Vodafone Company Governance In Globalizing World - Case Study Example

Vodafone Corporate Governance Framework Name Class Unit Introduction Corporate governance refers into ways and means in which an organisation is directed and controlled. It outlines the rights and responsibilities of members in an organisation and also the means and regulations involved in making decisions. Through corporate governance, an organisation is able to conduct business with integrity, openness, fairness and ensures that there is accounting and responsibility towards its stakeholders (Mallin, 2007). To efficiently conduct corporate governance, there is a need to look at wider set of interests from all stakeholders. Most of the top organisations have been publishing their corporate governance in their websites and have adopted ways which are aimed at sustainable corporate governance. Corporate governance looks at the organisations and their decision making structures. It ensures that there are no competing interests for the smooth running of the corporation (Gyves, 2008). This report will look at literature review on corporate governance and its frameworks. The report will then analyse corporate governance at Vodafone Plc by looking at key features of the firm’s corporate governance. It will then look at how Vodafone Plc engages with other stakeholders, ethical challenges use the argument of theory and integration to comment on the issues. Literature review Corporate governance is one of the pillars of a successful organisation. Bad corporate governance has led to organisations failure. Failures based on corporate governance have led to organisations concentrating more on their corporate governance. This has led to more interests on why corporate fail despite having good corporate governance in place. There are various approaches that have been brought forward to analyse corporate governance. Most of the analysis on corporate governance has focused on alignment of the shareholders and managers relationship. This is through addressing transparency, remuneration of directors and the way they influence good corporate governance. Despite this, there are studies which take a holistic approach towards corporate governance. This paper uses a holistic approach in analysing corporate governance (Salami, Johl & Ibrahim, 2014). There are two main corporate governance frameworks which are; agency theory approach and stakeholders’ theory approach. Corporate governance frameworks From agency approach Agency theory is the main theory used in corporate governance. Using the theory, shareholders are placed as the main and most important stakeholders. The theory have been said to be the main premise between that defines the relationship between the owners and managers who are the agents (Mallin, 2007). The theory looks at the possibilities of conflicts between the interests of the owners who are the principles and agents in attaining the organisation goal. According to the agency theory, management of an organisation is carried out on behalf of the shareholders. The main focus is on how perfoamcne is managed in an organisation for the shareholders and how it’s reported. The management acts as the agents for the shareholders. The managers are supposed to use funds at their disposal as authorised by the shareholders. This leads to the principal agent relationship (Mallin, 2007). The managers should ensure that shareholders are able to get maximum returns from their investments. The managers are the custodians of the organisation and manage to the best interests of the owners. This leads to a focus on shareholders alone as the main beneficiaries of the organisation business (Lan & Heracleous, 2010). From stakeholder approach Stakeholder is anyone who is affected by the organisations actions or decisions. Stakeholders are those whose rights can be violated or upheld by organisation activities. The main aim of the stakeholders’ theory is ensuring that organisations are concerned about the interests and rights of the stakeholders when making and carrying out their strategic decisions. The theory calls for maximisation of the stakeholders’ satisfaction (Mallin, 2007). Using the stakeholders’ theory perspective, the company shareholders are taken as one of the most important members of stakeholders. The shareholders are the main stakeholders in an organisation. According to stakeholders’ theory, organisations are supposed to be managed in the public interest by being socially responsible. The main problem with this model is the fact that it’s hard to fulfil the wide stakeholders’ objectives. The stakeholders’ model is more concerned with the ways in which corporate governance can enhance long term commitment for investment among the stakeholders (Mainardes, Alves & Raposo, 2011). All stakeholders that contribute to the firm assets are looked at. Key features of corporate governance Remuneration practices In good corporate governance, the remuneration should be well aligned with organisation drivers of value creation. This should be based on appropriate timeline that is highly appropriate for the organisation business. The executives pay should be linked with the value creation and align executives interests with those of the shareholders. The rewards should not be given for taking inappropriate risks which are against the shareholders’ interests (Mallin, 2007). Transparency and disclosure There should be high level of transparency in the remuneration policies and structures, especially for the key executives. Metrics used in awarding are supposed to be disclosed. The company is supposed to use open communication and be transparent in its objectives and challenges. This helps the investors to make decisions based in acquisitions and sales of shares. The organisation boards of directors are supposed to meet for the affirmation of their financial statements at least once a year. High quality international accounting standards should be applied. There is supposed to be an audit board which carries out an oversight on key accounting policies. The accounting policies are supposed to be disclosed on the company annual report. Reporting of non financial information is required to help shareholders and stakeholders make informed decisions. Lastly, there should be disclosure of ownership. This involves disclosing data on the shareholders and any information that may help in establishing organisation means of relating with public shareholders (Mallin, 2007). Committee composition Corporations are supposed to have board committees. The committee is supposed to carry out audits, remuneration and look at the nomination matters. The committees help the boards to address these issues effectively since they require independence and competence. The members of the board committees should be non executive directors. When the committees are for audit and remuneration, they should be independent directors. The composition of board committees should be highly independent from the management and least majority from the dominant owners (Mallin, 2007). Shareholder rights The rights of the shareholders ensure that the board is accountable for their actions. The corporate charter is used to disclose all shareholders rights and should be disclosed publicly. Changes in the corporate charter require the approval from the shareholders. The share holders voting rights should be based on global standards of one share one vote. Major organisation decisions should involve shareholders. Shareholders have rights to call for meeting based on specified requirements. This should also address their resolutions and their rights to ask questions (Mallin, 2007). Board diversity Diverse board has a lot of advantages which help in enhancing the corporate financial performance. The organisation nomination charter should reflect a board that is diverse through analysing factors such as age, background, race, gender, nationality and ethnicity. This ensures that the organisation have a diverse leadership at the board level (Carter, Simkins, & Simpson, 2003). Social responsibility An organisation should be practice responsible corporate citizenship (Amiram, 2008). This is through addressing environmental and social issues that can affect perfoamcne. It involves addressing the social and environment issues through the organisation decision making process (Westphal & Zajac, 2013). Audit process Audit process is based on integrity in organisation financial reporting. This requires rigorous audit process. Auditors ensures that there is quality financial statements in a corporate and enhance confidence. There is need for robust and independent audit using both internal and external auditors. The organisation is supposed to carry out annual audit on checks and balances for the organisation. Auditors are expected to uphold high ethical standards and ensure there is no conflict of interests. External auditors interaction with organisation is overseen by the board audit committee (Mallin, 2007). Community engagement Corporation is supposed to engage communities whom they interact with (Amiram, 2008). This helps the organisation to enhance efficiency and become more effective. Through community engagement, the organisation is able to make decisions which add more value. This leads to positive outcome for the organisation, communities and individuals (Westphal & Zajac, 2013). Analysis Vodafone Vodafone is one of the largest and most successful companies in Europe and worldwide. The company have won several awards due to their accountability ratings. Accountability ratings look at the organisation main areas based on the AA1000 framework on social, ethical and environmental management (Vodafone Group Plc, 2013). Vodafone have been scoring highly on their corporate social responsibility and financial performance. The company provides range of services which includes; voice calls, texting services, video messaging, data services among others. The company have over 221milion customers who include corporate and private customers (Mallin, 2007). Assessment of key features of corporate governance Vodafone Transparency and disclosure Vodafone have been very transparent in their disclosures. The company uses annual report which is highly detailed on key areas of interest. The company Annual Report covers variety of CR issues which includes workers involvement, political donations, social involvement, environmental matters and health and safety among others. The organisation uses web application to gather their data from its operations. Vodafone have their data collection guidelines that ensure there is high integrity. All operating companies are required to confirm data accuracy and ensure they document data sources (Vodafone Group Plc, 2013). Audit process The company have a defined audit charter. The charter is approved by the Audit, Risk and Compliance Committee. The company audit charter is based on the international standards and auditing code of ethics. The company group audit conforms to the risk based approach. The company carries internal audit annually and have to be approved by the committee and communications made to the executive management. The company audits looks at the several types of audits; financial systems audit, computer systems audit, network operational audits and finally the safety, health and environment audit (Vodafone Group Plc, 2013). Board diversity Vodafone have 12 board members. The board composition embraces diversity on gender, race and ethnicity among other measures of diversity. The board have five non executive directors who are independent. The board have diverse knowledge, experience and skills which have made it to be highly effective. The board elects its chairman annually based on a set tradition. By embracing diversity in their board, Vodafone have enhanced their CR performance (Vodafone Group Plc, 2013). Community engagement at Vodafone Vodafone actively engages the community towards effective use of resources. The corporate have been supporting nongovernmental organisations engaging in charities. Vodafone have also been very active in environmental conservation through community engagement (Vodafone Group Plc, 2013). Stakeholders’ engagement Vodafone have been able to engage their stakeholders in many ways both formally and informally (Vodafone Group Plc, 2013). The company uses stakeholders’ engagement toolkit to offer guidance to operating companies. The company engages the stakeholders through business functions as well as through operating companies. Vodafone ensures that all their operating companies have external stakeholder advisory councils. Vodafone have a stakeholder’s advisory council at the global level made up of 12 members. The members experience ranges from governance, business to opinion leaders. Vodafone ensures they get feedback from the stakeholder groups on their corporate strategy and corporate governance report. The company changed their stakeholders’ engagement from generic events and empowered them to give opinions on company board strategy and its programs (Mallin, 2007). The main aim of new engagement strategy is to gain in-depth understanding of the stakeholders. All local operating companies under Vodafone are required to have a comprehensive stakeholder engagement plan. The company stakeholders include; customers, communities, governments, employees, suppliers, NGOs, investors and opinion leaders (Idowu & Filho, 2009). Ethical challenges Vodafone have a very strong record on stakeholders’ engagement. Despite this, the company have to ensure that they review their corporate governance regularly. This is due to fact that scrutiny on large organisation is expected to increase due to issues such as water scarcity, climate change and harsh economic times. In future, companies such as Vodafone maybe required to explore publicly issues based on climate impacts. Vodafone is also expected to be more active in addressing tax issues. In the past, Vodafone have been accused of tax avoidance which dented their ethical stand. The company must ensure they follow tax remittance procedures based on the law in future to avoid ethical challenges. Tax avoidance is an ethical issue and a part of good corporate governance. Tax is also a social responsibility that must be adhered to (Institute of Business Ethics, 2013). Their corporate governance is weak on tax adherence which led to earlier tax avoidance and must be addressed. Conclusion Good corporate governance plays a very vital role in organisation perfoamcne. Successful corporate governance must look at wider set of interests from all stakeholders. The two main corporate governance frameworks are agency theory approach and stakeholders’ theory approach. Features of corporate governance are; remuneration practices, transparency and disclosure, committee composition, shareholder rights, board diversity, social responsibility, audit process and community engagement. Vodafone is one of the most successful communication companies globally. The company corporate governance has been very successful. By looking at Vodafone audit process, board diversity and transparency disclosures, it is evident they position the organisation in engaging successfully with its stakeholders. Vodafone engages with stakeholders locally and globally in both formal and informal ways. The company utilises the stakeholders’ feedback in their reporting and requires all operating companies to have a comprehensive stakeholders engagement plans. Using their new engagement strategy, the company have gained in-depth understanding of its stakeholders. The company should expect increasing scrutiny on their corporate governance. They need to review their corporate governance regularly. They also have to ensure they adhere to tax guidelines in their country of operation. References Amiram, G., 2008, “Corporate Governance as Social Responsibility: A Research Agenda”, BerkeleyJ. Int'lLaw. Vol.26, no.2. p. 452. Carter, D.A., Simkins, B.J. & Simpson, W.G. 2003, "Corporate Governance, Board Diversity, and Firm Value," Financial Review, Vol. 38, no.1, p. 33-53. Gyves, S. 2008, Corporate social responsibility: an avenue for sustainable benefit for society and the firm? Society and Business Review, Vol.3, no. 3, p.207-223. Idowu, S.O. & Filho, W.L.2009, Professionals ́ Perspectives of Corporate Social Responsibility, Springer Science & Business Media. https://books.google.co.ke/books?id=AgEifBoKFPEC&pg=PA81&lpg=PA81&dq=vodaf one+engagement+with+stakeholders&source=bl&ots=LypQqDttir&sig=Chw67rM3Troa SLZhShQyIy2oCV4&hl=en&sa=X&ei=c4bVJW5B4GtUPW1g_gD&redir_esc=y#v=one page&q=vodafone%20engagement%20with%20stakeholders&f=false Institute of Business Ethics, 2013, Business Ethics Briefing, Tax Avoidance as an Ethical Issue for Business, Issue 23. Retrieved 11th March 2015 from, http://www.ibe.org.uk/userassets/briefings/ibe_briefing_31_tax_avoidance_as_an_ethical _issue_for_business.pdf Lan, L. L., & Heracleous, L. 2010. “Rethinking agency theory: The view from law,” Academy of management review, Vol.35, no.2, p.294-314. Mainardes, E. W., Alves, H., & Raposo, M. 2011, “Stakeholder theory: Issues to resolve,” Management Decision, Vol.49, no.2, p.226-252. Mallin, C.A. 2007, Corporate Governance, Oxford University Press, https://books.google.co.ke/books?id=4ZwHBANzAqAC&pg=PA112&lpg=PA112&dq= vodafone+corporate+governance&source=bl&ots=KjvZuZ2TN7&sig=bj2fbj2A5S1KwY MelPI VCn89hZ8&hl=en&sa=X&ei=7X7VOXjKsm8UaCYgtAK&redir_esc=y#v=onepage&q =vodafone%20corporate%20governance&f=false Salami, O.L., Johl, S.K. & Ibrahim, M.Y. 2014, “Holistic Approach to Corporate Governance: A Conceptual Framework,” Global Business and Management Research: An International Journal Vol. 6, No.3, p.251. Vodafone Group Plc. 2013, “Stakeholder engagement”, Vodafone Group, Retrieved 11th March 2015 from, http://www.vodafone.com/content/sustainability/our_vision_and_approach/managing_sus tainability/stakeholder_engagement.html Westphal, J. D., & Zajac, E. J. 2013, “A behavioral theory of corporate governance: Explicating the mechanisms of socially situated and socially constituted agency,” The Academy of Management Annals, Vol.7, no.1, p.607-661. Read More