Woolworths – Corporate governance framework
In 1998, Company Law Review Act 1998 was passed by the Federal Government n context of simplify the law related to the corporates. The most important provisions of this Act is elimination of the memorandum and articles of association, as it introduce the new approach in the form of replaceable rules through which internal governance of the company can operate. Later, this approach was adopted in the Corporations Act 2001. It must be noted that, replaceable rules are most important part of this scheme. However, replaceable rules are not applicable on the companies listed on ASX (Law vision, 2016).
This Assignment discusses the internal rules of the organizations and also their implementation. In context of this assignment data can be of primary or secondary nature or of both. It further includes the research related to the Corporations Act 2001 and also on the Woolworths for the purpose of developing the critical review.
Structure of this paper includes the critical review in context of internal management rules of the Woolworths and also of the Corporations Act 2001. This paper address all the necessary internal rules defined by the Corporations Act 2001 and implemented by the Woolworths. Lastly, brief conclusion is stated for concluding this paper.
Woolworth’s supermarket is the supermarket grocery store of Australia which is owned by the Woolworths limited. This company was established in 1924, and currently this company captured almost 80% of the market of Australia (Woolworths, 2018).
This company is on the mission to deliver best price and quality to their customers. Currently, it operates 3000 or more stores across the globe. Company employed almost 205000 employees who serve almost 29 million customers.
Corporate governance framework of this company is sated under the important documents and policies of the company. As constitution of the Woolworths stated the rules ad principles through which business of the company regulated. The latest constitution of the company was adopted by the members in 2007 AGM, and the same has been modified in 2009, 2010, and 2017 (Woolworths, 2018).
Section 134 of the Corporations Act 2001 states the provisions related to the internal management rule and as per this section internal management of the company must be regulated by the provisions set under this Act, as in the form of replaceable rules, by a constitution, or by the combination of both.
It must be noted that, internal management of the company is governed by the:
- Constitution,
- Provisions stated under Corporations Act 2001 (Replaceable rules).
- Combination of both.
Internal rules for public listed companies
It is possible for organizations to adopt the constitution of the company either before the registration or after the registration (Lawpath, 2015). In case, constitution is adopted by the company before registration then it is necessary that each and every member of the company must give their consent in written form in context of the terms stated under the constitution. In case, constitution is adopted after the registration of the company then company pass special resolution for the same.
Company can make changes in the constitution, but this can only be possible after passing the special resolution. Resolution in context of changes made in the constitution required the notice of at least 28 days in case of public listed companies, and 21 days in other type of companies. For passing the special resolution, at least 75% votes must be cast in the favour of resolution (ASX, n.d.).
In Australia, public listed companies are highly regulated, and these types of companies are mainly regulated by the Corporations Act 2001and Australian Securities Exchange (ASX) Listing Rules. It must be noted that, both the sources are supplemented by the Australian Securities and Investments Commission (ASIC) policy and also by the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations. Internal management of the listed companies are also regulated by these sources.
There are number of matters which fall under the scope of the internal rules, but following are some most important matters which must be considered by every public listed company and other types of companies also:
- Composition of the board
- Powers of directors and officers in the company.
- Meetings of directors and members of the company
- Inspection of the books
As stated above, public listed companies are not bound by the replaceable rules stated under the Corporation Act 2001. In context of Woolworths also, replaceable rules are not applicable on the company also (Clause 1.6 of the constitution) (Woolworths, 2017). In other words, Woolworth’s constitution adopts the listing rules which are only apply to the company when company is on the official list of ASX.
Composition of Board: Corporations Act 2001 and ASX listing rule 14.4 states that directors of the public listed company are usually appointed by the board, but these appointments are confirmed by the ordinary resolution in the general meeting (ASX, 2018)
Cause 10.5 of the constitution states that directors of the company are appointed under the general meeting.
As stated by the ASX corporate governance recommendations in context of the public listed companies:
- Majority of the directors on the board of the company must be independent directors.
- Chairman of the board must be independent directors.
- Chairman and CEO must not be the same person.
- Nomination committee must be established by the board for the purpose of making the recommendations in context of appointment and re-election of the directors (Bakers & McKenzie, 2012).
Clause 11.8 of the constitutions of the Woolworths describes the rules adopted by the company in terms of appointment of directors at board. Directors of the company can be appointed as the employee of the company in context of holding the office of the managing director or executive director of the Company or to hold office as the director for the particular time period. However, their time period cannot exceed the term of their employment.
Composition of Board
It must be noted that in this case, Woolworths did accept the recommendations given by the ASX, as Woolworths also appoint the non-executive/independent directors as the chairman and also on the board. On 1st September 2015, company appointed the Gordon Cairns (Non-executive director) as the chairman of the company. Charter of the board states, policy framed by the board ensures the appropriate mix of both executives and non-executives directors. Therefore, this recommendation of the ASX is adopted by the Woolworths (Woolworths, 2017).
It must be noted that, these rules and recommendations related to the composition of board is effective ad hold the capability to resolve various issues, but these are just recommendations and companies are not bound to follow them. ASX fails to state the particular number of non-executive directors which must be present in the board. It is necessary for ASX to make these recommendations legally enforceable and also provide more clarity on numbers of executive and non-executive directors (ASX, 2018).
Powers of officers and directors: Section 198A of the Act defines the provisions related to the powers of directors and officers of the company. This section states director holds the power to manage the business under its directions, and this section also states that directors can exercise all powers except those powers which are exercised in general meeting in context of Act or company’s constitution.
Clause 11 of the constitutions of the Woolworths imposed following powers in the directors of the company:
- Directors of the company get all the power to manage the company, except those which are required to exercise in general meeting either by the Act or constitution (Clause 11.1).
- Some particular powers are also imposed under the director of the company (Clause 11.2).
Woolworths’ constitution complied with section 198A of the Act, and also with the recommendations stated by the ASX for listing companies.
Meetings: Section 250S of the Corporations Act 2001 and ASX Corporate Governance Recommendation 6.1 states the provisions related to the shareholders meeting. As per this recommendation, shareholders of the public listed company do not hold any right to access the information of the company. However, opportunity to access the information of the company is provided under the AGM. AGM in the public listed company must be held each year, and within the period of five months from the end of financial year of the company.
This section states the following requirements in context of the shareholders AGM:
- Chairman of the AGM must provide the opportunity to the shareholders of the company to ask questions and make comments in context of company’s management.
- Chairman of the AGM must provide the opportunity to the shareholders of the company to ask questions and make comments in context of remuneration policies of directors. .
Constitution of the Woolworths follows all these recommendations and provisions sated by the ACT and ASX. However, it is important for the company to frame the policy in context of the communication with shareholders for the purpose of guiding them in terms of access to the information about the organization and its proposals. This policy is very important because it ensures transparency and fairness, and also save the company from possible consequences of the future.
Powers of officers and directors
Inspection of books: Section 247D of the Act states that directors of the company hold to power to authorize the company’s member to inspect the books related to the company such as financial reports, information records or the company register. However, this section does not define the evidence related to the documentations.
Clause 15.2 of the constitution adopt this standard as it is, but make few changes such as directors can only exercise this power under the AGM and not at any other time. This restriction on director is determine as effective direction because through this company can collect the evidence in context of power used by the directors.
Organization can ensure strong relationship with the shareholders of the company, as company can frame the policy through which all the relevant information required by the shareholders is provided to them, as this information help the in taking the investment decisions and provide them information about the company’s resolutions.
After considering the above stated facts, it is clear that effective management of internal rules in context of Corporations Act 2001 and other relevant provisions is necessary. There are number of benefits which are ensures by the Woolworths through adoption of these provisions.
Conclusion:
Internal management of the company must be regulated by the provisions set under this Act, as in the form of replaceable rules, by a constitution, or by the combination of both. As stated, internal rules for the public listed company is generally determined by the constitutions of the company or by the Australian Securities Exchange (ASX) Listing Rules. Constitution of the Woolworths follows all these recommendations and provisions sated by the ACT and ASX, and this constitution is framed in such manner as it ensure the management of the internal affairs in effective manner. However, these rules and recommendations related to the composition of board is effective and hold the capability to resolve various issues, but these are just recommendations and companies are not bound to follow them. It is important for the ASX to make all these recommendations legal obligations of the company and incorporate these recommendations in the Corporations Act 2001.
Therefore, it can be said that now public listed companies required more clarity on the rules for ensuring strong relationship with shareholders and authorities
References:
ASX, (2010). Corporate governance in Australia. Retrieved from: https://www.asx.com.au/documents/asx-compliance/cg_principles_recommendations_with_2010_amendments.pdf.
ASX, (2018). ASX Listing Rules. Retrieved from: https://www.asx.com.au/regulation/rules/asx-listing-rules.htm.
ASX. Constitution and replaceable rules. Retrieved from: https://asic.gov.au/for-business/registering-a-company/steps-to-register-a-company/constitution-and-replaceable-rules/.
Baker & McKenzie, (2012). Retrieved from: https://www.bakermckenzie.com/-/media/files/people/lustig-richard/australia_publiclistedcompaniesguide.pdf?la=en.
Corporation Act 2001- Section 134.
Corporations Act 2001- Section 198A.
Corporations Act 2001- Section 247D.
Corporations Act 2001- Section 250S.
Law vision, (2016). What’s the Difference Between a Company Constitution and the Replaceable Rules?. Retrieved from: https://legalvision.com.au/difference-between-a-company-constitution-and-the-replaceable-rules/.
Lawpath, (2015). What Is A Company Constitution?. Retrieved from: https://lawpath.com.au/blog/what-is-a-company-constitution.
Woolworths, (2017). Charter. Retrieved from: https://www.woolworthsgroup.com.au/icms_docs/186099_board-charter.pdf.
Woolworths, (2017). Constitution: Woolworths Group Limited (ABN 88 000 014 675) (“Company”) A public company limited by shares. Retrieved from: https://www.woolworthsgroup.com.au/icms_docs/183796_Consititution.pdf.
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