Discuss about the Corporate Governance for Omantel.
Omantel is a leading telecommunication service provider the Sultanate of Oman. It is the largest listed organization in the Muscat Securities market. The company provides domestic and international telecommunication services in Oman and the vision of Omantel is to become the most valuable brand in the telecom space. Currently, the company is planning to adapt to the government’s privatization policy and follow the rules defined in the policies of liberalization and deregulation. As per the regulatory requirement, the company would have to sell 30% of its shares to increase the government share in the undertaking to 51%.
The move to adapt to government policies needs the company to follow highest standards of services that are audited by the government. Thus, the company needed to follow the policies and ethical standards of the corporate governance in Oman. For this, the company needs to adapt to the corporate governance standards and establish internal controls to assure its adoption. The organization needs to comply with the regulatory requirements of Telecommunications Regulatory Authority and Commercial Companies Law.
This report would explore how corporate governance procedure can be adopted by the company and how this move would affect various areas of the organization including people, finance, marketing, strategy, operations, and project management.
Corporate governance is a system that is used for providing a structure and guidance to organization which helps it to take decisions related to corporate affairs, shareholders, board of director configuration, using certain rules and policies (NAWRAS , 2010). Key parties to corporate governance structure in any organization include organization management, government authorities or agencies, stock exchanges, shareholders, auditors, and other important stakeholders including suppliers, funders, employees, creditors, company customers and the community. The main interest of all these parties is to ensure that the organization performs well financially.
There are certain principles that have to be followed by the organization adopting the corporate governance framework used in Oman. These principles include:
Shareholder Rights: Shareholders of a company have certain rights that they must be free to exercise for which the organization must help them in by effectively communicating the information about the company performance during the general meeting where they are allowed to participate in.
Stakeholder Rights: The Company should identify if there are any legal or other forms of obligations with stakeholders and must work to fulfil them
Board Responsibilities: Board has to have both understanding and skills to deal with the problematic situations as well as they should be able to challenge the management procedures. A board needs to have sufficient members to ensure that appropriate level of commitment can be received from them considering all responsibilities of the board. The board must include a mix of executive and non-executive board members.
Integrity and Ethics: An organization must use some codes of conduct for directors and for executives such that ethical and responsible decisions can be made and lawsuits are avoided.
Disclosure and Transparency: Roles and responsibilities of the board as well as the organization management must be clearly communicated the shareholders of the organization. At the same time, the company must also protect the integrity of its financial reporting. The disclosures made by the organization have to be timely and balanced with clear and factual information about the company.
Oman based organizations have to follow the highest standards of corporate governance which includes adoption of codes specified by Capital Market Authority (CMA) and regulations issued by the Central Bank of Oman (CBO).
In order to adopt the governance procedure, Omantel would follow some governance codes related to appointment of board of directors, establishing internal controls, and achieving transparency in business deals.
Selection of Board of Directors: There are five members selected in the board of directors including the chairman and 4 other members who are representatives of the government. Assistant General Manager of the company makes the selection of remaining four members. The board runs four special committees, each consisting of at least 3 of the board members. These committees handle areas of corporate governance for Omantel and advise the board and make recommendations. These committees include:
The remuneration that the board members receive for attending the meeting for participation is determined during the assembly general meeting. An annual general meeting including the members of the board and its shareholders is conducted which involves Executive Directors, Non-Executive Directors, and its shareholders.
Financial Reporting and Disclosure: the company adheres to the Capital Market Agency Standards for disclosure of its operational information. It follows International Financial reporting Standards for disclosure of financial statements. The company publishes its financial reports quarterly in the newspaper for declaration. Stakeholders are also communicated about the results by sending those details individually. The financial reports not only include regular financial data but also management and governance data. The company is the winner for Ethical Boardroom for using sustainable and ethical governance practices in the organization.
People include all the stakeholders of the company such as sponsors, shareholders, employees, customers, suppliers, channel partners, government, and public. As corporate governance is an ethical and moral practice of governance, the public and government already receive the benefit from operations that are legally and morally correct. Further, shareholder interests are better preserved with transparency of operations and information disclosure. The sponsors or owners are involved in strategy making and execution decisions increasing their understanding of operations as well as providing them chance to make a contribution to the success of the organization. Further, because of information disclosure and strategic alignment of operations with the organizational goals, the managers, employees, and shareholders are likely to be more satisfied with the performance. Corporate governance also engages into marketing and operational audits such that the products are made as per the customer expectations which is an obvious value add for customers. Thus, customers can be more satisfied and trust the organization.
Corporate Governance procedure can help resolve the hold-up problems that are caused due to appropriation of rents when owners cannot use the resource beyond a limit for investment. This is possible because corporate governance procedures separate ownership from control. The corporate governance results into alignment of interest of managers of the organization with the owners. This is made possible using three approaches:
Marketing can get affected by the policies of disclosure which is adopted with the use of corporate governance. When market orientation is seen from the perspective of the data processing or disclosure, it can suggest three types of constructs including market information, its dissemination, and responses to information.
Managers identify market opportunities as well as problems to gather the market information. This information is majorly useful for the employees of the organization. If the dissemination of the information in this case is efficient then it would help employees make use of it in a better manner and the customers would also get benefited. With the use of corporate governance principles, the flow of this information can be organized which would add value to the customers. Moreover, with corporate governance disclosures, the company would be required to disclosure some marketing related information to the customers which would build confidence in the customers.
New product pronouncement is another area of marketing which a new product is introduced by an organization in the market. With information disclosure agreements, the company would have desired information to be disclosed to public for this preannouncement. This would enhance the interactions between the company and its customers, helps Company maintain its market advantages, and improve the quality of new products launched by the company (Ho, et al., 2010).
Moreover, with corporate governance adoption, the market audit function can also be added to the monitoring and control structure of an organization. This would help company perform an official examination of the marketing results and prepare a report that can help management assess the potential and effectiveness off their marketing efforts. A comprehensive vision on both internal and external aspects and impacts of marketing can be formed. A research done on a Jonardian company, to understand the impact of corporate governance, on marketing found that marketing audit helped company gain a considerable performance advantage in its marketing. It acted as a framework for an effective planning such that external perceptions could be maximized to the company’s benefit as well as demand can be generated. Periodic audits helped company keep track of any impacts happening on customers due to modifications made in marketing strategies. Some factors contributing to the success of marketing audit were determined and they were experience of the auditor, independence of audit, and its acceptance by employees (Hashem, et al., 2016).
A corporate strategy involves processes of formulation of strategies and their implementation in practice. Its focus remains on decision making. In the traditional methods of strategy formulation, the perspectives of decision makers and the rationality of their behaviour were important factors. Because of the existence of a diverse set of such perceptions and behavioural approaches, there were different types of strategy formulation methods that were used. However, one problem that was identified in this approach was that the strategy formulation remained at an immature level because of this variation but its implementation was at a later stage of maturation which was focused on the monitoring and control of procedures. Both strategy formulation and implementation are closely connected and thus, need to evolve together and thus, strategy making needs to be more integrated, rational and performance oriented to make implementations also effective. Thus, strategy formulation needs a bounded rationality and involvement from Board of Directors, managers, employees as well as shareholders. Corporate governance would ensure that the rationality is maintained and the involvement of desired parties is obtained.
A more formalized and organized approach to strategy formulation can be determined using corporate governance principles. This would require an organization to follow a stepwise procedure for strategy formulation. Moreover, the involvement of Board would be made possible which would make the board members responsible for strategy-making. Involvement of employee would also make a difference in strategy formation when the company goes by the rules of corporate governance.
Moreover, corporate governance lets a company take a look at the strategic issues from the lenses of transaction cost which can actually affect the strategic moves of the organization. One major factor that would lead to the impact on strategic decisions because of cost factors includes self-interest of human actors. Opportunism, for instance, can exist in a decision maker which would lead to selection of strategy that may be morally damaging. Corporate governance assists an organization through elimination of this opportunism. Involvement of the board of directors in strategy making as well as other stakeholders ensure that conflicts between them are resolved before taking any strategic decision.
Further, the corporate governance related disclosures on strategy would push decision makers to ensure that their strategies remain aligned with the objectives of the stakeholder’s objectives. This would reduce the residual loss of shareholders, enable organization to make scientific decisions based on governance checks, attain organizational rationality instead of individual rationality, provide better supervision and control with involvement of board, reduce moral hazards, and improve organizational performance (Youzhi & Yongfeng, 2011).
Involvement of the Board of Directors through corporate governance demands accountability from legal owners, moral owners as well as operational managers of the organization. Their authority acts as a controlling command. Principles of policy management can also help empower employees while maintaining his control. Such a system not only provides a strategic direction but also provides guidance into deployment of the policy. Corporate governance framework encompasses all management dsiciplines to build a moral and ethical foundation for operations. For instance, the board of directors can discourage rubber stamping and micromanagement of activities by business leaders or managers in an organization.
As per the corporate governance framework, operational definitions change with adoption of good governance. The quality of operations in this view is determined by effectiveness, efficiency, economy and representation. Thus, before any operational policy is formed or implemented, the corporate governance would push the management to run a check on this quality aspect of the decision. There are three types of defects that can occur in a quality of operations and these are:
Good governance asks questions on how a company operates and thus, a strategic direction is given for operational management such that results of operations are reported to the top management with performance highlights achieved against operational objectives. A policy framework established within the governance framework can help business leaders take strategic decisions for executing tactical actions for operational management. A balanced scorecard is often used for describing organizational performance from the perspectives of stakeholders. This makes the performance measurement system action oriented creating a link between internal and external measures of performance.
In operational terms, good governance can be achieved when following conditions are met:
Project management by itself only provides control over a single project. However, a company may have multiple projects to handle and they may be using same resources at different times and thus, there is a need for program control and management to make organizations operate more effectively on all projects. Corporate governance can help establish a framework that can be used for supporting multiple projects in an organization. As per the guidelines of Association for Project management, there are four components to using corporate governance for project management and these include:
Portfolio Direction: Project governance procedures ensure that all the projects taken by an organization can be identified with one unified portfolio of projects. It also makes company evaluate each project with respect to the strategic objectives of the organization, an element which is missing in traditional methods of project management. This can help mend the gap between the project management success and project success.
Project Sponsorship: Through the use of corporate governance, a link is established between the owners and the management such that the project sponsor is made accountable and responsible for decision making and directing. With the involvement of the project sponsor on projects, the probability of project success through efficient execution increases.
Project Management capability: Project managers are made accountable for achieving strategic objectives connected to projects and thus, their project management effectiveness as well as efficiently is improved.
Disclosure and reporting: A relevant, reliable and timely disclosure of project information for effective decision making is ensured with the disclosure agreement of the governance framework. An effective reporting process can help organization not only measure the key indicators of success but also its key drivers increasing the probability of achieving success.
Conclusions & Recommendations
It was found that corporate governance adoption is directed towards creation of a more controlled and performance oriented business environment and it majorly affects almost every aspect of business operations including its people, strategy formulation, marketing, finance, and project management. Considering the case of Omantel which is at the initial stages of adoption of corporate governance, some recommendations can be made on efficient use of corporate governance framework which would help the company achieve success in business in the long run. These recommendations include:
References
AFG, 2010. Recommendations on corporate governance, s.l.: AFG.
Bank Muscat, 2016. Corporate Governance Statement. [Online]
Available at: https://www.bankmuscat.com/en-us/InvestorRelation/aboutus/Pages/CorporateGovernance.aspx
[Accessed 14 December 2016].
bertin, M. E. J., 2005. The Impact of Corporate Governance on the Quality of Management, s.l.: International Academy for Quality.
Hashem, T., Hashem, A., Hashem, F. & Ayoub, F., 2016. The Impact of Corporate Governance on the Quality of Marketing Audit in Jordanian Industrial Public Shareholding Companies. International Journal of Business Administration , 7(2), pp. 60-70.
Ho, S.-H., Wu, J.-J. & Chen, Y., 2010. Influence of Corporate Governance and Market Orientation on New Product Preannouncement: Evidence from Taiwan’s Electronics Industry. Asia Pacific Management Review, 15(1), pp. 1-14.
Maher, M. & Andersson, T., 1999. CORPORATE GOVERNANCE: EFFECTS ON FIRM PERFORMANCE AND ECONOMIC GROWTH, s.l.: OECD.
NAWRAS , 2010. NAWRAS CORPORATE GOVERNANCE MANUAL, s.l.: NAWRAS .
Youzhi, X. & Yongfeng, G., 2011. Corporate Governance Effects of Strategy-making Process, Tianjin, China: M & D FORUM .
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