Corporate Governance

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TITLE : CORPORATE GOVERNANCE
COMPANY NAME : AIR ASIA

GROUP MEMBER

AIRASIA BERHAD

COMPANY PROFILE


Established in 1993 and commence operations on
18 November 1996.



Established with the dream of making flying
possible for everyone



Originally founded by a government-owned
conglomerate, DRB-COM.



Bought by former Time Warner executive, Tony
Fernandes 's company Tune Air Sdn Bhd on 02
Dec 2001

COMPANY PROFILE –Cont‘
Malaysian Low- cost airline
 Largest low fare, no frills air line and a pioneer of
low cost travel in Asia
 Operates scheduled domestic and international
flights to over 400 destinations spanning 25
countries


AIRASIA GOVERNANCE BOARD
BACKGROUND & DUTIES


The Board of Directors consist of 8 members :
1 Non Executive Chairman
 2 Executive Directors
 5 Non Executive Directors – independent & neutral




Ensure the Group meets the responsibility to the
stakeholders and serve to the community as well



Appointment of Board and Senior Management staff



Ensure a sustainable & adequate financial resources



Review progress and trends in relation to Flight Safety &
Airworthiness

OTHER DUTIES & RESPONSIBILITIES








Govern the corporation by establishing policies
and objectives
Select, appoint, support and review the
performance of the CEO

Approve annual budgets
Decide the salaries and compensation of company
management.

DEFINITION OF CORPORATE
GOVERNANCE






Shleifer and Vishny(1997) - the ways suppliers of
finance to corporations assure themselves getting
return on investment.
Gillan and Starks (1998) - system of laws, rules,
and factors that control operations of a company.
Jensen (2001) - Incorporating the community in
which firms operate, political environment, laws
and regulations, and more generally the markets
in which firms are involved.

MARKETS

LAW/REGULATIONS

Board of Directors

Management

Debt
Assets
Equity

CULTURE

COMMUNITIES

Source: Shleifer, A., Vishny, R., 1997. A survey of corporate governance. Journal of Finance 52, 737– 775.

ISSUES 1 : AIRASIA IN TROUBLE
OVER HIDDEN FEES






Failed to disclose - full price of fares for flights.
Regulators began legal proceedings(Melbourne) penalties and orders for AirAsia to issue corrective notices on website.

The Australian Competition and Consumer
Commission (ACCC) won its courtcase against
AirAsia.

Why ACCC won this courtcase?






Fares sold on the website were disclosed partially
-excluding taxes, fees and other charges.
AirAsia Bhd has to pay the fine of RM 645,000
for flights of AirAsia X because AirAsia is
running the website for AirAsia X.
AirAsia was demanded by regulator to state a
notice that it failed to ''specify, in a prominent
way, the single price for air travel on its website
… since last September''.

ISSUES 2 :AIRASIA & MAS:
CONFLICT OF INTEREST?

―Tony Fernandes, Group CEO
of AirAsia, was appointed
director of Malaysia Airline
System, the direct competitor
of AirAsia on August 11, 2011 .
Is there no conflict of interest
here?”







Directors should not be competing directly with
the company with a conflict of interest arising.
Thus, they should not act as directors of
competing companies, as their duties to each
company would conflict with each other.
Investors will put in unique clause specifically to
the founder of the corporation.
Ex: Founders are not allowed to work for another
company/Not allowed to invest in another
company in the same industry / After quitting the
current company, not allowed to work in the
same industry for a few years.



Clauses will be written down in the shareholders
agreement and the employment contract.

ISSUES 3 : AIR ASIA DID NOT
MEET REGULATORY STANDARD?




AirAsia Bhd has been granted with an air
operator‘s certificate (AOC) to fly for...
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