Introduction
Every corporation is run by a set of rules and regulations that determine how power and authority flows. Corporate governance impacts how a company’s goals are set and achieved, determines how risk is handled correctly, and how performance is maximized. Effective corporate governance frameworks empower organizations to produce value through entrepreneurship, innovation, development, and exploration while also providing responsibility and control systems that are proportional to the threats they face. As business situations change, corporate governance principles will also revolve, calling upon leaders to adopt and implement effective governance, sustainability, and hazard management principles (Paine, 2020). The assigned case of Focus Logistics indicates a company in need of effective corporate governance to mitigate the risks present in its structure.
Four Good Corporate Governance Practices
Importance of Good Corporate Governance
In a global financial market, corporate governance structures and policies are crucial in influencing the cost of capital. Australian businesses must be prepared to compete on a global scale, as well as to retain and increase investor confidence both at home and abroad (Tricker, 2019). Australia starts from a strong position when it comes to corporate governance practices. However, it is critical to assess those policies regularly to ensure that they reflect domestic and global developments and foster high levels of openness about listed entity corporate governance practices. Transitioning into ASX comes with the responsibility of maintaining sustainable corporate growth and risk management. For this reason, Focus Logistics has to closely monitor its performance through audits and enforce accountability in all its functions. A company in the ASX is not free to decide whether or not to implement audit and oversight policies as is the case with a private corporation.
Practice 1: Laying a Strong Foundation for Management and Oversight
A corporation is managed by a board consisting of several members with different designations. Each person is assigned duties and responsibilities to which they are held accountable. It is important to lay a sound foundation for a corporation’s management (Tricker, 2019). For effective management and progress evaluation of a corporation, a board should be carefully chosen. One of the factors to consider is independence, which implies that a majority of the board members should be independent of the company. In the case of Focus Logistics, the management board is composed of family members, a factor that needs reconsidering. The investors have raised concerns over the management of Focus Logistics, which is run as a family business despite its large size and huge operations. Although other board members ignore the investors’ remarks, David feels that they need to change the management.
Oversight is the second effective management practice that can benefit Focus Logistics. The role of oversight is performance evaluation to ensure that the board and the corporation’s activities run as expected, as shown by Tricker (2019). Where gaps exist in the management board, they should be addressed via sound judgment from all board members. Oversight is also responsible for questioning the actions and decisions made by senior executives, rather than just rubber-stamping every move by the board. In reference to Focus Logistics, the company lacks an effective oversight board to oversee its operations. As a family business, board members simply nominate themselves, as shown by Mrs. Rose’s comment on oversight. She feels that a performance assessment report is not necessary, disregarding the need for oversight.
Practice 2: Foster Integrity and Ethical Decision-Making
Corporations have a responsibility for their members, shareholders, and the public. Integrity is an essential value of every leader, and especially for those holding top leadership positions (Tricker, 2019). Since the board is responsible for decision-making within the corporation, its members should be assessed and vetted to ensure they comply with ethical conduct. This also bespeaks the need for oversight, which oversees all board members’ conduct and deals with any non-compliance cases. One area demanding ethical decision-making is the evaluation of a corporation’s activities in the environment.
Focus Logistics lacks a policy of ethical behavior, and all board members have no intention of changing their operations to conform to the regulations set. In the presented case, there is a lack of conformance and issue raised by investors as requiring attention. However, Jacob dismisses such regulations, claiming that they tend to slow down their company’s operation. He feels that having a formal management board is unnecessary since the company is managed by the family, which is wrong, according to Paine (2020). He argues that their focus should be on performance, not conformance. Jacob’s idea of management is misplaced and should be corrected by fostering ethical decision-making at all levels in the organization. It is essential to adhere to legal requirements of operation regardless of the perceived impact on an individual’s interests.
Practice 3: Effective Risk Management
Business operations normally entail challenges and opportunities that determine a corporation’s financial position. Risk handling is a crucial function of an organization’s management board (Tricker, 2019). If perils are not well-managed, a corporation may suffer financial loss and legal implications. In this case, Focus Logistics has not set up a policy for handling threats. To begin with, the acting board fails to recognize the presence of risks. One particular challenge raised by investors is the lack of operational threats control. It would be expected that a company as big as Focus Logistics would be focused on threat mitigation. The fact that it is classified as an essential service gives it an advantage over other businesses that suffered from COVID-19 pandemic restrictions. However, the board reveals that the corporation has taken a lot of debt.
Debt management is a crucial factor for business continuity and competitiveness. Borrowed money should be put into income-generating activities that would generate sufficient revenue for the company to pay back and gain profits. The fact that the company lacks a sustainability reporting plan implies that it is bound to mismanage resources (Paine, 2020). Although the investors reveal the need for hazard control, Mrs. White quickly dismisses them. As the founder of Focus Logistics, she should be concerned about the future of the company by investing in operational risk management. She feels that Focus Logistics is operating well, ignoring the fact that business is dynamic, and the points they ignore may hurt their company in the near future. Therefore, Focus Logistics Company needs to take into serious consideration its operational management challenges to avoid too much debt and lack of accountability that would discourage investors.
Practice 4: Respecting Shareholders’ Rights
Shareholders are very crucial for an organization’s growth and efficient operations. According to the ASX corporate governance recommendations, an organization should be respectful in addressing the needs of its shareholders (Tricker, 2019). For instance, they have a right to hold meetings and inspect the books of accounts. The situation at Focus Logistics is that of negligent practices that disregard investors’ rights. In regard to performance reports and auditing, Mrs. White argues that she would only focus on taking care of her customers rather than preparing the required reports. This goes against shareholders’ right to inspect the corporation’s financial records. Jacob also considers the investors’ requests a waste of resources and terms it as madness. It is crucial to understand that Focus Logistics’ future depends on the way the company attracts and maintains its shareholders by respectfully upholding their rights.
Significance, Benefits, and Challenges of Sustainability Reporting
Corporate social responsibility (CSR) reporting provides a snapshot of a company’s economic, environmental, and social implications as a result of its daily operations. This type of reporting, which demonstrates a company’s commitment to a sustainable future, can help firms better assess, understand, and convey their economic, social, environmental, and leadership performance (Dienes et al., 2016). It also helps organizations to set goals and implement change. Essentially, it gives a roadmap of a company showing where it has come from and its present situation in relation to set targets. A performance report is crucial for all organizations, whether large or small.
Performance assessment is a proven method for attaining an organization’s sustainability. Organizations can use a corporate social responsibility report to assess their spending and eliminate any non-beneficial spending. According to Dienes et al. (2016), the value of a triple bottom line report is that it ensures that businesses evaluate their environmental consequences and allows them to be upfront about the threats and uncertainties they encounter. Organizations must now give real, verifiable evidence of their level of strategic development by adopting rigorous CSR reporting guidelines.
In the case of Focus Logistics, operations and financial reporting would streamline the organization’s activities to fit within the company’s goals and objectives. As a logistics company, Focus may face risks such as an unprecedented increase in transportation costs. With such a hazard, the firm might have to spend more and earn less revenue. If the organization does not adopt a triple bottom line reporting plan, it may end up with huge debts that will hurt it financially. As Focus Logistics aims to be listed by ASX, it is important to ensure that its spending is monitored to minimize losses and save for risk mitigation. Having a backup solution is also an area that companies can focus on with the help of triple bottom line reports.
A CSR report shows where the company needs to improve, thereby serving as a tool for planning. In every organization, the day-to-day activities are guided by set plans and procedures (Dienes et al., 2016). Such plans require financing, control, and follow-up for successful implementation. Focus Logistics needs to invest in CSR reporting to enhance its operational hazard management. According to Mrs. White, the company needs to focus on operational threats to enhance its operations. Operational challenges control will highlight the areas of operation such as raw materials, labor, and marketing, which need to be improved through risk mitigation.
Sustainability reporting enhances a company’s competitiveness, allowing a company to implement strategies aimed at putting it ahead of competitors. With a sustainable report, a company can compare its performance with the industry standards and realize how far it is from reaching the mark (Dienes et al., 2016). Focus Logistics will benefit from progress reporting by assessing how its operations rate among other logistics companies. To be listed by the ASX, Focus Logistics has to attain some level of growth that demonstrates its capacity for sustainable development in the future. It must adhere to some standards of operation that cut across all logistics companies. The sustainability report will help the managers to discover the gaps and seek corrective measures to stay ahead of competitors by adopting current and competitive strategies for sustainable growth within the global logistics industry.
Triple bottom line reporting facilitates effective management and leading change within an organization. It is normally said that an organization is as good as its leadership, depicting the significant role of effective management in organizations’ growth. As sustainability reports highlight the weak areas of an organization, it follows that a change in leadership should be executed to replace unproductive executives (Dienes et al., 2016). The change should start by analyzing the sustainable report and noting which departments need stronger leadership. While some leaders may remain in their positions, they may use the progress evaluation report to launch self-improvement practices that will make them better leaders and managers.
Benefits and Challenges of Sound Risk Management
Threat management entails the identification of risks, analysis of the level and impacts of tasks, and response. The response is dependent on the analysis and may take different forms. A sound threat control process attempts to limit the repercussions of challenges that may be experienced in the future. In essence, it is essentially the role of effective hazard management protocols to limit and controlling threats in a proactive manner (Hopkin, 2018). Focus Logistics needs to focus on hazard control as it helps the company to sustain its operations in the event of a significant unexpected occurrence. However, it is crucial to note that an effective risk mitigation system has benefits and challenges that are worth considering to limit the costs and drawbacks that may be experienced.
One benefit of an effective threat mitigation plan is increasing a company’s performance. Looking at Focus Logistics, there are numerous competitors in the field of logistics, all fighting for a larger market share. Investing in a sound hazard control system ensures that whatever happens, the company will not cease to operate. It also keeps the company ahead of competitors by enabling it to minimize the occurrence of hazards (Hopkin, 2018). With minimal risk, a company can focus on expanding its operations. For maximum benefits of threat mitigation processes, a company needs to carefully consider the type of plan it intends to use and its costs and benefits. A sound threat management tool should detect all potential threats and mitigate at least 90% of them. If Focus Logistics invests in a sound threat detection and control system, it will keep bit its operations and investors and be registered by ASX.
Another benefit of effective risk management is effective resource utilization. It enables an organization to limit the losses it would incur from its resource utilization (Hopkin, 2018). In this way, a company only invests in useful activities that guarantee significant returns for the company. This follows from the fact that challenges need to be addressed for the proper functioning of a company. If the risks are many, a company may have to stall some of its activities to handle them, further increasing the cost of operation and contributing to misallocation of resources. Focus Logistics needs such a threat detection and control tool to understand where to invest and grow its operations to reach its goal of being registered by ASX. The main drawback associated with threat mitigation tools and applications is the high cost.
Conclusion
In conclusion, a company’s growth is influenced by its corporate governance practices, risk management, and sustainability assessment. Focus Logistics needs to adjust its management structure and adopt effective governance strategies through threat mitigation and triple bottom line reporting. To benefit from challenge control, a company needs to invest in a system that has all the essential tools for risk identification, analysis, and response. However, there are several threat mitigation tools that a company can choose from depending on its capability and needs.
References
Dienes, D., Sassen, R., & Fischer, J. (2016). What are the drivers of sustainability reporting? A systematic review. Sustainability Accounting, Management and Policy Journal.
Paine, L. S. (2020). Covid-19 Is Rewriting the Rules of Corporate Governance. Harvard Business Review.
Tricker, B. (2019). Corporate governance: Principles, policies, and practices. Oxford University Press, USA.
Hopkin, P. (2018). Fundamentals of risk management: understanding, evaluating, and implementing effective risk management. Kogan Page Publishers.