Strengths and Weaknesses of TFS (Quintis) Corporate Governance Practices

This document discusses the strengths and weaknesses of TFS (Quintis) corporate governance practices. It examines how these practices contributed to the company's demise and the role of BlackRock in its collapse.

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ASSIGNMENT 1
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Assignment 1
Question One
(i) Strengths and Weakness I TFS (Quintis) Corporate Governance Practices
There are number of strengths evidence in TFS (Quintis) corporate governance. First, the
board is mainly committed in ensuring that the organization’s responsibilities and obligations
to numerous stakeholders are all fulfilled (Quintis Ltd 2017). This is in line with set
requirements of corporate governance structure, where an organization is required to have
governance structure that is in line with purpose of the firm and complexity of its functions.
The board size and structure is optimal in line with its tasks. In fact, the management and
board are mainly committed to high standard of the corporate governance, ensuring that the
organization complies with Corporate Act 2001, Company constitution, ASX Listing Rules
as well as other applicable regulations (TFS Corporation Ltd 2015). In fact, the firm followed
ASX corporate governance principles and recommendations where its board members
considered all the recommendations to become a suitable benchmark for their corporate
governance. This is a strong point for the company corporate governance practices as it
enable the board to offer full disclosure as well as reasons for adoption of their own practices
in line with if not or why not regimes.
Generally, based on the company corporate governance statement, it is evident that TFS
(Quintis) has fairly elaborates governance structure on the basis of their partners interests as
well as powers (Quintis Ltd 2018). Further, the chair of the Board is independent; this enable
him to carry out his leadership and effective evaluation of performance of the board,
facilitating real contribution of Directors and promotion of respectful and constructive
relation between the management and board members. Basically, his functions are all well set

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in details in Board Charter making it easier for the Chair to carry out his duties. Furthermore,
the firms has established Corporate Code of Conduct in providing guidance in line with
ethical, legal as well as other obligations in legitimating the stakeholders and accountability
and responsibility needed for organization’s employees for investigating and reporting
unethical practices (Quintis Ltd 2017).
Besides, the board has established Audit Committee with formal charter explaining their
functions, composition, authority, and mode of operations as well as their responsibilities.
The firm ensures that the external auditor attends annual general meeting in answering the
questions regarding conduct of audit, preparation as well as content of the auditor’s report,
auditor’s independence as well as accounting guidelines adopted in line to conduct of audit
(TFS Corporation Ltd 2013). Another chief strength in TFS corporate governance is the fact
that the firm implemented Investor Communication Policy in ensuring financial market and
shareholders have timely admission to material data regarding the firm. There is also strength
where the board has established Remuneration Committee. This is a major strength for the
company since it enhances effective remuneration for different personnel working within the
firm.
Furthermore, presence of established risk management committee is a major strength for TFS
since it makes it easier for the company to determine organization’s risk profile, overseeing
as well as approving the risk management policies and strategies (Quintis Ltd 2016). With
established risk management committee, the company is able to manage and recognize
probable risks and to consider possible investment opportunities available for a profitable
operation. Presence of Investor Communication Policy is another major strength for the
company since it enhances timely access to the material information by financial market and
shareholders regarding the firm.

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Some of its weaknesses include the fact that the firm lacks Nomination Committee. This
resulted to the board carrying out duties and responsibilities which would otherwise be
undertaken by Nomination Committee. Another weakness of TFS corporate governance
practices is that the firm lack internal audit function. In this case, processes employed in
managing what internal audit role would conduct the roles are setting out Audit Committee
charter (Quintis Ltd 2018). Another weakness is that the company failed to make sufficient
research while investing in Sandalwood. Further, it is unethical and irresponsible for TFS to
disclose wrong information to its stakeholders without taking into account consequences this
could bring to these individuals and to the company (Quintis Ltd 2016). Basically, every firm
is required to give appropriate information to its stakeholders so as they are capable of
making sound decisions regarding an investment.
(ii) How Corporate Governance At TFS (Quintis) Might have Contributed to Its
Demise
In spite of TFS making semi-annual incomes and sales, the company collapsed for a number
of corporate governance practices. Thus, the corporate governance at TFS contributed greatly
to its demise. For instance, the senate committee recommendations as well as government
responses failed to address significant structural defects within the firm MIS models and used
the company failure in illustrating that deficiencies apparent from the earlier failures were
still relevant (Quintis Ltd 2018). Furthermore, the analysis by the board demonstrated that
several regulatory changes by ASIC were insufficient in overcoming the deficiencies
prevalent or inherent in TFS MIS business model. Besides, the special tax concessions or the
regulatory changes and substantive policies by the Committee were unwarranted and induced
unsophisticated investors in making risky or ill-informed investments including taking highly
leveraged positions leading to inefficient allocation of the capital (TFS Corporation Ltd

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2015). With the conflicted and problematic nature of RE model for governance and
operations of the projects, it was hectic for the business to thrive; hence, the demise (TFS
Corporation Ltd 2017).
Besides, despite the company receiving credit ratings upgrade in the mid-2016 from both
S&P and Moody’s, its corporate governance practice that allowed the board to act on behalf
of Nominees Committee brought deficiencies in its business practices and mode, including
the MIS arrangements. Besides, the change of name from the TFS to Quintis also contributed
to its demise. Basically, by changing the name from the TFS to Quintis, the company was
projected to experience same fate as the Timbercorp and Great Southern since this act
brought deficiencies in the company practices and its model to Ponzi scheme. This is argued
to have resulted in decrease in its share price from as high as $1.41 per share at the time to
about $1.10 per share within few days (Quintis Ltd 2018). Further, absence of internal audit
functions made it hard for the company to assess and constantly improve efficiency of the
risk management as well as it internal control processes. This put into question the reliability
of the estimates and cash flow from its operations; hence, underpinning both its net assets and
profitability. These values were suspect due to optimistic quality forecasts; artificially
inflated price for the MIS scheme and the thin global market for the Sandalwood.
TFS Corporate governance highlighted increased debt financing. This implied that interest
expenses for the company were becoming relatively high and a bit unsustainable proportional
to its net profit (TFS Corporation Ltd 2013). This exposed the company to further financing
and risk of vicious cycle. Increasing leverage was attributed to use by the MIS investors and
grower to decide deferring annual maintenance payments or expenditures in exchange for
forward sale of their timber at harvest; necessitating Quintis raise finances for the ongoing
plantation maintenance. Furthermore, the company act of buying back the grower interests in

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the MIS contributed to its demise since it increased in its debt financing and was part of the
process limiting transparency of inconsistency of the MIS actual returns with the one that had
already been projected (TFS Corporation Ltd 2017). As a results of these corporate
governance practices, Quintis shares made several announcements regarding getting into
forbearance agreements over the non-payments of the interests, inability of meeting their debt
obligations of putting options the company had already issued, failure of the subsidiary to
meet needed conditions for the AFSL of acting as responsible firm as well as commencement
of the class actions against the firm. Further, its forecasts of the future harvests, quality as
well as prices achievable were highly optimistic and there was high doubt on forecasters
(TFS Corporation Ltd 2016). The low transparency of its performance attributed to the
unverifiable asset revaluations.
By overlooking risk involved in providing misleading information, TFS management acted
unethically and contributed to its collapse. Before providing ago ahead for the release of
information, organization management should have factored in long-term risks involved in
giving misleading information to stakeholders. In the long-term the firm collapsed. TFS had
some unrealistic expectations by investing in Sandalwood (TFS Corporation Ltd 2016). In
fact, its promise to the investors in paying some dividends within first two years of it project
initiations and paying principal amount after seven years was unrealistic since it would take
the company over 15 years for it to begin generating some profits. Thus, failure to take into
account the risks involved in its unrealistic expectations also contributed to its collapse.
(iii) Role of Blackrock in TFS (Quintis) Demise
BlackRock Inc agreed injecting some capital in Quintis and taking its private, rescuing
Australian sandalwood organization. Basically, BlackRock played a significant role in
Quintis demise. First, BlackRock made a statement that Quintis shares were quite worthless

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and gave a suggestion that Chinese customer was not genuine sandalwood purchasers
(Glaucus Research Group 2017). The loss of confidence by BlackRock in market price for
the sandalwood by accusing Quintis of artificially inflating price of the thinly traded product
to justify its ludicrous price forecasts also might have contributed to its demise since such act
made investors and creditors loss confidence on Quintis operations; hence, they withheld
investing in the firm. BlackRock advise that the best options in situation of attack by short-
seller was for the director to show support for the firm by buying the shares within the firm,
was a major mistake and driving force to Quintis’ collapse. Furthermore, BlackRock
suggestion that growers would end up retaining right of deferring all the leases and
management expenditures through the life of the projects and their trees would continue
being maintained by the Quintis’ experienced teams of the sandalwood forestry experts was
misleading (Glaucus Research Group 2017). This move only aimed to protect the growers’
interests. Besides, by de-listing Quintis and reforming it as private firm, BlackRock
contributed to its demise since the move left investors with nothing.
Question Two: Harvey Norman
(i) Evaluation of whether short term as well as long term salary and performance
benefits for the CEO are appropriate
Good governance as well as well-established policies which align closely with organization
overall objectives and goals lay ground for sound executive compensation. A huge number of
Americans believe that all CEOS are overpaid. Besides, 74% of American feels that CEO
compensations were out of proportion compared with the average workers compensation
(Faria, Martins & Brandão 2014). As part of the strategic planning the board sets several
short and long-term goals for the CEOs to accomplish. In this scenario, short-term salary and
benefits for the CEOs were appropriate. This is based on the notion that the salary is set based

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on various aspect. For instance, the short-term salary and benefits for the CEOs in this firm is
dependent on net profit margins, thus, increases with increase in revenues or profit, increase
in the market share as well as expansion in the market. Basically, the short-term benefits were
appropriate since they were paid as cash for the contribution they made to accomplishment of
the organization’s objectives. Besides, the short-term benefits were made in line with set
rules and regulation since they were made annually. In this case, Harvey Norman short-term
salary and benefits for the CEOs in 2018 was $2,800,000 (Harvey Norman 2018). This
amount was dependent on satisfaction of the financial performance based on the RONA and
was also based on accomplishments of the set non-financial measures. Basically, total short-
term benefits in 2018 were $2,275,280 represent 81.26% of maximum short-term incentives
PCI (Harvey Norman 2018). Basically, the CEOs potential salary in 2018 short-term benefits
was $800,000 in 2018. This is an increase from $700,000 reported by 2017 and $550,000
reported in 2016 (Harvey Norman 2017).
Furthermore, the long-term benefits for the CEOs within the company are appropriate since it
is mainly based on their performance. This is in line with set requirements which require
long-term benefits to be in line with their performance. Besides, according to Faria, Martins
and Brandão (2014), 31% of long-term CEOs compensation or benefit is based on their
performance. . Basically, the CEOs potential long-term benefits for 2018 were $375,750.
This is a decrease from $435,375 reported in 2017 and $396,000 in 2016 (Harvey Norman
2016).
(ii) Whether Remuneration Paid To The 4 Non-Executive Directors Is Appropriate
Remuneration paid to the four non-executive directors was appropriate. This is based on the
notion that the remuneration was in line with the organizations objectives and aligned with
interests of the shareholders. Basically, the remuneration is appropriate since it is at a level

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which would offer the firm capacity to attract or retain them on highest calibre. Besides, the
remuneration is appropriate since it is in line with set policies which require the firm to
review the remuneration annually against the fees paid to the NEDS (Harvey Norman 2017).
Basically, the remuneration was in line with the company remuneration policy which requires
remuneration paid to be collated to organization’s performance (Harvey Norman 2018).
Thus, with increasing and decrease in remuneration paid to the non-executives, it is clear that
these payments are appropriate and in line with set policy.

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REFERENCES
Faria, P, Martins, FV & Brandão, E 2014, ‘The level of CEO compensation for the short and
long-term–a view on high-tech firms,’ Procedia-Social and Behavioral Sciences, 110, 1023-
1032.
Glaucus Research Group 2017, Company: TFS Corporation Limited/Quintis/ASX: TFC,
QIN; Viewed from, https://www.diebewertung.de/wp-content/uploads/GlaucusResearch-
Responds-to-TFS-Quintis-QIN-TFC-Mar_29_2017.pdf (Accessed at 26th March 2019)
Harvey Norman 2016, Harvey Norman Holdings Limited 2016 annual report; Viewed from:
http://clients.weblink.com.au/news/pdf/01784649.pdf (Accessed at 26th March 2019)
Harvey Norman 2017, Harvey Norman Holdings Limited 2017 annual report; Viewed from:
http://clients.weblink.com.au/news/pdf/01902066.pdf (Accessed at 26th March 2019)
Harvey Norman 2018, Harvey Norman Holdings Limited 2018 annual report; Viewed from:
http://clients.weblink.com.au/news/pdf/02027865.pdf (Accessed at 26th March 2019).
Quintis 2017, corporate governance statement 2016/17; Viewed from,
https://quintis.com.au/media/1712/17-05-26-corporate-governance-statement-clean.pdf
(Accessed at 26th March 2019)
Quintis 2017, Response to ASX Query and short seller opinion piece update;
https://hotcopper.com.au/documentdownload?
id=uOMxKKzFkiWRTLKhOROKAxjvTDYC4gq1zBmZsf53ke92GA%3D%3D (Accessed
at 26th March 2019)

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Quintis 2018, corporate governance statement 2017/18; Viewed from,
https://quintis.com.au/media/1738/corporate-governance-statement.pdf (Accessed at 26th
March 2019)
Quintis Ltd 2015, Quintis Sandalwood project 2015: Annual report for the year ended 30
June 2016: Viewed from: http://infopub.sgx.com/FileOpen/TFS%20Financial%20Statements
%20Signed.ashx?App=Announcement&FileID=419432 (Accessed at 26th March 2019)
Quintis Ltd 2017, Quintis Sandalwood Album annual report for the year ended 30 June 2017:
Viewed from: https://quintis.com.au/media/1739/annual-report-2017.pdf (Accessed at 26th
March 2019)
TFS 2013, TFS Corporation Ltd, soil to oil annual report 2013: Viewed from:
https://quintis.com.au/media/1139/annual-report-2013.pdf (Accessed at 26th March 2019)
TFS 2014, TFS Corporation Ltd annual report 2014: Viewed from:
https://quintis.com.au/media/1140/annual-report-2014.pdf (Accessed at 26th March 2019)
TFS Corporation Ltd 2016, TFS Corporation Ltd 2016 annual report: Viewed from:
https://quintis.com.au/media/1142/annual-report-2016.pdf (Accessed at 26th March 2019)
TFS Corporation Ltd 2017, ASX Release Exponential growth in Indian sandalwood sales
driving transformational year; Viewed from: https://hotcopper.com.au/documentdownload?
id=uOMxKKzFkiWRTLKhOROKAxjvTDYC4g%2B%2FyBCZtPF6ke92GA%3D%3D
(Accessed at 26th March 2019)

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