Board of Directors and Governance Structure

Discuss About The Principles Of Corporate Governance Issued.

The chosen company whose corporate governance and risk is to be analysed is AGL, which a company that deals with integrated energy resources and is in the industry for more than 150 years. Throughout FY2017, AGL’s corporate governance arrangements were consistent governance statement AGL’s has committed to comply with the corporate governance framework, policies and practices as per the ASX Corporate Governance Council (Grayson-Morison & Ramsay, 2014).

 From the Annual report of 2017 the ASX Corporate Governance principles are as follows:

From the annual report it can be identified that in the concerned company, it is the board of directors who are in charge of the corporate governance. It is their duty to maintain the interest of the company and the individuals who are associated with it (Chandrakumara, McCarthy & Glynn, 2017).

The board of directors creates a sustainable value while considering the interest of the employees, customers, shareholders, communities and other stakeholders. They are responsible for analysing and a approving the strategy of the company that helps in sound management and monitors and appoints the members of the company including the CEO. They also make various announcements that are significant to the company and make sure that it is according to the ASX obligations. When it comes to formulation of policies board of directors, they builds a strong relationship within the stakeholders and protects the matters of environment employment occupational health and safety.

In order to understand the composition and structure of the AGL Company, it can be said that the company has a strong board of directors who are responsible for maintaining integrated energy and transform and evolution. The structure consists of 4 committees including the committee of Risk Management, Committee of nominations, committee of people and performance and the committee of safety sustainability and corporate responsibility (Winners Joseph, 2014). Each of the committees have respective separate responsibilities and roles that are taken care by the Board of directors. The details of the committee is set out in the company charter. The details including the meetings are held in the Directors attendance in 2017 as mentioned in the annual report of 2017.

The company of AGL focuses on the Code of conduct and the various principle associated with the operations of the company that are related to the stakeholders like the employees, directors and the contactors. The set of Code of conduct is collectively known as the employees code of conduct the sets the various rules and Standards to maintain the company’s ethical conduct (Fox, 2014). For this company makes several appointments that includes maintaining and of valuing of professionalism in their dealings and maintains a confidentiality within the business to manage the conflicts of the members of the company. The code also states to take care of the workers concerned and to act with integrity and honesty. It also follows the law, commitments and internal standard set in order to get better results. The company also uses a sound process of training to establish the employees the code of conduct.

Code of Conduct and Stakeholder Management

The board receives reports from the management of the company’s financial condition and operational results at each scheduled board meeting. The AGL board also approves the financial statements for financial stability miss and the CEO and CFO of the company provides declaration to the board that is in the form of opinion of the financial records of the company to maintain and ensure whether it is in compliance with the accounting standards and so that it gives a true and fair view of the company’s position and performance(Cole, 2016).

The Policy of disclosure states about the continuous obligation of the company’s disclosure and the procedure in which they are managed. AGL has recognised a Market Disclosure Committee that consist of the CEO, the CFO, the Company Secretary and the Manager in General. The duty of the Committee is to monitor the compliance with the Market Disclosure Policy that includes determination of the information that is market sensitive (O’Connell, 2016). Moreover, Executive Team members provide confirmation that is a quarterly in relation to continuous disclosure compliance.

The shareholders of the AGL Company are required to submit questions before the Annual general meeting. This enables the Board know shareholder concerns and issues to address key areas of shareholder feedback. There is the Chairperson who encourages shareholders at the AGM to ask questions and make comments about AGL’s operations and the performance with respect to this.  There is also various relations program that the AGL operates to facilitate effective two-way communications with the business and the shareholders. This enables the shareholders to get the knowledge of the AGL’s activities and send feedback accordingly.

The company of AGL on a regular basis engages with corporate governance advisory firms and shareholder representative bodies to understand market expectations on topics like ESG, governance, and remuneration.

There are a wide range of risks with different its nature in the operations of the AGL. In the Sustainability Report there are various   details of the strategic risks that is concerned about the economic, environmental and social sustainability risks. It also consist of including how these risks are managed. There exist a risk management Policy that sets out the objectives of AGL for risk management and articulates the responsibilities of the individuals in relation to the management of risk. AGL alos consist of the risk management principles and practices and implements them into strategy for development to achieve the favourable outcomes.

Risk Management and Policy

The remuneration report as mentioned in the 2017 Annual Report states the policies and practices of AGL for remunerating non-executive Directors and executives. According to their obligations of ASX, the company intends to remunerate responsibly as well as fairly. There is a remuneration committee that aids the board in fulfilling all the accountabilities of the company (Morison & Ramsay, 2015). The board of directors accepts that the structure of remuneration should motivate, reward, attract, and retain the valued executives effectively and should be designed in such way that will create shareholders value.

The ASX based company AGL has more than 180 years of experience in the industry and is s public listed organisation that deals with gas, electricity, solar PV and related products and services to more than 3.6 million customer accounts across Australia. It is the oldest company, which at present 50 S&P/ASX companies and is the 
 largest electricity generation body with largest ASX-listed investor in renewable energy.

The clients are regulated by the subordinates and managements who are employed by the board of directors.

The market share of the Australian AGL company is 90%. It is the oldest airline company all over the world dealing with the energy and power generation for more than 150 years. Focuses of the company on differentiating and cost advantages for reaching the competitive advantage. The main strategy of the company is to retain the sustainability of the resources with smart technology and personified service.

Income statement and balance sheet ratio calculation

Analysis of Common size statement-horizontal analysis

Refer to the appendix given below

Analysis Balance sheet

Refer to the appendix given below

• From the analysis if the balance sheet and income statement ratios as per the 2017 annual report of the company of AGL, it has been identified that the debt equity ratio of the company is 0.91. In general the debt equity ratio is calculated by dividing the total debt of the company by its total equity. High ratio like more than 1 represents that the company is highly leveraged and the higher interest burden can lead the company to unsustainable level (Haimes, 2015). In case the ratio is less than one that it is in the present case which is 0.91, the company has a low leverage.
• Both the quick ratio and the current ratio that represents the liquidity position of the company is very low like less than 1.20 and 1.33 respectively. This shows that the current assets of the company are considerably low if it is compared to current liabilities. Hence it can be said that the company is inefficient in paying off the short term obligation with their short term assets.
• The shareholders return is low that is  12%, the operating profit margin as well as the net profit margin of the company are as low as 6.07% and 4.28% respectively. It signifies that the company is not so efficient in earning return.

Risks of the Business is a rising concern, in the recent economy. Business needs to take control of their companies, assess the risks inherent in both their firms and industries and determine how to best reduce these risks (Hollnagel, 2017). The various steps to reduce the risk in the company are as follows:

1. To identify and review the internal controls of the company: The management must checks the balances of the company (Sadgrove, 2016). With regard to safety issues, internal controls can be as simple as implementing a checklist of precautions before entering a work zone.
2. To develop a sound plan of risk management: Having sufficient insurance to protect against losses is only one aspect (Brindley, 2017). Taking proactive steps to cross-train is another key way to avoid risk. However, a suitable risk management plan will provide a measure for reducing the risk.
3. To Employ internal control consultants: An outsider completely unconnected to a company’s daily operations who can view the situation more objectively and more readily identify areas in need of improvement (Sekaran, & Bougie, 2016). Thus, he should be employed.

Reference

Brindley, C. (Ed.). (2017). Supply chain risk. Taylor & Francis.

Chandrakumara, A., McCarthy, G., & Glynn, J. (2017). Exploring the Board Structures and Member Profiles of Top ASX Companies in Australia: An Industry?level Analysis. Australian Accounting Review.

Cole, S. (2016). Good governance and the curious case of the alternate director. Governance Directions, 68(10), 603.

Fox, J. (2014). ASX Corporate Governance Council review of’Corporate governance principles and recommendations’. Governance Directions, 66(3), 142.

Grayson-Morison, R., & Ramsay, I. (2014). Responsibilities of the Board of Directors.

Haimes, Y. Y. (2015). Risk modeling, assessment, and management. John Wiley & Sons.

Hollnagel, E. (2017). The ETTO principle: efficiency-thoroughness trade-off: why things that go right sometimes go wrong. CRC Press.

Morison, R. G., & Ramsay, I. (2015). An analysis of companies’ business objectives. Governance Directions, 67(2), 73.

O’Connell, D. (2016). Leadership styles and improved governance outcomes. Governance Directions, 68(4), 202.

Sadgrove, K. (2016). The complete guide to business risk management. Routledge.

Sekaran, U., & Bougie, R. (2016). Research methods for business: A skill building approach. John Wiley & Sons.

Winners Joseph, E. N. P. (2014). Who pays for our common wealth: Tax practices of the ASX 200. LAMP, 43.