Corporate Governance Mechanism - Assignment Example

Introduction In the first part of the assignment, it was recommended that the overall corporate governance structure therefore needs to be re-modeled in such a manner that an independent check and balance system is effectively created. Apart from this, it is also critical to note that the firm’s overall strategy as well as aims need to be revised and corrected in a manner that reflect the long term vision of the firm need to be inculcated into the very fabric of the firm which is presently missing. In order to achieve this, it is therefore important that the firm must re-evaluate its strategy as the current strategy does not seem to be reconciling with the operational strategy and existing practices of the firm. Apart from this, firm shall also improve upon its reporting of corporate governance and corporate social responsibility issues. This can be achieved by re-designing its mission and vision statements as well as by taking steps which can reflect its overall commitment to all stakeholders involved. Ethical issues faced by the organizations is one of the leading causes of not performing well as consumers are becoming more and more aware of their expectations from the businesses. The ethical orientation of the firm is often reflected through various disclosures that it makes and as such all the disclosures made by the firm reflects a very poor attitude of the firm. Empire Pub Company Plc’s mission statement as well as operational strategy is poorly written and does not reflect its overall stance on the various corporate governance as well as other ethical issues. Similarly, corporate governance and corporate social responsibility statements are relatively short and present information which does not reflect whether the firm is actually taking steps to implement such initiatives or not. Current Situation The current situation described indicates entirely new dimension of the firm and its ethical orientation. In first assignment, it was discussed that the firm’s corporate governance mechanism was not entirely satisfactory because of the issues involving corporate social responsibility as well as the poor accounting disclosures. However, the current situation outlines different parameters that need to be studied in more appropriate and broader context. A brief look at the information provided will indicate that the firm has increased its focus on training its employees so that consistently high quality customer services are offered to the customers. Similarly, it is also revealed that the role of board of directors has mostly remained the same with no or very little improvement made. Thus there is still a need for having more robust involvement of non-executive directors in the overall affairs of the firm. There are important areas that need to be discussed in this context including a discussion on the community initiatives undertaken by the firm. Since the firm has been awarded the award for the best company to offer training to its diversified workforce, it therefore becomes more critical that the firm must be able to show it’s ethical stance in broader term. A closer analysis of the existing information will indicate some critical information regarding the progress made by the firm in terms of its activities and compliance with the various ethical and social aspects of doing the business. However, it is still critical to note that the firm needs to make significant improvement in terms of the corporate governance. Compensation has been linked with the performance however, different HR practices still need a complete revamping as the same may not allow the employees to unleash their creativity fully. In order to be more innovative and creative, it is important that the firm must develop an environment which allows the employees to share their creative ideas to improve the services of the firm as well as to contribute towards improving the profitability of the firm. Organizational Environment The available information indicates that most of the instructions are given by the higher authorities in the firm and as such managers have very little powers to exercise. This was the case in earlier situation also and it seems that the existing practices have been continued wherein most of the information regarding procedural or operational activities is given by the higher authorities. This organization structure therefore may not encourage the employees to become more creative and take responsibility. In order to inculcate the environment of creativity and delegation, it is therefore critical that the firm must tailor its organizational environment in such a manner that the communication flows between the functional level managers and tactical level managers must be more fluid and two way communication method. Though it has been mentioned that the firm welcomes suggestions from the employees to share their ideas however, there is still no formal or informal mechanism within the firm which can allow such thing to happen voluntarily. Compensation First information reflects on the compensation structure that is offered to a newly hired manager of the firm. This compensation structure indicates that the firm has introduced a performance based compensation structure which is progressive in nature and changes with the level of performance achieved. Performance based compensation structure is considered as most equitable in nature since it attempt to reward those who are high performers and achieve the desired targets. In our earlier assessment of the situation wherein executive compensation was studied and it was revealed that since Directors have the high ratio of personal sharing holding which can increase the agency cost for the firm however, now by linking the performance with the pay, firm has been able to provide the employees the right amount of compensation to keep them motivated. Further, it is also important to note that the firm has been providing training to improve the skill level of its employees therefore it seems that the firm is more than willing to retain its employees and is forging the long term relationship with the employees in order to achieve the desired profitability and performance. In information provided previously, it was in the case study that the company is considering linking the compensation with the performance of the employees. The present information therefore critically indicates the firm has been able to link its compensation structure with that of performance. Last assignment also reflected upon the shareholding patterns of the directors however, the current information does not reflect upon the shareholding of the directors. However, the higher ratio of shareholding of the firm’s Director may create adverse gap between the compensation of the employees and the executives. This discrepancy between the compensation structures may still remain one of the leading differences between the existing and previous situation. Company’s policy about being the equal opportunity employer reflects its compliance with the various laws which necessitate for the firms not to discriminate against anyone on the basis of their race, religion etc at the time of hiring new employees. Organizations therefore have to respond to such legislative requirements to promote the equal employment opportunities for everyone. (Strachan, Burgess & Henderson, 2007). It is however, critical to note whether the firm actually follows such policies in practice or not is another issue which needs to be considered in order to actually ascertain whether the overall human resource management policies of the firm support its overall strategy or not. Promotional Activities Promotional activities can be one of the aspects of ethical business practices too because it is indicated that the firm is encouraging to use different methods such as allowing free entry to women customers etc to attract more customers. Such behavior of the firm may still reflect upon its overall attitude towards the corporate social responsibility. Earlier, firm was engaged into practices which clearly violated the ethical behavior of the firm such as employing unethical selling tactics. In this case firm is also encouraging to use methods which may be termed as unethical in nature owing to the fact that the firm is encouraging to target its competitors in ethical manner to gain the market share. This therefore indicate that the overall competitive strategies of the firm are not driven by the strength of its core activities but rather they are being driven through the means which are clearly unethical in nature and demand from its managers to use methods which may undermine the achievements of the competitors of the firm. There is clearly a lack of ethical and responsible behavior on the part of the firm and situation does not seem to have changed much. Further from the view point of the training provided to its employees, allowing them to target their competitors in unethical manner as well as training them to use methods such as allowing women a free entry to attract the male customers therefore indicates that the firm’s overall ethical stance of the firm. Role of Board of Directors In earlier assignment, it was discussed that the executive directors of the firm have significant shareholding in the firm and hence there is greater probability that the agency cost may be higher. The information only suggests that the CEO of the firm is a well known person and there is a focus on achieving steady growth in order to provide value to the shareholders. However, as discussed in previous assignment that the executive directors have relatively high percentage of shareholding therefore there may still be a strong conflict of interest between the objectives of the firm and value maximization. Executive directors may take actions which may be in their own benefit rather than in the benefit of the general shareholders. It will be more critical if the role of non-executive directors is increased in order to put an effective check over the executive directors of the firm. This is because of the fact that the firm’s existing directors are still major shareholders thus posing a significant agency issue for other shareholders.(Glenda,2007). Community Development Earlier it was discussed that the firm’s overall stance on the community development is vague because on one hand it was encouraging the use of tactics that could attract the customers regardless of their social status whereas on the other hand they it was also emphasized that the firm must discourage the under-age drinking as well as manage the cordial relationships with the customers. Available information also indicate that the firm’s employees have been specifically informed to undertake the different activities that increase the role of communities and making pubs as the point of social gatherings and public meetings. This is associated with attracting new customers as well as improving the corporate image of the firm in communities where it offers its services. Firm has even allowed its managers to make donations and other contributions to the public events that may take place within the communities where the pubs are operating. However, it fail to disclose its regulatory compliance i.e. firms are required to disclose the donations made during the year and there are certain thresholds that need to be maintained by the firm when offering donations. The absence of such information therefore may indicate the managers may be making donations in access of their allowed limits in order to attract more customers. This is also obvious from the fact that the pay structure is depended upon the performance therefore in order to attract more customers the managers may be offering other incentives in kind. Conclusion The new information indicates that the firm has made significant improvements in certain areas however, its corporate governance and corporate social responsibility issues are still prevailing in the firm. It is really therefore critical that the role of non-executive directors shall be improved besides opening the flow of communication between the managers and higher managers. As discussed above that the most of the communication takes place in top down manner wherein top management of the firm only issue instructions to the field staff however, in order to become more disciplined and efficient, communication shall flow in both ways.(Steen,2004). Finally there is still a lack of proper corporate governance mechanism within the firm and there is a need to build a more ethical and responsive business with focus on balancing the needs of all the stakeholders including employees.(Galbreath,2009). References 1. Galbreath, Jeremy . (2009). Building corporate social responsibility into strategy. European Business Review, 21(2), 109 - 127. 2. Strachan, Glenda, Burgess, John, & Henderson, Lindy. (2007). Equal employment opportunity legislation and policies: the Australian experience. Equal Opportunities International, 26(6), 525 - 540. 3. Thomsen, Steen. (2004). Corporate values and corporate governance. Corporate Governance, 4(4), 29-46. Read More