Excerpt
Table of Contents
Executive summary
Introduction:
Exposure to reputation risk: (A)
Manage risk
Proposed changes in UK press regulation: (B)
Similarities:
Differences:
Impact on Mercury
Mercury’s current corporate governance arrangement: (C)
Positive issues in current governance
Inadequacy of company’s current corporate governance arrangement
Decision is robust or not:
Decision to use airbrushed photograph is ethical or not: (D)
1. Would it be profitable:
2. Is it legal:
3. Is it fair:
4. Is it right:
5. Is it environmentally sound:
Decision:
References:
Executive summary
Business ethics, governance system and risk management are very important issues for any organization because if the company doesn’t provide sufficient attention on these, may be the result of collapse of the business and avoidance on these has already been cause of corporate failures such as Enron and WorldCom. However, the combination of effective governance and management systems and consideration of ethics during decision making will help to eliminate this threat.
Key words: Corporate governance, Management systems, Risk management, unethical behavior and business ethics.
Introduction:
This report has got four sections which highlights Mercury’s current governance arrangement, associated risks and also evaluates its decision in light of governance arrangements and ethics.
Exposure to reputation risk: (A)
Mercury’s exposure to reputation risk refers to potential damages both non-financial and financial that can be suffered by the company because of recent campaigning and publicity by rival newspapers about phone hacking and airbrushed photograph.
As a result of this company may be involved in costly legal action which has already happened against Mirror group where 20 claimants took legal action against mirror group over phone hacking allegation. (Carroll, 2014)
Readers have already started to boycott the products of the company, which will reduce company’s revenue and eventually damage to the shareholders’ wealth.
Manage risk
As a risk manager, I can help Mercury to manage risk by following way.
1. I will arrange a well-designed Enterprise Risk Management (ERM) system for Mercury which is a comprehensive approach to utilize appropriate tools and techniques, in order to identify and monitor potential risks
2. I will create risk awareness within the company by providing appropriate tools and training to enhance capacity of the company to recognize risks from wherever they arise.
3. I will also be able to minimize potential risk to a residual level by putting control measures. If residual risk is too high, I will put additional control measures to reduce residual risk to acceptable level for Mercury.
4. I can provide objectivity and can also ensure that there is a greater degree of consistency and uniformity in the way in which potential risks are identified and monitored.
Proposed changes in UK press regulation: (B)
Independent Press Standard Organization (IPSO) is a new regulator in place of Press Complaints Commission from 24th October 2014. There are some fundamental differences and similarities between new regulation and UK’s general approach to Corporate Governance.
Similarities:
1. Regulatory body: Both UK press standards and codes of corporate governance have their own regulatory body. Codes of corporate governance are regulated and enforced by Financial Reporting Council and the responsibility for writing the standards for press regulation has given to the editors’ code of practice committee which is a subcommittee (Regulatory Funding Company) RFC. (The Independent, 2013)
2. Underlying principles: Both of these two has got some indifferent underlying principles. Such as fairness, integrity, judgment, and transparency. New press regulation also supports to keep confidential information secret unless it is in public interest. (Ipso.co.uk, 2014).
3. Provision for whistle blowing: UK’s general approach allows confidential whistle blowing and offer anonymity and for the first time IPSO provides a provision for confidential whistle blowing for journalist because they can explore unethical practices and behaviors. (O'Carroll, 2013).
Differences:
1. Compulsory compliance: the compliance with the press regulation is not voluntary which means it is based on rules and compliance is mandatory. However, UK code of corporate governance offers principle-based approach which is totally voluntary. This implies that companies don’t have to follow it but need to explain the reasons in the corporate governance statement. (The Independent, 2013).
2. Independence: UK governance system supports full independence whereas there might be potential lack of independence in the press regulation due dominance of industry which control, and influences are exercised by RFC. (The Independent, 2013).
Impact on Mercury
Due to new regulation in UK press industry Mercury may have the following impacts.
1. As compliance is mandatory, therefore if the company will be found to have breached the code it will be fined up to 1m or one percent of annual turnover and can be forced to make a public apology.
2. In new regulation, the company needs to setup a system to deal with whistle blower anonymously and this might have two effects on Mercury such as damaging publicity will be avoided, and the matter can be put right with minimum of damaged to all parties concerns.
3. Since new regulation is based on some good underlying principles, therefore by following this regulation the company can reassure investor community that there is a system of regulation for code of conduct.
Mercury’s current corporate governance arrangement: (C)
Recently Mercury’s board has decided to continue to use airbrushed photograph. Evaluation of this decision in light of current governance arrangements can be divided into two parts, Positive issues in current governance and insufficiency of governance arrangements.
Positive issues in current governance
There are number of positive issues can be highlighted about board decision. These are
1. Decision is from the board: the decision to continue to use airbrushed has made by the board in a democratic way where majority of board members (5 out of 8) has voted to use of airbrushed photograph. This way to take a decision is in line with the best practice of corporate governance.
2. Shareholder wealth maximization: the primary purpose of the business is to earn profit and the board should always take decision to maximize shareholder wealth. The decision to continue to use airbrushed images is align with shareholder’s wealth maximization as it will contribute to develop company’s revenue (Anon, 2014).
3. CEO and chairman split: UK corporate governance codes suggest that CEO and chairman should not be the same person which was firstly introduced by the 1992 Cadbury provision. Mercury’s board has also followed this provision by placing two separate individuals for two positions. Due to having two people instead of one, it has eliminated the risks of unfettered power being concentrated in a single individual which is important safeguard for investors or assurance for the shareholders. In order to having 2 separate individuals at the head of the organization, they have been able to bring different market skills and experiences when decisions have been made. (UK code, 2012)
4. Inclusion of experienced CFO: Mercury’s board has included Stephen Morgan as chief financial officer (CFO) during taking the decision. He is primarily responsible for managing financial risk within the company and also responsible for financial and other reporting. He has found that using airbrushed images is profitable since products are looking more desirable to customers as a result of this. Therefore, inclusion of CFO effectively means that there were systems for supervision of finance unit, budget management, and cost benefit analysis. (Solomon, 2010)
Inadequacy of company’s current corporate governance arrangement
There are number of highlighted issues which effectively indicate that the current governance at Mercury is inadequate. There are four ways that Mercury can be said to be insufficient in its corporate governance arrangement during taking the decision although these are linked.
1. Chairman’s independence: According to UK code chairman should be appointed on the board by considering independent criteria. UK code clearly states that anyone who is in the board longer than nine years is assumed to no longer be independent and should be annually reappointed after this. Viscount Beatty has been acting as a chairman since 1989 which means he has lost his independence to take the board decision due to duration of time. Even though he was concerned that airbrushed photograph could be damaging for the company, the board has decided to continue to use which might be potential result of lack of his independence.
2. No diversity on the board: since women are mainly affected by airbrushed photograph, therefore this might be more appropriate to include majority of female members in the board to take the decision. However, there was only one female member in the board and she was not present in the board meeting to make the decision. Inclusion of female members in the board might lead to different decision.
3. NEDs’ independence: In Mercury there are 3 NEDs in the board and two of them are working more than nine years. Therefore, only one NED in the board is effectively independent. The board has taken the decision even though all 3 NEDs found negative consequences perhaps because of lack of challenges to executive power. Moreover, none of NEDs have had relevant knowledge about news industry which might lead to take poor decision (Anon, 2014).
4. Unbalanced board: Codes recommendation is that at least half of the board members should be non-executive and these members exclude chairman who must be independent and non-executive. However, in Mercury there is only one effective NED and chairman is no longer independent as well. Therefore, it is clear that the decision to continue to use airbrushed photograph is not from the effective balanced board. (Solomon, 2010)
Decision is robust or not: Since the primary purpose of the board is to take decision which will maximize shareholder wealth therefore the board always need to think whether the decision will be profitable or not for the company. Although in short term it seems that the decision may bring positive results but in long term business may suffer to maintain its profitability as a result of the board decision. Whereby Women and equalities minister Jo Swinson has mentioned that changing people's bodies in photographs is one of the most malevolent types of retouching (Mazumdar, 2013) and The Be Real campaigning is working to create awareness against airbrushed images which may lead to boycott of company’s products and eventually it will be the cause of losing revenue and damaging shareholder wealth.
[...]