Corporate Governance and Ethics Failure: Estia Health Analysis Report

This report provides an in-depth analysis of corporate governance and ethics within Estia Health, a residential care firm. It begins by identifying failures in corporate governance and ethical practices. The report then explores the ethical issues through the lens of utilitarianism, explaining core concepts and discussing the case from this perspective. Subsequently, it examines the same issues using Kantian deontology, clarifying Kantian concepts and applying them to the Estia Health case. The report concludes with a reflective analysis on practices that can minimize failures in corporate governance and ethics, offering valuable insights into maintaining transparency, ethical decision-making, and stakeholder trust within a healthcare context. The report also highlights the importance of financial transparency and disclosure, and the impact of class action lawsuits on the company's reputation and financial standing. It underscores the significance of ethical leadership and the implementation of robust corporate governance frameworks to ensure the long-term sustainability and success of the organization.

Running head: MANAGEMENT
Corporate Governance and Ethics
Name of the Student:
Name of the University:
Author Note:

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Executive Summary:
The objective of the report is to provide an overview of corporate governance and ethics with
respect to residential care firm Estia Health. The report identifies the reasons of failure in
corporate governance and ethics within Estia Health. The report also indentifies the utilitarian
perspectives and explains the ethical issues within the firm through this perspective. The report
also discusses the Kantian deontology perspective and discusses issues of the firm in this regard.
There is also a reflective analysis provided at the end of the report that primarily deals with the
practice of corporate ethics and governance in minimizing and avoiding failures.

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Table of Contents
1. Introduction:................................................................................................................................3
2. Failure of Corporate Governance and Ethics in Estia Health......................................................3
3. Utilitarianism...............................................................................................................................5
a. Explanation of the Core Utilitarian Concepts..........................................................................5
b. Discussion of Ethics Issues in the Case from Utilitarian Perspective......................................7
4. Kantian Deontology.....................................................................................................................8
a. Explanation of Kantian Concepts.............................................................................................8
b. Discussion of Ethics in the Case from Kantian Perspective....................................................9
5. Reflection on Practices of Corporate Governance and Ethics that Minimizes Failures..............9
6. Conclusion:................................................................................................................................11
References:....................................................................................................................................13

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1. Introduction:
The aim of the report is to provide an insight into the concept of corporate governance
and corporate performance and their analysis within a healthcare firm Estia Health
(estiahealth.com.au, 2019). Corporate governance represents a set of practices and rules that a
company employs for directing the actions and decisions. As the rules dictate how the company
makes decision so the process of corporate governance has noteworthy impact on a company’s
company’s performance. The report helps in identifying and analyzing the problem that led to
the failure of corporate governance and ethics in healthcare firm. The report also discusses and
provides an explanation of the ethical issues with respect to the Kantian and Utilitarian
perspective and provides a reflective perspective on the top practices of ethics and corporate
governance that helps in avoiding and minimizing failures.
2. Failure of Corporate Governance and Ethics in Estia Health
Corporate governance represents a combination of rules, laws and process that helps in
business regulation, operation or control. The term encompass the external and the internal
factors that influences the interest of the stakeholders of a company that primarily includes the
customers, shareholders, government regulators, suppliers and the management. The sole
purpose of the structure lies in ensuring fairness, transparency and answerability of the firms and
the stakeholders (Khan, Muttakin & Siddiqui, 2013). This helps in reducing the possible acts of
fraud and henceforth maintains ethics within corporate world.
In Estia Health, the board holds the responsibility for maintaining the corporate
governance. The Board monitors the company’s financial and operational position and oversees

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the business strategy that includes approving the strategic goals of Estia along with considering a
business plan including budget (annualreports.com, 2014). The Board remains committed
towards maximizing the performance level, generation of the accurate levels of values for
shareholder value and the sustenance and financial return determining success as well as growth.
Performing the business of Estia with these objectives ensures proper management of Estia in
protecting and enhancing the interest of shareholders. It also ensures that the officers, directors,
and the personnel operate within ambience of the corporate governance. Besides, the Board
ensured the creation of a framework for the management of healthcare firm that included
adoption of appropriate internal control, processes related to risk management and practices and
policies of corporate governance that is appropriate for conducting the firm’s business and
promotion of responsible conduct and management of healthcare firm.
Naccarella et al. (2018), put forward that Estia Health has been the provider of superior
quality of residential care services for aged people. It presently has close to sixty eight
operational homes across Australia. This aged care firm has strong thematics that needed aid
through implementation of stronger and consistent environmental policy. Estia Health has always
supported further reforms meant for improvement in the service quality of aged sector.

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Figure 1: Diagrammatic Representation of Total Number of Homes
Source: (annualreports.com, 2014).
Recently, the law firm Phi Finney McDonald filed class action against Estia Health in
Federal Court of Australia on allegations of breach in continuously disclosing the financial
statements during the year 2015 and 2016 (Cranston & Lenaghan, 2018). The action had been
filed against the shareholders who between the year 12th August 2015 and 6th October 2016
entered into equity swap confirmations with Estia and acquired longer exposures to the Estia
shares. However, Estia went beyond its ethics to defend the proceedings although the company
was unsure whether it would have an impact on its financial position. However, the news of the
class action reduced the share price of the company by 5 percent.
The problem lay in maintaining greater transparency in disclosing financial results. The
transparency would ensure that the residents and the families have complete financial protection.
This is only possible when there is availability of detailed and audited financial statements.

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Besides, Estia Health also needed to follow stronger capital and improved level of disclosure
standards and liquidity ratios.
It is however believed that Estia Health being the leader of the aged care services not
only had the capability but also the services and financial sources for delivering higher quality
services thereby playing a key role in maintaining a sustainable and stable aged care sector.
3. Utilitarianism
a. Explanation of the Core Utilitarian Concepts
Utilitarianism refers to a moral ethical theory that supports actions which promotes
overall pleasure or happiness and rejects the actions that leads to harm or unhappiness. The
utilitarian philosophy when directed towards making economic, social or political decisions aims
at ensuring the betterment of society. The maxim of the utilitarianism concept lies in ‘The
greatest amount of good for greatest number of the people.’ In other words, Utilitarianism
represents an effort that puts across the fact that a person must act in a manner that result in the
best possible consequence (Jones & Felps, 2013).
In view of consequences, concept of the utilitarian comprises of all good and bad
activities put forward by an act after the performance or during the performance. When
differences in the consequences of alternative act do not look great then utilitarian does not
consider choices amongst them as the moral issue. The acts are categorized as right or wrong on
moral grounds only when the consequences holds significance in the sense that the person wish
to see an agent being forced and not persuaded for performing in a ideal manner.

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For assessing the consequences of actions, the utilitarianism depends on the theory of the
intrinsic value where certain things are considered good that remains apart from any further
consequence while other values that can derive worth through maintaining a connection with the
inherent good defines the end (Jones & Felps, 2013). Jeremy Bentham and John Stuart Mill, the
two British philosophers, analyzed happiness as the balance of pleasure over the pain and trusted
that the feelings have intrinsic value as well as disvalue. Utilitarian also assume the possibility of
comparing intrinsic value created by two different actions thereby estimating the ones resulting
in improved consequences. A moralist is able to sum units of the pain and pleasure for each and
every person likely to get affected instantly or in future thereby considering the balance as a
measure of overall good or evil tendency of a specific action. Although such a perfect
measurement is not essential but it is necessary for utilitarian for making certain interpersonal
comparison of values for understanding the effects of alternative courses of the action.
b. Discussion of Ethics Issues in the Case from Utilitarian Perspective
According to the Utilitarian Approach an action is usually assessed in terms of the
outcomes or the consequences which implies the net benefit and cost of all the stakeholders on
individual level (Adomaviciute, 2013). This has also been true for Estia Health when a class
action was brought against it in regard to the non transparency due to non disclosure of its
financial statements. Estia health however tried to prove its transparency by putting a across a
detailed financial statement so that the stakeholders does not loose trust in the company. It stated
that during the first half of 2019, Estia Health reported Earnings before interest, tax, depreciation
and amortization (EDITBA) of close to $46.9 million which seemed to be 3.1 percent higher
than the Precision Castparts (pcp). The company also reported a Net Profit after Tax (NPAT) of

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about $21.1 million that also seemed to be higher by 4.1 percent. In the trading update put across
in the year May 2019, the company mentioned that EBITDA for the financial year of 2019
would range between $92 million and $94 million that represented increase between 2 percent to
4 percent in comparison to 2018.
In doing so the Estia Health tried to achieve greatest good for greatest number while
leading to minimum harm or prevention from the greatest suffering. Through this the company
also tried to ensure that the interest of each of the entity is considered equally while making
decisions.
4. Kantian Deontology
a. Explanation of Kantian Concepts
Deontology refers to the ethical theory that uses rules for distinguishing the right from the
wrong (Crisp, 2015). It often remains associated with the philosopher Immanuel Kant who
believed that ethical decisions followed universally determined moral law. It has a very simple
application in urging people to follow rules and perform their duties. The approach is well
aligned with the natural intuition regarding things that seems ethical.
Unlike consequentialism that judges actions by results, deontology does not require
weighing the cost and the benefit of a situation. This helps in avoiding uncertainty and
subjectivity as one has to follow particular set of rules. In spite of the strength, following
deontology strictly produces results which a lot of people finds difficult to accept. Hence,
following rules of deontology seems easier for application (Cointe, Bonnet & Boissier, 2016). It
also implies disregarding the consequence of actions while determining the right and the wrong.

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Kant’s theory acts as one of the examples of deontological moral theory (Crisp, 2015). As
per the theories, the wrongness or rightness of actions does not rely on the consequences but
rather on whether they are able to fulfill the duties. According to Kant, there have been supreme
principles of morality which he referred as the categorical imperative thereby determining the
moral values. As far as moral significance of individuals is concerned, Kant points out to what
makes a better person. Kant intended to proceed with the part of the theory where the duty
remains determined by the categorical imperative. According to Kant, the action of a person is
considered right or wrong based on whether the person remains morally worthy or has a lack of
it. The actions of an individual determine their moral valuation. Nevertheless, there is more to
seeing whether actions determined seem appropriate. Kant put forward an argument stating a
person to be good or bad based on motivation created by actions and not on the goodness of
consequences of such actions. He further argued stating that a person might have required moral
valuation only when one remains motivated by the aspect of morality. Put differently; if a
person’s desires and emotions urge them to perform then the action can never give rise to moral
worth.
b. Discussion of Ethics in the Case from Kantian Perspective
Kant’s perspective runs on categorical imperative or unconditional commands. Kant
perspective mentions that a good will is not good because of its accomplishments but because of
the fitness it has in attaining the proposed end. The ethical issue of Estia Health explained on
this perspective considers transparency in financial statements as one of the most important
criteria for determining organizational success (estiahealth.com.au, 2019).

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Transparency in business is necessary as it allows efficient and quick response towards
controversy and problems. Operating a transparent healthcare business allows the residents to
have a clear picture about the organization thereby increasing loyalty. Besides, being upfront
instead of hedging corporate information helps to demonstrate integrity. It also ensures job
satisfaction amongst the employees along with improving customer satisfaction.
5. Reflection on Practices of Corporate Governance and Ethics that Minimizes Failures
Some of the appropriate practices of corporate ethics and governance that might help in
minimizing or avoiding failures include (Cointe, Bonnet & Boissier, 2016):
 Building an ambience of confidence and trust amongst those having conflicting and
competing interest: Building of trust and confidence helps in producing enhanced speed,
improved level of efficiency and decreasing cost. It also helps in empowering the ethical
decision making thereby increasing the willingness and loyalty of staying with the
company. Confidence and trust also decreases the hostility and the stress levels within
work environment.
 Enhancing the value of the shareholder and protecting the interest of other
shareholders through increasing corporate performance and its accountability:
Shareholder value represents the value delivered to the shareholders of a firm due to the
management's ability of increasing the earnings, sales, and the cash flow with time,
resulting in the ability of companies in increasing the dividends and encouraging the
capital gains for equity owners (Jones & Felps, 2013). The shareholder value of a firm
depends on the strategic decisions made by senior management and board of directors
who helps the firm in making wise investments and generate a healthier return on the

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invested capital. When this value is created over a longer term then it leads to increase in
share prices thereby putting the company in a position of paying larger cash dividends to
the shareholders.
 Through aligning the interest of the shareholders and the managers: There are
different mechanisms of aligning the interest of managers with the shareholders. The first
mechanism is the profit related pay that helps in aligning interest of managers with the
shareholders. The managers however receive their payment with the earned profit.
 Preventing the managers from pursuing their interest: This is necessary for
preventing manipulation. Accounting manipulation is something that occurs quite often
within firms that has work culture centered on self interest.
 Preventing higher and excessive executive pay: This might be counterproductive since
excessive executive pay is not only detrimental to the business but is also detrimental for
the economy and the society as it results in spiral cost, perverse pay structure and wrong
decision-making that eventually de-motivates the other employees (Cranston &Lenaghan,
2018). Besides, higher level of financial incentives such as higher bonus and salary also
seems harmful for the shareholders provided it focuses on the short term instead of the
performance for the longer term. In addition to this, it also impacts the morale of the
employees.
 By avoiding the abuse of the power: This is necessary as the mistreatment of power can
cause disruption to the work environment and lead to mental, physical, or emotional
distress on the employees. Some of the examples of maltreatment of power include
physical attacks, humiliation in public, undermining the efforts of someone, using
discourteous language and biased comments, yelling, ignoring the fellow employees,