Directors and their roles
Question a) Telesonera Ltd. best practices in corporate governances
There is a membership of nine directors within Telesonera Limited’s Board. Out of these nine directors, four are executive. Two of these directors are non-executive and the other two are non-executive directors. About 25% of the remuneration of the non-executive directors is provided to them in the form of ordinary shares of the company.
The role of the audit and finance committee is appointing the auditors and monitoring their performances, and reviewing the financial reports. The remuneration committee plays the role of examining the remunerations, monitoring implementation of option plans and approval of payments. The role of the corporate governance committee is monitoring the compliance of the organization with mandatory codes and legislation which affect the ethics and corporate governance of the company.
The board of the company plays various important roles. These are, approving financial plans and corporate strategies, addressing and identification of risk areas for the company, appointing the management team, etc. The chairperson of the company, Mr. Blue has vast experience in the industry of telecommunications and as the CFO at the competitors of the Telesonera, until 1995. Ms. Red is the CEO of the company.
Question b) Combination of roles of CEO and Chair
No, it is not possible to have a system of best practices when the roles of the chair and the CEO are combined. This is because it creates an imbalance of power and has a negative impact on the shareholder returns. Consequently, shareholders lose their value as well as interest even at high-performing companies.
Question c) Balance of knowledge, expertise and experience of BoardPractices of Corporate governance at Telesonera
The company has a clarified role of the board in its strategies. It clearly understands that the CEO is employed by the Board and also recognizes that the risk governance is the responsibility of the Board itself. An effective infrastructure regarding governance has been built, implemented and maintained by the organization. Finally, it has appointed a competent chairperson who responsibly performs all the roles of a chairperson.
Internal control procedure at Telesonera
The internal control procedures implemented by the organization are: Board monitoring, robust policies and internal audits, significant balance of power, monitoring by big stakeholders and shareholders and remuneration based on performances.
Question 1
For the purpose of investor intervention, six reasons are primarily considered. Such an effect might be caused due to the integration of factors, where acting upon one factor basis would be rare. The institutional investors have a moral responsibility of using their capabilities and powers for monitoring organizations which are invested upon by them for the betterment of all investors (Saleh, Zulkifli and Muhamad, 2010). These investors are experts at the disposal of understanding the difficulties and uncertainty of management of huge organizations. As a result, detached opinion of the operations and business might be taken by the institutional investors for providing their advice wherever required. The common reasons for interventions are strategy concerns, decorating or poor performance, poor performance of the non-executives, and failure of compliance, vast failure in internal control, poor ethical performance or corporate social responsibility and excessive defective remuneration policies are the remuneration of directors.
Audit and finance committee
It was very obvious that three of the reasons of intervention had already been present after the first restatement. It was not necessary that the intervention was triggered by one of the reasons Alone. A powerful case for an urgent meeting between the Board of ZTP and major investors, especially Mr. Xu, was made by a number of various factors. These factors included poor performance, internal control and potential failures in compliance and excessive amount of remuneration. When it comes to poor performance, all the outcomes and results were below the market expectations. There was an excessive remuneration in the form of a bonus which amounted to be $20 million. Although the initial results were correct and significant, they were high chances of the bonus being excessive because after the restatement, the scale of the bonus looked to be faulty because it was based upon incorrect figures.
Absolutism and relativism
When it is taken into assumption that a set of ethical principles which are unchanging and which should always be followed without considering the situation or any other factors or external pressure, the situation is referred to as being an absolutist ethical stance (Ting-Toomey, 2010). The expression of the absolutist ethics is universally conveyed on the basis of terms like – it is never right to, it is always right to or it is always wrong to (Cohen, Manion and Morrison, 2013). The assumptions which take into consideration such situations which are ethically real and or more difficult and complex then what is allowed by the absolutists are known as the relativists ethical assumptions (Bockover, 2018). The best result is obtained by the examination of the situation and by making ethical assessments on the basis of the best results in the particular situation.
Evaluation of ShaziaLo’s behavior – Absolutist ethics
In the first place, Shazia Lo was right in being concerned regarding the contract overvaluation of the organization, ZTP. As a professional accountant, Shazia is not supposed to support any form of misrepresentation or misstatement present in the accounts or contract values. Here, she was right in being an absolutist since she is a professional accountant who was bound by professional standards and high ethical standards.
In the second place, Shazia was also correct in raising the issue related to the finance director. In the viewpoint of an absolutist, it would have been wrong for the accountant to remain silent as it was her duty and responsibility to address the issues. In this action, a significant source of information would be an effective procedure of internal audit.
Corporate governance committee
Evaluation of ShaziaLo’s behavior – Relativist ethics
There were other factors which resulted in making Shazia assume about a relativist ethics in practice in spite of having instance of an absolutist, which was quite evident from the behavior of Shazia Lo. The biggest factor for the accountant overriding her principles of an absolutist (in regards to the complicity in the accounting statements which were incorrect), was the serious illness of her mother. It can be assumed that the painful suffering of the accountant’s mother was weighed against the requirement of being an absolutist regarding accounting misstatements. In the situations of a relativist, it usually happens that one good is weighed against another one.
(i) Speech on importance and consequences
I begin my speech by noting that we are having a very unfortunate time for business currently in this country. In the wake of the collapse of one of the biggest telecommunication companies ZTP, we are also going to lose one of the biggest audit firms, JJC.
I would like to address the consequences and results of the failures of corporate governance at ZTP. First of all, the value of shareholders and their investment at organization is protected by the implication of effective corporate governance. Not all shareholders have the ability of a affording large losses. Secondly, group of people which loses out due to the collapse of this organization is the group of employees. The next suffering parties are the creditors as well as the customers of the organization. The customers were not provided with proper services and the creditors were not paid on time. The collapse of the two important organizations has resulted in causing a huge disturbance in the industries of Audit and telecommunications.
I would like to remind everyone regarding the importance for business in auditing and general for being respected within the society. Our collective confidence is undermined by auditing in the reporting of business and hence the loss of the reputation of auditors due to such events is quite unfortunate. Finally, the case of Shazia Lo was quite unexpected and shocking which was reported in the press. A proper audit committee would have been able to provide select for the concerns of Shazia and in fact the whole situation could have been avoided if the directors of the organization implemented a proper framework of corporate governance in place.
(ii) The case for the mandatory external reporting
Now I would like to address the issue of the external reporting of the internal risks and controls. I am raising this as an issue since it was one of the reasons for the failure of the organization. I would like to present some of my points and opinions in this regard. Firstly, accountability is allowed by disclosure. Significant scrutiny is possible only when things are made more clear and transparent. Secondly, I have a strong belief that the satisfaction and confidence of the shareholders would be enhanced by the help of more information regarding internal controls. Furthermore, effective practice within an organization can be encouraged by mandatory external reporting related to internal controls of the organization.
(iii) Content of external report on internal controls
I would like to mention that I am unable to go in detail in this speech regarding external reporting of internal controls; however I would like to mention the four main themes which are consisted in such a report.
Firstly, the report should consist of a board acknowledgement statement which is responsible for reviewing the effectiveness and the internal control system of the company. Secondly, the processes which are applied by the board for reviewing an internal control system’s effectiveness should be summarized in the report. Thirdly, proper and meaningful information which is not misstated or misleading should be provided by the report. Finally, information regarding the weaknesses within the internal control system that cause material losses or errors should be contained in the report.
I am hoping that my speech would be helpful for considering the need for growing legislation of corporate governance. Thank you for listening.
Reference List
Bockover, M.I., 2018. Ethics, relativism, and the self.Abingdon, UK: Routledge.
Cohen, L., Manion, L. and Morrison, K., 2013. The ethics of educational and social research.Abingdon, UK: Routledge.
Saleh, M., Zulkifli, N. and Muhamad, R., 2010. Corporate social responsibility disclosure and its relation on institutional ownership: Evidence from public listed companies in Malaysia. Managerial Auditing Journal, 25(6), pp.591-613.
Ting-Toomey, S., 2010.Intercultural Communication Ethics. New York, USA: Taylor & Francis.
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