Ethical Hemp Ltd: Governance Issues In Ethical Hemp Ltd (Case Study Sample)

EETHICAL HEMP LTD-ASE
Name
Instructor’s Name
Course Number
Governance issues in Ethical Hemp Ltd
Corporate governance issues
Corporate governance issues majorly relate to the agency conflict that exist between the principal (Shareholders) and the agent (management) (CHEN, LU and SOUGIANNIS, 2011). Ideally, the real owners of resources, shareholders, normally appoint the management, who act as agents, inorder to full heartedly manage their resources (shareholders). However, management a times represents their interests rather than representing the interests of the shareholders. This kind of misrepresentation leads to agency conflict. Agency conflict affects the corporate image identity and the general overall performance of the company. According to Richard Conti (2009), one of the objectives of company existence is maximization of shareholder’s value. Therefore shareholders ‘value can’t be maximized if the quality of companies operations is at stake because of poor governance and crave ethical concerns.
The case of Ethical Hemp Ltd presents some grave ethical concerns relating to corporate governance. For example, it has been indicated in the case that there has a lot of mismanagement of company resources by Tasma Callistemon, the community engagement officer. It is said that a number of community engagement projects have stagnated because of mismanagement. This affects company operations and thwarts its growth as the company’s quality of operations is interfered with. This goes against one of the rules or principles on which listing in the ASE is based. This contravened principle states that an entity which wishes to be listed in ASE should satisfy minimum standards of size, quality and operations before it is listed. Ethical Hemp limited supposedly doesn’t meet the requirements of this principle because of poor governance that have affected the company to an extend that the company is at the verge of collapsing as Ben Banksia , one of the directors is heard saying that the company might no longer be viable.
Conflict of interest
Conflict of interest is one of the governance issues affecting most companies. It arises in instances where management engages in other issues that are not part of the operations of the company. Ideally, management is selected by the shareholders to maximize shareholder value. However, maximization of shareholder value is often not achieved because of conflict of interest. Additionally, conflict of interest includes instances where the affairs of the company are affected. The management at times make decisions that may affect the operations of the company and which may threaten the principle of going concern and the concept of separate legal entity (AA and S, 2016. The concept of separate legal entity states that a company is a separate legal entity and that the affairs of a company should not be affected by personal affairs (Aguinis and Bradley, 2015). However, in Ethical Hemp Ltd, this is not the case because the affairs of the company have been seriously affected by personal affairs of the company. Additionally, it is said that Max Acacia, one of the directors has lent the company substantial amount of money which is one of the issues that contributes to conflict of interest. Conflict of interest affects the inflow of investors into the company. It is apparent that Ethical Hemp Ltd has limited number of investors, which doesn’t meet one of the threshold principles of company listing by ASE. One of the principles of that ASE bases to list companies is that a company must have sufficient shareholder interest demonstration.
Fair representation
One of the duties of the management is to ensure that interests of the shareholders are taken care of (Petry, 2017). However, most of the shareholder’s interest and trust have been betrayed by the management who fail to represent the interests of the shareholders. Because of the lack of trust the shareholders have towards the management, the shareholders appoint an auditor who acts as a watchdog, monitoring the actions of the management. An appointed auditor is supposed to be independent from the management inorder for him to express an opinion regarding the true and fair view of the affairs of the company (Saxena et al., 2010). However, this is not the case with Ethical Hemp Ltd which is said to have appointed an auditor, Mr Lawrence Helmsii to audit the books of accounts but again turns out not be to independent because he is said to have worked closely with accountants in preparation of books of accounts, an action not accepted in auditing because of the compromise it has on independence. The case also notes that the auditor find it’s hard to audit books of accounts and give out a report, an issue that contravenes one of the principles determining company listing by ASE, which requires that a company should produce financial statements which should be subjected to auditing as per auditing standards.
Untimely presentation of financial statements
Resources being managed by the board of directors who form the management body belong to the shareholders and the management has a duty of presenting financial statements to the shareholders on a timely basis (AA and S, 2016). Additionally, delayed preparation and presentation of financial statements consequently leads to delayed decision making which translates to non-achievement of objective in terms of maximization of shareholders’ value. It has been indicated in the case that the chief accountant, Andy Agapanthus, has always been away and has delegated most of his work to junior accountants, Conrad Conifer and Helen Hibiscus, who have always faced difficulty in the preparation and presentation of financial statements to the board of directors. This contravenes one of the requirements ASE bases to list companies. ASE’s principle requires that a company prepares timely financial statements, a principle Ethical Hemp Ltd has failed to observe
Un-approved decisions
Management should make decisions as per the interests of the shareholders (Intezari and Pauleen, 2017). However, this is not the case in Ethical Hemp Ltd because most of the decisions are made by the management without any approval. For example, it has been indicated in the case that Ethical Hemp Ltd is considering expanding its operation to the European market and has greatly spent on t...