Data collection through primary and secondary sources
Question:
Discuss about the Corporate Governance and Turnover Decisions.
Research methodology is a detailed systematic process used for data collection through the various sources, primary as well as secondary sources. It helps in analysis of the data collected data in a systematic way.
For this research, the philosophy selected is positivism philosophy. Positivism philosophy is selected because positivism theory will help in understanding the details of the topic, “Corporate Governance” Positivism philosophy considers only facts which are based on the various observations of the different issues that are reliable. When this philosophy was used in this research, the researcher was only limited to collection of data and their interpretation. (Taylor, Bogdan & DeVault, 2015).
In the case of this research that includes in finding the reasons of the collapse of BBY Ltd. Company secondary data collection methods has been used. This is the more suitable than the primary data collection method as this provided an opportunity for the researcher to investigate and research the annual reports of the company, market shares and journals.
After the data has been collected from secondary sources, the data analysis has been conducted. Based on the type of data collection method, thematic analysis has been used for analyzing the collected data. Conducting a thematic analysis provided an opportunity of focusing on recoding patterns, pinpointing and examining the data of the company BBY Ltd. (Taylor, Bogdan & DeVault, 2015).
Corporate Governance plays a very important role in corporations, corporate governance, it is the rules, regulations, practices and processes that are followed by any organization. It refers to the process by which the corporations maintains the interests of its stockholders, the customers, employees, shareholders, investors , suppliers, government bodies and the society where the organizations exist (Jizi et al., 2014). Good corporate Governance helps the organizations in attaining success and economic growth; it creates goodwill in the industry and hence helps in gaining trust of both investors as well as the customers. Good corporate Governance puts impact on the share price of companies which allows public participation through selling shares (Puspaliliah, Nimran, & Kertahadi, 2014). Not following good corporate Governance proves detrimental to the organization in the end, it might be profitable in the short run but such success does not last. The same thing happened to BBY Limited, lack of good Governance led the company to collapse. They failed very badly in following good corporate governance, the company was insolvent in 2011, but it was not revealed, in order to prove that, they did some transactions from the client’s money. They even broke some of the rules of ASX, which is a very serious offence. The company as a result has to face legal obligations, which tarnished the reputation of the company, they had to liquidate the assets and in the end the company collapsed (Dimopoulos & Wagner, 2016)..
Corporate social responsibility is another important aspect, its importance should be known by every organization if it wants to stay in the industry and market for long term, but corporate social responsibility is something beyond organizational goals and objectives and benefits that can be quantified (Dimopoulos & Wagner, 2016). No organization exists in a vaccum, society plays a very important role in an organization’s existence, every business gets their resources, land, raw materials, labor and sometimes capita from the society, therefore every organization is ethically and morally bound to think about the well being of the society (Abhayawansa, 2014).
Positivism Philosophy and its importance
Corporate social responsibility is considered very important by the the organizations because it creates a goodwill in the market, for surviving in the long run the organizations needs to realize the benefits of corporate social responsibility. The corporations have a responsibility over towards the society, which needs to be taken care properly. Bad corporate governance and not realizing the social responsibility when goes beyond a certain limit puts the company in legal battles, which is very bad for can organization. There is lot of competition in the market and organizations needs to be distinct, this distinction can also be achieved by being socially and ethically responsible. It also affects the share prices of the organization, the company at times are compelled to pay a large amount against the negative publicity.
According to Raelin & Bondy (2013), not all organizations follow good corporate Governance, BBY Ltd. is a perfect example of one such organization that followed very poor corporate Governance that led to the failure of the organization. BBY Ltd was the main operational unit of BBY group, which is a financial institution based in Sydney. It has offices at Adelaide, Auckland, Brisbane, Gold Coast, London, Melbourne, New York, Perth, and Wellington. It offers financial services, and was founded in the year 1987. BBY group had 10 entities and it included two financial services licensees: BBY Advisory Services Pty Ltd and SmarTrader Limited. The board of BBY comprises of:
Glen Rosewall – Executive Chairman
Ken Rosewall – Non- Executive Director
David Perkins – Non- Executive Director (Coffee, 2015)
Michael Goldman- Non- Executive Director
Brett A. Spork- Executive Director at APP securities Pty Limited
Alan Beasley- Non-Executive Directors, Board of Directors at BBY Limited.
Arjun Maharaj Maharaj- Chief Executive Officer and Company Secretary
Stephen Vaughan and Ian Hall of KPMG
Stephen Vaughan and Ian Hall of KPMG were appointed the joint and many other administrators of the BBY companies on 17th May 2015. Steven Parbey and Brett Lord of PPB Advisory on 18th May 2015 were appointed receivers and managers of BBY and BBY advisory services Pty Ltd (Coffee, 2015).
Before its collapse BBY was largest autonomous stockbrokers in Australian Market. The collapse occurred because BBY ltd engaged in unethical practices. BBY had the responsibility that its representatives performed their duties in efficient, honest and affair way. It is very important for BBY to main a efficient corporate culture, but the organization failed badly in meeting the objectives of Corporate Governance (Tricker, & Tricker, 2015). The BBY limited was insolvent since 2011, the company kept on trading while it was insolvent until it collapse after the legal obligations and faulty Corporate Governance practices. A report by the liquidators of BBY, at KPMG suggests that, the company carried out a series of transactions by using the money of client to maintain the shortfall in the transactions for saxo clients in 2011, after the company bought the Stonebridge. The liquidators where speculating that the transaction was done only to prove that the company was not insolvent. The number of unusual transactions also raised questions on the corporate governance practices of the company and the business management of BBY Limited. It was found by KPMG that there was $17 million shortfall in the accounts of the client. The corporate governance issues of BBY came into light after Australia Securities Exchange, ASX’s attention. It was found by ASX that on behalf of one of its client, BBY had done an acquisition trade, which was of $192 million (Tricker, & Tricker, 2015). The company faced many margin calls from ASX because of the transaction. BBY requested deferral of the margin calls so that it can avoid defaulting. After investigation of the issue, ASX found that BBY had received a security deposit of $29 million fom one of its clients, the company was supposed to deposit that amount to the trust account but it failed to do so. Hence, there was a breach of operating rules of ASX by BBY. ASX has the authority to take actions against any breach in the operational rules of ASX. BBY did not adhere to a number of operating rules of ASX Clear, it did attend the margin calls and failed to deposit in the trust account. In the review, it was found that there was weakness in the risk management and compliance framework (Dimopoulo & Wagner, 2016).
According to Beekes, Brown & Zhang, 2015 on 18th May 2015 the company entered into voluntary administration. The Australian Financial services licence of BBY limited was suspended by Australian securities and Investment Commission as per 915B(3) Corporations Act. After discussion with the administrators, BBY participation was restricted in the ASX facility settlement by ASX settlement (Lim,How, & Verhoeven, 2014). A second creditors meeting was held on 22nd june 2015, the majority of the creditors voted in the favor of winding up of BBY group which also included BBY Ltd. The clients of the BBY Ltd were very disappointed and agitated, the company lost its reputation in the market. A fine was imposed on BBY for not following the rules of ASX Compliance Pty Ltd. Within a timeperiod of less than a year, BBY was liquidated. The unethical practices of BBY and failure to adhere the operational rules of ASX led to the collapse of the company (Puspaliliah, Nimran & Kertahadi, 2014). Every organization that fails to maintain a good corporate governance faces the same fate as the BBY, which lost all trust and goodwill from market, had to pay penalty and the company liquidated and collapsed within a time span of less than a year (Puspaliliah, Nimran & Kertahadi, 2014).
References
Abhayawansa, S., & Guthrie, J. (2014). Importance of intellectual capital information: a study of Australian analyst reports. Australian Accounting Review, 24(1), 66-83.
Beekes, W., Brown, P., & Zhang, Q. (2015). Corporate governance and the informativeness of disclosures in Australia: a re?examination. Accounting & Finance, 55(4), 931-963.
Coffee Jr, J. C., Sale, H., & Henderson, M. T. (2015). Securities regulation: Cases and materials.
Dimopoulos, T., & Wagner, H. F. (2016). Corporate Governance and CEO Turnover Decisions.
Jizi, M. I., Salama, A., Dixon, R., & Stratling, R. (2014). Corporate governance and corporate social responsibility disclosure: Evidence from the US banking sector. Journal of Business Ethics, 125(4), 601-615.
Lim, M., How, J., & Verhoeven, P. (2014). Corporate ownership, corporate governance reform and timeliness of earnings: Malaysian evidence. Journal of Contemporary Accounting & Economics, 10(1), 32-45.
Puspaliliah, H. C., Nimran, U., & Kertahadi, K. (2014). THE INFLUENCE OF GOOD CORPORATE GOVERNANCE AND FIRM SIZE ON CAPITAL STRUCTURE AND FIRM FINANCIAL PERFORMANCE (AN EMPIRICAL RESEARCH AT BANKS LISTED ON INDONESIA STOCK EXCHANGE IN THE PERIODS OF 2011-2013). PROFIT (JURNAL ADMINISTRASI BISNIS), 8(2).
Raelin, J. D., & Bondy, K. (2013). Putting the Good Back in Good Corporate Governance: The Presence and Problems of Double?Layered Agency Theory. Corporate Governance: An International Review, 21(5), 420-435.
Silverman, D. (Ed.). (2016). Qualitative research. Sage.
Taylor, S. J., Bogdan, R., & DeVault, M. (2015). Introduction to qualitative research methods: A guidebook and resource. John Wiley & Sons.
Tricker, R. B., & Tricker, R. I. (2015). Corporate governance: Principles, policies, and practices. Oxford University Press, USA.
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