- The Company
- Marks and Spencer
- Business Model
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Founded in 1884 by Michael Marks and Thomas Spencer, Marks & Spencer sells a wide range of food products, sandwiches and other household items from around 959 stores across the United Kingdom and in 62 countries. Out of 959 stores, 615 stores sell only the food products. The company rigorously advertises its products through national electronic and print media and projects an elite and luxury nature of its products that relate to the lifestyle. The company employs approximately 80,000 people. The majority of the employs are of female. The company started its business as Penny Bazaar in 1884 in Leeds (WELCOME TO M&S, 2021). Since 1957, the headquarters of M&S had been at Michael House, 55 Baker Street, London.
The business model of Marks & Spencer is based on franchise and joint venture model working with strong partners in high-potential territories (M&S IS A LEADING RETAILER, 2019). The business philosophy of M&S is profit driven for the company as well as for its shareholders. With business over 62 countries, M&S has been earning a lot of profit through various services around the globe (Northedge, 2010). Through the services of clothing, food, beverages, home equipments, banking services and electricity services, M&S has made a remarkable business growth from the time of its inception. Marks and Spencer promises an accountable business that will not only be helpful for the company and its shareholders, but also satisfy the demands and needs of its customers.
The major focus of M&S is to generate revenues for its shareholders through multiple business segments that include food, clothing & home, services and property. Each of these segments is managed by its own management teams but under the M&S brand.
Shareholders of Marks and Spencer
2.1 Corporate Governance
The UK Corporate Governance Code (2018) guides the companies through an updated set of principles how to achieve long term sustainable success following these principles (UK CG Code, 2018, pp.1). The Principle A clearly sets the objective of the corporate to “promote the long-term sustainable success of the company, generating value for shareholders and contributing to wider society” (UK CG Code, 2018, A, pp.4). In my opinion, if the principles outlined in the UK CG Code, 2018 are followed properly, it will lead the “good corporate governance” (UK CG Code, 2018, pp.1) and benefit the companies in achieving the objective of generating long term shareholder wealth as well as “contributing to the wider society” (p. 4). In other words, the result of following the UK CG Code Principles will lead the corporate to achieve the “long-terms sustainable success”(UK CG Code, 2018, pp.1).
The corporate in the UK follow the UK corporate governance code to get help in various aspects of the governance. The Listing Rules also require companies to make a statement in their annual accounts statements “how they have applied the Principles, in a manner that would enable shareholders to evaluate how the Principles have been applied” (UK CG Code, 2018, pp.2).
2.2 Major Shareholders of Marks and Spencer
The largest shareholder of Marks and Spencer is Schroder Investment Management Limited, with ownership of 8.1%. Other shareholders are RWC Asset Management LLP, Thread needle Asset Management Limited, Majedie Asset Management Limited, Norges Bank Investment Management, The Vanguard Group Incorporation, 1832 Asset Management, Brands Investment Partners LP, Capital Research & Management Corporation (World Investors) and Rebeco Institutional Asset Management BV.
2.3 5 year shareholder wealth creation by individual share
The table 1 given below shows the company has not done well during the past few years and the profit margin has decreased significantly since 2016.
Table 1: Shareholder value creation: from share price movements
|All values in Pence||Total|
|Share price start of year||367.03||321.93||293.55||262.12||191.30|
|Share price end of the year||316.81||297.82||240.29||214.10||136.30|
|Share price movement UP or DOWN||-51.02||-24.11||-52.26||-47.83||-55||230.22|
|Dividend in the year||18.70||18.70||18.70||18.70||3.90||78.7|
|Total shareholder wealth increased / decreased||-32.32||-5.41||-33.56||-29.13||-51.1||151.52|
2.4. 5 year shareholder wealth creation for all shareholders
|Opening share price||351||361||346||233||320|
|Closing share price||361||346||233||320||316|
|Movement in share price||10||(15)||(113)||87||(4)||(35)|
|Dividends per share||8||9||0||10||9||36|
|Total technical movement per share||18||(6)||(113)||97||5||1|
2.5 Shareholder wealth decreased at Marks and Spencer
The data in the table above shows that the shareholder wealth has been decreased significantly over the last five year period. As we can see, the share price of the company at the end of the year has been very low as compared to the share price at the start of the year. The share price movement has been steadily down since 2015 which decreased the investors’ wealth significantly. My views on this decreased are that there are multiple factors affecting the business of the company including the COVID-19 pandemic during which the demand of clothing decreased. During the lockdown, consumers spent less on fashion products. The revenue from clothing products of the company had already decreased before the pandemic and the food sales also decreased significantly affecting the profit of the company. To save expenditures, the company has closed or relocated 83 stores and planning to close 30 stores further.
In my critical opinion, the company has been ineffective at creating wealth for its shareholders that has led to very significant destruction of its shareholder wealth. This is why investors are reluctant to invest further in the company that has lowered its share price further.
2.6 How this report is important
As discussed above with illustrating the tabular data, the rest of the report will help the readers how the Marks and Spencer corporate governance will benefit its shareholders and the stakeholders. In the preceding sections I will discuss the benefits and harms of the Marks and Spencer to its shareholders and then explain the role of the board of directors in its effective governance. This report also critically discusses the corporate governance issues faced by the Marks and Spencer over the years which were the main reason of the wealth decrease of the shareholders. The report discusses in detail not only the issues related to financial and sales decrease but also the corporate governance issues as evident from the appointment of Executive Chairman in addition to its existing role of the Chief Executive of the company.
3 The Benefits and Harms to the Stakeholders
Table 2: Benefits and Harms to the Stakeholders
|Issue||Stakeholder||Benefit £ Million||Harms £ Million||Overall Benefit/Harm||Source of data|
|Food||Customers||£ 6.0 billion||+2.1%|
|Clothing and Home||Customers||£ 3.2 billion||-8.3%|
|Wages paid to employees|
|UK corporation tax|
|Oversees corporation tax|
|International and Services||Customers and Supply||£110.7 million||-15.2%|
|Total UK Sales||Shareholders||3.9p||-1.8%|
3.2 Contribution to the wider society
Marks and Spencer discloses its benefits and harms to its stakeholders through the annual finance and account following the guidelines provided in the UK Corporate Governance Code 2018. The company promises to be responsible towards its customers, business partners, employees and communities in line with the social and environmental issues. The company has divided this responsibility in four key areas, i.e., marketplace, environment, workplace and community. Focusing on the well being of its stakeholders, the company Group Board and the management of the company monitor if the CR strategy is implemented during the day to day operations.
The data presented in the table above shows that the company has caused more harms to the wider society as compared to the benefits. The biggest benefit it brought to the society is the sale of £ 6.0 billion food items, £ 3.2 billion from the clothing and home products sales, and £110.7 million from the International and Services. Apart from the £ 6.0 billion sales from the food items, the other product sales have decreased significantly which suggests that Marks and Spencer has not performed well to contribute to the society.
The data analyzed is evidence that the company has harmful impact on its shareholders and has minimal beneficial impact on the stakeholders, in particular, the customers who appear to purchase less from the company products. In my opinion, the main reason for this decline is the corporate governance practices like appointment of the board of directors who have not performed well to bring the company in line with the latest products and services trends.
4. The Board of Directors
4.1 Role of Board of Directors in Corporate Governance
Corporate Governance is defined as the combination of people, rules, processes, and procedures that helps to manage the business of a company. It is the corporate governance that forms the basis for corporations to make decisions that consider a number of business-related environments including the economic, social, and regulatory and market environment.
The UK corporate governance code defines the role of the directors as “responsible for the governance of their companies” (The UK corporate governance code 2018, p.1). There are many tasks and duties of the board of directors in corporate governance. While making any decision, the board of directors must consider the facts; such as, how it will be affecting on their employs, customers, suppliers, communities and shareholders. The main role of the board of directors is to oversight and plan on every factor related to the company.
The UK CG Code 2018 further explains the role of directors as a controlling body that hires, promotes, assesses, and, if necessary, dismisses the line of management (UK CG Code 2018, p.1).
From the above discussion, we can say that board of directors decide the regulations, plan something new, manage the company and act fairly in crisis situation. In corporate governance, board of directors has important roles in financial reporting, reputation, ethics, technology, health, safety and environmental issues.
4.2 The Board of Directors at Marks & Spencer
The data presented in the table 3 gives a review of the board of directors at the Marks & Spencer.
Table 3: Board of Directors of Marks and Spencer
|Steve Rowe||Chief Executive||Chief Executive||Chief Executive||Chief Executive||Chief Executive||Chief Executive|
|Eion Tong||Chief Financial Officer||–||–||–||Chief Financial Officer||Chief Financial Officer|
|Katie Bickerstaffe||Chief Strategy and Transformation Director||–||–||–||Chief Strategy and Transformation Director||Chief Strategy and Transformation Director|
|Andy Halford||Senior Independent Director||Senior Independent Director||Senior Independent Director||Senior Independent Director||Senior Independent Director||Senior Independent Director|
|Stuart Machin||Food Managing Director||–||Food Managing Director||Food Managing Director||Food Managing Director||Food Managing Director|
|Andrew Fisher, OBE||Non-executive Director||Non-executive Director||Non-executive Director||Non-executive Director||Non-executive Director||Non-executive Director|
|Justin King, CBE||Non-executive Director||–||–||Non-executive Director||Non-executive Director||Non-executive Director|
|Nick Folland||General Counsel||General Counsel||General Counsel||General Counsel||General Counsel||General Counsel|
|Paul Friston||Executive Committee||Executive Committee||Executive Committee||Executive Committee||Executive Committee||Executive Committee|
|Sacha Berendji||Retail, Operations and Property Director||Retail director||Retail director||Retail director||Retail director||Retail director|
|Richard Price||Clothing and Home Managing Director||–||–||–||Clothing and Home Managing Director||Clothing and Home Managing Director|
4.3 Key issues of the board corporate governance processes
Over the years, the Marks and Spencer has faced many challenges of administration and corporate governance. For example, the CEO of Marks & Spencer had to assume the direct charge of the clothing business when they had to sack its division boss due to his criticizing the issues with the product availability (M&S CEO sacks clothing boss, assumes direct control of division, 2018).
The Marks & Spencer is not only facing financial and sales growth issues in the market but has also been facing corporate governance issues. It is evident from the appointment of Executive Chairman in addition to its existing role of the Chief Executive of the Marks & Spencer. It is contrary to the UK CG Code that requires these two functions to be separated. Many of the shareholders and stakeholders of the company disagreed with this decision of the board that further highlights the issues of corporate governance at the company.
Another issue faced by the company is the inability of the board of directors to revamp its strategy to the clothing line keeping in view the younger generation, especially the womenswear. Failure of this approach has been witnessed over the decade and its shareholders and stakeholders had made complaints about it but the board of directors failed to respond to this alarming situation that ultimately resulted in utter failure of the company in this segment.
4.4 Corporate governance and the performance of the board of directors
Since the company is not doing well and has become almost a dormant from once the giant of the food and fashion industry in the UK, there are many reason contributing to this decline. The biggest issue faced by the company is the decline of sales of its clothing business which is the major source of revenue for the company. The company has been struggling to overcome this issue and it appointed Richard Price as the Clothing and Home Managing Director of the company in 2020. It is expecting from this appointment to improve the sales as Richard Price has performed well for Tesco with a turnover of £1.7bn.
As we can see from the data presented in table 3, most of the members of the board are performing their roles since 2015 except a few new appointments. Interestingly, the company is facing decline in business from the same period and the company has been unable to take timely decisions to change the poor performers or hire new experts.
4.5 Why this is important
It is vitally important to understand the business context in which it operates. Although the year 2020 saw a sharp decline of most of the business around the world due to COVID-19, the M&S has also suffered from the same. However, the decline in its sales started even earlier and the board of directors failed to anticipate or take prevents measures for the upcoming changes in the food and fashion industry. In this context, we can easily understand the reasons of its failure from the appointment of the board of directors which has remained the same over the years except a few lower level new appointments.
Remuneration at Marks and Spencer
5.1 Role of Remuneration Committee in Corporate Governance
Academic researchers have revealed a strong link of company’s performance with the remunerations and awards (Klapper and Love 2003). They have also highlighted that the poor performance of the company is directly related to the weaknesses of the corporate governance practices as set out by the UK Corporate Governance Code. Johnson et al., (2000) has emphasized that to build the trust of investors, business organizations should make the remunerations of the directors transparent, fair and reasonable.
The main role of remuneration committee is to set the company’s remuneration policy. Basically, remuneration is the same as an employ’s salary; with the only difference that in remuneration, the employ’s salary, bonus, commission payments, overtime wages, and other financial benefits that an employee receives from an employer.
The remuneration committee determines each executive director’s total individual remuneration package and set the targets for further remuneration packages.
The most recent version of the UK Corporate Governance Code (2018) redefines the responsibilities of the remuneration committee:
“A formal and transparent procedure for developing policy on executive remuneration and determining director and senior management remuneration should be established. Directors should exercise independent judgment and discretion when authorizing remuneration outcomes, taking account of company and individual performance, and wider circumstances,” (The UK corporate governance code 2018 , 2018)
5.2 CEO bonus
As the Chief Executive and Executive Director of Marks & Spencer Plc, the total compensation of Steve Rowe at Marks & Spencer Plc is 1,211,000 GBP. There are no executives at Marks & Spencer Plc getting paid more. The table 4 shows the salary of Steve Rowe, the Chief Executive of the company.
Table 4: CEO bonus
|CEO Bonus as per Single Total Remuneration Figures Workings||2015||2016||2017||2018||2019|
|Financial performance targets|
|PBT (Profit before tax): maximum||66.8||176.4||488.8||600.0||580.4|
|PBT (Profit before tax): target||514.1||437.4||200.8||61.2||42.5|
|PBT (Profit before tax): minimum||56.8||165.4||397.8||560.0||430.4|
|Actual PBT (Profit before tax)||514.1||437.4||200.8||61.2||42.5|
|% of bonuses payable (that relates to financial targets)||89%||70%||86%||89%||87%|
|Non-financial performance targets||–||–||–||–||–|
|Expansion of store openings in London||–||–||–||–||–|
|Implementation of ERP system||–||–||–||–||–|
|Amount of bonus paid for meeting non-financial performance||828||37||143||203||1,211|
|Total CEO bonus from detailed working above||828||37||143||203||1,211|
5.3 How the CEO’s bonus calculated
The bonus and salary of the CEO of Marks & Spencer is calculated by the remuneration committee that keeps in consideration of the Starting with colleague pay calculated based on actual base pay, benefits, bonus and long-term incentives for the 12 monthly payrolls within the full financial year. Based on this formula, 3.0% of the base salary of the CEO is awarded.
6(d): Accountability and the Annual Report and Accounts
The Annual Report and Accounts (AR&A) require company directors to prepare annual reports each year. This requirement is clearly explained and discussed in the annual report 2020 published by Marks & Spencer as seen in the below screenshot.
Figure 1 Annual report and director responsibility
Marks & Spencer has stated to apply the IFRS 9 which is mandatory for annual reports. The voluntary disclosure of financial performance by the UK companies is mandatory and by following the same obligation, Marks & Spencer has been disclosing its assets to the public so the investors may have better idea if they should invest in the company or not. It is an admitted fact that the company has not performed well over the year and disclosing the same poor performance will have negative impact on the company creditability and the investors ‘trust. However, it is also true that Marks & Spencer has to maintain its corporate social responsibility and must be fair to its shareholders and stakeholders.
As I have reviewed the annual report of Marks & Spencer, in my critical view, there is no section in the report that shows the company is suffering losses but instead it has attempted to portray a positive and progressive image of the company that seem to be an attempt to attract investors confidence.
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