Thorough Analysis Of Issues In Corporate Governance

Gender Diversity in Corporate Governance

Corporate governance shapes and guides the organisation into working and functioning systematically. The board of directors constructs the framework of regulations and practices by which the organisation functions. Now, it is obvious that these practices differ from one another according the government policies and the objectives of the organisations. In the following discussion a thorough analysis of various issues that arise in corporate governance world is enunciated.  

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1. a. The incorporation of gender diversity in the world of corporate governance have gained a lot of attention in recent time. However, the actions taken towards this inclusion in organisations have been at a slow pace. The issues in the article by Patten (2018) is that there is an increased proportion of women working on the boards of Australia’s largest companies that continues to rise with a score of 28.3% from 25.4% reported a year before. The increase in this context show that there are huge number of women who are designated at the senior most position of leadership ASX200 or corporate governance companies. Therefore, it is evident that the gender diversity are gaining the lot of attention as found out in the article and the corporate governance principles are need to be introduced for the gender equality. According to such principle, the board need to ensure the strategic management of the company, the proper monitoring of the management and need to act responsibly towards both the society and the shareholders. This looks after the scope of equal opportunities among men and women have been a rising issue over the period in distinctive fields (Patten, 2018). The inclusion of female board members in leading organisations of Australia have gained momentum in recent scenario. The recent figures have shown an increase of 3.1% of women on Australia’s boards compared to previous year’s outcome (Patten, 2018).

On the contrary, in the second article by Starbuck, (2014), the author highlights the issue by arguing over the issue of corporate governance and recommends a possible way to engage the stakeholders in the functions of governance. However, the article ushers four major issues, firstly it has been argued that various kinds of organisation needs to have different types of government procedures. Secondly, humanity needs to set up priorities for their objectives, thirdly ideas about the governance needs to be concerned with the technological and social changes that are operating within the organisation. Finally, the board of directors usually exercise a weak form of governance in relation with the governance by the management hierarchy.  Therefore, based on the issues, the article outlines a necessity to enhance the nature of managerial governance as well as the behaviour of the stakeholders. The benefits of diversity among the board of directors have been realised by majority and because of which this is a raising topic in the world of corporate governance around the globe (Starbuck, 2014). The Board of Directors of any organisation plays a major role in decision-making and as a result of which have a strong influence over the organisation for a long run. In addition to this, the increasing pressure from the shareholders for incorporating greater diversity in organisations have paved the way for including gender diversity in the world of corporate governance (Patten, 2018).

Recruiting Based on Social Connections in Corporate Governance

In context of this, it can be said that in today’s world, the appointment of board members in large companies are heavily influenced by social connections (Smith, 2018). Therefore, discarding the aspect of fair play and justice in the selection procedure of members in board members as well as in choosing the staff members. It has been observed that huge companies tend to appoint the members of the board not from any outside source instead from the social connections established with the existing or former member of the board (Kramarz & Thesmar, 2013).

In doing so, the organisations are neglecting the qualified and efficient candidates but lack any social connection or tie up with the inside members of the Board. In fact, the focus of recruitment of board members have shifted from quality of the candidates to social connections that the candidate have with the other members of the board. The issue of recruiting board members based upon the social connections have been existent in today’s world as well. Henceforth, jeopardising the very role of executing equality and fair play within the world of corporate governance. 

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1 b. Channelling diversity in organisations have become a major initiative in recent times. The diversity theory involves the Diversified board members or staff members within an organisation could contribute tremendously towards the success of it in the competitive market. There are many small and big companies that have diversified members like the Chief Diversity officer, recruiter, D&I consultant and others. The acceptance of the companies for the diversity of thought and therefore the cultural diversity enhances the actions of the company (Abatecola, Mandarelli & Poggesi, 2013). The chosen article showed that there has an increasing consensus that gender diversity has capability to enhance the financial and social performance of the companies. This is because female directors who are working on boards of the companies have constantly grown during the current period. Therefore, the issue of gender balance within corporate organisation has increased in the current year. As stated by Rao & Tilt (2016), research in this context highlighted that Women tends to focus more on the environmental behaviour and climatic change along with increased focus on work oriented activities that are necessary for the organisation (Peregrine, 2018).  According to the diversity of thought based corporate governance theory, the board of members has an essential role in resolving the issues by ensuring the balance in between different members and the managers. In this context, the diversity has the capability to enhance the board with different skills experiences and behaviours (Albers, Wohlgezogen & Zajac, 2016).

Channelling Diversity in Organisations

In context of selection of member for the board, the participation of women have increased in Australia since the previous year. The new figures demonstrate that the percentage of female directors in the field of board members have hit the figure of 28.5% (Patten, 2018). Even though this figure is a progressing result still the ideal target of achieving gender diversity is lagging behind. According to John Mulcahy of Mirvac, the ideal target of incorporating female directors is 50% however, the results are far from reaching this target (Patten, 2018). Even though the inclusion of gender diversity in the field of corporate governance have been raised and incorporated to some extent. The inclusion of this regulation is still lagging behind as there are still major companies around the world that do not practice this regulation (Basu, 2018).

In addition to this, the issue of recruiting board members based upon social connections instead of the candidates qualities have been existing over a long period. The regulation of executing independent directors board in organisation have been jeopardised because of this issue. The vine of social connections and its impact in the recruitment process is an ill practice that defies the regulation that the world of corporate governance means to execute. In addition to this, the practice of recruitment strategies such as referrals have been encouraging this issue to a whole new extent (Claessens & Yurtoglu, 2013). Therefore, impacting upon the organisations reputation and success. 

2. The issue of bringing in diversity among the board members have been highlighted in contemporary time in the world of corporate governance. Even though the awareness to this issue have given rise to organisations actively incorporating regulations that would promote diversity among the board members of the organisation. In order to regulate diversity in boardrooms it is extremely essential that a skill-based framework of the organisation be established (Deloitte.com, 2018).

From the article stated by McCahery, Sautner & Starks (2015), the first issue is that the larger organisation have several degrees of freedom, those impacts on the efforts to control the operations. Therefore, in order to manage the issues, there has to be major changes made within the corporate governance strategy. Boards and directors of the organisation hardly take any stringent actions against the management. Therefore, governance laid down by the management can be expanded effective when the senior managers takes the inputs from the people whom they perceive as subordinates, everyone including the CEO of the organisation needs to listen more careful to solve certain issues within organisation. Again, in case of gender diversity issue, it can be recommended that heterogeneous members of board’s will be able to satisfy the needs of various stakeholders of the company and will be able to supervise the behaviour of the executive in a stronger way (Peregrine, 2018).

Skill-Based Frameworks in Corporate Governance

From the article stated by Smith (2018) the second issue that have been existing over the period is the recruitment of board members depending upon their social connections instead of their skills. For the discarding this issue and improving the scenario, a strict recruitment policy shall be incorporated within the organisation (Wilensky, 2015). This regulation shall eradicate any practice of referrals or recruitment via social connections and would strictly hire board members depending on their quality and experience. In United States the Securities and Exchange Commission (SEC) regulations ensures that the board of directors would be independent and therefore, the term ‘independent directors’ come into existence (SEC.gov, 2018).

From the article stated in the Financial Review, (2018) the third issue that are quite often appear in the world of corporate governance is the lack of appropriate remuneration policy that have are incorporated within the organisation. Since the policy are approved in accordance from the Board of Directors and the Management team, a bad managerial decisions often lead into consequences. Therefore, the management team that have the expert experience regarding the organization structure have the capability of foreseeing the possible threats affecting the regulation.  This shall help in avoiding the clash of remuneration policy with that of objectives of the organisation. Henceforth, the management plays an extremely significant role in the regulation of the remuneration policy and guidelines in any organisation.

Conclusion

Therefore, form the above discussion it can be said that the significance of corporate governance is essential in any organisation. However, the rules and regulations incorporated within the organisation must not be vague and establish suitable standards. The above mentioned recommendations shall help in tackling with the issues related to corporate governance. 

References

Abatecola, G., Mandarelli, G., & Poggesi, S. (2013). The personality factor: how top management teams make decisions. A literature review. Journal of Management & Governance, 17(4), 1073-1100.

Basu, A. (2018). The challenge of local feminisms: Women’s movements in global perspective. Routledge.

Claessens, S., & Yurtoglu, B. B. (2013). Corporate governance in emerging markets: A survey. Emerging markets review, 15, 1-33.

Financial Review. (2018). afr.com APRA: Bank pay is out of step and must change. Retrieved from https://www.afr.com/business/banking-and-finance/financial-services/apra-chairman-wayne-byres-says-banking-executive-pay-is-out-of-step-and-must-change-20180904-h14x9g.

Kramarz, F., & Thesmar, D. (2013). Social networks in the boardroom. Journal of the European Economic Association, 11(4), 780-807.

Patten, S. (2018). ASX200 boards near 30pc gender target: AICD. Retrieved from https://www.afr.com/leadership/asx200-boards-near-30pc-gender-target-aicd-20180906-h1501q

SEC.gov | Boards of Directors, Corporate Governance and Cyber-Risks: Sharpening the Focus. (2018). Retrieved from https://www.sec.gov/news/speech/2014-spch061014laa

Smith, S. (2018). Company boards are stacked with friends of friends so how can we expect change?. Retrieved from https://theconversation.com/company-boards-are-stacked-with-friends-of-friends-so-how-can-we-expect-change-95790

Starbuck, W. H. (2014). Why corporate governance deserves serious and creative thought. Academy of Management Perspectives, 28(1), 15-21.

Www2.deloitte.com. (2018). deloitte.com. Retreieved from https://www2.deloitte.com/content/dam/Deloitte/za/Documents/governance-risk-compliance/ZA_Board_Diversity_Full_Article.PDF.

Wilensky, H. L. (2015). Organizational intelligence: Knowledge and policy in government and industry,19. Quid Pro Books.

Peregrine, M. (2018). Corporate Governance And The Man In The Second Row. Retrieved from https://www.forbes.com/sites/michaelperegrine/2018/10/11/corporate-governance-and-the-man-in-the-second-row/

McCahery, J. A., Sautner, Z., & Starks, L. T. (2016). Behind the scenes: The corporate governance preferences of institutional investors. The Journal of Finance, 71(6), 2905-2932.

Rao, K., & Tilt, C. (2016). Board composition and corporate social responsibility: The role of diversity, gender, strategy and decision making. Journal of Business Ethics, 138(2), 327-347.