Risk Management for Security and Investment - myassignmenthelp

Question: Discuss about theRisk Management for Security and Investment. Answer: Principle 7 of the Australian Security and Investment Commission states that the board of directors with respect to a public company have the duty to detect risk and implement appropriate structure towards addressing them. If the board of directors in relation to a public listed company is not able to identify and implement proper measures for addressing the risk they might not only bring losses for the shareholders, consumers, employees and the society but also to the organisation as a whole. The ASX has provided a few recommendation in relation to management of risk according to which the board of a public company must implement a minimum of one committee for the purpose of identifying and mitigating risk. The committee must comprise of a minimum of three directors who would be totally independent with respect to their working[1]. It is further provided by the risk management recommendations that the risk management framework of a company should be analysed and evaluated at a minim um of yearly basis in order to ensure its effectivity. For the purpose of ensuring accountability the process related to such review also has to be disclosed. It is also the duty of such committee or directors to ensure that the structure and role of the internal audit functions are disclosed. Any material exposure related to economic, environmental and social risk have to be disclosed by a public entity along with the structure adopted for the purpose of managing such risk by the company. In the provided scenario it has been given that significant financial losses have been incurred by the company in context Ardent leisure Limited (Ardent). The financial and Goodwill loss have been incurred because of Dream World leisure Park which was owned and operated by the company and is located at Queensland Gold Coast. The loss was a result of a major accident which took place in the park and took the life of four partons because of alleged technical failure in a ride. Accidents are majorly result of human mistake but in case appropriate measures for safety are implemented these events can be avoided or the harm caused by them can be curtailed. However in the given circumstances it has been alleged that the company failed to take any proper initiative immediately after the deadly event took place and therefore Adrian had been subjected to immense criticism for not being capable of handling post accident period in an appropriate manner. It is common law that the owner of a premises is liable for any harm caused to the occupier of such premises. Therefore it can evidently be said that the company is liable for the accident. If the company would have adopted an appropriate risk management framework it would have been potent enough to recognise the risk in relation to the ride and after recognition the risk would have been addressed in a proper manner. In the given circumstances if a proper risk identification system would have been adopted by the company even if the accid ent would have been caused the after effects of the accident would have been minimised. The company was moreover not able to handle the post accident period in a professional manner which caused immense hardship to the families of the deceased. However search Framework was not in place and the accident took place which not only caused financial loss to the company but also social loss and loss of goodwill. Therefore it can evidently be provided that the board of directors of the company were not able to identify an address is with respect to the accident. It has already been provided in the above section that principle 7 of the ASX related to good corporate governance recommendation enforces our duty on public companies to recognise and address risk by implementing appropriate framework of risk management. The setting up of one or more committee is related to risk management have been highlighted by the principles with respect to the organisation. The committees have to be provided with the role of recognising and addressing this situation and setting up a proper structure within the company to manage search risk. In relation to the given scenario a crisis management team was needed to be in place with respect to Dreamland which should have ensured that rapid action is taken in relation to the accident and therefore the harm resulting out of such incident could have been diminished.[2] The disclosure of any social, environmental or economic risk is also provided by principal 7 and in case search provisions had been adopted by the comp any there accountability towards recognising risk situation would have been enhanced and the dreadful incident would not have taken place. Therefore it can be stated upon the analysis of the fact that the company has not complied with principal 7 provided by ASX in relation to good governance as it has not been able to recognise and address risks[3]. Not only legal consequences the company has to suffer high level competitive disadvantage because of poor governance and breaching the provisions related to risk management provided by principal 7 of the ASX. A failure related to addressing and identifying risks subjects a company to unwanted incidents which are definitely not in the best interest of the company. Not recognising this makes the company increasingly subjected to unwanted incident and in addition the absence of a good Framework for addressing the effects of the incident heavy losses have to be incurred by the company[4]. The value of the organisation in the society also decreases following such incidents along with financial losses. As a result reluctance can be identified within the investors to invest in the organisation. Further no accountability is imposed on the officers and employees of the company because of lack of a risk management system within it which ultimately makes the employees provide bad quality servic es and to become less productive. Enforcement actions against a company for not abiding by the rules of ASX fall within the responsibility of the executive office. The Australian Securities Exchange has in place if not why not policy with respect to adoption of these recommendations. According to this policy if an organisation does not want to adopt the recommendations provided by ASX they have to provide that why they are not following such governance practices[5]. The enforcement decisions are initially provided by ASX Chief Compliance officer however if a party is not satisfied with his decision they have the power to appeal before The ASX appeal Tribunal. The assets enforcement and appeals rule book states that a penalty of $250000 for the breach of operating rules along with a penalty $100000 for breaching AustraCare regulations. For example the ASX was successful towards imposing a penalty of $80000 In the case of Sino Australia Oil and Gas Limited (Company)[6]. Therefore in t he present case related to the accident, civil penalties can be obtained by ASX which may include the disqualification of directors and also pecuniary penalties. Section 180 of the Corporation Act 2001[7] sets of the duty of care and diligence which the directors must hold towards organisation and its shareholders. As provided by section 180 it is the duty of any executive officer and the board of directors with respect to a company to do the duties and use their powers in such a way as to show high level diligence and care. The level of diligence and care must be similar to that of a reasonable person who in the same circumstances would have adopted such measures. In case this section is breached by the directors the court may impose civil penalties in accordance to Section 1317 of the Act. In relation to the business judgement rule a decision which has been taken by the directors is considered to be legal if the decision is taken in good faith and for a proper purpose. In addition the decision must not have any hint of personal interest with respect to the directors and officers taking it. Informed decision making must be initiated along wi th a rational belief that that taken decision is towards the best interest of the organisation. If a reasonable person would have held the same view in the same circumstances the decisions taken by the directors can be considered as rational. The section also imposes duties with result out of equity and common law. Business decisions can be defined as any decision which is taken in the course of the business. The court in the case of Australian Securities and Investment Commission (ASIC) v Cassimatis[8] rule that directors of the company add violated section 180 of the act as the decisions taken by them were not consistent with the provisions of the act and a reasonable person would have not in any case violated the provisions of the legislation. Further with respect to the case of Re Centura Global Holdings Pty Ltd[9] the Court ruled that the violation of specific sections related to the Environmental Planning and Assessment Act 1979 constituted a breach of section 180 of the CA by the directors of the company. Further in ASIC v Mariner Corp[10] the Court ruled that not many obligations are imposed on the directors through section 180 but the primary obligation which the directors have to comply with is of acting in a consistent manner in accordance to the existing legislations and common law. It was also provided in Sheahan (as liquidator of SA Service Stations) (in liq) v Verco[11]that the duties which are imposed by section 180 on the directors and officers of the company are only in relation to the company and not the shareholders are the environment unless the Australian security and investment Commission at self brings proceedings against the directors and is able to prove that the company has suffered actual loss. In the provided scenario it has already been proved in the above discussion that the company has violated the principles provided by ASX with respect to risk management. The principles provided by the above discussed cases depicts that the major requirement for constituting the violation of section 180 of the act by any officer or a director of the company is with respect to the violation of any existing legislation or common law which would have not been done by a reasonable person. Further it can evidently be said that in the circumstances where the directors of Adrent were no reasonable person would have ignored the good governance principle in relation to recognising and addressing risk as provided by the ASX. In the present circumstances as the directors of the company have violated section 180 of the act they can be imposed with extra penalties laid down in section 1317 other than the financial loss which has already been suffered by the company. Deborah Thomas who is the CEO of the company has resigned from her position after the incident took place in the amusement park[12]. The CEO was extensively criticized for not providing a proper response with respect to the accident[13]. According to reports of the company, its goal is to focus on the entertainment market of United States and become one of the major leaders in global entertainment. Post the accident the shares of the company at considerably Fallen by about 7.8%. Much attention was provided to the company post the accident especially when investigation was started with respect to the incident. Since the incident the company has only indulged in damage control. Post the incident the company provided condolences to the family of the deceased along with the statement that they are deeply shocked and saddened because of the incident[14]. The company further provided that it is taking the help of emergency authorities and the police rapidly to analyse the situation and fac ts which give rise to the incident. Since the incident took place overall loss of 49.4 million has been suffered by the company. For a period of 45 days after the incident the theme park has not been opened. The company had indulged in commencing and commissioning a complete operation and safety review structure for the park since the park has been closed. It was admitted by the company that they did not take reasonable care while addressing the first 48 hours after the incident which could have been done in a much better way. Graeme Newton who is the crisis management expert from Deloitte has been brought into by the company along with a former Queensland policeman named Mike McKay. Safety review process has been initiated by the company which all rides must clear before they can operate in the park. In addition the ride which cause the accident named Thunder River rapid has been closed permanently by the company. Ten Commandments are the first and foremost principles to be followe d whenever a situation occurs involving loss of life[15]. According to the principles the initial thing which has to be done in such circumstances is to make contact with the family of the person who have lost their life during the incident. However such principles were totally ignored by the company. After the incident the company has initiated policies of collaboration with the private sector, establishment of a crisis Management Committee and a proper planned outcome process within the organisation. However the company has still opted for the defensive mode in relation to the accident and still providing justification with respect to what has gone wrong. The so-called robust policies and procedures are still boosted by the company by stating that 30 million people have visited the park because of such policies since 1981. Bibliography ABC (2017) https://www.abc.net.au/news/2017-04-26/ardent-leisure-ceo-to-stand-down.../8472304. Booth, Simon A.Crisis management strategy: Competition and change in modern enterprises. Routledge, 2015. Council, ASX Corporate Governance, and A. S. Exchange. "Corporate governance principles and recommendations . ASX Corporate Governance Council." (2014). Council, ASX Corporate Governance. "Corporate Governance Principles and Recommendations, 3rd edn (ASX, Sydney)." (2014). DreamworldS Parent Ardent Leisure Is In Damage Control (2017) NewsComAu https://www.news.com.au/finance/business/other-industries/dreamworld-parent-company-ardent-leisure-in-crisis-after-fatal-theme-park-accident/news-story/00c3d7a283c19e05427f273bb3a44e39 Gilligan, George, et al. "Penalties Regimes to Counter Corporate Misconduct in AustraliaViews of Governance Professionals." (2017). Glendon, A. Ian, Sharon Clarke, and Eugene McKenna.Human safety and risk management. Crc Press, 2016. Pritchard, Carl L., and PMI-RMP PMP.Risk management: concepts and guidance. CRC Press, 2014. The Guardian. (2017) https://www.theguardian.com World Australia Dreamworld. Tricker, RI Bob, and Robert Ian Tricker.Corporate governance: Principles, policies, and practices. Oxford University Press, USA, 2015.