Introduction to Corporate Governance and its Importance
Dsicuss about the Corporate Governance Deviance Academy Of Management.
The Organization for economic co-operation and development, that is, the OECD is a forum that addresses the economic, social and environmental challenges that plague globalization. The Global Corporate Governance is under the OECD that aims at implementing the practices of proper corporate governance. The Corporate Governance Forum provides a framework for the implementation of a framework that promotes corporate governance in a corporate set up. The OECD works as a response to the issues that concern corporate governance and the challenges that are faced by the corporations. The Chief Executive Officer is in charge of the proper functioning of the company and also implements long term business strategies that create a good value of the brand in the market. The CEO is the bridge that connects the management and the Board and he is also responsible for the communication of the matters of the company to the shareholders, employees etc. a good corporate governance is about people and being at the top of the company and holding all the positions of responsibility, the CEO is directly in charge of the corporation. By virtue of the position the CEO holds, he is accountable to the Board. With the increasing corporate scandals, the behavior and action of the CEO set the standards of the behavior that the company holds with the society. Whenever a scandal occurs, no one is held more accountable than the CEO and the onus of the corporation is on him to take care. There have been instances in the past when the CEO had to explain the stance of the company and testify to the public clearing the name of the Company to the public. The responsibilities of the CEO include maintaining transparency and accountability of the company. If the corporate governance is seen as puzzle, it can be easily attributed that the CEO fits perfectly in the puzzle and forms the missing link. The behavior and responsibilities form the corporate governance and in cases when the corporation defrauds, it is responsibility of the CEO to preserve the goodwill of the company. In most cases when the company is embroiled in a dispute, the CEO is made the villain and in such cases the CEO is blamed as having the intention to run away from his responsibilities. Whenever a company performs well, the shareholders and the board are appreciated and the efforts of the CEO go unnoticed. The Head of the Corporate Affairs of The Organization for economic co-operation and Development have due credit to the role of the CEO saying that no corporate can perform of the CEO does not help and without a good CEO, a board cannot be said to be performing well. The relation between the CEO and the corporation is that of an agent and principal because the CEO works under the supervision of the corporations and represents the company to the outer world. The White Paper on Governance held that the duties of CEO include integrity, suitability and experience and transparency. This is called the fit and proper test. The fit and proper test lays down a guideline for the Chief Executive officers to follows. An effective model of corporate governance will give due credit to ethics and it requires a proper and good understanding of the structure of the corporation and the relationship of the management with the board (Kraakman & Hansmann, 2017). The board is responsible for the election of a ethical and morally sound CEO who will ensure that the corporations functions without any scams. It is the responsibility of the management to elect CEO who will set the highest standards of morality and ethics. Good corporate governance is a minimum requirement and should be seen as a high priority for the management and the CEO. The overseeing duty of the management also includes checking the day to day activities of the CEO. In cases when the corporation suffers a setback due to the mistakes of the CEO, it will be the responsibility of the management to punish and penalize the CEO for its shortcomings and mistakes. It is the duty of the management to makes sure that an ethical CEO is appointed and that responsibility extends to taking due responsibility for the actions of the CEO and penalize him for breach of his responsibilities to uphold corporate governance.
The Role of CEO in Corporate Governance
Accountability is a commonly used term in politics and governance that entail that a board, management and the directors shall be responsible for the proper functioning of the corporation. In cases of any trouble, the CEO shall be made responsible and held accountable. With the rise in the importance of corporate governance, it is important for the directors to remain accountable. This is called the theory of accountability where the CEO shall remain accountable to the corporate and also work upholding the ethics and value of the principle of corporate governance. This theory was pioneered by Alchian in his book ‘Production, Information and Costs and Economic Organization.’(Stout & Blair, 2017) Another theory that upholds the duty and integrity of the CEO is the theory of agency, which is not mostly considered as a benchmark of accountability and does not imbibe the tenets of accountability as fixing the interests of the CEO. The CEO shall be made accountable if he acts in breach of his duties and they shall be held accountable if they cause any harm or misconduct that reflects on the conduct of the company. The CEO is in a fiduciary relation with the management and the board and if the agent fails in executing that duty, the principal shall hold him accountable (Tricker & Tricker, 2015). The CEO exercises power in conducting the business of the company and is also held responsible and with such supreme powers, comes accountability. This theory was enshrined by J Davis in his article “Towards a Stewardship Theory of Management.” The shareholder value theory held that the directors and the CEO shall act in such a way so as to benefit the shareholders. The advantage of the shareholder theory is that the actions of the directors can be checked and it can be seen that the directors are performing well or not. The actions of the directors shall be to enhance the activities of the shareholders (Aguilera, Hudge & Terjesen, 2018). The CEO therefore becomes accountable for the way a shareholder holds his office and conducts his business. the shareholder theory also backs the agency theory that makes sure that the interests of the principal are aligned with the agent and the agent works to further the goals of corporate governance. If the CEO is not made accountable for the way a corporate works, the CEO shall start engaging in shirking and self dealing, thereby the interests of the shareholders shall be maximized (Dimopoulos, Wagner, 2016). The CEO is the apex authority in the corporation and in cases when the corporate does not function up to the mark, the CEO is made accountable. These theories point towards the fact that the CEO shall be made responsible for the functions of the company. Abiding by the principles of good governance, it is incumbent on the management to ensure that the company does not indulge in any fraud and scam. The CEO is responsible for the way the shareholders function and therefore, by law, in cases when it is seen that the corporation is getting affected by the actions of the shareholders or the members of the company, the CEO shall be made responsible. In common corporate theory, the CEO is perceived as a villain who runs away from responsibilities and also situations that make sure that he takes full responsibility. The CEO enjoys supreme authority in taking decisions of the company and therefore in cases when the CEO tries to skirt away, the principles and theories shall apply to keep a check on the conduct of the CEO. The CEO sets a strong standard and a regulatory framework that is binding on the company. The CEO will be made to be responsible for the company and also act in accordance with the principles of corporate governance (MsCahery, Sautner & Starks, 2016).
Theories of Accountability in Corporate Governance
It is the duty and the function of the company and the CEO to discharge his corporate duties and to act to promote and effectuate organizational climate that is necessary for the growth and profit of the company. The CEO is responsible for enhancing the organizational climate in the company and bridging the gap between the employees and the board (Seo et al., 2015). By conducting extensive research on the organizational principles of the company, it has been concluded that the CEO is responsible for the proper functioning of the company. The four aspects of organizational climate are affiliation, innovation, resource adequacy and professional interest (Davies, 2016). The concept of organizational climate is to make sure that business is processed in a way that is beneficial for the company and the interests of the board
Organizational community: the corporate community is a very well connected and strongly knit community that works towards the betterment of the company and make sure that all the interests of the company are aligned with that of the members (Lehn, 2018). By virtue of being a CEO is has to look after the wellbeing of the company and also uplift the interests of the employees. The organization community works in a cluster and as a group to uplift community goal. Corporate governance aims to effectively implements the codes of professionalism and ethics and ensure that there is transparency in the way a company functions. To take care of the interests of the members, the CEO has to act in all fairness and give due credit to the people who are employed in the company. Fairness mandates that all the members are accorded equal treatment and that all the shareholders are treated equally in accordance with the principles of the Company Act (Bovens, 2014).
There is a rising competition in the corporate sector and it is fuelled by the increasing number of companies that have started to function. Flexibility is a term that denotes adaptability with the changing growth and the needs and requirements of the company (Vandekerckhove, 2016). A company is an independent authority that changes with the growth of the company. Corporate governance ensures that higher the flexibility of the company, higher is the growth. There is always a need to grow and change and this is done to ensure that the members adapt with the changing scenario. Different principles apply to different companies and there cannot be a universal law or regulations that govern all the companies. In cases of noncompliance with the company regulations, it is important for the CEO to note the reason behind not complying with the changing scenario (Chen, Harford & Lin, 2017). Corporate governance tries to strike a balance between flexibility, compliance and stakeholder interest. Specific interests of the company need to be addressed by the CEO and these are done keeping in mind the flexibility of the company. The purpose of having rules is that the interests of the stakeholders need to be addressed. Companies need to respond to the expectations of the markets and also foster rules that make it obligatory on the company to make amends to their existing rules (Larcker & Tayan, 2015).
Responsibilities of Management in Preserving Corporate Governance
Teamwork- great teams are built when great minds come together and this can only happen if the members and the shareholders come together to work and meet the requirements of the company. A team works together to enhance their common goal and they are supervised by the CEO. The CEO make the teams work together under a common intention of bettering the goals and interests of the company (Arjoon, 2017). A team has people from different cultures and has different ways of life and it is the duty of the CEO to makes sure that a unified team is formed where all the members work in unison to meet the targets of the company (Aras, 2016).
Diversity- the best way to promote diversity and heterogeneity in the company is to include members of different culture, ethnicity, and language in the board. If a board has members who have different attributes and come from varying demography, the diversity of the board improves. If a board is made gender diverse, that is, females are also included in the board, it will set a prime example of gender diversity and enhance and uphold the principles of corporate governance (Iren & Tee, 2017). With increasing diversity more perspectives and opinions will come that will help in enhancing the working of the board. To have a diverse board, it is important to have a comprehensive structure that will have a culmination of gender, racial, cultural and composition of board of directors (Adams et al., 2015). The board shall have members who have qualification and can issue statements and order that will benefit the company.
Organizational culture and organizational change- organizations are subject to change and the functioning of a corporate is dependent on the way the shareholders, employees are managed and organized. To preserve the shareholder value, it is important to regulate the principles of the company and make an organized structure that will regulate shareholder behavior and also preserve shareholder value. In legal parlance and in terms of corporate governance, organizational behavior can be seen as a system that helps and organizes, manages and administers corporate behaviour to maximize their utility and economic resources. The role of corporate governance is to make sure that stakeholder’s interests are preserved and the investments made by the company are in the interest of the company (Feils, Rahman & Sabac, 2016).
Reference
Adams, R. B., Haan, J., Terjesen, S., & Ees, H. (2015). Board diversity: Moving the field forward. Corporate Governance: An International Review, 23(2), 77-82.
Aguilera, R. V., Judge, W. Q., & Terjesen, S. A. (2018). Corporate governance deviance. Academy of Management Review, 43(1), 87-109.
ArAs, G. (2016). A handbook of corporate governance and social responsibility. CRC Press.
Arjoon, S. (2017). Virtues, Compliance, and Integrity: A Corporate Governance Perspective. In Handbook of Virtue Ethics in Business and Management (pp. 995-1002). Springer Netherlands.
Bovens, M. (2014). Two Concepts of Accountability: Accountability as a Virtue and as a Mechanism. In Accountability and European Governance (pp. 28-49). Routledge.
Chen, T., Harford, J., & Lin, C. (2017). Financial flexibility and corporate cash policy.
Davies, A. (2016). The globalisation of corporate governance: The challenge of clashing cultures. Routledge.
Dimopoulos, T., & Wagner, H. F. (2016). Corporate Governance and CEO Turnover Decisions.
Feils, D., Rahman, M., & ?abac, F. (2016). Corporate Governance Systems Diversity: A Coasian Perspective on Stakeholder Rights. Journal of Business Ethics, 1-16.
Iren, P., & Tee, K. (2017). Boardroom Diversity, Corporate Governance & Innovation in the UAE Banks.
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