Corporate Governance: Term Definition

Introduction

This study gives a comprehensive report of the effectiveness and scope of existing corporate governance performance and strategies of Qantas Airlines. The report also gives a briefing of the analysis of its best code of practices with reference to its annual report for the year 2009.

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Considered as the national airline of Australia, Qantas Airlines is one of the leading and established brands in Australia also being the 11th largest and leading long distance airline in the world. The company originally registered as “QANTAS“, an acronym for “Queensland and Northern Territory Aerial Services“, was founded in 1920 and is the 2nd oldest airline.

Formerly a government owned business, the airline was privatized in 1995. A drastic transformation of its management outlook was thus observed over the years.

Subsidiaries of Qantas includes Jet star, Q catering, Qantas Holidays, Qantas Freight, Qantas Defence Services.

Corporate Governance

Corporate Governance, though literally means, governance of corporations, the absolute way of governing actions is vague in terms of a definition.

Emerged and developed by the pioneering efforts of CaIPERS (California Public Employees Retirement System), one of the pension funds in California, corporate governance is one of the major management issues under scrutiny in the business world today.

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“The modern definition calls it the framework of rules and practices by which a board of directors ensures accountability, fairness, and transparency in the firm’s relationship with its all stakeholders (financiers, customers, management, employees, government, and the community).” (Corporate governance: definition 2009).

It aids in the effective management and direction of actions towards the betterment of stakeholders, namely, customers, employees, creditors, investors, share holders, government and the society at large.

Along with maximizing profit, performance, reputation and goodwill in the society it ensures the smooth, fair, ethical working of the company.

Corporate governance determines what level of responsibility, rights and privileges are shared between the owners, managers and shareholders of the company; thereby calls for the need to devise and implement a well-defined and appropriate organizational structure. A strong and well-balanced board of directors, top level management and executives are the requisites of any firm with an honest bias towards corporate governance.

Gaining a vehement public opinion, being the core purpose of corporate governance; demands the adoption of steps for the betterment of the society.

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Swift, reliable and effective measures against malpractices within the company are a major requirement too.

Vision

The company aims at being the world’s premium airline and to be the best low fares carrier in the long term. Qantas claim that their success is largely accounted to their dedicated and skilled employees. Hence, they intend to build upon workforce competence in the years to come. Safety, being the foremost priority, is ensured through its fool-proof policies and practices. Qantas commits itself also to customer efficiency by making flights available to optimum destinations. The company is keen to further its productivity by ensuring maximum operational efficiency. A unique two brand strategy aids the company in sustaining an edge over competitors.

Qantas and Corporate governance

Qantas, established in 1920, started as a government -run enterprise; carried its disadvantages and advantages. Having endorsed Domestic Airline Regulation in 1991 and privatization in 1995, the company had to change its management practices and even its organizational structure.

Running on an autocratic leadership style, the company possessed a long chain of command with a conservative top-down communication approach till domestication and privatization. A complete transformation was a resultant of the need to incorporate new management styles and practice; especially in the wake of industrialization, competition and technological competence.

Corporate governance contributes to accountability and business prosperity. Thus corporate governance helps by protecting shareholders’ rights and ensuring financial performance.

Sustainability

Qantas envisions itself to operate in an ethical and responsible manner. Qantas policies are well tuned with the existing governmental rules and regulations. Qantas sustainability policies and standards are charted with objectives to protect environmental, social and governable issues.

Sustainable shareholder value

Corporate governance confers to ensuring the creation, protection and enhancement of shareholder value.

“Qantas has a Shareholder Communications Policy which promotes effective communication with shareholders and encourages participation at general meetings.” (Corporate governance: the board respects the rights of shareholders n.d.).

Independent and competent Board

The Qantas board comprising of 11 Directors, includes Independent Non-Executive and Executive Directors, forming a balanced and strong committee with skills, expertise and experience. Independency ensures that the directors have the right to take decisions and act unburdened by any business or other relationship. They can freely express their views and concerns at Board meetings seemingly without influence of third parties.

Reliable and explicit auditing committee

Transparency in accounting and auditing practices is the need of the hour. Frequent trust worthy, balanced and timely disclosures form an indisputable parts in corporate governance. Being a global business, Qantas faces many challenges in terms of financial, economic and social risks. The Qantas audit committee takes account of such dilemmas, and proposes the same to the risk management committee.

Ownership Value creation

Economic value is added to share prices, as any dip in share prices hinders the reputation of the company in the market. The corporate governance feature favours a stakeholder model wherein owners are just one of the stakeholders, who get their fair return. Besides, ownership and executive decision making are different.

Achieving leverage

Using media to get attention is one technique widely accepted by companies all over the world. Frequent and timely announcements and planning of events are elements of concern when considering corporate governance.

Managing corporate governance deficiencies

Corporate governance practices too find fault in implementation and execution. Poor management of overhead costs, consultant fees and marketing cost overruns are key factors that contribute to deficiencies.

Focus on performance

Primary focus and check on the performance of the company is crucial to establish itself as a successful brand. Qantas Group ensures that all employees are equipped and empowered with the latest in technology and skills, thereby enabling them to contribute to their fullest potential. Open communication with employees is a key contributor to building up performance levels.

Leadership development programs help build competence and further, provides for employee engagement in the decision making process. Qantas’ employee database sees a varied diversity in terms of creed and talents. Women serve both non-traditional and leadership roles. Though the economic downturn has affected the targeted performance in more than one ways, the company is adamant to maintain its success level in the times to come. Qantas aims at creating an agile environment for employees enabling them to take flexible, timely and appropriate actions in the best way.

Case study

  • To what extent does this company comply with corporate governance best practice?

The company complies well with the currently accepted corporate governance principles. The code of conduct of Qantas and policies of ethics are in compliance with the policies of the Australian Securities Exchange (ASX) Corporate Governance Council’s Corporate Governance Principles and Recommendations. Qantas is keen to capture customers’ confidence and trust, though the same was tarnished in unfavourable events in the past. Qantas has succeeded in restoring its reputation for safety and reliability; damaged by an industrial dispute and two in-flight incidents in 2008.

“In March 2009, on the basis of its preliminary investigations, the Australian Transport Safety Bureau found the in-flight incidents were related to manufacturing faults beyond Qantas’ control. And in June 2009, monthly customer satisfaction reached its highest level since 2003.” (A transformative year: restoring our reputation n.d.).

Hence, today even in the midst of cut-throat global competition, Qantas is one of the most preferred Airline partner; a clear display of its reach in the society and thereby its victory in adopting the best strategies in corporate governance.

  • Before accepting a directorship or investing in a company you would conduct a due diligence exercises. What questions should you explore? What conclusions do you draw about this company?

As an investor or a member of the board of directors, commercial, economic, technological and social viability of the company in the market, especially in the period of pervasion of the recession needs to be explored.

Questions that would arise in such a situation are as follows:

  • What is the Unique Selling Proposition or Unique Selling Point (USP) of the company that provides it an edge over global competitors?

The two brand strategy – focusing on Jetstar and Qantas, the two premium and low fare airlines of the Qantas Group, gives the company unique strength in terms of scale, network and customer reach.

“The Qantas Group is more resilient because of its diversification into the premium and low fares airlines of Qantas and Jetstar, each of which now has a strong domestic and international network. While each airline is valuable in its own right, the whole is even greater than the sum of its parts.” (Two brands n.d.).

Hence, the company sees scope for domestic business, where its international flight services fails.

“One world provides Qantas customers with access to 675 destinations and 550 airport lounges, and the opportunity to earn and redeem Frequent Flyer points across its global network.” (Alliances: Qantas n.d.).

Oneworld is one of Qantas’s most successful alliances, as a founding member Qantas has made its presence felt in the international airline industry.

Round the world and round the clock, bookings are made available to customers by providing online service, besides proving customized options in the same.

“Qantas Frequent Flyer is Australia’s leading loyalty program with 5.8 million members at 30 June 2009.” (Frequent flyer n.d.).

Members can earn points and redeem facilities in various sectors, from airlines to car rental, restaurants, retailers and financial institutions.

  • How far has it succeeded in surviving from the aftermath of recession, what are its economic contribution and current financial status?

The impact of the global financial crisis has voluminously affected the whole of the airline industry. Qantas was quick to take proactive measures and announce decisive actions in November 2008 and has followed through till date. The fall in oil prices, regarded a relief to the struggling airline industry, did not serve the purpose as it was overshadowed by decline in demand and converging revenues.

“Profit attributable to members of Qantas was $117 million. This was achieved despite a 1.9 per cent decrease in capacity and a declining demand environment in both domestic and international markets as well as strong competition.” (Discussion and analysis: review of income statement n.d.).

The company takes calculative measures to assess and eliminate or reduce risks in financial aspects. The management team has accomplished breakups in its plan of action for the time to come, thus making its financial, economic goals more measurable and focused. Operations are designed and executed on the outline with goals differentiated as Short term, Medium term and Long term. “In an extremely challenging operating environment, the Qantas Group remains profitable and financially strong.” (Financial overview n.d.).

  • What are the stakeholder benefits and level of engagement?

The Australian government is a key stakeholder, along with shareholders, investors, employees, customers, suppliers, industry groups, labour unions and the community at large.

It is obvious that the company aids in increasing shareholder value by rewarding shareholders who are the source of capital that helps them to grow and invest.

As quoted by the Leigh Clifford, Chairman, Qantas in the Annual report 2009,

“With the interim dividend of 6 cents per share, Qantas has paid out 100 per cent of full year profit after tax. Under present circumstances, the Board considers it prudent not to pay a final dividend, and future dividends will be assessed against ongoing earnings performance and capital requirements.” (Chairman’s report: outlook n.d.).

  • What evidence is there that this company values corporate ethics?

The board maintains the highest level of corporate ethics. The Qantas code and conducts policy is designed to protect employees from intentionally or unintentionally breaching the law. “The Qantas Code of Conduct & Ethics contains Qantas’ Share Trading Policy.” (Corporate governance: overview n.d.).

Qantas ensures that ethicality is protected on various fronts, such as, ecological sustainability, Quality of work life, Globalization and E-commerce.

Thus, the study reveals the scope and effectiveness of the Corporate Governance practices of Qantas Airlines.

Reference

Alliances: Qantas n.d., Qantas: Annual Report 2009. Web.

A transformative year: restoring our reputation n.d., Qantas: Annual Report 2009. Web.

Chairman’s report: outlook n.d., Qantas: Annual Report 2009. Web.

Corporate governance: definition 2009, Business Dictionary.com. Web.

Corporate governance: overview: the board promotes ethical and responsible decision making n.d., Qantas: Web.

Corporate governance: the board respects the rights of shareholders n.d., Qantas: Annual Report 2009. Web.

Discussion and analysis: review of income statement n.d., Qantas: Annual Report 2009. Web.

Financial overview n.d., Qantas: Annual Report 2009. Web.

Frequent flyer n.d., Qantas: Annual Report 2009. Web.

Two brands n.d., Qantas: Annual Report 2009. Web.

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