Corporate Governance Assessment 2

Part 1 (15%)

Assessment Criteria:

• Demonstration of knowledge of the issues and evidence of wide reading to support your analysis
• Demonstration of your ability to apply the knowledge to identify keys issues leading to your recommendations
• Evidence of sound reasoning and the exercise of professional judgement to support your recommendations
• Development and statement of concise recommendations for presentation to the Chairman
• Overall structure and professional presentation of your report to the Chairman
• High quality written communication of concepts and terms as the Chairman can be assumed to be professionally competent in corporate governance 

'The US Securities and Exchange Commission slapped Australian mining company BHP Billiton with a $25 million fine for practices tied to gifts offered to foreign government officials during the 2008 Summer Olympic Games in Beijing.

 BHP agreed to pay the fine to settle the charges, the SEC said.

The mining company invited 176 government officials and employees of state-owned enterprises to attend the Beijing Games at BHP's expense, the SEC said in its complaint.  The sponsored guests were primarily from countries in Africa and Asia and received hospitality packages, that were valued at $12,000 to $16,000 a package, the commission said.

The SEC said BHP failed to provide employees with specific training on how to evaluate the bribery risk of an invitation … It didn't have procedures to ensure meaningful preparation, review and approval of requests … in violation of the internal control provisions of the US Foreign Corrupt Practices Act.' 

Dow Jones Institutional News, 'SEC Fines BHP Billiton $25Million', 20 May 2015

Required

Assume you have been employed as a corporate governance consultant by the Chairman of BHP Billiton Ltd.  Your assignment is to prepare a report for the Chairman recommending best practice corporate governance guidelines for the company to adopt so that it can manage and prevent any future issues of alleged corporate malpractice or other actions that could be classified as corrupt practices by executives or directors of the company.

Part 2 (15%)

Assessment Criteria:

• Demonstration of knowledge of the issues and evidence of wide reading to support your analysis
• Demonstration of your ability to apply the knowledge to identify keys issues leading to your recommendations
• Evidence of sound reasoning and the exercise of professional judgement to support your recommendations
• Development and statement of concise recommendations for presentation to the AII
• Overall structure and professional presentation of your report to the AII
• High quality written communication of concepts and terms in ordinary English as the report will be published on the AII web site and not all readers can be assumed to be professionally competent in corporate governance 

'FIFA, an enterprise worth billions, has plenty of legitimate resources to fight off the corruption allegations – some $400 million a year from sponsorship alone.  So, as the US government follows the money allegedly coming in through illegitimate channels, fans should follow the money FIFA gets from corporate sponsors, which enables its unsavoury business as usual.  The deaths of thousands of migrant workers building World Cup stadiums and other rampant labor abuse have done little to move soccer's giant marketing partners – Visa, Coca-Cola and McDonald's – so perhaps an international criminal investigation might do the trick. …

According to Transparency International poll of 35,000 people from 30 different countries, 69.2 per cent of soccer fans have no faith in FIFA. In the last year, some big-name sponsors have started to take notice, with Emirates, Johnson and Johnson and Sony ending partnerships with Blatter's group.' 

Kavitha A. Davidson, 'FIFA's Corporate Sponsors Abet Soccer's Corruption', Bloomberg View, 27 May 2015

Required

Assume you have been employed as a corporate governance consultant by the Association of Institutional Investors (AII).  The AII is concerned with the risks associated with investments in corporations sponsoring FIFA.  In order to minimise this risk the AII wants to know how the corporate governance of FIFA should be reformed to meet contemporary standards of best practice in corporate governance. Your assignment is to prepare a report to be published on the AII web site recommending the corporate governance changes required to be made by FIFA so that AII members can continue to invest in FIFAs' corporate sponsors without exposure to investment risk associated with FIFA's current alleged corporate governance deficiencies.

With the prevailing market conditions, the need for high standards in corporate governance is increasing. There is a favorable trend towards risk management and risk assurance systems in companies, to avert the implications arising from non-compliance of corporate governance initiatives.

The disclosures and practices adopted as part of corporate governance are considered as the major element of Corporate Social Responsibility (CSR).  Multinational corporations are subjected to international legal scrutiny arising from non-compliance with corporate governance policies.

Effective corporate governance is achieved through the design of structured practices. Companies have to strive to develop the best practices in managing their corporate governance.

Part 1

Introduction

There is an increasing pressure on multinational companies in terms of transparency. This is due to the expansion of accountability and sustainability requirements. Accountability has expanded to include employee and ethics related activities whereas sustainability has expanded to include social and financial issues. (Mujtaba & Cavico, 2013)

Lack of Internal Control

BHP Billiton (hereafter the company) is under scrutiny by the joint US and Australian investigation into its invitation and sponsor of government officials to the Beijing Olympics. (Brownell, 2014)

The following table (Table 1) surmises the series of failures in internal control that occurred within the company while executing the Olympics invitation.