Empirical Data Analysis of UK Companies - Coursework Example

Business Empirical Data Analysis of UK Companies Corporate Governance is a theory that regulates corporations, regulators, and stakeholders (Baker and Anderson, 2010, p-5). The rationale of corporate governance is to assist in prudent, entrepreneurial, and effective management that shall contribute to its long-term success (Financial Reporting Council, 2012, p-1). Companies all over the world face increasing demand from employees, investors and activists, so as to behave in a sustainable manner keeping in view all the environmental, ethical and social issues. The increasing demand and importance of sustainability has been recognized by the companies operating globally, but the performance to purely be integrated into the strategy and operations as per the standard requires embedment of the standards and principles into the primary governance systems. Successfully embedding sustainability into the governance of a company requires selection of right mix of issues, and placing the strategic direction of an organization with strategic social and environmental goals, and ensuring that the mechanisms taken by the government understand and perform well so as to reach the focus. So as to create sustainability a company tries to focus on risk and legal issues, individual competencies, finances, management structures, independence and leadership. Boards of Directors are a significant component of governance structures and with the help of other governance mechanisms helps to bring about sustainable development (Mullerat, 2011, p-6). Boards have the ability to lead all the decisions taken with integrity; they possess the appropriate skills to undergo any difficult decisions and manage risks undertaken (Tayan and Larcker, 2011, pp. 8-9). Proper Implementation and maintenance of good governance facilities helps in making decisions and improves the strategy taken by the organization, improves compliance, performance and accountability, and is often characterized by evaluation, analysis and monitoring. Effective and efficient corporate governance helps an organization to achieve its desired outcomes and objectives, and accomplish its obligations through the following- Risk Management Strategic and Business Planning Human Resource Planning and control Compliance and Accountability System Financial Management and Reporting Successful corporate Governance also helps to provide a framework for establishing responsibility to the people served by the organization, i.e., its members, clients, and different stakeholders (Grobfeld and Luttermann, 2012, p. 331). The characteristics of a good and proficient corporate governance are- Clear strategy- Good Corporate Governance starts with an apparent strategy for the organization. The Company’s workforce must be clearly proficient and focused on the overall strategy on the organizational mission so that it could efficiently meet the needs of the consumers in the target market. Effective Risk Management- The organization may implement smart policies but it not is able to satisfy the customers which may further lead to disasters in operations. Fluctuations in the economy may even lead drawing down of the market which might erode the buying capabilities of the target market. Therefore so as to avoid these risks it is necessary to implement effective and efficient strategic risk management (Tricker and Tricker, 2012, p-218). Discipline- Corporate policies are effective after they are implemented properly. So, a good corporate governance must have discipline and commitment for the implementation of resolutions, policies and strategies. Fairness- An organization must be fair to their customers from both the view point of ethics and maintaining public relations, as because fairness is considered to be of high importance to management. If an organization treats its customers unfairly, it may help the organization to receive benefit in the short-run but in the long-run the company shall suffer a lot. Transparency and Disclosure- Sometimes Managers limits the information given to the employees, which restricts transparency. Transparency and disclosure helps an organization to unify. When employees understand management strategies and policies and they are allowed to monitor the roles and duty assigned to them and the company’s financial performance, they can understand their roles better and thus can contribute to their performance in an efficient manner. Corporate Transparency is also supported by the common public, since they do not feel secure to trust an organization whose details and operations lie in secrecy and is not disclosed (Financial Reporting Council, 2012, 27). Corporate Social Responsibility- Rise of Social Responsibility at the corporate Level is a matter of great concern for an organization. Consumers expect that the operations performed by a company must target welfare of the community at large and the society must be benefitted from the performance. So, good corporate governance identifies ways to improve company’s performances and must try to promote social welfare (Tricker and Tricker, 2012, p-229). Self evaluation- Mistakes in performance of any activities is inevitable inspite of well management, so it is necessary to perform regular self-evaluation so that mistakes in performance can be identified and steps can be taken to mitigate such problems. Hiring consultants from outside so as to analyze the operations performed can also help to identify ways to improve the efficiency and performance of an organization. Participation- Participation by both men and women in all the activities of an organization is a key foundation of good governance. Participation may be in direct form, or through legitimate intermediate institutions or representatives, but it must be organized and properly informed. It must provide freedom of association and expression and have contribution in the formation of an organized civil society (Blair and Roe, 1999, p-92). Rule of Law- It is important for a good corporate governance to have a fair legal framework which must be enforced impartially. It must provide full protection of human rights (Rezaee, 2008, p-389). Responsiveness- Good Corporate Governance ensures the requirement to serve all the stakeholders within the respective time frame. Morningstar company intelligence is an investment research firm headquartered in Chicago, United States. It was formerly known as Hemscott Company Guru. Morningstar company intelligence supports a database that provides news, accounts, ratios, director bibliographies, and share price data for the top 300,000 UK companies. The 30 UK listed companies selected from Morningstar Intelligence Company belong to different sectors, such as retail, hotel and tourism, transport, travel and leisure, apparel and accessories, airlines, telecommunication, intellectual property, textile, infrastructure, consumer products, pharmaceutical, metal and mining, industrial, financial, energy, petrochemical, and technology. The objective of this selection was to determine and analyze the performance of each sector. The selection of industries belonging to retail sector has gained a preference in this selection. The reason for this preference is the maximum contribution made by this sector to the economy as well to the society so as fulfil the needs of the customers. Other sectors contribution can be considered to be of an average but the contribution from the intellectual property sector is very low which may be as a result of its new appearance in the industry, which needs to be developed as it gets accustomed to the market and industry in operation. a) In the analysis done sample size is 30, as 30 UK listed companies were selected from Morningstar Intelligence, and different variables were used so as to analyze the performance of the companies and the corporate characteristics which each of the firm carries. The Corporate governance characteristics carries by each of the companies have helped in the determination of the prospects availed by the companies in their respective industrial sectors. The variables considered are determined as per 3 heads, i.e. control variables, independent variables, and dependant variables. Control variable is the variable which is in control of the overall performance of the industry. It determines the size of a company with the help of Turnover (£m) and No. of Employees. Dependent variables are referred to those variables whose performance is affected by the performance of all the other variables considered for the performance measurement of the company. Dependent variables critically evaluates the performance of a company in terms of Return on Capital Employed (ROCE), Earning Per Share (EPS) denominated in Pency, and degree of Internationalization. Independent variables refer to those variables whose performance is not dependant on the performance of any variables but it itself affects the performance of the other variables, which in turn affects the overall performance and determines the prospects of the company. Independent Variables is referred to the data available from the board, i.e. board size, Percentage of Non-executives, Chief Executing Officer (CEO), percentage of Female directors in the board, and proportion of international directors. The analysis shows that maximum turnover is contributed by the company Tesco which belong to the Retail sector, whereas the minimum turnover is contributed by the company belonging to Intellectual Property sector, IP Group. IP Group in Intellectual Property sector also has the lowest no. of employee strength. Consumption of employment has been highest in terms of Energy sectors by G4S, but the company Tesco in the Retail sector also provides employment which is the 2nd largest in the overall industry. Maximum return from capital employed has been generated by the company Babcock International Group which belongs to transportation and logistics industry. Minimum amount of return from the capital employed have been generated by the company Man Group which belongs to the textile industry. The company having minimum earning per share is Thomas Cook Group which belongs to the Tourism Industry and the company having maximum earning per share generating maximum is Next PLC belonging to retail sector. The company having maximum chain for international expansion is British American Tobacco PLC which belongs to the retail sector and deals in consumer products. The company, whose international expansion is minimum is IP group which belongs to the Intellectual property sector. From the variables available from the Board data, it is analyzed that WPP in the industrial sectors has the maximum no. of directors, whereas the minimum no. of directors is in the company Tea Baker which belongs to retail sector. Percentage of non performing executives is greater in the company Antofagasta PLC which belongs to Metal and mining sector; whereas the percentage is lower in Debenhams PLC which belongs to retail sector. Female Directors is found to be maximum in the Apparel and Accessories sector which is denoted by the company Burberry; whereas it is found to be minimum in the infrastructure and metal and mining sector, i.e., companies Antofagasta PLC and Genus. Proportion of internalization is maximum British American Tobacco PLC which deals in consumer products and belongs to retail sector, whereas the proportion is seen to low in different sectors such as retail, transportation, intellectual property, and financials. Mean values depicts the overall industry standards as per the company considered for the analysis. Companies with higher values than mean shall depict a better performance as compared to the companies having values not up to the mark of the mean. Standard deviation depicts the overall the risk present as per market. Company with a lower SD as per average shall be less volatile to the market as compared to a company with an increasing SD as per market which shall be affected by a certain change in the market rate, i.e. such companies shall have greater market volatility. All the companies considered in the analysis show CEO duality to be 0, i.e. all the CEO’s in the companies considered performs separate roles, and no company have CEO’s performing combined roles. b) The results from the analysis of the statistical test depicts that the maximum and minimum values of the different companies related to different variables considered in the analysis are in most cases relevant to the industry structure in which the company belongs, as because all the industries do not require the maintenance of the highest proportion of all the variables; for e.g. Proportion of female directors is maximum in the apparels and accessories sector; whereas it is minimum in the infrastructure, and metal and mining sector. But the control variables need to be maintained to the proportionate basis as because it determines the performance. The companies which depicts slow growth and performance need to be improved so as avail long term benefits and remain as per with the industry standards and competition. Control variables (i.e. company size) are the variables on which the overall growth of company depends; it is affected by the dependent variables (i.e. company performance) and independent variables (i.e. board data), but control variables in the real sense depict the overall picture of a company. So a company needs to be concerned about the position of its control variables. The analysis shows that the intellectual property sector has the lowest turnover and employee strength. This may be because of the reason that the sector is new to the industry, and so is taking time to prosper and development. The company IP Group belonging to this sector also has not made any expansion in the international market which further depicts the low growth and performance prospects for the company. But since the market is expanding, the company needs to be fast and strategic managerial decisions are to be taken so as to bring faster growth and development. Babcock International Group belonging to Transportation and logistics sector is unable to shows a high company performance, because of the fact that inspite of being able to generate maximum returns on the capital employed, and earnings per share almost nearer to the average return per share by all the companies, it has not expanded its operations globally. British American Tobacco PLC, a company belonging to retail sector and dealing with consumer products, has made a marked expansion globally, and its overall performance and company size as well as board data have showed development, prospects and growth as per with the overall company standards as depicted by the mean. This depicts that a company on being able to make successful expansion globally shall be able to bring about an improvement in the overall prospects and development. Tesco, a company belonging to the retail sector, depicts a marked positive performance in the growth of the company size, and the other variables depicting company performance and board data is also as per the standard depicted by mean, which demonstrates that the increase in company size can best be rewarded to the improvement and prospects brought about by the proper management of all the sectors in-line and co-operation with each other. Thus, from the above it can be concluded that overall prosperity of a company is possible when all the variables affecting the prosperity grow in co-operation with each other, i.e., a company need to implement strategic managerial decisions in all the sectors simultaneously and see through the implementation of such decisions so as to bring about overall development and growth. c) From the discussion of the results of the analysis performed it is proved that good corporate governance is ensured only through sustainability in performance, and co-operations in all the operations undertaken. Board of Directors plays a crucial and significant role in the accomplishment of good corporate governance since the board helps to integration. Integration within an overall activity is essential for an action to be performed. Strategic managerial decisions is to taken by the managers concerned represented in the board, and proper implementation of such decisions taken is not only the activity of the managers but the combined performance of the employees and the other stakeholders involved in such activity, so as bring a success and positive outcome, which would relatively affect an organizations prosperity. The organizational theories which best explain the observations of the analysis are- Clear Strategy- The strategic decision taken for the performance of an activity must be clear to the employees who is to perform as per the decision and the other stakeholders involved with the activity so as assure success in accomplishment of the activity. Effective Standard Deviation- It is denoted by standard deviation. A company must have a better knowledge to manage risk so that it can handle the risk undertaken. Discipline- Discipline and co-ordination among all the activities is to be maintained so all to achieve the target. Fairness and Transparency - The companies must ensure fairness and Transparency in all the activities undertaken to guarantee long term growth. Self evaluation- The company data depicted with which the analysis is performed is itself an e.g. of self evaluation demonstrating company’s performance. Participation- Participation in all the sectors is important so as to bring about overall growth. d) A company must try hard to maintain all the essential elements of good corporate governance necessary to bring about an overall development, growth, expansion, and prosperity (Bawley, 1999, p-51). Abiding by the characteristics of corporate governance is also essential for bringing about good corporate governance which establishes a stable relationship between management, board and other stakeholders which shall initiate efficiency (Institute of Directors, 2010, p-12). A company must maintain equal participation in all the relevant interlinked activities, and try to control all the variables which determine the overall prospect of a company with equal importance. Thus, effectiveness and efficiency in corporate governance has a major influence and impact on a company’s performance. References Owen, G. and Turner, L., 2009. Since the 1980s there has been a partial convergence between the shareholder-based and the stakeholder-based systems of corporate governance. What has caused this convergence and is it likely to continue?. [Pdf]. Available at: [Accessed: June 29, 2011] Nelson, J., 2004. Corporate governance practices, CEO characteristics and firm performance. Journal of Corporate finance. 11. Association of Chartered Certified Accountants. 2009. Corporate Governance. UK: KPMG. Financial Reporting Council, 2012. The UK Corporate Governance Code. [Pdf]. Available at: [Accessed: June 29, 2011] Thornton, G., 2011. Corporate Governance Review 2011. 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