Summary of the arguments presented in the article
The article provides criticisms concerning the treatment of workers in the sports direct. Sports direct did not seem to care about the needs of the employees hence the management could not consider their interests in the decision making process. Besides, corporate governance in sports direct was in doubt as the management did not properly engage the stakeholders in managing the affairs of the company. The decision made my sports direct concerning allowing the representatives of the employees to be engaged in the board meeting is considered inadequate in addressing the failings of the corporate governance. The shareholders pressured the management to make sure that staff is represented in the board meetings. The major problem is the way the employees are treated in the organization as the management is not much concerned with the issues facing the workers.
The interests of the employees are not considered in process of making business decisions. Following a series of scandals concerning the way, the company is being managed the shareholders have intervened where they consider engaging the employees as one way of addressing the challenges. However, the employee engagement was considered to be inadequate as more long lasting solutions were needed in the process of addressing the problems facing the company. There was the need to come up with corporate governance strategies that could be important to investors, employees, and customers among other relevant stakeholders. Many stakeholders argued that there was a need for a radical overhaul of the governance in the Sports direct.
Sports direct was founded and run by Ashley who was not much concerned with the corporate responsibilities of the company. The failure to have the necessary value for the corporate governance led to increasing in scandals as the management of the company was poor. As a result, there was the need for an independent oversight of the management of the company to ensure proper management and guarantee the necessary corporate governance practices. In any company that ensures corporate governance in its management has to put into consideration the interests of its stakeholders. The management of Sports direct failed to hear the voice of its relevant stakeholders making the business perform negatively.
The management was managing the company without making any consultations from the stakeholders making the manager abuse his powers. Ashley was managing the company as though it as his own private business to a point where the shareholders’ interests were not of importance to the manager. Failing to engage the stakeholders led to poor decision making as the manager could not seek opinions even from the employees in the process of making decisions. The supervisors and managers who were employed directly by the company could not voice the concerns of the employees. Therefore, they could not properly represent the workforce in the organization hence the interests of the employees could not be heard.
The workers in the sport direct lacked the necessary union support making them unable to be heard as they also feared to speak out. They lacked the necessary confidence necessary to ensure they speak up for representation of their interests. The general wellbeing of the employees was not guaranteed to make the employees demotivated and their morale for work decline. Besides, the workers in the sport direct were not being paid the minimum wage making the company fail to motivate its workforce. The working conditions for the workers were bad making them unproductive as management could even impose financial deductions for being slightly late. The management also forced the workers to go through searchers after shifts that were not payable. The other stakeholders had the view that employees were not treated as human beings but as commodities hence there was the need for the interests of the workers in sport direct to be addressed. The positive change needed in the company could be realized through engaging the stakeholders in making decisions regarding the affairs of the company.
The corporate governance issues
Sports direct failed to ensure proper corporate governance practices in its operations. Corporate governance entails managing an organization while considering the interests of the stakeholders in making vital decisions of the company. In the case of Sports direct, the management failed to ensure the interests of the stakeholders were considered but instead managed the company on his own interests. For instance, the management of Sports direct neglected the interests of the employees as one of the company stakeholders. The interests of the employees include better pay and good working conditions but the management of Sports direct did not recognize these interests (Bebchuk, Cohen and Ferrell, 2009). The employees were being paid below the minimum wage as the management did not see the need for making sure that the employees were motivated. The working conditions of the employees were poor as the management had harsh employment terms where the workers could even be deducted their salaries for being slightly late. This is an indication that the management of Sports direct did not view the employees as human beings who can make mistakes but treated them as commodities. According to stakeholder theory management of any organization need to be committed to ensuring the interests of the various stakeholders are met (Harford, Mansi, and Maxwell, 2012). Considering the case of Sports direct, the management failed to adhere to the principles of the stakeholder theory.
Agency theory argues that management has to manage the company as per the interests of the shareholders but not their own interests. Ashley was managing Sports direct as though it was his own business as the interests of the shareholders were not considered in the management of the company. The shareholders are the owners of the funds and they employ the managers to manage their funds while considering their interests (Black, Jang, and Kim, 2006). The interests of the shareholders include the need to maximize their wealth where they managers are expected to manage the organization in a way it can improve its performance. In the case of Sports direct, the management seems to be less concerned about maximizing the wealth of the shareholders. This is because employees in any organization are important in ensuring improvement in performance hence the management has to ensure the employees are motivated to work hard towards improving their productivity (Agrawal and Chadha, 2005). Sports direct is not concerned about the need to motivate the employees in order to improve their productivity. Instead, the management seems to demotivate the employees by providing poor working conditions and low wages. Therefore, the performance of Sports direct is likely to be poor due to the lack of motivation among the employees hence failing to achieve the objective of maximizing the wealth of the shareholders.
Corporate governance ensures the stakeholders are engaged in different affairs of the organization where they are expected to give their opinions concerning certain issues. For instance, the employees can be involved to help in providing the necessary opinions concerning how the company can improve its operations. The employees are important in implementing any changes made as the shifts in operations affect them directly hence engaging them is very important in making sure an organization can successfully implement changes. In the case of Sports direct, the failure to engage employees is an indication that the company was facing numerous challenges in the process of implementing different strategies formulated in the company (Brown and Caylor, 2006). The fact that the employees are not motivated makes it possible that they cannot be willing to work towards ensuring successful implementation of change strategies. The managers of the company failed to realize that he was the agent and the shareholders the principal hence he was responsible for managing the company while considering the interests of the shareholders.
According to the stakeholder theory, the company that adheres to the principles of corporate governance has to make sure that the interests of the stakeholders are met. For instance, organizations need to consider the interests of the stakeholders in the process of making important decisions of an organization. Involving the stakeholders in business affairs can help in improving the performance of an organization by making business strategies that are relevant in the market (Fan, Wong and Zhang, 2007). In the case of Sports direct, there were increased scandals as the manager was making decisions without making the necessary engagement of the stakeholders.
Importance of the issues to the general public and business
The issues raised in the case of sports direct are important to the general public and business. For instance, through corporate governance, an organization can be in a position to better recognize its stakeholders (Morck, Wolfenzon, and Yeung, 2005). It is through the stakeholder recognition that a company can make sure that the relevant stakeholders are engaged in the affairs of the company. The interests of the stakeholders can easily be considered in an organization that recognizes the stakeholders as important in the decision-making process. Good governance ensures that the voice of the relevant stakeholders is heard in the organization through involving them in the process of making decisions (Dittmar and Mahrt, 2007). Some stakeholders are important sources of opinions that can be important in enhancing operations of an organization. Therefore, an organization that involves the employees in decision making are likely to experience success in operations than the ones that do not engage the workers in the affairs of the organization.
Corporate governance can be important in the process of making it clear concerning the roles of different stakeholders in the organization. Outlining the roles of the different stakeholders can be important in the process of making sure that the public is aware of the parties responsible for various issues in the organization. This can help in making the individuals involved in the management of the organization more accountable as they discharge their obligations. Corporate governance is important in the process of developing an ethical behavior in an organization hence making an organization ethically responsible in its operations (Council, 2007). For instance, an organization that adheres to the principles of corporate governance is likely to treat the employees better by providing the necessary working environment. Also, through corporate governance, an organization can work towards making sure that the employment regulations are considered in determining the wages of the employees.
The general public can benefit from an organization that adheres to the corporate governance principles as it makes sure that the interests of the society are considered. Some of the interests of the public can include protection of the environment where they expect the organizations to make sure that they do not pollute the environment. Therefore, corporate governance promotes ethical behavior of an organization hence improving its relationship with the general public (Bhagat and Bolton, 2008). Business can benefit from corporate governance as it ensures that the management is transparent in its operations hence enhancing accountability. The invested funds of the shareholders can best be managed by a management that is transparent. Through corporate governance, the management can be in a position to ensure that the interests of the shareholders are considered in making business decisions.
The corporate governance issues in the article have a great impact on the performance of the company. The company in the article does to adhere to the corporate governance principles as the management does not value the need to engage the stakeholders. The failure to engage the stakeholders has led to many scandals in the company as the management relies on its views in the process of making important business decisions. For instance, sport direct failed to engage the employees in the management of the company hence failing to make sure that the interests of the workers are met.
The organizations that fail to engage the stakeholders in the management are likely to fail in their operations. This is because the stakeholders are important sources of ideas that can be used in making competitive business decisions. For instance, employees are important in implementing any business strategies as they are directly affected by the resulting change. The failure to engage them can result in failure of the implementation process. Therefore, corporate governance is important as it improves the relationship between its stakeholders hence helping in achieving the set objectives.
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