Corporate Governance: Agl. Company

Introduction

Maintaining control over the key processes within a company while also ensuring that its shares remain valuable and that the company’s profit margins continue to grow has become an increasingly complicated task due to the increase in the range of factors to which organizations have been exposed in the global setting. However, some organizations have been navigating the frequently convoluted environment of the global trade, particularly, the global energy market, rather freely, AGL being one of the brightest examples. AGL has been operating in the Electricity, Gas, and Communication Technologies domains quit successfully within the Australian market, which has defined its recent foray into the global economic setting (AGL, 2021). To a considerable extent, the outstanding performance of AGL in the global setting can be attributed to the choice of a governance strategy selected by its board.

Board Structure

The unitary structure of the AGL board allows the organization to keep its decision-making direct and effective. Without any additional tiers within the board, the process of information flow remains uninhibited and uninterrupted, which prevents a range of misunderstandings from happening and affecting the course of decision-making. As a result, the board remains effective in its performance and maintains ta strong grasp on the changes within the target economic environment. However, once the AGL organization decides to expand beyond the confinement of the Australian energy market, it may need to introduce the two-tier system into it framework. To achieve the described goal, AGL will have to change its approach to information management so that data flow could remain effective.

Approaching the current governance framework observed at AGL from the perspective of governance theories, on will notice the presence of a well-coordinated approach to handling key corporate issues. Specifically, the framework that AGL has been deploying can be justified based on the principles that the Resource Dependency Theory as a part of a larger governance theoretical framework promotes. Specifically, the AGL Board has been represented by the same team of experts for a while, which indicates profound experience yet also points to the possible lack of diversity and innovation within the team (AGL, 2021).

At the same time, adopting the Servant theory framework, one will notice that AGL prioritizes its advancement in the target market to meeting the needs of its stakeholders. Namely, while satisfying the requirements of customers and other participants of the trade dialogue with AGL has been a goal, it has also been used as the means to achieving the greater purpose of advancing the organization and reinforcing its position. Despite being quite natural for accompany functioning in the modern business setting, the described approach cannot be viewed as legitimate from the position of the Servant Leadership governance theory (de Graaf et al., 2018).

In turn, from the standpoint of Resource-Dependence Theories of the Governance Theory cluster, the current AGL Board can be considered very efficient since it controls nearly every aspect of the company’s decision-making. On the one hand, the specified approach is quite legitimate since the board has unique insights regarding the economic, financial, political, technological, legal, and social environment of the Australian setting (Nash and Churchill, 2020). As a result, the members of the board can guide AGL in its choice of the further actions within the target market so that the company could avoid major risks, primarily, in regard to the fluctuation of its share prices and the specifics of energy use within the Australian setting. However, as soon as the organization expands and enters the global economic context, the described approach to governance may turn out to be unsuitable given the broader range of factors to which the board may not be privy. Combined with the lack of insight into the intricacies of the company’s performance, particularly, the lack of insights on the monitored data associated with energy sourcing, the board may fail to create a viable strategy for AGL to function in the global market.

Nonetheless, the current governance model appears to be in line with the existing ethical and leadership standards. At the same time, it could be recommended that the board should focus more closely on the needs of its stakeholders by applying the principles of the Servant Leadership approach to its current context. Thus, AGL would benefit from increased loyalty in its customers and be able to attract new investors.

Board Diversity

The issues with the perspective of AGL’s board outlined above could be attributed to the problems with diversity within it. Currently, the board consists of four White men: John Stanhope AM (AM, BCom), Graeme Hunt (MBA, BMET), Peter Botten (AC, CBE, BSc), Mark Bloom (BCom, BAcc, CA) and three White women: Jacqueline Hey (BCom, Grad Cert), Patricia McKenzie (LLB FAICD), and Diane Smith-Gander (BEc, MBA, FAICD) (AGL, 2021). All of these people are middle-aged, upper-class, and White, which suggests that the extent of diversity within the board is quite low (AGL, 2021).

Arguably, the fact that almost a half of the board is represented by women makes the situation slightly better since it addresses the issue of gender-based discrimination quite effectively. Indeed, women appear to be represented quite well in the context of the AGL company. However, the extent of diversity that the AGL board has been demonstrating is restricted to addressing gender issues. As for the problem of ethnic minority representation, as well as the introduction of younger members into the board, AGL appears to have an issue.

Indeed, applying the principles of the ASX CGOV Recommendations & Principles, one will observe that AGL complies with its standards quite effectively. Namely, the presence of three women among the board members, which equals roughly to 43% of its members, implies that the need for gender equality has been satisfied within AGL. Specifically, the ASX CGOV Recommendations & Principles set the following requirement:

If the entity was in the S&P/ASX 300 Index at the commencement of the reporting period, the measurable objective for achieving gender diversity in the composition of its board should be to have not less than 30%32 of its directors of each gender within a specified period. (ASX Corporate Governance Council, 2019, p. 9)

Given that the AGL board is currently represented by 43% of women, its diversity can be considered quite large and, therefore, meeting the ASX requirements. However, apart from the gender issue, diversity should also incorporate different cultures and races, which the AGL board evidently fails to do. As emphasized above, the board consists solely of white, middle-aged, upper-class people, who define and coordinate choices made within AGL and are expected to represent it on an international level once the company starts to expand (Baker et al., 2020).

The current levels of diversity and inclusion, particularly, in regard to the issues of ethnic and racial background of its members, indicate that the decisions made by the board may neglect the needs of ethnic minorities. In turn, the Australian sociocultural settling has quite a number of ethnic minority groups whose well-being is jeopardized to a great extent by the presence of discrimination and inherent biases within the Australian community (Newman et al., 2018). For instance, indigenous ethnic groups such as Torres Strait Islander, as well as the representatives of oppressed ethnic minorities, such as Irish residents of Australia, must be provided an opportunity to become functioning members of the board. At the very least, the specified ethnic groups, as well as other racial and ethnic minorities, should be invited to play the role of consultants in decision-making within the board (Baker et al., 2020). Thus, the observed rift between the demographic that the board represents and the population that it is expected to support will be mended.

To increase the diversity of the board at AGL, one should focus on providing every staff member the opportunity to reach the upper echelons of the company’s leadership team and participate in decision-making on a corporate level. The proposed approach will lead to a rise in the diversity rates among the board members in a natural and organic way, while also ensuring that its members remain knowledgeable about the company’s needs and fully aware of its performance aspects that define decision-making on a higher level.

At the same time, the promotion of greater diversity within the board may also require a change in the current selection criteria for the board membership. Although AGL does not have the race or ethnicity restrictions in its requirements for joining the board, it does incorporate the criteria that may turn out to be quite strong obstacles for representatives of ethnic and racial minorities attempting at becoming a part of the board. Furthermore, as emphasized above, options for paid consultations should be explored as the means of introducing diverse opinions into the board decision-making process.

Additionally, to understand how the current situation within AGL’s board can be improved, one may need to examine the practices deployed by its main competitor. Origin Energy has also been operating in the Australian setting for a while, attracting a significant segment of the target population and reducing the efficacy of AGL’s performance. In the Origin Energy’s board context, ethnic diversity issues are approached on the level of board policies and the provision of opportunities for ethnic minorities. Namely, the organization features a Malaysian member (Sunny Sun) in its board, which, given the relatively small number of board members (three, including Sunny Sun, the remaining two being White women) is quite an accomplishment for Origin Energy (2021). Therefore, the organization should be commended for its focus on diversity and the opportunities that it provides to the indigenous population of the continent.

Taking the example of Origin Energy as a framework to follow, AGL might want to add new skillsets to the current range of requirements for becoming a board member. Namely, the presence of experience in addressing the concerns of indigenous populations, as well as the respective education and training in the context of an ethnically diverse setting, must be set as the main competencies for entering the board.

Finally, training opportunities must be included into AGL’s current board sting so that people form ethnically diverse backgrounds could have a chance at becoming a part of the AGL board. Specifically, AGL must provide applicants for board membership with a chance to build the necessary skillset and competencies needed to manage decision-making at the governance board level. Namely, skills associated with leading a team, as well as determining the best and the most suitable governance practices based on the specifics of the target economic environment, as well as the unique features of the organization, should be included into the range of skills that AGL will need to train in its potential board recruits. As a result, the company will address the current diversity concerns and be able to represent the target population on local and global levels, as well as promote greater inclusivity.

Conclusion

Despite the fact that AGL has been performing quite well, the level of diversity within its board indicates that the company may fail to cater to the needs of the entire spectrum of its target demographic. Specifically, while the board features quite a number of women, thus, closing the gender gap effectively, it does not have significant diversity in terms of its ethnic background. Therefore, the current situation calls for introducing better inclusion practices and changing the criteria for board membership and participation in decision-making. Namely, opportunities for ethnic and racial minorities to enter the board or, at the very least, participate in its analysis of stakeholders’ needs and the available strategies must be provided. Thus, the issue of diversity and inclusion will be addressed accordingly.

Reference List

AGL (2021) Corporate governance. 

ASX Corporate Governance Council (2019) Corporate governance principles and recommendations. 

Baker, H. K., Pandey, N., Kumar, S. and Haldar, A. (2020) ‘A bibliometric analysis of board diversity: Current status, development, and future research directions’, Journal of Business Research, 108, pp. 232-246.

de Graaf, G., Huberts, L. and Strüwer, T. (2018) ‘Integrity violations and corruption in western public governance: Empirical evidence and reflection from the Netherlands’, Public Integrity, 20(2), pp. 131-149.

Nash, M. and Churchill, B. (2020) ‘Caring during COVID‐19: A gendered analysis of Australian university responses to managing remote working and caring responsibilities’, Gender, Work & Organization, 27(5), pp. 833-846.

Newman, A., Nielsen, I., Smyth, R., Hirst, G. and Kennedy, S. (2018) ‘The effects of diversity climate on the work attitudes of refugee employees: the mediating role of psychological capital and moderating role of ethnic identity’, Journal of Vocational Behavior, 105, pp. 147-158.

Origin Energy (2021) About Origin. Web.