Corporate Governance
Introduction
A system by which corporations are controlled and governed is usually referred to as corporate governance. It involves the incorporation of diverse and versatile systems that involve rules, practices and processes all geared towards controlling the organization. Essentially, corporate governance involves balancing of all the stakeholders in any given organization ranging from the shareholders, to the management, customers, suppliers and even the community and government. More often than not, corporate governance sets out the framework in which an organization can be able to achieve its goals. Thus, it covers every management sphere of the organization ranging from its internal controls to its action plans as well as performance index.
A good corporate governance framework consists of three main points that have to be put into consideration. The first is there have to be both explicit and explicit contracts between the organization and the stakeholders that outline the distribution of not only the different responsibilities but also the individual and group rights as well as the rewards available. Second, clearly out lined reconciliation procedures that clearly tackles the stakeholders conflicting interests depending on their roles, duties and/or privileges. Finally, a good corporate governance framework consists of clarified procedures that indicate the proper control, supervision and information interflow. These serve to create a perfectly balanced checks-and-balances system (Fernando, 2009).
In relation to the Town Regeneration Partnership Company, a proper system of corporate governance in any organization not only ensures the success of the organization by creating an environment that is conducive for its growth and expansion, but also creates order. Order in any given organization ensures that each shareholder is aware of the role each of them plays in the organization and thus works hard in these roles to ensure prosperity. (Colley, 2003)
Context of Corporate Governance as it relates to this organization
In the context of the organization, corporate governance would mean examining as well as recognizing all the different stakeholders of Town Regeneration Partnership Company and the different roles that they will play in the organization.
This group involves all the people who contribute financially for the organization. It includes the investors both local and international who will seek to invest in the organization. There is need to protect the rights by creating values with will ensure the organizations sustainable growth. There is also need to provide platforms that will ensure that this group has access to the organizations information so that they are able to gauge what their money is doing in the organization (Martin, 2006). Corporate Governance also ensures that systems are put in place that would allow for the communication between the organization and its shareholders.
The primary role of this board is to govern the organization. It is the duty of this board to set up policies for the accomplishment of the organization’s goals. Good corporate governance ensures that the board is created so that it can be as independent as possible from the CEO and president of the company (Calder, 2008). This ensures that the board is impartial in its decisions. There is also need to create procedures that will oversee crucial decision-making processes such as election of board members and remuneration procedures where applicable. Finally, proper procedures have to be put in place to examine as well as measure the boards’ performance to ensure maximum efficiency. The board should also be able to form board committees who will ensure that they aid in the compliance of good corporate governance principles (Tricker, 2012).
In most case, the management is directly answerable to the board of directors. Thus, proper corporate governance dictates that the organizations put in place proper procedures not only for the selection of a proper management department but also for performance auditing mechanism. This will ensure both competence as well as accountability among the management.
Bothe external and internal auditors play the important role of keeping the organization in check. It is therefore imperative that measures are put up that will ensure that the organization has frequent auditing to be able to showcase its transparency to all the involved stakeholders.
Employees are usually the backbone of any organization. Proper corporate governance requires the formulation of proper methods and procedures that will take care of the welfare of the employees as well as creation of steady growth and development of the employees at the work place.
Corporate governance requires that all stakeholders, regardless of the position they hold in the organization be acknowledged and respected. Therefore, there is need for the organization to come up with procedure that would ensure that other stakeholders are not only recognized by the organization, but are also protected and respected.
Background of Corporate Governance and the principles of best practice
Good governance is based on the idea that the organization is a unit of contractual agreement between many interested parties with the aim of achieving the organization’s goals. Thus, corporate governance should be such that the needs of all these people in the organization are addressed in a manner that will be satisfactory to all players in the organization. The Cadbury report outlined a number of core principles that when enforced under corporate governance would ensure the proper management of any particular organization (Keasey et.al, 2005).
The rights as well as impartial treatment of all stakeholders
This requires that the shareholders are made aware of their rights and the power that those rights have in the organization. It is the duty of the organization to respect those rights as well as its duty to show the shareholders how to exercise those rights. The open and effective communication of information by the organization to the shareholders is one way of helping the shareholders exercise their rights. The other way that the organization can help the shareholders exercise their rights is by encouraging them to participate in the organizations general meetings.
Recognize the importance of other stakeholders
It is important that the organization recognize the roles played by other stakeholders in the company who are not its shareholders (Mallin, 2013). Obligations that arise legally, contractually, socially, or are market driven are often owed to other stakeholders who include the employees, investors, policy makers, creditors, the local community and many more. Recognizing these roles ensure that the stakeholders not only feel like they are part of the organization but also encourages them and their loyalty to the organization.
The boards’ roles and responsibility
For the organization to be able to implement successful corporate governance there is need to introduce sufficient relevant and understanding skills to the board of directors. This will ensure that better performance from the board (Monks & Minow, 2011). Furthermore, there is need to create a board of reasonable size with appropriate levels which have independence as well as commitment.
Integrity and ethical behavior
When choosing corporate officers as well as board members, it is imperative that an organization put integrity first. This mostly involves the development of a code of conduct that will govern the directors as well as executive. This is important for it will develop a decision making process that is not only ethical but also responsible (Myers, 2001).
It is the duty of the organization to clarify as well as well as make publicly known the board and managements roles as well as responsibilities. This is important for it provides the organization’s stakeholders with some level of accountability. Transparency also requires that procedures be implemented that will independently verify and organizations financial reporting integrity. Good corporate requires the timely disclosure of matters concerning the organization. This ensures the investors are able to access information that is not only factual but is also clear.
Influences on the effective performance of corporate governance
Corporate governance is a feat that can be accomplished by any person or organization if they put their mind to it. However, the successful achievement of proper governance is a task that needs determination, professionalism as well as proper guidance in order to achieve. In any organization’s environment, there is a set of factors that influence the proper performance of corporate governance. When put into consideration, these factors can either lead to the successful incorporation of corporate governance or its failure. These factors that greatly shape corporate governance are divided into two major parts; structural influences and external influences.
These are the influences found within the organizations structure. The size of the board is a very important influence. Research has shown that smaller boards are easier to coordinate and are more effective than large ones. It also helps if the board is independent. This is because independent directors will ensure that the boards are effectively managed. It would be wise if the roles of the key players were independently established and outlined. A combination of titles such as that of the CEO with the board member would create a conflict of interest, creating a potential misappropriation of resources. The performance of the organization is greatly linked to the compensations that the executive gets for their performance. Thus, if the executive is aware of this fact, effort will be made to improve the organization creating good corporate governance. Shareholders play an important role in influencing corporate governance. Large share and block holders have a greater influence and thus form an effective governance mechanism due to the stakes they hold in the organization. Finally, policies regarding debt repayment and dividends play a moderate role in influencing proper corporate governance by removing cash related temptations (Bebchuk, & Ferrell, 2009).
These influences come from the environment surrounding the organization. They include a takeover market. This means that organizations management do not maximize firm value, the organization may be subject to a takeover bid which if successful, usually results in the replacement of the management. Stock markets as well as financial analysts also play the important role of influencing corporate governance. This is because they play a monitory role of ensuring that the organizations transparent information is made available to the general participants in the market. The law has legal provisions that seek to protect the investors. These provisions also seek to safeguard the shareholders’ rights as well as reduce earning manipulations from the organizations insiders. A Standard & Poor’s governance index has been created that has been able to establish important links between different corporate governance scores (Lipton & Lorsch, 1992).
Structure of the Board of Directors and their responsibilities
Different organizations have different ways in which they organize their boards of directors. These vary depending on the function of the organization to the function of the board. However, most compositions have components that are similar to one another ranging from their compositions to their functions and structures.
Most board structures are made up of individual men and women, known as directors, who are in most cases elected by shareholders. However, in our case, we took in volunteers. These are supposed to hold office for a specific period then another group may replace them. In most case, directors are people, who have vested interest in the organization, work in the organizations upper management or may have known abilities in that particular business but are independent from the company. In most organizations, the numbers of directors vary depending on the needs of the organization. It is the imperative that a number of the directors are independent to the organization. This is because, should there be pressure of influences as to the making of specific decisions, these people will be immune. The board of directors is also in charge of creating committees. These committees usually comprise of any number of people and are usually in charge of assisting the board in management. It is important to note that in some cases, the structure of the board may be two-tier. This means that one board is the executive one that runs the daily functions of the organization while the other is supervisory board, elected by the shareholders, which is in charge of supervising the executive board (Roche, 2009).
The most important responsibility of the board of directors is to be able to protect the vested interests of the shareholders or rather their assets in the organization. This is achieved by ensuring good returns from the investors’ investments. It is also the duty of the directors to protect the employees of the organization as well as their needs (Business Roundtable, 1978).
The fact that they are the highest governing authority as far as the management structure is concerned; they represent the management of the organization. It is also their duty to chose, evaluate then approve the CEO’s compensation. It is also their duty to evaluate pay dividends attractiveness, recommend the company’s stock splits, and approve the organizations financial statements. It is also their duty to programs that deal with share repurchases and are in charge of advising the organization on whether or not to make specific acquisitions or mergers.
Different stakeholder groups that will relate to this organization
Stakeholders in any given organization vary depending on the aims that the organization aims to achieve. In our case, the company was created so that it can be able to develop plans and initiatives that will deliver investment and growth in the local economy that had been steadily declining. Thus, for these particular reasons, the stakeholders for this particular organization include:
These people allocate to the organization money with the expectation of gaining financial returns. This will be individual, business or even corporate investors. They are the group that is in charge of injecting finances into the business (Agard, 2011).
These are the persons, either individual or corporations that will legally own the shares or stocks of the company. They are the essential owners of the organization/limited company. Shareholders usually buy share which represent part ownership of the company.
Creditors are usually parties that have acclaim on the services of another party. They may be persons or institutions of whom the organization owns money. In our case, these are likely to be banks and other financial institutions.
Government plays an important role in this case since the main concern of the company/institution is the local community who are the responsibility of government. Thus, government is a very important stakeholder.
The main reason for the foundation of this organization is to be able to help the community whose local economy is going down. Therefore, the community is a key player in the establishment as well as the development of the organization.
These are the people employed in different capacities and who contribute their expertise towards the smooth functioning of the organization. They form the backbone of the organization.
This group does not play any specific important role in the organization. Rather, their contribution to the organization to the organization is that of a secondary nature. They include customers who shop from the local businesses which the organization is seeking to strengthen.
The importance of group cohesiveness and group dynamics in the context of leadership and motivation by the Board
No single company is able to operate when all its entities are divided. This is because there will be a lot of misunderstandings which will ultimately lead to the downfall of the company. Good governance is a good tool for any given company. However, for good corporate governance to be able to apply successful in a company, there has to be group cohesiveness as well as group dynamics. Group cohesiveness means that all stakeholders in the organization are able to stick together regarding the decisions made. On the other, versatility means that the organization is flexible and resourceful. Both cohesiveness as well as dynamics plays important roles in nurturing leadership and motivation in the board (Gomez & Moore, 2009).
The first importance of group dynamics as well as cohesiveness is that it strengthens corporate governance. This is because while different suggestions may emerge, ultimately, the group will be able to settle on one view that will be beneficial to all parties involved. The members of the group all feel like they belong in the group thus feel the sense of protecting not only their interests but also the interests of all that are involved in the organization regardless of the role they play.
Cohesiveness also promotes communication. Communication is very important for the success of any organization for it is through this channel that information is able to pass from one quarter of the organization to the other. Communication allows all stakeholders to feel the transparent nature of the organization which in turn builds their confidence in the organization and its endeavors. Lastly, communication is able to remove barriers that may be created by misunderstandings that are likely to be brought up by misinterpretation of facts (Shleifer & Vishny, 1997).
Group cohesiveness and dynamics is important in that it ensures that expectations as well as responsibilities of all the stakeholders in the organization are clearly outlined and that each team player is playing their role in the management as well as the running of the organization. This is also important for it fosters appreciation among all stakeholders of the roles that are individually played by each.
Finally, cohesion plays the important role of pointing out to the management when to get out of the way and let the team do its work. If the team created is cohesive enough, this means that they are culpable of handling their duties and responsibilities and do not need one person or a group of people watching over their actions. Thus, it creates a sense of team independence and a sense of responsibility.
Corporate governance plays the important role in any given organization of keeping the organization on its toes as well as making it transparent to the public. Not only does it create provisions, that provide for proper leadership, but also makes provisions on how that leadership should be conducted so as to able to attains the organizations maximum potential. With this kind of quality corporate governance, Town Regeneration Partnership Company will be able to achieve the goal for which it was created for and in turn satisfy all the stakeholders involved and the community at large.
References
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