Change in Corporate Governance Principles: Issues and Recommendations Assessment Answer
Corporate Governance and Sustainability
The Australian Securities Exchange (ASX) has released its revised Corporate Governance Principles along with introducing the key changes for addressing the issues like gender diversity, social and environmental risks and change in the climate. It is amongst one of the emerging quasi-regulatory initiatives over the globe. It has covered the issues for identifying the transformed nature of risks and opportunities in the context of forces of sustainable development. So, this report is intended to enlighten the stakeholders about the issues and complexities involved due to the introduction of changes in Corporate Governance Principles and Recommendations. A critical analysis would be done regarding the improvements to be made in the corporate governance principles of MYER HOLDINGS LIMITED in response to these changes. Lastly, issues from the view of sustainability would also be analyzed while the company is expanding its operations in New Zealand.
The primary purpose of a company is to impart the best services in the interests of the shareholders. As per the business objectives of Australian Companies which are the largest in terms of market capitalization, the prime focus is to cater to the interests of the shareholders. In this context, good corporate governance is important for the efficiency of capital markets and investor confidence. The ASX Corporate Governance Principles and Recommendations set out the standard for effective corporate governance practices in Australia (ASX, 2019). The ASX Corporate Governance Council introduced these principles in 2003.So, this report is intended to analyze the complexities arising from the two changes introduced in the Corporate Governance Principles and Recommendations. Furthermore, it would also be evaluated that to what extent the corporate governance of MYER HOLDINGS LIMITED be can be enhanced in response to the two changes introduced by the Corporate Governance Principles and Recommendations. Lastly, these changes would also be considered from the point of view of sustainability, while the company is expanding its operations in New Zealand
Analysis of the complexities and key issues involved in Two major changes in the Corporate Governance Principles and Recommendations
. These principles were introduced as voluntary recommendations to be applied to ASX listed companies with the intention for their operation on “if not why not basis". The Council is going beyond the original spirit of Principles by increasing the obligations of the directors with a little amount of proof about the effectiveness of these principles (Adams, 2019). As it is being analyzed that the Council is going beyond its original nature of Principles through increasing the number of obligations on the directors which may lead to overburdening of the Board with unnecessary paperwork and distractions from the execution of strategies to the tasks outside the scope of its role. This process was related to strengthen the transparency of the business process and keep the financial books of account reflecting the true and fair view to stakeholders.
One of the major changes introduced by the Corporate Governance Principles is the shift from shareholder primacy to social license to operate. It is a long-held view that the main purpose of the company is to serve the interests of the shareholders. But in the past, it has been criticized. It fosters short term thinking approach thereby leading to a decrease in the wages and reduction of long term investments. It leads to the negligence of the interests of other stakeholders. In order to mitigate the effects of this approach, the Council has proposed that the company should state its purpose (ASX Corporate Governance Council, 2019).
The company should have a wider purpose rather than a fulfillment of the interests of the shareholders. It should emphasize its social license to operate. It implies that a company should not only deliver its financial performance rather it must make a contribution to society in a positive way. But here the issue arises that who shall give the organization a social license? On which sectors of the community it must be applicable? So, it may result in confusion and uncertainty. Thus the social license to operate must not be a central concept for corporate governance (Moriarty, Halstead & Cutler, 2018).The proposed principles will also conflict with the statutory obligations of the directors. These principles prescribe that the directors must act for the interests of the other stakeholders while section 181 of the Corporation Act mentions that the directors must act in the best interests of the company. This may confuse the directors and distort the line of managerial accountability.
Another change proposed by the Council was that the board must set achievable objects for obtaining gender diversity not only in the composition of the board but also in its workforce and senior executive ranks. It was additionally proposed by the Council that if a listed entity was in S& P /ASX 300 index then it should obtain a gender diversity of not less than 30% of the directors of each gender (Australian Institute of Company directors, 2018). It was highly appreciated for better governance of listed entities but it was believed that 30% target is too low for a country like Australia where women comprise of 50.7% of the total population. It is also said to breach the discrimination laws.Hence the best candidate might not be selected. This has resulted to the breach of laws and common problem which company has faced throughout the time.
Analysis regarding the enhancement of the corporate governance of MYER HOLDINGS LIMITED in response to each of the two major changes in the Corporate Governance Principles and Recommendations
The concept of social license to operate believes in the notion that the long term sustainable success of the listed entity is based upon maintaining trust and goodwill amongst the social groups with whom it interacts. MYER HOLDINGS LIMITED should, therefore, upgrade its corporate principles to imbibe this concept in its corporate governance statement. The company should consider the type of behavior it expects from its employees and officers in order to build long term relationships with its stakeholders. In pursuance of the Recommendation 1.5 (diversity) the company must charge its management with the implementation of programs which can help it achieve the diversity objectives. There is need to align the interest of the stakeholders with the organization development for the sustainable growth of the organization in long run. The management shall review the progress of the company regarding the accomplishment of these objectives (Myer, 2019). It should have ethnically diverse teams which represent the cultural diversity in senior leadership roles in Australia (Choudhury, 2015). This has shown how well company has strengthen its business functioning and strengthen its organizational culture diversity in process. This helps in creating the value of the business outcomes and increasing the transparency of business to stakeholders.
Critical analysis of two major issues considered by the company in the context of sustainability while expanding its operations in New Zealand
One of the major issues confronted by the company while operating its business in New Zealand can be the implementation of a strong governance framework. It becomes extremely helpful when a huge amount of energy and resources are invested in the development of strategies for overcoming the obstructions to the growth of the business. In today’s scenario, the consumers and investors refer beyond the balance sheet so that they can make prudent choices regarding their investments and purchase. So, the company should have an efficient advisory board which is capable of offering external assistance, support and guidance so that the business can grow and develop in New Zealand (Atkinson, 2015). In this context, developing good governance in terms of adoption of cleaner business practices can build and strengthen the brand. It would give a strong reputation and identity so that the business can be promoted to the consumers and investors.
Secondly, in order to be successful in expanding its operations in New Zealand, the company has to shift itself from its traditional business model. It has to work smarter in terms of product design and packaging to manufacturing and transportation techniques. It has to reshape every element of its business so that it can maximize its resources and minimize the wastage. With the increase in the demand for natural resources and raw materials on a local and international scale in New Zealand, there has been a dramatic increase in their prices (Ministry for the environment, n.d.). So, the company has to find substitutions for cutting its cost in this regard. Furthermore, it has to examine its waste output and recycle its materials from administration and production areas. It can also opt for changing the raw material and manufacturing the products from recyclables. It shall help the company to open up to new markets for supplying its goods and services (New Zealand Report, 2017).
This report can be concluded by providing a recommendation that in order to create its value, a listed company must consider the required behavior from its managers and employees. It shall assist its board in building long term relationships with its stakeholders. In the context of gender diversity, the board should be encouraged to improve gender diversity by appointing directors belonging to various cultures and age groups. It may assist in bringing different perceptions in the decision-making process of the board. Lastly, with regards to the adoption of sustainability practices in New Zealand, the company must consider the elements of people, process and capital. It must refrain from adopting the traditional model of business.