Governance in Globalizing World - Coursework Example

Topic: Governance in Globalizing World Name: Tutor: Introduction According to the corporate governance theory, as addressed by Adu in the article, the theory emerged through citizens coming together to form a royal charter. The agency theory entail one party giving responsibility to the other (Adu 2012 p.15). Later, the corporate governance theory is seen to have taken over the firms and has dominated the economic market. It is a set of board, shareholders and stakeholders. Corporate Governance is not only the inspection of utilization of a company by its directors but also the mechanism by which firms are controlled and directed. It seeks to cultivate ethical culture at work places and moral upright behaviors (Tarraf 2010 p.18). It is part of economics which explores all dimensions of a company or a firm ranging from organizational structure, Legislature and contact designs. This essay seeks to summarize the journal above whose main purpose is to show the relationship that exists between financial performance in a company and the corporate mechanisms employed by the directors and managers. Outline and summarize the arguments made: Short Term returns vs. Long Term investment This argument outlines the need to focus on both short term and long term goals. This is because the short term returns lead to realization of some of the long term investment goals. (Hillier et al. 2011 p.13). Therefore, there ought to be a link between the two. The efforts geared towards the two need a level of balance for the realization of the company vision. The value of shareholder activism This is a good way to ensure that value is realized. However, it could also cause damage. In order to evade the negative consequences, prior planning and risk assessment is important. The channels of communication of the company ought to be sharpened to ensure that proper message is passed on to all shareholders (Klein & Zur 2009, p. 198).Massive creation of awareness will lead to successful shareholder activism; either financial of governance activism. Conflict of interest and operational risks Adu argues that incompatibility of peoples’ interests and viewpoints is likely to lead to lack of cooperation among directors, workers and other shareholders. Poor cooperation leads to unnecessary internal competition (Bebchuk et al. 2009 p.359). This affects the productivity to the company directly since much energy is diverted towards the internal conflicts. Corporate governance patterns The author outlines that good governance practices and patterns help promote ethical environment. I blends men and women of high integrity and moral values. A company with high integrity powered workers has a high affinity for collaboration and innovative skills are likely to thrive. Application of social learning theory in corporation He argues that application of this theory would lead to improved management behavior hence enhance financial output. Social interactions enhance people’s perception of their peers and reduces unnecessary competition and conflicting ideas (Webb & Sheeran 2006 p.249). Brief summary of the arguments made by the author The author argues that there is a relationship between corporate governance and firm values. This is supported by the fact that negative debt of a company limits its power to borrow so as to improve its productivity. Those which have excessive debts are fined and could eventually shut down due to lack of finances to pay workers and also support their business ventures (Adu 2012 p. 36).Corporate governance and return on equity From his study he found that corporate compensation does not lead to high financial performance. Corporate performance and financial distress Adu 2012 (p 38) argues that leadership independence leads to reduced financial distress. This is because there is selective and focused attention towards the success of the company. The decisions are made and implemented internally without the need to rely on external shareholders for approval. This increases trust and unity among the staff members hence proper management of activities. In as much as committees are essential in guiding and advising the management, the lesser the number the more chances of success (Hillier et al. 2011 p.38). He argues that for fair treatment to be achieved, there has to be inclusive participation of all shareholders including the minority. Conflict of interest and operational risks Adu in his article elucidates the relationship between varied opinion and how they affect the operational standards of a company. Presence of conflicts among the members of the corporate board and the stockholders is likely to deter the functioning capacity of all members (Ingley& Walt 2004, p.542). Therefore, proper channels and conflict solving practices ought to be adopted to maintain peace. Discuss in the context of your reading the issues raised in relation to corporate governance Basically, the essence of corporate governance is to evaluate the performance and come up with possible decisions to solve any emerging issues in the company. The issue of conflict of interest is definitely a catalyst to poor performance (Bhaghat 2008, p.259). Therefore, it needs to be addressed in the evaluation process to ensure success. As far as risks are concerned, there needs to be a continually operational risk assessment team in all departments of a company (Crane et al. 2008 p.19). This will respond with immediate effect to the risks identified. The ethical issues of mistrust from the stockholders and other clients is a key concern. Ethical guidelines and legal law’s enactment, with a competent team to oversee that they are followed to the letter can help address the issue. Integrity is key in success of corporate governance. Corporate governance issue. Related Literature review Hussein 2010 identifies the theory of corporate governance. It is a dominance policy in the current market although, it has tried to tackle the problems that exist between managers and shareholders, and it has not been quite effective. However, good corporate governance ought to ensure that all interests of all stakeholders are put into consideration and acted upon. According to Bruner (2010), “equity-based pay” is as an important trend which affects risk-taking in financial firms. According to him, the finance literature suggests that increased alignment of bank managers’ interests with those of shareholders through equity-based pay Shareholders’ interests resulted in greater risk-taking in financial firms leading up to the crisis. Bruner, for example, finds that banks with more powerful owners tend to take greater risks. However, the interest of the shareholders in not affected by incentives. It remains focused on where they want to invest. William 2002 in addressing emerging issues in economics and finance, identified corporate governance as an emerging issue. In his argument, similar to Adu, corporate governance success is dependent on prior intensive risk assessment among shareholders and in the internal systems. Establishment of excellent governance system is not a guarantee for success. Instead, a well collaborated system involving all stakeholders and empowerment of the staff involved will ensure success. According to Holly and Sidley 2014, trust ought to be rebuild among shareholders and management. It is a key tool to promoting integrity as noted by Abu in his article. Where there is honesty collaboration and integration is easy hence success of business. However, intense efforts need to be instilled as trust is not the only key tool to successful corporate governance. Similarly, Florian Moslein outlines the essence of systematic identification, prioritization and assessment of risks. He notes as key in setting out strategies for proper corporate governance. However, he leaves ought the essence of an integrated approach and an inclusive participatory process in the risk management. Nevertheless, the committee addressing the risk management needs just a representation from all the shareholders and management. This is bid to have a broader pool of ideas while saving time in the decision making process. According to Li (2009) a positive correlation exists between risk management and corporate governance. This is because risk management became an index to measure success of corporate governance in many countries. He argues that Corporate governance require boards of directors with clear strategies for their companies. They ought to have efficient reporting systems which allow boards to monitor their companies and to respond in a timely manner if needed. . The board functions to monitor the effectiveness of the company’s management practices and to make changes as needed. Why are these arguments being made in media? Corporate governance is imperative in addressing key issues in business such as securing debts, raising capital as well as elevating the company to a higher level (Dyck et al. 2012).Therefore, addressing the issues in media will enable potential company builders to put the issues in to consideration. They will be in a position to set a board early in advance to foresee the impeding risks. They will be in a position to set down rules and regulations, ethical issues and a committee to ensure that they are followed to the letter. Secondly, these arguments could be made to keep the already established companies at par to address them in case they have not been addressing them. This will help strengthen their competitive power as far as their business rivals are concerned. In addition, this could have been made by shareholders who were not pleased with operations of a particular company (Dyck et al. 2008, p.23). Thus, they would wish to tarnish their name and businesses. It could be a sought of revenge mission or a free will way to warn those who in future would wish to invest in the particular company. Social media is a channel where information can reach many people in a short span of time (Dyck et al. 2008, p.38).These arguments thus were made on social media to ensure that world widely, the information get the target population. While on social media, debate can be raised and viable solutions can be realized through brainstorming. Mass opinions will always have a definite percentage of intellect opinions to problem solving. Lastly, these arguments may have been made in the social media to create awareness of a particular company in disguise. The negative allegations about a company, may increase the number of viewers visiting its website (Hanna & Crittenden 2011, p.270).This could be one of their short term goals from which they would improve their shareholder value thus elevating their efforts towards realization of their long term goals. In my own humble opinion, risk management is a key issue not only in the corporate governance but also in other aspects of management and day to day live. Addressing it and elucidating the possible solutions like risk assessment and prioritization ensures that the most pressing risks are addressed first (Jalilvand & Malliaris 2013 p.22). It also helps avoid duplication of resources in addressing the risks. Integrating both short term and long term investments is key in any company. This is because the short term set goals are a limelight to attaining the long term investments (Harford & Maxwell 2012, 130). In any setting where there are more than one person, conflicting interests must manifest themselves. However, the ease and cultivating nature through which they are solved is the indicator of unity and discipline. The dispute solving mechanisms laid down will predict the outcome of the conflicting interests. Shareholder activism and governance are a key value to maintaining good relationships. (Benabou & Tirole 2010, p15).This, however, requires integration of best communication channels and skills to ensure that it does not become chaotic. Corporate performance and financial distress are directly proportional. Well motivated and appreciated staff members and corporate shareholders exhibit perfect work output. This ensures good financial stability (Crane et al. 2008, p.15). However, demoralized workers perform their duties poorly hence poor productivity. This makes the company to survive on debts which risks it closure. It cannot invest, has no security for its debts and is likely to be faced with board members turnover. Conclusion In summary, the issues of corporate governance need to be addressed and acted upon with immediate effect. Strong corporate boards ought to be created and spring into action as soon as possible. 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