Corporate Governance Report: Tokyo Electric Power and Southern Cross

This report provides a comprehensive analysis of corporate governance, examining key issues and case studies. Section A focuses on the Tokyo Electric Power case, exploring leadership, risk management, and the impact of poor governance, referencing the UK Corporate Governance Code and the Olympus Corp. scandal. Section B delves into the banking crisis, analyzing the Walker report and the need for regulatory changes. Part 2 then shifts to agency theory, discussing its application to Southern Cross Healthcare. The report highlights the healthcare company's financial problems, lack of financial planning, and poor board performance, emphasizing the importance of risk management and innovation. The analysis incorporates various perspectives, including the impact of financial decisions on service delivery and the need for effective governance structures to mitigate risks and ensure stakeholder engagement. The report concludes by emphasizing the importance of innovation and effective risk management for business success.

CORPORATE GOVERNANCE

Table of Contents
SECTION A.....................................................................................................................................1
2) Tokyo Electric power..............................................................................................................1
Theory..........................................................................................................................................1
Issue.............................................................................................................................................1
Section B..........................................................................................................................................2
1...................................................................................................................................................2
Case issue.....................................................................................................................................2
PART 2............................................................................................................................................3
SECTION A.....................................................................................................................................3
Theory..........................................................................................................................................3
Scenario.......................................................................................................................................3
Section B..........................................................................................................................................4
3...................................................................................................................................................4
Case issue.....................................................................................................................................4
REFERENCES................................................................................................................................6

SECTION A
2) Tokyo Electric power
Theory
 Relationship code consists of various type of sections. Section A is associated with
leadership which states that every business must be headed by effective leadership on the
basis of which company can succed in market (UK Corporate Governance Code., 2016).
 Further, Section B is effectiveness where board along with committee must have proper
skills along with knowledge. Section C is accountability where board must present fair
position of business and Section D is remuneration where wages of executive director
must be designed keeping in view long term progress of company.
 Section E is linked with relations with stakeholders which highlights that proper dialogue
must be developed as per mutual understanding of the objectives where Lack of board
leadership is issue where top authorities may be ineffective in handling with all the
issues.
Issue
 Japan is indulged into practices of developing sweeping reforms to rules on corporate
governance in the wake of the Olympus Corp. The incident associated with $1.7
billion with the motive to hide two decade of investment losses at Olympics is one of the
worst accounting fraud and it represents the long standing criticism of lax corporate
governance.
 Further, Olympus is not efficient in knowing the problems of corporate governance in
Japan. Olympus is an isolated case which highlights the overall weak corporate
governance system. Critics have been regarded for outside scrutiny of Japanese boards
whose dominance lies under executive board (Sieg and Kubota, 2011). Further, their exist
no issue in the corporate governance system but the challenge is directly associated with
the individual firms.
 Moreover, the guidelines issued by advisory panel states that every listed enterprise must
have at least one external director. Apart from this, the Tokyo stock exchange also
requires one director but in case of external auditor individual does not has vote on the
board.
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Considering the present case the major issues linked with corporate governance are poor
risk management and in order to better understand this issue theory of risk management is
effective which highlights different type of risks such as financial, operational, strategic, hazard
etc. To deal with different risks it is necessary to have effective plans and same can support in
reducing the level of risk faced. Assessing risk can assist managers in decision making and
categorizing them into groups is considered to be fruitful for business. different roles of boards
are present which are decision making, policy making and oversight. Poor stakeholder
engagement is another kind of issue faced by Tepco
Section B
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Case issue
 As per the statement provided it has been identified that the remedial actions taken to
deal with banking crisis which took place were not adequate. Further, the overall findings
present by Walker in the report highlights that the entire regulatory environment needs
change not only code of conduct.
 Walker focused on main points which are risk committees have power to scrutinize large
transactions of banks, rise in public disclosure in relation with the pay, chairman of board
to face annual re-election etc. Sometime codes of conduct are not efficient enough in
dealing with the challenges that have taken place due to financial crisis (Ross and
Crossan, 2012). Further, it is necessarily required to alter the entire regulatory
environment so that regulations along with various types of laws can provide support in
dealing with the crisis.
 Moreover, Walker highlighted that banks must have risk committees along with audit
one. Shareholders of the business must be more demanding and they must sign another
code which represents their ownership responsibilities. Corporate governance in the
banks can be regarded as a significant factor in the banking crisis which took place
recently on the basis of performance data.
Further, it has been assessed that structure of the corporate governance were not proper
so that banking crisis can be tackled easily (Finch, 2015). Overall it has been identified that
regardless of presence of effective corporate governance in practice the overall rules developed
were not proper and new set of rules are required to be developed in the country like Germany
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and UK. Apart from this, the stakeholder debate may not be important as previously claimed and
in case of regulators it is necessarily required to determine effective governance rules regardless
of theoretical underpinning. At present government of every nation is decreasing public spending
in extreme fashion and one of the main reasons can be banking crisis. Presence of poor
governance in the entire banking sector has lead to several social problems in the real world.
This article has strongly supported in knowing that codes of conduct have failed in order to deal
with the situation of crisis and with the motive to handle such type of crisis it is necessary to
have effective regulatory environment.
PART 2
SECTION A
Theory
 According to agency theory the conflicts between managers and shareholders of business
affects entire operations. Further, it highlights relationship between principals where
individual delegates agent to perform assigned task (Bonazzi and Islam, 2007).
 This theory focuses on two main issues such as the way to align goals of the principal and
reconcile between principal and agent. Therefore, management of Southern Cross
healthcare must take corrective actions so that issues taking place between various parties
can be tackled easily.
 Considering the present scenario the key corporate governance issues in case of Southern
Cross healthcare were core business model of the company which was highly risky. Due
to presence of more risk business has to deal with large number of challenge and it
proved to be unfavorable for entire business.
 Board size along with substandard performance measurement was another challenge due
to which healthcare enterprise has to deal with financial crisis. Apart from this, lack of
board diversity and inappropriate board members acted as issue in Southern Cross
Healthcare. Further, to better understand the issues faced by business agency theory is
effective.
Scenario
 The present case being undertaken focuses on the financial problems of Sothern Cross
which has adversely affected large number of individuals and has put vulnerable people
at risk. Further, the entire financial structure of the enterprise was quite complex which
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prevented company from delivering healthcare services to the patients. One of the major
corporate governance issues is lack of proper financial planning due to which it became
difficult for entire care home to render proper services to the old age people.
 Company with almost £ 1 billion debt has taken large number of Southern Cross homes
at a particular risk. Local authority budgets and large scale providers are racking up debt.
Improper monitoring of financial performance is one of the main challenges which have
adversely affected enterprise. It has lead to rise in debt and other form of burden on
business enterprise.
 Further, it is well known fact that care homes require large amount of fund for conducting
overall operations and in case if financial structure is not appropriate then situation such
as selling of business can take place (Financial strategy of Southern Cross homes blamed
for old people's deaths., 2014). Rapidly the major expenses of the business raised such as
annual rent bill and cut in fees paid to care home by local authorities which adversely
affected Southern Cross Healthcare.
 In short, the income of the business was not at all adequate in order to cover the major
expenses. So, this lead to unfavorable situation for the business where top authorities of
the business were not able to handle the major expenses.
The entire Southern care home was badly affected due to financial crisis where offering
different type of services to the elder patients and other type of individuals became difficult.
Apart from this, business took decision to cut down its rental payment to its landlords. Unveiled
losses of £ 311 million in the first six month of the financial year and this directly decreased the
overall value of the business in the market. Apart from this, ministers who are in close contact
with the Southern Cross replied that cut in rent will assist business to survive in the market.
Therefore, with the help of present article it has been understood that financial crisis issue linked
with corporate governance has badly affected Southern Care home.
Section B
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Case issue
 The statement provided is true where effective risk management encourages innovation.
Further, in the modern era for every company to survive in the market has become
difficult. Therefore, it is necessary to indulge into activities which are innovative.
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Generally it is well known fact that when any business takes risk then the ultimate
outcome is innovation.
 Further, without taking risk it is not at all possible for enterprise to succeed in the market
and leads to decline in level of performance. Risk taking is all about indulging into
activities such as working with advanced tools, introducing new products in the market
etc. When such type of risk is successful for business then innovation takes place for
instance if any automobile company took risk to introduce new model in the market and
if same is successful in the market then such risk taking task is considered to be
innovation.
 Further, in the modernized world products offered by company have closely related
substitutes present and due to this reason indulging into innovative practices is necessary
for business. In case if business enterprise indulges into activity which are highly risky
then it leads to more innovation and vice versa.
 Apart from this, when practices of effective risk management are present then it directly
contributes in the growth along with success of business in the market (Conrow, 2003).
Innovation provides reason to customers so that they can easily purchase products of the
enterprise and through the same it is possible to satisfy need of target market in efficient
manner. Well established firms in the market have taken risk and the ultimate outcomes
for the same are rise in profitability level, market share etc.
On the other hand, sometime risk taking attributes of the business may have adverse
impact on overall operations as level of risk may prevent business from accomplishing its major
aims and objectives. Further, absence of innovation directly has adverse impact on organization
and can unfavorably impact owners of the enterprise along with target market of the business.
Therefore, in this way indulging into innovation along with risk taking activities are necessary
for business and without this it becomes difficult for enterprise to survive in the market where
long term objectives cannot be accomplished.
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REFERENCES
Books
Bonazzi, L. and Islam, N. M., 2007. Agency theory and corporate governance: A study of the
effectiveness of board in their monitoring of the CEO. Journal of Modelling in
Management. 2(1) .pp.7 – 23.
Conrow, H. E., 2003. Effective Risk Management: Some Keys to Success. AIAA.
Ross, A. and Crossan, K., 2012. A review of the influence of corporate governance on the
banking crises in the United Kingdom and Germany. Corporate Governance: The
international journal of business in society. 12(2) .pp.215 – 2.
Online
Financial strategy of Southern Cross homes blamed for old people's deaths., 2014. [Online].
Accessed through http://www.theguardian.com/society/2014/jun/09/financial-strategy-
southern-cross-care-homes-blamed-deaths-old-people. [Accessed on 25th March 2016].
Finch, J., 2015. Walker report a 'crashing disappointment'. [Online]. Accessed through
http://www.theguardian.com/business/2009/nov/26/walker-report-banking-comment.
[Accessed on 25th March 2016].
Sieg, L. and Kubota, Y., 2011. Analysis: Little appetite in Japan for major post-Olympus reform.
[Online]. Accessed through < http://www.reuters.com/article/us-olympus-governance-
idUSTRE7BB0HN20111212>. [Accessed on 28th March 2016].
UK Corporate Governance Code., 2016. [Online]. Accessed through <
https://www.frc.org.uk/Our-Work/Codes-Standards/Corporate-governance/UK-Corporate-
Governance-Code.aspx>. [Accessed on 28th March 2016].
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