Report: Corporate Governance and Ethics of Wesfarmers (2011-2016)

This report analyzes the corporate governance, ethics, and corporate social responsibility (CSR) of Wesfarmers, a major Australian retailer, using its 2011 and 2016 annual reports. It examines changes in the board structure, including the composition and independence of directors, and assesses the impact of public scandals, such as the Target department incident, through the lens of consequentialism ethical theory. The report identifies and analyzes Wesfarmers' stakeholder groups, including shareholders, employees, customers, and suppliers, and evaluates the application of Australian Securities Exchange (ASX) guidelines. Furthermore, it discusses the Carroll philanthropic model, demonstrating how Wesfarmers fulfills its social responsibilities. The report provides insights into Wesfarmers' commitment to ethical sourcing, risk management, and corporate governance practices, including the adoption of ASX principles and recommendations, and the importance of transparency and accountability.

Running head: CORPORATE GOVERNANCE AND ETHICS
Corporate governance and ethics
Name of the Student:
Name of the University:
Author’s Note:

1
CORPORATE GOVERNANCE AND ETHICS
Introduction:
The report is prepared for analysing the changes in ethics, corporate governance and
corporate social responsibility of Wesfarmers. For this purpose, analysis has been done using the
two years annual report for the given organization. Changes in their structure of corporate
governance can be analysed by comparing annual report for year 2016 and 2011. Report
incorporates the discussion of structure of board, group of stakeholders and any public scandals
faced by group. The application of Australian securities exchange guidelines in context of
Wesfarmers have also been demonstrated. Furthermore, report discusses about the Carroll
Philanthropic model by providing evidence from the information gathered about Wesfarmers.
Wesfarmers is one of the largest retailer operating in Australia having diverse business
operations such as office supplies, home improvement, hotel and convenience, super market,
liquor and departmental stores. It is the largest private sector having shareholder base of 530000
and employee of around 220000. Providing shareholders with satisfactory return is one of the
primary objective of Wesfarmers (Wesfarmers.com.au, 2017).
Discussion:
Board structure of Wesfarmers and how it changes over the year:
The composition of board of directors in year 2011 is assured of making compromise
with directors bringing an appropriate mix of experience, skills, diversity and expertise in the
decision-making of board. The board structure in year 2011 was comprised of 10 directors long
with eight non-executive directors. It is viewed by board that an appropriate mix of diversity,
skills and expertise is possessed by board that assist them in delivering corporate objectives and
discharging responsibilities (Schneider & Scherer, 2015). Advisor to board on retail issues was

2
CORPORATE GOVERNANCE AND ETHICS
done by Mr. Archie Norman who has significant experience in retail business (Aguilera et al.,
2015). The deliberation of board is independent of management of business that has the
likelihood of materially affecting independent judgement and in regard to this, board are
expected to judge and bring reviews. At the date of this report, the association and positions of
all directors in office is reviewed by board and it was considered by them as in reported year that
out of all eight non-executive directors, seven of them are independent and Mr. Graham is not
deemed to be independent as it act as an investment adviser of company by virtue of his position
as Managing director of Gresham partners limited. It has been determined by board that exercise
of independent judgement of Mr. Graham would not interfere with relationship and it is believed
that he has been appointed in the best interest of organization because of expertise and sufficient
knowledge that he brings to the board (Cule & Fulton, 2013).
Structure of board of director in year 2011:
(Source: Wesfarmers.com.au, 2017)
The composition of board of directors in year 2016 comprise of 10 directors that involved
eight non-executive directors. The assessment of independence of board and the criteria against

3
CORPORATE GOVERNANCE AND ETHICS
which the materiality of information, facts and circumstances is determined in accordance with
the principles of Australian stock exchange. Independence of directors is assessed in relation to
important factors as set out in the recommendation given by the Australian accounting standard.
Relationship and position of all dire tots in office at the reporting year is reviewed by board that
considers that out of all the non-executive directors, seven directors are independent. Chairman
is considered as independent and directors Ms Vanessa Wallace is considered as independent as
it has past relationship with various organization and her exercise with the independent
judgement in relation of affairs of company so that she is not compromising with the functions of
Wesfarmers (annualreports.com, 2017). By virtue of position of Mr. James Graham as chairman
of Gresham partners limited, he is not considered as independent. Board has established
Remuneration committee, Nomination committee, risk and audit committee in both the reporting
year.

4
CORPORATE GOVERNANCE AND ETHICS
Structure of board of director in year 2016:
(Source: Wesfarmers.com.au, 2017)
It is perceived that there exist excellent balance of skills and experience in board of
director. Skills and expertise possessed by the members of board of directors include knowledge
of capital market, experience of working in ASX listed companies. They also have knowledge of
strategic and risk management, international experience in corporate sustainability, financial
acumen for dealing with customers, market and retail. Members in different position in the board
have the knowledge of government and regulatory policy in industrial and resources sector. The
board of Wesfarmers is responsible for authorizing any political donations (Khan et al., 2013).
The leadership team of Wesfarmers in financial year 2011 was fortunate to have the governance
and oversight that was provided by board of director led by Bob. The board of director in year
2011 was led by Bob Every who was appointed as non-executive director in year 2006. Richard
Goyder was managing director who was appointed as an executive director in year 2002. In
financial 2016, Richard remained the managing director of organization. Diane Smith Gander is
the member of Nomination and audit committees and he remained member of board of director
and has experience in corporate governance and is involved in providing strategic advice to
Australian corporations (Ducassy & Montandrau, 2015).
Public scandals of Wesfarmers in relation to ethical theories:
Wesfarmers is regarded as one of the most renowned retail organization of Australia and
it has faced public scandal in financial year 2012 relating to its Target department. Target is the
departmental store of Wesfarmers group and false profit was reported by 125 target country
stores. Higher profits was booked by the group by promising them higher prices and lower prices

5
CORPORATE GOVERNANCE AND ETHICS
was concluded by suppliers. It was disclosed by Wesfarmers that half year earnings was
artificially inflated by $ 18.1 million worth of suppliers and collusion involved 10 people of
organization. Subsequent increase in product was negotiated with 31 of its suppliers and $ 18.1
million worth of agreed rebated as not aligning with the operating standards and operating
policies of company. It was said by Wesfarmers that there would have not been any materiality if
there was no implication of cash flow and as opposed to $ 74 million of reporting, earning of
Target would have been $ 53 million.
This particular incidence of public scandal of Wesfarmers are discussed in relation to
consequentialism ethical theory. It is a normative theory that is based on two principles that
result of act forms the basis of the fact that act is wrong or right. Second principle is that act is
consider better if it is producing good consequences. When an individual is faced with moral
dilemma, then they should choose such action that helps in maximization of consequences of
goodness of act (de Carvalho, 2016). In this case, Wesfarmers are duping their suppliers by
promising them to procure goods at higher prices and recording same at lower prices. The
consequence of the act is not good and therefore the act is not considered as good (Arjoon,
2017). Therefore, as per consequentialism ethical theory, the accounting scandals had resulted in
sacking of Target’s senior executives.
Stakeholder group of Wesfarmers:
Stakeholder group of any organisation comprise of internal and external stakeholders and
both groups are considered relevant for the proper functioning of business as directly and
indirectly impacted by such group. Stakeholders of group comprise of shareholders, employees,
customers, government, suppliers, community, non-government organization, media and survey
on stakeholder engagement. It is depicted as per analysis of internal stakeholder that in relation

6
CORPORATE GOVERNANCE AND ETHICS
to public scandal, role of senior managers was in cause. There was no direct involvement of
internal stakeholder of Wesfarmers as it has strong set of compliance. In lieu of promising higher
profits, earning was artificially hiked within the company that led to emergence of 100 hundred
staffs at Target department due to cracking down of compliance. The action of regulator and
investors is ensured by managing director at Wesfarmers. Internal stakeholder of group comprise
of staffs and employees at managerial level that helps in driving sales and they are crucial for the
success of business (Ferrell & Fraedrich, 2015). Customers are the king of business and it is
assured by Wesfarmer that feedback is taken seriously and change in executed accordingly.
Organization relies on ethical sourcing of suppliers and high risk suppliers are reviewed though
system and they work closely with suppliers. There is liaison of organization with state
government through indirect and direct communication in the consultation process impacting
society and business.

7
CORPORATE GOVERNANCE AND ETHICS
Stakeholder group of Wesfarmers:
(Source: Tricker, R. B., & Tricker, 2015)
Application of Australian securities exchange guidelines:
The council of corporate governance was initiated by Australian stock exchange in year
2002 with the purpose of bringing together stakeholder, industry groups and business. Corporate
governance of Wesfarmers include the framework of process, system, rules and relationship an
adoption of guidelines have been done for boosting confidence of investors. It is believed by the
board that practices and policies adopted by board is done in accordance with the requirements
and disclosure of listing rules of ASX that was adopted in financial year 2011. The
communication policy of Wesfarmers is adopted in accordance with Platform of principles of
ASX that helps in promoting the information by communicating to shareholders through
distribution of report. The principles and recommendation of ASX Corporate governance council
is adopted by directors of Wesfarmers limited for recognizing the importance of high standards
of accountability and corporate behaviours (Nicolăescu, 2013).
The policy of ASX regarding non-executive directors have also been employed by the
group that helps in setting the fees of such directors at competitive level that takes into account
of commitment of directors in overseeing large and diverse business of Wesfarmers.
Performance of group is measured by comparing the performance of total shareholder return
against that is achieved by ASX 50 index. Reporting year 2016 makes explanation in the
corporate governance statement, organisation Appendix 4G and provides detail of corporate
according to the third edition of ASX Corporate governance council principles and
recommendation. The adoption of principles of ASX helped organization in adding value to the

8
CORPORATE GOVERNANCE AND ETHICS
structure of board, enabling the group to act socially, ethically and responsibly. Moreover, it
assisted in making balanced and timely disclosures and safeguarding integrity in corporate
reporting. The oversight of management is provided with foundation by enabling them to
recognize and manage risks. Managers and directors of group are remunerated fairly and
responsibly (Crane et al., 2013). However, there are 29 other recommendations as given by
Australian accounting standards that is required by Wesfarmers to implement and adopt.
It is required by organization to disclose the statement of corporate governance to the
extent that it has followed a particular set of recommendation that will assist stakeholders in
analysing the compliance of such statement according to standards. A particular recommendation
that has not been identified in the statement and has not been followed is required to separately
identify that recommendation in particular reporting year. Organization are also encouraged to
adopt guidance listed under listing rule 4.10.3, however they are not forced to do so and it
depends completely on their choice. It has been ascertained that security holders are not able to
find brief statement and it is certainly possible that there might not be enough recommendation
and it is required by organization to display the reason why they have not followed particular
recommendations set (McAlister et al., 2016).
Application of Carroll’s Philanthropic model:
Carroll philanthropic model is one of the model of corporate social responsibility. A
range of theories and model is summarized into four kind of social obligation that constitutes
economic responsibilities, social responsibilities, legal responsibilities and philanthropic
responsibilities. The Carroll pyramid of corporate responsibility resides philanthropic
responsibilities or obligations at the apex and this obliges the corporation to promote generalized
social welfare by acting as good corporate citizen that is considered as vital for sharing equality

9
CORPORATE GOVERNANCE AND ETHICS
of life. Fundamental obligation is being economic responsible as profit generation helps in
sustaining the business. Being economic responsible is regarded as the basic necessity for all
organizations. Another responsibility is in being legally responsible and reflects the way ethical
principles of society is modified and codified. One of the higher internationalization obligation is
being ethical responsible that motivates managers, employees and staff at lower level to perform
their duties in ethical responsible way and take into account what is right and wrong for
organization (Chan et al., 2014).
Carroll hierarchy of corporate social responsibility:
(Source: Tayşir & Pazarcık, 2013)
In regard to Wesfarmers, the Carroll model is required to be implemented at ethical and
philanthropic level. Wesfarmers is a renowned retail organization that generates sustainable

10
CORPORATE GOVERNANCE AND ETHICS
profits and provide shareholder with satisfactory return along with abiding with the rules and
laws. However, they are lacking on ethical and philanthropic grounds as some of the activities
does it incorporate ethics. For facilitating ethical responsibility on part of organization, it is
required by the group to implement a set of procedures and rules in accordance with the standard
of corporate governance board of Australia. Nonetheless, Wesfarmers has expanded and grown
to incorporate philanthropic responsibilities as one of the crucial obligations as it resides on apex
of the hierarchy of model. The inclusion of this particular responsibilities according to the
Carroll is essential because the activities of group directly impacts farmers (Carroll, 2015). There
has been indulgence by company in uplifting communities by providing them jobs and
benefitting to society.
Recommendation:
From the analysis of annual report of Wesfarmers for two different annual reports for
year 2011 and 2016 respectively, it has been ascertained that there has been up gradation of
principles to which organization has complied with third edition of ASX in year 2016 as against
2011.
 It is recommended to Wesfarmers incorporate ethical aspects in their annual report and
when dealing with their particular group of stakeholders.
 It is required by group to evaluate ethics by incorporating detailed regulated procedures.
 Each statement of records should reflect each aspects of corporate social responsibility.
There is no separate ethical department in organization and it is recommended to each
divisional department of organization to implement ethical standards in their reporting
process and well as practicalities.

11
CORPORATE GOVERNANCE AND ETHICS
Conclusion:
From the analysis of different period annual report of Wesfarmers, it can be concluded
that organization has complied with most of the principles of accounting standard. The structure
of board has remained almost same for both the reporting periods, while there were additional
disclosures in the section of board of directors of group. Moreover, some of the obligations as
per Carroll hierarchy has not been fulfilled by organization. Therefore, the group is required to
work on that particular aspect in order to facilitate their activities of corporate social
responsibilities. Indulgence of Wesfarmers in public scandal has damaged their corporate
reputation for which they are required to improve their relationship with suppliers and taking
every possible efforts to prevent such scandal in future.