Corporate Governance and Decision-Making

Discuss About The Governance Consequences Accounting Scandals.

The study at hand intends to analyse specific roles of corporate governance that is to make certain that strategic directions are framed in best interests of business concern. The current research paper also put forward the fact that swift response needs to be undertaken to remedy various managerial circumstances and activities that are not in conformity with the best interests of the corporation. Moving further, the study at hand also presents way outs that can help the corporation to move forward reliably.

Corporate governance is the system of rules, practices and processes by which a firm is directed and controlled (Scott 2015). Corporate governance essentially involves balancing the interests of a company’s many stakeholders, such as shareholders, management, customers, suppliers, financiers, government and the community. Since corporate governance also provides the framework for attaining a company’s objectives, it encompasses practically every sphere of management, from action plans and internal controls to performance measurement (Singleton-Green 2016)

As mentioned in the given article companies can be said to be a nexus of decision. The quantum of each day’s decision making either moves the business enterprise forward sometimes in their best interest, to the rear from the best interests or else leaves the corporation in a neutral position in association to the best interests. As suggested by Jones (2015), a good decision in a specific moment might not a good division in the following moment owing to altering variables. As a consequence, constant vigilance can be considered to be imperative. Successful corporations in the long term period are the ones that frame better economic decisions in comparison to other competitors. There is no corporation that is resistant to corrupt decision making (Oldroyd et al. 2015). In competitive markets, optimum performance is relative and not absolute provided various complexities engaged in the process of appropriate decision making.

In addition to this, the viewpoints presented in the current article state that optimal decision making can be said to be intricate and a multifaceted advance to governance of decision making is necessary. In essence, this necessarily includes a combination of various targeted directive, different internal values, moral based decision making, leaders with moral values, rigorous procedure of selection for hiring employees, zero tolerance for bad decision making, flat framework dominated by various democratic procedures and genuine empowerment to confront decision making (Susilawati et al. 2016). Therefore, there are certain combinations of different elements for arriving at proper decision making,

The Importance of Agency Theory

The current article draws reference to agency theory that indicates towards fiduciary duties that are essential to avert the propensity of the agent to engage in the process of self dealing. It can be seen that in the corporate world, this fiduciary duties are inevitably protected in regulations and reinforced with supplementary provisions to make certain that directors can frame decisions chiefly in the best interests of the business concern (Henderson et al. 2015). Again, this is juxtaposed against the setting of maximizing profits as well as returns for shareholders that is necessarily analysed within the perspective of short term period.

The study at hand mentions that the provided the situational nature of decision making, it is quite easy to understand the reason behind failure of conventional approaches to regulation at the time of competing to be responsive when diverse directors are encountered with the stimulating combination of instantaneous pressures of business combined with the tempt of self-interest. It is because of this dependence on only reporting can be said to be inadequate (Williams 2014). The article at hand hereby stresses on the fact that the advent of constant disclosure and augmented emphasis on materiality that can help in development of better environment for decision making. In this connection it can hereby be mentioned that these approaches of constant disclosure can facilitate the process of, making good sense as regards business decision and firms have the need to stick to these approaches.  Basically, the inclusion of materiality of stakeholders along with constant disclosure in the framework for governance cannot replace good decision framing (Dodd 2017).

In addition to this, the current research study at hand also sheds light on the trust factor in this regard. As per the current study, trust can be considered as the definitive currency of attainment of success in various market driven economies and fundamentally trust can be enhanced through dependable information from diverse remarkable sources. In essence, business enterprises that undertake proactive advances to produce trust by means of enhanced transparency of decision making processes can acquire competitive advantage (Tricker and Tricker 2015). This does not necessarily call for an external structure of reporting or else processes of accounting that can cost the business enterprise both time as well as money. Nonetheless, this does not indicate towards the fact that business enterprises do not have the need to report, it is only that reporting process alone cannot prove to be a substitute for proper decision making. Bearing in mind the above mentioned fact, it can be said that consistent as well as dependable decision making can help business enterprises to operate faster and create innovative ways of expressing the manner and the reason behind why the firms can be trusted without any kind of external influence (Dimopoulos and Wagner 2016).

The Role of Trust in the Governance of Decision-Making

As per the given article, corporation can be regarded as something spoiled. Consequently, any kind of imperfect decision that is not in the best interest of the corporation can be referred to as corrupt decision. Analysis of the given article reveals the fact that one particular economic decision can be regarded as the first decision in the way towards corporate collapse. Fundamentally, all corporate collapses start with ethical lapse in one decision that is frequently followed by attempts to mask poor decisions initially (Armstrong et al. 2015). It can be hereby further added that each corrupt decision that does not direct the way towards corporate collapse is inefficient when considered in association to optimum performance of company. Du Plessis et al. (2018) suggest that decisions framed by imperfect individuals are effectively prone to irrational, emotional else wise self-interested decision making. Essentially, this might perhaps not be in the best interest of the business concern. Individuals are intrinsically flawed, as a result, corrupt decision making can be considered to be a norm and not exclusion.

As mentioned in the current article, corporate collapse necessarily begins with the board of the firm and is related directly to different players involved in the process. Here the author is of the view that all business enterprises suffer inefficiencies owing to policies set by the management. The study further adds that it can be witnessed in several cases that business concerns necessarily become de-facto fiefdoms. Essentially, decision making revolve around specific information that necessarily feeds the ego as well as belief system of the entire management, thereby limiting bounded consistency. Again, studies conducted by various other scholars also substantiate the fact that poor strategic decisions can direct the way towards poor outcomes. Breitbarth et al. (2015) suggest that failure is not necessarily owing to unforeseeable incident. Primarily, the company that has failed to actually know about the state of affairs, however chose not to act in this regard. 

Thorough evaluation reveals that employees necessarily operate to earn their living and depend on their salaries. Thus, they frame decisions as per their own interests. Again, managers engage in appeasement of CEO s and make certain removal any potential threats to their positions. As such, this replicates the interests of the managers and not that of then business enterprise. This in actual fact shows that different players involved often attempt to avert heavy lifting and fail to work in the best interests of the company (Agrawal and Cooper 2017). The given article proposes that good corporate governance thus has the need to facilitate the process of recognition of different players of a firm within an organization who do not frame decision by taking into consideration the best interest of the business enterprises. Particularly, this specific information has the need to be made available to various stakeholders of the corporation. However, it is easier said than done as certain players are extremely adept in manipulating truth and persuading others that they are right. This view is also supported by other scholars as well. Many other scholars uphold the view that executives with the potential to deliver on the processes of decision making keeping in mind the interests of the company are important. Larcker and Tayan (2015) assert that the ones framing best possible decisions need not hide anything and good corporate governance is the way of transforming a good company to become a great one. However, in this context, Aguilera et al. (2015) argue that the identified concern does not get resolved by mere identification of requisite executives as all executive officers are human beings.

Corporate Governance and Corporate Collapse

In addition to this it can be mentioned in this regard, situations do alter, business pressure escalates, and temptation of self-interest is also unavoidable. Keeping in mind the gravity of the concern, it can be hereby mentioned that there is need for a robust along with comprehensive scheme of constant vigilance. This constant vigilance is said to shed light on processes of decision making particularly in the best interests of the company. As rightly put forward by Davies (2016), corruption is said to adversely influence economic development of a particular nation and in this regard preventive vigilance can help in lessening overall level of corruption and contribute positively towards proper governance. Scott (2015) put forward the view that corruption can hinder overall development of a country and generate inequalities in the system of income distribution as well as wealth. Scott (2015) further adds that decisions of expansion of a business, swift plans of expansions along with various unplanned decentralization and might perhaps  lead to specifically corruption in case if fitting control systems of management are not established.

Moreover, swift response also needs to be undertaken to remedy situations that are not in line with the best interests of the business concern. There are many other academic scholars who agree that it is important to institute a specific system that can aid in the process of facilitating swift and fast managerial decision (Singleton-Green 2016). This might perhaps include framing decisions founded on discussions carried out with directors of a business enterprise. Therefore, in this regard it can be hereby be mentioned that board of business enterprises have the need to institute a specific system that can help in facilitating swift process of managerial decision making. In this case, the board also need to be independent enough to make certain higher accountability with the intention of further enhancing corporate governance (Henderson et al. 2015).

Conclusion

The above mentioned study helps in gaining profound insight regarding the roles of corporate governance that can shape directions of strategic decisions that are framed in best interests of firms. In addition to this, the study at hand also outlines specific characteristic features of consistent and reliable corporate decision making. Over and above that, this segment also elucidates in detail about corporate corruption, corporate collapse along with approaches for mitigation of the identified concerns. This study highlights the fact that identification of different players whose decisions are self directed and do take into consideration interests of the companies as whole. Decisions made by this kind of individuals are said to affect the strategic direction of decision making and direct the way towards poor corporate governance. Subsequently, yet another mitigation strategy as mentioned in the study is the fall out of the processes of identified of different players. Furthermore, other strategies of mitigation also include constant vigilance of reports and swift response on the part of the company.  Moving further, the study at hand also presents way outs that can help the corporation to move forward reliably.

References

Agrawal, A. and Cooper, T., 2017. Corporate governance consequences of accounting scandals: Evidence from top management, CFO and auditor turnover. Quarterly Journal of Finance, 7(01), p.1650014.

Aguilera, R.V., Desender, K., Bednar, M.K. and Lee, J.H., 2015. Connecting the dots: Bringing external corporate governance into the corporate governance puzzle. The Academy of Management Annals, 9(1), pp.483-573.

Armstrong, C.S., Blouin, J.L., Jagolinzer, A.D. and Larcker, D.F., 2015. Corporate governance, incentives, and tax avoidance. Journal of Accounting and Economics, 60(1), pp.1-17.

Breitbarth, T., Walzel, S., Anagnostopoulos, C. and van Eekeren, F., 2015. Corporate social responsibility and governance in sport:“Oh, the things you can find, if you don’t stay behind!”. Corporate Governance, 15(2), pp.254-273.

Davies, A., 2016. Best practice in corporate governance: Building reputation and sustainable success. Routledge.

Dimopoulos, T. and Wagner, H.F., 2016. Corporate Governance and CEO Turnover Decisions.

Dodd, E.M., 2017. For whom are corporate managers trustees?. In Corporate Governance (pp. 29-47). Gower.

Du Plessis, J.J., Hargovan, A. and Harris, J., 2018. Principles of contemporary corporate governance. Cambridge University Press.

Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting. Pearson Higher Education AU.

Jones, S. ed., 2015. The Routledge companion to financial accounting theory. Routledge.

Larcker, D. and Tayan, B., 2015. Corporate governance matters: A closer look at organizational choices and their consequences. Pearson Education.

Oldroyd, D., Tyson, T.N. and Fleischman, R.K., 2015. American ideology, socialism and financial accounting theory: A counter view. Critical Perspectives on Accounting, 27, pp.209-218.

Scott, W.R., 2015. Financial accounting theory (Vol. 2, No. 0, p. 0). Prentice Hall.

Singleton-Green, B., 2016. Discussion of “articulating accounting principles: Classical accounting theory as the pursuit of ‘explanation by embodiment’”. Journal of Applied Accounting Research, 17(2), pp.136-138.

Susilawati, M., Ludigdo, U., Irianto, G. and Baridwan, Z., 2016. Frame Value of Strategic Management Accounting Based on The Balance of Tri Kaya Parisudha.

Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and practices. Oxford University Press, USA.

Williams, J., 2014. Financial accounting. McGraw-Hill Higher Education