Kentz Ltd is an engineering and construction company that has made a lot of strides in corporate governance. In this paper, we shall look at the where the company has performed well and where it needs to pull up socks with regards to corporate governance and make recommendations (Austin and Ramsay, n.d.).
The company was founded in 1919 as an electrical contracting business by Michael Francis Kent. In 1948, the business was taken over by his brother and later in 1963 taken over by his son Frank. During the 1970 and 1980 the business expanded rapidly. In1992, the company made huge losses following an contract to refurbish Museum de Catalunya and it struggled to survive. Two years later, Peremba, a Malaysian company acquired a majority stake in the company to inject the much needed capital. It was listed in the London stock exchange in February 2012 (Brealey, Myers and Allen, 2006). In June 2014, SNC –Lavalin Group acquired wholly Kentz for $1.95 billion and subsequently delisted from the London Stock Exchange
The Code defines corporate governance as the system under which companies are managed and controlled. This definition involves the set of principles and mechanisms that design and integrate the governing bodies of the company.
Ensure an efficient internal control system is maintained. Identification of those risks that may jeopardize the performance of the company’s business, implementation of a Code of Ethics, Evaluation and Compensation, the Code recommends: to support the Board of Directors in fulfilling the evaluation and compensation function of the Director General And high-level officials in society (Farrar and Hanrahan, n.d.). The Committee considers that proposals To the Governing Body so that it may take the corresponding decisions. It is desirable that the evaluation and compensation system be disclosed in the annual report and its operation be carried out in a transparent manner to increase investor confidence in the administration. In private companies, like Kentz, there may be cases where the general manager is the owner Of the same. If this occurs, then difficulties can arise in evaluating their performance. One way to solve this is through the Board of Directors, as it can establish an evaluation and Compensation Committee composed of several of its members to determine the most appropriate compensation (Hannigan, 2016). For example, one way of establishing CEO compensation is to measure the opportunity cost (which it would not earn if it were doing another activity), which represents the business owner performing administrative functions in the business
And then compare it with the resources it generates. Some recommendations for Kentz ltd regarding the function of evaluation and compensation are: Identify the opportunity cost of the administrator. Identify the activities of the administrator and separate them from their rights as owner. Assign A salary based on your opportunity cost and your responsibilities as an administrator. Do not extract resources from the company. Nor should it be subsidized. It is advisable for the Committee to review the succession process. Finances and planning in the Mexican private enterprise. (NYSE corporate governance proposals, 2003)The Code states: support for the Board of Directors in fulfilling the evaluation and compensation function of the Director General and the High-level officials of the company. If we assume that an organization is the result of a business vision, to be clear the direction that the company should take is perhaps the most important activity of the Board of Directors. One of the most important practices of good corporate governance is to have a system or mechanism that ensures the periodic review of the direction it is taking, since nobody will want to share the fate of an organization that does not evaluate its way. The finance function and planning is related to the evaluation of alternative scenarios, the choice of a plan of action and the evaluation of the form to execute it successfully. Formalize the strategic planning through a Document that includes the mission of the company, the vision about its future and the most important business strategies. Analyze and evaluate the possible investments that the company requires for the future . It is important to note that investments that are not economically justified and to determine the source of their resources should be avoided. In relation to the above we must also evaluate the investments made in the past. It is recommended to make budgets that help control the activities of the company (NYSE corporate governance proposals, 2003). One recommendation that takes on greater importance day by day is risk management. Discuss which ones your company may be exposed to. These risks may be of a different nature, some of which may be derived from exposure to exchange rate fluctuations, or may simply be due to non-compliance by a supplier.
The principles of good corporate governance constitute the standards. Levels of efficiency, efficiency, economy, continuous improvement and competitiveness of certain periods or taken from the market are also standards. Everything that is done with good corporate governance has to be compared with the standards to have the evidence that they are doing good or bad or things. This is the function of standards, serving as a criterion for comparison purposes. While control is a process, its effectiveness is a state or condition of the process at any given time, the same as when exceeding established indicators or standards facilitates the effectiveness of good Corporate governance.
The development of the activities of public sanitation companies has to be geared towards obtaining efficiency, effectiveness and economy, Otherwise its existence is not conceived within the framework of a social market economy and also because of the relevance of the type of services they provide that are directly related to the health and life of the population (NYSE corporate governance proposals, 2003).
The population, through the globalization of information, quickly learns how companies of this type and nature work anywhere in the world, therefore they demand the levels of competitiveness that the best governed companies of the world like SNC-Lavalinfulfill.
Minutes of the general shareholders’ meetings shall be recorded in the respective book and shall be signed by the president and by the secretary of the assembly, as well as by the commissaries who attend (Protecting shareholders and enhancing public confidence by improving corporate governance, 2010). These legal provisions are clearly directed to the forms of organization of mercantile companies and the regulation of the functions of the governing bodies.
Similar provisions must be observed in the mercantile, securities and corporate laws of other countries, in this tendency towards the homogenization of legal frameworks in today’s global market scenarios.
On the other hand, the literature of the theory of the administration comes mostly from the company, explaining the organizational structures from their practice, and generally depart from the president or the board of administration, as the maximum hierarchical level, to give rise later to the general direction and the other functional areas, without major comments for a system of corporate governance
In addition, the current trend in companies is to incorporate into the board of directors members that represent the expectations of the majority of interest groups in the organization, mainly those of a social nature. In this sense, three aspects need to be considered: the ownership structure and its concentration, the instruments of control and the exercise of control. On the other hand, the business associations of industrialized countries and NGOs interested in the performance of companies like SNC-Lavalin have been carrying out work aimed at issuing recommendations regarding the structure and functioning of corporate governance bodies (NYSE corporate governance proposals, 2003).
Good corporate governance practices provide economic and legal security, fostering sustainable business growth.
The board of directors is chaired by Lawrence L. Stevenson, the president and the CEO is Neil Bruce. Other board members are Jacques Bougie who is the chair of the ethics and governance committee. Catherine Hughes, Isabelle Courville, Kevin Lynch, Steven Newman, Jean Raby,Eric siegel, and Benita WalmBold who is the chair of the audit committee. All these people are crucial for corporate governance of the organization. The board has tn members who all serve in various positions in the company’s committees (Peppers and Rogers, 2011).
The board believes that the practice of good governance improves confidence in our management team, financial information and employees. It creates solid foundations to achieve our business objectives and allows the company to operate according to the highest ethical standards.
The board members were selected after a rigorous interview which chose the best. All these board members have had a wealth of experience in various sectors and have enabled them to steer the company effectively. The Board has adopted two Business Ethics and Conduct Codes, one for all employees and the other for the Chief Executive Officer, Chief Financial Officer and other Senior Officials, to further their commitment to legal and ethical conduct in relation to the business of the company (Pointer and Orlikoff, 2002). These codes of business and ethical conduct provide the basis for compliance with corporate policies and procedures and best business practices. Policies and procedures address a wide range of issues of professional conduct, including the establishment of strong employment policies, methods to avoid and resolve conflicts of interest, protection of intellectual property, protection of confidential information and a strict Compliance with laws and regulations applicable to the management of the company’s business practice. These codes also include procedures for the Audit Committee to receive, retain and process complaints received regarding accounting, internal accounting or auditing matters and allow confidential and anonymous disclosure by employees of accounting-related concerns or questionable audit (Sheikh, 2003).
This is the true representation of the board structure and having an understandable prospect and assessment of the company. The board should be balanced upon judgment.
It is also responsible for determination of the nature and the extent of the risks that the company is willing to undertake in the achievement of its strategic objectives. It should focus on having sound risk management systems and strong internal control systems (Pointer and Orlikoff, 2002). In this corporate governance codes and principles, the board should establish transparency and formal arrangements in determining the reporting structure while maintaining a good relationship with the external auditor in particular.
For the company to be run effectively and efficiently, it should be able to remunerate sufficiently in order to attract, motivate and retain directors that are quality and able to handle all functions given to them. The company should avoid paying more than necessary in remuneration purposes. Individual and corporate performance should be used to link rewards. The remuneration of the company should also be structured (Principles of corporate governance, n.d.).
The company procedure in developing policy should be transparent and formal on executive remuneration for the purposes of remunerating individual directors. The HR department should be tasked in fixing directors remuneration and hence no director should set or influence the remuneration.
Based on mutual understanding and objectivity, the corporate governance demands that there should be dialogue between the company and its shareholders. Communication should be done in the AGM to encourage every shareholder to participate.The identification, administration, control and disclosure of the risks to which the company is subject to (Peppers and Rogers, 2011).
Considering the context recommended by the Kentz Corporation Ltd, it can be inferred that the identification, administration and control of the risks to which companies are subject must become the driving force to contribute to “The system under which societies are directed and controlled companies.
Risk management must be focused to achieve the trust and recognition of majority and minority shareholders, as well as those so-called third parties interested in the good performance, stability and permanence in the time of society.
The risk management function must also be oriented to ensure that there is a strategic vision of company, as well as the monitoring and effective performance of the administration through the collaboration of the internal elements of the company, its Commissioner (except for public limited companies regulated by the Securities Market Law), as well as of its intermediary bodies and the Board of Directors to achieve the alignment of all operational, information technology, financial and strategic elements, To identify and confront all those external and internal challenges and events that can affect the healthy development of the company’s objectives.
For Kentz in good governance, it has been shown that entities can accumulate greater institutional value, reduce financing costs, provide better services, all of which is a competitive advantage .
Good governance is defined in multiple ways, depending on the point of view, convictions and understanding. Thus, it can be said that it is the force that directs an entity and that it is responsible for its success or failure. It can be said that it is the performance to conceive and achieve the desired results through the efforts of a group that consists in the utilization of human talent and resources. It can be said that is to get things done through the dynamic participation of people.
In the provision of sanitation services, what is important is to ensure the efficiency, effectiveness, economy, continuous improvement and competitiveness of the service; So that public sanitation companies must improve and or improve government and control, without affecting the budget of SNC-Lavalin.
The corporate governance plan includes compliance with the principles of good corporate governance, definition of sufficient and competent resources; Define policies, strategies and tactics to achieve objectives (Principles of corporate governance, n.d.).
In recent years, and more specifically in the wake of the onset of the financial crisis, the international community has understood the importance of properly and transparently managed companies. Good governance of companies is the basis for the functioning of markets, as it promotes credibility, stability and contributes to boost growth and wealth generation. For Kentz, good corporate governance has helped the entity wither storms in financial and economic upheavals. The company has been able to sustain itself posting good results and increasing the shareholders’ value (Sheikh, 2003).
As companies evolve and move into internationalization processes, operations become more complex, businesses are diversified, and risks are raised in both the legal and the public image. Thus, the best way to ensure success and continued growth will be in the progressive professionalization of both operational management and corporate governance.
Conclusion
The application of a code of good governance is the guarantee for the sustainable growth of Kentz Company in the medium and long term, as it helps to restore investor confidence, increases access to foreign credit, attracts talent and promotes image branded. Advances in corporate governance make companies more attractive as a business, more economically sustainable and therefore more competitive due to Effectiveness of boards of directors (Sheikh, 2003).
Corporate governance as a value generator
Likewise, it will have the figure of a compliance officer who will control the level of compliance of the organization in line with the main recommendations of the international markets and the most advanced trends in the matter.
Lastly, corporate governance best practices point out that in addition to meeting the interests of shareholders, maintaining a permanent and effective dialogue and encouraging their active participation in corporate decisions, good corporate governance has to respond to the expectations of the rest of interest groups, such as customers, suppliers and employees, among others (Sheikh, 2003).
References
Austin, R. and Ramsay, I. (n.d.). Company directors.
Brealey, R., Myers, S. and Allen, F. (2006). Principles of corporate finance. New York, NY: McGraw-Hill/Irwin.
Brealey, R., Myers, S. and Allen, F. (n.d.). Principles of corporate finance.
Farrar, J. and Hanrahan, P. (n.d.). Corporate governance.
Hannigan, B. (2016). Company law. Oxford: Oxford University Press.
NYSE corporate governance proposals. (2003). [Place of publication not identified]: Financial Executives Research Foundation.
Peppers, D. and Rogers, M. (2011). Managing customer relationships. 1st ed. Hoboken, N.J.: Wiley.
Pointer, D. and Orlikoff, J. (2002). The high-performance board. [San Francisco, Calif.]: Jossey-Bass.
Principles of corporate governance. (n.d.). .
Sheikh, S. (2003). Corporate Governance & Corporate Control. London, England: Taylor & Francis.
Strauss, R. and Woods, R. (2007). One well. Toronto: Kids Can Press.
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