Table of Contents
Introduction
Overview of the Topic
Discussion
Definition of Effective Governance
Corporate Social Responsibility
Case Study Analysis
Conclusions
Introduction
Corporate Governance, is an act that helps regulate the corporate industries in order to ensure protection for the shareholders and also to regulate behavior and performance within a company. In this paper, we shall focus on the effects of good governance to a company’s performance and behavior, and also the theories that relate to this topic.
Every business organization or company has different internal organizations, having a variety of functions. The internal organizations that comprise the whole business are interrelated and are working together to ensure the company’s success in profiting from the market. The more functions each of the organization perform; the better is the performance of the company as a whole. This gives each of the companies their corresponding advantages and benefits from the market and their consumers.
Also, every company has a need to be overseen by something much greater. This is where corporate governance comes in. In this paper, we shall view the different theories that are part in explaining and proving the connection between effective corporate governance to the behavior and performance of the company.
Overview of the Topic
Competition, typically the most powerful external force, is increased by the advent of globalization. The number of companies and the number of countries where these companies operate and the way governments are dealing with the impacts of globalization is accelerating. The interaction of changes in government policy and business innovation has actually made globalization even faster. If a company does not become a global, it would simply be shut out of new markets. This is what pushed firms around the world to adopt Corporate Governance. Also, a company must be able to make contact with its consumers. According to most theories on strategic management, the customer is the ultimate judge of competitiveness; that is, by buying the products of a firm, the customer indirectly decides which firms will continue to exist and which firms will go bankrupt. (2002). The reasons for the turmoil are numerous: a sputtering economy, increased global competition, the implementation of new technologies that displace jobs, the deregulation of certain industries, and the general consolidation of other industries, such as banking and health care. Observers will see a continuing progression in the ruinous steps which have forced the industry into a socio-politico-economic corner. The industry is likewise linked closely to the policies of governments, the earnings of banks. The industry’s approach to dealing with political institutions has not always been brilliant. It tends to be good on technical issues, although it has not always fully presented the longer-term options, in order to make the choices and their implications clear.
Globalisation around the world – has been one of the most hotly-debated topics in international economics over the past few years. Rapid growth and poverty reduction in China, India, and other countries that were poor 20 years ago, has been a positive aspect of globalisation. But globalisation has also generated significant international opposition over concerns that it has increased inequality and environmental degradation. The most common interpretations of globalisation are saying that the world is becoming more uniform and standardized through a technological, commercial and cultural synchronisation coming from the West. These perspectives equate globalisation with Westernisation. However, there are other assessments that argue from viewing globalisation as the process of hybridisation, which gives rise to a global melange.
The process of globalisation is commonly recognised to be characteristic of contemporary international developments. Contemporary processes of globalisation have several dimensions or faces: technological, cultural, religious, economic and political. None of these is in itself good or bad. All should be understood as ambiguous, with potential for good and evil, but in the current phase of globalisation it is important to distinguish the different faces of globalisation and identify with a potential to pursue the good. Globalisation implies two distinct phenomena. First, it suggests that political, economic and social activity is becoming worldwide in scope. Secondly, it suggests that there has been an intensification of levels of interaction and interconnectedness among the states and societies (1991). Among these relations are those created by the progressive emergence of a global economy, the expansion of transnationals links which generate new forms of collective decision-making, the development of intergovernmental and quasi-supranational institutions, etc. (1990). Consequences of globalisation are controversial and not necessarily positive. Severe questions rise about the accountability of such diverse international organisations and agencies as the International Monetary Fund (IMF) and North Atlantic Treaty Organization (NATO), which challenge the very idea of sovereign state.
Globalisation is a term frequently used by many but is vaguely defined. One finds trouble in even finding two authors who defines globalisation in the same, exact way. But even that being the case, there is no denying that global markets, in particular emerging ones, offer attractive potential. For many organisations it is the only approach for growth as existing markets mature with few chances for profitable opportunities. As global markets open through the increasing use of the Internet and with improved supply chains, it is likely that there are many untapped segments around the world that would open to a multinational company, regardless of the industry. More and more, the world is becoming an available global market place. To stop marketing activities at one’s home-base borders is not only arbitrary, but also short-sighted. International marketing is often defined largely in terms of the level of involvement of the company in the global marketplace, and export, multinational and global marketing are most widely considered. Multinational enterprises (MNEs) develop international marketing strategies in order to improve corporate performance though growth and strengthening their competitive advantage. However, MNEs differ in their approach to international marketing strategy development and the speed and the progress they make in achieving an international presence.
In this paper, good corporate governance will be subjected to research.
But before tackling the topic of good governance, first, one must define what corporate governance is.
“Corporate governance is the set of processes, customs, policies, laws and institutions affecting the way a corporation is directed, administered or controlled. Corporate governance also includes the relationships among the many players involved (the stakeholders) and the goals for which the corporation is governed. The principal players are the shareholders, management and the board of directors. Other stakeholders include employees, suppliers, customers, banks and other lenders, regulators, the environment and the community at large.” (2007).
In another definition, this time by Shann Turnbull, “Corporate governance describes all the influences affecting the institutional processes, including those for appointing the controllers and/or regulators, involved in organizing the production and sale of goods and services. Described in this way, corporate governance includes all types of firms whether or not they are incorporated under civil law.” (1997).
Good corporate governance includes many aspects. One major aspect of corporate governance handles matters that are greatly concerned with “accountability and fiduciary duty”, making sure that policies and guidelines be followed so that protection of shareholders can be ensured. One other major aspect is “economic efficiency view”, in which, the corporate governance system’s main goal should be “to optimize economic results, with a strong emphasis on shareholders welfare.”(2007).
Definitions of Effective Corporate Governance
What is effective governance? Effective governance, in the context of this paper, may be defined as an act which enhances the overall performance of a firm, lessens the threat to the downfall of the firm and ensures the safety and continuity of the firm.
According to Peter Little, there are expected outcomes of effective corporate governance. Some of them are:
“• enhanced organisational performance
• effective risk management
• improved investor and stakeholder confidence
• enhancing an organisation’s reputation
• benchmarking accountability
• assisting in the prevention and detection of fraud, dishonesty or unethical behaviour “ (2003).
In another reference, it was sighted that in an effective corporate governance scheme I banks, the director strengthens the system by:
· “Understand their oversight role and fiduciary responsibility
· Meet regularly with senior management and internal auditors to establish and approve policies and procedures and to monitor progress toward corporate objectives
· Serve as checks and balances
· Feel empowered to question management
· Provide dispassionate advice
· Absent themselves from decisions when they are incapable of providing objective advise
· Avoid conflicts of interest
· Do not participate in the bank's daily management. “().
Corporate Social Responsibility
Corporate Social Responsibility is one of the leading topics in the issue of corporate governance and even marketing effectiveness. Corporate Social Responsibility is a theory on corporate governance which states that the firm has a great responsibility upon his shareholders, comprising mainly of the employees, the consumers, the environment, the stockholders and other people who are, in one way or another, part of the whole business process.
Corporate Social Responsibility entails with it the idea of corporate citizenship. Being a corporate citizen, a firm must include in its steps the welfare and well-being of its shareholders. In essence, it is the idea of “not compromising the well-being of the environment and others for the sake of profit”.
Corporate Social Responsibility can bring a bounty of benefits to a firm.
Ø By reducing risks
Ø By enhancing brand value
Ø By opening doors and creating goodwill with host governments or in the local community.
Ø And by improving staff efficiency and morale (2007)
In the theory of Corporate Social Responsibility, it is stated the organization has the responsibility of taking into consideration the interests of its stakeholders. It must incorporate in its goals the needs of its stakeholders. Family firms are said to follow the theory of Corporate Social Responsibility, taking into consideration not only the profit to be made, but also the best things for its stakeholders. Corporate Governance as was mentioned is the method of regulating and monitoring the behaviour and practices of the company. This idea may relate in many ways in the aspect of corporate social responsibility. Corporate Social Responsibility or CSR is one of the leading theories relating to corporate governance. The theory talks about the responsibility of the corporation, or any organization for that matter, to all its stakeholders, which comprises mainly of its customers, employees, etc. The theory mainly states that the organization should keep in mind the interests of their shareholders and not only the possibility of making higher profit. The following is made to compare and illustrate the differences between the publicly owned companies and the family firms.
Another aspect is to adopt the Theory of Corporate Social Responsibility. Corporate Social Responsibility deals with the responsibility of the firm to put the best interests of its stakeholders before any profitable step. Corporate Governance is the action taken in order to help regulate and monitor the behavioural aspects and practice of the company. It also helps keep in check the needs and the interests of the shareholders. Corporate governance is adopted into many aspects of the corporate world. This strategy should be adopted by publicly owned corporations. The stakeholders, which comprises of the employees, the customers, the environment and the shareholders, should be the main focus of the company.
In the theory of Corporate Social Responsibility, it is stated the organization has the responsibility of taking into consideration the interests of its stakeholders. It must incorporate in its goals the needs of its stakeholders. Family firms are said to follow the theory of Corporate Social Responsibility, taking into consideration not only the profit to be made, but also the best things for its stakeholders. Corporate Governance as was mentioned is the method of regulating and monitoring the behaviour and practices of the company. This idea may relate in many ways in the aspect of corporate social responsibility. Corporate Social Responsibility or CSR is one of the leading theories relating to corporate governance. The theory talks about the responsibility of the corporation, or any organization for that matter, to all its stakeholders, which comprises mainly of its customers, employees, etc. The theory mainly states that the organization should keep in mind the interests of their shareholders and not only the possibility of making higher profit. The following is made to compare and illustrate the differences between the publicly owned companies and the family firms.
Corporate Social Responsibility and sustainability are often used interchangeably such as in Marks & Spencer as there were views on CSR as the management process by which they move towards a more sustainable business model. CSR helps to secure investment because investors will increasingly reward companies that can demonstrate that they are able to make long term, sustainable returns. Responsible business practice helps the company to attract and retain employees because they are proud that they have a responsible business and secures the right business partners whether they be suppliers or franchise owners.
Pressures & Suggestions
Suggestions have a great impact on decisions. Suggestions can also be used with a good corporate governance strategy. Of course, many factors may affect the decision making capability of an individual. They are somewhat referred to as pressures. The growth of the company may be one pressure that a high ranking individual must deal with. The recent demise of Harris Scarfe has brought about new light in the pressures that a company head faces. A number of other pressures, such as return to shareholders, Environment, Culture differences, Bottom line (legislation), Political, Economic conditions, Knowledge management, & Resources are just a few of the pressures that could have a great impact on the company. Take for example cultural differences. Differences in culture can often times bar the potential growth of a product in a certain area. This, however, could be remedied if the company seniors would know how and where to take action on. If the company would chose to remove cultural barriers (i. e., include the host area’s culture in the promotion of the product), then it may work to the company’s advantage. Good Corporate governance not only entails keeping the company alive, but also to keep the company in good hands with good decisions.
Many strategies can be adapted in order to remedy a situation or pressure. One must always come up with a mission statement. This may sound very easy, but it is in fact very vital to the survival of the company. Having a vision statement would mean that the company has a direction. No matter what pressures entail in making a decision, a mission statement would always keep decision makers on track.
Consulting is another way of good governance. In the year 2000, over 60% of companies and firms based in the United States of America adopted the use of enterprise resource planning. Because of the recent upheaval in the corporate industry, sales of the ERP software has reached to more that 150% increase year after year. Due to the sudden demand for the said software, sales per annum amounted to a total of $30 billion in the year 2004 (2004). According to Hitt, companies who adopted the use of ERP’s were said to exhibit an increase on overall performance concerning finance related processes (2002).
Due to the above-mentioned obstacles, external practitioners often are recruited to aid firms on the said issues (1998). Because ERp generally focus on giving out a certain level of pragmatic interoperability which is said to pose certain mechanical and financial obstacles which would be difficult to overcome ”with stand-alone custom-built systems" (2002), dependence on external practitioners is very much understandable (1998).With technological advancements and complexity of information being put out, greener pastures are opening up for external practitioners in the context of information systems.
In recruiting the aid of external practitioner, organizations not only have operational success in mind but also goals such as training skills, information dissemination. Acquiring such needs often help and benefit the client organization in the long run (1998).
Outsourcing can become a great resource for an international company in the long run. Outsourcing can assure that the company would continue to have a good number of manpower but for a lesser and cheaper cost.
Conclusion
Therefore, suggestions have great impacts on good corporate governance. In the light of the recent downfalls of many companies and corporate organizations due to lack of good judgment, the effects of the pressures that corporate heads are exposed to, are now taking greater attention. Because of this, it is vital to note that there exist a number of solutions to corporate problems.
We are on the verge of the 21st century. Entrepreneurs should create and make better the strategies that they have now in order to have the edge in the competitive world. They must be able to recognize and meet the consumer’s needs. Having said so, someone wanting to be an entrepreneur must be able to have the needed skills and abilities.
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