Corporate Governance and Ethics for Leighton Holdings Australia

Introduction

Corporate Governance is the totality of all rules, systems in a company, the practices that need to be followed and the processes in the company through which the company is directed and controlled. The Corporate Governance (CG) provides the necessary techniques regarding how the organization should be directed and controlled in such a way that the goals and objectives of the company are fulfilled resulting in value addition to the corporation (Baker, 2016). There has to be no conflicts among the people working inside an organization and the relationship among the workers must be a healthy one. The interaction between the stakeholders, directors in the board and the company’s management plays a vital role in the outcome of the company’s performance. The CG involves monitoring the policies, the decisions of corporations, the practices in the company, the actions, company’s agents and the affected stakeholders.

Issue in Leighton Holdings

Leighton Holdings is one of the biggest building construction companies in Australia that has a market value of about $7 billion dollars where bribery and immense corruption has been found in the company’s operations (Charreaux, n.d.). Leighton Holdings major projects are the ABC Studios located at Sydney, the Ross River Dam in Queensland and the Victorian desalination plant. The company has been paying bribes and offering kickbacks to the officials in Iraq where they got in return for receiving profitable contracts from Iraqi regime only to their company and serious misconduct throughout the company. This corruption has been going on inside the company for more than two years before the company was caught red-handed. The employees in the Leighton Holdings International confess that the company has had very little Corporate Governance ever since they worked in the company.

The company had no rules whatsoever when it comes to adhering to the Corporate Governance that must be strictly followed. It was a disaster inside the company as revealed by several employees in Leighton Holdings. Regardless of all these accusations, the company’s CEO Mr. Wal King has denied that he was not involved in any sort of wrongdoing in his service. The company had been providing bribes to the officials in the Middle East and Asia in huge amounts to get lucrative and extensive projects to be offered only to the company and not to any of their competitors (BMS.co.in, 2012). The company’s documents during the investigation that was done by Fairfax Media investigation has revealed that the company had the culture of incompetence and abundant corruption and the worst corporate governance which has resulted in the international embarrassment for the Australian companies altogether (Abdullah & Valentine, 2016).

Theories on Corporation Governance

There are several theories in corporate governance. Some of them are as follows:

• Agency theory
• Stewardship theory
• Stakeholder theory

Agency Theory

Agency theory is the link that chains the shareholders with the agents (the managers) in the company. A theory was framed by Alchian and Demsetz in the year 1972 which was later developed by Jensen and Meckling (1976). Their theory defined agency theory as “the relationship between the principals, such as shareholders and agents such as the company executives and managers” (abc.net, 2016). The shareholders are the principals who hire the manpower to operate the company. This theory can be broken down into two participants namely the shareholders and the managers who are the agents. The managers are supposed to take actions and decisions that would favor the shareholders’ interest. The agents do not necessarily need to make decisions in the interest that would best for the principals (Mondaq.com, 2016). A notion in this theory is that humans, in general, are self-interested and are disinclined to sacrifice their own interests into for interests of the other workers in a company (“What is corporate governance?” 2016). It is necessary to point out the fact that this theory is a little deductive in its methodological application. The agents are known to take self-interest opportunism which is a given phenomenon. The agents do not generally do not go into exploration but their conduct and the attitudes effectively changes the outcome of the board and ultimately the company.

Stewardship Theory

The roots of this theory are mostly from psychology and sociology. This was put forth by Davis, Schoorman & Donaldson in the year 1997 (Potts & Matuszewski, 2004). The definition they provided was “a steward protects and maximizes shareholders wealth through firm performance, because by so doing, the steward’s utility functions are maximized”. When this perspective is taken into consideration, the stewards are the company’s executives and the managers who work for the shareholders. They protect the company and bring profits to the company and thus resulting bringing profits for the shareholders. This theory does not target much on the individualism unlike the agency theory. Theorist Agyris (1973) looks this theory from the employee’s point of view as an economic being that can act as a suppressing factor in inhibiting an individual’s aspirations (Wan Yusoff, 2012). This has become very prominent since the actions taken by the corporate entities have impact on the external environment to a wider range of audience other than only its shareholders.

Stakeholder theory

This theory has more responsibilities than the other theories as by this theory companies owe a huge deal of responsibilities to a bigger and wider group of stakeholders other than just the shareholders. The stakeholder is someone or a group of people that can be affected by the actions done by a business at any given point of time. The stakeholders may be the employees who work in the company, the supplies from who the company gets its resources, the creditors, the consumers of the organization, and sometimes the competitors too. This theory was proposed by Edward Freeman who recognized this to be an important part of the CSR (Corporate Social Responsibility) where the company should be a part of in legal, economical or philanthropically concerned responsibilities (“Models of corporate Governance presented by Dushyant Maheshwari”, 2016). This serves as a corporate strategy for some of the world’s huge companies. Donaldson & Preston (1995) gave their thoughts on this theory saying that the theory largely focuses on the managerial decision making and the general interests of the all the stakeholders combined. No interest set can be considered to dominate any of the others.

Best practices of corporate governance

It is not that only large companies with many shareholders require corporate governance but in reality even small companies must adhere to the CG norms. The best practices in the corporate governance are the establishment of a good board of directors and evaluate on the company’s performance. The directors in the board need to be very knowledgeable, qualified and competent. The roles and responsibilities must be clearly defined within the company and must be followed properly (“Having Their Cake”, 2016). There must be clear cut emphasizing on integrity and ethical dealing. The evaluation of the performance of a company should be done at the right time by setting reasonable targets for the company to achieve. The effective risk management is the constant monitoring of the risks that the company may be facing or might face in the future and anticipate accordingly. The board is mainly responsible for the leadership in forming the risk tolerance and the development of framework that accounts in managing the risk factors (“Corporate Governance – Definition, Scope and Benefits”, 2016).

Conceptual Model

The Stakeholders theory would be the apt theory regarding the Leighton Holdings as the wide range of stakeholders will protest when someone is adhering to misconduct inside of the company. The whistle blowers may take in-charge of the situation where they see something out of the norms and regulations. Corporate Governance models tend to vary from country to country. Not every model can be suited for any particular scenario. The models may focus on the link between the principals and the agents, the formal board structures or the social responsibilities the company has (“Best Corporate Governance Practice – The Five Golden Rules”, 2016). The models in the CG are as follows:

• Anglo-American Model
• German Model
• Indian Model
• Japanese Model

Anglo-American model of CG, the board of directors nominates the directors who appoint the managers for the firm. This way there will be a separation between the ownership and the control. There is an effective communication between the people in the organization. This is followed in USA, UK, Australia and other developed countries.

The German model can otherwise be called as the 2 tier as there is a supervisory and a management board (Baker, 2016). This is followed in countries like Germany, Holland and France. The shareholders appoint 50% of the manpower and the rest is done by employee unions.

Japanese model or the business networking model since the company’s shareholders are banks and financial institutions, large family shareholders. There is a supervisory board that has a board of directors and an appointed president, who are jointly appointed by the shareholders and the financial institutions.

Indian model is a blend of Anglo-American and German model (Abdullah & Valentine, 2016). The corporations in India are categorized as private companies, government owned public companies and the public sector undertakings. They all have a different pattern and format in their stake holding.

Out of all the theories, the one which suits Leighton Holdings and should be followed by them is the Anglo-American model of CG. This is because, the management in this model is well-planned and well-managed. The entire process of communication among the higher management and the employees is very effective which makes a transparent working environment. Plus in this model the management is very much approachable, which means the employees do not hesitate in sharing their ideas with them. The entire work-group works as an organization which in-turn helps the company to grow in their respective markets. Hence, Leighton should use this model for its growth.

Conclusion

Leighton Holdings has been operating with proper governance and it can be seen as the best example of the corporate governance. The company has always made it a point to keep its employees happy and have adhered to the best practices in keeping a healthy environment. This report focuses on the Leighton Holding’s way of corporate governance while discussing about the companies best practices of corporate governance and its conceptual model.

References

Abdullah, H. & Valentine, B. (2016). Fundamental and Ethics Theories of Corporate Governance. Eurojournals Publishing, (4), 1-9. Retrieved from http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.320.6482&rep=rep1&type=pdf

Baker, N. (2016). Building giant Leighton rife with corruption: claims. The Sydney Morning Herald. Retrieved 21 August 2016, from http://www.smh.com.au/business/building-giant-leighton-rife-with-corruption-claims-20131002-2ut2e.html

Best Corporate Governance Practice – The Five Golden Rules. (2016). Applied-corporate-governance.com. Retrieved 21 August 2016, from http://www.applied-corporate-governance.com/best-corporate-governance-practice.html

Charreaux, G. Corporate Governance Theories: From Micro Theories to National Systems Theories.SSRN Electronic Journal. http://dx.doi.org/10.2139/ssrn.486522

Corp Law. (2016). Shareholder & Stakeholder Theories Of Corporate Governance. Corplaw.ie. Retrieved 21 August 2016, from http://www.corplaw.ie/blog/bid/317212/Shareholder-Stakeholder-Theories-Of-Corporate-Governance

Corporate Governance – Definition, Scope and Benefits. (2016). Managementstudyguide.com. Retrieved 21 August 2016, from http://www.managementstudyguide.com/corporate-governance.htm

Explain the models of Corporate Governance? | BMS.co.in. (2012). BMS.co.in : Bachelor of Management Studies. Retrieved 21 August 2016, from http://www.bms.co.in/explain-the-models-of-corporate-governance/

Having Their Cake. (2016). Havingtheircake.com. Retrieved 21 August 2016, from http://www.havingtheircake.com/content/1_Ideas%20that%20shape%20the%20world/fact%20and%20opinion/The%20theories%20behind%20corporate%20governance.lnk

Leighton insider reveals new evidence in corruption claims. (2016). Abc.net.au. Retrieved 21 August 2016, from http://www.abc.net.au/7.30/content/2013/s3875422.htm

Models of corporate Governance presented by Dushyant Maheshwari. (2016). Slideshare.net. Retrieved 21 August 2016, from http://www.slideshare.net/dushyantmaheshwari9/dushyant-maheshwari-29002722

Potts, S. & Matuszewski, I. (2004). Ethics and Corporate Governance. Corporate Governance, 12(2), 177-179. http://dx.doi.org/10.1111/j.1467-8683.2004.00357.x

The Top 5 Corporate Governance Best Practices That Benefit Every Company – Corporate/Commercial Law – Canada. (2016). Mondaq.com. Retrieved 21 August 2016, from http://www.mondaq.com/canada/x/340672/Corporate+Governance/The+Top+5+Corporate+Governance+Best+Practices+That+Benefit+Every+Company

Wan Yusoff, W. (2012). Insight of Corporate Governance Theories. Journal Of Business & Management, 1(1), 52-63. http://dx.doi.org/10.12735/jbm.v1i1p52

What is corporate governance?. (2016). timesofindia-economictimes. Retrieved 21 August 2016, from http://articles.economictimes.indiatimes.com/2009-01-18/news/28462497_1_corporate-governance-satyam-books-fraud-by-satyam-founder

MyAssigmenthelp.co.uk is the best option for those who are looking for reliable academic writing services. To show our genuineness, we submit only high quality assignments so that students never lose out on important grades. Our mission is to provide plagiarism-free solutions at very affordable prices. Students can get academic writing help on any subject or topic from us.