Company Background

Discuss about the Impact of Corporate Governance on Corporate Financial Performance.

The success of every organization depends on the structure of governance and how employees take up with the structure presented. Corporate governance is now being employed by the much leading organization in business. It is with this point of view that the report is going to examine the corporate governance of Woolworths. The structure of the report begins by giving the background of the company and the followed by the description of corporate governance, the corporate governance of Woolworths, which encompasses leadership, corporate social responsibility, risk management and assurance. Furthermore, the report looks at some strategies used in managing risk; the three lines defense Model that is adopted by Woolworths. An evaluation of whether Woolworths’ practices are optimal gets presented and the report ends by giving a conclusion.

Woolworths is the leading organization in the retail business in Australia which gets connected with the company’s strategic techniques that cut across business, branding, corporate, leadership, pricing and quality products. Irrespective of its success, the company experiences competition from competitors such as Coles, Wesfarmers, Carrefour, ALDI, Safeway, Metro, Distributor, Giant Eagle, and Supermarcato24. The company has stood to be the leader in this industry.

This is a system in which companies get controlled and run and different bodies have functions charged to ensure that organization is in good leadership control. The board of directors’ role is to ensure that there is good governance by setting strategies, putting leadership into effect, provide supervision and report to the shareholders (Aggarwal, 2013). On the other hand, the role of the shareholder is the make sure that the right peoples for posts of directors, auditors and to ensure that there is proper governance the organization (Ahmed Sheikh, Wang, and Khan, 2013). Therefore, corporate governance revolves around the board of the company, their functions and how they set the values of the company and is very different from the operational management by the executives. The sole role of corporate governance is to ensure that there are transparency and accountability in the organization’s systems. The corporate governance is one of the systems that are set under laws in UK corporate code of governance in which the code applies to all organizations that have equity shares irrespective their location ((Iatridis, 2013).

The aim of corporate governance is to set and promote a culture in which it will be prioritized by the directors so that it renders good ethical leadership that serves the interests of the stakeholders. Corporate governance that is good depends on the competence and integrity of the people who are in the positions of directorship and management in ensuring practices that are good for the organization (Claessens and Yurtoglu, 2013, pp.1-33). There is no model that outlines good corporate governance but it only depends on dynamic circumstances in the establishment and must be constantly changed so as to meet the changing circumstances. The regulations on corporate governance are flexible except in the US where the corporate governance has to follow set legislation. The role of corporate governance is to give direction, monitor performance of finances and management defines risk management procedures and control; and ensures that the business follows ethical and transparent routes (Kamal Hassan and Saadi Halbouni, 2013).

Corporate Governance

The organization depends on the board in corporate governance for the creation of value that is for a long period of time for the benefit of the shareholders and every employee is expected to act in an ethical manner. As per Woolworths group (2017), the organization is in compliance with ASX principles and therefore follows the expectation of these codes.

According to Ahmed Sheikh, Wang and Khan (2013, pp.38-55), the performance of the organization get begged on the governance structure set in place. In Woolworths, the governance structure is under the directors who are charged with the role of ensuring that proper strategic direction and plans are set for the organization, act an oversight on management and financial issues, adopt the budget as well risk management and compliance.  Additionally, the board report on finances and approve budgets that may be quarterly or yearly coupled with monitoring and ensuring that there is the quality financial report and that integrity is maintained. The CEO is on the board and it is the role of the board to evaluate the performance of the CEO as well as leadership strategy employed (Woolworths group, 2017).

The succession, planning, and remuneration lie at the center of the board, they make sure the people in the company get rewarded well based on the company’s performance as per the policies set by the relevant committee. Additionally, they ensure that the succession process is in place so that there is leadership continuity. They create programs and plans for people who deem potential for leadership roles in the organization (Woolworths group, 2017).

As per Ntim and Soobaroyen (2013, pp.468-494), performance and the social structure of an organization are directly connected to how it is going to perform. The social responsibility being part of strategies used at Woolworths, the board takes into consideration the impact of Woolworths in terms of ethical and environment, monitor and look at the compliances to standards (Woolworths group, 2017). On the other hand, the board approves on the expenditure for transactions that are major and keep an eye on the relationship of the company with the regulators in order to ensure adherence to obligations (Iatridis, 2013).

The organization has a set code of behavior that is expected to be followed by its employees. These standards are guided by the core values which entails caring, listening, learning and doing right things (Aggarwal, 2013). The code of conduct cut across all the employee of the organization and illustrates the expected standard that everybody has to conform and these codes emphasize on integrity, honesty, and fairness by every worker when in constant interaction with suppliers, clients, competitors and the society (Woolworths group, 2017). Additionally, there are other regulations defining the commitment of the organization to being responsible, compliant, and responsible among others which boosts the code of conduct and encourages all the workers to be accountable and responsible (Claessens and Yurtoglu, 2013, pp.1-33).

Woolworths Corporate Governance

The organization utilizes diversity and inclusion as one of the components of corporate responsibility to the society (Woolworths group, 2017). The organization integrates a number of aspects in employment so that they gather for all people from diverse cultures, background ethnicity etc. so that the clients of the company feel valued and are part of the company (Cheng, Ioannou and Serafeim, 2014). The company’s commitment is to attract and retain a workforce that is all-inclusive with the key focus of increasing indigenous Australians. There is the gender balance which is the key focus for the company (Rodriguez-Fernandez, 2016). They strive to attract and retain bright and focused female to the Woolworths team and specifically to the management levels. The gender equity gets applied also through equal pay for work done in equal measures. The company reviewed the salaries of all its employees equally with no disparities in gender (Khan, Muttakin and Siddiqui, 2013, pp.207-223).

Furthermore, the organization embraces the green concern by ensuring that recyclable materials are used so that it facilitates the need for green environment. It has strived to create recyclable packaging bags and has planned to phase out polystyrene materials by 2020. They are now in the process of making awareness to the customers of this shift in packaging bags (Woolworths group, 2017). Also, they embrace green sourcing of raw materials and thus they work with suppliers who practice sustainable sourcing as well (Kamal Hassan and Saadi Halbouni, 2013). In line with this, the organization undertakes awareness on sustainable business with the community with the aim of making them aware of the need to embrace green technologies for the sake of reducing carbon footprint (Amba, 2014). Moreover, the organization is ethically responsive to food products and especially those concerning the use of animal products with the aim of following strictly on ethical rules (H?ebí?ek et al., 2014, pp.157-166).

According to Leitch (2016) risk is anything that is likely to create a problem in a system such that there is total interferences or total halt of the normal running of the system. A system can be a set of structures set so that they work together to attain a set output. An organization is a system that has sub-systems working together so that the overall set objective of the firm is attained. Dixon, (2017) asserts that when there are accumulations of risks in a system, the entire process is prone to break-down.

Ethically and Responsibly

The management of risks entails task that is coordinated with the aim of directing and controlling the organization in relation to risk (Sweeting, 2017). The management of risk is part of every undertaking of a business and the get enshrined in practices, culture, and strategy with the aim of creation, realization, and preservation of value (Farrell and Gallagher, 2015). When these risks are not managed, the results are that the customers get affected, the images of the organization get tainted, and regulation consequences will ensue (Soin and Collier, 2013).

Woolworths has risk management policy which allows the specialists utilize management of risk procedures to enable them to suspect issues and actualize arrangements. This is a piece of a nonstop procedure of evaluation, prioritization, and criticism (Woolworths gathering, 2017). Anytime in this procedure, the targets of the association or conditions of the outer condition may change, requiring an association to be adaptable in its way to deal with developing dangers. Without a cautious examination of particular dangers and an arrangement to moderate them, associations may endure misfortune (Olson and Wu, 2015). Once associated with a global business venture, associations must ensure their tasks and their gainfulness through ceaseless risk investigation and planning. The greatest risk with any business venture is that the association has no valuation for hazard or how it can influence them. Risk administration is indispensable to any association. When building up a procedure to oversee chance, it is best to create one that can fall into at least one of the accompanying classes (Bromiley et al., 2015).

In the assessment of a situation in the market environment and the likelihood are that there are risks that might come on investments, the only safest way is to avoid the venture or the process (Lam, 2014). This is a strategy which requires analysis and weighting of options prior to setting up. When there is no comprehension of the harm or risks that are going to happen, then there is the best solution to leave irrespective of whether the prospects projected are high (Mikes and Kaplan, 2013)

The risks can be tended to by discovering techniques to decrease either the seriousness of the risk or the probability of the misfortune happening. Likewise, associations can reduce risk by outsourcing capacities to the individuals who are more talented or to the individuals who can exhibit a capacity to oversee or decrease risks. These experts know the risks associated with worldwide sending and have the technique required to reduce or eradicate huge numbers of those risks (Mikes and Kaplan, 2013).

Corporate Social Responsibility

The transfer of risk implies getting another establishment to acknowledge the risk. Additionally, risks are exchanged through contracts, which is the case in construction business where the developer accepts risks related to the development that is faulty. Hedging methodologies, derivatives, and futures contracts are different types of exchanging financial risks to others. Risks are pooled also, and risks can be spread to members so that when one member suffers, the resources are combined to gather for the risk (Sadgrove, 2016).

Associations can acknowledge certain risks and losses that may emerge. This is a suitable way to deal with little risks where the cost of alleviation or protection is going to be more prominent after some time than the aggregate losses experienced. The risks not transferred or avoided get retained. This incorporates vast or cataclysmic risks that they cannot get insurance or where the premiums are very high (Garforth, Bailey and Tranter, 2013).

The organization uses this model so as to minimize or eradicate risks as much as possible. The model is structured such that there are three lines of defending the risk. The first line is the people with who own and manage the risks (Woolworths group, 2017).  This is the board with the work of giving direction to the management and identifying the major risks experienced by the organization (Haimes, 2015).

The second line and their specialization is risk management. These are the people who undertake the management of risk and control (Woolworths group, 2017).  The manager lead and direct employees were applicable to the areas to be done on risk management and control and take control of the activities that are set for removing risks (Hopkinson, 2017).

The third line is that line the give assurance and the audit is the actor. This is the section the make sure that there is effectiveness on the risk framework set in the organization (Woolworths group, 2017). This requires a very active and adequate line function that gets to pass information without any barrier (Appendix 2).

In the examination of Woolworths’ corporate strategy, it is apparent that the practices are optimal. This is because it has a commitment to the governance structure. It shows that the directors are charge ensuring proper strategic direction, oversight on management and financial issues; adopt budget and management and compliance among many functions.

Additionally, the organization has a set code of behavior to be followed by its employees. These standards are guided by the core values which entails caring, listening, learning and doing right things; and cut across all the employees; it illustrates the expected standard that everybody must conform and as they emphasize on integrity, honesty, and fairness by every worker when in constant interaction with suppliers, clients, competitors and the society. Furthermore, the organization utilizes diversity and inclusion as components of corporate responsibility to the society. The organization integrates a number of aspects of employment so that they gather for diverse cultures, background ethnicity.

Moreover, the company’s commitment is to attract and retain a workforce that is all-inclusive with the key focus of increasing indigenous Australians. There is the gender balance which is the key focus for the company. They strive to attract and retain bright and focused female to the Woolworths team and specifically to the management levels. The gender equity gets applied also through equal pay for work done in equal measures. The company reviewed the salaries of all its employees equally with no disparities in gender. The organization embraces the green concern by ensuring that recyclable materials are used so that it facilitates the need for green environment. It has created recyclable packaging items.

Woolworths has risk management policy which allows the experts utilize risk administration procedures to enable them look for issues prior to happening and actualize plans. This is a piece of a consistent procedure of appraisal, prioritization, and input feedback incorporated. The organization uses three line defense models so as to minimize or eradicate risks as much as possible.

Conclusion

The success of the organization in the retail business gets attributed to the best strategies leveraged for the benefit of shareholders. The uniqueness of Woolworths is how corporate governance has been structured in such a way that corporate responsibility gets pronounced very much to the point of getting every detail of this strategy for the sake of making the customer, the shareholders and the suppliers happy. It is seen with the use of good strategic leadership that starts from the board who is the driver of every aspect of governance at Woolworths. The governance structure permits utilization of strategic leadership, strategic business units, strategic risk management, and assurance. The company employs corporate social responsibility with a focus on creating a sustainable business, taking care of the employees, taking care of the society particularly the indigenous Australian people without putting aside gender equity.

In the management of risk, the company is cognizant of the fact that risks do not permit the business to stand in the competitive market. The company uses three line defense model and the board has the biggest role in ensuring minimization of risk is attained. The management of risks is in three levels following a vertical line of command. Line three is the implementers who make sure that every needed precaution are put in place without leaving gaps for risks.

It is apparent that Woolworths’ corporate governance practices are optimal because, in every aspect of the practices, the organization is following and putting in place set rules, regulations and policies as guidelines with a fundamental focus on sustainable environment.

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