Cooperate governance is a major source of directing and controlling the management of a construction company. Key drivers of it’s cooperate governance are majorly based on monitoring the financial, investing and operating activities of a company. Their governance is providing construction services to the other sites based on its remuneration system, and it is also working to benefit society by providing construction services. The management also invested the funds in the industry. The main purpose of investing the funds is to manage the new system in the industry. It will help the company to examine the working situation of construction at each site. It will help the governance to decide regarding to investment in business debtors. In this case, the money is paid to the debtor, which is at risk and in turn, there will be a possibility of loss due to bad debts. The governance keeps an eye on the company changing policy to make transparent funds.

Their governance makes strategic planning in any case of organizational risk. The governance decides to control all the possible factors which cause risk. These decisions are majorly taken by the governance to control the risk. It increases the trust of governance with their shareholders and other employees. By the good management techniques of governance, many foreign companies in global market are importing construction materials from this company. These foreign companies are also contracting with this company for construction purpose. Similarly, in the overseas market and among its shareholders, the demand of the company is increasing for the accountability and transparency of this company (Crane, Matten, Glozer, & Spence, 2019).

Comment on Board composition of OK Construction Company

The Board of directors of OK Construction Company is made according to the strong management system. They do all their duties with proper responsibility and manage it. They also monitor all the processes of the company regarding to the construction materials and its purposes. They should have complete information on industry, the skill of handling all the situations of the company. The director of OK company must develop the ethical value culture in the company. All the employees behave in an ethical manner in the company and they also cooperate with the employees. They make a timely decision which prevents the company from a lot of losses and gives benefit to the company. They manage the risk situation and mould themselves in that framework to properly manage all the risk situations.

The Board of directors not only monitor the accounts situation and also manage all the reports but they should also follow some ethical and professional principles as well. They should respect the security of their shareholders. They should disclose all the facts and figures of his shareholders after some time. The directors should disclose the matters of his company after some time. They should give value to their customers and employees. The directors should pay sufficient remuneration to their workers that will attract the senior executive. By adopting these principles, the privacy of the company and its shareholders get reserved. The board of directors should start certain policies which would reserve their personal information and help them to maintain their reputation in the construction community (Rubin & Babbie, 2016).

Evaluation and Recommendations to the audit committee

An audit committee of OK Company assure the financial reports and recommend the board of directors to appoint an external auditor. It will help the company to lead the strong foundation of company in the market. The performance of external auditor is monitored on timely basis which helps the management to get more improvement in the financial report. Its audit committee reviews all the financing and investing activities of a company before giving the reports of such system to the board of directors. It will be helpful for its shareholders to monitor financial accountability based on their transparent systems. If the company faces some disruption in the accountability report then the board of directors should hire external auditor. The hired auditor should be honest to keep the transparent financial report of the company.

The external auditor independently deals with his clients and evaluate the financial need for internal control of the system. It will define the purpose of the organization of better financial report, which is related to the company’s business strategy. It will be helpful in remuneration and delivery of products to the construction site. By hiring external auditor, the company will be aided more in maintaining its reputation in the market regarding to transparent financial report. The directors should undergo changes in the company by hiring an external auditor. It will also help the company to monitor its accountability and auditing standards procedures. The board of directors should change policy which helps them to determine a proper remuneration structure in the company (Doppelt, 2017).

Principles of Corporate Governance that the Governance of OK Company must follow

The governance of OK Company should secure the rights of its shareholders. The ownership registration methods of the shareholders should be secured. The shareholders should be notified when the transfer of payment occurs between them. The director should give all the information to its shareholders at the right time. The board of directors must participate in all the meetings with their shareholders. The board of directors should have to share their profit with their shareholders from the company financial condition. The company’s management must have to treat all its shareholders equally. The governance should avoid indulging of third person in the company’s matters. In case of any risk situation or other critical matters with its shareholders. The directors must have a power to solve their matter with their shareholder.

The directors should also recognize the rights of its stakeholders and reinforce them in the company. The rights should be encouraged by the mutual understanding of directors with its stakeholders. The directors should disclose the matters of the company after a suitable time. The directors should disclose the matters of the company, the financial situation of the company and the performance matters after some time. It helps the governance for developing the transparent company in all the matters and create better understanding with its stakeholders (Porter & Kramer).

Enhancement and relation of the internal control system with a risk management system

In case of risk, the OK Company do strategic planning and decide to control the situation. That planning includes the financial report of the conditions. The company take into account how much cost will be used in controlling the systems. In a time of risk, the company consider the interest rate from the financial report of the company. The company invest money by reviewing all the operational control system in time of risk. In some cases, risk taken by the company provides benefits to the company. The policies of the company remain the same in such situation. In some risk cases the budget for materials come within the available financial report, so the interdependency of an external auditor is maintained in such cases.

The external auditor checks all the transactions of the company. In case of risk, the company bear cost for the financial records of company. If there is transparent accountability in its external audit records, then there will be no need to change the policy of company. In such case, there will be fewer chances of risk in the company. The policies of the company remain the same for a longer duration. In case of clear accountability by the external auditor, the company will face less fraud in its financial reports so, all the financial reports of the company will be clear and accurate. At that time of risk, budget used for risk management will be less and can be overcome from the financial records of the company (Kerzner, 2017).

Relation of Agency theory with cooperate governance

Agency theory resolve issues between agents and the company’s governance. In most cases, it resolves issues and forms a better relationship between the governance of the company with its shareholders and agents. The cooperate governance should resolve the issues of disclosure of matter of its shareholder at a time with its shareholders. In supply of materials to the market, the governance should solve the issue of disclosure of its shareholder privacy. In case of need of change in external audit, the governance should have a strict check on external audit performance. He should be monitored lawfully. If the external auditor is disobeying the laws and regulations of the company, then the authority should provide him a financial loan to meet his needs.

By this issue of change in policy, it will be resolved in the company through better understanding. Similarly the disclosure of all the matters of company with the stakeholders and shareholders should be closed at a proper time. It will help the directors to maintain their reputation in the market. The better accountability of stakeholders can be done by better understanding with them. It can solve many problems of the governance of OK Company with its stakeholders or shareholders. The authority should further rectify the remuneration system by assigning the task to the employee according to their skill. It will be helpful for the authority to assign right task to the right person by considering his professional career history. By resolving all the matters with the stakeholders in a proper way, it reduces the chances of taking a risk by the company (Husted & de Sousa-Filho, 2017).

Case study 2

‘Performance’ as key elements of Good Corporate Governance

Corporate governance is the system by which the businesses are directed and controlled. This system supports the efficiency and integrity of the company. If corporate governance is weak then a business cannot be survived anymore. Weak corporate governance loss the potential of the business, which can lead the financial problems, and result in long term loss for the company which damage its reputation. These are the core principles of good corporate governance that enhance company performance (blogs.deloitte.ch/banking, 2018).

Fairness

Fairness means equal treatment to all shareholders. Shareholders of the company should receive equal importance for whatever shares they hold. There should be fairness in the treatment of all shareholders, employees, public officers, communities and customers. Fairness increases company performance.

Responsibility

The board of directors have a responsibility to act on behalf of the company. The BOD should accept the responsibilities for the authority and powers which is given to them. They should be responsible for monitoring management, overseeing the performance, and appointing the chief executive of the company.

Transparency

Transparency is another factor that enhances the performance of Corporate good governance. Transparency means the company should inform all the activities of the company to shareholders, and all the financial information should be disclosed to shareholders. Transparency is the willingness to provide a clear image to shareholders and investors.

Accountability

Accountability is the obligation to inform the reasons for the company’s action that taken. The BOD is accountable to represent the company position and how the company achieve its objectives. These are the factors that enhance the performance of good corporate governance (ricker & & Tricker, 2015).

Balanced scorecard

A balanced scorecard is a tool to measure that gives top management a fast view of the business. The balanced scorecard is used to analyze the financial performance of the businesses and the results of the actions taken. A balanced scorecard is a complement of the financial measures with an operational customer’s satisfaction, its innovation, internal process and improvement activities. These are the four dimensions of the balanced scorecard like customer’s perspective, process perspective, growth and financial perspectives (Kaplan & P.Norton, 2011).

Customer perspective

After analyzing the case study of a company, it has come to the knowledge that there are problems to deal with the customers. When the customers’ orders converted into sales, the date of the customers’ orders was not converted into sales transaction that will create the problems to the customers.

Process perspective

After investigation, it comes to the knowledge that the process needs some improvement. The IT system of the Perfect Fruit Pty Ltd did not perform well. The administrator did not convert the date of customer order into a sale that underestimates the sales into a financial report. The figure in the financial report underestimated that leads that the business does not meet the corporate governance objectives.

Growth Perspective

After analyzing the growth of the company increased as the sales increased by 20% in the past two years, but there is the problem of currency flections because sales increased due to export. The major issue is the Currency fluctuations of Australian which have an impact on sales of company

Financial perspective

The company have problems with a financial report. Due to the accounting software problems, the sales of the company underestimated in the financial report. The accounting receivables do not receive within 30 days. The time of trade creditors also enhance from 30 days and delay in reporting create the major problems in the company.

Complied with Corporate Governance Objective

The company has not complied with its corporate governance Objectives in relation to each of the dimension of the balanced scorecard. The company has major problems in the production of a financial statement. The company did not make the true and fair financial repeat that created different issues.

Financial perspective

The financial report of the company that analysis by the head manager of the company does not meet the corporate governance objectives. The sales in the report underestimated due to the wrong transaction in software. The account receivable did not collect within the 30 days’ time limit. Also account payable did not pay on time that shows the weak financial position of the company.

Process Perspective

The company processes did not perform well. There are major problems in the IT system. The breakdown of the IT system delay in reporting. There is no accountability of the management that can lead to the failure of the company.

Growth Perspective

The growth of the company is better because of the sales increases of the company that creates a better image in front of shareholders and investor. But due to failure in the production of financial report, it may create a bad image of the company.

Customer’s perspective

Due to the lack of production in the financial report in can create a bad image in front of customers. Customers are the major investors of a company. Due to the lack performance of the management, it can decrease the number of customers of the company.

So, the company should compile with its financial report in order to meet the Good corporate governance objectives.

Remedies to improve the performance

The company should improve the IT System of the company because there was a delay in reporting due to the breakdown of the IT system. The administrative staff who deal with the accounting software system should be conscious during the transaction. By meeting the corporate governance objectives, the management and administrative staff should be responsible.

The operations of the company are not working properly due to the negligence of senior management. The accountability should be done by the BOD so that every employee should work properly. The company should also focus on the training of the staff, and fairness should be important in the company. There is need to focus on the account receivables and account payables both should be collected and paid respectively, within the time limits.

The company should overcome the impact of currency fluctuations on the export of the company by fixing the interest rate and focus on the long term objectives so that the currency fluctuation has a lower impact on the company export. For this, the company should need to focus on fiscal policy and take steps for increasing sales. There is need to focus on transparency to meet the corporate governance objectives. All the activities and financial figures should be informed to shareholders and the BOD. The board of directors should oversee the management performance and take steps to overcome the error of underestimated sales in the financial report. Through these remedies, the Perfect Fruit Company can improve the performance of the company in order to meet the corporate governance objectives.

Financial management system

No, the Perfect Fruit Pty Ltd does not use its financial management system effectively. The management system of the company is not in a control manner. The financial management staff is careless, not competent, lack of responsibility inadequate in documentation. The administrator of the software made the incorrect financial statement due to the carelessness in the transaction. Due to this, the financial report does not meet the good corporate governance objectives, and it can damage the company reputation and integrity.

The company should focus on financial management staff. The company should be trained their staff to told them about the usage of accounting software. The company should also train their staff how to overcome the errors. This is the responsibility of financial management staff to ensure that financial statement is free from error and fraud. They also responsible for providing the guiding framework of financial statements, safeguarding the assets of the company, including the prevention from the error and frauds and obtained sufficient knowledge of the internal control system, different accounting software (Wakiriba, Ngahu, & Wagoki, 2014).

The company should be checked that every employee and management staff perfumed their duties well. Accountability in the company should be necessary for the meeting the objectives. Every person should be responsible for the company. The company should introduce more authentic accounting software for prevention of the errors. The company also make some strict rules for the inspection of the management staff so that company financial management staff perform effectively in order to meet the corporate governance objectives.

Financial reporting of the corporate governance objectives on 30th June.

No, Perfect Fruit Company does not meet the Good corporate governance objectives according to their financial report on 30th June. According to management, they ensure the file complied with the corporate governance objectives that are;

Sales average $400,000
All Trade debtor maintained at the debtor ageing 30 days
All the Trade creditors maintained at creditor ageing 30 days

But according to a financial report at the end of month 30th June, the following figure obtained:

Sales $325,000
Trade Debtor $300,000 (60% ageing 30 days, 40% ageing 45 days)
Trade Creditor $180,000 (70% ageing 30 days, 30% ageing 45 days)

These figure does not meet the objectives of Good corporate governance. The sales of fruit are underestimated due to the wrong transaction in the accounting software. When the customer orders converted into sales, the administrator not converted the date of the customer orders into sales. This leads to underestimate the sales of the company. The company failed to collect Account Receivable from the customer within 30 days. The company also failed to pay its all Account Payable within 30 days. This is the failure of a company due to poor financial management. The company does not manage to achieve its Good corporate objectives effectively according to the financial report on 30th June.

References

blogs.deloitte.ch/banking. (2018, May 08). Does good corporate governance lead to better performance? Retrieved from blogs.deloitte.ch/banking: https://blogs.deloitte.ch/banking/2018/05/does-good-corporate-governance-lead-to-better-performance.html

Crane, A., Matten, D., Glozer, S., & Spence, L. (2019). usiness ethics: Managing corporate citizenship and sustainability in the age of globalization. Oxford University Press.

Doppelt, B. (2017). Leading change toward sustainability: A change-management guide for business, government and civil society. Routledge.

Husted, B. W., & de Sousa-Filho, J. M. (2017). The impact of sustainability governance, country stakeholder orientation, and country risk on environmental, social, and governance performance. Journal of Cleaner Production, 155, 93-102.

Kaplan, R. S., & P.Norton, D. (2011). The Balanced Scorecard—Measures that Drive Performance. Retrieved from hbr.org: https://hbr.org/1992/01/the-balanced-scorecard-measures-that-drive-performance-2

Kerzner, H. (2017). Project management: a systems approach to planning, scheduling, and controlling. John Wiley & Sons.

Porter, M. E., & Kramer, M. R. (n.d.). Creating shared value. In Creating shared value. In Managing sustainable business. Springer: Dordrecht.

ricker, R. B., & & Tricker, R. I. (2015). Corporate governance: Principles, policies, and practices. Oxford University Press, USA.

Rubin, A., & Babbie, E. R. (2016). Empowerment series: Research methods for social work. Cengage Learning.

Wakiriba, J. W., Ngahu, M. S., & Wagoki, M. J. (2014, Sep). Effects Of Financial Controls On Financial Management In. Retrieved from pdfs.semanticscholar.org: https://pdfs.semanticscholar.org/6a93/057b4a72324eb56e0b722379759de347641f.pdf