Blackmores: Corporate Governance, Material Issues, and Analysis

This report analyzes three material issues related to corporate governance at Blackmores, focusing on potential unethical practices in the Chinese market, misreporting of revenues, and regulatory risks. The report suggests that Blackmores should conduct audits of contracts with Chinese retailers, implement a code of ethics, and ensure stringent oversight of product quality. It also recommends a forensic audit to verify sales and inventories and to ensure product quality hasn't been compromised. Furthermore, the report advises that Blackmores establish a risk management committee with independent non-executive directors to proactively address business risks and ensure ethical growth in the nutritional supplements market. The report references the ASX Corporate Governance Principles and Recommendations and Blackmores' 2018 Annual Report to support its analysis and recommendations.

ADVANCED FINANCIAL REPORTING
BLACKMORES
STUDENT ID:
[Pick the date]

The company selected for this task is Blackmores. The three material issues that the company
potentially faces are highlighted as follows.
1) It is apparent that the company is looking to enter into the Chinese market in a big way and
is carrying discussion with various e-retailers and other interested parties in China
(Blackmores, 2018). Considering the size of the Chinese consumer market for the products
that the company offers, it is quite possible that the company may use unethical ways (such
as bribing) in order to make inroads into the Chinese market. Also, considering the less
stringent regulations in the Chinese market, the company can potentially lower the standards
of the product in order to enhance margins or may outsource production to a Chinese partner
going forward.
For addressing this concern, it is apparent the board through the risk and audit committee
must audit the various contracts executed with the Chinese retailers. Besides, the company
should also have a code of ethics and conduct with regards to conducting business and
thereby outline acceptable business practices. Also, stringent oversight needs to be assured
with regards to ensuring that the quality standards are not lowered irrespective of the national
laws prevalent in China on this count (ASXCGC, 2014).
2) Misreporting of revenues – In accordance with the ASX corporate governance principles,
it is essential that accurate and timely disclosures should be made with regards to financial
reporting (ASXCGC, 2014). During the year, company faced supply chain issues especially
with procurement of natural materials used as raw material in the product (Blackmores,
2018). As a result, it is possible that the sales reported may not be true and artificially
inflated. Further, it may also have been possible that the substitute products may have been
used as raw material thereby lowering the product quality.
It is essentially that a forensic audit may be carried out with regards to determining the sales
and inventories that the company used during FY2018. The focus of this audit would be on
ensuring that suitable evidence for sales can be traced to the consumers and also no
compromise on the product quality has been done.
3) Considering the underlying risks that are involved, one material issue could be risk related
to regulation considering the fact that the nutritional supplements market is growing and
therefore the customer size is growing not only in Australia but also globally (Blackmores,
2018).

Being mindful of this risk, it is imperative that the company must ensure that there are no
issues with regards to customer health as it can potentially increase the regulatory risk.
Besides, the company through the means of a risk management committee should take
proactive measures in ensuring the healthy growth of this industry on the foundation of
ethical principles. The risk management committee should constitute of independent non-
executive directors so as to ensure that the various present and futuristic business risks are
adequately addressed.

References
ASXCGC (2014) Corporate Governance Principles and Recommendations, Retrieved from
https://www.asx.com.au/documents/asx-compliance/cgc-principles-and-
recommendations-3rd-edn.pdf
Blackmores (2018) Annual Report FY2018 Retrieved from
https://www.blackmores.com.au/about-us/investor-centre/-/media/23602d59b62a4e73
95c5235b553710f4.ashx