Question

a. Provide information about the corporate governance of the nestle company

b. For corporate governance ( for nestle company) indicate whether you are advocating for the separation of the role of chairperson and CEO or preferring the continued practice of allowing one corporate executive to be both chairperson and CEO for nestle company

c. What’s the main ethics problem, provide detailed information how the nestle and its managers solve the problem? Explain how would you attempt to solve it?

Answer 1

Ans a)

Corporate Governance is a process or a set of systems and processes to ensure that a company is managed to suit the best interests of all. The systems, which can ensure this, may include structural and organizational matters. The stakeholders may be internal stakeholders (promoters, members, workmen and executives) or external stakeholders (shareholders, customers, lenders, dealers, vendors, bankers, community, government and regulators).

Corporate Governance is concerned with the establishment of a system whereby the Directors are entrusted with the responsibilities and duties in relation to the direction of corporate affairs. It is concerned with accountability of persons who are managing it towards the stakeholders. It is concerned with the morals, ethics, values, parameters, conduct and behaviour of the company and its management.

Corporations that wish to adopt a Code of Corporate Governance can choose from several models that have already been available by institutions as diverse as the World Bank and the International Corporate Governance Net-work. These will help companies address issues that are related to the composition and role of the board, the preferred level of disclosures and transparency, the role of audit and compensation committee, accountability to shareholders, and corporate ethics.

Some of these models include the finer aspects of Corporate Governance like defining the mission of the modern corporation and describing its societal imperatives. One crucial aspect of governance is investor-friendliness. Companies will have to focus on understanding the expectations of diverse groups of investors and constantly communicate with them.

Fundamentally, there is a level of confidence that is associated with a company that is known to have good corporate governance. The presence of an active group of independent directors on the board contributes a great deal towards ensuring confidence in the market. Corporate governance is known to be one of the criteria that foreign institutional investors dare increasingly depending on when deciding on which companies to invest in. It is also known to have a positive influence on the share price of the company. Having a clean image on the corporate governance front could also make it easier for companies to source capital at more reasonable costs. Unfortunately, corporate governance often becomes the centre of discussion only after the exposure of a large scam.

Example : In food and beverage industry Corporate Governance has been debated after pesticide carbofuran were found in Pepsi, now it is the turn of Nestle India where MSG content found in Maggi

Ans b)  

In earlier times global business of Nestle tried to correlate good governance with good performance by looking at individual indicators of good governance, such as the split of the roles of chairman and CEO, or the number of independent directors but it soon became obvious that there was no agreement as to which indicator was best and that it was unreasonable to link the entire performance of a company with only one of these governance indicators.

Nestlé’s approach

At Nestlé the evidence that good governance ‘pays’ is convincing. Good governance allows the company to hire the right employees, because good people want to work for well-run companies. This is evidenced by regular ‘Nestlé and I’ employee surveys. Investors want to invest in well-run companies, as evidenced by the great interest in the company’s regular chairman’s roundtables and governance engagement meetings with investors and proxy advisors. Even customers and consumers care, as evidenced by surveys of millennials, which emphasise the value they attach to buying products from well-run companies.

Therefore, Nestlé’s board of directors is highly engaged in steering the long-term strategy and providing oversight based on strong principles of governance. It has demonstrated in recent years that shareholder dialogue in a diversified shareholder structure is both possible and beneficial. A dedicated sustainability committee and integrated reporting have proven to be valuable additions. The board’s focus is on how strategy, governance and performance leads to the creation of value.

The board recently reconfirmed Nestlé’s value creation model, delivering both top and bottom line growth as well as capital efficiency to drive continuous shareholder value creation. It stated commitments to margin expansion, streamlining the portfolio and a prudent approach toward capital allocation and M&A. It approved a share buyback programme. It facilitated the transition to a new chairman and a new CEO. A rigorous succession planning process brought in five new directors in three years.

I support the separation of the role of chairperson and CEO for nestle company

After studying 3 years data pertaining to Corporate Governance at Nestle the following data was arrived:

· Nestle followed SIX swiss Exchange Directive on Information, they use Swiss code of best practice for Corporate Governance

· All 3 years report comply with Internal Financial Reporting Standards (IFRS) by International Accounting Standard Board (IASB)

· In 2012 Share capital was reduced 3 times in last 3 financial years because of Buy back resulting in the cancellation it was reduced 2 times in 2013 and once in 2014.

· All the 3 years report showed that the total share capital was 3,22,48,00,000 shares and no profit sharing certificate and no participation certificate.

· There were no convertible bonds and only Nestle’ MSOP was present

· There are 14 members on board for all the 3 years and except the chairman all are independent directors who are non executive members. There are 13 members in Executive Board.

· Cross involvement of 3 BOD s present where one of the BOD works for Loreal · All the directors are appointed by election and the term of BOD is 3 years. After 3 years BOD are re-eligible.

· Different committees like compensation committee, nomination committee, audit committee is present.

· In all the 3 years 8 to 9 BOD meeting, Compensation and Corporate Governance Meeting, Nomination meeting and Audit Meeting were conducted with 99% attendance.

· The company paid Audit fees of 43 million Swiss Franks and 14 million Additional fees in 2012; 39 million Audit fees and 9 million Additional Fees in 2013 and 40 million and 20 million Additional fees in 2014. The company is maintaining standard Corporate Governance principles for the past 3 years.

Ans c)

ETHICS & CODE OF CONDUCT : Ethics concern an individual's moral judgements about right and wrong. Decisions taken within an organization may be made by individuals or groups, but whoever makes them will be influenced by the culture of the company. The decision to behave ethically is a moral one; employees must decide what they think is the right course of action. This may involve rejecting the route that would lead to the biggest short-term profit.

Ethical behavior and corporate social responsibility can bring significant benefits to a business. For example, they may:

· Attract customers to the firm's products, thereby boosting sales and profits

· make employees want to stay with the business, reduce labour turnover and therefore increase productivity

· attract more employees wanting to work for the business, reduce recruitment costs and enable the company to get the most talented employees

· Attract investors and keep the company's share price high, thereby protecting the business from takeover.

· Unethical behavior or a lack of corporate social responsibility, by comparison, may damage a firm's reputation and make it less appealing to stakeholders. Profits could fall as a result.

CODE OF CONDUCT AT NESTLE : Referring to the code of conduct published in company’s website the following are the ethical practices followed at nestle:

· Nestle’s business practices have been governed by integrity honesty and fair dealing and full compliance with all applicable laws.

· It avoids any conduct that could damage or risk its reputation and act legally and honestly

· They put company’s interest ahead of personal interests, and act in the best interest of Nestle.

· Hiring decisions are fair and objective and employees of Nestle shall not compete with the company.

· They respect and follow insider trading rules when buying and selling Nestle Securities.

· They believe in the importance of free competition and value and protect confidential information of company and respect others’ confidential information.

· They insist on honesty and respect company’s assets and property and condemn any form of bribery and corruption.

· They embrace diversity and respect the personal dignity of fellow employees

My expectation from Food industry in Corporate Governance and Ethics :

Often a company’s behaviour is the reflection of its values. If it has to develop positive perception, trust and confidence in the minds of its consumers, this valued behaviour should be authenticated and communicated. A good and active Public Relations is required whenever company’s reputation is endangered.

· Satisfying the stakeholders: stake holders demand proof that what you say is what you do. Hence documentation and communication of past, present and future are a must.

· True transparency often requires an independent third party to confirm a correct and balanced communication between the company and stake holders. If you are able to be transparent and able to communicate your actions and real value can be achieved through increased financial values, greater reputation to company’s brand, market and so on.

· Improve and demonstrate your commitment, by being socially responsible.

· Equality and indiscrimination

· Free market economics (letting markets forces decide)

· Dishonesty, withholding information, distortion of facts

· Misleading o confusing communications or positioning or advertising

· Excessive profit, greed

· Anything liable to harm or endanger people.