Question 1
In designing a new system for corporate governance, one must consider the principles of integrity, fairness and equity that business advances an ethical business practice towards shareholders and stakeholders (GC-11, 2008). In this sense, the shareholder-centric system, with the unitary board and non-executive directors that oversight the control answers the criteria of fairness towards shareholder, as it is comprised of both members of the companies and of unaffiliated corporations, which met separately to assure righteous oversight (CG-11, 2008). The stakeholder centric system with non-shareholder controlling owners assured a separated oversight from management through its two-tier board, which raises criticism on how directors are appointed and generate doubts on biased practices (Muswaka, 2014). The board composition based on business relations influence different interests and that might favor the highest controlling institution. Independent commissions, formed from objective members works on subjective principles and they can compromise the boards by their biased participation (CG-11, 2008). external auditing systems should assure integrity in the published financial statements, but often facilitate the aggressive accounting practices of their clients because of the high fees auditors receive from the investigated organizations. In this sense, a shareholder-centric unitary board and non-executive directors, combined a rigid and non-biased external audit commission is the governance system that should be most effective.
Question 2
I believe standards of governance should be legally imposed, as it is the case in China and Germany, because if they are left at the discretion of the company, shareholders and especially stakeholders can press organizations to favor their interest, resulting in biased and ethically compromised governance. On the other hand, legal mandate can raise strict limitations on companies’ governance, further influencing its performance. Therefore, I consider that the state should have a specific involvement in legally mandating corporate governance, focusing on preventing non-ethical and fraudulent practices (CG-11, 2008).
Question 3
The comply-or-explain practice permits the companies to explain their actions, in case they do not comply with the legally mandated dispositions (CG-11, 2008). This practice favors the compliance tendency, leading to a mechanical exercise on shaping corporate governance as a uniform standard (IMD General, 2002). The economic factors guiding this practice refer to transparency aspects, based on which companies must disclose information such as executive or director compensation, but also practices that do not comply (IMD General, 2002). However, an uniform corporate governance can lead to a uniform economic dynamic that might hinder national economy development. Socially, the factors guiding this practice refer to assuring good governance for shareholders and favor the values of corporate social responsibility, as part of complying with the accountability principles (IMD General, 2002). Companies are encouraged to act responsibly, hence, from a social perspective this practice is effective, although not entirely effective from an economic point of view, as it hinders economic progress.
Question 4
Like any other shareholders, employees are concerned about their own interests, which may contradict the company’s best interests. Having employees as representatives on the board would favor employees’ in terms of salaries and working hours, which might disadvantage the performances of organizations. However, their presence in the board might also lead to more balanced relationship between executives and executants. If I ran a major company, I would integrate employees on the board serving in supervisory capacity and have a saying in the strategic vision only upon request.
Question 5
The Japanese keiretsu system of interrelation favored shared governance from suppliers, customers and the companies also that have limited, yet significant ownership (The Economist, 2009; CG-11, 2008). Compared with the French system of societé en commandite par actions favored a significant influence by financial institutions of founding families, the Japanese system is les biased, as it advances the interests of all the major shareholders (The Economist, 2009; CG-11, 2008). The American model, based on professional managers that constituted the board of directors and the controlling mechanism of publicly traded companies favored the best interests of organizations, hence it has the advantages of a total company ownership, compared with Keiretsu (CG-11, 2008). The advantage of Keiretsu refers to transforming an adversarial relationship into a collaborative one (The Economist, 2009). Its drawbacks include insufficient company ownership hence limited power in guiding the corporate governance and the insular nature, “unreceptive of outside influence” (CG-11, 2008). As the case of Toyota reveals, representatives from affiliated companies can be more effective than independent directors, because they are more knowledgeable of the company’s strengths and strategies (CG-11, 2008). On the other hand, the independent can be also effective, even more so, if they have expertise in the areas that can assure an ascending development for companies (The Economist, 2009).
Question 6
Toyota’s committee structure reflects the company’s keen focus on protecting its interests by assigning no outsiders on the board, according to the 2007 structure (CG-11, 2008). Because the board members were highly experienced in working in the company, they followed the best interest of Toyota. On the other hand, growing in a single business environment and experiencing a sole type of corporate governance might be an impediment to progress, driven by trying new trends and new business approaches. It is difficult to assess whether Toyota’s success was achieved because or in spite its governance structure. While its structure generated the advantage of shaping a renowned business model, the Toyota Way, influential for many other companies around the world, it cannot be predicted how the company would have performed if it had adopted a different, more diverse structure.
Question 7
The cases of Michelin, Rosneft, Wallenberg and PetroChina are examples of potential situations of abuse of power. Having national influence upon other economic actors, disadvantages the economic dynamics within a country, as it was the case of Rosneft, who used its governmental influence to put pressure on creditors and to purchase the assets of a bankrupt business (CG-11, 2008). Furthermore, the case of PetroChina or Wallenberg suggest that companies with national identity and influence can impact the economy.
References
CG-11 (2008) Models of corporate governance: Who’s the fairest of them all? Rock Center for Corporate Governance. Course material.
Internal Market Directorate (IMD) General (2002) Comparative study of corporate governance codes relevant to the European Union and its member states. IMD General.
Muswaka, L. (2014) The two – tier board structure and co-determination. Mediterranean Journal of Social Sciences. 5(9): 142-147.
The Economist (2009) Keiretsu. Retrieved from http://www.economist.com/node/14299720.
