to guide and control the organizations. These serve as the principles to distribute the rights and responsibilities of the various participants in an entity, namely the shareholders, investors, regulators, customers, employees, the board of the directors and others. The report was an attempt to analyze the similarities and differences in the codes of the corporate governance of the two entities, i.e. the Burberry Group Plc. and the Hugo Boss. Both these organizations are set in different geographical backgrounds, and therefore possess a different set of corporate structures. However, both the entities comply with the basic elements of board diversity and board accountability in their respective manners. In addition to the above, the arguments were presented in favor and against of the convergence of the corporate governance code at the global level. It can be concluded that corporate governance is the key essentials of modern business organizations, no matter to which geographical setting they belong.
References
Aguilera, R. V., and Crespi-Cladera, R. (2016) Global corporate governance: On the relevance of firms’ ownership structure. Journal of World Business, 51(1), pp. 50-57.
Andrews, E. (2017) Board accountability is a key element of strong corporate governance. [online] Available from: https://www.grantthorntonni.com/news-centre/board-accountability-is-a-key-element-of-strong-corporate-governance/ [Accessed on 30/12/2018].
Bear, S., Rahman, N. and Post, C. (2010) The impact of board diversity and gender composition on corporate social responsibility and firm reputation. Journal of Business Ethics, 97(2), pp. 207-221.
Burberry (2018a) History [online] Available from: https://www.burberryplc.com/en/company/history.html [Accessed on 30/12/2018].
Burberry (2018b) Annual Report 2017/18 [online] Available from: https://www.burberryplc.com/content/dam/burberry/corporate/Investors/Results_Reports/2018/Burberry_AnnualReport_FY17-18.pdf [Accessed on 30/12/2018].
Burberry (2018c) Board of Directors [online] Available from: https://www.burberryplc.com/en/company/board-of-directors/board-of-directors.html [Accessed on 30/12/2018].
Carroll, A. B., and Buccholtz, A. K. (2014) Business and Society: Ethics, Sustainability, and Stakeholder Management. 9th ed. Boston, MA: Cengage Learning.
Financial Reporting Council. (2016) The UK Corporate Governance Code [online] Available from https://www.frc.org.uk/getattachment/ca7e94c4-b9a9-49e2-a824-ad76a322873c/UK-Corporate-Governance-Code-April-2016.pdf [Accessed on 30/12/2018].
German corporate governance code (2018) Code [online] Available from: https://www.dcgk.de/en/code.html [Accessed on 30/12/2018].
Hugo Boss (2018a) About Hugo Boss [online] Available from: https://group.hugoboss.com/en/company/about-hugo-boss/ [Accessed on 30/12/2018].
Hugo Boss (2018b) Managing Board [online] Available from: https://group.hugoboss.com/en/company/management/supervisory-board/ [Accessed on 30/12/2018].
Hugo Boss (2018c) Supervisory Board [online] Available from: https://group.hugoboss.com/en/company/management/supervisory-board/ [Accessed on 30/12/2018].
Hugo Boss (2018d) Annual Report 2017 [online] Available from: https://group.hugoboss.com/fileadmin/media/pdf/investors/financial-reports/2017/EN/Annual_Report_2017.pdf [Accessed on 30/12/2018].
Mallin, C. A. ed. (2011) Handbook on international corporate governance: country analyses. UK: Edward Elgar Publishing.
Tricker, B. (2015) Corporate Governance: Principle, Policies and Practices. 3rd ed. Oxford: Oxford University Press.
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