Discuss about the ACC30008 Accounting Theory and Corporate Governance.
The present report is undertaken to develop an in-depth understanding of the various aspects of corporate governance through the use of quality scholarly journal articles. There is increasing emphasis placed by business entities on developing an effective corporate governance framework to promote their sustainable growth and development. The increasing evidences of the use of fraudulent business practices are causing the government of various countries to develop strict rules and regulations to promote ethical behavior within the organizations. As such, ASX has developed a statement of corporate governance principles to be used by business entities within Australia to ensure that all the business procedures are carried out as ethical principles.
The main purpose of the present report is to inform the Australian Securities Exchange Governance Council about the corporate governance aspects. This is based on carrying out academic research in context of Australia in reference to corporate governance through the use of real world examples. The various aspects of the corporate governance examined in the report as selected form the scholarly journal articles available on Australian Business Deans Council (ABDC).
The presence of effective corporate governance policies is essential within an organization to ensure ethical decision-making for promoting the long-term growth and development. In this context, the article ‘Corporate decision-Making, Corporate Collapse and Inefficiency’ has discussed the importance of corporate governance structure within business organizations in order to prevent the occurrence of corrupt practices. Therefore, the inclusion of stakeholder engagement and continuous disclosure are importance aspects in the governance framework for facilitating good decision-making. The trust in the stakeholders about the business operations can be enhanced through proving them required and relevant information on timely basis. The increased transparency in the decision-making process improves the trust of stakeholders and enables them to achieve a competitive advantage (Pearce, 2015). The fact can be demonstrated through the corporate failures of large business corporations such as Enron and WorldCom that failed due to lack of transparency in their business operations. The failure was largely due to presence of unethical practices by the business managers to gain personal growth rather than achieving the organizational long-term goals.
The presences of such corrupt behavior in the organizations have caused the necessity of implementing good corporate governance practices that directs the behavior of directors, executives and employees. The corporate governance policies must be based on ethical principle of honesty and integrity to ensure that all business activities are directed towards creating the value for stakeholders. Corporate governance policies assist the managerial decisions to be taken as per the best interest of the company as per the theoretical framework of agency theory or stakeholder theory. Agency theory states that business managers or leaders are acting as agents and their main responsibility is to act in accordance with the interests of principal, that is, shareholders. Therefore, the presence of effective corporate governance policies will establish the business procedures that are directed to create value for shareholders. In addition to this, stakeholder theory of corporate governance states that a business entity need to promote the growth and development of all its stakeholders such as shareholders, communities, government, customers and employees through its business operations (ASX Corporate Governance Council, 2014).
This can be achieved by the presence of sound corporate governance policies that promotes timely and continuously disclosure of information to all the stakeholders. Good corporate governance facilities the identification of the information most relevant to the stakeholders and ensure that it is provided to them by development of financial reports, webcasts or through any other public forum. The business corporations within Australia listed on ASX need to disclose all the market sensitive information to ASX so that it is readily available to the end-users (Pearce, 2015). The present article has examined the importance of continuous disclosure within the business entities that is essential for development of an effective corporate governance framework within the business entities of Australia.
On the other hand, the article ‘Executive remuneration under scrutiny: The cutting edge of the ‘shareholder spring’ has analyzed the issues of increasing level of senior executive remuneration. In this context, the article has emphasized on the use of ‘say-on ‘pay’ provisions in Australian business entities for overcoming the gap between the expectations of shareholders and the performance of the executives. The shareholders are increasingly expressing their concerns over the higher level of remuneration provided to the senior management personnel in the business entities of Australia. Directors remuneration is decided as per their own desires and thus it can cause the occurrence of fraudulent practices within the organization as they may be tempted to maximize their own performances. There is presence of self-managing system of pay for top leaders within business entities of Australia such as for directors and executives that can increase the chances of occurrence of fraudulent practices (Corkery and Medarevic, 2013). However, the Australia’s Corporations Act 2001 has stated that remuneration of directors needs to be decided by the shareholders but it is replaceable law. As such, the legislation is largely being replaced within the business corporations and now Australian business entities are adopting the use of feedback taken from directors in regards to deciding over the matters related to remuneration of Australian business entities. For example, BHP Billiton Ltd has maintained a remuneration policy within its constitution that remuneration structure for a director is to be determined by the Board or its committee.
Therefore, there is large need for improving the transparency within the remuneration structure developed for deciding over the matters related to remuneration service provided to the company’s top directors and executives within the Australia. This is necessary to ensure that fair amount of remuneration is provided to the directors and executives (Bazley, Hancock and Robinson, 2014). The Australian business entities need to have a remuneration committee so that amount of remuneration provided to the directors and executives is fair and just. There is a need of developing an effective corporate governance policy so that executives and directors are provided fair and responsible remuneration. Board should be appointed sub-committee and turn appoint consultants to advise the suitable level of pay for remuneration. The corporate governance policy in order to determine the fair level of remuneration should incorporate the use of pay for performance strategies. This will help in attracting and retaining the competent workforce to achieve the goals and objective of the business entities. However, Board committee must keep a regular check to assess those business managers and leaders are not using fraudulent practices for improving their remuneration (Corkery and Medarevic, 2013). The governance policy also requires improve disclosure about the remuneration structure of the directors adopted by the companies in their annual report to the shareholders.
The article’ Environmental Corporate Social Responsibility and the Carbon Economy: A Case for CSR, the Triple Bottom Line and Obliquity’ has emphasized on the need of adopting corporate responsibility measures by business entities within Australia as a part of their corporate governance policies. The adoption of CSR will largely benefit both the shareholders and environment by improving the goodwill of the entities in mind of stakeholders. This will improve the trust and confidence level of stakeholders within the business operations and thus leading to attainment of their satisfaction. CSR practices tend to place an ethical and moral obligation on the business entities to carry out their activities as per the interests and needs of stakeholders. This helps in aligning the business interest with the stakeholder needs and thus promoting the long-term growth and development of a business entity (Medarevic, 2012).
The integration of CSR in the business strategy improves both the financial an environmental performance of the business corporations. The increased transparency within the business operations will help in achieving the satisfaction of the stakeholders and thereby improving its productivity and profitability. Also, it promotes operation efficiency through identifying the various ways to minimize the waste generation and pollution to protect the quality of environment. Therefore, it should be mandated to business entities within Australia to develop and publish their sustainability reports that provides an overall review of the CSR measures adopted by them. This will help in promoting the growth and development of business organizations (Medarevic, 2012).
It has also been illustrated in the article ‘Occupational Health and Safety Issues and the Boardroom: Criminal Penalties for Directors for Company’s Lack of Safety’ that directors need to devise strong policies for promoting health and safety of employees within the workplace. This is essential to overcome the occurrence of any issues that can negatively impact the employee well-being. Therefore, the corporate governance policies should emphasize on development of strict policies and regulations in relation to promotion of health and safety condition for employees. Therefore, health and safety issues within the workplaces are also an important part of corporate governance framework (Harpur, 2008).
The article with name “Corporate Governance – A Survey of Australian and South East Asian Systems” is related on the topic importance of corporate governance for the Australian legislators, regulators and civil society. This concern has been addressed in these articles as recent corporate collapses has led to increase in awareness of directors’ duties and ethics. This ultimately has demanded the increase in the requirement conditions for the accountability and reliability in the different management companies in Australia (Fleckner and Hopt, 2013). It has been found that foreign experience of corporate governance by the companies in Australia has helped them to fix the potential problems that may arise within their existing systems and illustrate different examples on how the issues can be avoided at the earliest. The main purpose of this article to take overview on how the international countries has successfully adopted the corporate governance by their companies and the way through which it helps the Australian companies to fix their issues related to corporate governance (Lim, 2010). The overall results shows that companies located in the South East Asian Country has successfully adopted the corporate governance and it has lead to maximum customer satisfaction and well being of the society where the company operates in. It has been seen that there has been major change in corporate governance principles as designed by companies so that they can met the demand of changing needs in the international market. As without good ethics and principle companies cannot survive in long run, therefore it is important to place such ethics that are for well being of society not for personal benefit. It has been found that corporate governance that is placed by the South East Asian Companies is same as the corporate governance placed by the Australian Companies. The function of Board of Directors has been emphasized more in the corporate governance principles after the crises period. It is because one wrong action by the directors of the company can lead to failure of the company (Lim, 2010).
It is recommended on the basis of the analyses carried out from the scholarly article in relation to examining the various aspects of corporate governance that there is increasing need for development of an effective corporative governance framework to promote the occurrence of ethical practices within businesses. The corporate governance framework develop by the ASX should include the principles in relation to fair executive remuneration, legislative compliance, continuous disclosure, healthy and safety policies and integration of sustainability practices as a part of the corporate governance policies. This will help the ASX to develop an effective statement of corporate governance to ensure that business entities within Australia carry out their activities in an ethical manner (Plessis, McConvill and Bagaric, 2005).
Conclusion
The report has discussed about the various aspects of corporate governance to be considered by ASX for developing a framework of governance to be adopted within business entities listed on ASX.
References
ASX Corporate Governance Council. 2014. Retrieved 24 April, 2018, from https://www.asx.com.au/documents/asx-compliance/cgc-principles-and-recommendations-3rd-edn.pdf
Bazley, M., Hancock, P. and Robinson, P. 2014. Contemporary Accounting PDF. Cengage Learning Australia.
Corkery, J. and Medarevic, S. 2013. Executive remuneration under scrutiny: The cutting edge of the ‘shareholder spring. Corporate Governance eJournal, pp. 1-16.
Fleckner, A. and Hopt, K. 2013. Comparative Corporate Governance: A Functional and International Analysis. Cambridge University Press.
Harpur, P. 2008. Occupational Health and Safety Issues and the Boardroom: Criminal Penalties for Directors for Company’s Lack of Safety. Corporate Governance eJournal, pp. 1-9.
Lim, L. 2010. Corporate governance: A survey of Australian and South East Asian systems. Corporate governance ejournal, pp. 1-16.
Medarevic, S. 2012. Environmental Corporate Social Responsibility and the Carbon Economy: A Case for CSR, the Triple Bottom Line and Obliquity, Corporate Governance eJournal, pp. 1-10.
Pearce, J. 2015. Corporate Decision-Making, Corporate Collapse and Inefficiency, Corporate Governance eJournal, pp. 1-8.
Plessis, J., McConvill, J. and Bagaric, M. 2005. Principles of Contemporary Corporate Governance and Accounting. Cambridge University Press.
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