Corporate Governance

Corporate Governance

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 ountries ? 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 another five months — instead of a two-year period It showed shortcomings in AirAsia‘s flight operations procedures and practices operations not in keeping with the manual. ? ? ? The action taken by DCA is unlikely to have any financial impact on AirAsia as a company, it may impact its reputation as an airline. Three key posts in an airline are nominated with the approval of the DCA, namely the head for flight operations, engineering maintenance system and crew training. The fact that they have not grounded AirAsia aircraft shows that it‘s not a serious safety issue, but this action still serves as a warning,? ISSUES 4: AIRASIA OBTAINED THE ENTRY INTO INDIA AIRLINE MARKET ? ? ? Air Asia obtained the go ahead from india ? s Foreign Investment Promotion Board to take up a 49% stake in a join venture to set up Air Asia Airline. The joint venture with two Indian companies, namely Tata Sons and and Amit Bhatia owned Telstra Tradeplace AirAsia planned to being operations in Chennai International Airport as it’s main base. [10] ? ? ? Soon after AirAsia announced it’s Indian ubsidiary, the shares of Spicejet, an airline that already had a major presence in Chennai, went down by over 4. 5%. Amber Dubey of KPMG India said that the introduction of AirAsia would cause another price war. It would ultimately lead to an increase in air traffic and some consolidation in the Indian aviation sector. CONCLUSION ? ? ? Corporate Governance practices are an important and significant part of the everyday business for Airasia Berhad The board should take seriously on the current issue & prevent or eliminate it in future Enhance public trust and civic engagement. BACKUP