Corporate Governance Case Study Analysis

Running head: CORPORATE GOVERNANCE CASE STUDY ANALYSIS
Corporate Governance Case Study Analysis
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CORPORATE GOVERNANCE CASE STUDY ANALYSIS1
Introduction
Corporate governance refers to the rules, regulations, processes as well as laws that are
used for controlling, regulating and for operating a business set up (Cai et al., 2015). The term
corporate governance is one that is known to encompass external and internal factors which are
seen to affect the interests of the stakeholders of a company such as the company’s shareholders,
the government regulators, the suppliers, the customers, as well as the management of the
company (Cuomo et al., 2016). It is the board of directors of a company who are technically
responsible for the creation of a corporate governance framework that is best aligned with the
conduct of the business as well as the goals and the objectives of the business enterprise
(Agrawal & Cooper, 2017). Corporate governance is comprised of certain and specific processes
such as performance measurement, action plans, dividend policies, compensation decisions,
procedures that are deployed for the resolution of conflict, as well as explicit and implicit
contracts that are drawn up between the stakeholders of the company and the board of the
company (Armstrong et al., 2015). Good corporate governance is usually characterized by a
well-enforced and well-defined structure which caters to the benefits of all people who are
working for a firm and which makes sure at the same given time that the enterprise is one which
adheres to ethical codes of conduct or ethical modes of governance (Bain & Band, 2016). One of
the most important corporate governance principles is that shareholders be treated with parity
(Berger et al., 2016). This essay engages in an in-depth case study analysis of the corporate
governance of TESCO by referring to the accounting scandal that tore the company apart
and made the restructuring of its board of directors an imminent affair. Prior to the case
study analysis, a literature review is undertaken, as a part of which existing research on the

CORPORATE GOVERNANCE CASE STUDY ANALYSIS2
insider and outsider models of corporate governance is discussed in detail. The essay concludes
with a number of important considerations that can be taken into consideration by TESCO in
order to improve its corporate governance in Singapore.
Before analyzing the accounting scandal at Tesco, it is first necessary to derive an
understanding of the insider and outsider models of corporate governance. It has been pointed
out by academics such as Bauer et al. (2018), that the outsider mechanism or form of corporate
governance is one where primary functions pertaining to corporate governance are those that are
undertaken by external rather than internal owners. The outsider mode of corporate governance
can be seen to prevail in countries such as the USA as well as the UK. As a part of such a
system, the ownership of the firm is something that is dominated by what may be termed as
institutional portfolio oriented investors and where the ownership stakes are known to amount to
three percent or less for each and every investor. Corporate governance activities are undertaken
by the owners outside of the firm and as such these are people who do not get involved in too
active a way in the proper and organized management of their respective companies. Instead of
voice, it is the concept of exit that is seen to exercise authority and control over the affairs of the
company with equity stakes being preferred to be sold off on the part of the owners rather than
any kind of hierarchical control being exercised to operate and manage such shares. A bias is
exhibited more often than not on the part of such business owners towards the publicly listed
firms rather than firms which are privately listed, and which are as a result hierarchically
controlled. This in turn is something that is promoted by stock markets that are well-developed,
being in existence, which make available the institutional mechanism that is needed in order to
go ahead and achieve the much desired diffused patterns of ownership.

CORPORATE GOVERNANCE CASE STUDY ANALYSIS3
Of course the fact as argued by scholars such as Aguilera and Crespi-Cladera (2016), diffuse
ownership is something that is capable of creating potential agency problems largely due to the
fact that the process of management is removed from any type of hierarchical control by block
holders is something that has been demonstrated well enough by Gardiner Means and Adolph
Berle in their seminal work, “The Modern Corporation and Private Property’ which was
published in 1932. In order to compensate for the various risks that are associated with the
outsider model of corporate governance, this is a system that comes with many different
complementary and institutional features that are seen to empower both information and
oversight and which are seen to also control activities of what may be termed as company
outsiders at the same given time. Examples of this include the non-executive boards that have
been appointed by shareholders, major roles that are performed by reputational intermediaries in
the provision of performance information that is externally visible, using stock price as the
primary indicator of the prospects of a firm, Incentive based and active markets for corporate
control that are further directed at aligning the interests of the firm’s agents or the management
of the firm with the principals of the firm or what may be termed as the shareholders of the firm.
On the other hand, it is argued on the part of scholars that the insider model or form of
corporate governance is a system where the owner of the firm is seen to monitor, to oversee as
well as to control a company or more than one company from within. Goals and objectives are
achieved on the part of the business owners by acquiring ownership stakes of a substantive size
in individual companies, while also cooperating in an active manner with the management of
such companies. As a consequence of such a system, investors are given the opportunity to retain
hierarchical control in a direct manner over the management of the firm, reducing agency costs
in the process. The insider model of corporate governance is something that is seen to be in place