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Governance Research Project: GASCO Report


Introduction to GASCO

One of the organizations in the United Arabs Emirates that may be used to demonstrate the application of corporate governance is the Abu Dhabi Gas Industries Ltd (GASCO). GASCO is one of the leading energy companies in the country. It has over 33 years of service since its establishment in 1878 (GASCO, 2013).

Abu Dhabi is endowed with natural resources. Gas is one of the most important resources. Sheikh Zayed bin Sultan Al Nayhan was one of the most vocal leaders on the sound utilization of this resource in Abu Dhabi. His sentiments led to the establishment of the company in the Emirates’ capital.

The company was founded with the intention of tapping the vast natural gas resources available in the country. The government was the main shareholder. Currently, the Abu Dhabi National Oil Company (ADNOC) largely owns GASCO (GASCO, 2013). ADNOC controls 68% of the company.

It is the largest shareholder under the government (GASCO, 2013). Some of the other shareholders in GASCO include Partex, Total, and Shell. Another company that was integrated into GASCO is ATHEER, which is also owned by ADNOC. The proportion of shares that these other members own includes 15% for Shell, 15% for Total, and 2% for Partex (GASCO, 2013).

In the interview that was conducted, there were some emergent issues on the governance of the organization. The company governance consists of a board as the main body that oversees the general functioning of the company. There are eight boards of directors in this organization representing the shareholders. ADNOC has four members in the board due to the large shares that it owns while the other shareholders contribute a member to this board.

The board’s chairperson is from ADNOC. Each of the members has a single vote in decision-making. The board meets twice in a yearly schedule. During these meetings, some of the issues under discussion include the budget approval, evaluation of the HSE performance, the expenses incurred since the last meeting, and the statements of accounts in addition to many other company concerns.

The organizations’ Chief Executive Officer is responsible for the daily oversight of the operations of GASCO. He frequently briefs the board of the company’s performance and other matters.

Problem Statement

The main problem identified in the company is in its human resource policy. GASCO has a human policy, namely ADNOC, which has been adopted from the main shareholder. What this means is that most members of staff are from the Emirates. This plan presents problems with other shareholders who may have to frequently outsource for expertise.

The presence of a group of workers from one country and culture means that the organization can only operate according to the expectations of this culture. Most of the other shareholders apart from the majority shareowner have to follow the human resource policy that is set by ADNOC. This policy may not be favorable to them.

Bar-Yosef and Prencipe (2013) claim that the human resource issues in any organization should be dealt with in a consultative manner, as the employees are the biggest resource in organizations. GASCO lacks employee diversity, with the few expatriate workers having the challenge of integrating into an environment that is dominated by a single group.

Emiratization of GASCO (presence of Emirates’ citizens as the bulk of the employees) means that the company can also develop at the pace of this group. There is also the absence of diversity in the organization, with only a few cultures being represented.

As previously stated, GASCO has ADNOC as the majority shareholder with 68% of the shares. This figure is also reflected in the board where the chairperson and majority of the members are from ADNOC. Of the eight board members, half of them are from ADNOC. Since each is entitled to a single vote, ADNOC gets its way in major decision-making. The minority shareholders have to go by the decisions made by ADNOC, or convince them to include them in decision-making.

According to Bar-Yosef and Prencipe (2013), shareholders have a role to play in the main decision making of an organization. Most votes decide on the path of a public company. The disparity in shareholding in GASCO is not as significant as in some other companies. However, it may be a problem if it is abused in the presence of competition and dissimilar interests.

Analysis of the Problem

In an interview conducted in the GASCO, there were major issues that emerged from the investigation. These issues will be analyzed in this section, with a provision of details on the same.

Stakeholders’ Expectations on Governance

Bar-Yosef and Prencipe (2013) confirm that shareholders in a publicly listed company have to be satisfied with the governance principles in practice. The management is tasked by the stakeholders with the provision of adequate management and leadership to the organization as a whole (Bar-Yosef, & Prencipe, 2013).

In the case of GASCO, the management states that there is a structured approach to corporate governance in the organization. The approach is considered the best in meeting the expectations of the stakeholders. The structure is adequate in the provision of information to the stakeholders since the CEO frequently reports to the board on the progress of the organization.

After the CEO in the hierarchy, some of the members that report directly to him include the senior vice presidents (SVPs) that head the nine functional groups in GASCO. The SVPs are above the Vice Presidents (VPs) in the hierarchy. These individuals are responsible for the 29 component divisions of GASCO.

here are also five different heads in the organization for the independent departments within it. GASCO has formulated strategic plans that are aimed at meeting the needs of all stakeholders in the organization, including customers, employees, and the main shareholders. The respondent stated that the company uses the strategic plans to meet the needs of the shareholders, and that these needs and expectations of the stakeholders are adequately monitored and met.

The company has an annual performance contract that sets objectives to be achieved in terms of health, safety, and environment management, people management, operations management, value generation and management, and corporate governance. These objectives are tailored to meet the needs of the stakeholders in general.

Apart from the meetings that are held by the board on a twice-yearly basis, the company has other meetings within the management to discuss the quantitative targets for the year and/or a given period.

The company holds planning, review, and coordination meeting with stakeholders where it briefs them of any intended changes while clarifying issues that may be a problem or unclear to the stakeholders. These meetings are also used to formulate the objectives of the organization, develop specific measures for the objectives, and strategize on the targets and future plans.

GASCO also carries out a review schedule for the activities of other stakeholders. It follows the progress of the major shareholders that are in the hydrocarbon chain. Special members of the organization follow the operations of these independent stakeholders in an effort to evaluate how their activities may affect those of GASCO in the end.

GASCO also follows a review schedule that is meant to cater for the needs of the shareholders. The schedule includes an ADCO after every 3 months, BOROUGE after every 6 months, ADWEC after every 6 months, DEL after every six months, and EMAL on an annual basis.

Mason and Simmons (2014) assert that the society is also a major stakeholder in any public organization. Management should be sensitive to its needs. GASCO has integrated the society needs into the functioning of the organization, including the formulation of health, safety, and environment policy. The company also has strategies that are aligned towards the preservation of the environment and protecting the needs of the society in general.

The company has also invested in areas such as technology and training in a bid to provide better HSE results. These results are then measured using established metrics and standards. Another part of the strategies adopted by the company in the guarantee of the interests of the society is the formulation of an environmental steering committee that is charged with the responsibility of overseeing and directing the environmental strategies in the organization under the chair of the CEO.

The other stakeholder that is of concern in the organization is an employee. Some researchers and scholars state that employees are the most important members of the organization since they run the operations that are central to the organization (Bar-Yosef & Prencipe, 2013). According to the respondent, the company identifies the employee as a stakeholder in a broader sense.

This has led to the development of human resource policy that is tailored to meet the needs of these employees, with this policy being followed in the organization. Employees have the opportunity to pursue personal and professional development. The facilitative environment provided in the organization by the management guarantees this opportunity. There is also a push to have the rights and values of the individual employee met by all members of the organization beginning from the CEO.

The organizational culture facilitates the professional development of the employees. GASCO also has a reward system in place to motivate employees towards positive performance. Those that perform exemplarily well are awarded rewards to promote their positive improvement and performance.

The employee has to be involved in decision-making as a stakeholder in any organization (Bar-Yosef & Prencipe, 2013). GASCO has ensured that the process of employee consultation is practiced in the organization, with different practices being inculcated into the overall company strategies. GASCO also allows professional growth of the employees in all levels of the organization (Gasco Energy, 2010).

How GASCO Addresses Emerging Issues in Governance

There are several committees in GASCO where each is tasked with different functions relating to governance. Some of the committees include the audit committee, the board advisory committees, and several special committees. The company also has formal policies and internal controls that are responsible for the address of issues within the organization.

The board advisory committee is important in the provision of solutions to most of the problems. It consists of shareholder representatives. The main function of this committee is to review the issues affecting the organization, prepare for board meetings, and/or make adequate recommendations to the board on many issues. It is described as the formal way of communicating between shareholders and the company executives who are involved in the daily operations of the organization.

The audit committee is an important part of any organization. It oversees the normal functioning of the operations within the organization (Bar-Yosef & Prencipe, 2013). It also oversees the effectiveness of the controls that have been put in place within the organization and the risk management systems that are in place.

In an attempt to ensure that the organization is running smoothly, the senior management is said to visit the plants regularly. These visits are meant to oversee the normal functioning of the organization. The company got an ISO 9000 Certification in 2009. This achievement means that there has to be proper documentation of the processes within the organization.

The management also ensures that there is the practice of efficiency and effectiveness, with the needs of all stakeholders being met. Some of the changes that have occurred in the organization in relation to governance took place in 2007, 2010, and 2011. They led to the formation of the current governance structure in GASCO.

To ensure that there is continued monitoring of the organization’s functions, the audit department is responsible for the provision of information regarding the operations of GASCO to the board’s audit committee. The direct reporting of the internal audit outcome to the audit committee ensures independence in the process. There is also guarantee of reduced interference from the company’s executives.

The company practices a performance management system that compares to the balanced scorecard matrix. In this system, the organizational level and other levels of objectives and targets are specified along four performance perspectives, which include the HSE, people, value, and operations (Verhulst, 2014).

The key performance indicators (KPIs) are used to measure the strategic objectives against each perspective along with the performance measures (Verhulst, 2014). The other ways of control include the review of the performance of the organization by the shareholders. The shareholders review the actual performance against the ‘contract’ in the dedicated performance review meetings (Verhulst, 2014).

The organization also has a number of committees that function with specific terms of reference (Gasco Energy, 2010). These committees also ensure that the organizational decisions are consultative, with all the concerned departments being involved in a transparent and efficient manner (Verhulst, 2014).

The constituent committees include the Tender Board Committees, the Job Evaluation Committees, the HSE Steering Committee, the IT Steering Committee, Projects Steering Committee, HRM Steering Committee, the Operations Coordination Committee, The OPTEC Committee, and the Audit Committee (Verhulst, 2014).

The membership of these committees includes the senior VPs and the VPs who rotate on a periodical basis to ensure adequate representation and diversity of ideas. The CEO oversees the meetings conducted by the various departments, task forces, interdivisional committees, and divisional performance reviews (Verhulst, 2014).

GASCO has a defined hierarchy of meetings that are aimed at measuring coordination and/or control of the various functions within the organizational levels. These review meetings also provide adequate measures to gauge the performance of the organization, including the review of the functions taken in the organization.

Impact of Sound Corporate Governance on the Company Shareholders

The corporate governance strategies in GASCO can be described as sound. Mason and Simmons (2014) confirm that the corporate governance strategies practiced in an organization should reflect its performance. This observation is particularly true in GASCO, with positive performance being reported in the last few years.

The major shareholders in GASCO, including ADNOC, Shell, Total, and Partex are satisfied with the achievements made by the company (Verhulst, 2014). The strong showing of GASCO in the energy industry in Abu Dhabi and in the region as a whole is a strong indicator of the effectiveness of these strategies.

The main shareholders have also demonstrated unwavering support for the strategic operations in GASCO. Shareholders are in agreement with the strategies that are put in place to oversee the operational growth of the company. One of the important indicators that the shareholders agree on the strategies being applied in the company is their renewal of commitment to the organization. Shareholders renewed their joint venture agreement that had been in force for over 30 years in 2010 (Gasco Energy, 2010).

The new agreement will run for another thirty years. This move indicates that the shareholders are comfortable with the management and governance systems in place within the organization. GASCO does not engage in governance practices that are not applicable in the UAE and most of the strategies and methods of governance it uses are applied by most of the other organizations.

Risk Management

GASCO practices a comprehensive risk management practice, with the risk management system being in place at the organization. Shell and Total are international companies. These shareholders have pioneered in the use of effective risk management systems.

Since these risk management systems are also applied in GASCO, the company can be said to practice internationally acclaimed risk management. The company identifies risks in the organization in areas such as technology, people, and processes. These areas are then categorized based on their severity and potential effects to the organization.

The Legal, Insurance, Risk & Compliance Division of GASCO is responsible for the coordination of risk management activities (Gasco Energy, 2010). This strategy is an adequate method of risk management since it identifies an adequate structure as proposed by Bar-Yosef and Prencipe (2013).

The company has a proper method of ensuring that all processes that it puts in place are safe and environmentally sustainable. GASCO achieves this mission by carrying out a Health, Safety, and Environment Impact Assessment (HSEIA) in every planning phase of its projects (Gasco Energy, 2010). An ADNOC steering committee is responsible for the oversight of this process.

Impact of the adopted Corporate Social Responsibility Practices

GASCO uses energy and environment-related key performance indicators to assess the impact of corporate social responsibility that it has adopted (Mason & Simmons, 2014). The company has been able to reduce its CO2 emission by 5% over the past few years, with a reduction in the overall emission of waste from its processes.

It has also been able to achieve increased production and use of renewable sources of energy (Gasco Energy, 2010). Water consumption by the plants is also reported to decrease in the last decade (Gasco Energy, 2010). Some of the other measures that have been adopted in the organization include a reduction in noise pollution, recycling of waste from the company, and the implementation of efficient energy management systems.

Alternatives and Recommendations

From an interview, it is evident that GASCO has an effective corporate governance strategy in place. The main problem that is established is the nature of shareholding that is applicable in the organization, with one of the shareholders controlling the organizational functions. This plan has not been found to affect the operations of the organization. Collaboration is present in the different areas. However, some recommendations are possible on how to improve collaboration between the organizations that act as the major shareholders.

A major recommendation on how to solve the problem is to establish a strategy to ensure that the shareholders are adequately represented in decision-making. The organization should ensure that the shareholders have an equal say on the daily operations of the company, irrespective of the proportion of shares that are owned.

This approach entails formulating a working strategy where the shareholders agree on the different functions that each will be responsible for. As Mason and Simmons (2014) observe, there is a need for cooperation among all partners and stakeholders in an organization based on the desire to establish a better performing organization.

GASCO management should consider outsourcing of ideas and employees from the region and the international market. This plan will bring about diversity in the organization while introducing a better organizational culture that is aimed at improving performance and promoting internationally acceptable standards.

Although ADNIC owns the majority shares and has the mandate of ensuring that citizens’ rights such as employment are considered, it should allow employment of people from outside the Emirates in different capacities based on their competency. If rightly applied, this strategy is likely to improve the organizational performance. However, the employment of employees from outside the Emirates needs to be structured, as the Abu Dhabi authorities still have the responsibility of providing employment to their citizens.

The other alternative that the organization needs to adopt is to facilitate the training of its employees on the internationally accepted standards and practices. One way of achieving this goal is by promoting the training of the employees in international training institutions that offer international standards of management.

The organization also needs to adopt the latest technologies in the management process while improving on the communication between the various stakeholders. Communication is an important part of corporate governance. All the stakeholders should be consulted (Zeitoun, Osterloh & Frey, 2014).

GASCO can achieve this goal through the increase in the number of board meetings that take place in a year. The board should meet at least four times in a year to chart the quarterly strategies for the organization. However, GASCO is performing adequately for a company of its size. It should retain the working strategies in place.

Implementation Plan

The implementation plan for the above recommendation should be focused, objective, and time-based. The board of directors should first adopt the changes proposed in the corporate governance area. This board needs to change the meeting schedule that it runs in an effort to ensure that it frequently meets to strategize on the events and practices in the organization.

The other activity that should take place in line with the recommendations is the establishment of a new human resource policy. The human resource department should be involved in the formulation of a policy aimed at introducing diversity in the workplace, including the hiring of expatriates and other international workers. The HR executives in the organization should also set a period for an increase in the number of international workers in the organization while at the same time overseeing the accomplishment of this objective.

The organization should provide a working training program for its employees and other stakeholders. This plan will achieve the recommended integration between local and international workers. GASCO has adopted a human resource policy that is favorable for growth.

This policy should also be implemented in the shareholder companies such as ADNOC. The board members should also provide the strategies and plans to be followed in the implementation of the changes within the shortest time. If this implementation plan is followed successfully, the organization is likely to improve in performance in several areas.

Conclusions and Justifications

GASCO is one of the leading companies in the energy sector in Abu Dhabi. It has a desirable corporate governance strategy. However, this essay establishes some issues within the corporate governance structure. The conducted interviews involved the employee and other stakeholder management in the organization.

The corporate governance practices in GASCO are effective in the management of the various issues affecting the shareholders. However, the human resource policies are not up to standard. Some recommendations are made on how to change these practices.

The justification for the recommendations includes the availability of potential for improvement on the side of the company. The recommendations will work because the different theories that are applied in employee management recognize diversity as a major part of organizational culture. The training of the employee is also demonstrated to have considerable benefits in the performance and improvement of the organizational output.

The implementation process is also appropriate. It should oversee the smooth transition from the current practice into the one proposed in this work. Therefore, based on the expositions made in the paper, corporate governance stands out as a crucial issue that companies such as GASCO can address in an effort to achieve their goals and objectives.

Reference List

Bar-Yosef, S., & Prencipe, A. (2013). The Impact of Corporate Governance and Earnings Management on Stock Market Liquidity in a Highly Concentrated Ownership Capital Market. Journal of Accounting, Auditing & Finance, 28(3), 292-316.

Gasco Energy. (2010). Gasco Energy Inc. 10K or International Equivalent 2010. London: Routlege.

GASCO. (2013), Our Story. Web.

Mason, C., & Simmons, J. (2014). Embedding Corporate Social Responsibility in Corporate Governance: A Stakeholder Systems Approach. Journal of Business Ethics, 119(1), 77-86.

Solomon, J., & Solomon, A. (2004). Corporate governance and accountability. New York, NY: John Wiley.

Verhulst, P. (2014). Corporate Governance at GASCO. New York, NY: John Wiley.

Zeitoun, H., Osterloh, M., & Frey, S. (2014). Learning from ancient Athens: demarchy and corporate governance. Academy Of Management Perspectives, 28(1), 1-14.

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