Ardent Leisure Ltd: Risk Management, Corporate Governance Report

This report analyzes the risk management failures of Ardent Leisure Ltd following an accident at its Dreamworld theme park. It examines the company's breach of the Australian Securities and Investment Commission's (ASIC) principles, particularly principle 7 regarding risk identification and management. The report details the company's failure to implement a proper risk management framework, leading to significant financial and reputational damage. It discusses the legal consequences, including potential penalties from the ASX, and the directors' breach of duty of care under Section 180 of the Corporations Act 2001. The analysis includes the actions taken by the company after the incident, such as the CEO's resignation and the implementation of safety reviews, while also highlighting the shortcomings in their initial response and crisis management. The report concludes by emphasizing the importance of proactive risk management and corporate governance in preventing such incidents and mitigating their impact.

Running head: RISK MANAGEMENT
Risk Management
Name of the student
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a)
As provided by principle 7 of the Australian Securities and Investment Commission it is
the duty of the board of directors of a listed company to identify risk and adopt a proper
framework to address them. In case there is a failure on the part of the board of the listed
organizations to recognize or address risks it might not only have an adverse effect on the
organization but also the stakeholders such as shareholders, creditors, employees , consumers
and the society as a whole1. According to the recommendations provided by AISC on risk
management, the listed organization’s board should have in place at least one committee to
oversee identify and address risks. The committee must have three independent directors. It
further states that the committee of the board or the board itself must review the risk
management structure of the company every year at the least so that they can be sure that it is
effective. The process of the review must also be disclosed in order to ensure accountability. The
internal audit function of the entity has to be disclosed in accordance to structure and role of the
function. It is also the duty of a listed organization to disclose any kind of material exposure on
its part in relation to social, environmental and economic risk and further how such risks are
intended to be managed by the organization. In the given circumstances it has been provided by
that a substantial financial harm had been suffered by the company Ardent Leisure Ltd (Ardent)
in relation to the Dreamworld leisure park (Dreamworld) operated and owned by them on the
Queensland Gold Coast. This was because an accident had taken place at Dreamworld which had
resulted in the death of a few partons as a result of a ride failure. Accidents are events which are
beyond the control of the owners. However if proper safety measures are taken accidents can be
avoided to a large extent and its effects could be minimized. In this situation it has been provided
1 Council, ASX Corporate Governance, and A. S. Exchange. "Corporate governance principles and
recommendations . ASX Corporate Governance Council." (2014).

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that no proper initiatives had been taken by the company after the incident which can be said
because the company had been criticized for not been able to deal with the risk arising from the
incident. The owner of a place is liable to any harm which has been caused to any person with
respect to the place. Thus in this case Ardent is liable for the accident. If the risk management
framework would have been placed Ardent would have been able to identify the risk associated
with the ride before any accident took place and the risk could have been addressed properly.
Even if the accident would have taken place after a proper risk identification system the harm
from the accident would have been minimized if a proper framework would have been in place
to manage the incident. However people were killed and the and not only it was a social loss but
also a severe financial and goodwill loss for the company. Thus it can be said that the board of
Ardent failed to recognize and manage risk in relation to the incident.
b)
As discussed above the principle 7 of the Good Corporate Governance Recommendations
imposes an obligation on the listed organizations to identify and manage risks through the
implementation of a proper risk management framework2. The principles highlight the formation
of one or more risk management committees within the organization which would have the role
to identify and risk situation and have a framework in place for addressing it. In the provided
circumstances Dreamworld needed a crisis management team in place which would have been
able to ensure prompt action with respect to the accident and the adverse effects of it would have
been minimized. Principle 7 further provides for a disclosure of any economic, social or
environmental risk and if such recommendation would have been followed by Ardent that they
would have been more accountable towards the identification of risk and the accident could have
2 Tricker, RI Bob, and Robert Ian Tricker. Corporate governance: Principles, policies, and practices. Oxford
University Press, USA, 2015

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been avoided. Thus in this case it can be evidently said that Ardent have violated the principle 7
of the ASX good governance principle by not been able to identify and manage risks3.
Breaching the provisions of principle 7 not only results in legal consequences but also
subjects an organization to competitive disadvantages because of the results of poor governance.
A failure to identify and address risks exposes an organization to various accidents which is not
beneficial to its interest4. If risks are not identified the organization becomes prone to accidents
and as there is no or improper structure of meaning the after effects the organization has to suffer
heavy losses5. As a result of the accidents the organization does not only suffer financial losses
but also the loss of goodwill which impacts on the value of the organization in the society.
Investors become reluctant to invest in such organization. In addition the absence of a risk
management system does not impose any accountability on the employees which subsequently
results in loss of productivity and bad quality services.
The Executive office of the ASX has the responsibility to initiate enforcement actions
against corporation for the violation of the rules of ASX. It has an “if not why not” principle in
place according to which if an organization does not wish to accept the corporate governance
polices of ASX it is free to do so but it has to provided explanation that why the polices are not
being followed. Initially enforcement decisions are made by the ASX Chief Compliance officer
and then an appeal lies in the ASX appeal tribunal. As provided by ASX Enforcement and
Appeals Rulebook a penalty of $250000 may be imposed by the ASX for the breach of operating
rules and a penalty of $1000000 for the breach of Austraclear Regulations. For instance in the
3 Pritchard, Carl L., and PMI-RMP PMP. Risk management: concepts and guidance. CRC Press, 2014.
4 Council, ASX Corporate Governance. "Corporate Governance Principles and Recommendations, 3rd edn (ASX,
Sydney)." (2014).
5 Glendon, A. Ian, Sharon Clarke, and Eugene McKenna. Human safety and risk management. Crc Press, 2016.

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case of Sino Australia Oil and Gas Limited (Company) the ASX was able to impose a penalty of
$800006. Thus in this case the ASX can seek civil penalties such as disqualification of directors
along with pecuniary penalties.
C
The duty of care and diligence towards the organization by the directors is provided in
Section 180 of the Corporation Act 2001. According to the Section 180 the board of directors or
any other executive officer of an organization must discharge their duties and exercise their
powers in accordance to a degree of diligence and care which would have been exercised by a
reasonable person if they were the directors in similar circumstances or had the same
responsibility like the directors in context. The breach of this section results in civil penalties
Section 1317. When it comes to business judgment a course of action can be considered to be
appropriate if the action is done in for a just purpose and in a good faith, do not have any
personal interest in the judgment, indulge in informed decision making and believe rationally
that the decision is for the benefit of the organization. The actions of the directors are considered
to be rational if any reasonable person would hold the same view. The section is also applicable
on duties resulting out of common law and equity. Business decision means any action which is
associated with the business.
In the recent case of Australian Securities and Investment Commission (ASIC) v Cassimatis (No.
8) [2016] FCA 1023, the court held that the directors to be liable for the breach of section 180(1)
of the CA as they their actions contravened the provisions of CA7. In the case of Re Centura
Global Holdings Pty Ltd[2015] NSWSC 1744 the judge held that breaches of the Environmental
6 Gilligan, George, et al. "Penalties Regimes to Counter Corporate Misconduct in Australia–Views of Governance
Professionals." (2017).
7 Australian Securities and Investment Commission (ASIC) v Cassimatis (No. 8) [2016] FCA 1023

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Planning and Assessment Act 1979 accounted to the breach of section 180(1) on the part of the
directors8. In the case of ASIC v Mariner Corp (2015) 327 ALR 95 at [444] it was held by the
court that section 180 does not impose various obligations on the directors but the only
obligation is to act in accordance to the existing legal provisions9. In the case of Sheahan (as
liquidator of SA Service Stations) (in liq) v Verco (2001) 79 SAR 109 the court ruled that the
duties of the directors under section 180(1) are only towards the company and not the
environment or shareholders UNLESS proceedings are brought against the directors by the ASIC
it has to be proved that actual loss had been suffered by the company.
In the particular circumstances it has been established in the previous section that Ardent
had breached the principles laid down by ASX in relation to risk management. it can be derived
from the cases discussed above that one of the primary requirements for establishing the breach
of section 180 of the CA by the directors is the contravention of any existing legal provisions
which would have not been done by a reasonable person under any circumstances. It can further
be analyzed that a reasonable person would have not breached the good governance principles
related to risk identification and management provided by ASX. As such provisions have been
breached by the directors of Ardent they are liable for the breach of Section 180 of the CA and
additional penalties have to be imposed on the directors other than the financial harm suffered by
the company.
D
The CEO of Ardent Leisure Deborah Thomas had stepped down for the post after the
fatal accident which took place in Dreamword10. She had been subjected to criticism for not been
8 Re Centura Global Holdings Pty Ltd[2015] NSWSC 1744
9 ASIC v Mariner Corp (2015) 327 ALR 95 at [444]
10 The Guardian. (2017) <https://www.theguardian.com › World › Australia › Dreamworld>.

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able to provide a appropriate response to the disaster. The company seeks to become one of the
leaders in global entertainment and particularly focus on the market in US. The shares of the
company had fallen by 7.8% since the fatal accident took place11. The company has been
subjected to much attention since the accident as investigation had been initiated towards the
incident12. The company has indulged in damage control since the incident has taken place. The
company provided the statement that they are deeply saddened and shocked by the incident and
they provide their condolences to the involved famines. It has been further stated by the company
that company is rapidly working along with police and emergency authority to determine the
facts and cause around the incident. After the tragedy the company had suffered a loss of 49.4
million. The theme park was closed for a period of 45 days since the accident. During the
shutdown the company was involved in commissioning and commencing a comprehensive safety
and operation review process for the park13. The company admitted to the fact that they did a
mistake in the way the first 48hours after the incident had been handled. A crisis management
expert Graeme Newton has been brought into the company from Deloitte along with Mike
McKay who was the former Queensland policeman. The company has initiated a safety review
process which has to be passed by all rides before they can become operational and closed the
controversial thunder river rapid ride permanently. Whenever a crisis occurs where a loss of life
takes place according to the “ten commandments” the first and foremost thing which is to be
done is to contact the family of the deceased which has not done by the company. Following the
incident, the polices which have been initiated by the company are collaborating with the private
11 Dreamworld’S Parent Ardent Leisure Is In Damage Control (2017) NewsComAu
http://www.news.com.au/finance/business/other-industries/dreamworld-parent-company-ardent-leisure-in-crisis-
after-fatal-theme-park-accident/news-story/00c3d7a283c19e05427f273bb3a44e39
12 Booth, Simon A. Crisis management strategy: Competition and change in modern enterprises. Routledge, 2015.
13 ABC (2017) <http://www.abc.net.au/news/2017-04-26/ardent-leisure-ceo-to-stand-down.../8472304>.

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sector, proper planned outcome process and establishment of a crisis management committee
within the organization. However the company is still in a defensive mode with respect to the
incident and providing justification from what has gone wrong. The company is still boasting it’s
so called “robust policy and procedures” when made them had 30 million people visit the park
since 1981.

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Bibliography
The Guardian. (2017) <https://www.theguardian.com › World › Australia › Dreamworld>.
Dreamworld’S Parent Ardent Leisure Is In Damage Control (2017) NewsComAu
http://www.news.com.au/finance/business/other-industries/dreamworld-parent-company-ardent-
leisure-in-crisis-after-fatal-theme-park-accident/news-story/
00c3d7a283c19e05427f273bb3a44e39
ABC (2017) <http://www.abc.net.au/news/2017-04-26/ardent-leisure-ceo-to-stand-down.../
8472304>.
Council, ASX Corporate Governance, and A. S. Exchange. "Corporate governance principles
and recommendations . ASX Corporate Governance Council." (2014).
Tricker, RI Bob, and Robert Ian Tricker. Corporate governance: Principles, policies, and
practices. Oxford University Press, USA, 2015.
Council, ASX Corporate Governance. "Corporate Governance Principles and Recommendations,
3rd edn (ASX, Sydney)." (2014).
Glendon, A. Ian, Sharon Clarke, and Eugene McKenna. Human safety and risk management. Crc
Press, 2016.
Pritchard, Carl L., and PMI-RMP PMP. Risk management: concepts and guidance. CRC Press,
2014.
Booth, Simon A. Crisis management strategy: Competition and change in modern enterprises.
Routledge, 2015.

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Gilligan, George, et al. "Penalties Regimes to Counter Corporate Misconduct in Australia–Views
of Governance Professionals." (2017).