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22319 Business Analysis
Tutorial 4 Communication, Governance and Risk
1.
Read the textbook’s Online Case Study 11: DILIGENT (PART 2): GOVERNANCE ISSUES (uploaded on UTS Canvas). Answer case study Q1, Q2 and Q5. 1.
Consider each governance issue; which do you think would be the most worrying from the point of view of an investor? List the possible risks or adverse consequences for each event. Issue 1: the excess options awarded
There is an issue with the executive teams, the options given to them exceeds the maximum. The mechanism about the payroll system, warnings when its exceeded. Possible risks/ consequences: it may affect the incentives, the productivity whether it
is high or low level employee. End up losing the staff, do not trust the company.
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Reputation
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Legal disputes over employee payroll/ treatment
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Regulation penalty
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Employee incentives/ turnover
Over payment – compliance with the local regulations
Issue 2: the unlicensed auditor, they need to submit their financial report according to NZ. They are following US accounting rules. Possible risks/ consequences:
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Non-compliance outcome, penalty (they follow the US rules and submit the same
financial report to NZ, the auditor is not registered
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Lack of scanning for important regulatory changes Issue 3: the revenue recognition restatement, they hv been recognizing the revenue at the beginning of the contract. According to US, recognize revenue when you deliver the services or pro rata (the timing issues). Possible risks/ consequences:
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Non-compliance
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Trust problem
22319 Business Analysis
2.
Boards of directors often delegate specialised functions to subcommittees of the board. Obtain and review three sets of annual reports. Identify the board committees that each firm has established and the role of each of these committees.
Which committee do you think bears the responsibility for each of the governance issues? 3.
When governance and performance issues arise, what is the role of corporate communication? What are the trade-offs (i.e. advantages and disadvantages) of ‘keeping silent’ and what requirements are there to keep the market ‘informed’? -
AGM held after the company earnings release, financial reports, conference call. -
Stock exchange, make announcement anytime, press release
4.
Assignment check Obtain the most recent annual report for the company you are analysing for the assignment and answer the following:
1)
What board committees has it established? The board of directors of a company typically establishes various committees such as
audit, compensation, nominating and governance, and perhaps others depending on
the company's needs and industry standards.
2)
What is the role of each committee? Each committee has its specific role:
a.
The audit committee oversees financial reporting, internal controls, and compliance with regulatory requirements.
b.
The compensation committee designs and oversees executive compensation and benefit plans.
The nominating and governance committee identifies and recommends candidates for the board, and ensures good governance practices are followed
3)
Which committee would be responsible for each of the problems in the Diligent case if they occurred at the company you are analysing? The committee responsible for addressing issues in the Diligent case would depend on the nature of the problems. For example, if the issue is related to corporate governance practices or board member conduct, the nominating and governance committee would likely be involved
4)
Do you think the board and its committees of the company you are analysing meet “best practice”?
Determining whether a company's board and committees meet "best practice" standards requires a detailed examination of their structure, processes, and effectiveness, which typically involves assessing adherence to corporate governance principles and regulatory requirements.
5)
How would you characterize the overall “governance quality” of the firm?
The overall governance quality of a firm, such as a2 Milk, is often evaluated based on
factors like board composition, independence, transparency, accountability, and
22319 Business Analysis
adherence to relevant regulations and standards, as outlined in their annual report and other disclosures.
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