Corporate Governance Issues: Board Diversity Issue at Apple Inc - Case Study Example

CORPORATE GOVERNANCE ISSUES: BOARD DIVERSITY ISSUE AT APPLE INC By Student Name Course Tutor Date of submission CORPORATE GOVERNANCE ISSUES: BOARD DIVERSITY ISSUE AT APPLE INC Satariano, A. (2014). Apple Facing Criticism about Diversity Changes Bylaws. [Online] Bloomberg.com. Available at: http://www.bloomberg.com/news/articles/2014-01-06/apple-facing-criticism-about-diversity-changes-bylaws [Accessed 15 Mar. 2016]. Introduction Corporate governance has received ascendancy within the scholarly and professional domain owing to its importance in the era of information technology and thus quick access information. The financial recession led to the demand for transparency in corporate practices of organizations. However, a new budding component of corporate governance that is board diversity has gained cognition due to the predomination of most boards by males. Up until now, some enterprises have been in the headlines of the local dailies for corporate governance related scandals that end up tarnishing their image in the society (Leung, 2016). Notably, the issue of board diversity has been taken with much weight owing to the rise in gender equality lobbying especially in leadership positions (Leung, 2016). There is a different code of conducts that are very stern of board diversity in nearly all the companies. As a component of corporate governance, board diversity not only means having people of different characteristics as board members. Rather, it also means getting the right people for the job, harnessing their exceptional skills and experiences, and ensuring the representation of the visible indicators, to collectively ensure the success of the organization (Leung, 2016). Visible signs are the indicators of diversity such as age, nationality or ethnicity, and culture among other tenets (Leung, 2016). Despite Apple Inc being one of the most successful American MNCs, its image has recently been flawed following the allegations of board diversity issues, an issue that has corporate governance root. This essay will commence by looking at the board diversity at Apple according to the case pulled from the above-stated newspaper. The nest step of the essay would be to discuss the role of the media in corporate governance. Finally, the paper will give a complete summary of the major points in the body and present some recommendations. Apple Inc: Company Background Apple Inc is an American Multinational Corporation that was established in 1976 by Steve Jobs and Steve Wozniak (Reuters, 2016). The company’s headquarters are located in California. Since its incorporation in 1977, the firm has been successful in its business as shown by its sales and market share. The primary operations of the company are to design, develop and sell, computer software, consumer electronics, mobile devices, PDAs and communication devices (Reuters, 2016). The company also offers selected services such as cloud computing, networking solutions, software solutions and third-party digital contents. Some of the notable products of the company include iPad, iPhones, Mac, Apple TV, iOS and OS X operating systems and Apple Pay among others. Despite competition from companies such as Samsung, Microsoft, HP, Dell, and Cisco Systems, the company has continued to soar in the market (Reuters, 2016). The success of the firms' business model is best explained through its reputable brand image combined with the largest market share and strong financial performance of the enterprise. According to Reuters (2016), Apple has in the recent past had some issues that threaten its already built up image. Board Diversity Issue at Apple Inc Apple Inc has in the recent years stormed the headlines of different dailies worldwide with its shareholders putting more pressure on the diversity of the board (Satariano, 2014). The shareholders have criticized the current composition of the board pleading with the company for increased the representation of female executives and directors (Satariano, 2014). Satariano (2014) observes that the most famous world’s giant consumer electronics company pledged to alter the board committee charter as a means of addressing the diversity issue. As a matter of fact, the board diversity issue became apparent after Trillium Asset Management LLC and the Sustainability Group raised an eyebrow after noting that the board comprised of only one woman on the board of directors that consists of eight members. Furthermore, there is only one woman on the executive team that reports directly to Tim Cook (the CEO). The high echelon of Apple is grappling with diversity issues makes it become part of the Silicon Valley Companies such as Facebook Inc and Twitter Inc, whose boards are male dominated (Satariano, 2014). The main fear is that the same statement has been in Apple’s proxy for the past years. There are also plans to continue discussing with the shareholders on the way forward for diversity in the board. According to Satariano (2014), Apple should solve this corporate governance issue as it is also facing huge remuneration issue that also has more or less the same weight as the former. Corporate Governance Issue in the Case: Board Diversity Recent research in corporate governance in companies champions for board diversity as a pillar to boost the performance of organizations. The board acts as the agents of the shareholders are expected to come up with financial and operational strategies implementable at the organizational level as well as monitor the progress of an organization (Adams et al., 2015, p.72). There is no conclusive definition of board diversity. However, as mentioned earlier, board diversity is a complex phenomenon where the top leadership- the board and the executive officers, are composed of people of different characteristics and demographics (Adams et al., 2015, p. 73; Leung, 2016). Even so, most of the advocacy groups and lobbyists have turned the definition to mean gender diversity, becoming one of the hotly contested topics in the public domains. There are many benefits of board diversity. First off, it leads to effective decision making. As an illustration, a diverse board comprises of people who are drawn from different backgrounds and who hold diverse opinions and knowledge. Therefore, when it comes to matters that affect an organization, each member’s contribution ultimately leads to the final practical decision (Lückerath-Rovers, 2011, P. 187; Leung, 2016). Furthermore, board diversity creates room for creativity when coming up with solutions to problems. In this sense, the diversity also provides a comprehensible oversight to the operations of the organization enhancing the sensitivity of organizations thus abating potential risks (Ben-Amar et al., 2011, p.98). On the same note, companies with diverse board members also achieve the organizational objectives through informed judgment and collective decision making based on experiences in different situations. Board diversity also optimizes the utilization of the talent pool. Through diversity, the stakeholder’s demands from the non-executive directors can be met efficiently. Integration of members drawn from different background improves the talent pool utilization in the organization (Boulouta, 2012, p. 187). As a matter of fact, the diversity issue makes all the members of an organization as the future candidates for the board based on their unique talent that might help in the stewardship level of the board. According to Boulouta (2012, p. 193) observes that the issue of board diversity, especially with women on the boards, ensures that an organization has positive corporate social practices. The major argument posited by Boulouta (2012, p.186) women in the board focus more on areas of corporate social practices, giving an example of the women being inclined towards the fulfillment of the social missions of the companies they lead. Some practices such as corporate philanthropy and CSR initiatives are better managed by women compared to boards dominated by females (Boulouta, 2012, p.186). Therefore, it is conclusive that diversified board optimizes the corporate social practices of an organization with a positive reputation in the society. In a recent study conducted by Lückerath-Rovers (2011, p. 491) concluded that diverse boards also have improved performance, mostly citing such financial success to the presence of women in the board. Lückerath-Rovers (2011, p. 506-507) further opines that the financial success aspect of corporate governance becomes apparent when women are involved in making financial decisions within the organization. Historically, men have been charged with the boards of organizations most of which have succumbed to malpractices in disclosures. Marinova, Plantenga, and Remery (2015, p. 11) observe that after the financial depression, board diversity through increased representation of women is the only best answer to reviving failed companies. However, recent studies do indicate that a diverse board with equal representation of women drawn from different professional backgrounds create transparency in all decisions and resource allocation (Lückerath-Rovers, 2011, p. 507). In the case of Apple, its reduced financial performance in some major markets could be complemented by board diversity. Why the Media Reported the Corporate Governance Issue at Apple The media is seen as an authoritative source in the society through which the community receives information about nearly everything that occurs in the world. Based on the findings of a study conducted by Liu and McConnell (2013, p.16) the media can institute change in the corporate governance practices of an organization. Indeed, the media is seen as a tool that points out negative occurrences in the society, at the same time offering solutions. Trillium Asset Management LLC and the Sustainability Group wrote a letter to Apple Inc to address the diversity issue and avoid being among the Fortune 500 companies with 17% and 15% of women in board sits and executive officer positions. Following the letter and beckoning from the two lobbying companies, Apple promised to make an alteration in its committee charter to cater for diversity (Satariano, 2014). Therefore, the media is both a voice of the society, in this case, the shareholders, and a problem solver in some instances as seen in the case of Apple Inc. In matters of corporate governance, the media also plays a role in educating the society on what matters and their place in the governance of the organization. The article aired the concerns of the stakeholders. However, the author does not end there. Instead, the author goes as far as giving relevant statistics and examples to indicate the jeopardy that might befall Apple Inc in case a handy solution is not taken. Furthermore, the media also reflects the fact that there has been a statement in the charter, what is lacking is its implementation. Consequently, the media through educating the public offers insight into the real factors affecting Apple and gives them hope for the recommended solutions. Akhtar, Malla and Gregson (2000, p. 125) cite that the media puts pressure on the management of organizations on behalf of the stakeholders so that the corporate governance issues are fixed before getting to unacceptable levels. In the case of diversity issue at Apple Inc, there are several reasons why the media-mediated. First: to voice the concerns of the shareholders as aforementioned. Secondly, the media also used the chance to make the society aware that the issue of board diversity affects even the top 500 Fortune companies such as Facebook and Twitter that are social media giants. Thirdly, the media also used the same position to offer a recommendation by the two lobbyist groups that were much concerned with the issue. Media participation in Apple’s diversity problem is also so as to be seen as a whistleblower, in any case, the corporate governance systems of an organization are not running as they are meant. Conclusion Not until recently, corporate governance has become a key research area attracting practitioners, managements, and researchers as well as the scholarly fraternity. As is apparent in this paper, corporate governance plays an integral role in the organization. More so, there is much need to channel much focus in the issue of board diversity as the world is currently under the pressure for gender equality and diversity. The benefits of having a diverse board are attractive including successful operations optimize corporate social performance and good reputation. Organizations must act in the interest of the stakeholders through diversity on the board so that all their questions and needs are met. Apple Inc promised to alter the charter so that the board members are comprised of a balance between men and women courtesy of the media. It is therefore also imperative that the media maintains its role as the keeper of corporate governance, bringing to the limelight all the inadequacies leading to poor corporate governance. Board diversity at Apple will improve its market share, increase financial performance, create a good reputation and save it much money that otherwise would have been spent in related litigation. The management should take the issue as a larger one, however, small it may seem, as in the long run, it will influence the success of Apple. Bibliography Adams, R., de Haan, J., Terjesen, S & van Ees, H 2015, Board Diversity: Moving the Field Forward. Corporate Governance: An International Review, Vol. 23, No. 2, pp.77-82. Akhtar, S., Malla, M & Gregson, J 2000, Transparency, accountability and good governance: Role of new information and communication technologies and the mass media, International Journal on Media Management, Vol. 2, No. 3-4, pp.124-132. Ben-Amar, W., Francoeur, C., Hafsi, T & Labelle, R 2011, What Makes Better Boards? A Closer Look at Diversity and Ownership, Brit J Manage, Vol. 24, 1, pp.85-101. Boulouta, I 2012, Hidden Connections: The Link between Board Gender Diversity and Corporate Social Performance, J Bus Ethics, Vol. 113, No. 2, pp.185-197. Leung, E 2016, Diversifying the board – a step towards better governance | ACCA Qualification | Students | ACCA Global, [Online] Accaglobal.com. Available at: http://www.accaglobal.com/in/en/student/exam-support-resources/professional-exams-study-resources/p1/technical-articles/diversifying-the-board--a-step-towards-better-governance.html [Accessed 15 Mar. 2016]. Liu, B & McConnell, J 2013, The role of the media in corporate governance: Do the media influence managers' capital allocation decisions?, Journal of Financial Economics, Vol. 110, No. 1, pp.1-17. Lückerath-Rovers, M 2011, Women on boards and firm performance, Journal of Management & Governance, Vol. 17, No. 2, pp.491-509. Marinova, J., Plantenga, J & Remery, C 2015, Gender diversity and firm performance: evidence from Dutch and Danish boardrooms, The International Journal of Human Resource Management, Vol. 12, No. 1, pp.1-14. Reuters 2016, Apple Inc (AAPL.O) Company Profile | Reuters.com. [Online] Reuters.com. Available at: http://www.reuters.com/finance/stocks/companyProfile?symbol=AAPL.O [Accessed 15 Mar. 2016]. Satariano, A 2014, Apple Facing Criticism about Diversity Changes Bylaws. [Online] Bloomberg.com. Available at: http://www.bloomberg.com/news/articles/2014-01-06/apple-facing-criticism-about-diversity-changes-bylaws [Accessed 15 Mar. 2016]. Read More