Corporate Governance Within The Defence Contracting Industry Accounting Essay

Published:

Booz Allen Hamilton (BAH) was founded in 1914 and is a pioneer and business leader within the management consulting arena. The vast majority of its clients and business comes from government contracts with the US Department of Defense and US Federal Agencies. After years of speculation, BAH had its initial public offering in November 2010. As a publicly traded company, BAH generates over $4 billion in revenues.

BAE Systems:

BAE Systems was formed in 1999 from the merger of British Aerospace (BAe) and Marconi Electronic Systems, making it the second largest global defense and security company. With over 100,000 employees, BAE Systems delivers a wide range of products and services which include information technology, security solutions and support services. Last year, BAE Systems reported $36.2B worth of sales.

IBM (Government Services):

Corporate Governance Policies/Guidelines/Mechanisms

This section will discuss the type of corporate governance policies, guidelines and mechanisms in place within the three companies I have selected.

Booz Allen Hamilton:

Corporate Board Structure and Leadership Composition

Lady using a tablet
Lady using a tablet

Professional

Essay Writers

Lady Using Tablet

Get your grade
or your money back

using our Essay Writing Service!

Essay Writing Service

The board structure for BAH is currently comprised of seven directors. The number of directors may be modified at any time but cannot be reduced to less than three. The selection and number of board directors is based upon the recommendations of the Nominating and Corporate Governance Committee.

Board member selections are based upon several factors including background diversity, industry experience and work responsibility level and integrity. Newly appointed board members are required to participate in orientation training. This training consists of presentations pertaining to the firm's business model, current operations, financial condition, audit procedures and overview of a director's duties and responsibilities. Moreover, each board member is highly encouraged to participate in continuing education as long as they are on the board.

The potential for Board members to serve indefinitely exists since there are no term limits. The only limitation that exists is that no director can serve concurrently on more than four publically traded company boards.

Corporate Board Role in Financial Affairs

The major role BAH corporate board members take on within the company's financial affairs area is chairing, on a rotating basis, the audit committee. The purpose of the audit committee is to ensure quality control oversight over the company's financial statements, legal and regulatory matters, internal financial reporting, and all SEC disclosures. However, board members are not responsible for conducting audits of any kind. The firm's management, internal auditing staff and the independent auditing staff have that responsibility. Moreover, the firm's management and auditing staffs are responsible to determine if the Firm's financial statements and disclosures are accurate and comprehensive in addition to ensuring compliance with the Generally Accepted Accounting Principles (GAAP), laws and regulatory rules.

Fraud Detection Procedures

Throughout its almost decade long history, BAH has a formal code of business ethics which is taken very seriously at the company. All officers and employers are required to comply with the BAH Conduct and Code of Business ethics and company policies. According to the company's website, "Booz Allen staff members put ethics first. As an institution and as individuals, corporate governance and business ethics define our way of life."

Board members meet periodically with company management, company internal audit staff and with the independent auditor. The purpose of these meetings is to discuss current auditing policies and procedures to ensure they adequately reflect and pertain to current laws and regulatory guidelines.

In regards to the independent auditor, board members annually review the independent relationship and quality control mechanisms of the independent auditor. Additionally, the independent auditors staff qualifications, experience and performance are adequately reviewed. This process is to prevent impartial, incomplete and biased independent audits from occurring and possibly communicating misleading or false information to the company's shareholders, potential shareholders and the overall investment community.

Whistle Blower Protection

Booz Allen strictly adheres to the current federal whistle blower protection laws. Additionally, BAH's non-retaliation policy specifically states that employees who raise concerns, questions or issues pertaining to suspected business misconduct or fraud done by the firm's officers, directors, employees or clients will not suffer any retaliation. The only requirement to be protected by the non-retaliation policy is that the information provided not be fabricated or intentionally misleading. Moreover, corporate policy encourages employees to report suspected violations of law or regulation.

BAE Systems:

Corporate Board Structure and Leadership Composition

Lady using a tablet
Lady using a tablet

Comprehensive

Writing Services

Lady Using Tablet

Plagiarism-free
Always on Time

Marked to Standard

Order Now

The BAE Corporate board consists of eleven directors which comprise of a non-executive chairman, three executive directors and seven non-executive directors. This mix of executive and non-executive directorship roles prevents decision making domination by a single individual or group of individuals.

BAE System has a stringent, formal process for selecting and appointing directors to its board. The responsibility of making these selections is that of the Nominations Committee. This committee is responsible for conducting a regular periodic review of the Board's membership in addition to searching for suitable board candidates.

Corporate Board Role in Financial Affairs

BAE Systems' Board regularly monitors the Company's financial performance and integrity via various business and financial controls and risk management processes. They ensure that the company complies with all relevant laws and regulations. Additionally, board members approve the Company's financial audit committee charter and monitor the effectiveness of the financial audit committee as it monitors and responds to company financial issues or concerns.

Fraud Detection Procedures

It is the direct responsibility of the BAE Systems board of directors to ensure an effective and comprehensive financial internal control system exists and is in use at all times. The system is used to identify and manage risks that hinder and/or threaten the financial well being of the Company along with detecting fraud. This system particularly monitors corporate non-compliance with laws and regulation, failure to maintain pertinent accounting records and other fraud areas.

Whistle Blower Protection

IBM (Government Services):

Corporate Board Structure and Leadership Composition

Corporate Board Role in Financial Affairs

Fraud Detection Procedures

Whistle Blower Protection

Corporate Governance Comparison

Across all three companies, ethics and integrity were paramount, at least they are in accordance with the governance literature published by these companies.

Out of the three companies selected for this report, BAH seemed to value more than its competitors with focusing on the conduct of comprehensive annual reviews with management and the independent auditor in order to discuss significant accounting and auditing principles and practices. Furthermore, BAH is considerably more proactive in analyzing changes to the company's selection or application of accounting principles and internal controls.

BAE's board of directors has the tightest control, compared to BAH and IBM, over the company's internal audit committee. Specifically, they approve the appointment and/or removal of the internal audit committee chair. BAH and IBM directors do not have that authority.

(independent directors)

(conflict of interest)

(compensation)

Booz Allen Hamilton

BAE Systems

IBM (Government Services)

Conclusion

Throughout history, weak corporate governance throughout companies significantly contributes to financial fraud and