Corporate Governance in Indian Oil, Honda Motor Company, Procter & Gamble - Case Study Example

Student’s Name: Institutional Affiliation: Instructor’s Name: Date: This paper aims at presenting a comparative analysis of three companies from different countries. These three companies are Procter and Gamble commonly known as P&G from United States, Honda Company limited from Japan and Indian Oil Company from India. The main focus is to understand their corporate governance issues used by these three companies to run their businesses and the main challenges faced by each company. The same governance issues are discussed and lastly the conclusion is drawn from what each company can learn from each other. Honda motor Company limited is one of the oldest companies in India established in 1948; it is the third japans automaker after Nissan and Toyota which are the largest motor vehicles companies globally. Honda is well known for its large Production of internal combustion engines, which include power products and motorcycles (Berger, 2011). It is recognized globally for its good leadership and expertise in creating and manufacturing varied products, ranging from the well known sports cars which have the newest Honda technology engines as well as their small general purpose engines. It is well connected globally with 434 subsidiaries, with 118 production facilities in 33 countries (Fernando, 2011). They have several car models including; Legend, Civic, Accord and luxury Acura. Their major customer is North America and Japan with each accounting for 40% of sales. Profitability is considered most essential and reforms in Human Resource Management have been made, however, Hondas corporate governance per se remains traditional (Gopalsamy, 2009). The style of management is characterized by seniority orientation in the workplace, but other parts of the company focus on ability and job performance. The decision-making style has shifted from Wai Gaya culture which was Japanese collectivism to top-down individual orientation. However, meetings remain as numerous as before (Berger, 2011). Honda is one of the japans companies which employ Board of Communal Auditors scheme hence, the company law does not have autonomy requirement with admiration to its directors (Fernando, 2011). The main duty of the corporate auditors is to oversee the management as well as controlling the general audit firm, however, these auditors does their duties independently without control by the company’s management (Berger, 2011). They are given this independence by the japans company law. Honda employs this system of Board of corporate auditors hence; they are required by the Japans company law to at least have half of their corporate auditors to be outside corporate auditors (Gopalsamy, 2009). An exterior Corporate Examiner is the corporate auditor who in his tenure in office has not served as an accounting councilor, a director, manager, executive officer, or any other worker of the corporation subsidiaries or the mother company. Presently, Honda has three external Corporate Auditors which comprise 60% of the Honda five Corporate Auditors. Honda is one of the big companies in Japan which subscribes to the board of corporate Auditors stated above; hence they have a mandate to work separately from the other Board of Directors being supported by law (Berger, 2011). The performance of Directors including the Auditing team are monitored by the independent directors within the company hence, they have a similar role like that played by Board of Corporate Auditors. Their other greater role is to review and express opinion on the process and method of auditing by the companies accounting audit firm as well as providing up to date audit information of the company to the shareholders. The law requires Honda to have not less than three Corporate Auditors. Presently, Honda has 5 Corporate Auditors. All the Corporate Auditors are given a term of five years. This is different from the term given to each director of the Honda company in that they are given a term of one year (Berger, 2011). All the five Hondas directors voted at a conference of all the shareholders. As their rule states clearly, its Board of Directors are not given the mandate to fill vacancies thereon. The Corporate Auditors are also voted by the shareholders by holding meetings (Fernando, 2011). Any proposal by the Hondas Board of Directors on election of corporate auditor should be agreed by a declaration of its Board of Corporate Auditors. This Board is given the mandate to ask that Hondas directors submit a written proposal when voting new corporate auditors to a meeting of all the shareholders (Gopalsamy, 2009). The Corporate Auditors have a mandate to give their opinion to the shareholders on the quality of Corporate Auditors of the company. Each specific division works independently to mitigate and address its meticulous set of risks. Hondas crisis response rules are developed to tackle the company’s major crises, like the major natural disasters which might not be dealt with by particular division (Berger, 2011). Honda has a general risk management officer, who is director in all risk management emergencies. It also has the company-wide Response Headquarters which has a role of addressing crisis situations (Harvard Business School, 2000). Honda has a compliance officer whose his role is to monitor all the compliance initiatives as a director. The key elements of compliance for Honda are the business ethics improvement proposal and the business ethics committee line. Hondas business ethics committee is headed by the compliance office and is made up of corporate officers and directors. They meet several times annually to address issues related to corporate ethics compliance (Berger, 2011). Honda highly values open communications. It has developed ethics improvements the business ethics improvements proposal office to handle all the issues related to corporate ethics. The system is created in such a way that those who provide the information are protected from harm. The business ethics committee has a mandate of monitoring all the operations related to improvement proposal line and give information to the Board of Corporate Auditors (Berger, 2011). Being one of the largest companies in the world, Honda is faced with some environmental conservation challenges (Fernando, 2011). The environmental challenges threaten the smooth ongoing activities of the industry in that they are unable to control the major crises like the global warming. Due to this, the risk management officer concerned with risk management emergencies has not been able to mitigate meticulous set of risks within the company. Hondas compliance system advocates for open communication within their company. This has posed a challenge to the company in that the shareholders have not been able to reach in agreement about some important decisions of the company (Berger, 2011). This has hence slowed down the decision making process making their competitors like Toyota to take advantage and explore more opportunities in the market. The shareholders who provide some information about the company are sometimes kicked out by the other shareholders yet the law states their clear protection from any kind of harm (Gopalsamy, 2009). The Board of Corporate Auditors system used by Honda is sometimes ineffective in that conflicts at times arises when a corporations shareholders do not actively participate in election of new Auditors (Berger, 2011). The board of directors elected by the shareholders is also at times having different goals hence failing to meet Hondas philosophy. There are some reported cases by the Hondas share holders claiming that the board of directors works at their best interest and not in the best interests of the shareholders (Fernando, 2011). Hondas board of directors has sometimes make decisions that make them keep their job secure within the company making Honda to lose some customers to their competitors like Nissan and Toyota. The other challenge faced by Honda in its management system is that the corporations have very high administrative costs. For instance, the maximum amounts of compensation for Hondas directors as well as corporate Auditors are proposed to and voted on, by meeting of shareholders (Gopalsamy, 2009). This has sometimes posed a challenge especially when the shareholders give the directors more money resulting in high cost. Indian oil company is one of the largest companies globally that refines and supply petroleum throughout the world. It is among the top performing companies holding 189th position on the common fortune 500 list of performing companies globally. In the year 2009, Indian Oil Company was ranked position 19th largest diesel and Petroleum Company globally (Gopalsamy, 2009). This company accounts for 56% petroleum products market share being India’s national oil company among public companies, it also owns 42% of the nationals cleansing ability and 69% downstream cylinder throughput ability (Hults &Thurber, 2011).Indian Oil Company is made up of more than 10,000 local petrol stations with 23,000 retail outlets in India alone. The diesel and petrol stations are backed by 165 bulk storage facilities, 85 LPG bottling plants and 95 aviation fuel stations. Ii has a large subsidiary called IBP Co. Ltd which has other 3,200 retail outlets. (Fernando, 2011). Indian Oil Company has the largest share of the 18 refineries in India operating 10 of the total with the combined capacity of 1 million barrels daily (Dewan, 2006). The company operates and owns India’s largest network supply of crude oil as well as product pipelines of 7,730, holding up to 58.62 million metric tons yearly. This company is one of the biggest companies in that it has a capability of selling up to 50 million tones of petroleum products annually, which include exports of up to 1.96 million tons (Hults &Thurber, 2011). Its own pipeline transports up to 43 million tons of crude oil per year, and its seven refineries can achieve up to 37 million tones. Unlike the Hondas board of governance, the Indian oil Board of Directors is made up of both internal and external executives. The external none-executive directors should have good records of performance and well known experience as demanded by law. They must have a relevant knowledge in any particular academic field like energy, law, marketing, administration, etc. The Board of directors of the Indian oil company is made up of 16 directors. Eight of them are executive directors while the other eight are non-executive. The chairperson is one of the executive directors (Dewan, 2006). For the non-executive directors, 6 of them are independent while the remaining two are nominated by the government of India through the minister of energy and petroleum. Unlike Honda Company limited, the Indian oil company does not comply with the rule of 50% independent directors because it is a government company (Hults &Thurber, 2011). The directors are therefore chosen by the government of India with the approval by the head of state. The law under clause 49 demands specific number of the Board members to be independent. The overall function of the company is overseen by board of directors. The board of Indian oil has laid down some specific strategies to be used in achieving the mission and vision. (Dewan, 2006). The main function of the board is to interpret the policies of the company as well as overseeing the implementation of the strategies. Indian oil board of governance constitutes a variety of committees to ensure the smooth and effective running during decision making process. All board meetings are planned earlier and calendar fixed in advance to ensure all the members attend the meetings (Fernando, 2011). The panel of directors holds meetings once in a month. The program papers are well distributed to the board members in advance before the meetings. The chairman has the powers to chair certain exigent issues tabled during the board meetings (Dewan, 2006). All the program items are informative and comprehensive in nature to ensure suitable decision making in board meetings. Several agendas are placed under the Board which includes: dividend declaration, quarterly report on treasury reports, annual revenue and capital budgets, proposals for mergers and acquisitions, yearly financial outcome of the company, the minutes of audit committee, standing of a variety of projects and human resource related issues among other things (Hults &Thurber, 2011). The ethical code of conduct for all the directors and higher-ranking management team of Indian Oil Company has been stated by the Board, whereby all the concerned individuals have been supplied with the copies and the same stored in the company’s website. All the higher-ranking personnel including the managers have to affirm fulfillment to the ethical code of conduct for the specific financial years (Dewan, 2006). Unlike Hondas audit team, the Indian oil Audit committees are demanded by law in clause 49 section 239A listing agreement of 1956, to have all the requirements listed in the agreement. (Hults &Thurber, 2011). All the members of the Audit committee just like those of Honda Company should be experts in financial and management expertise. On the other hand, Indian Oil Corporation has independent director unlike Honda which has three independent directors (Fernando, 2011). The audit committee have several functions to undergo which include overseeing the company’s financial reporting process just like that done by Honda Auditors, to ensure disclosure of financial information as well as all the monetary statements are accurate and credible before they give to the shareholders during the general meetings (Dewan, 2006). They also carry out discussions with the interior auditors on yearly Audit programs, important Audit results and follow up on complex issues just like the duties carried out by Honda Auditors. They also have a major role of reviewing the company’s monetary and risk administration policies. The audit team meetings of India’s oil company are attended by the manager of finance and the chief of Internal Audit as invitees (Hults &Thurber, 2011). This is different from those meetings held by Honda Audit team in that the manager and the chief of internal audit are not just invitees but are the members elected by the shareholders. While Honda have annual general meetings where they elect new auditors, those of the Indian oil holds meetings monthly and the council of the legal auditors are also invited to the board meetings whereby financial statements and discussions on nature and scope audit takes place (Dewan, 2006). Unlike Honda which has a compliance officer, India oil company limited has no compliance director and has not joint any significant relate party transactions with the directors or their subsidiaries. They don’t disclose in formations to the public like Honda does except during financial statements at the end of the year (Hults &Thurber, 2011). There are no rampant cases of non-cooperation by the corporation and hence no penalties have been enforced on the org by organization by stock exchange or any other legal right (Dewan, 2006). Indian Oil Corporation has a whistle blower strategy whereby the workers are given an opportunity to report any indecent action ensuing in violations of the stated laws, regulations policy or the general code of behavior by any of the workers (Hults &Thurber, 2011). This is different from the Hondas policies in that they do not involve the employees in the decision making process. However, the confidentiality of those who disclose critical information are maintained to the later and they shall not be subjected to any discrimination by both Honda and Indian oil (Dewan, 2006). The number of independent directors in Indian Oil Company is less in that it is a government company as compared to the Honda which has many independent directors. For total compliance, Indian Oil Company has adopted some of non-mandatory requirements under the strategy of clause 49 of the inventory accord which include: remuneration committee, training of Board members, whistle blower policy and unqualified financial statements (Hults &Thurber, 2011). All the newly recruited company directors are introduced to the Indian oil company aspects like mission, vision and strategic directions through a general presentation. This is different from the Hondas criterion in that the management theme is selected from the seniors within the company. Policy meeting of the Board is held usually once annually to premeditate in aspect the strategic issues and potential plans for the prospect (Dewan, 2006). Directors are chosen for guidance and seminars conducted by SCOPE and administration authorities. As one of the largest oil supplier in the region, Indian Oil Company limited is currently facing several challenges (Dewan, 2006). The main challenge faced by this company currently is the maintenance of its leadership position and reaching its mission and vision as well as its philosophy of being integrated, diversified company with the strongest environment principles and general role in oil safety as well as public supply (Hults &Thurber, 2011). The right way to maximize their value chain through supply has been recently critical since the company wants to maintain its quality at the same time maximize its profits. This has therefore been one of the main business problems that Indian Oil Company has tried to address through implementation of separate refineries (Fernando, 2011). Indian Oil Company being a multi-site refining company is also currently facing varied deliver chain troubles to resolve including the type of crude oil to buy, how to buy, the method of processing to minimize the cost and what to make (Dewan, 2006). Indian Oil Company has a tradition of solving different challenges using specific departments thus making the process of decision making very hard unlike Honda which they make decisions jointly (Hults &Thurber, 2011). It is due to this that decision making process is made based on incomplete data within the entire corporation. Procter and Gamble was incorporated in Ohio in 1905, it was built from a business developed by William Procter and James gamble in 1837. This company aims at providing branded consumer packed goods of high value and quality to improve the lives of the global consumers (Groot, 2009). Procter & Gamble is one of the biggest companies in the world and hence it relies on the continued development and success of existing brands and products and development of new products. The market in which this company offers their products is highly competitive (De Kluyver, 2009). They sell their products in more than 180 countries across the globe mainly through merchandisers, membership club stores, grocery stores, salons, drug stores, department stores, and even e-commerce. Procter and Gamble is different from both Honda and Indian Oil Company in that it deals with varied types of goods as stated above unlike Indian oil which deals with petroleum and Honda which deals with Moto-vehicles (Groot, 2009). Procter & Gamble are similar with Indian Oil Company in the way they acquire their raw materials, both of them buy the raw materials from others. For instance, Indian oil buys their crude oil from other countries especially from east (Groot, 2009). Procter and Gamble also does the same by buying from single sourced suppliers. However, both Procter & Gamble and Indian Oil Company produce certain raw materials. However, their demands are totally opposite; whereas Procter & Gamble has a higher demand of fuel, gas, and derivative products, Indian oil has a high demand of chemicals to purify their oil (De Kluyver, 2009). Honda also has a high demand of both fuel and chemicals to run their machines to vanish their products. Just like Honda and Indian Oil Company, the market in which Procter and Gamble sell their products are highly competitive. All the three companies are among the top companies in their sectors globally. They all give priority to their product quality, product value, performance, and packaging for them to meet the demands of the competitive market (Groot, 2009). For Procter & Gamble, the Board of director’s representatives’ of the shareholders in the company and hence they act on their behalf. The Board is accountable for establishing and helping the company among other things to meet business and directorial aims through the process of counsel, oversight and reviews (Groot, 2009). The Board acts as a whole or through its committees to carry out the objectives of the company which include: approving and monitoring serious business and monetary strategies of Procter & Gamble, they review key risks facing the company and options for alleviation just like those of Honda and Indian oil Board does (De Kluyver, 2009). Procter& Gamble Board of directors also have a role of monitoring the effectiveness of the company’s internal control, they approve and monitor major corporate actions, they oversee process design to make sure that the company’s employees comply with the stated laws as well as overseeing the reimbursement of the company’s chief officers nominated by the Board (Morck, 2007). Procter & Gamble has its regulations and hence this regulation determines all the activities of the company. The Board size comprises between 10 and fifteen members. This number is almost the same to that of Indian Oil Company Board of directors in that it has 16 members (Groot, 2009). For Procter & Gamble, if the chairperson of the Board is independent, the Board will be made of at least a mainstream of sovereign members. If the chairperson of the Board is not independent, the Board will be comprised of at least two third independent members (De Kluyver, 2009). This is different from Indian Oil Company in that half of the board members in Indian oil must be independent and some are nominated by the government being a government company (Groot, 2009). The separate guidelines should be adequate to meet up the principles of the New York stock exchange in Procter and Gamble. Any member of an Audit team employed by Procter & Gamble should be financially literate with some specific attributes such as being an understanding general accounting principles and financial statements. He/ she should also understand the audit committee functions (Groot, 2009). The above criteria is met through various ways like financial training provided as part of new committee member on-boarding; accounting or other financial education; should be a past or current member on one or more audit committees; should also have experience reviewing, auditing, preparing or analyzing financial statements. Unlike Honda and Indian oil, Procter & Gamble uses regulations listed in the New York stock exchange (Morck, 2007). Indian oil uses the law stated in clause 49 of the Indian constitution since it is a government company. On the other hand, the Hondas Audit team does their activities independently without control by the management of the company. For an individual to qualify in Procter & Gamble as an auditor, he/she must have a competitive knowledge and technical knowhow in analysis, auditing and proper understanding of the economic statement of the company. This can only be achieved through practice and study of complex accounting matters that can easily be raised by the company’s financial statement. (Groot, 2009). For an individual to qualify as an Auditor in all these three companies, he/she should have an understanding of audit committee functions. Experience is also highly valued during recruitment of auditors in all the three firms. P&G has a compliance manager who is accountable for developing and implementing the company’s global tools, systems and standard practices and system to ensure compliance with customs regulations (Groot, 2009). Unlike the compliance manager of Indian Oil Company, who works independently, he works with P&Gs global brand protection team, which is highly responsible for protection of the company’s brands, retailers and protection of customers. All the information given by the P&G employees is kept confidential just like those of Honda and Indian oil companies (De Kluyver, 2009). The customers are well valued in all the three companies due to high competition in the market. They are all concerned with maintaining their originality due to threat of counterfeit goods. The main challenge faced by P&G currently is the market competition from other growing companies. This is because it has lacked behind in the growing digitalization process whereas its competitors have adopted the newest methods of technology like the social media for example face book and twitter hence making P&G to lose its edge (Groot, 2009). The environmental challenges are also worsening like never before (Morck, 2007). Just like Honda and Indian Oil Company, P&G has been forced to use billions of money trying to maintain the environmental requirements. Being in a group of the biggest companies globally, all these three companies have collaborated through the consumer goods forum to meet the requirements of the environment (Groot, 2009). All the three companies face a lot of challenges especially due to stiff competition from other firms. However, the corporate governance structures laid down by these companies have been able to handle these challenges. Auditing for instance is one of the integral parts of multinational corporate governance (Groot, 2009). The Auditing teams of Honda and Indian Oil Company as well as those of P&G have improved their precision, reliability, and quality of information made available to market. It is through such Auditing activities of these companies that they have been able to maintain the confidence of their customers globally (De Kluyver, 2009). They have also been able to overcome some challenges through the amendment of the economic cooperation and development whereby the auditors are accountable to shareholders, and Board of directors should give clear explanation of financial reporting function. These companies have also introduced some specific measures to improve corporate governance relate directly to auditing, a good example is whereby Honda has established a new oversight board for the accountancy profession, tightly defining independence of auditing committee members, demanding external auditors to report directly to the auditors to report directly to the audit committee. Indian oil has also prohibited certain non-audit services by external auditors. All the three companies should learn some issues from each other. Indian oil for instance should elect their auditors from within their employees just like Procter and Gamble does to ensure that their employees benefit. Both P&G and Indian oil should adopt some ideas from Honda especially their auditing committee whereby external auditors comprises up to 60% (Harvard Business School, 2000). There are some several issues which can be learnt from different corporate governance issues from these three firms. What can be learnt for instance from Board of governance is that election of such individuals should be free and fare to ensure that the best individuals are given the posts depending with their level of experience and merit. Board of directors in all the three companies has a critical role of giving direction the company through their management. The smooth running of the companies depends with the Board members who run the companies. It can also be learnt that shareholders have the mandate of electing the Board members to represent them. It can also be learnt from the three companies that the Audit committee should have enough experience to ensure that the company runs as required without any complications. They should well understand accounting and financial statements within the firm. A company should have both internal and external Auditors in order to ensure efficient overview of the company’s financial activities. Compliance system within a company is also very important. It can be learnt from these three companies that a good compliance system of a company will ensure that any information given by employees should be kept confidential. It can also be learnt that open communication within the company can boost the company’s activities. In conclusion, all the three companies are among the leading companies globally in terms of their performance and size. All of them also have a well developed corporate governance systems which have a role of running the companies in the direction stated in the vision and mission statement. Experience is highly valued by the shareholders during nomination and election of both Boar and Audit committee. The main challenge affecting these three companies is the external competition from other companies operating in the same market. For these companies to overcome these challenges, they should lay down long term strategies to meet their targets. References BERGER, A. (2011). Global Corporate Strategy - Honda Case Study. München, GRIN Verlag GmbH. http://nbn-resolving.de/urn:nbn:de:101:1-201107181258. DEWAN, S. M. (2006). Corporate governance in public sector enterprises. New Delhi, Pearson Longman. DE KLUYVER, C. A. (2009). A primer on corporate governance. [New York, N.Y.] (222 East 46th Street, New York, NY 10017), Business Expert Press. http://site.ebrary.com/id/10364221. FERNANDO, A. C. (2011). 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