Corporate Governance Assessment 3: Wesfarmers Ltd Case Study Analysis

This report provides a detailed analysis of the corporate governance of Wesfarmers Ltd, an Australian conglomerate. It examines key issues, including supply chain transparency, ethical sourcing, and the impact of the Bunnings acquisition. The report explores corporate governance theories and identifies failures in areas such as strategic direction, financial disclosure, and shareholder value. The analysis highlights the importance of effective governance in maintaining stakeholder interests, ensuring transparency, and delivering satisfactory returns. The conclusion emphasizes the need for Wesfarmers to address governance shortcomings to fulfill its obligations and responsibilities effectively. The report also provides insights into sustainability reporting and its significance within the context of corporate governance.

CORPORATE GOVERNANCE:
ASSESSMENT 3

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
ISSUES AND THEORY.................................................................................................................2
BAD CORPORATE GOVERNANCE............................................................................................3
CONCLUSION................................................................................................................................4

INTRODUCTION
Wesfarmers Ltd is an Australian conglomerate which is headquartered in Perth Western
Australia as it has attained 2nd rank out of 2000 organizations in Australia. It is involved in retail,
production and coal mining, distribution and gas processing along with distribution, industrial
and safety product distribution. In its annual report, it has been stated that earnings for chemical
business in financial year 2019, expected to be affected through an oversupply of explosive
grade ammonium nitrate with subject to many competitive factors in Western Australian market.
In their sustainability report they had clearly stated that, they will lay emphasis on climate
change resilience, energy efficiency and proactive to manage associated risk with context to
climate change due to delivering significant benefit for long term perspective1. Further, Ethical
and human source rights states that they strive to source products in responsible aspect during
operating with suppliers for purpose of improving social and environmental practices.
There is presence of Group wide Ethical sourcing policy where minimum set of standards
were set and expected for division who sells good for purpose of resale. The clear statement is
about objective is to deliver a satisfactory return to shareholders with their value creating
strategies, growth enablers and core values such as integrity, openness, accountability and
entrepreneurial support. The Coles is subsidiary of Wesfarmers as there is presence of issues in
operational analysis with heavy emphasis on supply chain of organization. There is absence of
end to end approach of supply chain and apart from this, shareholder return was insufficient for
resetting risk of supply chain strategy and recognition of lower growth with high capital
expenditure2. It is clear that top management failed to wrong acquisition and wrong home base.
This case study analysis would outline issues and problems in case and discuss with
perspective of corporate governance and sustainability reporting. Furthermore, it will articulate
conclusion and recommendation for the respective case.
1 Annual report of Wesfarmers Ltd. 2018. [Online]. Available through
<https://www.wesfarmers.com.au/docs/default-source/asx-announcements/2018-annual-
report.pdf?sfvrsn=0>.
2 Aguilera, Ruth V., William Q. Judge, and Siri A. Terjesen. "Corporate governance
deviance." Academy of Management Review 43, no. 1 (2018): 87-109.
1

ISSUES AND THEORY
The corporate governance is elaborated in different aspects as definitions range through
different information limit corporate governance for mechanisms along with operations along
with mechanisms of boards of public companies3. It considers about interaction of company with
its stakeholders and must be capable for maintaining interest of stakeholders. Generally, this lays
emphasis on board responsibilities along with strategic objective of organization and offers
leadership to put into effect and supervising business management and reporting to shareholders
on their stewardship.
It is facing material sustainability issue as it has more than approx 18000 suppliers in
China, Australia, Bangladesh, India, New Zealand and various other countries. The transparency
in supply chain has been increased as it is inherently diverse, dynamic and complex and ensuring
that absence of occurrence of modern slavery4. In the similar aspect, Kmart has maintained
commitment for transparency in supply chain with continuation to publish details which directly
generates their own product. The due diligence process has revealed about unfair working
conditions as risk in supply chain throughout the world5. Apart from this, it had faced issue
related to wrong acquisition of Bunnings which went wrong as it failed for replicating domestic
success in UK through misjudging market. The Wesfarmers has declined earnings as home base
prior writing off the asset. It had created self induced blunders which comprises lines for
bathrooms and kitchens along with underestimating winter demand for particular range of items
through heaters to storage and cleaning. Furthermore, the poor rating for its board ownership of
equity helps in aligning interest of director with interest of shareholders.
3 Murwaningsari, Etty. "The Relationship of Corporate Governance, Corporate Social
Responsibilities and Corporate Financial Performance in One Continuum." Indonesian
Management and Accounting Research (IMAR) 9, no. 1 (2019): 78-98.
4 Kothari, S. P. "Accounting Information in Corporate Governance: Implications for
Standard Setting." The Accounting Review 94, no. 2 (2019): 357-361.
5 Teerds, John. "Symposium 2019: Break the mould to embrace disruptive
leadership." Proctor, The 39, no. 1 (2019): 42.
2

BAD CORPORATE GOVERNANCE
It is clear from corporate governance report that it regularly review framework of
governance along with practices for purpose of ensuring that this consistently shows market
practice and expectations of stakeholders6. The main function is for approving strategic direction,
guiding and monitoring management and its business as per strategic plans to instil core values
of group and oversee the best governance practices7. Moreover, its objective is to enhance and
protect interests of shareholders and accounting interests of stakeholders which comprises
suppliers, employees, customers along with broad community. This would oversee the
implementation of strategy and for addressing areas of underperformance and portfolio of
reposition to deliver growth in shareholder returns8. The evaluation and monitoring growth
opportunities for purpose of complementing the existing portfolio.
There objective was expansion so in that this acquired worthless assets. The acquired
organization was not incorporated into corporate governance structure and left entire group in
worse situation9. It directly led to vital governance aspects for being overlooking financial
disclosure and transparency10. On the contrary, this was not only limited to subsidiaries as
acquiring company has reflected the best performance in United Kingdom but not every country
has same economy. It had shown breach to deliver satisfactory returns to its shareholders via
6 Davis, Nicholas. "The future relationship between technology and inequality." How
unequal? Insights on inequality (2018): 110.
7 Black, Bernard, Antonio Gledson de Carvalho, Vikramaditya Khanna, Woochan Kim, and
Burcin Yurtoglu. "Which Aspects of Corporate Governance Do and Do Not Matter in
Emerging Markets." (2018).
8 Corporate governance statement. 2018. [Online]. Available through
<https://www.wesfarmers.com.au/docs/default-source/corporate-governance/2018-
corporate-governance-statement.pdf>.
9 Sherwin, Geoff. "Top tips from an ASA company monitor-Finding a healthy
company." Equity 32, no. 4 (2018): 14.
10 Schofield-Georgeson, Eugene. "Regulating executive salaries and reducing pay disparities:
Is pay disclosure the answer?." Journal of Australian Political Economy, The 81 (2018):
96.
3

financial discipline along with exceptional management as diversified business portfolio11. Apart
from this, this had also breached framework for business model of organization along with core
values of openness, entrepreneurial opportunity, integrity and details stated on website12.
CONCLUSION
This analysis of case study has reflected that Wesfarmers Ltd had attained failure for
acquisition of Bunnings in house base segment in Australia. It had shown that its offshore
attained wide investor support on initial basis and given profit growth of double digit with
explosion of home improvement. However, after that this created so much blunder as their
earnings declined in next duration13. It has shown that acquired company in not integrated
sufficiently in group and breach of disclosure, protecting shareholder interest and transparency.
This has been articulated that valuing any prospects of organization, it is not significant to assess
size of growth opportunity of earnings and growth quality as well14. It should commit satisfactory
return to its shareholders and to fulfil obligations of corporate governance and responsibilities in
best interests of organization along with their stakeholders.
11 Jacoby, Sanford M. The embedded corporation: Corporate governance and employment
relations in Japan and the United States. Princeton University Press, 2018.
12 Schofield-Georgeson, Eugene. "Regulating executive salaries and reducing pay disparities:
Is pay disclosure the answer?." Journal of Australian Political Economy, The 81 (2018):
96.
13 McGaughey, Fiona. "Australia's proposed Modern Slavery Act for business reporting-part
of an international trend in business and human rights." Australian Resources and Energy
Law Journal 36, no. 3 (2018): 29.
14 Crowther, David, and Shahla Seifi, eds. Redefining Corporate Social Responsibility.
Emerald Group Publishing, 2018.
4

Crowther, David, and Shahla Seifi, eds. Redefining Corporate Social Responsibility. Emerald
Group Publishing, 2018.
Black, Bernard, Antonio Gledson de Carvalho, Vikramaditya Khanna, Woochan Kim, and
Burcin Yurtoglu. "Which Aspects of Corporate Governance Do and Do Not Matter in
Emerging Markets." (2018).
Kothari, S. P. "Accounting Information in Corporate Governance: Implications for Standard
Setting." The Accounting Review 94, no. 2 (2019): 357-361.
Sherwin, Geoff. "Top tips from an ASA company monitor-Finding a healthy
company." Equity 32, no. 4 (2018): 14.
Schofield-Georgeson, Eugene. "Regulating executive salaries and reducing pay disparities: Is
pay disclosure the answer?." Journal of Australian Political Economy, The 81 (2018): 96.
5