Corporate Governance Principles and Recommendations †Free Samples

Question: Discuss about the Corporate Governance Principles and Recommendations. Answer: Introduction Samsung is a multinational company which is based in South Korea. The headquarters of the company are located in Samsung town, Seoul. The company comprises of various affiliated businesses. The company is the largest South Korean organization and most of its businesses are carried on under the brand name of Samsung. The company had been founded by Lee Beyung Chul in the year 1938 in form of a trading company. The organization expanded its business into area such as insurance retail securities and food processing in the next three decades. The electronic industry was entered upon by the company in the late 1960 whereas shipbuilding and construction was entered up on in 1970s. The subsequent growth of the company was derived from these areas of operation. The company has been separated into four groups following the death of its founder. The company serves around the whole world. It deals with product such as consumer electronics, medical equipment, ships, telecommunication equipment, home appliances and semiconductors. The company also provide services such as advertisement, hospitality, Communication Technology, Financial Services and retail. There around $500,000 working for Samsung all around the globe. The purpose of this paper is to discuss the corporate governance and ethics in relation to the organization. The paper identifies the board structure of the organization and then discusses the scandals in which the organization have been involved. The paper identifies the stakeholder of the company along with the discussion regarding guidelines provided by the Australian Securities Exchange in relation to corporate governance and then applies the guidelines to the current issues of the organization. The board of directors of Samsung Electronics comprises of five independent directors and four executive directors. With respect to article 542-8 provided in the Commercial Act the majority of the board is constituted by the independent directors. The Board comprises of experts from different fields so that they can direct their skills towards strategic and efficient decision making. Samsung Galaxy Note 7 scandal A big scandal had been faced by the organization in October 2016. The main reason of the scandal was that the organization rushed to launch their new mobile product which was Samsung Galaxy Note 7. As stated by the article from Business Insider Australia it was accepted by the organization that the design of the battery in relation to Samsung Galaxy Note 7 was at fault (Reporters 2017). This fault resulted in a major blow for the organization and was the most talked about issue in the smartphone industry in 2016. As the design of the smart phone was defective specifically related to its battery a few of the devices were subjected to overheating and therefore exploded. The explosion in addition took place in very sophisticated place such as aircrafts. Many individuals were also injured as the phone exploded while they were using it. After hearing several news related to the explosion of the smartphone the organization took a decision to recall all the smartphones of the model from the market. However the issue was further escalated when even after recalling the products and refurbishing the phones with new batteries which was supposed to be fix the problem the problem of overheating and explosion in the mobile phones continue to haunt the organization. The reputation of the organization which was very high after the launch of Samsung S6 edge and S7 edge took a huge hit in the smartphone industry. Hit by such reputational loss the decision makers of the organization in order to ensure that the reputation of the organization is refurbished decided to recall all the smart phones on the market one more time. This step was also taken in order to avoid any further accidents and complaints related to the smart phone from direct consumers. This decision was not financially feasible for the organization. The recall of the mobile phone from the market cost at the organization a huge revenue of 4.4 billion. The recall was made by the organization at a very critical time because just a week before Apple has launched its latest smartphone known as iPhone 7 and 7 plus in September when Apple conducts its annual launch event. A gamble was taken by Samsung that positive reviews in relation to the smartphone which included the feature of iris reading Technology would enhance the sale off the device. There was huge expectations among the agents of the organization who had relied on the profits made by the organization in the previous year with the help of its smartphones and the slowdown of sales for iPhones. The shares of the organization Rose by 1.4% however after the scandal the shares of the organization declined by 3.4%. The scandal raised significant doubt in the minds of the consumer whether to purchase any other smartphone manufactured by the organization or not as there was a risk that they might also have the same default. Samsung Galaxy Note 7 stakeholders All of Samsung customers from loyal to new, will be affected by these poor decisions. It will take allot of money to earn their trust. Samsung SGI is an affiliate and was the main battery supplier for Samsung Electronics up until this mess will now need to regain its footing. Amperex Technology Limited is the manufacturer of the replacement batteries that also failed. Phone carriers like Att, Verizon and T-Mobile have been missing out on projected revenue. Consumer safety associations and organizations like the U.S Consumer Product Safety Commission are stakeholders in the Note 7 recall. Apple Inc. is Samsungs only true competition and the iPhone 7 was preparing for the holiday rush, they also had an interconnected supply chain. This made Apple one of the largest stake holders behind the Samsung shareholders, who would need to clean up this mess and recoup their profits Australian Securities Exchange Guidelines The Australian security exchange sets out eight principles for organization towards good governance. Firstly the guidelines state that a solid Foundation with respect to management and oversight has to be laid by all organizations. This means that every organization has to establish and disclose the responsibility and roles of each member of its board and Management along with the procedure for evaluating and monitoring their operations. The board of directors are the brains of any organization and their decisions are the decisions of the organization therefore how they perform their respective responsibilities and duties have a significant effect on the growth of the organization. The council provides a recommendation that the board of any company has to be structured in such a way where value is added to the organization. The board of every organization should be of an appropriate size and must contain people having diverse skills so that they can manage the organization successfully by deploying their skill and diligence. If an organization does not have an appropriate composition of board along with people from diverse areas of knowledge it would not be able to handle different situations which an organization is subjected to in relation to its operations. In addition the ASX strictly provides that it is the responsibility of all organization to act in a ethical and responsible manner. The organization is operated through its directors and therefore the directors are required to observe the principle of ethics and morality in all the decisions with respect to the organization. Safeguarding the integrity with respect to corporate reporting is also a recommendation which has been provided by the ASX. Directors of an organization must take the process of Corporate reporting seriously and give utmost priority to its integrity. Independent and fair review of the reporting process have to be ensured by the directors of the organization. The director must be held accountable towards safeguarding the integrity of the organizations corporate reporting. It is the duty of all organization according to the ASX to make balanced and timely disclosures to the respected authority and the public. An organization is there for required to make timely and balance disclosure in relation to all matters which concerns the organization which would have a material effect on the value and price of its securities as expected by a reasonable person. The organization must keep appropriate respect to the rights of all shareholders. The process must be carried out by providing them relevant information along with facilities which would allow the shareholders to conveniently exercise the rights provided to them. One of the most important recommendation which has been provided by the ASX is in relation to identification and management of risk. The council provides that it is a responsibility of all organizations to bring into existence a strong risk management structure and periodically analyze how effective the structure is in relation to the identification management of risk. Lastly, the council recommends all organization to responsibly and fairly remunerate the directors as well as the employees. The organization must remunerate the directors sufficiently so that they are able to attract high quality directors and motivate other offices of the organization to make their interest consistent with the interest of the organization by creating value for the shareholders (Council 2007). Through the application of the above discuss principles in relation to the scandal Samsung has been in during the last year it can be provided that Samsung missed out on various recommendations made by the ASX. Firstly as identified above Samsung has an efficient Board which consists of four independent directors and four executive directors who have expert knowledge in the respective fields. However the organization failed to identify and manage risks properly which led to significant financial as well as reputational loss for the organization. In case there was a proper risk management Framework within the organization then the risk related to the smartphones would have been identified in its early stages and such a big Scandal would not have taken place. In addition when the smart phones have been recalled for the first time, a proper risk identification and management system would have been ensured that they are not be launched into the market until and unless all problems relate d to the smartphone have been addressed appropriately. However due to the lack such a structure within the organization in there were faulty decision taken by the directors which led to decline in the share price of the organization. Carrolls pyramid of corporate social responsibility Carroll had organized various corporate social responsibilities in form of a 4 layered pyramid model which was known as the pyramid of responsibilities. The four different responsibilities were categorized into ethical, legal, economical and philanthropic responsibilities (Ojo and Rosati 2016). This part of the paper analyses Governance of Samsung based on Carrolls model. In relation to philanthropic responsibilities the organization has launched several appliances and devices through there different divisions known as consumer electronics, IT and mobile communication and device solutions. Through this the organization is attempting to contribute resources towards the community to enhance the quality of life style and play a role in community development. The organization also indulges in various Charity events and ensures the maintenance of environment in order to comply with its corporate social responsibilities. The organization ensure that ethical responsibilities are significantly addressed by its management. For the purpose of addressing ethical responsibilities Samsung have initiated four programs. These programs ensure that the organization operates as a responsible corporate citizen. The organization has an audit system which ensures that it complies with all auditing requirements and no corruption takes place within the organization. Organization along with the regular auditing system also has a team of Cyber auditor's. The organization carries out anti corruption education program within it with respect to its employees and officers. The organization also has an auditing committee to identify and deal with any corruption within the organization. The organization have developed five principles to ensure that they comply with all legal responsibilities. The organization strives to comply with all ethical standards and legal provisions. The organization maintains a clean organization culture. It ensures that appropriate respect is provided to shareholders, employees and customers. The organization also acts towards the protection of the environment and the health and safety of its employees and consumers. The organization promises to act as a responsible corporate citizen in relation to its operations. Organization through its board of directors and financial Advisory Committee always tries to ensure that it operates in a way so as to generate profit in long term. The organization also strives to create long-term value to contribute towards a sustainable global economy as well as the development of its stakeholders. Conclusion According to the above discussed facts about Samsung it can be stated that it is a very large organization which operates by incorporating diverse cultures into it. The organization have been recently subjected to a significant scandal related to Samsung Galaxy Note 7. There was a mistake in relation to the decision making authorities of the organization as they fail to identify and manage the risk which arise out of the faulty design of the smartphone. However the way in which the organization is governed can never be doubted as the organization came back strongly against its reputation and financial losses and launched successfully Samsung S8 which became a huge success in the market. The Governance of the organization complies with the model provided by Carroll and therefore addresses all aspects of social responsibilities. It is recommended for the organization that it establishes a strong Risk Management Committee which would be able to identify risky situations before the hamper the organization and manage such situation if they have offered. The Risk Management Committee should comprise of independent directors so that it functions appropriately without any interference. The organization is doing well in the smartphone market and therefore it must not rush its mobile launches and wait until they have cleared all security related issues. References Carroll, A.B., 2016. Carrolls pyramid of CSR: taking another look.International journal of corporate social responsibility,1(1), p.3. Council, A.C.G., 2007. Corporate governance principles and recommendations. Ojo, M. and Rosati, P., 2016. Innovating Carroll's Pyramid of Corporate Social Responsibility (Presentation Slides). Reporters, T. (2017). Samsung apologises for Galaxy Note 7 and corruption scandals. [online] The Telegraph. Available at: https://www.telegraph.co.uk/technology/2017/03/24/samsung-apologises-agm-galaxy-note-7-corruption-scandals/ [Accessed 30 Oct. 2017]. Samsung.com (2017). [online] Available at: https://www.samsung.com/us/aboutsamsung/investor_relations/corporate.../boardofdirectors/ [Accessed 30 Oct. 2017]. Samsung.com. (2017). About Samsung - SAMSUNG IR - Corporate Governance - Ownership Structure. [online] Available at: https://www.samsung.com/us/aboutsamsung/ir/corporategovernance/ownershipstructure/IR_OwnershipStructure1.html [Accessed 30 Oct. 2017]. Samsung.com. (2017). Stakeholders. [online] Available at: https://www.samsung.com/us/aboutsamsung/investor_relations/corporate_governance/corporatesocialresponsibility/downloads/Stakeholder.pdf [Accessed 30 Oct. 2017].