Corporate Governance: A Diageo Plc Case Study

Corporate Governance: A Diageo Plc

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1. Introduction: Coursework 1: Corporate Governance: A Diageo Plc

Diageo plc is mainly an MNC company, with its main office in London, UK. The company is a public sector company involved in the production of alcoholic beverages. The company currently present a total of one hundred and thirty-two sites across the globe. The firm is known as the globe’s biggest distiller and the primary distributor of spirits and other items such as whisky. Currently, the firm’s operating revenue as per 2022 data is approximately 2,244.8 cross GBP along with the presence of over twenty thousand employees. The net revenue or income of the company in the present year is approximately over 300 cores GBP.

2. Composition of the Board of Directors

The board mainly consists of the chairman that is mainly non-executive along with a couple of executive directors. There are three senior independent wise directors and more than five non-executive type directors. Chairman Javier Ferran was appointed and nominated for the post of chairman of the company in the year 2017 (Duarte, 2019). He was the non-executive director of the organisation in the year 2016 and brought a huge level of experience in the industry mainly in the wealth of consumer goods. The company currently initiated the external appointment of the airline group (diageo.com, 2022). He was the non-executive director of the company and is attached to foods of British plc.

Figure 1: Annual Report

The company in year 2021 appointed Lavanya Chandrasekhar who is the chief officer of the company and mainly from a financial background. She brings important strength to the company, thus bringing various positive aspects to the company along with a good financial structure for the company (diageo.com, 2022). The person controls the organization's financial part along with the regulation of the tax and the treasury part of the company. Karen Blackett who is the non-executive director of the company in recent years initiates a huge experience along with her knowledge in the marketing field of the company. The person obtains a huge experience in the policies that relate to the public department and initiates the various strategically points via various government bodies.

3. Performance of the Board of Directors

The board is highly is very much competent in the various roles that they perform thus ensuring the company's operation part in a method that consists of the best standards of governance. Their central part of the job that was earlier performed by the directors of the company thus contributes to the vast section of society (Duarte, 2019). The company has practices that are mainly long-term along with the target to achieve the goals of the company by 2030. The company corporate governance report that was presented at the end of June for the year 2022 states the company's decision-making approach and the embedding of ESG considerations s with the decision-making policy of the company.

Advisory and Oversight

The company consists of a strong and well formation of bonding with the culture and therefore setting of various values and the priority to the actions of the company in the reticent period. The culture of the company is highly crucial as the company's workforce mainly adopted the various approaches of working along with assistance in the growth of the firm. The members of the board of Diageo plc thus perform extremely well and overcome s all kinds of threats and challenges for the company (media.diageocms.com, 2022). During the pandemic period, the company performed well and maintains the stability of the environment and overcomes all kinds of uncertainty in the economy.

The board along with its experience overcomes the problems with the pressure of inflation on the supply part. The board initiates an expertise leadership and sets the strategy part of the company. They build the proper management of the firm by maintaining the swift flow of work in the company. The board refines the work of the company and develops the methods of governance at the level of the board and throughout the whole organization (simplysafedividends.com, 2022). The board thus creates great value in a long-term way and establishes good relationships with the stakeholders.

Figure 2: Net sales of Diageo plc

Expertise and diversity

The chairman of the company is considered to be independent during the period of the appointment. The various functions of the chairman along with the chief executives are mainly not exercised or considered to be the same person. The company consist of more than 50% of the directors and is independent along with non-executive (hl.co.uk, 2022). All the director of the company mainly works in the company for nine years. The senior wise independent director of the organisation is the chairman that acts as an intermediate between the other types of directors (statista.com, 2022). The chairman of the company Javier Ferran is mainly responsible for all the operating activities along with the role of the leadership. He looks after the informative part of the other directors along with the various judgemental part of the company (Giles et al. 2019). Another role of the chairman is meeting with all the non-expertise directors.

The chief financial officer of the company mainly regulates the important part of the financial reports and affairs of the company. The main responsibility of this designation is structuring the capital structure of the company along with the various contributions to the management part of the groups. The person is mainly a member of the committee of the executive level of the company and supports the finance part and files assurance of the committee in the affairs of the financing activities.

The board is the witness to the inclusion of diversity that performs systematically to overcome the problems in achieving the objectives of the company. The main principle of the organisation is the policies that are related to worldwide Human rights (glassdoor.co.uk, 2022). The company's code of conduct along with the implementation of the various policies of the programmes thus maintains the diversity part of the business.

4. Board’s Structure and diversity and characteristics

A board of directors for every corporate company around the world is one of the most important parts. The boards of directors are the type of panel or group of people that are elected in a company that represents the shareholders of the company (diageo.com, 2022). The hierarchy with top layers is formed by the boards of directors. This helps to focus on the growth and development of the company and helps to complete the goals of the company that are taken by the company to reach the peak of the world. Diageo plc is a famous company that creates beverage alcohol and has an efficient board of directors.

Figure 3: Corporate governance

The composition of the BOD varies depending on the organisation. The stakeholders as well as the investors of the company are invested in the company for its growth and development of the company (Jizi, and Nehme, 2018). Various types of strategic corporate decisions are taken by the boards of directors of the company through attending several meetings of the board of company.

Board’s composition is differentiated depending on the company and the laws of the state (McLeod, 2019). Various types of official positions remain in a corporate company like CEOs, CFOs, directors, presidents, chairmen and many more. Various types of positions on the board of directors are

Chairman

Generally, the chairman of a company like Diageo plc is described as the leader of the board of that company who is elected through the votes of the BOD. The committee and the meetings of the company are led by the chairman of that company (deloitte.com, 2022). The chairman of the board helps to regulate the board of the company with smoothness as well as effectiveness. They maintain communication with the chief officers and executives of the company and the business strategy of the company is formulated by the chairman of the company. He represents the board as well as the management of the company to various shareholders as well as to the general public. The integrity of the corporate is maintained by the chairman of the board.

Managing Director

The primary function of the managing director of a company is to approve the high-level budgets that are created through the higher management of the company. He helps to regulate the business strategy of the company and to approve the initiatives of the company that are taken through the meetings. The managers of the high-level or the shareholders of the company are elected as the managing directors of the company.

Executive directors

These types of members of the boards participate in the management of the company, sales, various types of operations of the business and finances. The primary cause of any company is represented by these types of members of the board. The main weakness of them is they do not remain connected directly to the board.

Non-Executive Director

This member of the company does not remain connected to the organisation though they are referred to as one of the parts of the board of the company. The third-person perspective as well as the objects is presented by the non-executive directors (Kao et al. 2018). Critical opinions, as well as various types of advices, are given by these types of members of the company.

CEOs and duality

The whole operation of the corporation as well as the reports is directly regulated by the CEOs of the company. Ivan Menezes is the CEO of the company Diageo plc and regulates the total operation of the company (Hsu et al. 2021). He helps to implement the decisions and the initiatives of the company that are taken for the growth and development of the company.

Figure 4: CEO’s duality

The CEO of the company also functions as the board’s chairman who helps to boost various types of autonomies of the company. The decisions about the company and goals for the growth of the company are taken by the CEOs of the company. Quick decisions immensely help the improvement of the business of the company (diageo.com, 2022). They have considered the most strong and most powerful individuals in the company that help the growth of the company and take the most significant decisions for the company. The governance of the corporate can be abused through the duality of the CEOs of the company.

Ethnic Diversity

Ethnic diversity is the type of cultural diversity that can be found in an individual entity. This type of entity can be small and can be big.

5. Solutions to the board’s effectiveness

The effectiveness, as well as the diversity of the board, needs to improve for any company, the company Diageo plc also takes some factors that can improve the effectiveness of the company. Effective governance needs to clear the variations between the functions of the management and the functions of the board (Mubeen et al. 2020). The members of every individual department can realise their functions in the company and for this reason, they can concentrate on their jobs. This immensely helps to improve the business of the company. The strategic directions of the board are improved through this understanding.

The regulators of the board are needed annual self-evaluations that immensely help to denote the weakness as well as the strengths of the board. They can easily recover the weak points of their functions after denoting them (Aloni, and Harrington, 2018). The oversight of the board of the company is needed to improve that help to solve the effectiveness of the company.

Conclusion

Diageo plc is one of the most famous beverage alcohol companies in the world. This company is a corporate company whose main office is located in the country UK. There is a need for a powerful and strong board of directors to regulate the growth and development of the company. The goals that are taken by the company are also regulated through the BODs of that company. The primary aim of the BOD is to stand for the interests as well as the rights of the stakeholders and the investors of the company.

References

Journals

Aloni, M. and Harrington, C., 2018. Research based practices for improving the effectiveness of asynchronous online discussion boards.Scholarship of Teaching and Learning in Psychology,4(4), p.271.

Duarte, A.M.B., 2019.Equity Research: Diageo Plc(Doctoral dissertation, Universidade de Lisboa (Portugal)).

Giles, E.L., McGeechan, G.J., Coulton, S., Deluca, P., Drummond, C., Howel, D., Kaner, E., McColl, E., McGovern, R., Scott, S. and Stamp, E., 2019. Brief alcohol intervention for risky drinking in young people aged 14 15 years in secondary schools: the SIPS JR-HIGH RCT.Public Health Research.

Hsu, S., Lin, S.W., Chen, W.P. and Huang, J.W., 2021. CEO duality, information costs, and firm performance.The North American Journal of Economics and Finance,55, p.101011.

Jizi, M. and Nehme, R., 2018. Board monitoring and audit fees: the moderating role of CEO/chair dual roles.Managerial Auditing Journal.

Kao, M.F., Hodgkinson, L. and Jaafar, A., 2018. Ownership structure, board of directors and firm performance: evidence from Taiwan.Corporate Governance: The international journal of business in society.

McLeod, J., 2019. Role of the board and directors: Board structure and composition. InRoutledge handbook of sport governance(pp. 243-253). Routledge.

Mubeen, R., Han, D., Abbas, J. and Hussain, I., 2020. The effects of market competition, capital structure, and CEO duality on firm performance: A mediation analysis by incorporating the GMM model technique.Sustainability,12(8), p.3480.