Capstone: The what, why and how
This capstone introduces you to researching and interpreting the voluntary disclosures of a publicly listed company to determine its governance and ethical outlook. The knowledge you have gained from modules 6–9 are of high importance to this exercise. These skills are highly valued by business specialists such as:
Remember that it is a company’s stakeholders who determine what is acceptable and not acceptable for that company to do. Therefore, to determine where a company is looking to for its guidance (for example, shareholders, powerful stakeholders, all stakeholders) is an important step in identifying a company’s likely ethical outlook. A bank that is focused upon its most powerful shareholders will talk to them directly in their voluntary disclosures, and this will manifest itself in how the company conducts itself in society. In contrast, a company that is vitally concerned about how society views its actions relating to the environment will disclose information suitable to that audience, and will probably conduct its affairs in a complementary manner.
Investors seeking to invest in companies committed to sustainable operations may choose the latter company over the former (however, there are many other considerations such as the company’s return on investment record that cannot be ignored), while an investment fund that needs to grow its own return on investor funds might choose the former to invest in.
This capstone project is not about making judgments concerning the likely ethics of a company; we simply do not have enough information on hand to make such a judgment. And remember that a company wholly focused on profits and returns to shareholders can be just a ethical (in the eyes of its stakeholders) as one who takes an interest in its environmental “footprint”. What is of interest to us is that each company is different and can be ethical in different ways. This capstone is about investigating and coming to a conclusion about a company’s likely ethical and governance outlook. You will read the company’s own disclosures, apply appropriate theories and come to reasonable conclusions, all of which you will report upon.
The following steps are about how you will undertake this assessment.
You have been provided with an ASX company code. You can go here to locate it. You should then go to this ASX site at https://www.asx.com.au/prices/company-information.htm to locate your company's name and further details such as the company's web address. You may even find the company's latest financial report located there.
If you are studying ACCT20074 or ACCT20075 this term, you will notice that you have already been allocated the same company.
Once you have your company, you are required to research and report on the company, its industry and its likely governance and ethical outlook. You are to provide a report in the following structure:
The four requirements for your report are as follows:
1. Introduce and summarise the company (500 words, 8 marks)
In this section, please tell us about the company, the industry it is in, and its recent history.
2. Summary of corporate governance at your company (500 words, 8 marks)
Please locate the latest annual report published by your company. Locate the following and provide a summary of what they say:
Provide an overall summary of the report stating what immediate priorities of the company are and what plans might be in place to achieve them.
You are not expected to provide a financial analysis of the company unless it supports any of the points above.
3. Board orientation (1,000 words, 16 marks)
Review your company’s most recent annual report and its web site. You should also read any media releases it might show on its web site. Analyse what you find and determine the most likely orientation of its board. You will find the table on page 11 of the Module 7 Study Guide very useful, as well as the supporting discussion.
Make sure you justify your conclusion with reference to whichever theories are most applicable.
4. Interpretation of company communications using Legitimacy Theory (500 words, 8 marks)
You might want to start preparing for this section by locating and reading the three academic journal articles referenced on Page 7 of the Module 8 Study Guide. They are excellent examples of how you might look for evidence of a company concerned with its legitimacy.
You will be assessed on:
Proper referencing is expected. Failure to accurately and consistently apply the APA referencing standard will result in up to 5 marks being penalised off your overall grade. If in doubt, you can find the APA standard here.
With the ramified economic changes, every organization needs to hold the executive and non-executive directors in its board composition. In addition to this, there is need to strengthen the legal financial compliance to increase the corporate governance of the company. In this report, Link administration Holdings Limited has been taken and analysis of the annual report has been done. It is analysed that the Board of the Link Admin HLDG Information Technology has been formulated effectively to include the majority of directors who are independent and non-executive. In addition to this, the remuneration framework had been designed to include a portion of the payment to be fixed and one portion to be variable. In the starting of this report, summary of the Link Admin HLDG Information Technology Company has been given. After that corporate governance at the Link Admin HLDG Information Technology has been assessed to check the board composition, report of the CSR of company and remuneration repot. Afterward, board orientation is done to evaluate the business program. In the end interpretation of the Company’s communication using Legitimacy theory has been assessed.
Link administration Holdings Limited, commonly known as Link Admin HLDG Information Technology was founded in the year 2005 and has capital market listing on the Australian Stock Exchange. The company functions in the Financial Analytics and Research industry. The company is uniquely famous for understanding its client requirements and provide them customized solutions for their potential investments in technology, people and processes. High-end administration solutions enabled with the latest technology are provided by the organization. The company has created trust among its clients to deliver administrative services to them by handling their sensitive information in the most confidential manner. The solutions offered are related to data analytics and digital solution expertise (Link Admin HLDG Information Technology.2018).
The different administrative areas handled by the Link Admin HLDG Information Technology for its clients comprise of Retirement & Superannuation, technology and operations, and Corporate markets. In the retirement & superannuation section, the group has been considered to be the largest service provider in Australia. In the Corporate market section, the company provides a variety of services which include management of shareholders, engagement with different stakeholders, registry of units and shares, secretarial services for corporates and share plans for employees. Key innovation across a variety of products and services offered by the clients is driven by the Link Admin HLDG Information Technology through its technology and operations division (Link Admin HLDG Information Technology., 2018).
Also, the group has a specially designed division named Link Admin HLDG Information Technology EMEA. Through this division, the organizations work on an international platform and serve more than 7,000 clients for provisioning their infrastructure needs. The infrastructure services are provided to the clients for both unregulated and regulated markets from wherein the clients’ assets are both deployed as well as secured(Link Admin HLDG Information Technology., 2018)..
As far as the recent financial history of the Link Admin HLDG Information Technology is considered, the company had a growth of 54% in its annual revenue over the year 2017 taking it to the level of $1,198 million. Resultant, the company’s operating EBITDA went up by 53% reaching $335 million. Overall, the growth in the company’s Operating profits net of taxes had been superficially high. The growth percentage had been 68, making it $207 million. The company had a commendable margin of 96% for converting its operating results in cash flows making the company’s cash flow position highly strong (Link Admin HLDG Information Technology, 2018).
Recently, the organization has entered in strong partnerships with Asia’s largest hub for fintech innovation named Stone & Chalk. The company has recently become the leading Australian administrator of superannuation funds with its acquisition of the Adviser network. Another significant acquisition made by the Link Admin HLDG Information Technology had been of Capita Assets, which has been renamed thereafter as ‘Link Asset’ Services. This acquisition had allowed the Link Admin HLDG Information Technology to provision several administrative and financial services (Link Admin HLDG Information Technology., 2018).
The Board of the Link Admin HLDG Information Technology has been formulated effectively to include the majority of directors who are independent and non-executive. The total number of directors currently appointed at the Director position of the Board of the Link Admin HLDG Information Technology is 8. The majority of these 8, i.e. 7 directors are of independent nature as well as non-executive. The ratio of independent and non-independent directors is 7:1. The Board is chaired by Michael Carapiet. The status of the Company’s Chairman is independent as well as Non-executive. All these directors are expected by the Link Admin HLDG Information Technology to immediately disclose if they become conscious about any situation or circumstance which has got the ability to hamper their status of independence (Link Admin HLDG Information Technology., 2018).
The following table highlight, the names of the directors of the Link Admin HLDG Information Technology, their independent status as well their appointment date (Link Admin HLDG Information Technology., 2018).
Source: - (Link Admin HLDG Information Technology. 2018).
The details of the other managerial personnel of the company acting at the executive position are highlighted as follows:
(Link Admin HLDG Information Technology, 2018)
The Chairman’s report has been highlighted in the form of a message in the annual report. In his report, the company’s chairman Michael Carapiet has highlighted the company’s summarized financial results for the financial year 2018. The growth results of
the year in terms of revenue, operating EBIT and the net profits are quantified. The payout rate maintained by the organization throughout the year has been marked through his report. The major acquisition made by the group during the year of the Capita Asset Services had been disclosed specifically (Link Admin HLDG Information Technology., 2018).. The purchase price of $1,548 million paid for the acquisition from the London Stock Exchange had been presented in his report.
The several milestones effectively achieved by the group during the year are pinpointed. The fact of the company welcoming a new member to the board as an independent and non-executive director, named Andrew Green is presented clearly in the report. The details about the external visits made by the new director to Johannesburg and Mumbai for the purpose of the “risk & audit committee” are provided (Boyd, & Hoskisson, 2010).
The company has got different Chief Executive Officers (CEOs) for its different divisions. Resultant, specific reports have not been extended by them. The company’s Chairman alone has provided a summary of the group results of the year 2018 (Link Admin HLDG Information Technology., 2018).
A special human resources and remuneration committee has been constituted at the Link Admin HLDG Information Technology. The remuneration paid to the key managerial at the Link Admin HLDG Information Technology had been decided by the remuneration committee and the same are detailed in the remuneration report. The company’s remuneration report for the year 2018 has been supported by the company’s shareholders at the AGM with a high majority. The remuneration framework had been designed to include a portion of the payment to be fixed and one portion to be variable (Link Admin HLDG Information Technology., 2018). The fixed portion has been focused upon the aim to retain key people by supporting them with competitive pay and align the same with their skill set. The variable component includes long term and short term incentives (Walls, Berrone, & Phan, 2012).
The incentive plans are designed to drive the personnel to work for the achievement of long and short-term business goals. These are designed to motivate the company’s key people to focus on the company’s core to secure high returns. The ultimate goal is to create sustainable value for the shareholders in the long run (Link Admin HLDG Information Technology., 2018).
The company has a keen practice to follow while appointing any new person to the Board. A perfect balance comprising of experience, knowledge, and skills is evaluated before hiring any person. The capabilities of a person against his expected roles are evaluated during the hiring process. The hiring process starts with the process of selection. During this process, the potential candidates are checked appropriately for considering hi suitability for the vacant position. During the screening process, the details of every directorship and commitment already held by the potential candidate are required to be disclosed to the selection committee. A written agreement is signed by the selected candidate with the Group (Al Farooque, Van Zijl, T., Dunstan, K., & Karim, A. W. (2007). Through this agreement, the candidate acknowledges the acceptance of the terms and conditions attached to the post and adherence of them while undertaking the responsibilities (Link Admin HLDG Information Technology., 2018).
Later on, the company conducts a process of mutual “due diligence”. Through this process, the entity provides the appointed personnel all the details about the materials related to non-public and public areas. A severe confidentially is attached to these materials and the personnel are expected to comply with the confidentiality requirement. After the completion of appointment formalities, the company initiates an induction or orientation program. Through this program, the company provides new personnel with the opportunity to understand and meet the organization’s senior executives. Additionally, during the induction, the appointed personnel are briefed about the operations of the group, nature of business activities, business strategies, and the areas of key business risks. Depending upon the nature and position of appointment of the personnel, the induction program is customized to suit their position’s roles, terms, responsibilities, and conditions (Bae, Baek, Kang, & Liu, 2012).
In case, the director’s appointment has been undertaken to fill a casual vacancy, the duration of appointment of these casual directors last until an AGM is conducted right next to the appointment. During the AGM, the proposition to elect the director filling a casual vacancy is kept against the shareholders to seek their approval (Link Admin HLDG Information Technology., 2018).. Thereafter, if approved, these directors are re-elected and for the same, the Listing Rules of ASX are followed. For the help of the shareholders to rationally make this decision, the details of the casual vacancy and the candidate filling up the vacancy are revolved to them through the notice of the AGM itself (Cooper, & Owen, 2007).
In the recent financial year 2018, only a single new appointment has been made to the Board. The new director appointed is Andrew Green, appointed on March 9th, 2018, as the non-executive and independent director. All these processes have been carefully undertaken by the company for this new appointment (Carter, D. A., Simkins, B. J., & Simpson, W. G. (2013).
Legitimacy theory is the key enabler for an organization to voluntarily adopt ethical practices in its operations and functioning. As per legitimacy theory, a company has to be profoundly ethical while conducting business and reflect its ethics by voluntarily disclosing the environmental and social actions while communicating with the stakeholders through corporate communication. Integrated reports are prepared over simple financial reports and the company strives to prove its legitimacy to the society it operates within. A company is legitimate when it responsibly uses the resources provided to it by the environment, and carefully discloses its actions and usage in stakeholder communication (Patten, 2019).
The company has undertaken various initiatives for the community it operates in, through its program of Corporate Social Responsibility. Several activities have been undertaken to improve the environment of operation and make the operations legitimate on the lines of sustainable judgment. The company has profoundly contributed to the community as follows (Baek, Kang, & Park,2014).
The Link Admin HLDG Information Technology has taken several initiatives for the betterment of the environment and has responsibly disclosed all of them in its annual report and a separate sustainability report. these disclosures are as follows:
Other sustainable actions are taken for the betterment of the internal stakeholders, i.e. the employees and are as follows:
Conclusively, the company can be said rightly legitimate to the different sets of stakeholders. The company seems operating sustainably for all the interested parties, both in financial parameters and also in the non-financial parameters. The company has voluntarily undertaken as well as disclosed its ethical actions. From the analysis perspective, the actions reported by the organization show the vital concern the organization had for the society (Garay, & González, 2018)).
After assessing the annual report of company, it has been assessed that the major acquisition made by the group during the year of the Capita Asset Services had been disclosed specifically. In addition to this, company has complied with the all the terms and conditions and also strengthen the legal compliance in its corporate governance program. In addition to this, the board composition maintained by company is also strong which strengthen its legal compliance. Furthermore, the corporate governance is also supporting the CSR and sustainability reporting framework which sets up harmonization in the domestic and reporting framework. Nonetheless, company has recently become the leading Australian administrator of superannuation funds with its acquisition of the Adviser network. Another significant acquisition made by the Link Admin HLDG Information Technology had been of Capita Assets, which has been renamed thereafter as ‘Link Asset’ Services. Now in the end, it could be inferred that all directors are expected by the Link Admin HLDG Information Technology to immediately disclose if they become conscious about any situation or circumstance which has got the ability to hamper their status of independence. They are strongly liable to maintain the transparency in the books of accounts to strengthen the legal corporate governance in business.