MBA 402 Assessment 3 Case Study

You are an independent consultant, counselling companies on corporate governance issues. You have been engaged by JKM Renew Pty Ltd (JKM) to advise them on their corporate governance structures.

JKM is a land remediation business. You are unfamiliar with this industry, and decide to conduct some quick online research

Turning to JKM’s own website: this is visually clean and simple. It lists an impressive array of former land and water reclamation projects, with glowing testimonials from councils, local communities, and other grateful clients. JKM staff consist of full-time employees and contractors. The current annual company turnover is almost AUD$60 million.

To your annoyance, the seemingly simple website does not readily deliver the company’s corporate governance information. It takes considerable time searching through unrelated links to find the relevant information.

The JKL Board comprises:

Keith Milton	CEO and company Co-founder
Joshua Milton	Board member, and company Co-founder
Alana Milton-Jones	CFO and acting Chair of the Board, daughter of Joshua Milton
Myra Peterson	Head of HR, and Company Secretary, Sister to Keith and Joshua
Edward Peterson	COO, son of Myra Peterson

Company History

JKM was started in 1990 by brothers Joshua Milton (mining engineer) and Keith Milton (soil scientist). As Keith explained in his introductory phone call:

Mining projects have a finite life. Once a mine closes, the site must be made safe for future generations, and eventually repurposed. The long-term game is not extraction [of ore] but land renovation.

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The company started small in Western Australia, with Joshua and Keith sourcing work through their mining industry connections. JKM extended activities to recovery of industrial sites as well as mines. Now headquartered in NSW, JKM plans to make water reclamation projects a larger part of their portfolio. Doing so would require company expansion, and significant capitalisation.

Context of your appointment

Recently, JKM concluded a successful land reclamation project on behalf of Orecorp, a multi-national mining corporation. Impressed with JKM’s results and record, Orecorp have created a memorandum of understanding, to make JKM the sole provider of remediation services for all Orecorp’s Australasian projects. The work would involve land reclamation of mining sites and of ore processing facilities. Orecorp also owns a range of coal-fired power stations scheduled for decommissioning and site remediation within a 5- year period.

JKM are excited by the proposed collaboration, as it fits with their plans for company expansion. Orecorp may be willing to invest some capital in JKM, in exchange for a 20% ownership stake in the company, with representation on the company board.

As part of the agreement process, Orecorp conducted a brief investigation of JKM’s corporate governance structures. The resulting short report was shared with JKM. The report raises concerns around the current company structure, its lack of management oversight and other operational controls. Orecorp expressed reluctance to invest in a company, where so many senior executives and Board members are close family.

You are friendly with the consultant who compiled Orecorp’s report into JKMs corporate structures. So, you give her a call. She confirms that, when she asked for Board meeting attendances, Myra Peterson (Company Secretary) asked “I’ll check my emails for apologies. How far back should I go?”

The Orecorp report indicates that for the collaboration to proceed, JKM must:

Prove their compliance with ASX guidelines on best practice for corporate governance.
Strengthen their risk management structures.
Engage in regular sustainability reporting, using a structure such as the GRI reporting standards.

Meeting with the Board

Keith invites you to the next Board meeting. This is held at Joshua Milton’s rural property. Myra explains that the lack of disability access at the corporate headquarters offers a rare chance for wheelchair-bound Joshua to attend a Board meeting. The Board meeting also coincides with Joshua’s 70th birthday celebrations, enabling you to meet most of the extended Milton/Peterson family.

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Family views on governance, risk, and sustainability reporting

The Board meeting raised some frank discussions among the Board members.

Keith Milton opined, “JKM is doing well, but hardly commands the resources of a MNC. How onerous would it be to comply with ASX principles? We are not looking (yet) to transition to stock market listing.”

Childless himself but eager to keep JKM a family business, Keith also worried about the impact that company restructuring might have upon jobs for the next generation of the family: Alana’s daughter (studying soil science at university), and Edward’s stepson (enrolled in a business degree). “We are building this company for their generation. If we offer Board positions to non-family members, can we offer significant management roles to family who work for us?”

Alana Milton-Jones asked about ASX requirements for auditing corporate reports. “Edward’s wife Leanne is a good accountant. She has been our External Auditor for years. Can this arrangement continue?”

Joshua Milton was curious about the sustainability reporting requirement. “Not all land remediation is a matter of moving soil around. Sometimes, we use chemicals to keep the bad stuff inert in the ground. So yes, our work can involve handling chemicals. But our guys know what they are doing, and are used to it. We don’t need to prove our sustainability credentials. Companies like JKM are part of the solution, not part of the problem.”

Edward Peterson shared concerns around the costs of compliance, that were expressed by his Uncle Keith. “Is there any essential relationship between the two [risk management and sustainability reporting]? Would Orecorp be satisfied if we engaged in just one of these: either adopting a risk management framework, or engaging in sustainability reporting?”

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REQUIREMENTS

You are required to write a report for JKM’s board summarising your views on corporate governance, sustainability, and risk management practices.

In your report, you must address the following three areas:

Identify and discuss three appropriate ASX corporate governance principles that you consider most relevant to this company. Describe how these would be beneficial for JKM, regardless of whether the company transitions into an ASX listed entity.

(15 marks) (1,000 to 1,100 words)

Summarise the benefits and challenges of producing a sustainability report for JKM, especially for a business within the land/water remediation industry. Identify some key elements that should be included in a sustainability report for this industry.

(10 marks) (600 – 660 words)

Identify some key risks for a company such as JKM, and what benefits there would be in minimising risk. Provide clear and succinct advice on what actions the company should take to minimise risk.

(7 marks) (400-440 words)

Within the answers to the above three questions, you should refer to:

The views of the four people who spoke up at the board meeting (Keith Milton, Alana Milton-Jones, Joshua Milton, James Peterson).

Recent news releases relating to best practice corporate governance, sustainability and risk management practices.

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