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Acca Topic 17 Sample Thesis Essay

• The purpose of this report is to evaluate the role of corporate governance in the organization and the impact of it on the major stakeholders. I would like to evaluate that to which extend the principles of corporate governance are applied in the respective organization and how much the organization have achieved its obligations toward the major stakeholders.

• I would like to evaluate the director’s performance in line with the principles of corporate governance, by analyzing the corporate governance disclosures in the financial statements.

• I would like to evaluate the effectiveness of internal control and to evaluate the role of audit committee, in line with the principles of corporate governance.

• I would like to evaluate the director’s remuneration and the working of remuneration committee, in line with the principles of combined code.

• I would like to evaluate the role of nominating committee for having a formal and transparent procedure for appointment of new director and the effectiveness of succession planning.

• I would like to evaluate the risk assessment procedure in the organization, with the proper process of risk committee.

• Finally, I would like to evaluate the international practices of corporate governance and how well my respective organization is in line with the industry practices.

REASON FOR SELECTION OF THIS TOPIC:

I have selected the topic 17 from OBU research and information pack, which is
“the quality of corporate governance within an organization and the impact on the organization key stakeholders”. This topic includes the application of corporate governance principles which includes the principles given in different reports, finally combined into a single Combined Code. It also includes the assessment of corporate governance impact on key stakeholders, including the impact on shareholders as well.

I have selected this topic, because through my knowledge from P1 paper (Governance, Risk and Ethics), I got to know about the importance of corporate governance in an organization and I want to apply the concepts I have got in evaluating the effectiveness of corporate governance in an organization of my choice. Moreover, the corporate governance has become the norm of every organization, so if I get into any organization as an employee I should know the relevance and importance of corporate governance, as it also helps in view of career building.

Another main reason for selection of this particular topic is that the UK combined code is based on principle based approach (comply or explain basis) rather than the rule based approach, but still it is the part of the listing rules on London Stock Exchange. This shows the importance of corporate governance for listed companies. Further to issue the annual report on corporate governance is a part of good practices, which help stakeholders to understand the governance of the company without taking a part in it. The comparison of that report with the code provision allows stakeholders to evaluate whether or not the company is governed correctly, though it also identifies the flaws of governance.

NATURE AND PROFILE OF COMPANY

The reason for selecting British Telecom (BT) as an organization of my choice is that because this organization has a strong corporate social image in the world. It proofs its strong image, when it comes to management effectiveness leadership, decision making and corporate governance.

BT Group plc (trading as BT) (LSE: BT.A, NYSE: BT) is a British multinational telecommunications services company headquartered in London, United Kingdom. It is one of the largest telecommunications services companies in the world and has operations in over 170 countries. Through its BT Global Services division it is a major supplier of telecoms services to corporate and government customers worldwide. Its BT Retail division is a leading supplier of telephony, broadband and subscription television services in the UK, with over 18 million customers.

BT’s origins date back to the founding of the Electric Telegraph Company in 1846, the first company in the world to develop a nationwide communications network. In 1912, the GPO, a government department, became the monopoly telecoms supplier in the UK. The Post Office Act of 1969 led to the GPO becoming a public corporation. British Telecom was formed in 1980, and became independent of the Post Office in 1981. British Telecom was privatized in 1984, with more than 50 per cent of its shares sold to investors. The Government sold its remaining stake in further share sales in 1991 and 1993.

BT has a primary listing on the London Stock Exchange and is a constituent of the FTSE 100 Index. It had a market capitalization of approximately £15 billion as of 23 December 2011, the 27th-largest of any company with a primary listing on the London Stock Exchange. It has a secondary listing on the New York Stock Exchange.

Source: http://en.wikipedia.org/wiki/BT_Group [online]

BT is one of the world’s leading communications services companies, serving the needs of customers in the UK and in more than 170 countries worldwide. Our main activities are the provision of fixed-line services, broadband, mobile and TV products and services as well as networked IT services.

In the UK we are a leading communications services provider, selling products and services to consumers, small and medium sized enterprises and the public sector. We also sell wholesale products and services to communications providers in the UK and around the world. Globally, we supply managed networked IT services to multinational corporations, domestic businesses and national and local government organizations.

Source: http://www.btplc.com/Thegroup/Ourcompany/index.htm [online]

PART – 2

INFORMATION GATHERING

INFORMATION GATHERING

SOURCE OF INFORMATION GATHERING

Gathering the information of the company regarding my topic was fairly an easier task, as plenty of information regarding the organization (British Telecom) and the corporate governance is available from different sources. The reason for fairly easier access is because of an international presence of my respective organization. For example just typing British Telecom (BT) on the Google, you almost come across 11 million search result, similarly searching for corporate governance at British Telecom, you will get about 2.91 million search results.

Thus, there is plenty of information available but the important task was to finalize the information, on the basis of quality and reliability along with updated information. The information helped me performing a quality of analysis on the corporate governance principles at British Telecom (BT). Following are the sources from which I have gathered the information.

British Telecom (BT) official website

The official web site is the most credible and reliable source of getting the information.

www.btplc.com

The official website of British Telecom (BT) contains a separate section for company’s information which includes the section of corporate governance, which helped me in getting the information regarding topic.

www.btplc.com/Thegroup/Ourcompany/Governance/index.htm

Financial reporting council website

I have also obtain the information from FRC website as it contains a lot of information on corporate governance regarding different reports such as Hampell, Cadbury and Turnbull along with the information of Combined Code.

www.frc.org.uk/corporate/ukcgcode.cfm

BBP-ACCA Text Books

I used F1, P1 and P3 BBP-text books to obtain information on my relevant topic. I used F1 book to extract the basic knowledge of corporate governance and stakeholders, furthermore P1 and P3 text books helped me in my advance knowledge regarding corporate governance and its stakeholders. P1 was a primary source of knowledge for my respective topic as it has a detailed section of corporate governance.

Other source of information gathering

There are some other sources as well which helped me in my respective topic for my respective organization. I have used the Google website i.e. [www.google.com], to gather information regarding corporate governance and its contributions in the success of companies and it proved to be very effective as Google has the active and updated searching engine.

Other website that helped in gathering the information was Wikipedia [www.wekepidia.com], this website contain lots of information regarding my topic including the recent ups and downs of corporate governance.

I have explored the corpgov.net website [www.corpgov.net] to gather relevant information on corporate governance and even explored the website for the different types of definition defined by different authors.

Similarly, I have used the web site named as management study guide to find the scope and benefits of corporate governance. [www.managementstudyguide.com]

Moreover, I used ACCA website [www.accaglobal.com] to access the articles given by P1 examiner David Campbell regarding corporate governance.

Furthermore, The UK Combined Code of corporate governance was a valuable source for my knowledge gathering regarding my respective topic.

LIMITATION OF INFORMATION GATHERING:

The information I have used for evaluation of this project is purely a desk base research. I have not carried out any field work or any interview with the any personnel at British Telecom. I have used internet for the collection of the information and most parts of the information were collected through British telecom website. My research might be limited as compare to my topic because most of the information required inside information for corporate governance analysis. Still I have tried my level best to use all publically available information and to cover the maximum extend through internet.

ETHICAL ISSUE:

Throughout the process of report I have tried to maintain the ethical standard, required by any ACCA member and student. Though there was not any major ethical issue as plenty of information is available with authentic source. But still I have tried my level best to achieve ethical requirement, by using proper and authentic source of information along with references given of each source. Following are the five fundamental principles defined by ACCA, set out in section 3 of the ACCA rulebook:

• Integrity

• Objectivity

• Confidentiality

• Professional competence and due care

• Professional behavior

Source: ACCA Rule book Page 283 and 284 (Section 100) accessed through www.accaglobal.com/content/dam/acca/global/PDFmembers/2012/2012r/rulebook_2012.pdf [Online/ PDF File]

Although I have tried to comply with all principles, but during my research project I have focused more on two main principles i.e. Integrity and Confidentiality. Firstly, I have tried to be honest and straight forward in my evaluation of corporate governance principles at my respective organization. Secondly, I have not considered any information that is the ‘confidential information’ of the organization. Furthermore, I have not tried to obtain insider information by any types of relationship.

MODELS AND TECHNIQUES USED

I have used different theories explain in P1 text Book to support my concepts regarding corporate governance and stakeholders. I have used Mendelow’s grid classification of stakeholders, in my assessment of stakeholders of British Telecom (BT). I have also use stakeholder and stockholder theory for my assessment regarding my respective topic. Moreover, I have used the corporate governance report to evaluate the effectiveness of corporate governance at BT.

The UK Combined Code’s provisions helped me in evaluating extend of compliance of corporate governance provisions at BT. To support the view of corporate governance I have used different reports such as Hampel, Turnbull and Smith for further guidance on different topics regarding Non-Executive directors, internal controls and Risk management.

For Reference: BBP-TEXT Book P-1 is used (2011 Edition)

PART – 3

RESEARCH WORK ON CORPORATE GOVERNANCE

DEFINATION OF CORPORATE GOVERNANCE:

Corporate governance is the system by which the organizations are directed and controlled (Cadbury report)

Corporate governance is a set relationship between a company’s directors, its shareholders and other stakeholders. It also provides the structure through which the objectives of the company are set, and the mean of achieving those objectives and monitoring performance, are determined. (OCED)

Source: BBP Text Book P1- Page 5, Heading 1.1 (2011 edition)

CORPORATE GOVERNANCE AT BRIITISH TELECOM (BT):

We are committed to operating in accordance with best practice in business integrity and ethics and maintaining the highest standards of financial reporting and corporate governance. The directors consider that BT has, throughout the year, complied with the provisions set out in Section 1 of the 2008 Combined Code on Corporate Governance (the ‘Code’) and applied the main principles of the Code.

Source: www.btplc.com/Thegroup/Ourcompany/Governance/index.htm [online]

GOVERNANCE STRUCTURE IN A GLANCE:

The following is the governance structure of British Telecom:

[pic]

Source: BT’s Annual report 2012, Corporate Governance Section Page-65, found from www.btplc.com/Sharesandperformance/Annualreportandreview [PDF FILE]

SCOPE OF RESEARCH ON QUALITY OF CORPORATE GOVERNANCE AT BRITISH TELECOM:

I have kept my base as the UK Code of Corporate governance for the evaluation of corporate governance principles at British Telecom. I have evaluated the key areas of corporate governance such as Board Practices, role of Executive / Non-Executives directors and the role of chairmen, chief Executive officer and Company’s Secretary.

1. The quality and effectiveness of board practices & culture in corporate governance in contrast with board at British Telecom:

UK combined code of corporate governance:

A.1- The Role of the Board

Every company should be headed by an effective board which is collectively responsible for the long-term success of the company.

Source: Financial Reporting council – Combined code of corporate governance June-2010 found on www.frc.org.uk, Page-9 Section A: Leadership [PDF FILE]

Practice at British Telecom (BT):

At British telecom the board heads the company as a single team and they are ultimately responsible for the management of the group’s operations in addition to discharging certain legal responsibilities. It has final responsibility for the group’s strategy and for overseeing the group’s performance. Its principal focus is on:

• Strategy
• Development
• Growing shareholder value
• Oversight and control
• Corporate governance
Source: www.btplc.com/Thegroup/Ourcompany/Governance/Roleoftheboard [online]

Effectiveness:

As per the role of the board defined at the British Telecom Website it seems that the organization is following the code provision (A.1) in an effective manner. The board has the defined responsibilities to provide strategic aim and guidance to the organization.

UK combined code of corporate governance:

A.2- Division of Responsibilities

There should be a clear division of responsibilities at the head of the company between the running of the board and the executive responsibility for the running of the company’s business. No one individual should have unfettered powers of decision. A.3- The Chairman

The chairman is responsible for leadership of the board and ensuring its effectiveness on all aspects of its role. Source: Financial Reporting council – Combined code of corporate governance June-2010 found on www.frc.org.uk, Page-10 Section A: Leadership [PDF FILE]

Practice at British Telecom (BT):

At British Telecom (BT) there are clear segregation of duties between who is running the company and who is running the board. The Chairmen is the face the company and heads the board while the CEO is the face of board and heads the management of the company i.e. the company’s operation.

Roles of the Chairman and the Chief Executive

The roles of the Chairman and the Chief Executive are separate. They are set out in written job descriptions, approved by the Nominating & Governance Committee.

The Chairman

The Chairman provides leadership for the Board on all aspects of its role.

His key activities include:

• Chairing the Board, Nominating & Governance Committee, and the Committee for Sustainable and Responsible Business; being a member of the BT Pensions Committee and promoting a culture to facilitate open debate and appropriate challenge

• Consulting the non-executive directors on corporate governance issues, particularly the Senior Independent Director

• Reviewing the individual performance of the non-executive directors and the Chief Executive

• Holding regular meetings with the non-executive directors at which they discuss matters without the executive directors being present

• Making sure, with the Chief Executive and the Company Secretary, that the Board is kept properly informed, is consulted on all issues reserved to it and that its decisions are made in a timely and considered way that enables the directors to fulfill their fiduciary duties

• Making sure that new directors receive full, formal and tailored induction, and that all directors continue to update and refresh their skills and knowledge

• Making sure that the views of the shareholders are known to the Board through the Company Secretary and considered appropriately

• Representing BT in specified strategic and Government relationships, as agreed with the Chief Executive, and generally acting as the bridge between
the Board and the executive team, particularly on BT’s broad strategic direction.

The Chief Executive

The Chief Executive has ultimate executive responsibility, reporting to the Board, for the day-to-day running of the business and the success of the group. He is responsible for leading the management and the operational performance of the group, as well as the effective implementation of the strategy and the business plan agreed by the Board, while managing the risks.

His role includes:

• Leading the Operating Committee in the day-to-day running of the business

• Maintaining an effective dialogue with major shareholders

• Establishing and maintaining key relationships such as those with governments, regulators, key industry players and opinion formers

• Monitoring the performance of executive directors and senior management

• Maintaining an effective framework for internal controls and Risk management.

Source: BT’s Annual report 2012, Corporate Governance Section Page-67, found from www.btplc.com/Sharesandperformance/Annualreportandreview [PDF FILE]

Effectiveness:

After the evaluation of the role and responsibilities of Chairmen and CEO, it proves that the board of British Telecom has the clear division of the responsibilities at the top of the company. There is no one dominant person who has all the power to run the organization. Furthermore the role of Chairmen defines that he is providing the leadership to the board. Overall the organisation is following the code provisions (A.2 & A.3) in an effective manner.

UK combined code of corporate governance:

B.4 – Development

All directors should receive induction on joining the board and should regularly update and refresh their skills and knowledge.

Source: Financial Reporting council – Combined code of corporate governance June-2010 found on www.frc.org.uk, Page-15 Section B: Effectiveness [PDF FILE]

Practice at British Telecom (BT):

On appointment, directors take part in an induction programme to deepen their knowledge and understanding of the business. They receive information about BT, the role of the Board and the matters reserved for its decision, the terms of reference and membership of the main Board Committees, and the powers delegated to those Committees, BT’s corporate governance policies and procedures, including the powers reserved to the group’s most senior executives, and the latest financial information.

The induction programme also includes meetings with each of the executive and non-executive directors, members of the Operating Committee and senior executives across the business. In addition to the induction programme, an on-going programme of director development and company awareness has been developed to give the non-executive directors an appreciation of the different elements of the business both in the UK and overseas.

Directors are continually updated on BT’s business, the competitive and regulatory environments in which it operates and other changes affecting BT and the communications industry as a whole, by written briefings and meetings with senior BT executives.

Source: BT’s Annual report 2012, Corporate Governance Section Page-68, under
Training and information heading, found from www.btplc.com/Sharesandperformance/Annualreportandreview [PDF FILE]

Effectiveness:

The induction training and on-going programme of director’s development at British Telecom proves that the organization is in effective compliance of code provision (B-4 Development)

UK combined code of corporate governance:

B.6 – Evaluation

The board should undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors.

Source: Financial Reporting council – Combined code of corporate governance June-2010 found on www.frc.org.uk, Page-16 Section B: Effectiveness [PDF FILE]

Practice at British Telecom (BT):

Boardroom Review is carried by an independent external organisation, which was appointed, after a tender exercise, to conduct a Board evaluation. The methodology included one-to-one interviews and observation of a Board meeting to provide an independent external view of the Board’s effectiveness. A report was produced and discussed at the Board meeting in May 2011. The report described a number of areas where the Board was effective and functioning well. In addition there were some areas where enhancements could be considered and a number of actions were agreed by the Board

Source: BT’s Annual report 2012, Corporate Governance Section Page-68, under Board evaluation heading, found from www.btplc.com/Sharesandperformance/Annualreportandreview [PDF FILE]

Effectiveness:

The performance of directors is very important in the progress of an organization which needs to be evaluated by the board, as per UK code of corporate governance. At British Telecom the board room review is carried out by an independent external organisation, which seems that the organisation has somewhat effective compliance with code provision (B.6).

UK combined code of corporate governance:

B.7 – Re-election

All directors should be submitted for re-election at regular intervals, subject to continued satisfactory performance

Source: Financial Reporting council – Combined code of corporate governance June-2010 found on www.frc.org.uk, Page-17 Section B: Effectiveness [PDF FILE]

Practice at British Telecom (BT):

At every annual general meeting, any director who was elected or last re-elected a director at or before the annual general meeting held in the third year before the current year, must retire by rotation. Any director appointed by the directors automatically retires at the next following annual general meeting. A retiring director is eligible for re-election. In addition to any power of removal under the 2006 Act, the shareholders can pass an ordinary resolution to remove a director, even though his or her time in office has not ended.

They can elect a person to replace that director subject to the Articles, by passing an ordinary resolution. A person so appointed is subject to retirement by rotation when the director replaced would have been due to retire.

Source: BT’s Annual report 2012, Additional information (Information for
shareholders) Section Page-183, under Directors’ appointment and retirement heading, found from www.btplc.com/Sharesandperformance/Annualreportandreview [PDF FILE]

Effectiveness:

The policies and procedures defined for the director’s re-election, specially the non-executive director’s election for three years before s/he has to face re-election shows that the British Telecom policies are 100% in line with the Code provision of Re-election (B.7).

2. The quality and effectiveness of remuneration committee in corporate governance in contrast with committee at British Telecom:

UK combined code of corporate governance:

D.2 – Procedure

There should be a formal and transparent procedure for developing policy on executive remuneration and for fixing the remuneration packages of individual directors. No director should be involved in deciding his or her own remuneration.

Source: Financial Reporting council – Combined code of corporate governance June-2010 found on www.frc.org.uk, Page-23 Section D: Remuneration [PDF FILE]

Practice at British Telecom (BT):

Members of the Committee consist of three independent non-executive directors. The Chairman of the Board may also be a member of the Committee if considered independent on appointment as Chairman. Chairman and Chief Executive can attend meetings of committee, except in instances where their own remuneration is discussed.

The Remuneration Committee agrees the framework for the remuneration of the Chairman, the executive directors and certain senior executives. This includes the policy for all cash remuneration, executive share plans, service contracts and termination arrangements. The Committee approves salaries, bonuses and share awards for executive directors and certain senior executives.

The Committee approves new executive share plans and any changes and makes recommendations to the Board which require shareholder approval and oversees their operation. The Committee also determines the basis on which awards are granted under the executive share plans to executives reporting to the senior management team.

Source: BT’s Annual report 2012, Corporate Governance Section Page-77, under “The Remuneration committee (our role)” heading, found from www.btplc.com/Sharesandperformance/Annualreportandreview [PDF FILE]

Effectiveness:

The structure of the remuneration committee and the occasional attendance of the Chairman and Chief Executive for the meeting (except the meetings in which their own remuneration is being discussed), proves to be 100% effective compliance of the code provision (D.2)

3. The quality and effectiveness of internal controls and Audit & Risk committee in corporate governance in contrast with committee at British Telecom:

UK combined code of corporate governance:

C.3 – Audit Committee and Auditors

The board should establish formal and transparent arrangements for considering how they should apply the corporate reporting and risk management and internal control principles and for maintaining an appropriate relationship with the company’s auditor.

Source: Financial Reporting council – Combined code of corporate governance
June-2010 found on www.frc.org.uk, Page-19 Section C: Accountability [PDF FILE]

Practice at British Telecom (BT):

Following are the main duties of an audit and risk committee for financial reporting, risk management & internal controls and external audit:

Financial Reporting:

The committee reviews BT’s published financial results, the Annual Report & Form 20-F and other published information for statutory and regulatory compliance and reports their views to the Board to assist in its approval of the results announcements and the Annual Report & Form 20-F.

Internal control and risk management:

The committee review the disclosures made by the Chief Executive and Group Finance Director during the certification process for the Annual Report & Form 20-F about the design and operation of internal controls or weaknesses in the controls, including any fraud involving management or other employees who have a significant role in the company’s financial controls. The Board, as required by UK law, takes responsibility for all disclosures in the Annual Report & Form 20-F. They also receive reports on the processes for dealing with complaints received by the company regarding accounting, internal accounting controls or auditing matters.

External Audit:

The committee recommends the appointment and re-appointment of the external auditors and considers their resignation or dismissal, recommending to the Board appropriate action to appoint new auditors. They assess the performance of the external auditors annually by seeking views on their performance from key stakeholders across the group. The results of the assessment are reported to the Committee. The external auditors are required to rotate the lead partner every five years, and other partners that are responsible for the group and subsidiary audits every seven years.

Independence of the external auditor:

In order to safeguard the independence and objectivity of the external auditors, the Board has determined policies as to what non-audit services can be provided by the external auditors and the approval process related to them. The overall policies and processes to implement them were reviewed and appropriately modified in the light of the provisions of the Sarbanes-Oxley Act relating to non-audit services that external auditors may not perform.

Source: BT’s Annual report 2012, Corporate Governance Section Page-70, under “Audit & Risk Committee Chairman’s report (Our role)” heading, found from www.btplc.com/Sharesandperformance/Annualreportandreview [PDF FILE]

Effectiveness:

After the review of the principle duties of audit and risk committee in contrast with the code provision (C.3), it shows that the company is in effective compliance. They have formal and transparent arrangements for corporate reporting, risk management & internal control and external audit.

4. The quality and effectiveness of Nominating committee in corporate governance in contrast with committee at British Telecom:

At British telecom, there is a committee called Nominating and Governance committee which is responsible for both nomination and supervision of governance.

UK combined code of corporate governance:

B.1 – The Composition of the Board

The board and its committees should have the appropriate balance
of skills, experience, independence and knowledge of the company to enable them to discharge their respective duties and responsibilities effectively.

Source: Financial Reporting council – Combined code of corporate governance June-2010 found on www.frc.org.uk, Page-12 Section B: Effectiveness [PDF FILE]

Practice at British Telecom (BT):

The Nominating and Governance Committee ensures that there is an appropriate balance of skills, experience, independence and knowledge on the Board and its Committees, reviews the size and composition of the Board and makes recommendations to the Board.

Source: British Telecom Website – under Nominating & Governance Committee – Term of reference (Introduction) http://www.btplc.com/Thegroup/Ourcompany/Governance/NominatingCommitee/Terms [Online]

Effectiveness:

The code provision (B.) is found to be very effectively complied in line at British Telecom, as is the duty of nominating and governance to have appropriate composition of board

UK combined code of corporate governance:

B.2- Appointments to the Board

There should be a formal, rigorous and transparent procedure for the appointment of new directors to the board.

Source: Financial Reporting council – Combined code of corporate governance June-2010 found on www.frc.org.uk, Page-13 Section B: Effectiveness [PDF FILE]

Practice at British Telecom (BT):

The Nominating & Governance Committee is headed by Chairmen on the request of the board. There are four non-executive directors in the committee, furthermore The Company Secretary and, where appropriate, at the invitation of the Chairman, the Chief Executive attends the Committee’s meetings.

Committee identifies the specific experience and skills that the company is looking for and considers candidates that are put forward by the Board and external consultants. Committee ensures that diversity is considered as part of the shortlist process drawn up by our external consultants and, having met potential candidates.

The committee makes a recommendation to the Board and advice on succession planning for all Board appointments (and the Company Secretary). Source: BT’s Annual report 2012, Corporate Governance Section Page-72, under “Nominating & Governance Committee Chairman’s report (Nominating)” heading, found from www.btplc.com/Sharesandperformance/Annualreportandreview [PDF FILE]

Effectiveness:

The procedure of the appointment of board, defined under the role of Nominating & governance Committee proves that the organization is implementing the Code provision (B.2), effectively.

5. The quality and effectiveness of role of non- executive directors in combined code and practice at British Telecom:

UK combined code of corporate governance:

A.4- Non-executive Directors

As part of their role as members of a unitary board, non-executive directors should constructively challenge and help develop proposals on strategy.

Source: Financial Reporting council – Combined code of corporate governance June-2010 found on www.frc.org.uk, Page-11 Section A: Leadership [PDF FILE]

Practice at British Telecom (BT):

The non-executive directors:

• Provide a strong, independent element on the Board and are well placed to challenge constructively and help develop proposals on strategy.

• Collectively bring experience and independent judgment, gained at the most senior levels of international business operations and strategy, finance, marketing, technology, communications and political and international affairs and corporate social responsibility.

Source: BT’s Annual report 2012, Corporate Governance Section Page-67, under Role of the non-executive directors heading, found from www.btplc.com/Sharesandperformance/Annualreportandreview [PDF FILE]

Effectiveness:

The role of Non-executive directors defined in code of corporate governance (A.4) and the role of NED’s found at British telecom both proved to be effectively in line with each other.

6. The quality and effectiveness of role of company secretary and practice at British Telecom:

In most countries, the appointment of a company secretary is a compulsory condition of company registration. This is because the company secretary has important responsibilities in compliance, including the responsibility for the timely filing of accounts and other legal compliance issues. His or her primary loyalty is always to the company.

Technical knowledge is therefore an important part of this role. Because of this, many countries’ company law mandates that for a public company, the post holder must be a member of one of a list of professional accountancy or company secretary professional bodies (which includes ACCA).

The major roles include:

• Maintaining the statutory registers (such as the share register)

• Ensuring the timely and accurate filing of audited accounts and other documents to statutory authorities (Example. government companies’ agencies and tax authorities)

• Providing members (Example shareholders) and directors with notice of relevant meetings.

• Organising resolutions for and minutes from major company meetings (like the AGM); keeping records from these and other meetings.

Source: ACCA P1 Article (Corporate governance – external and internal actors) – 25th August 2009, by David Champbell. Page-1, found from www.accaglobal.com/en/student/qualification-resources/acca-qualification/acca-exams/p1-exams/exams-p13 [PDF FILE]

Practice at British Telecom (BT):

The Company Secretary:

• Manages the provision of timely, accurate and considered information to the Board for its meetings and, in consultation with the Chairman and Chief Executive, at other appropriate times.

• Recommends to the Chairman and the Chief Executive, for Board consideration where appropriate, corporate governance policies and practices and is responsible for communicating and implementing them.

• Advises the Board on appropriate procedures for the management of its meetings and duties (and those of the main Committees), as well as corporate governance and compliance within the group.

The appointment and removal of the Company Secretary is a matter for the whole Board.

Source: BT’s Annual report 2012, Corporate Governance Section Page-65, under Role of company secretary, found from www.btplc.com/Sharesandperformance/Annualreportandreview [PDF FILE]

Effectiveness:

The role of company secretary found at British Telecom in contrast with the role defined by ACCA P1 Examiner David Champbell in his article, is seems to be almost effectively in line with each other.

SCOPE OF RESEARCH OF STAKEHOLDERS’s ASSESSMENT AT BRITISH TELECOM:

Definition of Stakeholders:

A stakeholder is anybody who can affect or is affected by an organisation, strategy or project. They can be internal or external and they can be at senior or junior levels. Some definitions suggest that stakeholders are those who have the power to impact an organisation or project in some way.

Source: www.stakeholdermap.com/stakeholder-identification [online]

Stakeholders at British Telecom:

A stakeholder in a business is any individual or group with an interest in the decisions made by that company. Some of BT’s stakeholders are internal to the business, such as its employees. Some are external to the business, such as BT’s customers.

Source: (The times 100 website) www.businesscasestudies.co.uk/bt/stakeholders-as-partners/what-is-a-stakeholder.html [Online]

1. Mendelow’s mapping of Stakeholders:

Mendelow gave the following matrix of stakeholder mapping based on the interest and power of stakeholders:

[pic]

Source: www.stakeholdermap.com/stakeholder-analysis.html [online]

Assessment of stakeholder’s mapping at British Telecom (BT):

Following are the main stakeholders of British Telecom:

• Shareholders

• Government / Regulators

• Employees

• Customer

• Suppliers

• Communities

Source: (The times 100 website) www.businesscasestudies.co.uk/bt/stakeholders-as-partners/what-is-a-stakeholder.html [Online]

These stakeholders of BT’s Telecom can be classified in grid, based on Power and Interest provided by Mendelow as:

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2. Stakeholders Classification (Internal and External Stakeholders):

Perhaps the easiest and most straightforward distinction is between stakeholders inside the organisation and those outside. Internal stakeholders will typically include employees and management, whereas external stakeholders will include customers, competitors, suppliers, and so on. Some stakeholders will be more difficult to categories, such as trade unions that may have elements of both internal and external membership.

Source: ACCA P1 Article (All about stakeholders – part 1) – 08 January 2008, by David Champbell. Page-2, under heading “Internal and external stakeholders found from www.accaglobal.com/en/student/qualification-resources/acca-qualification/acca-exams/p1-exams/exams-p13 [PDF FILE]

Assessment of internal and external stakeholders at British Telecom (BT):

Internal Stakeholders:

• Share holders

Shareholders are very important stakeholders because they put money into the business. They contribute capital to the business and expect to share in the company’s profits. BT needs the support of shareholders to provide funds to grow the business. The company therefore maintains close relations with its major shareholders. It will keep shareholders informed about its financial results and its plans for growth.

BT rewards its shareholders by giving them a share of the profits. This is known as a dividend. BT pays dividends twice a year.

Shareholders have a direct interest in seeing the company become more profitable. BT aims to increase its profits by:

➢ Growing its business through offering new goods and services to increase sales

➢ Building the company reputation to win new customers.

A company can also increase its profits by becoming more efficient. It can increase its profit margin by reducing costs. This will allow it to pay higher dividends, improving the return shareholders get on their investment.

Source: (The times 100 website) www.businesscasestudies.co.uk/bt/stakeholders-as-partners/ internal-stakeholders.html [Online]

• Employees

Employees are one of a company’s most important assets. A committed workforce helps a business to achieve its objectives. Employees bring skills such as creativity and problem solving.

To increase the company’s core competencies, BT runs programs to improve the skills of its employees. For example, BT has used Apprenticeship Frameworks to enable more than 7,000 of its employees to gain a job-related qualification in a single year.

All employers want a motivated workforce. Dissatisfied or unhappy employees tend not to produce good work and will look for other jobs.

To gain their commitment, BT aims to provide its employees with attractive rewards and good career prospects. It also allows flexible working arrangements. For example, almost 9,500 BT employees currently work from home.

It helps the company to attract and retain a diverse workforce. It also reduces the company’s environmental impacts as fewer employees travel to work.

Source: (The times 100 website) www.businesscasestudies.co.uk/bt/stakeholders-as-partners/ internal-stakeholders.html [Online]

External Stakeholders:

• Government and industry regulators:

BT must comply with rules and regulations set by the governments and industry regulators in the countries in which it operates. These stakeholders directly affect BT in several ways. They issue BT with licenses to operate in the telecommunications sector. Without these licenses, BT would have no business. For example, BT must comply with the European Union’s RoHS directive, which restricts the use of certain hazardous substances in electrical and electronic equipment.

Source: (The times 100 website) www.businesscasestudies.co.uk/bt/stakeholders-as-partners/ external-stakeholders.html [Online]

• Customers:

A focus on customers is at the heart of everything BT does. To attract and keep its customers, BT seeks to offer the products and services demanded by businesses and consumers. This requires continuous investment in new services. For example, BT is investing £2.5 billion on creating wider Super Fast Broadband access across the UK.

Source: (The times 100 website) www.businesscasestudies.co.uk/bt/stakeholders-as-partners/ external-stakeholders.html [Online]

• Suppliers:

BT has a global supply chain. It requires suppliers that can deliver the materials, components, products and services that will enable BT to achieve a technical and competitive advantage. Cost and quality are important considerations. However, BT also maintains an environmental focus to its relationships with suppliers. For example, when the company purchases components and products at low cost from the Far East, managers check that the low cost is balanced against environmental and other impacts. There is a partnership approach.

Source: (The times 100 website) www.businesscasestudies.co.uk/bt/stakeholders-as-partners/ external-stakeholders.html [Online]

• The Community:

All companies can have an impact on the communities in which they operate. This is why the wider community is an important stakeholder. These impacts can be positive. For example, businesses provide jobs, which have an impact on local economies.

BT demonstrates its social responsibility through its environmental initiatives. It is also playing a role in community building. One way it is doing this is by helping to make broadband internet access more widely available. 9.2 million Adults in the UK have never used the internet. BT hopes to address this via its ‘Get IT together’ campaign to help people get online. By improving its networks, BT can make a contribution to tackling social exclusion.

Source: (The times 100 website) www.businesscasestudies.co.uk/bt/stakeholders-as-partners/ external-stakeholders.html [Online]

3. Assessment Stakeholder VS Stockholder theory:

Essentially, proponents of the stockholder theory argue that because organisations are ‘owned’ by their principals, the agents (directors) have a moral and legal duty to only take account of principals’ claims when setting objectives and making decisions. Hence, for a joint-stock business such as a public company, it may be assumed that because principals (shareholders) seek to maximize their returns, the sole duty of agents is to act in such a way as to achieve that.

Stakeholder theorists, in contrast, argue that because a business organisation is a citizen of society, enjoying its protection, support and benefits, it has a duty to recognise a plurality of claims in the same way that an individual might act as a ‘responsible citizen’. In effect, this means recognising claims in addition to those of shareholders when reaching decisions and deciding on strategies.

Source: ACCA P1 Article (All about stakeholders – part 2) – 07 February 2008, by David Champbell. Page-1, under heading “THE STAKEHOLDER/STOCKHOLDER DEBATE” found from www.accaglobal.com/en/student/qualification-resources/acca-qualification/acca-exams/p1-exams/exams-p13 [PDF FILE]

At British Telecom:

Different groups of stakeholders can have conflicting interests. Here are four examples of potential conflicts involving BT stakeholders:

• As part of its Next Generation Access programme, the company needs to install new optical fiber cables to be able to provide super-fast broadband services across the country. This may be welcomed by customers, who will get a better service, but may cause disruption and traffic delays due to roadworks while the cables are being laid.

• BT’s investment in community activities might be contentious. Some shareholders may object to the company investing in activities that will not contribute directly to profits.

• Another potential clash results from BT’s pricing policy. Customers naturally want low prices, but shareholders may feel that higher prices would generate greater profits.

• BT has a policy of no compulsory redundancies. This provides security for employees. However, shareholders may feel that the policy could adversely affect the company’s profitability and performance.

Directors and managers at BT must try to manage these conflicts in a way that keeps stakeholders happy. This often involves finding a solution that strikes a balance between competing interests. On occasion, it will not be possible to satisfy everyone. At least one of the stakeholder groups will feel that they are losing out. However, good decision-making involves keeping all parties happy with the outcome.

Source: (The times 100 website) www.businesscasestudies.co.uk/bt/stakeholders-as-partners/ stakeholder-conflict.html [Online]

CONCLUSION:

In term of analysis carried out on corporate governance practices at British Telecom by six different angles, it would rightly be concluded that the organization is found to be very effectively in compliance with best practices. Furthermore, it was interesting to note that British Telecom has the committee to check the compliance of corporate governance principles in line with the corporate governance framework described by the board. This committee is combined with Nominating committee and termed as ‘Nominating and Governance Committee’.

The organization issues a separate report on corporate governance attached with their Annual report, in order to get their share holders informed about the best practices are being followed. British Telecom’s Board and management have a firm believe on the corporate governance as a best practices, that why the best practices and code provisions reflects in their policies and conduct. Furthermore British telecom considers their stakeholders as their partner to the company, and they take keen steps to satisfy the demands of stakeholders.

In a nutshell, the organization has strong compliance with best practices and they keep their stakeholders well satisfied, which makes the company’s image strong in the market over the years.

List of References:

1. Financial reporting website accessed on www.frc.org.uk, combined code of corporate governance – June 2010 version published by financial reporting council. Main principles of Sections A – E: (Leadership, effectiveness, accountability, remuneration and relations with Shareholders) Page 9-26 [PDF File].

2. British Telecom web site accessed on www.btplc.com/ Shareholders & analysts> Annual reports 2012 [PDF file].

3. British Telecom web site accessed on www.btplc.com/ BT Group> our company> Corporate governance statement [online].

4. P1 – BBP study Text, edition 2011examination, chapter 1 – 3 on corporate governance.

5. David Campbell P1 examiner articles [all about stakeholders part 1 & 2 and corporate governance, external and internal actors] accessed on ACCA website [www.accaglobal.com] Students> Qualification resources > ACCA Qualification> P1 Governance, risk and ethics> Past papers and syllabuses technical articles [Online/PDF version].

6. Wikipedia website accessed on www.wikipedia.com/ 2012 version.

7. The Times 100 website accessed on [www.businesscasestudies.co.uk] >bt> stakeholders-as-partners (what-is-a-stakeholder, Internal-stakeholder, external stakeholder and conflicts of stakeholders).

8. Stakeholdermap.com accessed through [ www.stakeholdermap.com] / stakeholder-analysis.

9. ACCA Web site [www.accaglobal.com] Home> Members> Professional standards and ethics> Rules and standards > Rule Book 2012 [PDF FILE]

Bibliography:

1. British Telecom Website – www.btplc.com

2. Financial reporting council – www.frc.org.uk

3. P1 BBP study text.

4. Wikipedia – www.wikipedia.com

5. ACCA Technical Article – www.accaglobal.com

6. Corporate governance – www.corpgov.net

7. London Stock Exchange – www.londonstockexchange.com

8. The 100 times website – www.businesscasestudies.co.uk

9. Stakeholdermap.com – www.stakeholdermap.com

10. Investopedia website – www.investopedia.com

11. The Economist website – www.economist.com

12. European corporate governance Institute – www.ecgi.org


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