Potential Constraints Relating to Convergence of Corporate Governance - Essay Example

Corporate Governance and Social Responsibility Executive Summary Business activities of the organizations relating to the modern period need to be rightly governed by a set of Corporate Governance practices which in turn help in relating the corporate governance measures to the needs of the different stakeholders and the society and environment at large. Similarly the Corporate Governance measures also need to reflect needed flexibility to help adapt to the changing needs of the modern society and culture pertaining to the different regions and in also embracing a diverse set of manpower to conduct the business activities. It is in this sense that the policy of convergence of Corporate Governance is dealt with in the paper. The paper also reflects the factors that provide support or generate potential constraints relating to convergence of Corporate Governance. Table of Contents Table of Contents 3 Introduction 4 Convergence in corporate governance practices 4 Identification of the various drivers of this process and the barriers preventing such 8 Conclusions 11 Recommendations 12 Reference 13 Bibliography 16 Introduction The paper reflects on the manner the convergence of the corporate governance practices is generated relating to the regulatory and legislative practices of different regions and also the Corporate Social Responsibility objectives of the organizations. Convergence on the above accord contributes in adding value to the corporate governance practices of the business organizations. Real business cases would be discussed in the paper that would reflect on the convergence of the corporate governance practices. The paper would also reflect on the factors that would contribute in the convergence of the corporate governance practices while also reflecting on other factors generating potential hindrances to the convergence of corporate governance systems. Convergence in corporate governance practices Convergence of corporate governance has become an issue of global interest owing to the emergence of corporate scandals affecting the interest of the stakeholder groups. Further the rise of economic recession on a global front is also observed to have required the generation of potential regulatory and legislative practices which in turn administer the need for convergence of corporate governance with the same. Similarly the corporate governance policies also need to reflect convergence with organizational diversity such that the companies operating in European countries like Spain as Banco Santander needs to reserve around 40 percent of the Board of Directors’ seat for women. Similarly the corporate governance policies also need to reflect honour for diversity through the selection of directors based on different nations and cultures. Similarly to help counter the impacts of economic crisis the banking companies like Banco Santander is required to embrace individuals with proper knowledge of risk management such that the same helps in generating adequate information relating to finance and technological issues (Gordon & Roe, 2004). Other corporate governance convergence practices followed by Banco Santander reflect on the bifurcation of the roles relating to Chairman and CEO such that individual persons are assigned the different roles to conduct duties in a specialised fashion. Division of the roles relating to CEO and Chairman is taken to help in making the board operate in an independent fashion compared to the management body. Similarly the practice of making the directors independent to the management is observed to help in the enhancement of due professionalism, accountability and expertise of the directors in performing in an effective fashion (Leube & Davis, 2010). Convergence practices relating to Corporate Governance reflects that the business organizations need to adequately fit with the standards and economic policies relating to the different regions where the company tends to have its branches. Corporate Governance systems relating to American organizations reflect due legal protection for the different stakeholders and shareholders of a business corporation. Stakeholders in American organizations are observed to generate greater control over the operational issues concerning the organization (Nisa & Warsi, 2008). Relating to the Korean organizations the Corporate Governance practices reflect an increasing integration with the banking and financial institutions and with the government at large. Stakeholders like banks and the government have say on the organizational functions and vice-versa. Like the Korean companies the Corporate Governance practices relating to the French business organization also reflects effective integration of financial institutions, government agencies and other large organizations acting as partners to the firm (Calder, 2008). Such integration is observed to help the French business organizations to generate the right quality and pattern of product and service to help satisfy the needs of the different stakeholders. Thus convergence practices related to corporate governance for business organizations operating on an international scale is required to rightly incorporate the corporate governance practices of the different international firms to help meet the demands of the various stakeholders (Wharton School , 2002). Convergence of Corporate Governance practices with the dimensions of Corporate Social Responsibility is tended to achieve along different levels. Relating to the value level the corporate governance practices is required to be based on ethical constructs such that it helps in the fulfilment of the social and environmental obligations relating to the different regions (Heinrich et al., 2007). Similarly the convergence of corporate governance practices is required to help in the reduction of risks relating to Corporate Social Responsibility (CSR). In that the Corporate Governance practices need to be such that would help in the countering of issues relating to management of human capital both pertaining to the organization and the supply chain units and also in generating solutions to environmental problems (Strandberg, 2005). The convergence of practices related to Corporate Governance systems with that of CSR guidelines of companies is observed to help in the generation of Code of Conducts for the performance and operations of the business organization. Operating based on the codes of conduct the business organization thus gains the ability of meeting the personnel, environmental and developmental needs. Thus generation of codes of conduct relating to the business organization thus serve as effective tools for self regulation to meet the CSR objectives of the concern (Rahim, 2013). The integration of the Corporate Governance practices with that of CSR objectives for the organization is observed to help contribute in the development of integrated reports. Integrated Reports published by the organizations would reflect on the manner their corporate governance practices helps in enhancing the development of the external business parameters relating to the society and environment in a sustainable fashion (Khanna & Pakepu, 2004). In United States owing to the integration of Corporate Governance practices with the CSR objectives different organizations like Occupational Safety and Health Administration (OSHA) and Environmental Protection Agency (EPA) have surfaced to help in the monitoring of the operational activities relating to the business organization so as to meet the CSR standards (Gill, 2008). The integration of the Corporate Governance practices with that of the CSR objectives of a business organization is observed to contribute in the generation of programs related to energy efficiency such that it focuses on the sustainability of the existing resource base of the region. Working based on such policies is taken to generate lesser impacts on harnessing the natural resource base of the region and thereby encouraging the growth of sustainable operational practices (Aras & Crowther, 2012). The case of McDonald’s restaurants can be effectively evaluated such that the business organization in terms of integrating the corporate governance practices with its CSR objectives aim at recruiting and developing organizational manpower to help in the fulfilment of business and organizational objectives. Similarly the Corporate Governance policies are also reflected to aim in the enhancement of loyalty of employees thereby helping in enhancing their retention in the organization (Berghe, 2002). McDonald’s is also observed to generate due emphasis on the protection of the natural environment in terms of conducting its store, warehousing and distribution operations. The use of energy efficiency lighting systems with also the policies relating to reduced carbon footprint in terms of controlling on the emission levels is regarded to emerge based on the convergence of Corporate Governance practices with CSR objectives. Similarly the focus on generating quality food products to its customers is also considered as an effective step to help in meeting the demands of its stakeholder groups (Aras & Crowther, 2012). Identification of the various drivers of this process and the barriers preventing such The forces that contribute in driving convergence of Corporate Governance both at a global level and also related to convergence with the CSR objectives of the organizations can be effectively underlined as follows. In terms of drivers the objectives of corporate governance aiming in enhancing of the shareholder’s wealth and in also helping the individuals interested in saving activities to gain access of potential investment and saving opportunities. Other factors that contribute in encouraging the convergence of corporate governance relate to the influence of logic that tends to evaluate the effectiveness of a specific corporate governance model and the competitive advantage gained relating to a specific corporate governance model (Sarra, 2002). These attributes or factors require the business organizations relating to a specific region to embrace the corporate governance practices and principles relating to other international regions. Thus European firms are required to embrace the corporate governance practices relating to organizations operating in United Kingdom and United States such that it would contribute in effective internationalisation to such developed countries (Satish, n.d.). Similarly other factors like endeavouring to gain the advantage of foreign competition and also in gaining access to potential investment opportunities also contribute in encouraging the growth of convergence of corporate governance. Further the evolution of international accounting standards and practices is also observed to encourage the growth of convergence of corporate governance (Mullerat & Brennan, 2005). Similarly factors prompting the sharing of ownership of shares and stocks of firms with other international firm and branches also require the convergence of corporate governance practices. Again the need for generation of uniformity in the global securities market and also in incorporating the global regulatory and legislative framework and trade and business policies require the business organizations to generate convergence of governance practices (Grosse, 2005). One of the main factors that is evaluated to have prompted the convergence of corporate governance systems relate to the emergence of the system of accelerated globalisation through the effective interference of the global trade body like the World Trade Organization (WTO). It is observed that WTO largely encourages the growth of trade and investment activities between the different member countries. Growth of international trade and investment activities thus require the convergence of the corporate governance practices related to the business organization (Solomon, 2007). Moreover the need for growth of transparency and sharing of information at an inter-organizational level and that with the investor communities is also observed to promote the growth of convergence of corporate governance practices. Further the capital markets and the banking companies are also observed in generating pressure on the corporate organizations to focus on the generation of uniform corporate governance policies. This calls for the convergence of the corporate governance systems in both inter and intra-organizational level (Keasey et al., 2005). Convergence of corporate governance practices contributes in developing effective relation with the investors and thereby encouraging them to take part in decision making activities. Finally factors relating to the development of best practices pertaining to corporate governance are also taken to contribute in the need for convergence of corporate governance practices (Baker & Anderson, 2010). Best practices relating to corporate governance issued by the consultancies, auditing corporations, rating firms and also business schools are taken to contribute in the reduction of conflicts between a business organization and its different investors and other stakeholder groups (Berghe, 2002). Evaluation of the different factors that act as barriers affecting the convergence of corporate governance practices relate to the existence of different types of legal, social and business and trade practices that differ from region to region. Business corporations related to United States reflect effective leadership position of the Chief Executive Officers while the German business organizations reflect increased participation of the trade unions to the company boards. Differences of the above accord tend to generate barriers to the uniform formation of corporate governance practices (Suh, 2008). Another potential factor acting as a barrier to the convergence of corporate governance practices relate to the changes in the regulatory paradigms. Changes in the existing regulations rather than generating potential solutions tend to affect the convergence of the corporate governance practices. Differences in the corporate governance structures relating to different types of organizations like private, public and ownership firms limit the effectiveness of the convergence of corporate governance principles (Canals, 2010). Mobility barrier is observed to be potential barrier relating to corporate governance convergence such that it reflects different types of corporate governance practices that varies from one region or nation to another. The mobility barrier is mainly caused owing to the growth of contextual differences that tend to occur between two or more types of business organizations tend to affect the convergence of corporate governance (Steger & Amann, 2008). Another potential constraint that limits the convergence of corporate governance relates to the reduction of power of the subsidiary units and also the existence of contextual dissimilarities relating to the corporate governance practices between the parent and the subsidiary organizations. The above factor limits the convergence of corporate governance such that it affects the transfer or the sharing of information between the different units (Mehta, 2013). Another potential barrier limiting the convergence of corporate governance practice between the parent and subsidiary organizations is reflected where the subsidiary unit reflects higher power in contrast to the parent company. Subsidiary organizations reflecting higher power tend to generate newer corporate governance practices which in turn get transferred to the parent organizations. This entails that the convergence of corporate governance practices would tend to occur in a reverse fashion between the subsidiary and the parent organizations. Similarly in cases where the practices related to corporate governance are rigid in nature become hard to be modified and made flexible to rightly adapt to the cultural norms between the different regions. Existence of such rigidity tends to affect the convergence of corporate governance practices pertaining to the regional bases (Rasheed & Yoshikawa, 2012). Conclusions The paper tends to evaluate the convergence related to corporate governance where in the first case the paper tends to understand the manner in which the interests and the needs of the different stakeholder groups, investors, shareholders and also of diversified work groups are effectively reflected in the corporate governance systems of the organizations. Similarly the corporate governance convergence issues also reflect on the fashion in the manner the regulatory and legislative systems and standards are ideally reflected in the corporate governance policies. Corporate Governance standards need also to be ideally converged with the Corporate Social Responsibility (CSR) objectives of the organization. Convergence of Corporate Governance systems with the CSR objectives contribute in adding value to the same in that the convergence caused helps in satisfying the social and environmental objectives of the organization. Cases of the Spanish banking company, Banco Santander and also of the United States restaurant company, McDonald’s is highlighted in the discussion such that where the corporate governance practices of the banking company is required to incorporate the regulations and cultural parameters of the country the corporate governance practices of McDonald’s is required to fulfil the social and environmental objectives. Further the factors that tend to motivate and generate obstacles to the effective convergence of corporate governance systems are also potentially evaluated in the paper to generate greater depth and clarity in the discussion carried out. Recommendations Effective recommendations can be placed relating to the forming of corporate governance policies and frameworks such that it is required to incorporate needed flexibility to help modify based on the regulatory and legislative needs of the different regions. Similarly the business organizations are also required to incorporate the use of social networking platforms for sharing the corporate governance systems and policies with potential stakeholders like investors, shareholders, government bodies, consumers and with the society at large. The sharing of potential information with the stakeholder groups thus help in conducting the convergence of corporate governance with social, environmental, legislative and regulatory standards of the different regions. Reference Aras, G. & Crowther, D., 2012. Global Perspectives on Corporate Governance and CSR. United Kingdom : Gower Publishing, Ltd. Baker, H.K. & Anderson, R., 2010. Corporate Governance: A Synthesis of Theory, Research, and Practice. United Kingdom : John Wiley and Sons. Berghe, L., 2002. Corporate Governance in a Globalising World: Convergence or Divergence?: A European Perspective. Germany : Springer Science & Business Media. Calder, A., 2008. 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