Adherence to Corporate Governance as the Competitive Strategy of Most Corporations - Term Paper Example

Running head: STRATEGIC STAKEHOLDERS IN STRATEGIC MANAGEMENT ___________ ________________________ ________________Stakeholders in Strategic Management Introduction '''''' Stake holders of any organization refer to those constituencies of people and organizations that have an overt or covert interest in the continuation and otherwise of any organization. Positively viewed such constituencies normally have an abiding interest in the continuation of such organizations. These constituencies may comprise of investors/owners in the stock of the organization, customers- who provide business to such organizations, suppliers-who sell to such organizations, employees-who work for such organizations, governments-who permit and allow the activities of such organizations and others like non-governmental organizations-which might be supported or linked to such organizations. In fact any commercial organization can blueprint a very wide constituency of its stakeholders. It's not a misnomer to call such interests as stakeholders- a connotation which is far superior to that of a lender. In fact the term stakeholders itself indicates that the organization concerned functions with such stakes in mind. Therefore no organization can afford to function ignoring its stakeholders. In fact it consciously builds within its policies, obectives and reporting systems accountability to such stakeholders and often takes up structured reporting to communicate the extent to which such interests are protected. On the obverse side of the coin, strategic management is scientific practice of ensuring that any organization not only functions remaining on course to achievement of its vision and long term objectives but also that such objectives and visions can be broadened, widened and deepened according to changing environmental realities. While stakeholders are also scattered in its environment generally most organizations view the essence of strategy formulation as coping with competition (Porter, 1979) and they formulate a strategic structure accordingly (Chandler, 1962). This is rather a narrow view of strategy making which only reckons with competition. In fact both management strategies and business strategies should coalesce to form one unique strategy that addresses and monitors the interests of all stakeholders as the organization competes and grows. Strategic Construct Any strategic action plan has to be supported on the constructional skeleton of strategies, tactics and structure. Several strategic constructs have been put forward; however very few are exhaustive enough to ensure a complete environmental scan so as to consciously build stakeholders' concerns. Stephen Haines' Centre for Strategic Management has built a new strategic planning system based on systems thinking and calls it the 21st Century Yearly Strategic Management System and Cycle. This system moves beyond planning into implementation. It includes a Plan-to Plan phase and a Plan-to-Implement phase. The steps include team building and leadership skill building as part of the planning. It also includes a parallel process whereby all key stakeholders are involved based on the premise that 'People support what they help create'. This process starts with a Futuristic Environmental Scan and defines the ideal vision in terms of mission, values and end outcomes that the organization wishes to set for itself. Only after the statement of such Ideal Future a Current State assessment based on SWOT(Strengths, Weaknesses, Opportunities and Threats) is taken up to identify the gaps and make strategies to close the gap(s).As a result of their clients adopting this model it was found that clients began developing competitive edge and the organization was much clearer on what their competitive "positioning" in market place was and found themselves moving positively in that direction, to the delight of their customers(Haines,2004).Thus this process leans directly into the process of competitive strategy making as it includes environmental scan both-present and future and enables movement in the desired direction. However this system's parallel process is a very critical aspect and strategic management literature has a common view that good strategies grow out of ideas that have been floating around the firm, and initiatives that have been taken by all sorts of people in the firm. This resource must be drawn upon as frequently as required even in competitive strategy making. Corporate Governance and Strategy Corporate Governance is all about safeguarding the interests of stakeholders in any organization. Corporate Governance is described as conscious adherence, by an organization, to a set of guidelines and code of conduct in carrying out its organizational transactions with the primary object of making adequate disclosures to its various stakeholders that not only their stakes are safe with the organization but also that such stakes are being kept protected in a manner which is ethical and above the board.'Most jurisdictions have devised and implemented corporate governance principles in the activities of all organizations having a corporate form. Such principles usually address the top managements of the corporate entities comprised of their Board of Directors and their various committees. The corporate governance also covers audit functions and composition of the Board into executive and non executive directors. Such corporate governance guidelines usually stipulate various dos and don'ts for such top management and quite a few of such prescriptions are dominated by information pertaining to activities of top management both in the course of normal business and in the form of policy making. These essentially become the various disclosures required to be made by the corporate entity and boil down to transparency considerations. While the audience of such disclosures are the normal stakeholders in the corporate entity comprised of its shareholders, debt providers, customers suppliers, self regulatory organizations etc;it is not difficult to imagine that such disclosures can be accessed by competitors as well who might use this as a strategic weapon while keeping their own affairs in wraps. Underlying Ethics and Weaving Corporate Governance in Organizational Structure "Today's modern organization in many instances is the institutional centrepiece of a complex society made up of many people with a multitude of interests, expectations, and demands as to what organizations ought to provide. The social contract between organizations and various parties has continually changed. Organizations that have been able to survive and thrive have found ways to respond to ever-changing expectations" (Ronald, 2003). Any corporate entity's approach to corporate responsibility should be an exact recognition of the above fact. Particularly today's globalized and multinational corporations which are multiple activities corporates should address corporate responsibility concerns by delineating all of its possible immediate stakeholders in its customers, employees, communities, share holders, suppliers and the environment within its holistic corporate responsibility (CR) plan. Further such corporates should also recognize another set of not so actively recognized stakeholders in government, politicians and regulators in the UK and home jurisdictions e.g. non-government organizations (NGOs) etc. Ethics is concerned about value judgements. Business ethics deals with such judgements encourse doing business. Sainsbury's business has set for itself a code of business ethics focussed around its active stake holders, as above. It is important to realize that the combined code for corporate governance in UK contributes actively to business ethics in a compliable form. Ronald further suggests that if an organization institutionalises ethics, it is unlikely to find itself trying to recover from a fall or having to undertake an ethical turnaround (Ronald, 2003). Institutionalising ethics means structuring business ethics formally not only in practised day to day business but also into company's policy formation at the board and top management levels primarily through formal coding. In any corporate, targeting adherence to corporate governance guidelines, each operative level of the corporate should be ideally aware of what they must do and what they should not. In order to monitor its self set and prescribed business ethics code such corporate must have at the very top a CR Operating Board wherein apart from the Chief Executive, directors should be roped in to address concerns of CR in respect of each of the identified major stakeholders' group. Thereafter the a Steering Group must support the operating board in developing CR policy and in getting CR embedded in the business processes and practices. CR here is towards stake holders and is seen primarily fulfilled when business ethics code is met.' Final thoughts The instances of Enron and WorldCom bring home the fact that non adherence to adequate disclosures, now required to essentially make under present day's modern corporate governance blueprints, resulted in corporate disasters. In these cases the seal in perpetuity of these organizations was extinguished due to non adherence to the corporate governance tenets. In fact this non adherence clearly indicated, on post facto basis, that such corporates were not only hiding weak financials and poor decisions from their stakeholders but in doing so they were also unable to formulate a strategy to undo such weak financials and mistakes. While regulator's supervision often brings about deviation from corporate governance code of conducts on the part of several corporates, around global jurisdictions, such deviations mostly are operational and concerning knitty gritties rather than large scale deviations as in Enron or WorldCom. Thus adherence to corporate governance enters the competitive strategy of most corporates around the world, today, as a common consideration and its adherence is enforced through critical events like listing at stock exchanges and regulations pertaining to appointment of directors. In fact non adherence is not only penalized by regulator but also that adherence receives a stakeholders' appreciation. So adherence has now turned an important corporate strategy. A business-level strategy is a plan of action to use the firm's resources and distinctive competencies to gain competitive advantage over competitors. It varies from a corporate-level strategy due to its sole focus on business transactions .However when we make this distinction between strategies generically we are ignoring the vital issue of a conscious corporate strategy concerning adherence to corporate governance feeding positively the business level strategies. In fact in strategic management literature there is one preferred approach to strategy making .It is called the transformational approach and it comprises in the creation and inspirational articulation of a compelling vision and a clear set of organizational goals or missions, which give meaning to all sets of activities throughout an organization. A substantial portion of a transformational strategy maker's emphasis may be on transcending self-interests in an ideological framework (Chaffee, 1985; Mintzberg & Waters, 1985) to get employees to ingrain and pursue organizational goals (Bass, 1990). The use of symbols and metaphors also may be central to this process (Conger & Kanungo, 1988). The chief activity of top management in the transformational process is to motivate and inspire organizational members (Nonaka, 1988) toward organizational goal attainment. Their main attention is on bringing workers together for the common purposes at hand (Grandori, 1984; Mintzberg, 1987) and developing and maintaining continued efforts toward the shared values (Bourgeois & Brodwin, 1984) and emotionally appealing corporate vision. This vision and culture would be the one which could be reported as part of corporate governance by any organization. Thus link between strategy making and corporate governance is fairly well established. This transformational approach is quite popular. It, in fact, is found under differing names in works of various authors. For instance: the transformational approach rings similarity in Mintzberg and Waters' (1985) ideological approach to strategy making, Bourgeois and Brodwin's (1984) cultural approach, Grandori's (1984) cybernetic approach, Chaffee's (1985) interpretive approach, Mintzberg's (1987) perspective approach, Nonaka's (1988) compressive approach, and Hart's (1992) symbolic approach to strategy making. Thus strategic management sets aside substantially by an organization's stakeholders within its theoretical constructs and its appropriate practice must reflect in smart corporate governance. References Porter, M. (1979), ''How competitive forces shape strategy'', Harvard Business Review, March/April. Chandler, A.D. Jr (1962), Strategy and Structure, The MIT Press, Cambridge, MA and London. Haines Stephen.G, 2004, Reinventing Strategic Planning: A Researched Based 21st Century Success Framework, Retrieved March 20, 2006 from http://www.csmintl.com. Ronald R. Sims, 2003, 'Ethics and Corporate Social Responsibility: Why Giants Fall' Publisher: Praeger. Place of Publication: Westport, CT. Publication Year: 2003 Chaffee, E. (1985). Three Modes of Strategy. Academy of Management Review, 10, 89-98. Mintzberg, H., & Waters, J. (1985). Of Strategies, Deliberate and Emergent. Strategic Management Journal, 6, 257-272. Bass, B.M. (1985). Leadership and performance beyond expectations. New York: Free Press. Conger, J. A., & Kanungo, R. N. (1987). Toward a Behavioral Theory of Charismatic Leadership in Organizational Settings. Academy of Management Review, 12, 637-674. Nonaka, I. (1988). Toward Middle-Up-Down Management: Accelerating Information Creation. Sloan Management Review, 29, 9-18. Grandori, A. (1984). A Prescriptive Contingency View of Organizational Decision Making. Administrative Science Quarterly, 29, 192-209. Mintzberg, H. (1987). The Strategy Concept II: Another Look at Why Organizations Need Strategies. California Management Review, 30, 25-32. Bourgeois, L.J., & Brodwin, D. (1984). Strategic Implementation: Five Approaches to an Elusive Phenomenon. Strategic Management Journal, 5, 241-264. Hart, S. L. (1992). An Integrative Framework for Strategy-Making Processes. Academy of Management Review, 17, 327-351. Read More