Corporate Governance Principles in Woolworths Groups

Corporate Governance Principles in Woolworths Groups

The term ‘Corporate governance’ refers to a detailed structure of rules, relationships, systems, and procedures within which operations are conducted in corporations. It entails the guidelines with which firms and those in control-positions are bound to comply. Woolworths groups in their corporate governance statement stated that the ASX Corporate governance principles had influenced their principles. These principles are aimed at promoting investor confidence, which is a significant aspect of the ability of corporations to compete for capital. The ASX Corporate Governance principles and recommendations are set and aimed at promoting eight central principles:

Solid Foundation Layout for Managerial and Oversight Purposes

This principle recommends that a corporate should clearly describe the respective responsibilities of its management and view its performance on a regular basis. The firm should provide a board chatter, clearly defining the various roles and responsibilities of both the Board and management and clearly outline those issues delegated to the Board and those reserved to the management. The nature of the roles and responsibilities delegated to the Board and management will depend on the corporate’s size, the structure of ownership, complexity. The corporate’s history and culture will further determine it.

Consequently, a corporate should conduct the necessary investigations before a director or a senior executive is appointed or recommending a person for election as a director. Such studies would, for instance, entail checks on an individual’s character, experience, education, and criminal record. Such data should be availed to security holders to assist them in making an informed decision on the credibility of the candidate.  Upon the election of a suitable candidate, the corporate should formulate a with its director and senior executive detailing the terms of their appointment. The corporate should then develop a reliable procedure of assessing the performance of its senior board members, at least once in every reporting period.

The responsibility of top management and leaders of a company such as Woolworths Groups is to ensure that the company’s mission is met, and in a way that allows growth for shareholders, the company, and its employees.  The strategic planning process is governed by top management.  They are responsible for helping strategically implement measures to ensure all the primary functions of a firm, such as marketing, sales, fiancé, human resources, legal, and production, are met through the use of the strategic planning process.  Strategic management allows a company to systematically look at all of the moving parts of a business and identify ways to stay ahead and on track with short and long term goals (Silvester, 2019; Rothaermel, 2016).  It gives a company the ability to keep moving forward while continuously looking for ways to improve the business form one day to the next.

Even though the Board of directors at Woolworths Groups Limited is not directly involved in decision making, I would be more concerned about the oversight powers accorded to them. This would be a great concern to me as an investor with Woolworths because the Board of directors is responsible for approving the strategic plan that is offered by top management.  They are the approving authority of the company’s budget and have to say over any material investments. The BOD would also be responsible for electing those who serve as members of the audit committee.  Board members are the driving force behind providing new vision and insight for the company.

Additionally, I would also be concerned by the frequency at which the governing boards are meeting. In my view, I would love to see the Board of Directors hold meetings quarterly at a minimum. If the Board is better performing, I would recommend the creating of subcommittees as an added level of input to top management recommendations.

Furthermore, I would be concerned about how the company undertakes its audit, especially financial audits. The audit committee is responsible for ensuring the accuracy of financial records.  There is evidence collected from prior research that suggests that the strength of corporate governance is directly associated with improved financial reporting quality, resulting in fewer incidences of fraud and restatements, as well as lower levels of earnings management. (McMullen 1996).  Although it would seem that corporate governance and strategic planning are perceived and executed by companies the same, different methods take place in the execution process, depending on the goal or main focus of the company.

Agency Theory comes from a collection of other ideas or theories, such as contract law, political philosophy, organization economics, and property-rights theories. Corporate debt levels and management equity levels are both influenced by a wish to contain agency costs, with there being three main types; to monitor managerial activities such as audit costs; limit undesirable managerial behavior by structuring the organization in a specific manner, such as appointing outside members to the Board of Directors; and opportunity costs, incurred by some shareholder-imposed restrictions, like voting requirements for shareholders on specific issues (Jensen, 1991).  With the way corporate governance is viewed with Agency theory, there may be a sense of disconnect from the management and the company owners, as self-interest often plays a role in this theory.  The company owner may want to increase shareholder wealth overall. Still, the interest of the manager, such as their personal goals and desires, may be different from those of the shareholders.  Managers sometimes receive insight on the risk of a transaction or its future, putting them at an obvious advantage over ordinary shareholders.

With Stewardship theory, often, the drive behind the company may be something entirely different.  The company may practice decreasing their carbon footprint or their overall impact on the environment as more important than an increase in profits necessarily.  This can be done to create a particular image for the organization or to appeal to a specific market.  The dangers of this theory can be that if shareholders, employees, or just the PR of the company reflects that top management and firm leaders do not abide or practice this throughout, the company may lose reputability.  With stewardship theory and corporate governance, the problem can arise that the determination between what is seen as ethical and unethical decisions is often lead to the management to interoperate and can be relative to the values of maybe the original founder of the company and its purpose.

As an investor with Woolworths Groups Limited, I would be more concerned with the manner in which the company addresses corruption and transparency in its audit. During the strategic management process, managers often look to The Sarbanes-Oxley Act of 2002 (SOX) as a guideline to create their business structure around, implementing it into every aspect of the business (Sarbanes, (2002, July).  There sometimes lies an issue of how SOX is used, depending on the company size, and the industry in which they reside.  SOX requirements ask companies to have more experience and expertise when considering both the committees and the financial sector of the business, with stronger audit committee independence.  SOX was mostly created due to corruption in the oversight of management, external auditing, and corporate governance, especially the audit committee and Board of Directors.

The strategic audit is very useful in helping management identify problem areas before they arise (Zhongliang, 2006).  This is done by asking a series of questions or having prepared a solution for possible future problems that may arise, depending on the timing, strategy, and specific field or industry that the company is involved in.  It does this by covering the strategic areas of the strategic management process and integrates this process into a workable framework from where to form and execute decisions.  The strategic audit allows a person to become more familiar with how different areas of the fundamental aspects of a business work both together and independently of one another, and how they help measure and create success.

References                                                                                                    McMullen, D. A., & Raghunandan, K. (1996). Enhancing audit committee effectiveness.            Journal of Accountancy, 182(2), 79.                                                                                  Rothaermel, F. T. (2016). Strategic management: concepts (Vol. 2). McGraw-Hill Education.             Silvester, S. (2019). Strategic Management And Corporate Governance.                      Sarbanes, P. (2002, July). Sarbanes-oxley act of 2002. In The Public Company Accounting          Reform and Investor Protection Act. Washington DC: US Congress.            Zhongliang, W. Y. Z. (2006). Independent Directors Strategic Audit and Corporate        Performance [J]. Communication of Finance and Accounting (Academy Version), 6.