Saved Recents Uploads My Answers Account Products Home Essays Drive Answers Texty About Company Legal Site Map Contact Us Advertise ©2016 StudyMode. com Home > Essays > Evaluate Dutech's Corporate... Evaluate Dutech's Corporate Governance Audit, Auditing, Board of directors By allank Oct 6, 2011 1462Words 381Views Page 6 of 6 Dutech Holdings Ltd is a company that has been making large amounts of profits over the years since its incorporation in 2006. At 2009, its net profits amounted to RMB 58. 4 million. This would mean that it would have the necessary resources to ensure proper corporate governance.
The objective behind corporate governance through the reporting and practices is to enhance the long-term shareholder value and interests of other stakeholders by enhancing corporate performance and accountability. General overview of the Annual Report on Corporate Governance Dutech adopts a highly prescriptive approach towards tackling the issue of corporate governance. Dutech follows closely to the requirements set out by the Singapore Code of Corporate Governance so that they would not deviate too much from the intended purpose of adopting Corporate Governance.
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It must be conceded that Singapore companies would tend to adopt the Singapore Code of Corporate Governance with a presriptive mindset because the idea of corporate governance has been fairly new to companies in Singapore. This method eases the employment of corporate governance in the company, especially when the Code provides specific guideline, such that they need not devote too much resource or effort to the initial setup of corporate governance. Approach The Singapore Code of Corporate Governance consists of four main principles: 1. Board Matters 2. Remuneration Matters
3. Accountability and Audit 4. Communication with Shareholders One must contend that, as much as “adequacy” comes into play, there is no fixed benchmark. By definition, “adequate” would mean “satisfactory or acceptable in quality or quantity”- Oxford Dictionaries. This would imply that the adequacy of practices is controversial because different classes of stakeholders would have different standards of quality or quantity that they deem acceptable. Board Matters Firstly, Mr Johnny Liu Jiayan is the company’s Chairman, CEO and Controlling Shareholder of the company.
In this case, Mr Liu wields unfettered powers of decision, which he may abuse and work it to his personal gain. Its leadership structure may be better having a Chairman separate from its CEO so that the Chairman can keep the CEO’s management abilities in check and the CEO’s actions can be regulated to be made accountable to the Board of Directors. ? However, advantages can accrue to Dutech by not hindering the decision-making process. This can be evident from the pace the company managed to recover from the drop in profits from 2008.
The company’s ability to quickly innovate and hedge in raw materials is a good example of doing without the separation of functions between the CEO and the Chairman. Secondly, it must be noted that Mr Liu Bin, Dutech’s Vice Chairman is Mr Johnny Liu’s brother. It may be a worrying issue if the brothers decide to collude for the wrong reasons as they have very strong controlling power over the company. Furthermore, it is not specially noted in the Annual Report that there can be potential conflicts of interest.
This presents an issue of adequacy and weakness, diluting the strength and independent element of the Board. In light of this issue, weakness can also be seen in the composition of the Board. There is still a high degree of non-independence in the top positions of the Board, since the Lius are substantial shareholders (holding 57. 51% shares indirectly), holds executive position in the company, and are highly paid. It must be commendable that the Nominating Committee is made up of fully independent directors, thus effectively ensuring the proper evaluation of the Board’s performance.
In this sense, it would be difficult to find biased assessment of any director in the company, increasing shareholder’s confidence in the company’s operations. Even so, the company did not disclose the process of assessing its directors individually, making this level of assessment rather flawed and inadequate. Details regarding the method of assessing the individual directors are of high importance in Dutech especially because the Chairman and Vice Chairman are kins. Remuneration Matters It is commendable that the Remuneration Committee is fully made up of independent directors.
This is above the minimum requirements of “a majority of RC members to be independent”. This can give assurance to the various stakeholders of the company because the level of remuneration is believed to be set at a more appropriate rate, such that the non-independent directors are not excessively paid. It is required that performance-related elements form significant proportion of the total remuneration package. Instead, Dutech has low proportion of performance-related elements. The CEO, Mr. Johnny Liu, has 28% of his remuneration tagged to Bonus.
Furthermore, the top 6 key executives in the company are drawing fixed salaries. ? The remuneration practice of the company may be inadequate because no long-term incentive scheme is employed to align the performance of the top executives and the CEO to the interests of the company, such as share option schemes. Inadequacy in remuneration contracts may inhibit improvement. Accountability and Audit Dutech fulfills the criteria of having all members of its Audit Committee independent and non-executive.
Furthermore, two of the directors have taken mangerial positions in other companies, making their audit work more credible to other stakeholders. Some of its measures may be slightly general, which may not achieve its intended effects. One such example is when Dutech is considering the appointment and re-appointment of external auditors. The criteria for the selection of external auditors are not spelt out clearly in the annual report. This may lead to stakeholders questioning the reliability of Dutech’s choice in appointing Horwath First Trust LLP in terms of cost-efficiency, accuracy and depth of external audit.
It may be a weakness of Dutech that the internal audit function is outsourced to Messrs BDO Raffles Consultants Pte Ltd. They may not be at the company to see the operations of the company to properly assess the risk managements, internal control and corporate governance process. On the other hand, outsourcing of internal audit may also be justified because of the simplicity of operations of the company. By outsourcing internal audit, the company can be advised from a more professional perspective.
Much said, it is still laudable that the AC and the Board cmments on the internal controls and gives assurance to to the various stakeholders that the internal controls are in fact adequate to promise reasonable integrity and reliable financial information to them. Communication with Shareholders and Shareholder Participation The company tackles the issues of communication with shareholders and shareholder participation in an adequate manner as it strives to disclose material information in an adequate and timely manner.
The company has employed an acceptable number of medium such as through annual report, announcements through SGX-ST, advertisements of notice of general meetings and at general meetings of the Company. Transparency of disclosure was also promoted through its active shareholder participation method by allowing shareholders to air their views and ask question during general meetings. ? Conclusion In overall, Dutech is believed to have made a good attempt at enforcing corporate governance especially since it has been incorporated only 4 years ago.
This is in light of the prescriptive approach that Dutech has adopted, making it easier to implement corporate governance into the company. Nevertheless, the trend of Singapore companies incorporating corporate governance into its operations would show that Dutech has made a good step forward. One of the more notable issues is the disclosure of the process that the Board’s performance is assessed. This is because "feedback would allow the board to perform to the best of its capabilities. " However, we must also acknowledge that “appraisal of individual directors is sensitive as directors are reluctant to comment on board matters”.
Much time will be taken before the full disclosure of such confidential information can be evident in most companies in Singapore. Another similar issue is the reluctance of companies to disclose too much sensitive information. Belkaoui & Kahl (1978) and Wallace & Naser (1995) found that firms with higher profitability tend to disclose less in their annual reports. This is understandable because they may want to avoid rigorous scrutiny by external parties. Yet another issue prevalant in Dutech and many other Singapore companies is that the whistle-blowing provision is not well-developed.
There is little measure to protect in-house whistle-blowers, such as being sued for defamation . Corporate governance within companies can be greatly improved if companies have such measures that promote self-regulatory behaviour. In conclusion, the reporting and practices of Dutech in corporate governance have been rather adequate in meeting the requirements set out by Singapore Code of Corporate Governance (2005). However, it would still be lacking if compared to the other companies such as those in the US where there is great emphasis on corporate governance.
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