Reference no: EM133415546

Case Study: You are an independent consultant, counseling companies on corporate governance issues. You have been engaged by JKL Renew Pty Ltd (JKL) to advise them on their corporate governance structures. JKL is a land remediation business. You look up the JKL website. Visually clean and simple, it lists an impressive array of former land and water reclamation projects, with glowing testimonials from councils, local communities, and other grateful clients. JKL staff consists of full-time employees and contractors. The current annual company turnover is in the region of $50 million. To your annoyance, the seemingly simple website does not readily deliver the company's corporate governance information.

The company started small in Western Australia, with Joshua and Keith sourcing work through their mining industry connections. JKL extended activities to the recovery of industrial sites as well as mines. Now headquartered in NSW, JKL plans to make water reclamation projects a larger part of its portfolio. Doing so would require company expansion and significant capitalization.

Context of your appointment Recently,

JKL concluded a successful land reclamation project on behalf of Orecon, a multi-national mining corporation. Orecon, impressed with JKL's results and record, has created a memorandum of understanding, to make JKL the sole provider of remediation services for all of Orecon's Australasian projects. The work would involve land reclamation of mine sites and of ore processing facilities. Orecon also owns a range of coal-fired power stations scheduled for decommissioning and site remediation within a 5- year period. JKL is excited by the proposed collaboration, as it fits with their plans for company expansion. They believe that Orecon may be willing to invest some capital in JKL, in exchange for a 20% ownership stake in the company, with representation on the company board. As part of the agreement process, Orecon conducted a brief investigation of JKL's corporate governance structures. The resulting short report was shared with JKL. The report raises concerns around the current company structure, its lack of management oversight and other operational controls. Orecon expressed reluctance to invest in a company, where so many senior executives and Board members are close family.

You are friendly with the consultant who compiled Orecon's report into JKLs corporate structures. So, you give her a call. She confirms that, when she asked for Board meeting attendances, the Company Secretary (Myra Winston) said she will check her emails for apologies and asked me how far she should go in her emails. The Orecon report indicates that for the collaboration to proceed, JKL must: • Show compliance with ASX guidelines on best practice for corporate governance. • Strengthen their risk management structures. • Engage in regular sustainability reporting, using a structure such as the GRI reporting standards.

Next board meeting is held at Joshua Logan's rural property. Myra explains that the lack of disability access at the corporate headquarters makes this a rare chance for wheelchair-bound Joshua(Board member, and company Co-founder) to attend a Board meeting.

Family views on governance, risk, and sustainability reporting

The Board meeting raised some frank discussions among the Board members.

Keith Logan(CEO and Co-founder) opined, "JKL is doing well, but hardly commands the resources of a MNC. How Onerous would it be to become compliant with ASX principles? We are not looking (yet) to transition to stock market listing." Childless himself but eager to keep JKL a family business, Keith also worried about the impact that company restructuring might have upon jobs for the next generation of the family: Alana's son (studying soil science at university), and Edward's daughter (enrolled in a business degree). "We are building this company for their generation. If we offer Board positions to non-family members, does this squeeze the prospect of offering significant management roles to family who work for us?"

Alana Logan-Jones(COO and acting Chair of the Board, daughter of Joshua Logan) wanted to know what ASX compliance would mean when it comes to auditing corporate reports. "Edward's wife Leanne is a good accountant. She has audited our accounts for years. Could she continue in this role?"

Joshua Logan was curious about the sustainability reporting requirement. "Not all soil remediation is a matter of moving soil around. Sometimes, we use chemicals to keep the bad stuff inert in the ground. So yes, our work can involve handling chemicals but our guys know what they are doing, and are used to it. And why should we prove our sustainability credentials? Companies like ours are part of the solution, not part of the problem."

Edward Winston as CFO, shared concerns around the costs of compliance, that were expressed by his Uncle Keith. "Is there any essential relationship between the two [risk management and sustainability reporting]? Would Orecon be satisfied if we engaged in just one of these: either adopting a risk management framework, or engaging in sustainability reporting?"

For JKL's board summarise views on corporate governance, sustainability, and risk management practices.

Questions:

1. Identify and discuss three good corporate governance practices that you would consider to be relevant to this company. Describe how these would be beneficial for JKL, regardless of whether the company transitions into an ASX listed entity.

2. Identify some key risks for a company such as JKL, and what benefits there would be in minimising risk. Provide clear and succinct advice on what actions the company should take to minimise risk.