Business organisation and Policy
The post has two assignments
1:Business organisation and Policy
Order Description
Candidates must clearly label their ID Number on additional separate reference, formula or answer sheets.
Assignment Task
BHS was a department store founded in 1928 that sold a variety of clothing, household and other items. In April 2016, the company was placed into administration and its future and that of its staff remains uncertain.
You are required to write a business report that covers the following tasks:
TASK 1
Mergers and acquisitions (M&A) represent two major areas of strategic business planning and decision-making. M&A decisions occur within wider business and regulatory environments and each decision to merge or buy carries with it significant opportunities and risks.
a) Using relevant examples, evaluate current laws and policy governing Mergers and Acquisitions in the UK. ( 10 marks )
b) Research and analyse the acquisitions of BHS with specific reference to the opportunities and risks associated with this type of business planning. ( 30 marks ) TASK 2
A business exists and operates within environments. Each environment consists of different factors of varying type, risk and ability to control.
Apply the following environmental analysis tools to the business factors, risks, controls and impacts that you think are relevant to BHS:
a) Internal environment: use McKinsey 7S.
(20 marks)
b) Industry competition: use Porter’s Five Forces Analysis.
(20 marks)
c) Macro environment: use PESTEL Analysis. (20 Marks)
2:Corporate Governance and Social Responsibility
Order Description
James Hardie: Restructuring, removing and reviewing the social contract
(Source: Lisa Barnes, University of Newcastle)
On Thursday 15 February 2007, the Australian Securities and Investments Commission (ASIC) commenced civil penalty proceedings relating to James Hardie. Both current and former directors and executives were investigated on matters of possible criminal issues, especially in relation to the Medical Research and Compensation Foundation (MRCF). On Friday 16 February, the then Chair of James Hardie, Meredith Hellicar, and several directors resigned their positions.
History of James Hardie
James Hardie was founded in the late nineteenth century, and became an iconic company, especially in Australia in the twentieth century, for mining, importing and manufacturing asbestos-based products. Commonly referred to as ‘fibro’, fibro-cement played a key role in the growth of expanding cities as it was a cheaper alternative to brick, but supposedly safe and durable. However, fibro sold by James Hardie was made of asbestos, which even back in the 1930s was known to be ‘causing deadly lung disease’ (Ministry of Health Report 1938, cited in Kjellstrom 2004). Indeed, for James Hardie, the first workers’ compensation case occurred in 1939 (Hills, 2005); but it was not until the mid-1960s that James Hardie was given information on asbestos-related diseases among its employees in which they were told that liabilities could be as high as A$1.5 million, which set against shareholders’ funds of $30 million seemed significant (Haigh, 2006). Despite these health warnings and potential impact of liabilities from compensation, James Hardie continued to manufacture the product until 1987.
Asbestos and its health impacts
Asbestos has been found to cause many medical conditions including lung disease and, in particular, mesothelioma, lung cancer and asbestosis. Mostly, however, it takes between 15 to 30 years before symptoms present themselves after people are exposed to asbestos dust (Smartt, 2004). Asbestos was mainly used in domestic and industrial buildings, brake linings, fibro sheeting, pipes and insulation. The health effects of its use are not limited to employees, however; they also include neighbours of mines and manufacturing plants, and demolition contractors. These effects are recognized internationally (Jackson, 2004).
The fact that the medical implications of exposure to asbestos were known as early as the late 1930s, and that James Hardie knew about it via their own employees’ workers compensation claims in the 60s, and the fact that it took another 20 years until the manufacture of asbestos products ceased, showed that manufacturers ‘knew at an early stage about the dangers of asbestos and made a commercial decision to keep producing it, thereby jeopardizing lives’ (Spender, 2003: 235).
The Medical Research Compensation Foundation (MRCF) and restructure
In early 2001, the board of James Hardie made several announcements, one of which was the establishment of the MRCF. This fund was to ‘compensate sufferers of asbestos related diseases and claims against two former James Hardie subsidiaries and fund medical research aimed at finding cures for these diseases’ (JHIL, 2001). The fund was established to effectively resolve any liability in relation to asbestos, which would then allow the board to concentrate on growing the company ‘for the benefit of all shareholders’ (JHIL, 2001). The foundation was supposed to have sufficient funds (A$293 million) to cover all legitimate past and future claims; the funding was by way of ownership of subsidiaries Amaca and Amaba which had net assets of $293 million, and James Hardie also stated that any leftover funds would be used to support further research on lung disease (JHIL, 2001).
Later in 2001, a new holding company was set up, called James Hardie Industries NV (JHI NV), and the group moved to the Netherlands where Australia has no civil law enforcement agreements. The decision to restructure and relocate was granted by the Supreme Court of New South Wales, based on the assurance by the company that any future claims would be met and backed up by partially paid shares in JHIL held by JHI NV. However, these shares were subsequently cancelled when JHIL (later known as ABN 60 Pty Ltd) vested in a new company, the ABN 60 Foundation, which was still supposedly able to meet any obligations for the MRCF. The complex structures and restructure of James Hardie made it harder to guarantee the liability of claims would be met.
The MRCF, however, had been substantially underfunded. A report by KPMG re-estimated the liabilities to be A$693 million, rising to $1044 million in 2000 (Haigh, 2006). The shortfall caused much activity by lobby groups such as trade unions and local councils, resulting in the 2004 Jackson Inquiry. The findings indicated that James Hardie had acted within the law; however, it also discovered that James Hardie did not use reliable actuarial estimates, the company had made misleading public statements and appeared to be deliberately avoiding its moral obligations to society (Tozer and Hamilton 2006).
The future for James Hardie and its victims
James Hardie agreed that the MRCF was underfunded. In 2005, James Hardie signed a Final Funding Agreement (FFA) with the NSW state government, where claims were re-estimated to be A$4.5 billion over 40 years (Slater and Gordon, 2005). Negotiations then began with the Australian Taxation Office to set up a charitable organisation to fund the rest of the expected liabilities related to asbestos exposure. The arrangement established the Asbestos Injuries Compensation Fund Limited (AICFL), which would receive income annually from James Hardie according to a formula based on a percentage of ‘free cash flow’ and a ‘cap percentage’.
The arrangement was agreed to by shareholders in early February 2007 as it ‘is consistent with current investor and Australian Community expectations’ (JHI NV, 2007). Little did James Hardie know that one week later, ASIC would commence proceedings into the actions of former and current directors and executives, alleging breaches of the Corporations Act 2001. The five allegations were:
1 Misleading communications in 2001 regarding the establishment of the MRCF.
2 Failure to disclose in relation to Deed of Covenants between MRFC and JHIL.
3 Restructure of the group: The scheme of arrangement, specifically the information memorandum, was misleading in terms of its lack of disclosure in relation to the meeting of future obligations.
4 Misleading executive presentations: in 2002, presentations made to institutional investors contained information on the supposed adequacy of the MRCF in meeting its obligations in relation to asbestos liabilities.
5 Failure of care and diligence: in relation to the cancellation of shares in JHIL, and the failure of information disclosed to ASX and ASIC in relation to the cancellation.
Currently, according to ASIC (2007) ‘the investigation, which continues, has involved a complex corporate structure, it has spanned three countries (the US, the UK and Australia) and it has involved about 348 documents, 72 examinations and the issuing of 284 notices to obtain evidence’. The investigating continues as does the increase in the number of victims being identified and claims sought. It appears that the profit motive was prioritised by James Hardie at the expense of the social contract.
REFERENCES
ASIC, ASIC Commences proceedings relating to James Hardie, Media Release 07-35, Thursday 15 February 2007.
Haigh, G., Asbestos House: The secret history of James Hardie Industries (Melbourne: Scribe, 2006).
Hellicar, M., ‘Managing Corporate Social Responsibility’, Paper presented to the Social Responsibility of Company Directors Workshop, Monash University, Melbourne, 16 March 2005.
Hills, B., ‘The James Hardie Story: Asbestos victims claims evaded by manufacturers’, International Journal of Occupational and Environmental Health, Vol. 11 Iss. 2 (2005), 212-14.
Jackson, D.F.Q., Report for the Special Commission of Inquiry into the Medical Research Compensation Foundation (Sydney: The Cabinet Office, NSW Government, 2004).
James Hardie Industries, available at: http://jameshardie.com.au, viewed 2007.
James Hardie Industries Limited (JHIL), Media Release, 16 February 2001; cited in Jackson (2004) Sec 2.35, and Haigh (2006), 273-4.
Kjellstrom, T.E., ‘The epidemic of asbestos-related diseases in New Zealand’ International Journal of Environmental Health, Vol. 10, Iss. 2 (2004), 212-19.
Slater and Gordon (2005), available at: www.slatergordon.com.au/news/docs/WEBSITE%20Hardie%20lead%20v2.pdf
Smartt, P., ‘Mortality, morbidity and asbestosis in New Zealand: the hidden legacy of asbestos exposure’, The New Zealand Medical Journal, Vol. 117 (2004), 1205.
Spender, P., ‘Blue asbestos and golden eggs: evaluation bankruptcy and class actions as just responses to mass tort liability’, Sydney Law Review, Vol. 25 (2003), 223-63.
Requirements
When formulating your answer for the following questions, please confine your arguments to the actions and decision of James Hardie and its board of directors and senior management. While it may be argued that a succession of governments and government departments had access to information about the potential link between asbestos and either mesothelioma, lung cancer or asbestosis but still allowed James Hardie to sell products containing asbestos, this situation should not lessen the corporate governance responsibilities of any board of directors and senior management.
Q1. Identify the various stakeholders of James Hardie and list next to each stakeholder group what corporate governance responsibilities are owed by its board of directors and senior management to each stakeholder group. It is possible that some corporate governance responsibilities are owed to more that one stakeholder group. Where this occurs (in your opinion), you should combine the relevant stakeholder groups into the identification of the specific corporate governance responsibility(ies). (15 marks)
Stakeholder Group of James Hardie Corporate governance responsibilities owed
Q2 Outline the key corporate governance issues in the James Hardie case, by referring to the ASX corporate governance principles and recommendations (2007) that should have been applicable to James Hardie if the company had not re-structured their organisation offshore. (15 marks)
ASX Principle Key corporate governance issue corresponding to that ASX Principle
Q3 Give examples of actions that the company could have taken in order to comply with the ASX guidelines that you have identified as being applicable above in your answer for Q2, and provide your reasoning for selecting these actions (15 marks)
ASX Principle Actions company should have taken to comply with the ASX guideline
Q4 How were the long term interests of each of these stakeholder groups affected or exacerbated by James Hardie directors’ decision to continue to manufacture the asbestos based product from mid-1960s until 1987? (15 marks)
Stakeholder Group of James Hardie How long term interests of stakeholder groups were affected or exacerbated
Q5 Comment on the decision made by the board of director in mid-1960s. Was it legal at that time (i.e., mid-1960s)? Was this ethical decision making at that time (i.e., mid-1960s)? Include in your answer a discussion that demonstrates the difference between business ethics and moral ethics. Provide a reasoned argument to support your answer. (15 marks)
Q6 How did the actions of various stakeholders potentially threaten James Hardie’s ability to achieve corporate sustainability? (15 marks)
Specific Stakeholder Group How did actions threaten James Hardie’s corporate sustainability
Learning/Assessment Task 1: Individual Assignment
Description: Six short answer questions will form the basis of this individual assessment task. The purpose for this assessment is to assist students in early assessment of understanding the course content. The six short answer questions will relate to material cover for modules 1, 2 and 3 and assess learning outcomes 1, 2, and 3 listed below.
Submission Details:
? Electronic submission via link provided on the study desk.
? To receive marks for this assignment YOU MUST include your name and student number in your assignment file
Due Date: 9 am Monday 5 September 2016
Word Length: Maximum Total of 3,000 words (including footnotes, endnotes and any reference lists) with a maximum 500 word-limit (on average) per answer
Weighting: 40 %
Learning Outcomes Assessment Criteria Maximum
Mark
1. Demonstrate mastery of theoretical knowledge of the corporate governance, ethical and moral obligations, and social responsibility issues involved in business decision making 30
2. Apply regulatory requirements to develop appropriate board and committee functions and structures to protect the interests of diverse stakeholders in the corporation 30
3. Utilise critical ethical and social thinking skills to analyse the existence of corporate governance best practice principles and to recommend how to achieve appropriate business practice 30
Presentation i.e., grammar, spelling, sentence structure, and logical discussion used to provide answers 10
