Corporate Governance And Risk Management In Telstra Corporation

Introduction to Telstra Corporation

Telstra Corporation Limited is an Australia based leading telecommunications and technology company having it’s headquarter situated in Melbourne. The company deals with establishing the telecommunication networks and offering product and services like mobile, internet access and many other. There are approx. 17.4 million mobile services, 6.8 million fixed voice services and 3.5 million retail fixed broadband services provided by Telstra Corporation. As reported in year 2016, the firm owns 360 retail stores and is currently listed on Australian Stock Exchange (ASX) traded with a ticker symbol of ASX: TLS (Telstra.com.au. 2018). 

Corporate governance basically defines the way in which a corporation should be governed. It is technique used for directing and managing the companies in order to achieve the pre-determined targets. CG states some rules, regulations, systems and processes that are required to be followed in order to control the authorities and the corporation (Asx.com.au. 2014). Telstra, being listed on ASX is also required to comply with the CGC principles and due to following implications are been there:

• Company has to clearly reflect the duties and responsibilities of its board of directors in its corporate governance statement.
• It is obliged to modify its board structure as per the requirements of the principle. Required skills and composition must be pursued by company’s directors.
• Ethics and responsibility must be there in Telstra’s operations and actions.
• Due to the ASX principle, company has to maintain the integrity in the corporate reporting and the same is to be followed by the audit and risk management committee of the organization.
• While complying with the principles, Telstra has to make timely and balanced disclosure of all the material facts that can affect the company’s share prices and values.
• It is the responsibility of Telstra to give accurate and appropriate information to its shareholders for protecting and respecting their rights.
• The company has to build a risk management framework and must conduct a timely review of the same.
• Providing fair remuneration to the directors is another implication of following CGC principles (com.au. 2014).

However, in order to deal with such implications, Telstra has published its corporate governance statement which clearly reflects that the company has followed all the listed eight principles of ASX CGC. It has complied with all the recommendation to form its corporate government. The principles are as follows:

This recommendation states that the company should disclose the respective roles and duties of its directors and management. Telstra’s CGS has clearly stated the above which includes:

• Giving approval to the strategies and corporate plan and monitoring their implementation.
• Making the appointment of CEO, evaluating his performance and assessing his remuneration.
• Appointing and remunerating the senior management and approving the framework regarding the same.
• Overseeing the external and internal audit activities, assessing the financial risk and preparing the framework for the management of the same.
• Setting the strategic objectives for the company.

Apart from the above listed responsibilities, board of directors perform many functions in the best interest of their shareholders (Telstra.com.au. 2017).

This principles deals with having a suitable board size, composition and skills in order to complete their responsibilities. Telstra has 10 directors, out which nine are non-executives and one is CEO. Issues related to the composition of board are handled by Board and Nomination Committee of the organization. The board charter also has a skills matrix which assist the committee to have an appropriate mix of diverse skills and experience. The matrix is as follows:

This requires the company to follow a proper code of conduct and policy framework to act ethically in the business. Telstra main purpose is to maintain high standards of behavior by following its values and code of conduct.

Values

Company has five values which are:

• Show the care
• Always better together.
• Establish trust between each other.
• Making the complex simple.
• Finding the courage

These values help the company in shaping the decisions and action of the employees and the people associated with the organization (Telstra.com.au. 2017).

Corporate Governance Principles in Telstra Corporation

Code of conduct

The codes define that Telstra is committed to have a good corporate governance, responsible business practices and taking care of the customers, community and the society in which it operates. In order to have the same, company has taken many steps such as resolving the conflicts, anti-corruption committees, establishing sustainability and many more.  

Telstra has an Audit & Risk management committee which is held responsible for protecting the integrity in corporate reporting. The duties of the committee includes:

• Helping the board in the matters related to financial reporting, identified risks, internal control measures, external audit, compliances and all the issues that can impact the financial position of the company.
• Reviewing the activities of the directors and company’s compliance with its legal requirements.
• Establishing a mode of communication between board, management and internal and external auditor.
• Giving advice on risk management and external audit.

The committee must have at least three directors who are independent and non-executive. Also it should properly discharge its duties (Telstra.com.au. 2017).

This principle allows the firm to disclose all the material facts and figures which are important to the shareholders. Telstra has a Continuous Disclosure Committee which has to deal with all the disclosure related matters. Company aims at providing timely disclosures to its investors, stakeholders and communities at time of complying with ASX listed principles. It has market disclosure policies and practices, according to which advance notice is been given to the key people regarding the announcements and disclosure (Telstra.com.au. 2017).

By providing appropriate information to the shareholders, company is able to respect the right of its security holders. Telstra displays all the material information on its official website. The website as a section named as Investors Relations which displays all the ASX announcements, financial and CSR reports, dividend history and share price related information.

This recommendation makes the company to have a sound risk management framework for dealing with risks and uncertainties. Also time to time review of the same is required by designated authority or committee. In case of Telstra, it has a risk management framework that guides the organization in managing various types of risks. The framework lay down a set of components that are used for designing, implementing, monitoring and reviewing the risk management process. The process consists of:

• First line: the operational management and stakeholders of the company are held responsible for identifying and managing their risks.
• Second line: the chief risk office and management team within the business are accountable for monitoring and complying with the framework.
• Third line: Telstra’s group internal audit function performs the tasks related to providing independent assurance and managing the risk and internal control process.

This principle requires the corporation to pay fair remuneration to their directors in order to attract and retain them within the organization. In order to comply with this, Telstra has a remuneration committee which assist the board in following matters:

• Fixing the remuneration of directors, CEO and company secretary.
• Fairly remunerating senior management.
• Forming related strategies, practices and disclosures.
• Preparing employee equity plans and management successions.

All the above listed principles are been stated in the corporate governance statement of Telstra Corporation and the company duly followed them in its business (Telstra.com.au. 2017).

Nature of the company

Telstra Corporation was originated in 1975 and as of now it has become a leading telecommunication company of Australia. The company mainly focuses on building technology and content solutions which are easy and simple to use for the customers.  They also include Australia’s fastest national mobile network.  Many strategies are been formed and implemented in order to provide best services to the client or customers. The purpose of the company is to create a brilliant connected future by providing easy to use devices and communication services (Telstra.com.au. 2018).

Risk Management Framework in Telstra Corporation

Overview of the market 

Australian Telecommunication market provide unique service for which consumers are ready to pay substantial price premium. Telstra charges a premium of $20 per month for fixed line services and $9 per month for using mobile services. The premium reflected both the limited competition and quality differences in the services. In market there are many areas specifically the regional areas, where the services are provided by Telstra only. As a result of which, regional customers are highly affected by the telecommunications market structure. The company is the sole provider of approx. 46% of fixed line services and for that it charges a premium between $450 and $650 per household (TheCIE.com. 2015).

However, being covering a huge market share, Telstra is exposed to some kind of audit risk which the company is required to reduce by using appropriate methods.

Telstra’s business strategy

The corporate strategy of the business is to deliver brilliant experience to the customers by providing best networks, products and services to them. The core strategy is to make the business more efficient and profitable by focusing on customer satisfaction, revenue growth and network superiority. In order to implement such strategy, Telstra put efforts on making its network better by increasing it speed, reliability and security. The company focuses on making it processes and systems digitized for simplifying them for their users (Telstra.com.au. 2018).

Income statement ratios

(Financials.morningstar.com. 2018).

Balance sheet ratios

(Financials.morningstar.com. 2018).

Basically there are three types of audit risk, an organization is exposed to. They are named as inherent risk, detection risk, and control risk. All these risk differs from each other in some way. However, Telstra being a complex business and a large company, it is generally associated with inherent risk in the organization. The risk which occurs due to misstatement in financial statements is known as inherent risk. There is huge possibility that a company like Telstra can face such risk because of its diverse segments and complex business structure (Knechel & Salterio, 2016). 

In order to deal with such risk, company should employ following methods in the organization.

• Harmonized the accounting and auditing standards.
• Improve and continuously review the internal control process and system followed within the business.
• Hire qualified accountant for making financial accounts so that they can apply correct standards while preparing reports.
• Critically review the performance and role of Audit & Risk management committee.

By following the suitable methods, Telstra can reduce its inherent risk and can maintain a true financial position in the market (Loughran, 2010). 

Conclusion 

The above report concludes that, Telstra Corporation truly follows all the ASX CGC listed principles and recommendation and do comply with them. The report also find out about the audit risk associated with the company and provide some measures to reduce it. The given ways will help the company to deal with such risk and uncertainties.

References

Asx.com.au. (2014). Corporate Governance Principles and Recommendations. Retrieved from https://www.asx.com.au/documents/asx-compliance/cgc-principles-and-recommendations-3rd-edn.pdf 

Financials.morningstar.com. (2018). Balance Sheet for Telstra Corp Ltd (TLS). Retrieved from https://financials.morningstar.com/balance-sheet/bs.html?t=TLS&region=aus&culture=en-US 

Financials.morningstar.com. (2018). Income Statement for Telstra Corp Ltd (TLS). Retrieved from https://financials.morningstar.com/income-statement/is.html?t=TLS&region=aus&culture=en-US 

Knechel, W.R. & Salterio, S.E. (2016). Auditing: Assurance and risk. 4^th ed. Routledge.

Loughran, M. (2010). Auditing for dummies. Indiana: John Wiley & Sons.

Telstra.com.au. (2017). Governance at Telstra. Retrieved from https://www.telstra.com.au/content/dam/tcom/about-us/investors/pdf-e/Corporate-Government-Statement-2017.pdf 

Telstra.com.au. (2018). Our corporate strategy. Retrieved from https://www.telstra.com.au/aboutus/our-company/future/Ourcorporatestrategy 

Telstra.com.au. (2018). Telstra – Purpose & values – Our Company. Retrieved from https://www.telstra.com.au/aboutus/our-company/present/purpose-values 

Telstra.com.au. (2018). Telstra – Investors Retrieved from https://www.telstra.com.au/aboutus/investors 

TheCIE.com. (2015). Australia’s open telecommunications market: the new framework. Retrieved from https://www.communications.gov.au/sites/g/files/net301/f/Vodafone%20-%20Attachment%20E.pdf 

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