Strategic Finance

Assignment 01

Student Name: Koralagamage Kusal Kumara Fernando

UOB ID – 2212854

Unit Code - 22-23BLK2OCAAF046-6

Word Count – 2,488

Submission Deadline – 09/12/2022

List of Abbreviations

➢ PFP – Premier Fool PLC

➢ CG – Corporate Governance
➢ CID- Corporate Investment Decision
➢ ED – Executive Director
➢ NED – Non-Executive Director
➢ AC – Audit Committee
➢ BOD – Board of Director
➢ RC – Remuneration Committee
➢ NC – Nomination Committee
➢ FY – Financial Year
➢ SID – Strategic Investment Decision
➢ PPE – Property, Plant & Equipment
➢ CEO – Chief Executive Officer
➢ CFO – Chief Financial Officer
➢ R&D – Research & Development
➢ SIDM – Strategic Investment Decision Making
01. Introduction

Corporate governance is the system in which companies are directed and controlled (Ruth
Bender,2014). Further, CG is important to a firm’s performance and success (Stuebs and Sun,
2015).

Corporate governance and corporate investment decision create a significant impact on the
organization’s performance. This is elaborate on how it supports increasing the performance
of Premier Food PLC.

Premier Food PLC is a British leading food manufacturer whose business nature is
manufacturing and distributing branded and own-label food products. It is listed as a public
quoted company on the London stock exchange since 2004 and the business has over 100
years of history.

The strategic objective of PFP is to identify and develop insight-driven new product
innovation and bring it through powerful marketing and outstanding in-store to the market.

The stakeholders are individuals or parties who can affect or are influenced by the
achievement of the company objective (Sartor, M and Orzes G.2019). Using Mendelow’s
power interest grid, external stakeholders are key players and a very significant group of
operations (Aras, G. and Crowther, D. 2011).

The key stakeholders of Premier Food PLC are shareholders, customers, consumers,
suppliers, employees and, communities, etc.

The objective of this essay is elaborate, on how CG and CID are linked with Premier Foods
and how it helps to increase PFP performance and give the greatest return to their
shareholders and other key stakeholders.

This essay elaborate application of CG theories, CG practices and effectiveness, the role of
CG in strategic decision-making, and the conclusion through the PFP.

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02. Implications of Corporate Governance Theories to Premier Food PLC

There are several kinds of CG theories are prevailing. That is, Agency theory, Stewardship
theory, Stakeholder theory, Hazard Moral theory, Transaction Cost Theory, Resources
Dependency Theory, Business Ethics theory, and Political theory, etc. Below are elaborate
some theories relevant to the PFP.
First of all, I select agency theory for its elaborate relevance to the PFP. The theory refers to a
relationship between the owners of the company and the directors, to perform the company's
activities on behalf of the owners (Borlea, N and Achim,V. 2013).
PFP’s management (Directors and management team) and owners are two separate parties.
PFP are consist of 12 directors including 2 executive directors except for the newly appointed
director after the financial year 2021/22. They are taken every decision to increase the
owner’s wealth. The CEO of PFP is Alex Whitehouse and the CFO of PFP is Duncan Leggett
and they are taking operational decisions and managing the organization. This is a public
quoted company and shares are traded on the London stock exchange. The main shareholders
of PFP consist of institutions and out of that main shareholder is Nissin Foods Holdings
Co.,Ltd. And holding 24.40% total shareholding.
However, agency theory creates the problem that conflict with interest between shareholders
and management due to their objectives. Management may not always act in the best interest
of shareholders when of controls the company due to ownership and the company being
separate (Bonazzi, L. and Islam, N 2007).
Then, we elaborate on the stakeholder theory applicable to the PFP. Stakeholders’ theory
refers to all the parties interested in the organization’s activities and consists of individuals
and/or groups of people (Lange, D. and Bundy, J. 2018).
In PFP, there are several kinds of stakeholders. The main stakeholder is shareholders. Other
than that, major stakeholders are suppliers, consumers and customers, colleagues, and the
community. In-depth study of suppliers of PFP, the total number of suppliers is more than
500. Out of 500, the major supplier’s supply provides a wide range of healthy, natural
ingredients for production. In the year 2021/22, 315,000 tons of food ingredients were
provided by around 220 suppliers.
Also, employees are the key stakeholders and PFP has around more than 4,200 people
working together. Thereby, they have more influence on company activities due to the
security of employment and other benefits, etc. Consumers and customers are very important

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because of their business of food manufacturing. Therefore, they always consider the
company due to creating and launching new products to the market. Another main key
stakeholder is communities. They donated more than 600,000 meals to food poverty during
this financial year. We have observed that PFP has dealt with its stakeholders well.
Therefore, agency theory always considers the conflict of interest between shareholders and
management, and stakeholder theory considers all the stakeholders who are interested in the
company. PFP not only considers increasing the wealth of owners but also considers what
can create value for other stakeholders. Therefore, they also think whether how to do more
value-creating via their strategic decision.

03. Corporate Governance Practices of Premier Food PLC

There are several corporate governance practices are available in the organizations. Examples
of BOD structure, Appointment of committees such as audit committee, remuneration
committee, nomination committee, etc., Ownership changes, Related party transactions,
Internal controls, Executive directors’ remuneration, Financial performance, etc.
Below elaborate a few main areas of the above practices in detail PFP.
First, I analyzed the board structure of PFP. Board efficiency is the key topic of CG. The
efficiency depends on features of the structure, and functioning of the board to achieve
corporate results and objectives (Ramos, G. and Diaz, D 2020). Thereby, we look at the
board structure, Gender composition, qualifications, and attendance of the board meetings
and subcommittee meetings.
PFP has 12 members on the Board, 02 are EDs, and the remaining 10 are NEDs by year-end
2021/22. The effective board is collectively responsible for long-term success. The board is
consisting of a considerable number of members rather than a smaller number of BOD and it
helps the decision-making process as the effectiveness of decision-making by them for the
company’s long-term goals as well as strategic objectives. NEDs are often considered to
bring valuable business experience which can contribute to the company for the strategic
success of an organization (Clarke, T.1998). We see the NEDs of PFP, there are 07 INED and
out of 01 INEDs appointed as a senior independent non-executive director who supports the
chairman to lead NEDs. Further, there are 03 NEDs. Altogether 10 members are NEDs
consist on Board.

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Then we consider the gender position, PFP has 04 female out of all the directors and as a
percentage, 33% board consist of females. Gender makeup examines how female presence
influences financial performance for corporate governance and management to assess (Baldo,
M. Matteo, A and Hull, K. 2019). Therefore, PFP has considerable females on the Board for
the decision-making process.
PFP board consists of a wide range of experienced and qualified persons and mainly they
have a considerable number of experiences, a considerable number of chartered accountants,
MBA holders, and degree holders which represents the board as having financial acumen.
Then, we look at the appointment of committees of PFP. PFP has an audit committee,
remuneration committee, and nomination committee.
The audit committee of PFP is one of the most important committees. All the members of AC
consist of INEDs including chairperson. Public companies to disclose whether or not they
have at least one “financial expert” serving on their audit committees (Iyer, M., Bamber, E.
and Griffin, J. 2013). The audit committee consists of 06 members and all are INEDs.
The AC has represented BODs, is expected to oversee financial and non-financial reports,
and minimizes asymmetry of information between shareholders with management
(Mohammadi, S., Saeidi, H. and Naghshbandi 2020). PFP audit committee review monitoring
the financial reporting including the quarterly and annual report, consider the going concern
ability of the group, review the internal audit report, review the group cyber security, and
furthermore. During the financial year of 2021/22, they held 04 audit committee meetings.
The RC consists of 06 INEDs and during the period they held 05 meetings of PFP. The RC
comprises a majority of independent directors and the chairperson also be an independent
person (Cybinski, P. and Windsor, C. 2013). In accordance with the PFP, the CEO and CFO
benefits including salary, bonus, pension, and long-term incentive plan are decided by RC.
Also, NEDs fees are decided by RC based on the time commitment and responsibilities under
the role. Further PFP pays additional fees to chairs of AC, RC, and also the Senior
independent director.
The NC can arguably increase board diversity and improve the directorate’s ability to
discharge its duties (Mans-Kemp, N. and Viviers, S. 2019). Board performs planning of the
succession of the CEO and evaluates the CEO’s performance and rewards him/her (Appiah,
O. and Chizema, A. 2015). PFP’s nomination committee consists of 08 directors all of are
NEDs. The PFP chairman is the chairperson in the NC and who is NED and others all are
INEDs. The NC responsibilities of PFP are, considering the size, structure, and composition

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of directors, appointment of directors, making appointment recommendations of appropriate
balance of skills, knowledge, experience, and diversity on the board, and overseeing the
company’s policies, etc. The NC meetings held in FY were 03.
Then, we see the key board activities performed by the board of PFP. Board focuses on key
areas during the financial year as strategic development & implementation, operational
performance, financial performance and risk, and environmental, social, and governance.
They have allocated time as 27%, 18%, 30%, and 25% respectively each activity during the
FY.

04. Role of Corporate Governance in Strategic Investment Decision-Making

for Premier Food PLC

Strategic decision-making is the process of action taken to achieve long-term goals and long-
term vision. SID is simply a decision on an investment that has a significant potential for
improving corporate performance (Alkaraan, F. 2015). An example of strategic investment
decisions are acquisitions, mergers, major new market entries, closing plants, or changing the
diversification mix or pricing position. Strategic decision-making is a central and critical
process for the company (Kazakova, V. and Geiger, D. 2016). Let’s see how corporate
governance links with the strategic decision-making process of PFP.

In the FY 2021/22, the PFP board of directors approved the acquisition of property, plant &
equipment is £19.5M (2020/21 - £18). It is almost more than an 8% increment compared to
the previous year. The board is responsible for approving all the acquisitions of PPE and, the
CEO and CFO are responsible to present the capital budget to the board under their strategic
plan when the preparation of corporate budget. Mergers and Acquisitions create a major part
of an overall corporate and business development strategy (Chung, H. 2004). Further, PFP
has entered into a capital commitments contract value of £5.7M during the financial year.
However, they have not spent during the financial year. Therefore, PFP has entered several
kinds of investment of acquisition of PPE during the FY.

Let’s elaborate on the acquisition of PPE, and how it is important to link with corporate
governance. PPE acquisition is related to capital investment and it creates long-term benefits
rather compared to short-term benefits. However, ineffective decision-making of capital
investment creates a bad impact on the company. Therefore, all the capital purchases should
submit to the BOD, and then, they can evaluate in accordance with the requirement of
management and the market situation, then approve the capital expenditure. It is important to

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control the company because of CEO is unable to make capital expenditures on his own.
Therefore, it is creating more value and creates good controls for approving the Capex
budget.

SIDM processes are substantial, multipart, uncertain, non-programmed, and competitively

oriented with a new strategic direction and long-term impacts (Alkaraan, F. 2020). PFP is in
the food manufacturing industry in the UK, and they always consider what innovative
products issue to market. Therefore, research and development costs are also included in very
important factors for the development of the business. This is also can consider as strategic
decision-making of PFP. PFP spent R&D costs to introduce new products, improve products,
application of new technology to reduce the cost of unit and operating costs, and
improvement to customer services. During the financial year 2021/22, PFP spent £11.4M.
But in comparison to the previous year, it was a 14% decline. However, management and
BOD have spent on R&D costs last few years and it intended how it is important to the
development of the company.

R&D cost is also another important area of the organization. Because it creates a long-term
impact. However, it should be linked with corporate governance. Because of research costs,
some time may be sunk costs due to non-viability. R&D cost can be capitalized at the point of
the coming feasibility stage. Therefore, board involvement is required appropriately for R&D
costs due to the risk of investment. Further, pre- approved budget is required for R&D
expenditure and Board should evaluate the viability of this investment.

In FY 2020/21, PFP disposed investment of associates in Hovis and earn a disposal profit on
this £16.9M. However, in FY 2021/22, no decision was taken by management to dispose of
any investment. BOD can decide to acquire or dispose of any investment based on the
rationally acceptable and it helps to organization’s development. Disposal strategies of
freeholds are generally used as short-term tools for capital generation during financial
distress, leading to bad deal terms and problems arising in the future (Remoy, H., Rovers, S.
and Nase, L 2019). But management decide to dispose of any investment at the correct time,
which creates gain for the organization. However, if they dispose of any investment in the
worst-case scenario, they have to incur a loss.

Any acquisition or disposal of investment final decisions has to be taken by the board.
Because of the impact of acquisition or disposal responsibility by the board because they
grant final approval of this decision. Therefore, these are long-term related decisions making

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and board involvement with good corporate governance implies appropriate and successful
decisions.

Therefore, good corporate governance helps to take appropriate and successful strategic
decision-making processes.

05. Conclusion

According to the elaboration of how PFP helps corporate governance for the strategic
investment decision-making process above, CG gives an effective contribution to company
success via best practices. Also, every company should be handed an effective board and
board collectively responsible for the long-term success of the company as per the UK
corporate governance code. Based on that, the PFP has an effective board including a wide
range of experience and different experts in marketing, accounting, law, etc. As a result of
board creates a valuable effort to implement and run strategic investment decision-making,

Capital investment decision-making draws from the behavioral sciences and takes a broader
strategic perspective (Harris, E. 2000).

Therefore, we can conclude that every organization required effective corporate governance
to take effective strategic decisions. If the company has effective CG, all the decisions may
be favorable on behalf company. However, lack of practice of CG, would be a hugh impact
on the company and as a result of it may impact to close down the organization. Therefore,
effective CG creates more value for the organization.

Based on the analysis, Primer Food PLC has effective CG and they also maintain CG well.
As the result of they are performing well and most of the decisions were effective in look at
financial performance in past years and 2021/22.

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