Title: Governance in a Globalizing World Essay Example
Title: Governance in a Globalizing
Corporate fraud cases have raised concerns about the responsibility of directors and how liable they are when the company goes under. Directors are in charge of running the companies on behalf of the shareholders. Consequently, directors who are acting dishonestly need to be criminally investigated and if found guilty they have to be liable to imprisonment and repayment of funds acquired dishonestly. Shareholders have entrusted the directors with the responsibilities of steering the company to achieve its mission and goals. Agency theory defines their relationship. Being a director offers status as well as a direct impact on the success and strategy of a business. The daily management of a company is usually delegated to directors by the shareholders. Directors are appointed by shareholders but they normally appoint additional directors according to the regulations spelt out in the articles of association. The agency theory explains the relationship that exists between agents and principals in business (Lan and Heracleous, 2010). Shareholders entrust the company executives to run the affairs of the company on their behalf. Agency theory resolves around resolving challenges that exist in agency relationships owing to unaligned goals or differing levels of aversion to risk.
The agency theory addresses the huddles that may arise owing to the differences between the desires or goals between the agent and the principal. This situation happens owing to the fact that the principal is not aware of the actions that are being performed by the agent or he is barred from accessing crucial information on the operation of the company. Therefore the shareholders trust that the company’s directors will do everything in their interest of maximizing wealth but not their personal gain (Segrestin & Hatchuel, 2011). When it comes to misappropriation of company’s resources and misuse of funds, the directors of the company are liable and have to be criminally investigated. The directors should liable to those cases which incriminates them directly and personally. In case where market forces have led to a loss of resources, directors can be excused. According to the agency theory the shareholders hires the directors to run the business on their behalf and hence directors have to have discrete on their actions in the company. The directors are agents of the shareholders (principals) and have to run the company on their behalf. Directors engaging deliberately in corporate crime have to be held liable for their actions and made to return company’s assets in case of embezzlement. It is the decision-making of the directors that determines the future of the company. Being the agents of shareholders, directors have to engage in activities that are beneficial to the growth of the company. They are in charge of improving the market value of the assets of the company and engaging in business that is profitable. Decisions made by are collectively taken by the board of directors (Tricker and Tricker, 2015). The directors have to perform their functions within the limit of their authority as provided in the articles of association of the company as well as the Companies Act. Any violation makes the directors to be criminally liable for their actions.
The Australian Council of Superannuation Investors (ACSI) it is of the view that time is up for directors sitting on exclusive made boards. ACSI feels that the companies have had adequate notice about concerns raised regarding all-male boards. The group says that it will instruct its members to vote against any incumbent director that sits on male-dominated board during the annual meeting sessions (Christensen, Kent and Stewart, 2010). According to ACSI there are about thirteen companies having all-male boards. The concerns by ACSI raises important question about diversity of boards and whether it adds value to business management. Australian companies’ boards of directors are made up predominantly by directors of the same gender, have the same professional and cultural backgrounds and are of similar age. In spite of growing evidence of the relationship between forms of diversity and company performance, companies in Australia have been reluctant to enhance diversity of their executive teams and their boards. The slowness in acting translates to companies failing to gain fully from potential and existing human capital and hence constraining financial performance. This is enough reason to worry investors or shareholders. Disregarding board diversity and sticking to the old narrative about merit denies the company the benefits that emanates from a board that is dynamic and encompasses all gender. In order for any company to pursue long term value for its investors, it must have a broader sense of diversity that generates the best returns. Prioritizing experiential and cognitive diversity will lead to higher representation of women as well as culturally diverse individuals will come up. Tokenistic approach makes the company to fail from tapping the benefits of diversity (Carter et al, 2010). Research has shown that companies that embrace board diversity perform better than those that have all-male boards.
Stewardship theory was advanced as a challenge to the notion that managers are usually self-interested rational maximizers. According to this theory the board of directors’ goals and their managers are aligned, with that of managers intrinsically motivated to act in the interest of the organization and emphasize intangible rewards like opportunities for growth as well as achievement. In this case, people are motivated to act unselfishly and do good as long as various organizational as well as cultural preconditions are met (Bear, Rahman & Post, 2010). Board diversity can help in achieving this goal according to stewardship theory. Board diversity has to be one of the preconditions because it is not only the men who have the right credentials to serve as directors. More diverse boards make decisions basing on a variety of opinions that help in achieving the most effective approach to issues. According to the stakeholders’ theory, the board members work to understand and represent the various interests of groups and individuals who have a stake in the organizations. These may include customers, shareholders, employees, managers, suppliers, the community, lobby groups, the government, local communities and the media. Embracing diversity drives an inclusive approach that represents a broad spectrum of societal opinions hence balancing priorities that are competing as well as avoiding the dominance of one group with specific interests (Ameer and Othman, 2012). In order to meet the various objectives of stakeholders according to stakeholders’ theory, biodiversity has to be embraced. There are women who have the right credentials to sit on the boards of companies and represent the interests of various stakeholders.
Resource dependency theory is derived from the economics as well as sociology disciplines regarding the distribution of power within the firm. According to this theory an organization is a collection of intangible and tangible capabilities and assets. Strategic resources are those that are rare, valuable, no-substitutable, and inimitable. The board is also a strategic resource to the organization. There are various interests of stakeholders that have to be met by an organization’s operations. Family companies operate under different corporate governance rules as opposed to companies that are owned by non-family shareholders. The notion that family owned companies have to operate in a way that benefits family members is erroneous. Professionalism has to be encouraged as envisioned in the resource dependency theory. According to the stewardship theory the management has to act unselfishly and rationally to maximize wealth for the company. Family members are not the only people with interest in the company as envisioned by stakeholders’ theory. With regard to resource dependency theory firms depend on others in order to survive and thrive. Management of external relationships for leveraging influence as well as resources is the fundamental purpose of the board.
The mandate of the board will not be limited to shareholders only or the family members. There is a wider spectrum of interests that have to be made by the decisions reached by the board of directors. Family owned business have to benefit the interests of all stakeholders and not concentrating on family members alone. Resource dependence theory views corporate boards as important connection between the company as well as its environment and external resources that the company depends on. This connection is significant for effective corporate performance. The board has to connect the firm with external stakeholders. It is not possible to exclusively concentrate on the benefits of family members. The board has to leverage the resources as well as resources to make sure that interests of the various stakeholders are met. Using the board as a link to directors provides the company with various benefits. This connection offers the firm with important information in meeting its objectives. The connection also offers a channel for purposes of communication; connection is a basic step in getting commitments of support from significant elements of the environment. Finally linkage has a value of legitimizing organizations. Strategic goals of family-owned firms can be achieved if there is a connection to the external environment (Siebels and zu Knyphausen‐Aufseß, 2012). Consequently, family members have to be part of the stakeholders and not the sole objective of the decisions being made by the board. The benefits to family members are attained as one of the strategic objectives of the existence of the firm. Managers have to seek the guidance and assistance of board members.
Superannuation (Pension) funds possesses the responsibility and right to influence decisions of companies in which they own shares and ensure that the companies act in a socially responsible manner. The influence can be gained through the voting rights of the shareholders. The shareholders must ensure the right composition of the board. The board has to act socially responsible to avoid costly decision making (Christopher, 2010). Pensioners must have their money when needed hence expect the company in charge to act responsibly. The investment decisions made by the directors of the company have to be in the interests of the strategic goals of the company. Companies are run by directors on the behalf of the shareholders. According to the agency theory, the shareholders entrust the directors with the responsibility of running the company. Important decision-making is done by the directors on the behalf of the shareholders. Stakeholders’ theory appreciates the existence of divergent of interests from various stakeholders. It is upon the directors to leverage the various interests in order to obtain the strategic objectives of the company (Filatotchev and Allcock, D., 2010). It is the responsibility of the board of directors and the executive to promote good corporate governance. Superannuation funds can be regarded as just one of the stakeholders who interests have to be met by the operations of the company.
Shares held by superannuation funds held by companies do not make them special. The owners of the company entrust directors and managers to run the companies on their behalf according to agency theory. Superannuation funds owners being allowed to influence decisions made by companies will interfere with the agency relationship. The corporate governance policy has to give guidance on the operations of the company (Christopher, 2010). The board of directors has to act in good faith for the interest of all stakeholders as envisioned by the stakeholders’ theory. Corporate governance has the underlying assumption that shareholders can best look after their interests as long as they have sufficient rights as well as access to information. Superannuation (Pension) funds shareholders have to use their rights as shareholders to monitor the activities of the company (Filatotchev and Allcock, D., 2010). They can only influence decisions using their voting rights at the annual meetings. A company has to pursue its purpose of its establishment through corporate governance. Sound decision making where all interests of stakeholders are met, is a must for the board. The voting rights have to be used in choosing the right people to run the affairs of the company properly. Superannuation (Pension) funds can influence decisions through their voting rights to determine how the affairs of the company will be conducted.
Ameer, R. and Othman, R., 2012. Sustainability practices and corporate financial performance: A study based on the top global corporations. Journal of Business Ethics, 108(1), pp.61-79.
Bear, S., Rahman, N. and Post, C., 2010. The impact of board diversity and gender composition on corporate social responsibility and firm reputation. Journal of Business Ethics, 97(2), pp.207-221.
Carter, D.A., D’Souza, F., Simkins, B.J. and Simpson, W.G., 2010. The gender and ethnic diversity of US boards and board committees and firm financial performance. Corporate Governance: An International Review, 18(5), pp.396-414.
Christensen, J., Kent, P. and Stewart, J., 2010. Corporate governance and company performance in Australia. Australian Accounting Review, 20(4), pp.372-386.
Christopher, J., 2010. Corporate governance—A multi-theoretical approach to recognizing the wider influencing forces impacting on organizations. Critical Perspectives on Accounting, 21(8), pp.683-695.
Filatotchev, I. and Allcock, D., 2010. Corporate governance and executive remuneration: A contingency framework. The Academy of Management Perspectives, 24(1), pp.20-33.
Lan, L.L. and Heracleous, L., 2010. Rethinking agency theory: The view from law. Academy of Management Review, 35(2), pp.294-314.
Segrestin, B. and Hatchuel, A., 2011. Beyond agency theory, a post‐crisis view of corporate law. British Journal of Management, 22(3), pp.484-499.
Siebels, J.F. and zu Knyphausen‐Aufseß, D., 2012. A review of theory in family business research: The implications for corporate governance. International Journal of Management Reviews, 14(3), pp.280-304.
Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and practices. Oxford University Press, USA.
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