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Caltex was incorporated in 1936 as the result of a merger between U.S. based oil companies Socal and Texaco. Caltex is the largest supplier of petroleum products and top convenience retailer in Australia. Caltex also operates in different countries. The main goal of the business is safe supply for all customers. Caltex continues to build its position as Australia's leading supplier of petroleum fuels by further investment in the supply chain. Caltex is an independent ASX listed company and incorporated in Australia. Caltex is also associated with Chevron Corporation which holds a 50% interest in Caltex Australia. Remaining 50% ownership of Caltex consists of 27000 shareholders. Despite Chevron's large holding, Caltex operates with an independent board and management. (Caltex 2011)
Corporate governance refers to the set of principles by which a company is governed. These principles provide guidelines regarding the direction in which the company can be controlled so that it can fulfill its objectives and goals in a way that also serves the interest of all stakeholders in the long term and adds to the value of the company. Stakeholders would include everyone from the board of directors, shareholders to customers, employees and society. Corporate governance is concerned conducting the business with all integrity, being transparent, making all necessary decisions, following all the laws of the land and commitment of carrying business in an ethical manner. Moreover, corporate governance currently is one of the criteria that foreign investors depend largely on when deciding on which companies to invest their money. Additionally, the share of price of the company is also known to be positively influenced by corporate governance. (Economictimes 2009)
Key Elements of Corporate Governance
For such large firms like Caltex, there are many key elements of corporate governance that are crucial for the company and they help in guarding against corporate failures. These elements include:
Conflict of interests
Issue of Integrity
To guard against corporate failures these areas should be taken care of in order to avoid any unforeseen damages to the company.
Stakeholders will show more confidence in the management if a company is transparent and reports material facts quickly, in time. Capital cost would go down because stakeholders will be interested in investing in the company. Collectively, all these factors enable the firm's productive capacity and productivity to improve (Economybuilding 2011) .
For investors, transparency provides greater protection in all aspect of corporate governance. An investor would know how the firm is performing if there is transparency in the organization. In addition to that transparency in compensation of employees and directors, sales incentives and other human resource practices decreases the chance for mismanagement and unethical practices, which may harm the firm. Effective corporate governance also helps attracts and retain employees (Webster 2013).
Organizations must comply with the principles of transparency to conduct business in true, equitable, symmetrical and timely manner all the information reflecting the management and activities. These rules should not be set just as a formal concept of existence of corporate governance rules. (Iconsejeros 2005)
Conflict of Interest:
The companies which are not focused towards the interest of shareholders generally experience failure because they value their interest at the expense of others. In the long run, to be successful a firm requires protecting and valuing the interests of shareholders rather than the firm's interest. (Turner n.d.)
Ranging from local to global, in public and corporate sphere, conflict of interest is present at all levels of governance. Decision making processes are often distorted by conflicts of interest and generate unfavorable or inappropriate outcomes for the firm, hence undermining the functioning of institutions and markets. However, the current trend of regulation seeks to prevent and manage conflicts of interest. The hindrance of decision-making processes, the loss of expertise among decision makers and circle of distrust are few drawbacks. (Handschin 2012)
Big firms should have a procedure established for the control and resolution of any conflict of interest which may arise within the organization. Audit committee or the Remunerations committees should review if any situation of conflict of interest arises between the company and its shareholders, directors or officers. (Iconsejeros 2005)
Shareholders cannot monitor themselves the managers that they hire, so they appoint board of directors to make sure no conflict of interest arises which may go against the shareholders of the firm. In order to avoid any failures firm should make sure that their board is independent, resourceful and have the necessary experience to judge the actions of senior management. (Kayanga 2008)
Issue of Integrity:
Currently, the main issue in corporate governance is whether the top management of big organizations is seen integral by the public or not. If public perceives the firm as high on integrity they will invest in that firm. (Applied-Corporate-Governance 2013)
Recent high profile business failures raise issues which are depressing from many perspectives, domestic and international. These failures raised questions regarding the duties and practices of directors, managers, auditors, lawyers, investment bankers, analysts and rating agencies. Confidence regarding check and balances support the functioning of our market has been shaken badly. These issues threaten the credibility of corporate and financial leadership. The most major implications of recent events of failure relate to corporate governance and performance of Board of Directors. Bottom line for all large organizations is that board is responsible for the entity's integrity as it is the ultimate authority for the governed entity. Individually, everyone should take responsibility for the integrity of the organization. Board should see the organization's integrity as its own and act accordingly. (STOUT 2002)