Introduction
Corporate governance is a set of laws, customs, and procedures used to manage and steer businesses. Corporate governance essentially strikes a balance between the interests of a company’s many stakeholders, including its owners, workers, top executives, clients, the community, investors, and the government (Buallay, 2019). Corporate governance, which includes everything from action plans and internal controls to performance evaluation and corporate transparency, serves as the foundation for achieving a company’s goals. Corporate governance is seen as a crucial component while pursuing economic success and growth in order to win over investors (Danoshana & Ravivathani, 2019). A company can use corporate governance to set up systems that enable decision-making, control, and achieving corporate goals. Members of administrative bodies and management can take advantage of its appropriate initiative. It’s believed that strong corporate governance fosters trust and confidence, both of which are essential for a company to survive (Li et al., 2020). This study focuses on the business matters of ASOS Plc. to ascertain whether the disclosures made in its corporate governance are intended to benefit the stakeholders or have been used as a tool to manage the expectations of the shareholders.
The corporate governance system of ASOS Plc
The structure and roles of the board of corporate governance.
Structure
The size, structure, and separation of duties between the chairman and the chief executive are characteristics of an effective board of directors, as per UK Corporate Governance Code (Karim, 2021). The management board and supervisory board of ASOS plc are two separate boards, with the majority of members being selected from outside the company. Only executives comprise the management board, primarily concerned with the business’s operational problems. José Antonio Ramos Calamonte, who serves as the CEO, is the chairman of the management board. On the other hand, the supervisory board is led by Jorgen Lindemann, a non-executive board member and member of the board.
ASOS Plc adopts an agency theory of corporate governance. According to this theory, the owners hire managers to run the operations instead of actively participating in the management of the company. The issue with this theory is that managers frequently neglect the needs of the shareholders in favor of their own interests (Naciti et al., 2021). The theory is largely characterized by the opportunistic behavior of managers (Akter et al., 2020). ASOS Plc’s board of directors decreased the predetermined targets to allow the chief executive to obtain greater compensation when revenues were low. In many firms, the problem of senior executives receiving unjust compensation is particularly prevalent. Giving managers appropriate and sufficient incentives that are connected to their performance would help solve the problem (BHAT).
Roles of the board
The board is in charge of managing ASOS and its affiliates for the long-term advantage of all stakeholders in order to ensure the company’s long-term sustainable success. The group’s mission, vision, and core values must be established. The board must ensure that the company’s objectives are achieved in a way that is supported by appropriate culture and behavior. The board also determines the company’s risk appetite and evaluates the controls that need to be put in place in accordance with the risk appetite. To guarantee that ASOS plc runs efficiently and sustainably in the long run, the board determines, monitors, and manages risk management systems, audit processes, and financial controls. The board has outsourced part of its tasks to the board committees, such as the audit committee, nominating, pay, and ESG.
The Chairman
The chairman of ASOS plc is the head of the non-executive board of governance. Among the chairman’s roles include running the board’s business, ensuring that the board is effective and that the company has appropriate strategic focus and direction, and promoting open debates between executive and non-executive directors through encouraging high standards of corporate governance.
Chief executive
The chief executive is responsible for proposing, promoting, and executing company strategies and leading the engagement of ASOS Plc through the executive committee.
Non-executive directors
ASOS Plc’s non-executive board of directors is made up of five members whose roles include scrutinizing and constructively challenging the performance of management in the execution of the company’s strategy. The non-executive directors are also responsible for protecting long-term shareholder interests by monitoring strategy implementation and providing sound judgments in board discussions.
Board remuneration, diversity and ethics in corporate governance
Board remuneration
Excessive director compensation, whether in the form of board compensation or director ownership, is one of the major causes of income disparity (Lemma et al., 2020). The UK code of corporate governance regulates board compensation. To ensure transparency and foster the company’s long-term success, independent committees are required to decide the amount of compensation paid to directors under the code. Directors are not permitted to make this decision (Mumu et al., 2021). When executive compensation is closely tied to the company’s financial performance, agency issues can be effectively mitigated. According to Alqatan et al. (2019), the executive director’s compensation and firm performance are positively correlated. ASOS Plc’s compensation strategy aims to reward the company’s senior executives through performance. The goal of the policy is to recruit, keep, and inspire high-caliber, productive personnel (Baharudin, 2019). In accordance with Provision 40 of the UK Corporate Governance Code, which includes simplicity, clarity, predictability, risk, and aligned culture, the firm’s pay strategy seeks to compensate individuals for their contributions to the success of the organization.
However, in light of the sharp decline in the fortunes of online fashion retailers, ASOS Plc changed the requirements for its annual executive bonus scheme. In the fiscal year 2022, revenue received a weighting reduction from 30% to 15%. The company’s chief executive officer and chief financial officer are both eligible for the bonus program. Depending on success according to specific goals, the corporation may pay out up to 150% of the base wage. For the business, which had thrived throughout the COVID-19 epidemic, cost reduction had been replaced by customers and revenue growth. These modifications might indicate that the business performed poorly during crucial times, forcing it to sell its stock at steep discounts (Unda & Ranasinghe, 2021).
After the chief executive received a salary of more than 4.2 million euros, the changes to executive bonuses sparked concern among the shareholders. The shareholders or investors support the compensation policy (Porcuna Enguix, 2021). As a result, the majority of the company’s compensation programs are quite likely to be rejected by investors. Increased CEO compensation may impact the company’s success since it enhances the wealth of the executives rather than that of shareholders (Alqatan et al., 2019). Transparent executive salary disclosures are essential for effective governance and maintaining accountability to stakeholders. The roles and responsibilities of the executives and how they relate to their pay should be further discussed with the stakeholders by ASOS Plc as part of their disclosures.
Board diversity
By implementing sustainable practices, corporations play a significant part in defining the objectives for sustainable development. The board composition is one of the key strategies for influencing corporations to adopt sustainable practices. A company’s board composition, including board diversity, independence, and CEO duality, has an impact on its financial success, according to Naciti (2019). It may not be possible to scientifically investigate the connection between the board’s makeup and its sustainability policies. The diversity of its board may greatly impact the performance of a company. As “variation in the makeup of the board of directors,” a board’s diversity is described. Board diversity is the most important factor affecting the board of directors efficacy and company performance (Song et al., 2020). Companies must provide explicit disclosures on diversity, according to the 2018 UK Corporate Governance Code. The rule expands on the mandate that board members take into account diversity in all its manifestations, including gender, social, ethical, cognitive, and personal strength.
In addition to gender, age, and experience, ASOS Plc has taken into account diversity when assembling its board of directors. A firm’s performance and gender diversity have been found to be positively correlated in prior studies. However, the benefits of gender composition, such as innovation, deliberate and effective problem-solving, and creativity, outweigh the drawbacks of gender diversity, such as poor communication and a lack of cohesiveness (Aggarwal et al., 2019). A competitive advantage in a highly competitive market may be attained by involving women with a strong intuition for meeting changing customer needs. ASOS Plc’s board of directors is made of four female and six male directors. 58% of ASOS’s financial executive team are women. In the near future, ASOS wants to increase the proportion of women to 50% and the proportion of minorities to over 15%. ASOS has a 40% female representation in fields that men, like finance, have historically dominated.
Female board members are more likely to be autonomous from the “old boys” network and skilled at creating harmony; thus, they may play a crucial and catalytic role in overseeing managers and offering distinctive viewpoints that help the senior manager’s strategic decisions to be improved (Song et al., 2020). Gender diversity has the advantage of attracting and keeping more qualified personnel. With increased gender diversity, ASOS Plc is more likely to be noticed and see a boost in its reputation among the public, which might serve as an incentive to hire more women. More female representation on the board and among the workforce enables ASOS Plc to produce more sensitive and emotional goods and to provide exceptional customer service, both of which are essential to the business’s operational success. Consumer satisfaction translates to beneficial consequences in the end.
Gender diversity has a positive impact on a company’s performance when it goes global. The internationalization of ASOS Plc’s operational complexity gives female board members more opportunities to demonstrate their unique skills in quickly identifying customer needs and balancing the differing viewpoints of each board member for the best decision-making. Additionally, a company must have both male and female board members who have connections to outside resources in the market in order to operate properties in foreign regions (Vadasi et al., 2020). The value of this strengthened gender diversity may be amplified in the situation of internationalization because both male and female board members are likely to bring distinctive and valuable resources from the external markets based on human capital accumulated from their prior work experience and know-how (Ozdemir, 2020).
Ethics and morals in the board
ASOS has experienced a number of ethical problems in recent years. The majority of the organization’s ethical problems are related to its workers, suppliers, and the environment. A labor organization that guarantees worker health and safety, decent wages, and other rights did not certify any of the business’s suppliers in 2020. When it comes to ensuring that living wages are paid in its supply chain, there is a lack of transparency. It’s possible that the firm is disseminating incorrect information concerning forced labor, gender equality, and free speech.
Fair labor
A company code of conduct from ASOS Plc that outlines all the rules for employees is available to the public on its brand page. To ensure the safety of its workers, the company also regularly evaluates its first-tier facilities so it is aware of the daily working conditions of its employees. The business collaborates closely with its stakeholders to give its employees access to a more ethical workplace. Unfortunately, the corporation does not inform its employees of any possible human rights violations, does not pay living wages, and neither has any programs in place nor any intentions to do so that would help to improve the well-being of its workers. However, while talking a great game about how much ASOS Plc cares about its staff, in reality, nothing has been done to assist them.
Transparency
The transparency of ASOS is under dispute. The first issue is that the business’s website lacks a sourcing map and a list of the factories where the company’s goods are produced. According to Janning et al. (2020), a company is required by the UK Corporate Governance Code to disclose details about the actual conditions of its factories and how employees are treated. ASOS Plc does not comply with this requirement. It may indicate that the business is not treating its employees fairly if such information is kept secret. Additionally, it is impossible to know the origin of the materials or the processes involved in their production. There is a chance that the business is hiring remote workers under the subcontract and paying them even less than its own staff. Slave labor is a problem that is very prevalent in the fashion industry, and all of these are recipes for it. Additionally, ASOS acknowledges that there is a problem with subcontracting in the industry but does not elaborate on how they plan to address it internally. However, ASOS has implemented a global framework agreement and collaborates with IndustriALL in the promotion of human rights and environmental sustainability as a sign of its commitment to the well-being of its employees.
ASOS also falls short when it comes to leadership, diversity, and inclusion (LDI). ASOS does not advocate for promoting ethical production over more consumption. Also, the corporation does not employ many individuals of color in top leadership positions. Furthermore, the business does not advocate for an environment free from age, gender, ethnicity, sexual orientation, and religious discrimination.
Sustainably made
Currently, ASOS is not engaged in any form of intersectional environmentalism, which is an admission that the waste they produce has an impact on the local populations and communities where their factories are located. Consideration should be given to intersectional environmental sustainability since it demonstrates that a company cares not only about the environment but also about communities and employees (Sabherwal et al., 2022). The amount of water used in ASOS Plc’s production activities is not disclosed, despite the company disclosing the number of CO2 emissions. Additionally, they don’t demonstrate that they have plans to try and cut back on their water usage, enforce wastewater regulations, or control their emissions. In addition, ASOS does not have the plan to eliminate dangerous chemicals, construct a closed-loop supply chain, implement initiatives to extend the life of goods, decrease their waste or utilize textiles made of sustainably produced raw materials.
Conclusion
One of the key components of a successful firm is its corporate governance practices. It negatively affects both the company’s growth and reputation. Beyond corporate laws, there are other rules for corporate governance. Corporate governance is characterized by accountability, openness, independence, and justice. Corporate governance has an impact on the whole financial market as well as businesses. The economy, a company’s expansion and development, public perception, and shareholder confidence are all impacted by corporate governance. A company’s success is significantly influenced by the diversity of the board, compensation, ethics, and morality. The UK Corporate Governance Code provides guidelines for how a company should conduct its business.
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