Organization of Holding Companies: Lessons for Governing the National Olympic Committee - Dissertation Example

Corporate Governance and Organization of Holding Companies: Lessons for Governing the National Olympic Committee A holding company is defined as a company that holds a substantial amount of outstanding stock in another company. It is described as a company that is not involved in the production of goods or services but only holds the shares in the company that offers such. They are beneficial especially to the owners because they guarantee some risk reduction that allows the ownership and control of the company to be vested in people with no direct influence on the way goods and services are produced in. As a matter of principle in the U.S, under the law, 80% of the stock, both in value and voting, must be owned before any consolidations on the tax benefits can be claimed (Wheelen and Hunger 95). The holding company will represent most of the assets owned by the company either in the form of stocks, limited liability companies, private equity funds, hedge funds, bonds, real estates and trademarks amongst other assets. In the wake of the many corporate fiascos going on in the nation, corporate governance, organization and structure have become core concerns in different sectors (Holderness 49). Many believe that the Holding companies have the best structures that should be emulated by other organizations. The national Olympic committee needs some organizing based on the best practices in the corporate world. The crux of this report will dwell mainly on the importance of having a holding company’s structural, organizational and governance criteria in governing the NOC. LITERATURE REVIEW It is necessary to acknowledge that the holding company and the other company that they control have a parent-subsidiary relationship. If the holding company owns all the voting and value stocks, the relationship becomes a wholly-owned subsidiary of the parent company. A company is thus considered to be purely a holding company if its existence is to primarily own voting stocks and not to engage in any operations separate from its subsidiaries. Otherwise, it will be considered a mixed holding company or a holding-operating company. In the case where a subsidiary operates in unrelated line of business from its major scope, the holding companies are referred to as conglomerates (Wheelen and Hunger 95-7). The main form of management perspective presented by these relationships is that of a decentralized management. Every company retains its managerial team with the subsidiary companies becoming responsible to the parent company on a profit-loss basis. They are also allowed to retain their identity with the parent company becoming a beneficiary of any goodwill or recognition whatsoever that comes with the subsidiary's name (Holderness 51; Wheelen and Hunger 100). The organizational structure, herein defined as the formalized and arranged interaction between the companies’ responsibilities for the tasks and resources within the organization, may differ from the mainstream organizational structures precedent in several organizations. Any functional organizational structure deals with the separation and autonomy of the functional groupings within the organization that are divided mainly along the tasks, people and technologies present (Hayes, Mehran and Schaefer 12). The most salient attribute for these to operate is a functional procedure that ensures the coordination and integration of these attributes. This leads to the required activities that enhance the provision of the businesses’ products and services. As a holding company, the aim of the structural attributes is to act mainly as a financial overseer rather than a management entity. Most companies have adopted the company-with-committee system of management where the executive officers are tasked by the Board of Governors on the running and execution of every day activities (Adams and Mehran 124). The content of the execution process by these subsidiary companies is subject to the oversight of the Board of Governors (BOG) and auditing which will be conducted by the audit committee. This is aimed at enhancing the soundness of management and compliance (Holderness 52). The BOG consists of a number of non-executive officers who are not related to the company in any way to avoid any forms of biases in dealing with issues emerging from the company. This helps in reinforcing the supervisory function of the BOG with the committees consisting of members from different companies with no direct relation to the company to ascertain the transparency and accountability of decisions made (Wheelen and Hunger 180-1). The company is then divided into different business units that have common functions and requirements. By placing them in such categories, these units are easier to monitor and evaluate in terms of their profit-loss management. The importance of this form of structure is that it makes administration, governance and decision-making processes easier (Stiroh 1703). These are benefits that any company will want to have within their grasp because it enhances competitiveness and increases the profit margin of the company. It also ensures that the failures of one unit can be traced and dealt with firmly before they lead to the failure of the other categories (Hayes, Mehran and Schaefer 16). The subsidiary is thus granted the powers to run its own operations with the centralization of basic research units and the operation at the back-office which will enhance the efficacy and functionality of the group. As a holding company, this division allows the management and governance to be at a higher level since all the operations have been taken care of with those responsible liable to the BOG’s scrutiny and evaluation (Wheelen and Hunger 184). But one thing that has been noted as constituting the best practice in the governance of any corporation is the distinction between the BOG’s responsibility for oversight of the business and the affairs of the company and the ability of the board to delegate to the management the responsibility for the day-to-day operations. It is clear from what has been explained hereinabove that the board is not involved in the operations of the company on a daily basis (Holderness 52; Stiroh 1703). Any interference may result to reduced efficacy, impair the board’s ability to perform their oversight role objectively and stir controversy over the roles and responsibilities of each entity. Given that the hallmark of sound corporate governance is based on the autonomy and partiality of the BOG, any interference that may cause distaste may be viewed with great skepticism and thus question the authority of the board at all. Therefore, it is crucial for the distinction to be visibly understood and understated at all times (Wheelen and Hunger 192). Though significant, regulatory and management oversight duties need to be aligned to certain rules and regulations that respect the autonomy of each unit. There must be a common understanding based on a framework that facilitates a more effective execution of board oversight functions as well as enhances the role of the other members of the company. Each must play their roles without any interference (Holderness 54). The BOG must cultivate a sense of confidence in its operations and give credit where it is due given the many roles that the operations of the company go through. They must therefore avoid any ad hoc and inconsistent supervisory guidance that may jeopardize the running of the organization (Wheelen and Hunger 195). However that does not mean that they should not be open to ideologies that may help streamline the running of the organization. Governance practices are not immutable. In fact, they are evolving on a daily basis and the best must always be adapted if it agrees with the company’s objectives and whether it is for the benefit of all in the company (Hayes, Mehran and Schaefer 20). From the many persons involved, collective experiences, environmental requirements and research should be given key considerations before any decision is made (Adams and Mehran 126). This implies that the company and the board must have some annual or biannual meetings where they reflect on the operations of the company and what the clients require at that particular moment. With all the appropriate principles and values taken into consideration, the assessment will lead to more improvements both in the organization and the governance of the company change is necessary but how this change is approached and implemented matters the most (Holderness 55). Careful interpretation of the business requirements and principles guided by the vision, mission and objectives of the company are vital at all times. This will enhance the company’s cohesion as the board will be in touch with the executive and the executive will be in place to articulate the views of those under them as a way of ensuring that each aspect is assessed, evaluate and improved or changed as recommended (Stiroh 1705). NOC: The mandate of the national Olympic committee is to organize, promote and govern Olympics in their respective jurisdictions. They are supposed to embrace the values of the international Olympic committee (IOC) which is the overall oversight authority when it comes to the Olympics. The main vision of the IOC is to create a participatory attitude through building a peaceful and better world by educating the youth through sports (Chappelet 2). They must thus be ready as the NOC to promote the spirit of the Olympics which is mainly tied to the values of excellence, respect and friendship amongst all those involved countries. As a national committee, they are expected to acknowledge the role of the IOC and assist in all means possible to ensure that preparations are in top geared once they are requested to seek help in any way deemed necessary. They are also expected to collaborate with like-minded persons, entities and corporations to ensure that sports are placed at the service of the society as a whole. They are also mandated with forming alliances with sponsors to ensure that everything is in place before the Olympics and to also facilitate the running of the Olympics (Guttmann 90). Given this huge tasked, governance is of prime importance at all times. As sports become more and more professional each year, there is a need to stipulate the rules that will govern each selection and each sport according to the IOC doctrines. Further, the increased involvement of the governments, the political elite and other corporate stakeholders, there is a need to manage the interactions between the sportspeople and these other foreign entities (Guttmann 92). As the NOC, any interference with the sportspeople must be governed, monitored and regulated to allow sanity in the sports sector. They must be in touch with the rest of the associations in the country as a means of ensuring that each interaction is in accordance to the rules and regulations of different sport associations worldwide and even internally (Chappelet 3). Here, the IOC acts as a holding company because it is not a corporation but owns several of these under the NOC and controls several foundations such as the Olympics foundation. Therefore, the NOC must also act as a holding company in this case with the IOC acting as the conglomerate as defined hereinabove (Toohey and Veal 45). The NOC must thus explore several avenues through which governance must be executed. As a matter of fact, each step must be evaluated by an oversight authority to avoid any scandals such as the 1999 Salt Lake City scandal that almost tainted the Olympics committee at the time (Chappelet 5). Scandals must be avoided at all costs to give confidence to the team that fairness, excellence, respect and friendship were not only preached but also practiced by the body. To maintain this, an ethics committee that will oversee the ethical attributes of the committee must be set up (Guttmann 94). As the NOC, certain governance structures must be instituted and this may be directed borrowed from the Holding Companies as a way of ensuring that each body that constitutes the NOC is taken into consideration (Stiroh 1707). As noted above, the holding companies are made more efficient by delegating duties to the respective units while offering non-executive directors the mandate to oversee the activities in the company without interfering with the day-to-day operations (Adams and Mehran 124). This is the same doctrine that the NOC must embrace for better oversight and regulation. The Olympics is made up of different sports each of these sports requires to be enhanced and improved to match the international standards and match the current global competition. There must be a team of professionals assigned this task and they must only be responsible to the oversight committee (Guttmann 94-5). The individual sports’ associations will be part and parcel of these organizations to offer their support and learn from each other on ways and means of improving their individual sports. These units need to prepare their athletes and select those fit enough to represent the country. This means that they must be taken into account for every selection made and the ability of these athletes to provide the kind of athleticism that is expected of them (Toohey and Veal 47). By having a BOG or a governing body, they are assured that all units will be regulated, monitored and transparent in all activities, actions and decisions that they make. These units will run the daily operations reminiscent of their roles and responsibilities while the board uses its opposition to ensure that rules are not flaunted. The athletes will also be allowed to contribute in the running of affairs as this will help in diversifying the activities, roles and responsibilities of the organizations through collective learning (Toohey and Veal 47). This will also help in adapting new methods that have been proven to work and produce results instead of sticking to certain methods that may be irrelevant to the current standards. The governing body will constitute of a variety of prospective individuals who have experience in running sport bodies or may have participated in the game just to have diverse views on how the NOC can be run (Toohey and Veal 48). This body will be elected by a nominations committee that will be unanimously selected by the NOC members and signatories as a way of encouraging and fostering sport cohesion. Standards will be set to ensure that these rules are followed and that the board constitutes non-executive members who do not have any interests or shares (Guttmann 100). This will help to improve the accountability and impartiality in the decision-making process. Likewise, they will not be allowed to interfere with the running of the sport units so that efficiency will be maintained and the best interests taken into consideration. Financially, the NOC will oversee the funding and any other financial stipend that is dished out to these units. By doing this, it will offer a chance for the units to utilize their resources accordingly, and thus ensure that no impulses are encountered during the running of daily operations. It will also minimize the wastage of resources because each unit must justify the need for more and account for that which they received previously (Chappelet 16). This has also been known to maximize utility of the few resources available given the fact that the NOC only receives funding from corporate well-wishers as well as sponsors. If this is not taken care of, the committee may fail in some of its obligations. To avoid that, each unit must look for means and ways of efficiently utilizing their resources without wastage or debts. Just like the IOC, the NOC must ensure that every committee, unit and athlete under its jurisdiction operates under the required statutes, values and doctrines. This way, the Olympics will be the uniting factor amongst all the concerned parties with efficiency being attained to effectively govern the NOC structure and organize everything as required under the international standards. Works Cited Adams, R. & Mehran, H. Is Corporate Governance Different for Bank Holding Companies? FRBNY Economic Policy Review, (April 2003): 123-142. Print. Chappelet, J. L. The Governance of the International Olympics Committee. Loughborough University, Switzerland: Center for Olympics studies and research, 2006. Print. Guttmann, A. The Olympics: A History of Modern Games. Chicago: University of Illinois press, 2002. Print. Hayes, R.; Mehran, H. & Schaefer, S. Board Committee Structures, Ownership and Firm Performance. Unpublished paper, Federal Reserve Bank of New York and University of Chicago, 2000. Print. Holderness, C. G. “A Survey of Blockholders and Corporate Control.” Federal Reserve Bank of New York Economic Policy Review 9(1) (April 2003), 51-63. Print. Stiroh, K. “How Did Bank Holding Companies Prosper in the 1990s?” Journal of Banking and Finance 24 (2000), 1703-45. Print. Toohey, K. & Veal, A. J. The Olympic Games: A Social Science Perspective. New York, NY: CABI, 2007. Print. Wheelen, T. L. & Hunger, J. D. Concepts in Strategic Management and Business Policy: Toward Global Sustainability. London: Pearson Education, 2011. Print. Read More