Maf302 | Corporate Governance Mechanisms Assessment Answers

Introduction

The main purpose of this assessment is to analyze the adherence of the Bega Cheese ltd towards its corporate social responsibility. Corporate Social Responsibility plays a vital role in todays business as it demonstrates to the society that the company is contributing towards the needs of the society (Tricker and Tricker 2015). In addition to this, the assessment will be analyzing the mechanism which is used by the business for meeting its corporate social responsibility and a contain a comparative analysis of corporate social policies which are followed in Australia and Europe.

Bega Cheese ltd is an Australian multinational company which is engaged in the business of dairy products such as different varieties of cheese and other related products. The company is at its expanding stage and therefore is growing rapidly while expanding the portfolio of the business by offering new products or existing products under the brand name of Bega (Annualreports.com. 2018). The key products which are offered by the business as per 2017 report are Vegemite, Bega peanut butter, ZoOSh.

Discussion

Current Structure of Board of Director and Corporate Governance

The board of director of Bega Cheese ltd comprises of experienced individual who have been tested and have been proven to be very effective in the management of the company. The board of director is made up of 8 directors which includes the chairmen of the board. The directors are individually experienced and have contributed many years to the company and its growth. The chairmen of the board of directors is Barry Irvin who has been a director since 1989 and has won several awards for his leadership skills in agriculture industry. The names of the other seven directors whose names are mentioned in the annual report of the company for the year 2017 are Richard Cross, Peter Margin, Raelene Murphy, Jeff Odgers, Richard Parbery, Richard Platts, Max Roberts. There are two directors who are independent in the board of directors who are Peter Margin and Raelene Murphy. The directors are responsible for formulating policies and strategies of the business and for the purpose of effective monitoring and implementation of the policies various committees are set up of which the directors are part.  The committees regulate the policies even the corporate governance policies of the business. This is done in the various meetings which are conducted by the board of directors for discussing various policies of the business.

Figure 1: (List of meetings of Board of Directors)

Source: (Annualreports.com. 2018)

A good corporate governance mechanism ensures that the business looks after all the aspects which are affected by the activities of the business which can be environmental, social, responsibility towards stakeholders. The board of directors have formulated strategies which responds to the needs of sustainable development, environmental safety and safety of individuals and adheres to the needs of the society. In order to follow the safety standards for environment, the management follows various environmental regulations which are established by law.

Remuneration Packages for CEO and Top Executives

The remuneration packages of the CEO and other officials of the business are decided by the board of directors on the recommendation of NRHRC. The remuneration which is offered by the business are decided based on the performance of the company during that period and market remuneration rate data for a similar business in the industry. The human resource manager of the business accumulates the data which is related to market remuneration rate and present the same to the board of directors of the business (Misra, Jain and Sood 2013). The remuneration of the key personnel of the business are bound by the profitability of the business, fulfillment of objective of the personnel, adherence to policies which are followed by the business. The annual report of 2017 for the company shows that there is a hike in remuneration of the director by $ 2500 per annum inclusive of superannuation. The remuneration which is offered by the company to key personnel of the business are shown in a image below:

Figure 2: (Remuneration of Key personnel of Bega Cheese ltd)

Source: (Annualreports.com. 2018)

The remuneration which is provided to the CEO is also shown in the annual report to be $ 700,000 per year which also includes the superannuation. In addition to this, there is also a long-term incentive plan of $ 350,000 which is also shown in the annual reports. There are also other perquisites which also forms part of the remuneration which is provided by the company.

The remuneration policy of the business is an important part of the planning process as only an effective remuneration policy will only help the business to retain top executives of the business. In addition, better pay motivates the personnel to whole heartedly pursue the goals of the business. This will help in increasing the overall returns to the shareholders of the business.

Identification of Risks and Mitigation Strategies

In a business environment, it is quite natural to have a risk which can affect the business and therefore appropriate mitigating strategies must be formulated in order to ensure that the risks are minimized or avoided. As per the annual report of Bega Cheese ltdm, the company is also facing similar problems (Tallon 2013). The two major areas of risks which are associated with the business of Bega Cheese ltd are provided below:

• The business faces economic sustainability risks which are controlled by market share, brand image, facility growth through immediate acquisition. As the business of Bega Cheese has expanded far and wide in domestic and foreign countries, therefore it is quite natural risks are natural (McCahery, Sautner and Starks 2016). The management of Bega Cheese ltd has acquired contracts which range from medium term to loan term range with parties and any changes to such contracts can bring about risk in the business.
• The business also faces serious risk from the social sustainable factors which includes the role of the business in ensuring the products which are offered by the business are of quality. This also covers the safety of the employees and workers who are engaged in the operations of the business.

In order to avoid the risks which are discussed above, the management needs to formulate appropriate mitigation strategies which can minimize the risks of the business. The mitigating factors are discussed below in point form:

• The management has formulated plans for brand performance and market research which are given to the marketing and sales team so that the policies can be implemented. In addition to this, the business has a strong fiscal control and therefore the funds and resources of the company and has a rigorous management of capital funds and operations of the business (Larcker and Tayan 2015). Thus, these strategies of the management reduces the economic sustainability risks which is associated with the business.
• As per the policy of the management, the safety of the consumers are of highest priority to the management and therefore, every necessary steps are taken to ensure that safety standards are maintained. The quality management system of the business ensures quality products with descriptions of the ingredients which are used in order to prepare the product. In addition to this, survey review of the quality of the products are undertaken at regular intervals so that no quality issues arise from the part of the customer of the business.

Internal and External Governance Mechanism of Bega Cheese ltd

The corporate governance of the business is shown to be quite strong as is evident from the corporate governance statement which is shown in the annual report of the business. The internal governance model includes strategies for risk management of the business which is done by conducting an internal audit so that the risks can be identified and mitigating strategies are introduced. The external governance policies of the business include the role of the business in the safety of the environment and society as a whole (Westphal and Zajac 2013). The corporate governance strategy which is prepared by the business is mainly focused in sustainable development, quality maintenance and overall growth and expansion of the business.

Comparison between Corporate Governance Mechanism Between Australian and Europe

As per the corporate Governance principle which is followed in Australia has changed over the years due to changes which has taken place in the business market. The corporate Governance structure in Australia is can be compared to that of an principle agent relationship. In case of Europe, the corporate Governance structure is widely dispersed and fragmented when it comes to ownership. In case of Australia, the ownership is concentrated among the key shareholders of the business (Foster.uw.edu. 2018). In addition to this, the rules and legislations which are established by the government affects the corporate governance policy which is formulated by the management however, the same is not the case with the Australian framework of Corporate Governance (Press-files.anu.edu.au. 2018). In addition to this, the size of the board and the size of the company are also important factors which affects the governance process of a business in both Australia and Europe.

Corporate Social Responsibility Program

Corporate Social Responsibility (CSR) means to initiate policies which can fulfill the needs of the society by following strategies which are in the interest of the society (Schwartz 2017). The CSR policy of a business are mandatory in Australia and therefore must be followed. The annual reports which is prepared by the business for the year 2017 shows certain areas where the management of Bega Cheese ltd have implemented Corporate Social Responsibility.

The management puts special emphasis on the protection of the environment and ensuring that no products of the business can potentially harm the environment (Cheng, Ioannou and Serafeim 2014). The business has also formulated strategies which can lead to reduction in usage of power by the business. In 2017 report, it is shown that there has been an overall deduction the usage of power by 6.5 % and the overall water consumption which is done by the business also reduced to 6.7%. The main raw material which the business uses is water and an overall reduction in water consumption should efficiency of the business (Grayson and Hodges 2017).

In addition to this, the business has formulated a plan for sustainable development which can reduce the expenditure of the company and make the business more efficient in nature. The products which are offered by the business are ensured to be of the highest quality such that the overall safety of the consumers can be maintained by the business.

Figure 3: (Chart Showing products which is Offered by Bega Cheese ltd)

Source: (Annualreports.com. 2018)

The milk products and cheese products need to be kept at a purest quality so that the same does not affect the health of the consumers (Servaes and Tamayo 2013). Thus, from analyzing the policies relating to corporate social responsibility of Bega Cheese ltd is mainly associated with sustainable development policy which the management of the business is after along with maintenance of overall quality of the products which is offered by the business.

Conclusion

Thus, from the analysis of the case of Bega Cheese ltd, it can be said that the company has a strong corporate governance policy and puts in every effort to ensure that the same are strictly followed by the employees of the business or not. In addition to this, the assessment gives a comparison between the governance framework which is followed in Australia and in Europe. The corporate social responsibility of Bega Cheese ltd is also clearly pointed out in the above paragraphs and the same is shown to be mainly directed towards sustainable development of the business. This is understandable as the company is still at its growth phase and the management is further looking to expand the business into new markets.

Reference

Annualreports.com. 2018. [online] Available at: https://www.annualreports.com/HostedData/AnnualReports/PDF/ASX_BGA_2017.pdf [Accessed 13 Aug. 2018].

Cheng, B., Ioannou, I. and Serafeim, G., 2014. Corporate social responsibility and access to finance. Strategic management journal, 35(1), pp.1-23.

Foster.uw.edu. 2018. [online] Available at: https://foster.uw.edu/wp-content/uploads/2014/12/MiguelMendezFinal.pdf [Accessed 13 Aug. 2018].

Grayson, D. and Hodges, A., 2017. Corporate social opportunity!: Seven steps to make corporate social responsibility work for your business. Routledge.

Larcker, D. and Tayan, B., 2015. Corporate governance matters: A closer look at organizational choices and their consequences. Pearson Education.

McCahery, J.A., Sautner, Z. and Starks, L.T., 2016. Behind the scenes: The corporate governance preferences of institutional investors. The Journal of Finance, 71(6), pp.2905-2932.

Misra, P., Jain, S. and Sood, A., 2013. Compensation: impact of rewards and organisational justice on turnover intentions and the role of motivation and job satisfaction: a study of retail store operations in NCR. International Journal of Human Resources Development and Management, 13(2-3), pp.136-152.

Press-files.anu.edu.au. 2018. [online] Available at: https://press-files.anu.edu.au/downloads/press/p84321/pdf/10-3-A-1.pdf [Accessed 13 Aug. 2018].

Schwartz, M.S., 2017. Corporate social responsibility. Routledge.

Servaes, H. and Tamayo, A., 2013. The impact of corporate social responsibility on firm value: The role of customer awareness. Management science, 59(5), pp.1045-1061.

Tallon, P.P., 2013. Corporate governance of big data: Perspectives on value, risk, and cost. Computer, 46(6), pp.32-38.

Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and practices. Oxford University Press, USA.

Westphal, J.D. and Zajac, E.J., 2013. A behavioral theory of corporate governance: Explicating the mechanisms of socially situated and socially constituted agency. The Academy of Management Annals, 7(1), pp.607-661.