Corporate Governance and its contribution towards higher standards of accountability and business performance
The report is a discussion on Corporate Governance and its contribution in determining the higher standards of business performance and accountability in the Information Technology (IT) industry in Australia. Thus, the report proceeds with a discussion in the theories of Corporate Governance towards the IT sector or industry. There is also discussion on the policies of Corporate Governance towards the IT industry in Australia and the implementation on the IT sector. The report further describes the contribution of the Corporate Governance in the maintenance of accountability and business performance in respect to two IT companies of Australia.
Corporate governance is a business process driven ethically and is committed to the values focused at the enhancement of the wealth generating policy of an organization. This kind of governance ensured through business decisions made ethically thereby ensuring conduction of business of the firm by maintaining commitment to its values while meeting the expectations of the shareholders. In this regard, if one takes the example of Infosys, Australia, then one can find that the affairs of the company is conducted in a fair manner(Larcker & Tayan 2015, p. 65). This helps in retaining and gaining the trust of the shareholders. Infosys thus believes in following a corporate governance framework that enables effective shareholders engagement that helps the company evolve with the changing times. Thus to ensure highest standards of corporate governance a well-informed, independent and active board is required. Therefore, the board of directors represents the core of corporate governance practice at Infosys that takes care of how the management operates and thereby helps in protecting the long-term interest of the stakeholders (Fernando 2012, p. 23). The framework of corporate governance at Infosys thereby ensures that they not only make disclosures that are on time but also share accurate information on financial performance, leadership and governance of the company (Sarens, Abdolmohammadi & Lenz 2012, p. 100). Thus, the corporate governance philosophy depends on the following principles:
- The standards of corporate governance should be beyond the law and in a way help in satisfying the spirit of the law and not just the words mentioned in the law.
- Ensuring transparency and maintaining higher level of disclosure.
- Clearly distinguishing between the personal conveniences and corporate resources
- Communicating externally and truthfully about the internal factors responsible in the effective running of the company
- Complying with the laws in a particular country in which it operates
- Ensuring simple and transparent corporate structure driven solely by the needs of the business
- The management is not the owner but a trustee of shareholders capital
The last two decades witnessed the increasingly role of corporate governance in the business environment of Australia (Jo & Harjoto 2012, p. 53). However, in the backdrop of global financial crisis and with the collapse of the high profile corporate the government, companies and shareholders have actively took an initiative in the adoption of new system of governance and practices which are more robust. Thus, corporate governance in Australia has developed in an iterative and ad hoc basis. Most of the companies have adopted the principle-based approach of corporate governance that is the key tool for enhancing the accountability of the board and management towards the stakeholders (Tricker & Tricker 2015, p. 40). However, corporate governance in Australia towards the IT industry includes a combination of prescriptive and voluntary elements that is an extension beyond mere compliance with the regulatory requirements. However, the key elements include:
- A ‘hard’ law that is legally binding legislative requirements and case law like the Corporations Act 2001
- A ‘soft’ law that lists all the rules of Australian Securities Exchange Limited (ASX) that principally has impact as a contract under the law
- The non-binding guidelines that includes the principles and recommendations of the third edition of the ASX corporate governance council
Theories of Corporate Governance towards the IT sector
These guidelines, laws and rules that are outlined along with the investor and market expectations forms the basis of corporate governance that spans the structures and systems adopted by the Australian IT companies. Adoption of Corporate Governance also enables in carrying out the duties imposed on the directors of the IT companies which includes formulating the processes and policies of the internal company, composing the committee and the board, conducting the external and internal audit processes, performing continuous disclosure and periodic reporting of the shareholders(Harford, Mansi & Maxwell 2012, p. 107).
However, the Corporate Governance in Australia towards an IT company has the following features:
1. Directors liability on a personal level and widespread regulation:
The ad hoc approach adopted in connection to the reform of corporate governance in Australia especially the legislative reform has resulted in over regulation in a number of areas. In this context, the laws imposed on personal liability of directors and the reporting requirements of remuneration under the corporations act require a special mention
2. A Step towards a system of government based on principles:
Concerning the ad hoc regulation put forward by the corporate governance, it is not quite surprising that the principle based non-binding approach adopted by Australian Securities Exchange Limited (ASX) principles has been quite widely found acceptance in the IT industry (Gitman, Juchau & Flanagan 2015, p. 34). However, the ASX principles was first introduced in the year 2003 that recommended practices of corporate governance in the view of ASX corporate governance council for achieving better outcome in governance and help in meeting the expectations of the investors in desired situations. Thus, the ASX principles intended for giving the IT companies the flexibility for adopting alternative practices of corporate governance if the board considered them suitable for a circumstance, subjected to a requirement of the board for explaining the reasons for adopting the alternative practices (Walls, Berrone & Phan 2012, p. 107).
However, most of the large IT companies invest significant resource and time in the implementation and development of tailored procedures and policies for supporting their own management internally as well as externally based on the guidelines put forward by the ASX principles (García?Castro, Aguilera & Ariño, p. 190). While it is necessary for these companies for benchmarking the governance practices against recommendations mentioned in ASX principles, the principles themselves recognizes that there exist no particular approach to be followed for governance and thus companies should purposely adopt different practices in governance based in factors like complexity, history, size and corporate culture.
Policies of Corporate Governance towards the IT industry in Australia
3. Large influential institutional investors and an infrastructure based on a strong investment.
The corporate governance evolution within Australia coincided with the introduction of a compulsory superannuation system. This made the Australian workers an indirect investor in global and domestic equities (Bonsón et al. 2012, p. 123). Thus, the consequential status of Australia as a society of shareholders included the large infrastructure investment supported through superannuation did have a large impact on developing the corporate governance. However, Australia has a high influence of institutional investors in the form of superannuation funds, insurance companies, banks and hedge funds (Erkens, Hung & Matos 2012, p. 389). The large share holdings of institutional investors affect the voting results of the company so they have the ability of applying pressure on the company board for bringing in a change that also includes practices of corporate governance. The institutional investors focus on corporate governance with the desire of enhancing the long-term returns sustainable returns on savings.
Thus, in Australia corporate governance for reforms incorporated in the IT industry for developing the systems of governance that will be protecting and supporting the sustainable growth of the wealth of shareholder. At the same time, ensure increased disclosure of the activities, performance, position and prospects of the company through increased interaction amongst the management, boards and interested investors (Claessen & Yurtoglu 2013, p. 34).
The implementation of the corporate governance strategy is not synonymous with success. Good corporate governance implies having certain common criteria that includes accountability, trust and transparency (Grimmelikhuijsen et al. 2013, p. 575). The criterion enters into the discourse for implementing corporate governance policies and thus possesses immense weight age. However, the role played by corporate governance in modern IT organizations depends on the demonstration of key principles to not only the shareholders but also to stakeholders and the public.
Businesses held at incredibly higher standards by not only the investors but also the customers. According to a survey, a higher percentage of global consumers are willing to pay for products from socially good companies (Pearson 2013, p. 4). Honesty and openness about operations and processes ensures that both consumers and shareholders look for companies that operate with integrity. Thus, corporate governance enables the IT companies to display their positive traits. This makes their intentions visible to everyone and thus the companies held accountable for their actions and behavior that helps them in distancing themselves from any kind of duplicity (Benn, Dunphy & Griffiths 2014, p. 35). The implementation of corporate governance in IT is however crucial when the trust in business is on the decline.
Implementation of Corporate Governance on the IT sector
Thus, the implementation of corporate governance towards IT industry is done for the following reasons:
In the attempt of minimizing the risk related to distrust, companies move out in their own way for emphasizing the social responsibility in the matters of corporate governance. Many renowned companies also make the frameworks for corporate governance public thereby putting the minds of the customers and shareholders at ease. For instance, the ethics and corporate governance of Microsoft puts a stress on the fact that the company wants to maintain and build trust by means of shared commitment to behave ethically and thereby act with integrity in whatever the company does (Khan, Muttakin & Siddiqui 2013, p. 207). Thus, keeping and making the kind of promise can have certain impact on the success and reputation of the company. Therefore, corporate governance dictates and affects the morale and internal functioning of a company that is also projected externally to the public.
Apart from the priorities, different strategies for corporate governance reflect the different culture of the companies. Thus, the unique culture of a company is a mirror to its vision, values, hiring practice, work environment and organizational structure that make it a good reason for affecting corporate governance.
Moreover, corporate governance possesses a value in addition to demonstration of the social responsibility, principles and efforts of the IT Company. Corporate governance also helps in shaping the culture of the company that in turn is responsible for shaping the way for leaders of the organization, the way of work for the workers and acceptance of the business by the consumers.
Given the fact that good corporate governance linked with trust, accountability and transparency the security of an IT company requires special attention. In this regard, one can say that communication is a facet of corporate governance that involves internal and external invaluable exchange of information and data thereby making the matter of cyber security an important section of the policies of the company.
Corporate governance has contributed to higher standards of business performance and accountability in IT sector. Infosys Australia is a pioneer in benchmarking the practices of corporate governance (Larcker and Tayan 2015, p. 43). Thus, the company’s policies on corporate governance include:
- Broader composition, diversity and meetings
- Ensuring Code of Ethics and Conduct
- Helps the company in determining the statement of Corporate related to Investor Relations
- Enables the company in determining the policies for corporate social responsibility
- Helps the company in distribution of dividends
- Enables the company in retention of a document and policy of archival
- Initiating familiarization program meant for independent directors
- Initiating the compensation plan for incentives
- Initiating the policy for insider training
- Initiating the management review and responsibility
- Initiating the remuneration and nomination policy
- Policies for determination of materiality of disclosures and subsidiaries
- Incorporating the related party transaction policy
- Initiating superior code of conduct
- Initiating the Whistle blower policy
Infomedia is another information based solutions company headquartered in Sydney. The company happens to meet the Australian Securities Exchange Limited (ASX) principles in a way that is consistent with the relative resources, size and the context of the operating environment (Cissé & Grimm 2015, p. 285). Thus, the corporate governance policies of Infomedia enable the company in doing the following:
- Laying a rigid foundation for oversight as well management
Contribution of Corporate Governance on accountability and business performance of two IT companies in Australia
This involves, ensuring the responsibilities of the management and the board, appointment and election of the directors, written agreements with each of the senior executive and director, electing of the secretary of the company, ensuring workplace diversity, evaluation of the performance of the senior executives and the board.
- Determination of the Board Structure
This involves the structure and composition of the board, ensures successive planning and nomination of the board, determining the skill matrix of the board, helps in determining independent board directors with independence of chairs, and ensures board induction and development in the professional front.
- Enables the Company in ethically conducting its business
This put forwards, the code of conduct of the company
- Ensures financial reporting, risk management and audit governance
This involves maintenance of an audit and risk committee during the period of reporting, fulfillment of the company’s obligations related to financial reporting, acknowledgement of external auditors
- Helps in Maintaining a Market Disclosure
- Helps in determining the rights of the shareholders
- Enables the company in risk management
- Determination of the executive and non-executive remuneration
Conclusion:
The report ends in the note by discussing the contribution of Corporate Governance in the maintenance of accountability and business performance in relation to two renowned IT companies in Australia. Through the report, one also gets to know the policies of corporate governance toward the IT industry. The implementation of the corporate governance toward the IT industry also finds a mention in the report. There is also discussion of the theories and practices of the corporate governance towards the IT industry.
References:
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