Ethical Hemp Ltd-ASE

Ethical Hemp Ltd 1
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Ethical Hemp Ltd 2
Governance issues in Ethical Hemp Ltd
Corporate governance issues
Corporate governance issues majorly relate to the agency conflict that exist between the
principal (Shareholders) and the agent (management) (CHEN, LU and SOUGIANNIS, 2011).
Ideally, the real owners of resources, shareholders, normally appoint the management, who act as
agents, inorder to full heartedly manage their resources (shareholders). However, management a
times represents their interests rather than representing the interests of the shareholders. This
kind of misrepresentation leads to agency conflict. Agency conflict affects the corporate image
identity and the general overall performance of the company. According to Richard Conti
(2009), one of the objectives of company existence is maximization of shareholder’s value.
Therefore shareholders ‘value can’t be maximized if the quality of companies operations is at
stake because of poor governance and crave ethical concerns.
The case of Ethical Hemp Ltd presents some grave ethical concerns relating to corporate
governance. For example, it has been indicated in the case that there has a lot of mismanagement
of company resources by Tasma Callistemon, the community engagement officer. It is said that a
number of community engagement projects have stagnated because of mismanagement. This
affects company operations and thwarts its growth as the company’s quality of operations is
interfered with. This goes against one of the rules or principles on which listing in the ASE is
based. This contravened principle states that an entity which wishes to be listed in ASE should
satisfy minimum standards of size, quality and operations before it is listed. Ethical Hemp
limited supposedly doesn’t meet the requirements of this principle because of poor governance
that have affected the company to an extend that the company is at the verge of collapsing as Ben
Banksia , one of the directors is heard saying that the company might no longer be viable.
Conflict of interest
Conflict of interest is one of the governance issues affecting most companies. It arises in
instances where management engages in other issues that are not part of the operations of the
company. Ideally, management is selected by the shareholders to maximize shareholder value.
However, maximization of shareholder value is often not achieved because of conflict of interest.
Additionally, conflict of interest includes instances where the affairs of the company are
Ethical Hemp Ltd 3
affected. The management at times make decisions that may affect the operations of the
company and which may threaten the principle of going concern and the concept of separate
legal entity (AA and S, 2016. The concept of separate legal entity states that a company is a
separate legal entity and that the affairs of a company should not be affected by personal affairs
(Aguinis and Bradley, 2015). However, in Ethical Hemp Ltd, this is not the case because the
affairs of the company have been seriously affected by personal affairs of the company.
Additionally, it is said that Max Acacia, one of the directors has lent the company substantial
amount of money which is one of the issues that contributes to conflict of interest. Conflict of
interest affects the inflow of investors into the company. It is apparent that Ethical Hemp Ltd has
limited number of investors, which doesn’t meet one of the threshold principles of company
listing by ASE. One of the principles of that ASE bases to list companies is that a company must
have sufficient shareholder interest demonstration.
Fair representation
One of the duties of the management is to ensure that interests of the shareholders are
taken care of (Petry, 2017). However, most of the shareholder’s interest and trust have been
betrayed by the management who fail to represent the interests of the shareholders. Because of
the lack of trust the shareholders have towards the management, the shareholders appoint an
auditor who acts as a watchdog, monitoring the actions of the management. An appointed auditor
is supposed to be independent from the management inorder for him to express an opinion
regarding the true and fair view of the affairs of the company (Saxena et al., 2010). However,
this is not the case with Ethical Hemp Ltd which is said to have appointed an auditor, Mr
Lawrence Helmsii to audit the books of accounts but again turns out not be to independent
because he is said to have worked closely with accountants in preparation of books of accounts,
an action not accepted in auditing because of the compromise it has on independence. The case
also notes that the auditor find it’s hard to audit books of accounts and give out a report, an issue
that contravenes one of the principles determining company listing by ASE, which requires that
a company should produce financial statements which should be subjected to auditing as per
auditing standards.
Ethical Hemp Ltd 4
Untimely presentation of financial statements
Resources being managed by the board of directors who form the management body
belong to the shareholders and the management has a duty of presenting financial statements to
the shareholders on a timely basis (AA and S, 2016). Additionally, delayed preparation and
presentation of financial statements consequently leads to delayed decision making which
translates to non-achievement of objective in terms of maximization of shareholders’ value. It
has been indicated in the case that the chief accountant, Andy Agapanthus, has always been
away and has delegated most of his work to junior accountants, Conrad Conifer and Helen
Hibiscus, who have always faced difficulty in the preparation and presentation of financial
statements to the board of directors. This contravenes one of the requirements ASE bases to list
companies. ASE’s principle requires that a company prepares timely financial statements, a
principle Ethical Hemp Ltd has failed to observe
Un-approved decisions
Management should make decisions as per the interests of the shareholders (Intezari and
Pauleen, 2017). However, this is not the case in Ethical Hemp Ltd because most of the decisions
are made by the management without any approval. For example, it has been indicated in the
case that Ethical Hemp Ltd is considering expanding its operation to the European market and
has greatly spent on this move. However, it is apparent from the case that the move had not been
authorized by the board. This action in itself is against one of the principles ASE bases on to list
companies. For a company to be listed by ASE, certain significant transactions should be
approved by the shareholders through the board of directors
Changes recommended for listing in ASE
1. Inorder for Ethical Hemp Ltd to qualify to be listed by ASE, it should focus on its
corporate governance. The company should disclose information about its corporate
governance issues and provide explanation for failure to meet generally acceptable
governance standards. The board of directors could have called for a meeting and explain
what is happening in the company and also provide explanation for what happened and
what they plan to do to prevent a repeat of the same.
Ethical Hemp Ltd 5
2. Ensure that the books of accounts are subjected to auditing by an independent auditor as
per generally accepted auditing standards.
3. Be a company exercising full transparency and accountability. It is evident from the case
that Ethical Hemp Ltd is not transparent and their directors are not accountable.
4. Ensure that it works on improving is gearing level. It should focus on increasing its
equity for its to be liquid enough and reduce chances of it being liquidated or even put
under receivership
5. It should ensure that is accounts are prepared and presented on a timely manner inorder to
facilitate informed and timely decision making. This improves on the standards of the
company and attracts investors, especially potential investors. Therefore t be listed by
ASE, Ethical Hemp Ltd should strive to have its books of accounts prepared and
presented in time
Ethical Hemp Ltd 6
AA, S. and S, B. (2016). The Going Concern Assumptions and Presentation on Financial
Statements. International Journal of Accounting Research, 4(1).
Aguinis, H. and Bradley, K. (2015). The secret sauce for organizational success. Organizational
Dynamics, 44(3), pp.161-168.
CHEN, C., LU, H. and SOUGIANNIS, T. (2011). The Agency Problem, Corporate Governance,
and the Asymmetrical Behavior of Selling, General, and Administrative Costs*.
Contemporary Accounting Research, 29(1), pp.252-282.
Intezari, A. and Pauleen, D. (2017). Conceptualizing Wise Management Decision-Making: A
Grounded Theory Approach. Decision Sciences.
Petry, S. (2017). Mandatory worker representation on the board and its effect on shareholder
wealth. Financial Management.
Richard Conti, C. (2009). Conflict of Interest. Clinical Cardiology, 32(12), pp.666-667.
Saxena, R., Srinivas, K., Rai, U. and Rai, S. (2010). Auditing. 1st ed. Mumbai [India]: Himalaya
Pub. House.

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