Cadbury Report (1992) stated that “corporate governance is the process by which companies and directed and controlled” (cited in Tricker, 2009). In other words, it helps the corporate entities increase the value provided to the organisation’s various stakeholders. Therefore, appropriate corporate governance plays a very important role in development of organisations. This review will define corporate governance and some of its concepts (through the paper). Following, the review will give a Memorandum or a general introduction about Nufarm, which is a publicly listed company and then consider the structure, process and effectiveness of its governance.
Besides, the paper will mention about areas such as the composition and responsibilities of the Nufarm Board of Directors, and disclose policies, codes of conduct adopted by the company, which are relevant to the company’s governance scopes. Finally, from information and analyses, there are some recommendations for the Nufarm to achieve appropriate improvements. For example, the company’s governance should recognise and adhere to all relevant laws and regulations and meets high standards with respect to honesty and integrity. In addition, the company should have open and effective communications with its shareholders and the general investment community. Furthermore, the company should have effective methods to review drivers of governance, etc.
Table of contents
II.What is corporate governance?3
III.General introduction about Nufarm, information of the company (Memorandum)3
IV.The Structure, process and effectiveness of the Nufarm’s governance4
The Scope of the company’s Corporate Governance influences the company’s codes:7
Recently, the appearance of high-profile corporate failures, scandals and executive corruption arises the requirement for organisations to follow appropriate corporate governance structures, processes standards and practices.
The aim of this paper is to investigate the structure, process and effectiveness of the governance of Nufarm, a publicly listed company and give recommendations for it to achieve appropriate improvements.
II. What is corporate governance?
Cadbury report (1992) and OECD (1999) defined that ‘corporate governance is the process by which company are directed and controlled’. Monks & Minow (2001) suggested that ‘corporate governance is the relationship among various participants in determining the direction and performance of corporations. The primary participants are the shareholders, the management and the board of directors’.
OECD (2001) supposed that ‘corporate governance refers to the private and public institutions, including laws, regulations and accepted business practices, which together govern the relationship, in a market economy, between corporate managers and entrepreneurs, on the one hand, and those who invest resources in corporations, on the other
III. General introduction about Nufarm, information of the company (Memorandum)
Nufarm Limited is a publicly listed company, one of the world’s leading crop protection companies (Nufarm’s website, 2012). The company manufactures products to help farmers protect their crops against damage caused by weeds, pests and disease. Its manufacturing and marketing spread throughout Australia, New Zealand, Asia, The Americas and Europe and sells products in more than 100 countries around the world.
According to the Nufarm’s website (2012), the company employs more than 2,600 people around the places having its manufacturing and marketing operations, all of whom make a vital contribution to the company’s reputation for quality products, innovation and first class marketing and technical support. Proudly based in Australia, Nufarm is listed on the Australian Stock Exchange (with symbol NUF). Its head office is located at Laverton in Melbourne, Australia.
Table1: the information contained in the company details table (ASX website, 2012)
IV. The Structure, process and effectiveness of the Nufarm’s governance
The company’s board structure contains Chairman (Donald Gordon McGauchie), Managing Director/CEO (Doug Rathbone), and five Non Executive Directors who are Anne Bernadette Brennan, Gordon Richard Davis, Bruce Goodfellow, Gary Hounsell, Peter Margin (Nufarm’s website, 2012).
According to the company’s website (2012), the Board is the governing body of the Company. The Board is responsible for the oversight of the Company. It is responsible to ensure that the business of the Company is carried out in the best interests of all shareholders and with proper regard to the interests of all other stakeholders. Specifically, the Board has responsibility to protect and enhance the value of the assets of the Company, set strategies and directions and monitor and review those strategic objectives, review and ratify internal controls, codes of conduct and legal compliance, review the Company’s accounts, approve and review the one year operating budget and five year strategic plan for the Company, appoint the Managing Director, evaluate performance and determine the remuneration of the Managing Director and senior executives, ensure the significant risks facing the Company have been identified and adequate control monitoring and reporting mechanisms are in place, approve transactions relating to acquisitions, divestments and capital expenditure above authority limits delegated to management, approve financial and dividend policy, appoint the Company Secretary, ratify the appointment of the Chief Financial Officer (Nufarm’s website, 2012).
The managing Director is delegated to be responsible for the day-to-day leadership and management of the Company. To assist the Board to discharge its responsibilities and duties, the Board has delegated to the Managing Director specific authorities which are subject to appropriate reporting and monitoring procedures. For example: * Shareholder values / corporate strategy: the Managing Director formulates and brings to the Board for review and approval, an appropriate long term strategy for the Nufarm Group and appropriate financial standards and policies. The strategy is reviewed by the Board at its annual strategic planning review and any changes in financial standards are reviewed by the Audit Committee.
* Organisation Planning: the Managing Director formulates an appropriate human resources policy which is reviewed by the Board annually. * Capital Allocation: The Managing Director approves capital expenditure within limits set by the Board. All approvals made by the Managing Director are reported and reviewed at every Board Meeting. * Company Financial Performance: the Managing Director reports to the Board at each Board Meeting on the financial results of the Company. * Compliance: The Managing Director is responsible for ensuring compliance with all relevant legislation.
In brief, the Board has delegated to the Managing Director all powers required to manage the business of the Company and the Managing Director reports on a monthly basis on all material matters affecting the Nufarm Group to the Board.
Besides, The Board has three committees: the Audit Committee, the Nomination Committee and the Remuneration Committee. These Board Committees review and analyse policies and strategies within their specific terms of reference. The Board Committees examine proposals and, where appropriate, make recommendations to the Board. The Board Committees do not take direct action or make decisions on behalf of the Board unless specifically mandated by prior Board authority (Nufarm’s website).
The Nomination Committee consists of three non-executive Directors and is comprised of a majority of independent Directors. The Committee’s purpose is to develop criteria for Board membership and identify specific individuals for nomination; and establish processes for the review of the performance of individual Directors and the Board as a whole. The duties of this committee is facilitating a Board performance assessment, develop criteria for Board membership, identify suitably skilled, qualified and experienced individuals for nomination and to establish processes for the review of the performance of Directors.
According to Tricker (2012, p.283), ‘the essential and original role of the audit committee is to act as a bridge between the independent external auditors and the board, avoiding the possibility of powerful executive directors’ and over the years the role and responsibilities of the committee have expanded. Nufarm company’s Audit Committee’s primary function is to assist the Board in fulfilling its corporate governance responsibilities in regard to financial reporting, audit and risk management, including: oversight of the preparation of Nufarm Limited’s (the Group) financial reporting; compliance with legal and regulatory obligations; oversight of the effectiveness of the Group’s enterprise-wide risk management and internal control framework; and oversight of the relationship with the external and internal auditors.
The specific duties and responsibilities of the company’s audit committee in meeting will be: report Committee actions to the Board with such recommendations as the Committee may deem appropriate (e.g. The Committee will report to the Board immediately if it becomes aware of any material misstatement in financial information provided by management to the Board or of any material
breakdown in internal controls), continuously monitor a framework and processes for compliance with laws, regulations, standards, best practice guidelines and the Group’s code of conduct, maintain suitable interaction with the Health Safety & Environment Committee and the Nomination & Governance Committee, perform such other functions assigned by law, the Company’s Constitution, or the Board.
The Remuneration Committee’s purpose is to recommend to the Board policies and practices which enable Nufarm to attract, develop, retain and motivate high caliber Directors and executives. The Committee will review and make recommendations on policies for remuneration, development, retention and termination of Directors and Key Management Personnel (KMP). The Committee’s duties are to review and make recommendations to the Board in relation to Nufarm’s Board and executive remuneration strategy, structure and practice with regard to: Nufarm strategic objectives; corporate governance principles; and competitive practice.
The specific matters the Committee may consider include the review of: executive management and Directors’ remuneration, including the link between Company and individual performance; current industry best practice; the outcome of the annual vote on the adoption of the Remuneration Report; different methods for remunerating senior management and Directors including superannuation arrangements; 2/4 existing or proposed incentive schemes; retirement and termination benefits and payments for senior management; professional indemnity and liability insurance policies.
The Committee is responsible for seeking and approving remuneration advisers that will provide independent remuneration advice, as appropriate, on Board, CEO and other KMP remuneration strategy, structure practice and disclosure. However, according to the company website (2012), the Committee does not have executive powers to commit the Board or management to its recommendations except where authorised by a resolution of the Board nor become involved in day to day management activities or decision making. The Scope of the company’s Corporate Governance influences the company’s codes:
According to Tricker (2012), the structure, the membership and the process of the governing body are central to corporate governance. However, the relations with shareholders, contractual stakeholders, legal institutions, etc also influence the structure and operation of Nufarm’s corporate governance. Therefore, the company’s corporate governance refers to the private and public institutions, including laws, regulations and public institutions, which together govern the relationship between corporate managers and entrepreneurs, on the one hand, and those who invest resources in corporations on the other (Tricker, 2012).
For example, the company’s code of conduct is governed by and contrasted in accordance with the laws in the State of Victoria, Australia. Besides, Nufarm has ensured to be compliance with the ASX Listing Rules, and ensured that Key Management Personnel and their associates are aware of the legal restrictions in dealing in Nufarm’s shares, options or other securities while such a person is in possession of unpublished price sensitive information concerning Nufarm.
There are some recommendations in order for Nufarm to make appropriate improvements for its corporate governance are:
Firstly, Nufarm should conduct its business in a manner which recognises and adheres to all relevant laws and regulations and meets high standards with respect to honesty and integrity. In order to meet this commitment, we require all Nufarm directors, employees, contractors and consultants to be familiar with and uphold the company’s code of conduct in all business dealings.
Besides, according to Tricker (2012), the Board, which determines whether the company’s governance is good, is the major driving force in a company. However, there are other drivers of good governance in the company such as shareholders. Therefore, the company should have open and effective communications with its shareholders and the general investment community. For example, with shareholders, the company should adopt a shareholder communications policy in order to:
* Ensure that shareholders and the financial markets are provided with full and timely information about its activities; * Comply with continuous disclosure obligations contained in applicable Listing Rules and the Corporations Act in Australia as well as industry guidelines such as the Australasian Investor Relations Associations’, Best Practice Guidelines for Communication between Listed Entities and the Investment Community; and Ensure equality of access to briefings, presentations and meetings for shareholders, analysts and media. * Encourage attendance and voting at shareholder meetings;
The company’s Remuneration Committee should review induction and development arrangements for the Board to ensure Board members gain and maintain a suitable level of knowledge about Nufarm.
Audit Committee should usually review and make recommendations to the Board on the Nufarm Diversity Policy ensuring the Policy is in line with applicable legislation and governance principles.
Self-assess whether the Committees comply with its membership requirements at least once every year.
Critically review the Remuneration Committee Charter at least once per year to ensure its relevance and compliance with overall governance legislative requirements and best practice.
Monks, B., Nell, M. 2007, Corporate Governance, 4th edn, Chichester, UK:Wiley.
Tricker, B. 2009, Corporate Governance: Principles, Policies, and Practices, Oxford University Press.
Nufarm website 2012, <http://www.nufarm.com/Home>, viewed 15 July, 2012.
ASX website 2012, Nufarm Limited (NUF), <http://www.asx.com.au/asx/research/companyInfo.do?by=asxCode&asxCode=NUF>, viewed 15 July, 2012.