This document provides a critical review of CEO duality in corporate governance, discussing the objectives, pros and cons, and recommendations for improvement. The analysis is based on a case study of JP Morgan.
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Corporate Governance - a critical review analysis
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Table of Contents INTRODUCTION...........................................................................................................................1 MAIN BODY...................................................................................................................................1 1. Objectives having the CEO and Chairman roles being occupied by the same person.......1 2. Pros and Cons of CEO Duality...........................................................................................2 3. Recommendations to address the issues in the improvement the governance of the business. ................................................................................................................................................3 CONCLUSION................................................................................................................................4 REFERENCES................................................................................................................................5
INTRODUCTION CEO duality is the practice of a single person who serving as both CEO and board of chairman as well. This is the most widely discussed corporate issue with having their own pros and cons. This topic still unsettled due to lack of supporting evidences. Present study based on the topic corporate governance where the research discusses the issue of CEO dualitywhich is one of the major issue found in corporate governance. Assignment will critically discuss and analysis the topic by presenting the pros and cons of CEO duality. In order to analyse the issues study will be taking JP Morgan case study on CEO duality. MAIN BODY 1. Objectives having the CEO and Chairman roles being occupied by the same person. Corporate Governance is the combination of rules, processes or laws under which business is operated, regulated or controlled. The major important topic includes in Corporate governance is TMT Top Management Team & Corporate boards.CEO duality is one of the issue in Corporate governance which is related to the corporate boards (Ashraf, Bashir and Asghar, 2017).This issue raised by the two positions served by one single person those positions are CEO and Chairman. It has been analysed that argument in favour of CEO duality where the CEO has given the positive impact on the company performance. On the same side, argument against stated that CEO duality is asserting that it also has been given the negative image of the firm as well. According toAslam and et.al., (2018)CEO Duality is not an important for non-existent in firms with a two tier board structure some of the example of such countries are Germany and Netherlands. There are many researchers who has been stated the against argument onCEO Duality. According to them it is an wrong activity for the firm performance. It is the difficult call for board to remove CEO that are also the chairman of the firm too. In light of such issues it is made clear that there must be have two people for the separate position within the organization. Reason behind this separation of the Chairman is the person who take decisions regarding hiring or firing the person on the position of CEO.So if the CEO is also the chairman it would be the difficult call for that. Another reason to not favour inCEO Duality because if the one person handling two positions it will difficult for him to ignore their personal interests which is not good for the firms position. According toBarroso Casado and et.al., (2016)board will be more productive with an independent chairman because in such situation there are less possibilities of conflicts of interest.As per the another objection it has been analysed that, the interest of 1
shareholders are separated because it is less possible for CEO to give higher interest towards shareholders.Another objectives has been created on the basis of roles and responsibilities of each person. Like there should not be any confusion between the role of a CEO and that chairman of the board. like the CEO is the person who take decision at the top operational while on the other hand, chairman is responsible for preserving the stakeholder interest (Qu and et.al., 2018). Or in terms of position so Chairperson is more superiors and senior than CEO. So these are the above objections made clear that CEO Duality is not good for the business. 2. Pros and Cons of CEO Duality. CEO duality generally more focuses on the topic which relates to the analyze whether the CEO officer should serve the position of Chairman or not(Chandrakumara, McCarthy and Glynn, 2018).It is one of the debatable argument which changes the thought process of the organization. In other words, the relationship between CEO duality and corporate governance has been addressed in different manner on the global devastation of the CEO duality which affect the performance over a four year period from 2008 to 2011. Pros of CEO Duality Clear Direction of a single leader :Person who has a position of Bod as well as CEO having a special power within the company. This advantage has been gained by the CEO duality in JP Morgan (Palanissamy, 2015). Efficiency and effectiveness :In the CEO duality there is one advantage that company could gain that they does not need to spend money to hire both the profiles also they minimize their salary as well. Also, CEO duality is helpful in making decision process to accomplish the target of the company. Cons of CEO Duality Segregation of Duty :The disadvantage of this method is that to creating and duality because it create a clear direction of a single leader.But on the same side, it will be proving less effective for the company because if a single person handling multiple power within a company it will might be create segregation of duty somewhere (Courtney, 2018). Lack of transparency :Lack of transparency might happen because individual person having strong power possessed by the CEO and provides an opportunity to hide whatever is in the company which resulting in lack of transparency of the company. 2
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3. Recommendations to address the issues in the improvement the governance of the business. In order to get over from the issue of corporate governance there are given some strategies which can helpful to ensure the effective service qualities and also make sure the sustainability in between the two different roles of CEO and Chairman(Gove and et.al., 2017). Corporate governance issue might also impact the company reputation growth in the market as well.In order to resolve the issues it is required to maintained the proper implementation of strategies and also adhere the different long lasting issue to measure the productive outcomes. Also, company can develop the strategies to motivate employees and work culture towards making the high potential services.Clarify in the role of position is the another way through company can resolve the company governance issue which is CEO Duality.it is important for the company to better understand the board employs the CEO in order to remove the CEO duality. A committed engaged board of governors this is the way through this issue can be solved in effective way. Another way to prevent this issues is to take the right composition of individuals. Like in which many people came and hire on multiple post as like CEO duality (Hamid, Ting and Kweh, 2016). So it is necessary to balance out the membership with motivated and diverse individuals. Conflict of interest is very important to be consider by looking for some other people. Another way to prevent corporate governance issue which is create transparency and accountability in decision making process. Another method company could use to solve CEO duality within the organization which is Reshape Board structure and Add diversity. This process can have been questionable with some having little to no business experience or dubious credentials. With the help of mutual concern with the board of directors decision can be done in proper way. This way of performing the task is helpful to resolve the issue Into more perfectly manner. Advocates of agency argue that the positions of CEO and chairman should be separate. Reason to maintained the proper effectiveness is corporate governance is the most essential term which impact on the company performance directly (Luong, Evans and Duong, 2018). It requires within the organization in the more systematic manner. Also, it applies the systematic way of going the best work opportunity. It also helps to cross shareholding is seen as a friendly way to strengthenbusinessbusinessrelationsandalsomaintainedthegoodrelationwiththe shareholders (Nguyen, Rahman and Zhao, 2018). Also, company hold the cross shareholding to make the business more strengthen and strong. However, this way of doing the performance can help to eliminate the issues from the organization and ensure the healthy business environment. 3
Also it requires the basic and mainly generalizing information task to be performed in systematic and effective manner. Corporate governance has significant impact in disciplining a powerful and independent CEO. To bring the emerging growth market and following the best way of promoting the task (Yasser and Mamun, 2015). CONCLUSION In the above defined report it has been found that CEO duality is the biggest issue of corporate governance which created dual leadership structure within the organization. Study explained the concept and impact of this issue on company performance. In order to make sure the all such things it is very much required to be more effective and challenging into the business goals. In order to get over from such issues. For that, study has also found some ways and methods like right composition of individuals, transparency & accountability in decision making etc. so it has been concluded that company should abide the all Corporate governance activities to make sure the company effective performance. 4
REFERENCES Books & Journals Ashraf, M., Bashir, A. and Asghar, N., 2017. Impact of corporate governance on firms’ financial performance:textilesectorofPakistan.InternationalJournalofBusinessand Management Invention.6(5). pp.13-19. Aslam, S. and et.al., 2018. Gender Diversity and Managerial Ownership Response to Corporate SocialResponsibilityInitiatives:EmpiricalEvidencefromAustralia.Journalof Managerial Sciences.12(2). BarrosoCasado,R.andet.al.,2016.Shareholderprotection:Theroleofmultiplelarge shareholders.Corporate Governance: An International Review.24(2). pp.105-129. Chandrakumara, A., McCarthy, G. and Glynn, J., 2018. Exploring the Board Structures and MemberProfilesofTopASXCompaniesinAustralia:AnIndustry‐level Analysis.Australian Accounting Review.28(2). pp.220-234. Courtney, J., 2018. CEO and Chairman of the Board: The Corporate Governance Controversy. Gove, S. and et.al., 2017. Reexamining CEO duality: The surprisingly problematic issues of conceptualizationandmeasurement.CorporateGovernance:AnInternational Review.25(6). pp.411-427. Hamid, M. A., Ting, I. W. K. and Kweh, Q. L., 2016. The relationship between corporate governance and expropriation of minority shareholders’ interests.Procedia Economics and Finance,35, pp.99-106. Luong, H., Evans, J. and Duong, L., 2018, March. CEO Relative Compensation, Takeover Premium and Bidder Performance in Australia: Efficient Contracting or Managerial Power?. In9th Conference on Financial Markets and Corporate Governance (FMCG). Nguyen, P., Rahman, N. and Zhao, R., 2018. CEO characteristics and firm valuation: a quantile regression analysis.Journal of Management & Governance.22(1). pp.133-151. Palanissamy, A., 2015. CEO Duality–An Explorative Study. In4th GLOBAL ACADEMIC MEETING, GAM 2015 10-11 October, Dubai, UAE(p. 33). Qu, X. and et.al., 2018. Executive stock option vesting conditions, corporate governance and CEO attributes: evidence from Australia.Accounting & Finance.58(2). pp.503-533. Yasser, Q. R. and Mamun, A. A., 2015. The impact of CEO duality attributes on earnings management in the East.Corporate Governance.15(5). pp.706-718. 5
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