Understanding Corporate Governance: Principles And Practices For JB-Hi-Fi

Corporate Governance: Definition and Importance

Discuss about the Handbook Of Corporate Governance Social Responsible.

Corporate governance refers to the process, mechanism and the relationship through which the businesses directs, manages and implements control on the operational activities. The principle and the structure of the organization identifies the delegation of responsibilities and rights between numerous forms of participants in the organizations[1]. It includes the procedure and the rules used in decision making in compliance with the corporate affairs. Corporate governance includes the process through which the organizational objectives is created and hence pursued in the regulatory aspects of the social and business environment. The procedure of corporate governance includes the regulation of actions policies, procedure and decision that are considered by the organizations[2]. The corporate governance practices are effected by the attempt to remain in line with the stakeholder’s interest. The interest observed in the corporate governance practice in the present companies is particularly in respect of the business responsibilities.

Research suggest that modern firms requires corporate governance framework to monitor or maintain the effective operational activities as this helps in maintaining the competitive advantage[3]. There are companies that look to meet the needs of the related stakeholders as the increase in need of stakeholder’s satisfactions helps in the development of the proper and effective functional activities. All the organizations and their respective management is required to address the roles of governance through which an understanding of the board, its structure, directors roles and other managerial personnel can be addressed, The corporate governance includes the understanding of necessary board functions which is includes the observing, compliance, networking and decision making[4]. The efficiency of the board is better understood through corporate governance. Improving the process of board of directors is better understood through the corporate governance procedure. An assertion can be bought forward by stating that the policies of corporate governance is necessary for every organizations and therefore these strategies should be implemented in the organizations to enhance the operational activities and hence meeting the needs of related stakeholders.

The corporate governance aspects that are selected is applicable to the JB-Hi-Fi objectives since it is viewed that company is looking to improve the functional activities through which the company is maintaining the competitive advantage[5]. Organizations are required to create the policies through which it can observe and regulate numerous forms of activities that helps in maintaining the effectiveness. Maintaining such strategies is fundamental in developing the organization strategies and JB-Hi-Fi has been extensively making strategies to improve the extent of corporate governance.

Corporate Governance Principles: Fairness, Accountability, Transparency, Responsibility, Sustainability, Integrity, Leadership, Capability

There are eight forms of corporate governance principles and each of the principles is explained to understand the effectiveness of the corporate governance:

Fairness: This can be defined as the equal treatment of the shareholders and hence organizations should take the measures of safeguarding the rights of the shareholders[6]. The shareholders are provided with the opportunity of gaining effective description of violations of their rights and authorities.

Accountability: There are numerous codes that assigns the responsibilities to the Board of directors to act as the guidance for the shareholders to take the decisions and providing supervision to the management activities[7].

Transparency: The organizations are under the obligations of offering accurate and in time explanation of the information regarding all the facts and information’s related to the functional activities of financial, environmental and social parameters to provide information to all the shareholders.

Responsibility: Organizations are better able to recognize the powers and rights of all the interested parties and are allowed by the relevant people or company for development as well as their own financial stability[8].

Sustainability: It is the board’s duty that help in developing or guiding the business so that it can create value and hence assign in the fair way by redistributing and reinvesting the stakeholders which is inclusive of the customers, directors and employees.

Integrity: The role of the board of directors is to lead the company so that it can maintain the business integrity in the transparent manner and this manner it can endure the assessment that are made for shareholders.

Leadership: For an organization it is necessary to have the board that carries out the management activity of the company[9]. The companies are required to satisfy the business purpose which would be helpful in meeting the long and short term plans.

Capability: For the organizational boards to possess the appropriate combinations of skills, independence and experience to help the members in discharging their accountabilities in the effective way.

All the necessary principles that are addressed should be included into the corporate governance structure of the organization. This is because all the principles would be supportive in the creation of efficient and better plans and the strategies through which JB-Hi-Fi can achieve the pre-determined goals and objectives.

Including all these requirements would result in positive effect on the organizational growth. The development of the JB-Hi-Fi is related with the management effectiveness. It is noteworthy to denote that the concerned organization is reliant on the management effectiveness and the management of the JB-Hi-Fi is looking forward to incorporate changes in the organizations corporate governance strategies[10]. Applying the corporate governance principles is helpful in creating the numerous committees and such committees would consider placing emphasis on the different forms of actions and activities in order to improve the operational activities. Applying the corporate governance principles would be helpful in creating a better future for the creation the business functions. These corporate governance standards are helpful in creation of stronger relationship between the organization management and shareholders. Applying the corporate governance standards even results in creation of the better management structure and hence such kind of committee can be created through which companies would be able to establish different operational aspects[11].

Corporate Governance Practices for JB-Hi-Fi

The organization has placed their process of internal control and following the assessment of the internal control process of JB-Hi-Fi and their framework of corporate explains that the numerous elements of corporate governance are not met by the company. It is noticed that the organization does not have the appropriate nomination committee for JB-Hi-Fi. It is primarily due to this reason the company does not provides appraise disclosure to the shareholders. JB-Hi-Fi does not contains the nominations committee and henceforth are unable to publish the reports at the end of the financial year. The nomination committee has the responsibility of appointing new managers and personnel as well as the independent directors and it often noticed that the co

mpany does not have the independent directors inside the management of the company. Since JB-Hi-Fi lacks nomination committee, therefore the organizations are not able to provide the evidence and the process the organization takes to provide explanation to the issues associated to the board successions. This helps in making sure that the board has appropriate amount of experience, skills, knowledge and diversity to discharge the responsibilities and duties in the efficient manner[12]. It is further noticed that JB-Hi-Fi hardly has the registered entities of the board to be the independent directors with company lacking the involvement of the independent directors. JB-Hi-Fi needs to maintain the independent directors so that an improvement can be made in the functional activates of JB-Hi-Fi business. An important assertion can be bought forward by stating that the JB-Hi-Fi needs to provide changes in the structure of the corporate governance[13]. With the help of the new corporate governance structure it would be helpful for the company in meeting the requirement of the company and principles that are corporate governance. This would help in improving the functional activities and achieving the JB-Hi-Fi company goals in the precise and timely way.

The Chairman and the Chief Executive Officer of JB-Hi-Fi provides approval for the expenditure and investment purpose. The chairman of the JB-Hi-Fi stated that the inventory level is set at the sustainable level and the Chief Executive Officer continues to be confident that the JB-Hi-Fi future inventory requirement can be funded through the organizations cash flow[14]. The chairman and chief executive officer of JB-Hi-Fi believes that the business would produce stronger amount of revenue by making investment in inventory and marketing. The results of 2017 was driven by combination of sales growth with constant focus on profitability growth and lower business expenditure, underpinned by the continuous emphasis on the customer services. Furthermore, the managing director appointment have resulted in positive changes both in the business position and future growth.  

Challenges Faced by JB-Hi-Fi

JB-Hi-Fi states that the opportunities for combined group activities offers both the company and The Good Guys possess the proud history of delivering greater value of growth for the everyday customers. The Chairman approves that investment proposals by stating that it would reinvest in both the businesses in order to strengthen the competitive position for driving future growth. The chairman considers numerous capital management initiatives.

The corporate governance requirement for JB-Hi-Fi is that it make sure all the individuals that are employed or indulged in the company under any capacity understand the ethical and the behavioural standards that are applicable to the company’s daily business activities[15]. The standards form the fundamental part in delivering the value to the JB-Hi-Fi shareholders and building or maintaining the confidence of the group. The code of conduct lay down the overarching principles that governs the manner in which company perform its business. The corporate governance requirement includes the procedure handling the actual or the potential conflicts of interest. The procedure set down declares and approves the gifts, loans and hospitality. The requirement also states the procedure relating to the reporting conduct that is not in compliance with the code of conduct.

The corporate governance requirement includes all members to act ethically and responsibly[16]. As far as reasonably possible the company aims to provide safe working environment which is free from the injury and unlawful behaviour at the workplace. The company aims at protecting and keeping the information of the consumer confidential in compliance with the law. Furthermore, the corporate governance requirement includes that the protocols and procedures requires the directors and the employees of the JB-Hi-Fi to make sure that all the members comply with the company’s obligations for disclosure.

The board of directors of JB-Hi-Fi provides approval to the loans and lending relating matters. The board of directors provides approvals in matters relating to the banks loan. During the financial year ended 2017 to fund the acquisition of “The Good Guys” the company made the use of $50 million of the current facilities of debt and entered into the $450 million multi-tranche acquisition of the debt facilities through the help of syndicate of banks. The board of directors recognizes the borrowings at the amortized costs based on the net amount of transactions occurred[17]. Borrowings are subsequently measured on the basis of the amortized cost.      

The sign-off authorities for JB-Hi-Fi includes the chairman that have the capacities of signing off relating to the activities of the group either directly and the indirectly. The company has the key managerial personnel that consist of board of directors with the chief executive officer of JB-Hi-Fi. The chairman of JB-Hi-Fi is viewed as the sign-off authorities which complies with the JB-Hi-Fi organizational resolution. Furthermore, the chairman is also regarded as the sign-off authorities relating to the matters of taxation.

The Way Forward for JB-Hi-Fi

The chairman is considered as the sign off authorities for setting off the deferred tax assets along with the liabilities related to income tax applicable on the similar authority of taxation[18]. Additionally, the key management personnel is considered as the signoff authorities concerning the dividend declaration following the appropriate director’s authorizations. JB-Hi-Fi board charter provides an explanation that excluding the directors the key management personnel carry the right of implementing control and directing the business activities of JB-Hi-Fi either directly or indirectly.

On evaluating the JB-Hi-Fi corporate governance report it is understood that the investment approvals, loan approvals and the signoff authorities is carried out inside the agreed time frameworks. JB-Hi-Fi has taken into the consideration the approach related to the data driven to continuously improve the offerings by assuring that the appropriate measures are taken within the right framework of time with the help of correct tools. The JB-Hi-Fi approvals related to the investment and the expenditure is considered by the management inside the correct time framework of twelve months inside the calendar year. Additionally, JB-Hi-Fi approvals for loans are carried out inside the timeframe of twelve months relating to the agreed time framework.

By considering the legislative requirement of the JB-Hi-Fi it can be stated that the company in compliance with the charter of the board meets the deadlines inside the agreed timeframe[19]. JB-Hi-Fi is committed in ensuring that all the shareholders and the market possess the equivalent opportunity of retaining and reviewing within the timely manner regarding its shares. The legislative requirements of the company include that all the information may be disclosed as the Market Sensitive Information and the same is reported to the JB-Hi-Fi Chief Executive Officer in the timely manner. Additionally, JB-Hi-Fi evaluate the appropriateness of the treatment of IPO costs that is assigned with the cost of IPO for the taxation purpose based on the legislative requirements of the Australian Taxation Office inside the assigned deadlines.

There is certain corporate governance requirement of the JB-Hi-Fi that would be helpful in meeting the new corporate governance requirement of the company is described below;

A: Supervision of the Organization Management: There must be the sole responsibility of the key managerial personnel to supervise the management of the company in the shareholder’s best interest[20]. This would enable the directors in assessing the performance by supervising the progress as well as the development of the senior management by undertaking corrective measures namely the shifting the responsibilities and business risks.

B: Establishing the effective business system: The directors are responsible for determining that the operative system must be placed accordingly for timely disclosure of reporting to the board of directors relating to necessary organizational matters.

C: Frequency and Board Meetings: In consultation with the board members the chairman should ascertain the length and frequency of board meetings.

D: Frequency of Committee Meetings: The committee chairman in discussion with the members of the committee should establish committee meeting frequency which is associated with the requirements laid down in the board charter.

The below stated is the detailed internal control process for JB-Hi-Fi in meeting the needs for the corporate governance is illustrated below;

A: Risk recognition and analysis: JB-Hi-Fi is required to conduct the assessment of the business risks and analysing those business risk as well[21].

B: Restricted Segregation of Duties: There should not be any single responsibility in the transaction authorization along with the impacted custody of the transaction assets. JB-Hi-Fi must apply the regulatory control to make sure that the objectives of the organizations are complied.

C: Activities of Control: Control regulations should be implemented in making sure that each level in the organizations complies with the rules and regulations based on the main process that creates an impact upon the reliability of the organizations financial report.

D: Communication of Information: Controls should be implemented over the vital process that are subjected formal documentations[22].

A: Assessment of Internal Control: The assessment of internal controls needs the management to determine whether the internal controls are functions as determined and in the timely manner to communicate the deficiencies by taking appropriate corrective measures.

B: Periodical Assessment: Conducting the separate assessment needs periodical assessment of the company[23]. JB-Hi-Fi must comprise of the dependable management and control activities as well performing the trend analysis of the internal and external information.

C: Applying Manual Process: Manual process must be implemented to indulge the involvement of human to physically carryout the internal control by JB-Hi-Fi.

A: Variations in the Nomination Committee: On assessing the corporate governance report it is noticed that the variations in the JB-Hi-Fi nomination committee has been noticed where at least three members are needed to be the independent director.

B: Variations in the Audit Committee: Variations in the audit committee of the JB-Hi-Fi is noticed where at least three members namely the non-executive directors and all must be independent directors[24].

Corporate governance can be defined as the framework for the companies that is used to outline the particular operations and provide guidelines to the employees. Corporate governance is usually viewed as the unique framework that is built across the organization mission and values[25]. The large companies use the corporate governance to establish internal business policies because of the layers of management that are involved in the company. Corporate governance refers to the system through which the companies are directed and controlled. The board of directors are accountable for the company’s governance. The role of the shareholders is to appoint the directors and the auditors in order to assure that the correct governance structure is in place.

The purpose of the corporate governance is to provide the leadership and strategically place them in effect, supervising the business management and reporting the shareholders based on their stewardship. Corporate governance is generally regarding how the board and the companies performs along with how the company’s sets values to the company. The corporate governance purpose is to carry-out the day to day operational work of the company through the full time executives. Corporate governance purpose is to implement control on the internal and external actions of the manager’s employees and external business stakeholders[26]. The framework helps in outlining the duties and privileges along with the roles of members of board to makes sure that people does not take any undue advantage of organizational resources.

The principles of corporate governance are related with the accountabilities and roles of boards and administrations. The principles of corporate governance differentiate between the functions that is held in reserve for the board and those that are delegated among the senior executives. Complying with the principles of corporate governance helps in evaluating management performance by assuring that shareholders devise the accessibility of necessary information in regular way.

The principles of corporate governance help in encouraging ethical promotion with responsible decision making. The principles of corporate governance help in creating appropriate code of conduct and inside policies of trading to actively encourage ethical and responsible decision making. Disclosure of ethical issues through appropriate code of conduct is assisted by diverse participants along with the board of directors and shareholders. The corporate governance principles and compliance framework are viewed as tools that assures organizations execute the business functions with integrity.

JB-Hi-Fi directors and management assures that the group is committed towards making sure that business functions of carried out in ethical manner and in compliance with the higher standards of corporate governance[27]. JB-Hi-Fi is committed to comply with the constant disclosure obligations that are contained in the rules of listing of the ASX and under the Corporation Act 2001. JB-Hi-Fi recognizes that the way it conducts its business contributes to its daily business success. The objective of the code of the conduct is to assure that all the members of the company are engaged in the group capacity and understand the ethical and behavioural standards that is applicable in all the daily business activities of the company.

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[1] Tricker, RI Bob, and Robert Ian Tricker. Corporate governance: Principles, policies, and practices. Oxford University Press, USA, 2015.

[2] Davies, Adrian. Best practice in corporate governance: Building reputation and sustainable success. Routledge, 2016.

[3] Arjoon, Surendra. “Virtues, Compliance, and Integrity: A Corporate Governance Perspective.” Handbook of Virtue Ethics in Business and Management. Springer Netherlands, 2017. 995-1002.

[4] Soltani, Bahram, and Christian Maupetit. “Importance of core values of ethics, integrity and accountability in the European corporate governance codes.” Journal of Management & Governance 19.2 (2015): 259-284.

[5] Crane, Andrew, and Dirk Matten. Business ethics: Managing corporate citizenship and sustainability in the age of globalization. Oxford University Press, 2016.

[6] Du Plessis, Jean Jacques, Anil Hargovan, and Jason Harris. Principles of contemporary corporate governance. Cambridge University Press, 2018

[7] ArAs, GülEr. A handbook of corporate governance and social responsibility. CRC Press, 2016.

[8] García-Sánchez, Isabel-María, Luis Rodríguez-Domínguez, and José-Valeriano Frías-Aceituno. “Board of directors and ethics codes in different corporate governance systems.” Journal of business ethics 131.3 (2015): 681-698.

[9] Davies, Adrian. The globalisation of corporate governance: The challenge of clashing cultures. Routledge, 2016.

[10] McCahery, Joseph A., Zacharias Sautner, and Laura T. Starks. “Behind the scenes: The corporate governance preferences of institutional investors.” The Journal of Finance 71.6 (2016): 2905-2932.

[11] Mason, Chris, and John Simmons. “Embedding corporate social responsibility in corporate governance: A stakeholder systems approach.” Journal of Business Ethics 119.1 (2014): 77-86.

[12] Ducassy, Isabelle, and Sophie Montandrau. “Corporate social performance, ownership structure, and corporate governance in France.” Research in International Business and Finance34 (2015): 383-396.

[13] McAlister, Debbie Thome, and O. C. Ferrell. “Corporate governance and ethical leadership.” Business ethics: New challenges for business schools and corporate leaders. Routledge, 2016. 68-93.

[14] Jain, Tanusree, and Dima Jamali. “Looking inside the black box: The effect of corporate governance on corporate social responsibility.” Corporate Governance: An International Review 24.3 (2016): 253-273.

[15] Council, ASX Corporate Governance, and A. S. Exchange. “Corporate governance principles and recommendations . ASX Corporate Governance Council.” (2014).

[16] Council, ASX Corporate Governance. “CGC principles and recommendations.” (2016).

[17] Council, ASX Corporate Governance. “Corporate Governance Principles and Recommendations, 3rd edn (ASX, Sydney).” (2014).

[18] Gitman, Lawrence J., Roger Juchau, and Jack Flanagan. Principles of managerial finance. Pearson Higher Education AU, 2015.

[19] Aguilera, Ruth V., and Rafel Crespi-Cladera. “Global corporate governance: On the relevance of firms’ ownership structure.” Journal of World Business 51.1 (2016): 50-57.

[20] Luo, Xueming, et al. “Corporate social performance, analyst stock recommendations, and firm future returns.” Strategic Management Journal 36.1 (2015): 123-136.

[21] Bovens, Mark, Robert E. Goodin, and Thomas Schillemans, eds. The Oxford handbook public accountability. Oxford University Press, 2014.

[22] Keay, Andrew, and Joan Loughrey. “The framework for board accountability in corporate governance.” Legal Studies 35.2 (2015): 252-279.

[23] Crowther, David, and Güler Aras. “Corporate governance and corporate social responsibility in context.” Global perspectives on corporate governance and CSR. Rtledge, 2016. 23-64.

[2] Bottomley, Stephen. The constitutional corporation: Rethinking corporate governance. Routledge, 2016.

[25] O’Mahony, Joan, and Michael Mason. “Post-traditional corporate governance.” Globalization and Corporate Citizenship: The Alternative Gaze. Routledge, 2017. 74-90.

[26] Andriof, Jörg, and Malcolm McIntosh, eds. Perspectives on corporate citizenship. Routledge, 2017.

[27] Keay, Andrew. Board accountability in corporate governance. Routledge, 2015.