Corporate Governance Policies in Ireland - Assignment Example

Impact of Corporate Governance Policies Adopted by the Revenue Commissioners in Ireland on Satisfaction Introduction The of corporate governance has attracted the attention of both academicians and business practitioners since the mid-1980s. Corporations across the world have accepted the procedures of corporate governance framed by authorities in their own countries. Since corporate governance has to do with setting priorities, delegating power and organizing accountability, it receives high priority on the agenda of policymakers, institutional investors, companies and academics. Recent American and European corporate scandals (Enron, WorldCom, Ahold, etc.) set off a fresh round of debate. In the wake of these corporate failures, basic principles and rules are being reviewed and strengthened in order to reinstall investor confidence. At the heart of these corporate governance reforms is the common interest in the effectiveness of boards of directors. Corporate governance codes, experts and activists have long advocated changes in the board structure. As a result of the successful implementation of corporate practice codes in the private sector corporations, the government has decided to implement the system in public/civil departments and government offices. The public offices are supposed to benefit the people who pay tax to the government on various assets and income earned by them. The government departments should exhibit transparency, and accountability to the various stakeholders including general public. These departments have a key role in a society where people's money is handled by government departments when they left with excess income allowed by tax authority. In this context, the present study s an attempt to examine the impact of corporate government practices implemented by revenue commission in the UK on the customers'/ tax payers' satisfaction. Background of the Study Corporate governance is a conscious and sustained effort on the part of a corporate entity to strike a judicious balance between its own interest and that of its stakeholders. It is the relationship among various participants in determining the direction and performance of corporations. It is not merely enacting legislation; but instilling an environment of trust and confidence as ethical business behavior and fairness cannot be legislated. It aims at minimizing the chances of corruption, malpractices, financial frauds, and misconduct of management. It provides various codes and regulations to establish effective governance system and to monitor the performance of corporations in the context of transparency, advocacy, accountability and social contribution to the society. Governance is not just a pious platitude. It is the accumulated outcome of inspiration, influence, wisdom, guidance and control, which keeps a body or an organization not only moving but also moving on the right track and at the right speed. It is inherent in the very nature of cosmic as well as human systems. However, corporate governance is essentially a state of mind and a set of principles based on relationships. It can work only if the people entrusted with these responsibilities believe in and are committed to the principles that underline effective corporate governance, which in ultimate analysis, is a way of life and not a mere compliance with a set of rules. Ideals of corporate governance primarily need transparency, full disclosure, fairness to all stakeholders and effective monitoring of the state of corporate affairs. It is, thus, concerned with values, vision, and visibility. Sound corporate governance practices lead to greater management accountability, credibility, and enhanced public confidence. Statement of the Problem With the corporate scandals in the early 2000, corporations across the world are under pressure to convince and ensure that the various stakeholders are happy with the system of corporate governance. Many new standards/policies of Corporate Governance (CG) and changes in accounting and reporting standards have been introduced as a result of this. One of the arguments put forward against corporate governance by majority of the stakeholders is that it does not follow strictly the policies enunciated by the board. In this context, the Ireland government tax collecting agency, revenue commission, a company in the public sector makes an attempt to assess the impact of the use of corporate governance practices on the customers to whom services are rendered. Objectives of the Study The present study is to find out whether public sector companies' corporate governance practices are at par with the expectations of the customers/taxpayers and other stakeholders. An attempt has been made to identify what parameters of governance can be considered as important in making strategic governance in public sector companies/ government departments. For arriving at a list of parameters, opinions of experts on the subject and the best as well as the latest practices of some of the companies accepted as well-governed, have been considered. The study has been conducted with a limited sample of 100 customers. In the study, emphasis is put on accountability, internal controls, performance management, and audit process of corporate governance practices adopted by revenue commission, one of the government departments which have obligations towards tax payers and the public at large. The paper tries to discuss the issue of corporate government practices at revenue commission department of the Irish Government. Literature Review The shared goals of this review are to evaluate the available body of knowledge in this area, to assess the prior research that has already been undertaken and to highlight how the present study is linked to them. It is also hoped that, the literature review would help in integrating and summarizing the existing knowledge and would lead to the generation of new ideas. The present study as already mentioned focuses on certain variables such as accountability, internal controls, performance management, and audit process to discuss and assess the impact of corporate governance on the satisfaction of beneficiaries of revenue commission in Ireland. Therefore, the review basically is presented in such a manner that how the prior studies have helped beneficiaries of corporate governance practices in various organizations, particularly those in the private sector. It is appropriate here to start with the origin of the concept of corporate governance. The term corporate governance' is susceptible to both broad and narrow definitions. The simple definition is provided by the Cadbury Report (UK), which is frequently quoted or paraphrased as: "Corporate governance is the system by which businesses are directed and controlled" (Cadbury Code). The definition in the preamble of the OECD principles is also all-encompassing: "Corporate governance involves a set of relationships between a company's management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performances are determined" (OECD 2004). These definitions spell out the nature of corporate governance and its purposes. Over the last one decade, more precisely after the Cadbury committee report 1992, there has been a lot of discussion and debate on the transparency issue among the stakeholders of an organization. In academic research too, scholars were examining how the transparency of a system is related to good corporate governance practices. There is no denying the fact that transparency is an important component of a well-functioning system of corporate governance. However, corporate disclosure to stakeholders is the principal means by which companies can become transparent (Solomon and Solomon 2004). Regulated disclosure provides new and relevant information for investors which ultimately reflect the transparent system of the organization (Kothari, 2001 and Bushman and Smith, 2003). According to Healy and Palepu (2001), disclosure comprises all forms of voluntary corporate communications, for example, management forecasts, analysts' presentations, the annual general meetings, press releases, information placed on corporate websites and other corporate reports, such as stand-alone environmental or social reports. Lang and Lundholm (1996) have examined the relations between the disclosure practices of firms, the number of analysts following each firm and the properties of the analysts earnings forecast. The findings of the study indicate that firms which disclose more have a larger pool of potential investors. Their investors have more accurate beliefs about future performance. It results in less asymmetry in investors' beliefs about their performance. However, it is imperative to mention that the disclosure of information depends on the intention to raise external capital. Disclosure of information enables the shareholder to evaluate the management's performance by observing, how efficiently the management is utilizing the company's resources in the interest of the principal (Healy and Palepu, 2001). Moreover, management remuneration is determined by the financial accounting information. For instance, according to Bushman et al. (1995), half of the managerial bonuses are found to be determined by corporate performance reflected in the financial accounts. However, at the same time, there is ample research which has documented that management have used accrual amounts to inflate the income statement in order to get hefty bonuses and hike in their salaries (Klein, 2002). Another study by Mueller and Oener (2006) focuses on small and medium-sized private firms (in Germany) rather than listed companies (US and UK), and the effect of ownership on a firm's performance (testing the interest and entrenchment theories). A major difference that was observed from other studies is that public companies with high value of managerial ownership had negative influence on a firms' performance because of retrenchment effect, which was not observed in case of private firms. The authors found a positive relationship between ownership (40%) and performance. Chhibber and Majumdar (1998) in their work studied the influence of government ownership on the performance of the firm. The study found that three types of state ownership exist in India. Firstly, firms where the government has less than 26% shareholding; secondly, where the government owns more than 26% shares; and thirdly, where state is the majority holder with more than 50% shares. The study revealed that firms which do not have state as the majority shareholder performed better than firms where the state is a majority shareholder. A similar study by Ahuja and Majumdar (1998) where the authors study the performance of 68 state-owned firms, disclose that these firms were on an average less competent in employing their resources. This indicated the low performance of state-owned firms. Kumar (2003) in his study examines the impact of ownership on the performance of a firm by studying Indian firms. The author studied more than 2000 publicly traded enterprises to establish a relationship. The findings of the research suggest that foreign shareholding does not influence the performance of the firm significantly. This provides contrasting results to the other studies. It was also found that ownership by financial institutions positively influences a firm's performance. The study also found that the director's ownership had an influence on the performance, but no significant difference was established in managerial ownership and firm's performance across group and stand-alone firms. Ownership in India is extremely concentrated in the hands of family members and their relatives (Pant and Pattanayak, 2007). The authors observed the performance of Indian firms in lieu of insider ownership. The findings disclose that as insider ownership increased (0-20%), firm value also increased. As the stake increased from 20%, the entrenchment effect came into play and the performance decreased, but as the ownership extended beyond 49%, there was a convergence of interest with the firm and once again the performance of the firm improved. Methodology Every research study has a unique way of exploring a solution to its problem. This distinct steps or way of doing a particular research is known as research methodology. Research methodology for a study is unique and takes a fresh approach. However, the approach and methodology of past studies done in the similar field may be taken as a basis. The present study is qualitative in nature as it deals with only qualitative data for the purpose of analysis and interpretation. This study is basically a survey research, which collects both primary and secondary data. However, primary data constitute the main source of data by which majority of the analysis has been done. The data collected are edited and coded to ensure their correctness and authenticity and are sent for a detailed analysis using simple statistical techniques. Sample Design This study is basically a survey research. A survey research can be carried out in two ways. First, a complete enumeration survey wherein all the units of the population / universe under study are studied to arrive at logical conclusions. The result of complete enumeration method is always reliable and the researcher need not worry about the accuracy of the result. But it is impossible in many cases as it is time consuming, expensive, and non-operational. Sample survey is the alternative method wherein a selected number of units from the population are taken for a detailed study and the conclusions derived there from are generalized for the entire population. This is a superior method in terms of savings in cost, time and effort. Accuracy can also be ensured as the sample units are the real representatives of the population from where such samples have been drawn. The sample units are most likely to exhibit the characteristics of population as they are taken from the population. Here, the survey is conducted among teenagers. Population of the Study Population for the present study comprises of two groups, namely tax payers and non-tax payers from the larger group, i.e., public. The population frame on tax payers will be collected from the revenue commission department and that of non-tax payers will be collected from the local government. Sampling Procedure Sampling procedure is the process of drawing sample units from a population to infer about the population. The selection of sampling procedure is a serious affair because the one selected must be appropriate for the situation. As there are a number of sampling methods, the researcher has to select the apt one which ensures high accuracy, low personal bias and other considerations like time, cost etc. Random Sampling/ Probability Sampling method is the most commonly used method as it ensures the presence of above parameters. As such simple random sampling is the method used here. The sampling method used for two sets of population remains the same. Data Sources The study relies both on primary and secondary data. Primary source include a sample survey carried out among two sets of sample constituted from different population of the same region (select a particular region of your choice). Secondary data are primarily gathered from websites and records of the Department of Revenue Commission, Ireland and UK. Data Collection Procedure The data are collected using questionnaires prepared separately for two sets of samples. The questionnaires will be sent to the personal email address of the respondents with a covering letter requesting them to reply and send back the filled in questionnaire. Questions are drafted according to Likert five point scale to assess the customer satisfaction level in terms of accountability, internal controls, performance management, and audit process. Data Editing The data collected from primary source always need editing. Editing is the process of eliminating the errors and mistakes from the raw data so as to make them ready for further analysis. Editing is done for eliminating mistakes, completing an incomplete data, omitting errors etc. The secondary data need not be edited as they are in processed form and they have been collected by somebody for some other purpose. However some kind of arrangement may be necessary so as to make them ready for analysis. Data Coding The edited data are converted in to another form called codes for easy and convenient analysis. Codes are used to convert data which are lengthy and cumbersome for analysis. Coding is made in the Microsoft Excel Spreadsheet Program. Data Analysis and Findings After the data have been tabulated and coded for easiness and convenience for further processing, the next step is analysis. Analysis involves the conversion of raw data into meaningful information so as to make them appropriate for arriving at logical finding and conclusions. A detailed analysis has been carried out using SPPS package. The analysis involves the establishment relationship between various variables and exploring the reasons thereof. Limitations of the Study The study is basically a sample survey research. Therefore, sampling errors are the first and foremost problem of the study. However, maximum effort has been made by the researcher to minimize the sampling errors by properly selecting the sample method and sample units. Moreover, there are three sets of sample for the study which involve different respondents. The reliability of the information collected can be assured, but how accurate it would be is still uncertain. Therefore, personal bias of the respondent as well as the researcher may be included. References Ahuja G and Sumit K Majumdar 1998, 'An Assessment of Indian State Owned Enterprises', Journal of Productivity Analysis, Vol. 9, pp. 113-132. Botosan C 1997, 'The Impact of Annual Report Disclosure Level on Investor Base and the Cost of Capital', Accounting Review, Vol. 72, July, pp. 323-350. Bushman R, Indjejikian R and Smith A 1995, 'Aggregate Performance Measurement in Business Unit Compensation: The Role of Intrafirm Interdependencies', Journal of Accounting Research, Vol. 33, Suppl, pp. 101-128. Cadbury Code 1992 The Report of the Committee on the Financial Aspects of Corporate Governance: The Code of Best Practices, December, Gee Professional Publishing, London. 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