Titleof Term Paper
Governanceentails the procedures of exerting control in terms of laws andregulations among others in organization, government, family etc. Inthat regard, corporate governance refers to the relations, proceduresand mechanisms which are utilized to direct and control corporations.Sustainability on the other hand can be described as endurance ofprocedures and systems. In an organizational perspective it entailsimplementation of strategies that tend to improve the cultural aswell as economic aspects of a corporation. In any organization, theboard plays an immense role in ensuring a well governed andsustainable organization. It contributes in several ways likeensuring transparency, equal rights, and fair rules among others toenable the same. Board diversity can be defined in several ways. Forinstance it entails incorporating a variety of individuals in a boardi.e. ratio of Asians, women, African Americans, disabled among otherson the board of directors. The extent or rather range of boarddiversity is directly related to any organization’s performance.This paper will look to outline the role of board of directors in thesuccess of an organization. Board diversity is quite essential in thesuccess of a company. This paper will give an in-depth analysis ofthe benefits of having a diversified board of directors. The role ofshareholders will also be outlined within this paper. In addition tothat, the paper will elaborate the deficiencies entailed in corporategovernance and how they can be avoided. Corporate governance can beimproved as will be illustrated within this paper. Generallytherefore, the paper will outline all the aspects involved incorporate governance as well as board diversity and their role inachieving a sustainable corporation. Elements essential for effectivegovernance will also be discussed appropriately.
Boardsare utilized in an organization to make sure there is order i.e.company rules and regulations are adhered to. A board of directorsare used to make vital decisions on the company. Within the board ofdirectors, even the top management officials are kept on toes so asnot to perform their tasks with laxity. As described above, adiversified board contains different persons who are associated tothe company. It has to represent all the individuals that contributeto the success of the company. Some the benefits of having adiversified board includes
Better decision making i.e. different people have different opinions hence resulting to healthy debates that result in better decision making.
It is a reflection of the current world
Divergent backgrounds generally symbolize tackling of similar ideas in differing means
Company becomes knowledgeable to a broad range of groups
The company is able to adapt to the changing environments with ease
Generally,a diversified board is bound to have various ideas on how to handleissues thereby increasing efficiency. When a board composition isalso diversified, integrity is highly adhered to. When a board iscomprised of members who share the same ideologies or are form thesame background, it is easier for them to indulge in corruption actssince they can all understand each other to the disadvantage of thecompany. However, when a board is diversified, any dealings made opento the board can be debated on appropriately. Incorporating differentgroups within the board helps the company to adjust well wheneverthey is a change. For instance, if the small groups within thecompany are incorporated in the board, whenever changes in dutiesperformed occur, workers can acclimatize well with the new situationwithout having problems with management [ CITATION Mik13 l 1033 ].
Howthe board can enhance governance
Theboard is tasked with providing accountability and leadership which isdeterministic in the success of a company. In that respect, the boardhas to be effective to ensure good governance. There are severalmechanisms used to improve the board that replicate in goodgovernance. The effectiveness of the board can be analyzed usingseveral mechanisms
Defining and reviewing the roles of each director and how they assist in making the board effective
Members of the board briefed in time whenever there is a meeting
Reviewing of the quality of advice, decisions and actions taken by the board
Objectives of the company are consistent or rather in line with the values, missions and stakeholders needs
Objectives are measurable, realistic, time-bound and achievable
Board has to delegate authority fairly to the management, regularly reviewing its effectiveness [ CITATION Bre15 l 1033 ].
Measuresof governance can be outlined under the following elements
Solemnizing governance policies i.e. guidelines and codes
Running of the board as well as its relations with the top management
Reinforcement of the rights of shareholders
Making improvements to the control environment
Maintaining a sustainable business
Disclosure and transparency of information
Theabove means can be utilized to measure whether governance is up tothe required standards. A well governed organization ensures theneeds of shareholders are well adhered to. The policies are alsoapplicable to all its members without discriminations. Additionally,transparent dealings that are corruption free envisage a wellgoverned organization. The organization has to ensure a sustainableenvironment [ CITATION oec10 l 1033 ].
Solemnizing governance policies i.e. guidelines and codes
Organizationsnormally develop governance codes and establish guidelines whilesolemnizing the policies. The key principles of any governance systementails relation among senior management, board and shareholders,information disclosure and control environment. The company’sculture determines the kind of governance policies and how they areimplemented.
Running of the board as well as its relations with the top management
Theboard is the integral part of governance in modern organizations. Itmolds and shapes all the other structures of governance. The boardalso evaluates results and controls the effectiveness of governance.Company strategies are defined by the board, which also assigns tasksto ensure adequate supervision and implementations ofresponsibilities. It is the board’s mission to preserve andincrease the company’s values while maximizing returns. A strongboard contains a number of elements i.e. nomination process istransparent having qualified personnel, board accountability,responsiveness to the shareholders and independence.
Reinforcement of the rights of shareholders
Shareholdersnormally rely on the returns they receive from their investments. Theboard has to ensure the shareholders’ rights are well monitoredi.e. profits allocate equitably. A board that strengthens itsshareholders can be considered to be strong. The companies’ lawsand regulations must protect the role played by shareholders. Witheffective relation between shareholders and the board, the company isthe major beneficiary.
Disclosure of information
Awell-structured board ought to be transparent. Transparency entailsrelaying information on various aspects of the company especially onmatters finances. The shareholders must get the appropriate infowhenever they require it, top management also needs clearly definedresponsibilities.
Bylooking at the features above, the board can enhance governance. Theboard should also be open to questions from the various shareholderson important matters.
Boarddiversity and accountability on company performance
Aspreviously mentioned, board diversity is instrumental in anyorganization’s performance. Accountability on the other hand isquite vital in the success of a company. Accountability mainlyentails taking charge of actions whether they caused a negativeimpact or not. It entails being responsible for owns actions. It canalso be described as a means of concretizing relations amongorganizations, promoting democracy, delineating responsibilities,enhancing legitimacy and controlling power. Accountability is notonly a board’s responsibility but includes all personalitiesworking within the company.
Measuringemployee performance is vital in establishing the performance of thecompany. Evaluation can be done from various perspective depending onthe company’s preferences. Standards have to be derived from whereperformance of employees can be measured i.e. failures as well asachievements and the adjustments required to improve effectiveness.This helps in determining how overall productivity can be achieved.Employee performance measurements are the best means of determiningaccountability. When one is accountable for his/her own actions, theprobability of him/her making mistakes is quite low. This is because,the decisions made have to be carefully crafted [ CITATION And15 l 1033 ].
Theboard has to provide clear objectives and what is expected of theemployees. Clearly defined objectives determine the productivitylevels. This is because once employees know what is expected of them,they strive to achieve the same. They can be held accountable for thefailures or achievements. In most cases, accountability hasrepercussions. For instance, if certain objectives are not met, theresponsible party may face punishments. On the other hand, if theyover-achieve on the stated objectives, remunerations may be given toa certain degree. Accountability is therefore directly related to thecompany’s performance levels. It increases employees’productivity levels and ensures effectiveness of the board [CITATION Jac13 l 1033 ].
Boarddiversity also plays a huge role in the company’s performance. Aselaborated earlier, a well-diversified board brings about properdecision making processes among other features. Ideologies tend to bediverse with incorporation of members who are skilled in differentfacets thereby benefiting the company. Therefore, a company’sperformance is dependent on accountability of the employees, topmanagement, board as well as other members and the diversity of theboard [ CITATION Mik13 l 1033 ].
Boarddiversity and accountability has various impacts on corporategovernance. It is evident that accountability is a major component ingood and equitable governance. Any institution deemed to be governedappropriately must have an accountable background of employees,management and the board. Accountability is meant to develop trustwithin the governance institutions. By concretizing relations amongorganizations, delineating responsibilities, promoting democracy,enhancing legitimacy and controlling power, governance in companiesis well upheld. In many instances, accountability is regarded as atrademark of corporate governance especially when it involvesstakeholders. Therefore, accountability is regarded as an importantaspect in appeasing stakeholders. Incorporating diversity of theboard and accountability, it leads to good governance. Interlinkingthe two also results in better company performance [ CITATION Voi12 l 1033 ].
Deficiencieswithin corporate governance systems
Developmentof newer technologies has continuously changed the way of conductingbusinesses. The business life cycle has become more intricate withadoption of newer mechanisms in conducting businesses. One majordeficiency is the nature of independency a director ought to have. Acorporation is regarded as a collective enterprise havingshareholders who enhance the profit margins of the company. It istherefore vehement to incorporate shareholders, customers, employees,creditors and societies in major company undertakings. Since acorporation is viewed as partnership, all parties have to beinvolved. Outlining the extent by which an independent director mayexercise his duties is quite unclear. Some corporations tend to hidesome information with the notion that it is not necessary for theentire company to know. It is a major deficiency within the corporatesector [ CITATION Ruj12 l 1033 ].
Corporategovernance systems are deficient in terms of effectiveness andperformance. In most cases, the board of directors are close allieshence they rarely differ when making decisions. This has contributedto laxity in performance that is replicated by poor management.Managers who exert control of a business might not work in the bestinterest of stakeholders and since they are not well monitored it cancause clashes between executive and the board. Stakeholders activistare influential in making the board realize its laxities. But withoutenough powers they end up not achieving there prospected ideologies[CITATION Hui10 l 1033 ].
Shareholderactivist have enabled a diversified board that is all inclusive. Aselaborated earlier, a diversified board is essential in making betterdecisions that ensure good governance. With the activist opting tohave a diversified board, the members included are well chosen by thestakeholders. The different aspects of shareholders activism try toimprove corporate governance. Some call for transparency, othersequity within the board and accountability among others. The overallachievement is a well governed company whereby all stakeholders aretreated as partners. The major issue always arises during profitssharing. Without openness of the act, grumbles are bound to occur,hence the need for activism [ CITATION Koh09 l 1033 ].
Severalissues are bound to occur within the cooperate world. The issues arerelated to corporate boards, board diversity and shareholderactivism. One issue facing board diversity entails the decisionmaking process. With a diversified board, views happen to be quitebroad hence reaching an agreement is quite hard. The process ofmaking decisions is thus time consuming and quite cumbersome. In mostcases, a consensus is not reached within the specified time. Somemembers end up being dissatisfied with decisions made. In mostcorporations, one of the board members tends to possess more powersthan other members. In such scenarios, the final decisions is left tothat individual. In other boards, voting is done whereby a certaindecision has to garner a particular percentage of votes to beimplemented. As much as the decision may be implemented due topopular votes, still some members may be dissatisfied with it.Sometimes a popular decision may not mean it was just and may bewrong [CITATION Sel03 l 1033 ].
Therelationship between the board and other members such shareholders,management and employees is another issue within the corporate world.Board members tend to think they are above the law i.e. rules andregulations do not affect them. In such cases, the relationshipbetween the board and shareholders is quite tense thereby affectingthe activities of the company. Tense relations among any members ofthe same company are quite detrimental to the company’s progress.It affects all parties though with differing capacities. Employee maylack motivation thereby resulting in reduced productivity levelshence limited profits [CITATION Cla01 l 1033 ].
Accountabilitymeasures within the board is another issue. Board members may declineto be accessed in accordance to what they have achieved. With somemembers within the board having the perception that they are morepowerful than other members, it becomes quite hard to access or evenouts them from their post. This is a sign of poor governance and isharmful to the organization. Lack of accountability may lead wrangleswithin the company, hence lowering the productivity levels of thefirm. Lack of accountability signifies limited transparency which maycause uproars. Whenever members deem a board is corrupt, wrangles mayarise that impact negatively on the image of the company andsubsequent drops in profit levels [ CITATION Nat10 l 1033 ].
Distinctionbetween management and board oversight is another challenge. This ismostly due unspecified responsibilities within the company.Management is mainly tasked with supervision of employees as well asimplementation of policies. However, constant interference formmember(s) of the board may cause in fights to the disadvantage of thecompany. Cold wars between management and the board is evident acrossmany companies and sometimes end up in court rooms. The effect iswastage of funds that could have been utilized in other productivemeans [ CITATION Dah02 l 1033 ].
Shareholderactivism is another issue especially on decisions from the board.Coming into a consensus is quite intricate especially if members aremany. With the bulging number of shareholders, the decision makingprocess has become even harder. Any decision made by the board islikely to cause uproar from shareholders even if it is not the entiregroup. To appease all shareholders becomes harder hence the companymay encounter constant wrangles that pose a negative impact on thecompany [ CITATION Gre14 l 1033 ].
Governanceand sustainability are important factors in any company’s growth.With recent advances in technologies, current means of business arecontinuously being invented to maximize on profits. In that respect,corporates are considered like a partnership where people invest andshare the profits as per stipulated rules. The corporate consists ofboard of directors, employees, management, customers andshareholders. The benefits that come along with this venture arequite vast. For instance, it can experience immense growth within alimited time.
Boarddiversity is one important aspect that leads to proper governance dueto the quality of decision making involved. Accountability is alsoanother crucial aspect of good governance. Appropriate utilization ofthe two aspects goes a long way in improving company performance invarious capacities. Though the benefits are many, the corporategovernance also faces numerous challenges. For example, boarddiversity may lead to longer decision making process. Shareholderactivism may also deter board decisions leading to tensions betweenthe board and management. These can be detrimental in the company’sgrowth and have to be handled with much care.
Thoughboard diversity may bring about longer decision making process, it isa viable thing. The company only to devise a decision makingprocedure whereby a once a certain percentage of individualssupporting a particular decision is attained, it is implementedaccordingly. In line to the challenges caused by shareholderactivism, there ought to be a distinction the board and theshareholders. Therefore, once decision is reached by the board,shareholders get informed and vote on it before it is implemented. Insome cases, the board’s decision is final [CITATION Jac13 l 1033 ].
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