Westfarmers Case Study: Ethical, Financial, and Strategic Analysis

This case study analyzes Westfarmers, a leading Australian retail company, examining its financial strategies, ethical considerations, and stakeholder management. The study delves into the company's approach to improving its cash position, the implications of integrated reporting on performance and remuneration, and the significance of the "at risk" concept for senior officials. It explores stakeholder relationships, ethical behavior within the organization, and the responsibilities of accountants. The case study also investigates the importance of non-financial measures, performance measurement and remuneration differences, ethical decision-making in financial and management accounting, and the use of the balanced scorecard to incorporate ethics and sustainability. The analysis considers the competitive landscape, including the growing presence of competitors like ALDI and the pressures from environmental forces. The study uses a problem-based approach to address specific questions, drawing on various online resources to provide a comprehensive understanding of the issues faced by Westfarmers. The study highlights the application of financial and accounting concepts in a real-world business context.

Case Study

Table of Contents
ABSTRACT.....................................................................................................................................1
INTRODUCTION...........................................................................................................................1
Responses to Case Questions...........................................................................................................4
1. Response to the approach used by company for improving company cash position..............4
2. Integrated Reporting and changes it can bring in performance and remuneration.................4
3. Understanding of concept of “At Risk” and why it is considered as important.....................5
4. Stakeholder of company, and large supermarket as well as concept important to ideas that
are concerned with ethical behaviour of organisations...............................................................5
5. Developing required culture in West-farmers.........................................................................6
6. Responsibility of accountant relating to the case....................................................................6
7. Importance of non-financial measures....................................................................................7
8. Performance measurement and remuneration difference between CFO and Junior
accounting officer........................................................................................................................7
9. Difference between financial and management accounting relating to ethical decision
making.........................................................................................................................................8
10.Use of balance scorecard for issues relating to incorporation of ethics and sustainability....8
CONCLUSION................................................................................................................................8
REFERENCES..............................................................................................................................10
.......................................................................................................................................................10

ABSTRACT
Australian retail industry is known to follow all the ethical as well as social parameters
stated by government and society. This research is completely based on various ethics which are
used for making profit by these companies. At present, there is tremendous pressure which is
building up on Australian retailing giants to fulfil the needs of people as well as to take care of
all business partners. There are various practices which they use to enhance their cash position as
well as to keep those components balanced which are at risk. It is essential for me to understand
who the stakeholders of companies are. Basically, this will allow me in understanding as to who
has to be informed on everything and who can be defined later on. Without satisfying
stakeholders, company cannot achieve its goals in any manner.
To solve the given questions in the case study, it is very important to identify an approach
which is suitable for finding out the best solution to issues. For the current case scenario,
Problem Based Approach is used so that each question will be answered in a required manner
and responses justify the stand of researcher. This is a practical approach that will lead to better
understanding of market and concepts which are stated in the case. Various online resources
have been used to answer some questions related to risk, culture, etc.
There are various skills and techniques which have been learnt while the research work
was undertaken. It changed my mind-set and allowed me in understanding variables that exist in
the market. I was able to understand how supermarket giants in Australian business environment
acted on various issues. Also, I was able to improve my ability to use different methods to solve
problem based question. The usage of other sources allowed me in ensuring that this case study
is solved in a proper manner.
INTRODUCTION
This research is being conducted on Australian Retail Industry which is already under
tremendous pressure. The number of market forces is increasing and so does their power which
has already put many big names in retailing industry out of league. The case states about ways in
which companies will be focusing on improving their condition in an ethical way. It will also
state about the methods which are unfair and used by the manager. Though, the retailing market
has registered growth in recent years but, it is too slow and low to keep competitiveness at a
higher level. Additional four of the world's top 250 retailers are operating in Aussie market. The
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top two traditional Australian retailers are known to be West-farmers and Woolworth
(Fontrodona, Sison and de Bruin, 2013). The former company was able to achieve 1st positing in
market due to its ability to reduce cost as well as differentiate itself. Also company was able to
improve in the home improvement section which attracted more sales and ensured better
productivity. In this research report, various questions should be answered which will be
scrutinising the decision taken by leaders in the stated business houses properly. The retailing
industry has seen many up's and down's in recent years which led to unstable environment. The
graph below will state about growth on the basis of year-on-year:
The average of growth in Australian retail market since 1983 has been 5.89% but in 20-
17, it has only registered a growth rate of 2017. This is the second time in years when its growth
rate is below 3%. Even after having so many companies who are now household names,
Australians are awaiting the arrival of Amazon which is the prime online seller in the country.
West-farmers is the top leading retailing company in Australia. It faces a stiff competition from
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Illustration 1: Australian retail sales beat across the board again
(Source: David Scutt, 2017)

Woolworth which is just inches behind in terms of revenue. Also, Coles and Aldi are growing at
a very rapid speed which is a threat to the company.
As seen in the diagram, it can be stated that by 2020, ALDI will become one of the top
retailers in country. It is growing at a significant 12% per year rate which will increase to 16% in
the next few years. The environmental forces are also very strong in nature and this exerts a-lot
of pressure on West-farmers. Suppliers, government regulations and other factors are trying to
break into the oligopolistic market type in retailing sector (Beverungen and Case, 2011).
Company is using various accounting practices which enable it in ensuring that the cost is
reduced and margins are increased. West-farmers are putting a lot of focus on using First in First
Out method to reduce the time that is taken by product to move around. Also, for auditing
purpose, company conducts internal analysis by appointing an internal auditor. After his
reporting and changes an external auditing team conducts analysis which allows company for
reducing variable impact. West-farmers are known to have a culture where competition between
people is normal but the best thing is that they are able to lower down chances of conflicts.
There are multiple issues which are there in the company and one of them is related to the
recent accounting controversy. West-farmers has to focus its resources in same direction for
making sure that it is able to keep its competitive advantage. The company also has to look at its
ways it remunerates people. This is a way they will be able to boost cost efficiency within
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Illustration 2: Aldi to grow by 16 per cent a year
(Source: Catie Low, 2016)

organisation. Another issue that is persistent is related with culture where West-farmer is trying
to develop a better environment where employees and management is able to interact in more
convenient manner.
Responses to Case Questions
1. Response to the approach used by company for improving company cash position
As a Chief Financial officer, it is my duty to assist organisation in the circumstances
where there is special focus is being given to improve its financial position. There is a request to
analyse, if it will be fine to delay payment of supplier to simply enhance organisation cash
position (Litzky and MacLean, 2011). There are different grounds on which the answer will be
based. It would reflect both negative and positive factors associated with the attested request.
The response to the request is simple and clear, “There is requirement of being
diplomatic with the suppliers as to convince them for delay, and if they disagree then company
needs to follow ethical considerations and pay them their due”.
This is response is based on the vary cases that had taken place in past where
organisations like Tesco have knowingly delayed paying money to the suppliers which later
caused investigations and regulatory issues to company. Basically in UK as well as Australia,
delaying supplier’s payment is considered to be unreasonable and unethical behaviour. Also,
manipulating accounting data regarding purchases from suppliers is not a right thing to do.
2. Integrated Reporting and changes it can bring in performance and remuneration
Integrated Reporting is a method which is considered to be an evolution in corporate
reporting. It is a process which results in better financial as well as sustainability reports. It is
focused on building conciseness, strategic relevance and future orientation. This is a concept
which is used for improving quality of data that is there in final report (Aldi to grow by 16 per
cent a year, 2016). This makes reporting process more productive and full of tangible benefits.
This assist in enhancing integration in thinking as well as enabling better understanding
regarding factors that will have impact upon the materiality of company capabilities to create
value in a set period of time. This concept is signalling a higher level of emphasis on financial
performance measurement while reporting all the required data into one single report.
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The main thing which Integrative Reporting is trying to achieve is a better strategic
lookout at the variables which were being reported separately in past. This is the best way to
ensure that each party has knowledge regarding various aspects in which business is indulged.
There are various ways in which performance and remuneration system design will be
changed with the introduction of this process. The current system is considerably slow against
the proposed method of integrated reporting. This will allow managers in collecting information
with precision as well as enhance their ability to report any variance. With more speed,
employees will be able to deliver results on time as they will be informed.
3. Understanding of concept of “At Risk” and why it is considered as important
This is a concept which is little bit confusing but has higher level of significance when it
comes to remuneration of senior officials. Basically, it is concerned with the fact that
management or the top managers will be able to gain if the shareholders are earning. This is a
concept which is concerned with dual growth. It is very vital and important as it assist managers
in ensuring that everyone is benefited equally instead of partial distribution of profits. It is a
element of remuneration which is received by top most individuals as a part of profit sharing
which is done in short term (Cash benefits) and long term (Shares) methods.
This at risk component forms a major part in the remuneration of CEO's and senior
official of company. The retailing organisation (Westfarmer) is known to pay them in terms of
STIP (short term incentive payment) and LTIP (long-term incentive payment). These are the
methods which are used for paying these individuals. In which the short term method is more
effective as they are paid in cash. The majority part of at risk component comes from STIP and
not LTIP though later one has a crucial part in forming their remuneration.
4. Stakeholder of company, and large supermarket as well as concept important to ideas that are
concerned with ethical behaviour of organisations
Stakeholders are the parties which have interest in the business activities and its results.
Basically, they are the independent parties who has concern with the programs and activities run
by business organisation as they have invested certain resources or efforts into its process. There
are mainly two types of stakeholders which are stated below. They are similar for any other
sector or a retailing industry. They are as follows:
Stakeholders
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Internal External
They are the one who are in immediate
environment of company and have direct
impact upon its activities.
 Employees
 Managers
 Owners
They are the one who have specified level of
impact on company but they have to be
managed by changes in structure and polices.
 Suppliers
 Society
 Government
 Creditors
 Shareholders
 Customers
These stakeholders are the one which allow company in accomplishing all the desired
task in an appropriate manner. The concept of fulfilling all the requirements of the indulged
parties will assist organisation in ensuring that each task is completed in a set period of time.
Basically, they need to follow an ethical behaviour in the market which will enable them in
ensuring that each party is satisfied and fulfilling all the requirements.
5. Developing required culture in West-farmers
It is very essential for an organisation to focus on developing better culture and
environment in the organisation premises (Beverungen and Case, 2011). The best way to do so is
to increase the communication that takes place within management and employees as this will
enhance organisation ability to deliver higher quality of end products. The prime motive of these
managers is based on the sustainable growth rate instead of short terms gains. Basically, they are
more concentrated on the fact that they want a better longer productivity and profitability on the
place of short term boost. This can be achieved only when all the resources are properly aligned
and directed towards achievement of goals and objectives (Aldi to grow by 16 per cent a year,
2016). The second best method that can be used for enhancing and establishing right culture
within the premises of company is to use the problem based approach. This will boost people
ability to deal with uncertainties and stay motivated.
6. Responsibility of accountant relating to the case
Buying poor stock was the decision of buyers. They get attracted towards the shares
which were available on rebate and this ultimately result in poor product mix (Nussbaum, 2013).
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Although accountants are not directly related to the matter so they are not responsible for this
mistake but they could give valuable advice and warm buyers at the time buying. They have
working experience in this field so they could give essential warnings to the buyers. The main
work of accountants is recoding of accounting data so they have no connection with this matter.
Although chartered accountants are responsible for guiding buyers so can be held responsible for
poor product mix but up-to a limit.
7. Importance of non-financial measures
Management accounting theory also include non-financial measures like crucial decisions
taken by government, change in taste of buyers etc. Financial accounting only focus on figures of
profit, sales etc. They predict future trend on the basis on numbers (Frank, 2013). This approach
does not work many times because if government impose more tax on the products sold by West-
farmers then it may decrease their revenue. Involvement of government authorities in perfect
example of this situation. Accountants cannot use various tools of financial accounting
predicting the loss. Management accounting consider different ethical principles like taking care
of natural resources, this help cited organisation in attaining a image of a company who cares
about nature. These kind of values do not have any relevance with the financial accounting. If an
enterprise focus on following various norms and rules that is present in a society then it makes a
positive impact on their goodwill.
8. Performance measurement and remuneration difference between CFO and Junior accounting
officer
There are various methods that are adopted by companies but in the case of Westfarmers.
As a CFO, I will be using different methods such as Total Shareholder return. It is a method
which is used at the time when researcher wants to measure the performance of stocks and shares
of different organisations in the market. In current case scenario, West-farmers will be analysing
itself against the industry standards (Michael, 2013). It is made up of share price appreciation
and the dividends paid to state about total return which has been there to the shareholders. This
will be used as a tool as it is more balanced and provide a better approximation to the managers.
There will be major difference between the remuneration of CFO and a and a junior
accounting officer. The reasons are simple and clear, there is huge difference between two
positions as well as CFO will receive a part of profits of shares while an employee will be getting
his part of bonus or rewards as per his performance.
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9. Difference between financial and management accounting relating to ethical decision making
Most of the rules relating to ethics are similar in financial and management accounting.
Some regulation in internal and external audit may differ but overall they are related to each
other. Financial accounting does not care about the ethics relating to maintaining a decent level
of competition in the market but managerial always consider these issue (Beattie, 2016). Prior
one is related to only recoding of correct data and information while later one consider various
cultural norm and other significant regulation, made by government authority, which may not
have related to financial records. Westfarmers may find some flaws in internal audit because it is
generally done by one of the employee of company but the ethical standards of external auditors
are different from internal auditor and they analyse financial report of an organisation in a better
way.
10.Use of balance scorecard for issues relating to incorporation of ethics and sustainability
Balance scorecard focuses on important areas like finding the resources which are needed
for training of employee so they can learn new things and help organisation like Westfarmers in
attaining their objectives. If significant ethical standards are taught in their training session then
it will be beneficial for both employee and employer (Bennet and Garvey, 2016). Customers
satisfaction is important part in balance scorecard framework. Following various rules relating to
environment must be included at the time of making marketing and production policy.
Employees should get training about basic ethics which has to be followed at the time of taking
feedbacks from the buyers. Financial performance is another important part in balance scorecard
approach. Setting high ethical standards for accountants can save company from various
financial troubles.
CONCLUSION
There are various challenges which are faced by the West-farmers in market which
hinders organisation’s ability to offer higher level of productivity as well as profitability. The
very first issue which was identified was threat from fast growing discount store called as ALDI.
The rise in sales of these companies is a threat as they are providing products at a lower price
than West-farmers who follow a traditional method of offering products. The second issue has
been identified in accounting methods used by organisation. There is a controversy related to the
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methods which were employed by the firm. Also, investigations are going on to identify the
factors and issues which led to miscalculations and manipulation of data.
In the stated report it is mentioned as how various methods of accounting and
measurement are used to boost organisation ability to respond to variables and uncertainties.
There are various loopholes in the system, which can be fixed by implementation of right
policies and regulations. Basically, controversies associated with accounting manipulation as
well as the issues that exist in the organisation related to performance measurement and
remuneration. Also the ethical behaviour of company in the environment is stated in accordance
to its stakeholders which will allow reader in understanding as how they can influence market
forces as to gain maximum profitability.
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REFERENCES
Books and Journals
Bennet, M. and Garvey, P. 2016, “CBA hit with bonus backlash”, The Australian, November 10
p25
Beverungen, A. and Case, P., 2011. Editorial introduction: where is business ethics? Business
Ethics: A European Review. 20(3). pp.229-232.
Fontrodona, J., Sison, A.J.G. and de Bruin, B., 2013. Editorial introduction: Putting virtues into
practice. A challenge for business and organizations. Journal of business ethics. 113(4).
pp.563-565.
Frank, A.W., 2013. The wounded storyteller: Body, illness, and ethics. University of Chicago
Press.
Litzky, B.E. and MacLean, T.L., 2011. Assessing business ethics coverage at top US business
schools. Toward assessing business ethics education. pp.133-142.
Michael, S. 2013 “Death Toll from Rana Plaza building collapse in Bangladesh hits 1000”
News.com.au, May
Nussbaum, M.C., 2013. The therapy of desire: Theory and practice in Hellenistic ethics.
Princeton University Press.
Online
Australian retail sales beat across the board again. 2017. [Online]. Available Through:
<https://www.businessinsider.com.au/australia-retail-sales-june-2017-8>. [Accessed On
24rd October 2017].
Aldi to grow by 16 per cent a year. 2016. [Online]. Available Through:
<http://www.smh.com.au/business/retail/aldi-to-grow-by-16-per-cent-a-year-20160726-
gqe77u.html>. [Accessed On 24rd October 2017].
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