Foundation for Management and Oversight
Corporate governance is among the aspects used to judge the efficiency of organisations/corporations. It encompasses the framework of set regulations that define relationships, system, and processes through which authority is exercised within corporations/organisations. As aspects of management, corporate governance and social responsibility are essential in creating investor confidence. Such confidence is crucial in ensuring that the companies listed on the ASX compete fairly with others. Essentially, this report highlights the eight basic principles of corporate governance with regards to JB Hi-Fi Solutions, an entertainment retail based in Australia. It succinctly analyses the various aspects of ASX corporate governance best practice principles, guidelines, and recommendations.
As a requirement from ASX corporate governance council principles and recommendations, all listed companies need to disclose the roles and responsibilities of the board of management. This recommendations further requires the company to highlight how the performance of the company is monitored and evaluated. Based on this requirements, JB Hi-Fi Limited has a managed to conform to the requirements of ASX 2014 principles. In compliance with this principle, the company makes its open in their annual reports the functions or roles the board is tasked to undertake in running the operations of the company. According to the JB Hi-Fi annual report (2016, p. 1), the company elaborates the responsibilities of the board including protecting and enhancing shareholders’ value as well as monitoring the performance of the company on behalf of them (shareholders). Furthermore, the board is tasked with evaluating executives and ensuring transparency is maintained in the company’s day-to-day activities (JB Hi-Fi Limited 2016, p. 1).
Judging from the compliance level of JB Hi-Fi on ASX recommendations, it is clear that the company’s corporate governance regime is strong with respect to the foundation for management and oversight. This level of internal control is validated by the strength of the board of directors of the company has on management, evaluation, and operations of the JB Hi-Fi Limited. Essentially, corporate governance is said to be at its best when there is clear demarcation of responsibilities between the executives and the board with regards to the oversight of an organisation’s operations (Bose 2018, p. 106). This attribute has been attained by JB Hi-Fi Solutions in its quest to comply with the ASX recommendations and underlying principle of a solid foundation for management. Presumably, this might be the reason behind the exemplary performance of the company in the retail industry that saw their sales go up by 8.3% to reach $3,954.5 million in 2016 (JB Hi-Fi Limited 2016, p. 18).
The ASX recommendations are based on composition, size and skills and commitment of the board of directors. Although there might be variations according to the size of the company, it is essential for the members to be from different backgrounds, professions, and cultures for a perfect blend to be obtained. JB Hi-Fi possesses an effective blend of expertise and professionals in its board. The composition is meant to create value for the company based on its operational strategies as well as vision. Particularly, the company has board members across different professions including, finance, management, retail, risk evaluations, property, and governance among others. Furthermore, the company has six directors who are mainly non-executives, thus making the fit for oversight of the company (JB Hi-Fi Limited 2016, pp. 1-2). With five out of the six directors being independent, the company is considered to be in full compliance with this ASX corporate governance principles.
Board Structure
In categorizing the strength of the governance regime for JB Hi-Fi, it is apparent that is has a strong internal control in terms of board structure. This strength is informed by the composition of the board which has varied experience and non-executive in nature. Furthermore, the company’s board is above the minimum of three as stipulated by the regulations of the ASX listed entities. Additionally, the company has the board’s succession policy shared on their website which makes the structure more transparent and essential in creating value for the company’s integrity (JB Hi-Fi Investors, n.d.). Ideally, transparency in recruitment, operations, and existing policies in any organisation is pivotal in creating value such as public relations and image (Golob and Bartlett 2007, p. 6). JB Hi-Fi Limited has successfully achieved this milestone through the transparency in their corporate governance. Consequently, the company has managed to compete effectively in the retail industry owing to its board structure that doesn’t meddle with the operations of the executives.
The reputation of any organisation is a valuable asset that determines its relationship with the community and other stakeholders in the industry it operates. If damaged, there can be serious negative impacts on the side of the company. JB Hi-Fi has enacted a code of conduct that guides how the directors, executives and other employees behave. Among the crucial issues reflected in their codes of conduct is respect for all, safe working environment, obeying state laws and maintaining the confidentiality of both the customers and the company staff (JB Hi-Fi Limited, 2016, pp. 4-5). Additionally, the company is engaged in several corporate social responsibility activities and reporting. Annually, it discloses its energy consumptions and green gas emissions through the Carbon Disclosure Project (CDP) (JB Hi-Fi Limited, 2016, p 10). This move is aimed at showing the ethical responsibility of the company to the environment as required by ASX regulations.
From this analysis on ethics as responsibility principle, the company can be said to be semi-strong in terms of acting ethically and responsibly towards the society and environment. This is based on their limited reporting on an expected measure to be taken to limit the environmental damage their products have to the environment. Furthermore, the company has less CSR programs thus making its lack enough force to deal with the growing demands in the society. Although the company has tried to fully comply with the regulation, corporate social responsibilities are supposed to cover almost the entire aspects of the society which are impacted by the business being undertaken (Bird 2009, p. 92). For this reason, the company still has some paces to cover in order to be fully compliant with ASX corporate governance requirements in terms of CSR and ethical responsibilities.
Financial reporting has been a challenging task for man organisations due to integrity issues. The case of JB Hi-Fi Solutions has been different due to the efforts they have put to ensure transparency and honesty in reporting all their corporate activities including financial and social responsibility reporting. In essence, the company has put in place mechanisms to guarantee integrity is maintained in their reporting. Particularly, it relies on the Corporation Act and ASX recommendations to design their report approach that conforms to both requirements. They have managed to maintain the 30th June of every year as the end of their financial year. Furthermore, the board of the company approved the Continuous Disclosure Policy that ensures all information is disclosed to the stakeholders when reporting their annual financial performance as well as financial records (JB Hi-Fi Limited 2016, p. 6). Although the board is responsible for ensuring transparency and safeguarding integrity in reporting, the company also has external independent auditors who carry out parallel audits to authenticate the reports produced by the management.
Ethics and Responsibilities
Having all these procedure and policies in place, JB Hi-Fi Limited is considered to have a strong regime in corporate governance on matters concerning integrity in reporting. This is stemmed from their mode of undertaking various reports and having the relevant executives declare independence by appending their signatures. Also, the company has fully complied with the ASX 2014 recommendations that call for the safeguarding of integrity in corporate reporting. This perspective of reporting is further supported by the Corporation Act. Depending on the approach used in reporting, they have to be authenticity, honesty, and good-will while reporting on different enterprise operations (Easton, 2016, p. 148). According to the information on the 2016 annual financial report of JB Hi-Fi, these aspects of reporting have been fulfilled.
Listed companies on the ASX are required to avail all information for the shareholders and the council to access with ease. However, this result should not only be sugar-coated but also show the negatives the company is experiencing. JB Hi-Fi Limited has tried to comply with this principle by making its policies available on their website. Although there is limited information on specific issues, the disclosure is above board and better than most of the listed companies on ASX. For instance, the policies on financial reporting, codes of conduct and regulations on employees are all shared through the Continuous Disclosure Policy that seeks to furnish all the involved people and organisations of any news on policies (JB Hi-Fi Limited 2016, p. 6). However, the company has no elaborate approach of updating the ASX council of any changes or information that may be useful to its stakeholders and clients. Furthermore, the company’s annual report seems to disregard the negative aspects of the company.
As a result, it can be concluded that the company’s corporate governance in regards to balanced disclosure is weak. Despite having the CDP in place, there are still critical concerns with their mode of disclosing information that does not align with the ASX recommendations. By disclosing the information only on their annual reports, the timeliness of the disclosure is wanting and do not match the standards set by the ASX council. Although it shares it financial performance information, diversity in the workforce and corporate social responsibilities, the information is only shared once in a year. Any other changes that occur in between the reporting periods remain within the company and potentially unknown to some investors, consumers and the ASX council. Essentially, a balanced disclosure will not only allow the company to reach out to investors but also give it an opportunity to argue about transparency (Wittenberg-Cox, 2014).
For listed entities, holding the management to account is a crucial undertaking that requires the security holders to be given unlimited access to information. According to ASX requirements, listed companies require to have short profiles of the management and the board available in the official websites. JB Hi-Fi has managed to fulfill this requirement as it has all its board members profiles and photos on their website. Furthermore, copies of its annual reports are available to the public for viewing, thus enhancing the adherence to respect on the rights of security holders. Although not all information is shared with the ASX, a substantial level of transparency is seen. Among the key things concerning the security, holders shared include market announcements, company’s dividend policy, calendar of forthcoming events and AGM, company contact details and board committee charter (JB Hi-Fi Limited, 2016, p. 7). All this procedure are meant to ensure the company conforms to the ASX recommendations on the right of security holders.
Integrity in Corporate Reporting
Based on these sharing approach, the corporate governance of JB Hi-Fi with respect to respecting the right of security holders is strong. The rationale behind this level of internal control is based on the revelation that the company’s annual reports, policies, announcements, history of the company and the board are all available on the company’s website for viewing. This allows unlimited access by the security holders and other potential investors in the company. Additionally, the company allows the shareholders to manage their own accounts electronically and have the authority to access the company’s registry at their convenience.
In most instances, investors rely on information provided to assess investment risks before making their decisions. For this reason, ASX listed entities are required to have a risk management framework and frequently update it for maximum effectiveness. Under this requirement, JB Hi-Fi has a policy that weighs the risk and rewards of any investment they intend to undertake. The board has mandated the audit and risk assessment committee with the job of overseeing that policies and procedures are implemented. Primarily, this is aimed at ensuring that the company operates in a manner that manages all the available and potential risks sufficiently (JB Hi-Fi Limited, 2016, p. 7). However, the company lacks an internal audit team but instead has a risk management team that is led by a manager. Their risk assessment framework is reviewed annually and approved by the board. All this effort is to comply with the ASX recommendation that calls for listed companies to recognize and manage risk.
Based on the framework for risk management adopted by JB Hi-Fi Limited, its corporate governance on the issue can be said to be moderate (semi-strong). This is mainly due to the fact that it lacks an internal audit that is crucial in undertaking a forensic analysis of their risks as well as financial strength. Although the company has managed to have an annual review of the framework and has risk committee in place, it is still crucial for the company to have both internal and external independent teams analyzing the company’s performance and risks involved. Ideally, proper management of risks can guarantee an organisation successful investments as well as an influx of willing investors (Dionne, 2013, p. 153).
In any business, remuneration is a key factor that investors consider before venturing into an organisation. For this reason, ASX listed companies are recommended to have a remuneration committee that is chaired by an independent board of directors. In regards to this requirement, JB Hi-Fi has a remuneration committee in place consisting of independent directors. The company further has policies that guide the remuneration process and all details are shared in a Remuneration Report that is based on an evaluation of the performance of the executives and non-executives (JB Hi-Fi Limited, 2016, p. 9). Furthermore, the principle used to develop the enumeration plan are also included in the report as well. This alignment of the company by providing a fair and responsibly is meant to ensure the company fully complies with the existing ASX corporate governance recommendation. The conformity allows the company to have a stable position in the retail industry and ensure transparency is present in their dealings.
Judging from the level of compliance the company has in providing a fair and responsible remuneration procedure and practices, its corporate governance strength can be said to be strong with regards to this principle. Primarily, the company has managed to have a committee, policies, and openness in revealing how the executives and non-executives are remunerated according to their performance in running the operations of the company. In essence, this approach has allowed the company to retain its top performing directors for over ten years while at the same time attracting other potential directors to join the team. Although corporate governance is a central focus in most companies, it remains to be vulnerable to jeopardy since those making the policies are responsible for their own remunerations (Mallin, 2013, p. 24). For this reason, JJB Hi-Fi would need to continue upholding their policies and avoid any internal interferences that may arise from some board members.
Conclusion:
JB Hi-Fi Limited is an ASX listed entity is expected to conform to all the requirements set for it to compete well with others. From the analysis of the eight principles with respect to the corporate governance and social responsibility approach of the company, it is apparent that the company generally has a strong corporate governance regime that is transparent, professional and diversified in terms of practices. It is for this reason that the company has been able to comply with the set ASX 2014 recommendations. In addition, the board has a diversity of expertise, gender, and independence of the members. This makes the company one of those that has managed to maintain a strong internal control structure that has guaranteed it growth and development in every aspect of its operations.
References:
Bird, F. (2009). The ethical responsibilities of businesses in developing areas. Journal of Business Ethics, 89(S2), pp.85-97.
Bose, A. (2018). Do stringent corporate governance practices ensure diligent corporate social responsibility among organisations: Investigating the link therein. International Journal of Business and Emerging Markets, 10(2), p.106.
Dionne, G. (2013). Risk Management: History, Definition, and Critique. Risk Management and Insurance Review, 16(2), pp.147-166.
Easton, P. (2016). Financial Reporting: An enterprise operations perspective. Journal of Financial Reporting, 1(1), pp.143-151.
Golob, U. and Bartlett, J. (2007). Communicating about corporate social responsibility: A comparative study of CSR reporting in Australia and Slovenia. Public Relations Review, 33(1), pp.1-9.
JB Hi-Fi Investors. (n.d.). Corporate Governance | JB Hi-Fi Solutions. [Online] Available at https://investors.jbhifi.com.au/corporate-governance/ [Accessed 6 Sep. 2018].
JB Hi-Fi Limited (2016). Annual report for the financial year ended 30th June 2016. [Online] Available at https://www.annualreports.com/HostedData/AnnualReportArchive/J/ASX_JBH_2016.pdf [Accessed 6 Sep. 2018].
Mallin, C. (2013). Corporate governance. Oxford: Oxford University Press.
Wittenberg-Cox, A. (2014). Companies should be required to disclose their gender stats. [Online] Harvard Business Review. Available at: https://hbr.org/2014/12/companies-should-be-required-to-disclose-their-gender-stats [Accessed 6 Sep. 2018].
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