Dangerous Frontiers in Corporate Governance - Assignment Example

BUSINESS Author’s Name Course Instructor Institution City Date of Submission Business Question One Directors who are found guilty of the criminal offenses should be investigated criminally. These directors should be liable for their dishonesty if found guilty. The directors should also repay for the funds which were obtained by dishonest means. Directors are leaders in the organization and hence must always be role models to the employees. The relationship between the principal and the agent should always be transparent. When a director is involved in a dishonest acts in the organization, then it will lead to conflicts between the shareholders and the executives (Josh Bendickson 2016, p. 176). The executives are entrusted with managing the organization and for this reason they should do it with all honesty. The theory is essential in solving issues that arise where the goals of the agents as well as those of the principal are unaligned. The conflicts arise where the principal is limited from acquiring information about the agents due to resources hindrances. The principal, hence becomes unaware of the activities carried out by the agents. Most agents in this case take advantage of the company’s fund because they have a perception that their actions may go unnoticed. In addition, failure to define the risks that are shared by the principal and the agents may also result to crisis (Josh Bendickson 2016, p. 179). In this case, the agent utilizes the resources that lawfully belong to the principal. Principals are the decision makers in the organization and as such they require consulting agents in matters pertaining risks. Since the risk burden is always a burden to the agents, then it is important for the two parties to come to a consensus before any decision is made for the firm. Agency theory also recognizes the importance of the third party. When an agent represents the principal in areas such as transactions with the firm, then the agent in this case is a third party because he or she is acting on behalf of the principal. Most of the directors embezzle the company funds for illegal businesses and as such, they should be charged for breaking the law. The government and private watchdogs on the other hand should be on the lookout and report in case they notice illegality of the directors. Andrew Sigalla is one of the directors that have been caught in fraud. He was the chairman of the Sydney based technology company when he was found to have been transferring funds to 24 different accounts. The money was however used to fund illegal gambling groups. The man was found guilty of defrauding the company approximately 9 million dollars. The former director was hence guilty of all the fraud offenses and misusing the funds of the firm for personal gain and was sentenced in the Supreme Court for the two crimes (Whitbourne 2017, p.10). This is the step that the legal system should take to all leaders who get involved in the dishonest acts, especially in the financial affairs of the organization they lead. The legal action against the corrupt agents ensures that the rights of the principals are put in check by the law. Question Two Directors should always be appointed and retained according to merit. As such, board diversity has no essence in the firm. According to stewardship theory, when the managers are allowed to work without supervision, they become good stewards of the firm’s assets. The executive managers are believed to be the best stewards and therefore, their ownership of the firm in an added value. It is also argued that, since the managers spend most of their time on the issues concerning the firm, they have gained the necessary and relevant skills to govern the organization. However, the agency model opposed the stewardship theory, putting across that there is a need of an extra mechanism to monitor the activities of the managers. This mechanism is put in place to ensure that the resources of the firm are not used for personal gain by the managers. Anglo-American countries are examples where stewardship theory applies in corporate organizations. In these nations, the diversity of the managers is overlooked an undiversified capital of the managers is utilized in the firms making the managers more responsible and accountable for their actions. Stewardship theory is, however, an extensive explanation of agency theory (Clarke 2014, p. 272). This theory assumes the role of control by the managers hence the managers are allowed to work without supervision due to the trust of the stakeholders on the skills of these managers in protecting the assets of the company (Rashid 2016, p.611). Stewardship of the managers increases trust of the employees, the community and the stakeholders. The managers therefore work hard towards the achievement of the company’s objectives (Rashid 2016, p.612). The managerial ownership that yields stewardship of the leaders in the firm is also evidence in Bangladesh as a solution to lack of alignment of interests between the agents and the principals. Stakeholder theory on the other hand is applied in the corporate governance of firms in many countries. The shareholders in this corporate have the right to vote in the leaders of their choice in the firm. The voting right of the shareholders allows the managers to work effectively and efficiently while managing the assets of the firm. For instance, in the OECD countries, the managers are believed to have an obligation of serving the community, the employees and the stake as well as fellow stakeholders with all honesty. The corporate governance, hence continues improving with relevance to the stakeholder theory which takes into account the contract rights between the parties which have come to an agreement. Unlike the agency theory that majorly focuses on the weaknesses of the corporation, the stakeholder perspective embraces the obligation of the managers to their social and corporate responsibilities. The political dynamics are a major influence to the stakeholder theory as the managers require understanding the social system as well as the corporate interdependencies that are present in the government that is ruling the country. According to the stakeholder theory, there is no need to have diversity of the board of directors because the leaders have been voted in by the shareholders in accordance with their level of competence. Question Three Family companies are different from a non- family company in terms of ownership and governance. Unlike the companies that are owned by the stakeholders, family companies are supposed to benefit the family members. According to the resource theory, it is inevitable for a corporate to depend with another corporate for resources. This theory encourages relationships between different organizations and its success is based on the directorship (L'Huillier 2014, p.309). The directorship leads to link between the external environment and the corporate. Family businesses require great cooperation among the family members. The family is always the backbone of the company unlike in non-family companies where the stakeholders, the employees, the shareholders, the executive and community have a role to play. The family ties relate to the productivity of the company, hence the codependent. There must be a designated source of resources for the family business. Since it is an entrepreneurial entity, the heads of the family are majorly the sources of resources such as capital and funds in case of expansions. Resources revolve around the family members in a family business and in most cases, the male gender is appointed for the leadership purposes more than the female gender. Stewardship theory is founded on the trust which must exist between the principal and the agent. Additionally, in some companies, the principals are not defined clearly; in such cases, trust in mainly between the major stakeholder and the manager of the firm. The objectives of the agents must always be in line with the goals of the principals (L'Huillier 2014, p.307). Stewardship encourages transfer of management powers from some principals to those who have competent skills to manage the assets of the corporation. Family entity requires best management skills to prevent misuse of funds by malicious family members. In such case, many family companies in America have male family members as the leaders in the firm as they are entrusted with the management affairs (Haya Al-Dajani 2014, p.219). Gender insensitivity is influenced by the social stratification where the males are interested in the economic and political affairs more than the females. In Australia, male domination in the board of directors has been an issue of concern. Studies show that most of Australian male children inherit the leadership of the family businesses. Another study has indicated that about 200 hundred corporate firms in Australia have inadequate female representation in the boardrooms. Some companies were reported to have completely no women representation in the board of directors. According to the report of 14th May 2017 about the number of women in the company boards, only 30% of women while 70% of the board meetings of organizations are dominated by male stakeholders (Wilkins 2017, p.3). However, these companies have faced a lot of opposition from the media due to gender misappropriation. Nevertheless, the votes against all-male board rooms have not been effective in Australia. The gender insensitivity starts from the entrepreneurial family companies where all the leadership responsibilities are entrusted on the male child due to their stewardship skills. The competence of women is hence overlooked. Question Four Superannuation funds have the right and responsibility to influence decisions of companies in which they own shares to ensure that the company works in a socially responsible manner. Superannuation influences the management of the company and leads to integration of a number of theories in the company including the stewardship theory where the employees are satisfied with the management of the firm. The pension is essential in agency theory as well as it keeps the managerial team on the right track, hence leads to protection of company’s assets. Superannuation fund is majorly meant to benefit the employees hence; it is not taxed until an employee goes on retirement or withdraws from the organization (Suzanne Young 2014, p.6). Pension funds are essential in decision making in a given corporate as through them, external stakeholders as well as the institutional investors are allowed to be part of the stakeholders in the firm. The superannuation leads to shaping of behavior leading to responsibility and accountability of activities by the managers. Stewardship is strengthened in such a case and trust is fostered between the parties. There is also increased activism with the superannuation funds in an organization. This leads to stakeholder empowerment whereby, the principals demand for pension funds from the agents. The theory of stewardship encompasses all the stakeholders of the firm including the public. Introduction of pension fund increases remuneration which in the long run leads to a unified firm where the goals of the principals and the agents are aligned (Suzanne Young 2014, p.11). Pension fund leads to good governance in the firm and protects the shareholders from baring the burden of losses because the leaders do not get a chance of embezzling funds hence incorporating the agency theory. The external and institutional investors also lead to interdependence in the organization. The organization hence seeks linkage with other organizations in order to acquire the resources that are needed in the firm. The importance of pension funds in influencing decision making in the organization is, therefore, evident. Social responsibility is one of the major goals of the firm and leads to social investments in the organization. The investment is, however, attributed by the leadership of the managers, involvement of the community and communication to all stakeholders about the issues of the pension fund. The responsible behavior that is adopted as a result of pension fund is necessary in changing the activities of the beneficial owners so as to attract longer focus from the agents. The governance structures in the United Kingdom corporate firms are popularly recognized to bring about social responsibility in decision making through corporate governance (Suzanne Young 2014, p.12). The institutional investors in the United Kingdom firms are proactive and aid in making necessary strategies and decisions, especially in times of emergencies and crisis. Unlike United Kingdom, Australian model of corporate governance is different in terms of pension funds. In Australia, the agents and the principals primarily focus on ethics; leadership and culture of trustworthiness hence embrace stewardship (Suzanne Young 2014, p. 11). However the mode of governance is linked to the influence of pension funds in making socially viable decisions. References Read More