Corporate Governance

Table of Contents

Introduction.

Uncertainty risks.

2.1 Credit risk.

2.2 Financial risks.

2.3 Liquidity risk.

Framework to Measure Identified Risk.

Preparedness of Board or Management

Recommendation.

Conclusion.

References.

1. Introduction to Corporate Governance

The aim of the report is to carry out a risk review on a chosen entity as a corporate governance issue. The organization selected for this report is Woolworths. The report will identify at least two uncertainty events that have impacted the organization. It also categories the risks at all level in the organization. In addition, the identified risks will be discussed in detail along with the outcomes of the risks. The report will use a framework or tool to measure the impact of the identified risk along with the critical and in-depth discussion of the risk in the framework or tool used. It will also evaluate the preparedness of the management or the board in having the measures in place when uncertainty events happen at various levels within the organization. Apart from this, recommendations will be for improvement.

2. Uncertainty Risks

Risk register is maintained by every business unit within the company, this register exposes risks within every department. The risks are reviewed by the risk committee and grouped according to their impact. Principal risks can lead to loss of key manufacturing sites within the premises, contract issues and the security of products. Losses of key operating sites within the company have major financial impact therefore necessary precaution measures taken to avoid fire break out. There are also risks involved in the area of contracts (Charles, Schmidheiny and Watts 2017). There are various obligations and conditions that are associated with customer contracts, negative happenings and failures could bring about liability claims. These risks are managed and reviewed by the internal legal team and material exposures who organizes for quality recruitment as well as checking the performances of various suppliers (Montmasson-Clair, Mudombi and Patel 2019).

Concerning security of products, regular checks are done to avoid reputational damage brought by either negligence or robbery. The products, risk getting lost while being transported to various destinations. It can be as a result of accidents or natural disaster. This calls for tight security which is provided around the premises and the production units. Delivering goods and services around Woolworth calls for the application of stringent operational procedures using laid down procedures and trusted personnel, the company also monitors movement of goods on a daily basis in all its business units across the world (Uhl and Gollenia 2016). The major risk identified for Woolworths that has impacted in the past are discussed below.

2.1 Credit Risk

This risk was faced by the organization in the past when lots of customers were unable to complete the transaction for the goods that they had purchased. It is a high level risk as it directly contributes to the sales revenue of the company. It has impacted the organization at management level. This risk occurs when there is some financial loss linked to a customer who fails to adhere a financial debt (Bitzer and Hamann 2015).One of the policies used here enables advance payment procurement in the process of transacting an order. Large credit transactions are only done with big institutions that are credit worthy. The group uses policies that regulates on the amount of credit given to government institutions.

2.2 Financial Risks

This uncertainty risk was faced by the organization in the past due to improper interaction with the customers. The customers buy the goods and services, considering the behavior of the employee. It has resulted the organization in losing the base of the customers which had impacted on the net revenue of the company (Flax, Bick and Abratt 2016). It is a high level risk as it reduces the reputation of the brand and results in decrease in the customer base which directly affects the revenue of the organization. It comes under operational risk as due to the improper behavior of employees, the base of customers and organization reputation is decreased. Woolworth Company had faced a number of financial management risks. This has enabled the company to attract more customers since their prices seem affordable to the majority. This has in turn produced a lot of returns for the full benefit of shareholders. Woolworth has devised appropriate financial strategies to counter the predicted economic upturn.

2.3 Liquidity Risk

This risk puts the group at a position where they are unable to meet company’s current financial obligations. This should be managed in a way that ensures the company has got enough liquidity to meet the payment of its liabilities without incurring any losses. Liquidity risk within the company is managed through maintenance of sufficient cash and adequate financial securities supported by adequate credit facilities and strong market base. This issue is handled by treasury group who ensures availability of credit channels ensuring financial flexibility.

3. Framework to Measure Identified Risk

SEVERITY

LIKELIHOOD

Contributes to reduction in sales revenue

Improper interaction with the customers results in brand reputation degradation

Unable to meet company’s current financial obligations

 

LOW

LOW

MEDIUM

Credit risk

1

2

3

 

LOW

MEDIUM

HIGH

Financial risk

2

4

6

 

MEDIUM

HIGH

HIGH

Market risk

3

6

9

Credit Risk: The exposure to risks associated with credit depends on the nature of customer being dealt with. The records showing customer base do not have much influence on the credit risk, the risks do not only apply to one region but from customers all over who are contributors to sales revenue. In this case it is appropriate to write credit letters to customers as a reminder for incomplete transaction. The group dealing with credit identifies credit policies used in whole sale transactions that ensures dealing with honest consumers (Bitzer and Hamann 2015).

Financial Risk: These risks emerge from the constant use of financial instruments and they include; credit risk, liquidity risk, risks associated with marketing, currency and risks from interest rate charged. The group has policies used in managing, identifying and controlling the risks emerging from different departments. Review is always required for better reflection on changes that might occur in the market environment or various groups. The business strength has enabled Woolworth to take the lead in the profitable reduction of shelf prices (Flax, Bick and Abratt 2016).

Market risk: This exposes the company to foreign exchange risks which emanates from net investments in foreign firms, long-term commercial transactions, firm operations both recognized and unrecognized. The foreign exchange risk is managed by the use of forward contracts managed by the group security. The risk arises when the company’s functional currency is weaker than the currency in which future commercial transactions are conducted. The risk management policies are used to control firm transactions and commitments by exposing them to major world currencies within a year. Woolworth owns some investments in the international market whose values are vulnerable to foreign exchange (Uhl and Gollenia 2016). To avoid risk emanating from currency exchange, the company concentrates on borrowings converted to relevant currencies.

4. Preparedness of Board or Management

Woolworth is one of the largest company’s dealing with food and grocery, liquor, petrol, general merchandise and electronics. The firm is very much committed to supplying consumers with adequate and satisfactory shopping experiences. The company manages its risks through making of self-assessment questionnaires that assists the board in overseeing the available system of managing risks (Morioka, Evans and de Carvalho 2016). These are drafted and sent to all departmental heads and staff. The questionnaires are usually used for various purposes by the heads of department one of them being evaluation of the level of risks in each business unit and ways of controlling the identified risks. The questionnaires are also used for monitoring purposes so as to reveal level of progress on certain action plans. They are also used in calculating risk management premiums levied on business units that are in operation. This enables the business-unit executives to prioritize on the costs for managing certain risks. The company has got the intention of building and improving its position so as to become the best food supplying companies. Woolworth has managed to secure different contracts that have proved to be more profitable (Sewell, Mason and Venter 2017).

It has placed strategies on how to leverage consumer relationship and focus on technology improvement with aims of sustaining its good image. The company wishes to increase its production so as to enable sufficient supplies to the global market. In the recent year the currency check for the company realized high performance due to existence of high demand and quality production (Sullivan and Gouldson 2017). Woolworth has made lots of investments to enable expansion of its capability in dealing with discrepancies within the global markets. Despite groceries attracting increased sales, cash processing solution within the company encounters difficulties within the market. This is because of the prevention of purchases done on sorters. The management focuses on improving key segments such as increasing number of equity holders. They did this by improving the level of off-market buy-back to stabilize capital management and also making supply of quality products; this has lowered production costs by a very big margin (Uhl and Gollenia 2016). The business on security products realizes positive performance which ensures that the company is sustained even in difficult economic times. Improved productivity, excellent exchange rates and low cost of production ensures that the company experiences growth in operating profit (Sewell, Mason and Venter 2017).

Workable strategies have been implemented to ensure that the effect of the company is felt within every market segment. Reviewing material business risks and internal component sales has enabled the company to mitigate some risks in collaboration with other companies. Its expansion on exclusive brands within the grocery categories commands strong value for money and quality products. This evidence can be seen within the Macro Whole food Market launched within the supermarkets. The sales growth for the year 2016 exceeded market growth in Australian market recording 5.1% increase (Naidoo and Gasparatos 2018). In the IT department there are both external and internal threats that affect efficient operation of the company. Main external threats include viruses affecting computer systems and misuse of data stored within the company systems.

There are also cases of disclosing company’s private and confidential information not forgetting internet thieves. Crucial risks emanate from physical and natural disasters which are sometimes very hard to control. Internal threats include human errors and theft of data by fired employees. Woolworth finds itself vulnerable in the non-electronic theft of passwords and fraudulent activities from within the company. The process of risk management in Woolworth is done on a frequent basis by the group risk function auditors. They scrutinize all programs within the company and gives report to every management level (RajabianTabesh, Batt and Butler 2016). The company has business units all over the world and one of the risks facing oversee companies is the ability to apply the same approaches in managing risks while at the same time assisting local managers in solving their shortcomings. The managers should have the capability of handling any type of risk irrespective of their location of operation.

5. Recommendation on Corporate Governance

The risks can be identified through various groups which includes the overall financial risk management programmer. This program aims to identifying the unpredictable matters within the financial markets and how to counteract their effects on financial performance. These matters are solved through the use of derivative financial instruments. Then there is the treasury group which analyzes and scrutinizes financial performance within the business units (Charles, Schmidheiny and Watts 2017). The group provides the principles and policies upon which overall risks are managed; these policies cover risks that deal with foreign exchange, extra liquidity investment, and risks related to interest rates amongst other risks. The risks can further be assessed by group audit committee which monitors the relationship between the management and the implementation of policies within the various groups. This group work closely with the internal audit function which does regular reviews of management procedures. Staff behaviors are monitored and all employees informed of the company’s sanctions on the wrong use of information systems (Naidoo and Gasparatos 2018).

In the IT department there is need for new ways on technological defense, application of the back-up procedures and right policies. Dealing with viruses requires intruder detection systems and secondary defense mechanisms. There is need to install anti-virus in all the PDAs and phones used within the company. Intrusion detection systems need installation and also the use of ISPs. Concerning electronic banking the company had put in place some measures to deal with third party fraudulent activities. Careful checks need to be done in the process of awarding contract to customers and suppliers (Montmasson-Clair, Mudombi and Patel 2019). The use of audit controls and tough policies on employees was seen as necessary measure to prevent unnecessary interactions and exchange of information between employees and outsiders. It was agreed by the managers that one of the measures they take to prevent fraud is by advising employees against sharing information to third parties.

The company should use three-factor authentication system to minimize the risks of password theft. The company needs to check on the level of outsourced services since it is very crucial for business operations. These can be utilized to perform same operations as those done within company’s premises. It also necessary to balance the need for information protection and process of sharing it, the barriers to communication between companies are becoming less and less. Concerning the internal risks, various measures should be undertaken to reduce carelessness and incompetency amongst employees (Morioka, Evans and de Carvalho 2016). The overall security of the Company depends more on those inside than outsiders. One of the managers in the IT department confessed that they have strong procedures and internal checks that control every activity within the company. The employees’ daily duties and performance are screened by the use of computers.

6. Conclusion on Corporate Governance

It can be concluded that the report has carried out a risk review on Woolworths as a corporate governance issue. It has identified at least two uncertainty events that has impacted the organization which include financial risk and credit risk. It has categorized the risks at different level in the organization. In addition, the identified risks were discussed in detail along with the outcomes of the risks. It has also provided a framework or tool to measure the impact of the identified risk along with the critical and in-depth discussion of the risk in the framework or tool used. It has also evaluated the preparedness of the management or the board in having the measures in place when uncertainty events happen at various levels within the organization. Apart from this, recommendations are provided for improvement regarding the risk management.

7. References for Corporate Governance

Bitzer, V. and Hamann, R. 2015. The business of social and environmental innovation. In The business of social and environmental innovation (pp. 3-24). Business Case of Woolworths. United Sates: Springer, Cham.

Flax, J., Bick, G. and Abratt, R. 2016. The perceptions of supplier-buyer relations and its effect on the corporate brand. Journal of Brand Management, 23(1), 22-37.

Charles Jr, O. H., Schmidheiny, S. and Watts, P. 2017. Walking the talk: The business case for sustainable development. London: Routledge.

Montmasson-Clair, G., Mudombi, S. and Patel, M. 2019. Small business development in the climate change adaptation space in South Africa. Trade and Industrial Policy Strategies (TIPS) South Africa. Available at: https://wwwtipsorgza/research-archive/sustainable-growth/green-economy-2/item/3621-small-business-development-in-the-climate-change-adaptation-spacein-south-africa

Morioka, S. N., Evans, S. and de Carvalho, M. M. 2016. Sustainable business model innovation: exploring evidences in sustainability reporting. Procedia CIRP, 40, 659-667.

Naidoo, M. and Gasparatos, A. 2018. Corporate environmental sustainability in the retail sector: Drivers, strategies and performance measurement. Journal of Cleaner Production203, pp.125-142.

RajabianTabesh, A., Batt, P. J. and Butler, B. 2016. Modelling the impact of environmental and organizational determinants on green supply chain innovation and performance. Journal of food products marketing, 22(4), 436-454

Sewell, W., Mason, R. B. and Venter, P. 2017. Socio-economic developmental strategies as retail performance indicators: A balanced scorecard approach. Development Southern Africa, 34(3), 365-382.

Sullivan, R., and Gouldson, A. 2017. The governance of corporate responses to climate change: An international comparison. Business Strategy and the Environment, 26(4), 413-425.

Uhl, A., and Gollenia, L. A. 2016. Digital enterprise transformation: A business-driven approach to leveraging innovative IT. Business Case of Woolworths. London: Routledge.

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