The Board of Directors, Resource Dependence Theory - Assignment Example

GLOBALIZING WORLD EXAM Student Name Course Code and Name Professor University State Date Due GLOBALIZING WORLD Question 1 The board of directors in every company have the mandate to hire the chairman or the general managers. It is the role of the directors to monitor and control the functions of the organization, therefore they are supposed to audit or hire an auditor general to their organization and hence, ensuring audit are conducted in a timely and transparent way every year. Once the board of directors have put in place the necessary requirements of hiring an auditor it now becomes easy to monitor how the managers are conducting their businesses and the funds that have been allocated to them in each financial year. After the auditor’s report is revealed, it is normally handed over to the directors for reviewing and analysing before it is gazetted. However, the directors may collude with the managers in order to hide some truth or loot company funds together in liaison with the company chairman for instance in the prosecution of TZ ltd.’s chairman, justice Adamson warned directors on the severity of dishonesty on the part of directors. By concealing wrongdoing the directors become dishonest and thus, dishonesty of the director is a criminal offence and they are liable for jail term or stern warnings from the stakeholders and other authorities (Davis et al. 2012, p.16-20). Once the shareholders become aware of any misleading information or missing documents in the audit summary they are supposed to take caution and find the gap in the report. For instance, the agency theory shows the relationship that exist between the principal that is the owner and agent that is the employees (Thomsen and Conyon 2012, n.d) With the regard to this theory the directors are supposed to monitor the management and also resolve the problems that occur in the organization. According to the agency theory, some managers can on their own, conspire to benefit alone by stealing money from the company like in the case of TZ ltd.’s chairman (Nolan and McFarlan 2015, p.96). Once a director is found to be concealing information or looting in conjunction the manager they should be aligned in courts and be prosecuted regardless of their positions. Further once their trusted custodians have been found guilty investigations should be launched immediately to ascertain the directors’ involvement as well as their laxity while managers and chairmen misappropriated funds (Rabi, 2014.p.73). for instance where were the TZ ltd.’s directors when the chairman was defrauding the company 24 times?. In reference to the agency theory there should be effective separation or roles and as such directors should never collude with their managers with the aim of expropriating from the organization. According to this theory, the act of colluding with the management is considered unethical and hence forth should be treated with urgency to prevent further dishonest deeds (Nolan and McFarlan, 2015.p.96). Starting from the managers to the directors anyone found guilty of any offence that jeopardizes the organization’s operations should be prosecuted and made to repay whatever they stole once they are found guilty. A dishonesty director should be punished through fines, imprisonment and made to repay the misappropriated funds (Gomez-Mejia and Balkin, 2012.p.921-955). It is therefore, important that the directors are always cautious to moral hazard situation of where the managers knows more than the directors because they are the custodians of the company as stressed by justice Adamson in the case of TZ ltd.’s chairman. Question 2 A structure that has the responsibility to monitor the activities and operations of the company is essential in every company without considering the physical size of that company. Therefore, every company must be headed by a board of directors and its gender composition should not be an issue (Neuwirth 2011, p.33-51). The board of director should comprise of a competent team that will help the managing director steer the organization into greater heights and as such directors should be appointed purely on merit because they are the overseers and image of the company. Therefore, unlike what Australia’s peak super investment body is recommending selection and appointment into the board should be done without considering compositions based on diversity but rather on the merit shown by those being considered (Tuggle, 2010.p.946-968) According to Donaldson (2011, p.54-67) the stewardship theory, the directors of a company have the mandate to protect the interest of the shareholders and make critical and important decisions on their behalf. A company like CIMIC holding is recovering from a major scandal and if it feels that its male directors are competent enough to push the company forward there is no reason they should be force to do what they do not want. The sole objective of the directors with regard to this theory is to make sure that a successful company is maintained and the shareholders are able to prosper through better dividends and representation. Thus, there is a need to select a highly competent team to oversee the organization as its board of directors, the composition of the board in terms of diversity should not be an issue but rather on how the directors are going to safeguard the interest of the stakeholders of that organization (Thomsen and Conyon 2012, n.d). With the stewardship theory the directors requires the managers to put their personal interest aside and focus on the good of the company. These key assumptions of this theory out lightly support that diversity or social issue do not form the key requirement in managing an organization. The stakeholder’s theory states that an organization owes various responsibilities to the wider group of stake holders because they are likely to be affected by the decisions made by the organization and thus, a need for a very competent team of directors to run operations thus, from the article its evident that most ASX 200 companies do not have diverse boards but operations have not been affected in anyway ( Eddleston and Kellermanns, 2015.p.545-565) Once the directors are able to deliver according to their job descriptions, the stakeholders will have no problems with them. The delivery and the performance of the directors is largely pegged on their merit and not diversity. Companies that have board of directors comprising of experts have done exceedingly well have that they are able to come up with vision and strategies that are acceptable and attainable (Tuggle et al. 2010, p.946-968). Directors appointed on merit are better placed to understand how the company works as they value their employees and thus, pay salaries in advance, give bonuses and increments in salaries to their employees. Therefore, sourcing and developing the best board of directors will be the most important part in the organization, as it creates resources for that company to grow and develop. If a board of director is required by law to comprise of a diverse team then relevant stakeholders should find the right individuals for the job but selection should be purely on merit despite the composition (Villalonga and Amit 2010, 385-417). Question 3 Every business require some foundation on which it should lean at. Businesses that are owned by families normally have different personal dynamics, the business strategy and the criteria used are also varied. The companies that are owned by families need to have clear details regarding to the share of each individual, position to hold in the organization and the businesses need to be operated in a manner that they benefit the family members without wasteful use of resources and the mismanagements of the profits by the representatives (Thomsen and Conyon 2012, n.d). For instance in the Gutnick case, where he denies allegations of hiding assets and using funds from the family trust ruminates a case of mismanagement by family owned businesses when they are not closely checked or monitored. If the non-family companies are able to operate efficiently and earn good profits, then there is no excuse for company owned by families of not moving a step head. Businesses that are non- family owned normally have clear guidelines that are given to the board as they act as oversights and watchdogs of the shareholders (Villalonga and Amit, 2010.p.385-417) The resource dependence theory aims at looking how external resources of a company affects how the organization behave In an organization that is owned by a family the ownership of resources is different depending on the number of assets that one individual owns. For instance Gutnick managed company resources and spread them at will across family members despite being part of the business. These expenditures likely brought about the bankruptcy and hiding of assets allegations thus, there is a need for family business to benefit all the members instead of specific individuals. Resources such as labour is key in the daily operations therefore hiring members of the family in the organization will help to have a source of income (Thomsen and Conyon 2012, n.d). The theory is also in line with those who control which resources one owns in a company as it enables the board to subdivide shares differently as compared to how much of the company that person owns (Newell, 2011.p.22) The company aims at maximizing profit which is the main aim of stewardship theory, there is also a possibility that workers in these companies are being overworked in order to maximize the profits. The family owners of the organisation holds similar visions and are always aiming at working very hard even with little compensation. Since the resources of the organization comes from the owners, if they are family owned then it would be of importance to provide jobs the family members in the companies this will give a chance to the owners to understand and get to know the profit margins without requiring to inquire from other people in the organization (Donaldson and Davis 2011, p.49-64). The ownership of resources is also essential in family based organizations such that depending on the level of resources that one holds it is basically clear that this will determine their say or power into that institution, therefore, the more resources one has the more the control one has on the resources like in the case of Gutnick (Klein, 2010.p.769-784) Since family based organization are legally independent therefore with regard to resource based dependency theory it is possible and essential that these companies can depend on each other and this is evident. For family based organization they need to focus on resources since some of the resources are critical and must be functional in the environment. By availing the critical environmental resources it will therefore mean that having and operating a family based organization it makes it possible to acquire every needed resources that ensures that the organization runs smoothly and profit are maximized (Klein, 2010.p.769-784) Question 4 According to Bird et al. (2013.p.49-69), provision of an organizational pension is a key program in most of the world organizations. This fund is aimed towards the benefits of the organizations employees. Which is also called the pension plan. These funds normally do not attract any tax until their withdrawal by that employee. Once the employee become of age and he is retiring, he or she is eligible to receive a given fixed amount and in most cases on monthly basis. Receiving the pension plan fund is similar to accessing the social security funds. The employees in these organization that provides superannuation funds have the rights and the responsibilities to influence decision making in that these organization have equal representation in the board that is, governing these funds this will allow the company not to misuse or misallocate these funds in other operations that were unintended or for selfish gains by the individual directors robbing from them (Goodstein, Gautam and Boeker 2014, p.241-250) There are also penalties for loss of any money in the kitty of pension funds. The members have the responsibility to ensure that no member money is lost. In case of any complain by the employees regarding their funds immediate investigation and reporting is required, which will mean that the board members will be held liable for that loss and this will definitely attract a penalty. It is also the duty and the right of the employees to appoint the board they want which will be tasked with governing their operations. The employees believe in having the right to vote in the best leader for the people (Villalonga and Amit, 2010.p.385-4170. The board then works on the benefits of these employees Also rights and responsibilities arises where diversity of the fund members is ensured in which these funds are allocated to all people in all organizations and the representation of the board member should comprise of all kinds and classes of people in order to ensure diversity in color, age, gender and even thoughts. Superannuation members requires to have a board that is skilled and very accountable in its operation. Anything involving money, accountability is the key element, those selected need to be accountable to the funds owners and providing them with clear outline of their funds, this will assure them that the company is going to manage their resources well in a socially responsible manner (Newell, 2011.p.22) In accordance to Klein (2010.p.323-337), the financial risk by the employees is minimised once the company deducts small amounts from the salary they earn and what they will be getting once they reach the age of retirement. This allows the employees to remain healthy and socially happy since the risk of lacking any finances once out of job has been mitigated. For any company to remain socially responsible it has to look into the welfare of the people that they have directly employed and those in the surrounding environment. It is therefore important that people feel that they own their company by having direct control of some situations that are at their reach (Bird, Chin and McCrae 2013, 49-69). References Bird, R., Chin, H. and McCrae, M., 2013. The performance of Australian superannuation funds. Australian Journal of Management, 8(1), pp.49-69. Davis, S.F., Grover, C.A., Becker, A.H. and McGregor, L.N., 2012. Directorate dishonesty: Prevalence, determinants, techniques, and punishments. Teaching of Psychology, 19(1), pp.16-20 Donaldson, L. and Davis, J.H., 2010. Stewardship theory or agency theory: CEO governance and shareholder returns. Australian Journal of management, 16(1), pp.49-64. Donaldson, L. and Davis, J.H., 2011. Stewardship theory or agency theory: CEO governance and shareholder returns. Australian Journal of management, 16(1), pp.49-64. Eddleston, K.A. and Kellermanns, F.W., 2015. Destructive and productive family relationships: A stewardship theory perspective. Journal of Business Venturing, 22(4), pp.545-565. Gomez-Mejia, L.R. and Balkin, D.B., 2012. Determinants of faculty pay: An agency theory perspective. Academy of Management journal, 35(5), pp.921-955. Goodstein, J., Gautam, K. and Boeker, W., 2014. The effects of board size and diversity on strategic change. Strategic management journal, 15(3), pp.241-250. Klein, P., Shapiro, D. and Young, J., 2010. Corporate governance, family ownership and firm value: the Canadian evidence. Corporate Governance: An International Review, 13(6), pp.769-784. Matten, D. and Moon, J., 2010. Corporate social responsibility. Journal of business Ethics, 54(4), pp.323-337. Neuwirth, E., 2011. Recursively defined combinatorial functions: extending Galton's board. Discrete Mathematics, 239(1-3), pp.33-51. Newell, G., 2011. The significance of property in industry-based superannuation funds in Australia. SIGNIFICANCE, 22, p.26. Nolan, R. and McFarlan, F.W., 2015. Information technology and the board of directors. Harvard business review, 83(10), p.96. Rabi, S.M., Patton, L.R., Fjortoft, N. and Zgarrick, D.P., 2014. Characteristics, prevalence, attitudes, and perceptions of academic dishonesty among pharmacy students. American journal of pharmaceutical education, 70(4), p.73. Thomsen, S., Conyon, M., 2012, Corporate Governance; Mechanisms and Systems, McGraw hill. Tuggle, C.S., Sirmon, D.G., Reutzel, C.R. and Bierman, L., 2010. Commanding board of director attention: investigating how organizational performance and CEO duality affect board members' attention to monitoring. Strategic Management Journal, 31(9), pp.946-968. Villalonga, B. and Amit, R., 2010. How do family ownership, control and management affect firm value? Journal of financial Economics, 80(2), pp.385-417. Read More