Virgin Australia Company

Virgin Australia Company

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Virgin Australia Company

Introduction

Virgin Australia Airlines, formerly known as Virgin Blue, was established in 2000. It was co-founded by British entrepreneur Richard Branson and Bret Godfrey who was the former chief executive officer (CEO) of Virgin Blue. From only two aircrafts operating along a single route, the airline has grown to serve 29 cities and is presently the second-largest airline in Australia. These achievements would not have been possible without an effective corporate governance framework. Virgin Australia has effective corporate governance policies to ensure that the company improves on its performance and maintains it reputation in the market.

Literature Review

Virgin Australia Limited was ranked 13th best airline in the world (Platt, 2013). This achievement meant that the company emerged the best airline in Australia and Pacific Asia. The managing director, John Borghetti, has attributed the company’s continued success to its effective corporate governance structure (Virgin Australia, 2012c). Pierre-Yves & Rickie (2007) haves shared the same views by arguing that an effective corporate governance framework has a significant impact on a company’s performance. It is therefore important to analyze Virgin Australia corporate governance framework and identify how it helps the company conduct its business successfully.

Directors’ Duties and Responsibilities

Virgin Australia has a Charter which sets out the roles and responsibilities of the Board and senior management staff. The company’s Board Charter and Statement of Delegated Authority were approved by the directors on May 16, 2013 (Virgin Australia, 2013). The board is composed of seven members. They include four non-executive directors, two representatives from the Virgin Group and the managing director who is also the company’s CEO. The responsibilities of a company’s managing director and the Board’s Chairman should be clearly outlined to eliminate conflicting roles between the two (Pierre-Yves & Rickie, 2007). The airline’s Chairman is an independent and non-executive director. The managing director on the other hand has been delegated the duty of running the daily operation of the company. In addition, he is authorized to delegated duties within the company as he deems necessary. This authority is however subjected to restrictions that are stipulated in the Delegate Authority Manual (Virgin Australia, 2013).

The major roles played by the Board of Directors are to offer strategic guidance to the company, and act as an oversight body for senior management (Renton, Watkinson, & Institute of Directors, 2001). Virgin Australia’s seven-member Board has created four committees to enable it carry out its duties. They include Nomination, Remuneration, Audit and Risk Management, Safety and Operational Risk Review committees. According to Frase (1998), formulation of such committees is necessary to allow the Board of Directors carry out its functions effectively. Even though the directors and senior management are tasked with running the company, it is important to note that they are required to continuously update their shareholders on the company’s operations, and involve them whenever necessary.  By exercising their voting rights, shareholders have the privilege to participate in the airline’s decision making process. Nevertheless, the company controls more that half of the voting rights (Virgin Australia, 2012c). This has enabled the management to undertake its activities with minimal opposition from other shareholders.

Continuous Disclosure of Material Information

According to International Monetary Fund (2006), the requirements for disclosure of material in formation by listed companies in Australia are consistent with international best practice. The airline seeks to comply with the disclosure requirements outlined in the Corporation Act and Australian Securities Exchange (ASX) rules. Listed companies are expected to notify the market immediately of any information that may affect the price or value of their securities through ASX (ASX, 2013). Virgin Australia also aims at providing the market and its shareholders with timely and adequate information regarding its activities. The Board endorsed the Market Disclosure and Communication Policy to ensure that it adheres to its disclosure obligations. Information disclosure policies will reinforce a company’s commitment to unveil information, thereby promoting investors confidence on its securities (Abramowicz & Mayr, 2007).

The Board makes the final decision regarding the information to be disclosed and makes sure that only necessary details are revealed. Only authorized employees are allowed to be the company’s spokesperson when addressing the media, ASX and other stakeholders such as analysts, shareholders, brokers and investors. The market disclosure and communication policy stipulates that the Chairman and the CEO are the only people allowed to address ASX. In the event that both of them are not available, at least two Board directors will be required to consent to any announcement released. Senior managers and other directors are required to notify the CEO or the Market Communication Officer of any material information that might affect the value or prices of the company’s securities. Through Board meeting, executive committee meetings and head of departments’ reports to the Board, material information can be identified and discussed (American Bar Association. (2007).

However, not all information is released to the public. The exceptions for information disclosure are outlined in the ASX listing rules. Exceptions allow the Board to maintain the confidentiality of specific information relating to the company. Virgin Australia employees have also singed a confidentiality agreement to ensure that confidential information is not disclosed. The company uses their website to notify the public of any material information that has been issued to ASX and released to the press. Through this form of electronic communication, the company notifies its shareholders of all material information, Annual General Meetings (AGM), and financial reports. In addition, the company uses the internet to provide investors with the option to receive regular updates relating to the performance of its securities and other investment opportunities. Virgin Australia policies also require the company to invite its external auditors to address any questions raised by the shareholders during AGM. According to Australia & CCH Australia Limited (2012), auditors have the right to attend their company’s AGM or send a representative. The airline’s market disclosure and communications policies were approved by the Board in April 3, 2012 (Virgin Australia, n.d).

Insider Trading

Brainbridge (2012) defines insider trading as the practice of using nonpublic material information to trade a company’s securities. Employees and companies involved in insider trading are liable to a penalty of $200,000 and $1,100,000 respectively (Lyon & Du, 2005). It is advisable that public limited companies should have a policy that provides its employees and directors with guidelines on how can participate in trading securities (Langevoort, 1986). Virgin Australia’s policies inform the employees and directors of the legal restrictions in dealing with the airline’s securities, and the impact of insider trading on the company. By prohibiting insider trading, these policies also maintain investors’ confidence in the company’s securities.

The first policy prohibits employees and directors from purchasing or selling securities when they are in possession of nonpublic price sensitive information. The second policy prohibits employees and directors from dealing in short-term securities. This means that they are not allowed to trade the same security within a period of six months. Apart from the insider trading laws, the policies also allow the Board to introduce blackout periods in the company. During this period, employees are not allowed to deal in the company’s securities, six weeks prior to, and one trading day after the release of semi-annual or annual financial results.

The policy also prohibits employees and directors from trading unapproved transactions. Virgin Australia employees are required to seek an approval from the Chairman, CEO or the Company Secretary before they can trade the company’s securities (Virgin Australia, 2012b). The approval granted to employees trading the company’s securities, is limited to a period of two days after which a new application must be made. Company directors who have traded the Company’s securities are required by the Corporations Act to notify ASX within 14 days after the acquisition (ASX, 2012). Virgin Australia’s Securities Trading Policy was approved by the Board in April 3, 2012 (Virgin Australia, 2012b).

Code of Conduct

The Board approved Virgin Australia’s Code of Conduct Policy in October 10, 2003 (Virgin Australia, 2012a). Through this policy, the company aims at gaining a competitive advantage in the market of by ensuring that all employees and directors perform their duties in a manner that commendable and appropriate. The company’s integrity and reputation is essential to maintain the continued growth of the company. According to Barney & Hesterly (2010), companies that adhere to their code of conduct receive a lot of respect from the public. The company has four major principles that act as guidelines for all employees. The fist principle is honesty, integrity and fairness. These three values have ensured that the company conducts its operations in a way that meets the standards set by the community.

The second principle is an efficient reporting system. The community and company employees are allowed to raise any legal or unethical issues that affect the company or are caused as a result of its operations. Political involvement is the third principle. Sunita (2005) encourages it is important for companies to have a positive relationship with the government, but should desist from taking part in political activities. Virgin Australia is allowed communicate its issues to the government and other political parties. However, the company has continued to be non-partisan but has allowed its employees to hold political views and affiliations. Nonetheless, they are not allowed to use the company’s resources to pursue their political interests.  Healthy competition practices are the final principle. The company respects the competition laws that govern the free market. It believes competition in the transportation industry will ensure that quality services are offered to customers.

Code of conduct should not only be limited to the behavior of employees, but it should also address the company’s labor laws and its social responsibility initiatives (Jenkins, Pearson, & Seyfang, 2002). Virgin Australia code of conduct ensures that the company adheres to the labor laws. The company prohibits any kind of discrimination within among its employees. It recognizes the dignity of each employee and treats all of them with equal respect. Employees are also allowed to join trade unions and contribute towards collective bargaining agreements in accordance with the law. The code of conduct policy of the company also encourages that conflicts of interest should be avoided at any cost. It is advisable for companies to enact policies that will ensure conflicts are resolved effectively, so as to prevent the existence of enmity among employees ( Thévenoz, Bahar, & Faculté de droit de Genève, 2007).

Ethical Issues

Virgin Australia has a strategic corporate governance structure that has enable it overcome several legal end ethical challenges. However, there are a few ethical challenges that have not been addressed by the company’s current framework.  The framework failed to address the use of genetic screening for the airline’s commercial pilots. The use of this technology is rapidly being incorporated into the airline industry. According to Dockser (2012), this technology allows for the detection of diseases that can not be spotted by the traditional methods. It is important that the company should introduce mandatory genetic screening for pilots to ensure the safety of its passengers. The framework has also failed the address the challenge of flight overbooking. Belobaba and Massachusetts Institute of Technology (1987) argue that overbooking will continue to be an ethical challenge for airlines with an ineffective booking system. In some stances, most airlines are forced to request excess passengers to reschedule their flights or apply for refund.

Conclusion

            These policies among other guiding principles outlined in the Virgin Australia corporate governance framework have contributed to the company’s continued growth and impressive performance.  The framework has enabled it to maintain confidence from investors, customers, employees and the local community. However, it should continuously revise its policies to enable it overcome legal and ethical challenges that might face the company.

 

Reference:

Abramowicz, W., & Mayr, H. C. (2007). Technologies for business information systems. Dordrecht: Springer.

American Bar Association. (2007). The In-house counsel’s essential toolkit. Chicago: American Bar Association

Australia, & CCH Australia Limited. (2012). Australian corporations & securities legislation 2012. North Ryde: CCH Australia

Australian Securities Exchange. (2012). Listing Rules Guidance Note 9: Disclosure of Corporate Governance Practices. Retrieved from http://www.asxgroup.com.au/media/PDFs/gn09_disclosure_corporate_governance_practices.pdf

Australian Securities Exchange. (2013). Chapter 3: Continuous Disclosure. Retrieved from http://www.asxgroup.com.au/media/PDFs/Chapter03.pdf

Bainbridge, S. M. (2011). Insider trading. Cheltenham, UK: Edward Elgar Pub.

Barney, J. B. & Hesterly, W. S. (2010). Strategic management and competitive, advantage: concepts and cases. Upper Saddle River, NJ:  Prentice Hall.

Belobaba, P., & Massachusetts Institute of Technology. (1987). Air travel demand and airline seat inventory management. Cambridge, MA: Massachusetts Institute of Technology.

Craig, P. (2013, June 19). World’s best airline named as Qantas soars back into the top 10. The Sydney Morning Herald. Retrieved from http://www.smh.com.au/travel/travel-news/worlds-best-airline-named-as-qantas-soars-back-into-top-10-20130619-2ohsx.html

Dockser, M. A. (2010, May 4) How Genetic Testing May Spot Disease Risk. The Wall Street Journal. Retrieved from http://online.wsj.com/article/SB10001424052748704342604575222082732063418.html

Frase, L. (1998). Boards That Make a Difference: A New Design for Leadership in Nonprofit and Public Organizations. International Journal of Educational Reform, 7, 3, 293-295.

International Monetary Fund. (2006). Staff Country Report. Washington, D.C.: International Monetary Fund.

Jenkins, R. O., Pearson, R., & Seyfang, G. (2002). Corporate responsibility and labour rights: Codes of conduct in the global economy. London: Earthscan.

Langevoort, D. C. (1986). Insider trading handbook. New York, N.Y: Clark Boardman Co.

Lyon, G., & Du, P. J. J. (2005). The law of insider trading in Australia. Annandale: Federation Press.

Pierre-Yves, G., & Rickie, M. (2007). Board Members and Management Consultants: Redefining the Boundaries of Consulting and Corporate Governance. Charlotte, N.C.: Information Age Publishing.

Renton, T., Watkinson, J., & Institute of Directors. (2001). The company director’s guide: Your duties, responsibilities & liabilities. London: IOD

Sunita, S. V. (2005). Politics, Ethics and Social Responsibility of Business. New Delhi: Paragon Books.

Thévenoz, L., Bahar, R., & Faculté de droit de Genève. (2007). Conflicts of interest: Corporate governance and financial markets. Alphen aan den Rijn: Kluwer Law International

Virgin Australia. (2012).  Code of Conduct for Directors and Senior Executives. Retrieved from http://www.virginaustralia.com/cs/groups/internetcontent/@wc/documents/webcontent/~edisp/doc_corp-gov-code-of-conduct.pdf

Virgin Australia. (2012). Securities Trading Policy. Retrieved from http://www.virginaustralia.com/cs/groups/internetcontent/@wc/documents/webcontent/~edisp/corp-governance-securitiesv3.pdf

Virgin Australia. (2012). Virgin Australia Annual Report 2012. Retrieved from http://www.virginaustralia.com/cs/groups/internetcontent/@wc/documents/webcontent/~edisp/annual-rpt-2012.pdf

Virgin Australia. (2013). Board Charter and Statement of Delegated Authority. Retrieved from http://www.virginaustralia.com/cs/groups/internetcontent/@wc/documents/webcontent/~edisp/doc_board-charter.pdf

Virgin Australia. (n.d.). Market Disclosure and Communications Policy. Retrieved from http://www.virginaustralia.com/cs/groups/internetcontent/@wc/documents/webcontent/~edisp/doc_mkt-disclosure-comm-policy.pdf

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