It is important for the present business to concentrate on the various essential factors apart from profit like society, government laws, and institutional context for their business procedures. Business administration is continuously developing and improving, and such enhancement in business is done by both internal as well as external organization dynamics. By considering this aspect, the present study is based on the analysis of the situation of Joshua by considering the corporate governance of the company.
Corporate Governance refers to the method by which businesses are authorised for the conduct of operational activities. Corporate Governance recognizes the power and responsibility of the person, and whoever makes decisions (Boubaker and Nguyen, 2014). It is the vital authority that facilitates management, and the helps the board to work more efficiently and meet the challenges for the organization of a company. Corporate Governance makes sure that that company has a suitable decision-making procedure and controls for balancing the interests of all stakeholders (shareholders, suppliers, employees, community and the customers).
Supremacy at a corporate level applies the procedure so that company can set its objectives and moreover that should be followed for the purpose of the social, regulatory and market environment (Dixon and Frolova, 2013). Governance is concerned about the performance and actions for assuring that a company is developing and growing effectively and however, with that achieves its predefined goals. Although, it is important to assure that shareholders have s belief and trust in the policies and management of the organisation.
Agency theories occur from the differences among the proprietor (shareholders) of a corporation or an association chosen as “the principals” and the management hired to direct the organization called “the agent.” Additionally, a board is developed from the outlook of the agency theory that has a tendency to implement strict control, management, and supervision of the activities of the agent in for protecting the interests of the principals. (Hillman and Dalziel, 2003). As well as, the board is also enthusiastically connected with most of the professional decision making procedures, and moreover is responsible to the stakeholders. A non-profit board that work all through the lens of agency theories will demonstrate a hands-on management concept on behalf of the stakeholders.
Stewardship theories disagree that the director or executive of business are stewards of the possessor, and moreover both the groups share general objective. Hence, the board must not be so overprotective, as agency theories would recommend (González and García-Meca, 2014). The board must cooperate and support authorized executives and, consecutively, helps to build the potential for advanced performance. Stewardship theories dispute for dealings between board and executives that engage education, mentoring, and mutual decision making.
Theories of stakeholders are dependent on the statement that shareholders are not just group of a stake in a corporation or a business. Stakeholder concept quarrels about that the clients or customers, dealers, and the nearby communities to have a stake in a company (Hartman, DesJardins and MacDonald, 2014). They can be exaggerated by the achievement or breakdown of a corporation hence; executive has individual compulsion to make sure that all stakeholders (not just the shareholders) obtain a fair return from their stake in the corporation. Stakeholder theories are the supporter of some form of corporate social responsibility, which includes liability to work in principled ways, still, if it means a decrease in the long-term incomes for a corporation (Soltani and Maupetit, 2015). For that reason, the authority has a liability to be the guardian of the security of all stakeholders by making sure that business or managerial practices and follow the principles of sustainability for the nearby community and society.
An efficient and superior corporate governance must not be clarified by just one concept but it is great if it merges a variety of theories, considering the social relationships as well as an emphasis on the rules and legislation and stricter enforcement surrounding for the superior governance practice and going further than the standards of a mechanical concepts for the corporate authority.
It can be accessed from the stated facts that the company is going through a critical phase and thus have earned the major loss in the present year. Further, it can be analyzed from the discussion of chief executive officer (CEO), Paul and non-executive officer, Alan who was the cousin of Paul were discussing that the profit earns by the company this year is low as compared to last year and they are worried about presenting the same scenario in the next annual general meeting. Further, they made up their mind to add to the sales in October which haven’t been existence yet in order to improve the financial presence of books of accounts of the company. Since if lower profits are revealed in the financial statement that there will be problems with the shareholders. They were also worried that due to the lower profits they might lose some big investors. Thus, agency theory has been applied by the senior executives, which believes that there are an agent and principal relationship between shareholders and management of the company. Agency theory specifies that an organisation is designated as the principals and managers hired to control the company called the agent. The decision can be said correctly from the perspective of shareholders as they are doing this only for the sake that investors do not take their investment back due to insufficient profits.
Shareholders are not only the stakeholders of the company. It comprises customers, agents, management, employees as well (Andriof, Waddock, Husted and Rahman, 2017). Thus, taking decision for one part of stakeholder will not be appropriate as well as ethical. The suggestion of Alan can be said appropriate, as the fact stated by him that this activity will lead to fraudulent activity. Since it is not fair with stakeholders and investors, as executives were trying to hide the actual profits from them. Further, it is the right of investors and shareholders of the company to get to know all the things about the company (Waldkirch and Nordqvist, 2016). Stewards theory emphasize that management should behave as steward and emphasize on developing a common goal for them as well as an organization (Glinkowska and Kaczmarek, 2015). Jones, Wicks and Freeman (2017) specified that as per stakeholder theory, all stakeholders should be considered before taking any decision. Thus, through the application of Steward and Stakeholder theory, the problem can be solved. With the assistance of the same and the board developed from this, a strict control, supervision and observation of the performance of agent can be done so that the interest of principals can be protected. Profit can be stated as the main factor which influences the decision of an investor. Thus, the fear of executives of the organization is appropriate that they might lose big investor as they haven’t performed well this year. However, presenting inappropriate profit is not the solution. As it might lead to arising other difficulties if the truth is revealed afterwards in front of stakeholders.
By considering the case, it can be said that Paul and Alan are not following the proper structure, which is not correct and acceptable, however, it is true that the corporate governance does not possess exceptional design and is highly assessed as ambiguous, but it should be ethical and supported by fairness and regulatory aspects (Weiss, 2014). With the consideration towards case, as they are not following the corporate structure and are considering the misinterpreted way of conducting financial statement, there is still insufficient awareness regarding the several issues such as again relating to the case, fraud manipulation and misconduct, as well the non-compliance towards the code of best practice and the Board of Directors rights and duties. There have been various examples of scandalous and failure in the sector of the company, as the case involved fraud due to their own benefit while ignoring the code of ethics, accounting standards and laws. Since there was the presence of poor or non-effective internal audits, inadequate needed managerial skills, insufficient disclosures and non-adherence with justifiable aspects (Zadek, Evans and Pruzan, 2013). Considering the case, it can be noted that the corporate and Board of Directors are not maintaining the disciples and are not pursuing the dignity and decorum of corporate due to the non-acceptable involvement of contradictory and misleading aspects. Since company policies are merely efficient as their adoption, the management of company provides high efforts and contribution to developing the strategy, but in case they are not mobilized then their initiatives will never be successful, so as in the case of Paul and Alan .
Thus, good company governance needs proper discipline and assurance towards the implementation of strategies, commitment and policies. Speaking about the cited case, it can be considered they have also not engaged transparency in their actions, as they are keeping their own counsels, and are restricting the information that is required to be clarified to the employees (Hartman, DesJardins and MacDonald, 2014). However, company transparency if effectively used unites an organization, when the strategies are understood by the organizations, and they are permitted to control the financial performance of the company by interpreting their own roles in the company. Further, transparency is a very crucial aspect in order to create trust element, which is also ignored by the Paul and Alan.
In addition, considering the case of Paul and Alan, It can also be cited that they are also avoiding the other related aspects and are not adhering towards the disclosure norms and making uneven use of their position and also the failure of the reports of audits to agree to the norm appeal nominal fines (González and García-Meca, 2014). Furthermore, their actions also reflect misleading financial statement, as they have avoided various ways to showcase the technical and accurate information over the financial statement; rather they used the misleading way to present the information on the financial statement.
Conclusion
From the various theories of corporate governance it has found that all the authors have a different viewpoint, therefore, the appearance of agency theory, stewardship theory, stakeholder theory, transaction cost theory and political theory mention the reason and the outcomes of variables, for example, the design of board members, audit committee, independent directors and the function of top management in the business. Moreover, ethics and principals in trade are directly connected with corporate governance.
References
Andriof, J., Waddock, S., Husted, B. and Rahman, S.S., (2017). Unfolding stakeholder thinking 2: Relationships, communication, reporting and performance. Routledge.
Boubaker, S., and Nguyen, D. K (2014). Corporate Governance in Emerging Markets. Berlin, Heidelberg: Springer Berlin Heidelberg. Retrieved from https://link. springer. com/10.1007/978-3-642-44955-0
Dixon, J. and Frolova, Y. (2013). Accounting for good governance: the fair value challenge. Corporate Governance: The international journal of business in society. 13(3). 318-331.
Glinkowska, B. and Kaczmarek, B., (2015). Classical and modern concepts of corporate governance (Stewardship Theory and Agency Theory). Management, 19(2), pp.84-92.
González, J. S. and García-Meca, E. (2014). Does corporate governance influence earnings management in Latin American markets? Journal of Business Ethics. 121(3). 419-440.
Hartman, L. P., DesJardins, J. R. and MacDonald, C. (2014). Business ethics: Decision making for personal integrity and social responsibility. McGraw-Hill.
Jones, T.M., Wicks, A.C. and Freeman, R.E., (2017). Stakeholder theory: The state of the art. The Blackwell guide to business ethics, pp.17-37.
Soltani, B. and Maupetit, C. (2015). Importance of core values of ethics, integrity and accountability in the European corporate governance codes. Journal of Management & Governance. 19(2). 259-284.
Waldkirch, M. and Nordqvist, M., (2016). the Case of stewardship theory. The Routledge Companion to Family Business, p.401.
Weiss, J. W. (2014). Business ethics: A stakeholder and issues management approach. Berrett-Koehler Publishers.
Zadek, S., Evans, R. and Pruzan, P. (2013). Building corporate accountability: Emerging practice in social and ethical accounting and auditing. Routledge.
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