Corporate Governance Styles and Structures

This assignment delves into the realm of corporate governance, examining various board structures and styles to determine the most effective approach for an enterprise. The document references several scholarly articles and books on the topic, including works by Yermack, Shi, Omar, Lim, and others. It explores the importance of transparent functionality, external governance, and the role of independent directors in ensuring accountability. The assignment also touches on the implications of blockchain technology on corporate governance.

CORPORATE
GOVERNANCE FOR
MANAGERS

Table of Contents
INTRODUCTION...........................................................................................................................1
CASE STUDY.................................................................................................................................1
Corporate Governance............................................................................................................1
Duties, rights and competences of a director..........................................................................2
Committee work.....................................................................................................................4
Board structure and styles......................................................................................................6
Transparency and accountability of the company..................................................................7
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Corporate governance refers to the set of practices, policies, rules, regulations, values and
frameworks with the use of which a company is directed, managed, monitored and controlled. It
usually includes the procedures through which the organisational objectives are set as well as
pursued in relation to market, regulatory, social and economic environment (McCahery, Sautner
and Starks, 2016). This report explores the duties, competencies and rights of a director, board
structure as well as styles, committee work and transparency and accountability of a firm.
CASE STUDY
ABC International Ltd., incorporated in the year 1968, is an electrical components and
telephone equipments manufacturer operating and functioning within Hong Kong. ABC came
into joint venture with an Australian group operating within telecommunications industry in
1979 and opened a new factory within Shenzhen in order to produce components. Subsequently,
rights were gained to produce and distribute a wide variety of telecommunication equipments in
China and Hong Kong. This incident proved to be a transformational phase for the organisation
and consequently, ABC International’s employees, profits and sales increased at a massive rate.
The business performance of this enterprise is found to be beyond expectations and company is
earning immense profits.
Corporate Governance
Corporate governance practices are generally aimed at aligning the interests of
stakeholders and seeking to set a balance between them. Corporate governance structure is
essential to gain knowledge about the roles and responsibilities of different participants within
the enterprise such as board of directors, managers, shareholders, auditors, creditors, regulators
etc. (Yermack, D., 2017).
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(Source: Scope of Corporate Governance, 2019)
Duties, rights and competences of a director
Board of directors are the key to success of any organisation. Board is ascertained to be a
group of personnel that collectively administer the activities, processes and functions of an
organisation. The powers, responsibilities and duties of board are stipulated by company's own
constitution and by-laws as well as regulation and rules of government. The quantum of people
in board, their appointment procedures and their meetings, everything is stipulated by law. The
board of an enterprise is expected to add value to an organisation and are recognised to be the
foundation of an effective corporate governance within the company. Directors have to operate
as a collective team and assist the organisation in achieving its vision, mission, goals and
objectives (Omar, 2018). Dysfunctions board can lead to adverse effects upon the company.
Thus, organisations generally appoint only those persons as directors who possess the potential,
skills, competence and capability to serve the board.
As per the Corporate Governance clause, a company should have an adequate
combination of executive as well as non-executive directors. In this regard, independent directors
are the personnel who do not possess any pecuniary relation with company and are not
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Illustration 1: Scope of Corporate Governance

associated with board members, senior management or promoters and have not been executive
for past 3 years. In context with this, directors are classified into following categories:-
Executive non-independent: They are full time employed and posed to individual
promoter's or group's influence.
Non-executive independent: They take decisions without being subject to influence of
promoters.
Non-executive non-independent: These are the personnel who either lose their
independence or are subject to influence of promoters (Mire, 2016).
In this regard, ABC International is willing to recruit Mr. Y. K. Chan as an independent
non-executive director for which the latter wants to gain an insight into the roles, duties and
competences of a director.
Duties: The director of a listed public company has various duties as per Corporate
Governance code, some of which are specified below:-
 To ensure confidentiality of information associated with affairs of company and make
sure that it is not exploited in any manner.
 To ensure that the organisation has effective financial, administrative and accounting
systems
 To implement a policy which ensures stakeholders' welfare To develop conflict resolution processes in order to handle conflicts arising between
senior managers, board, shareholders etc. (ANDREW. KEAY, 2016)
Rights: The director also have certain rights, some of these are stated below:-
 They have a right to access the documents which are in organisation's possession so as to
effectively conduct the functions of a director
 They can take copy of or inspect the accounts and other books of company for any
specific purpose (Shi, Connelly, and Hoskisson, 2017). They may delegate full or partial powers to anyone provided that this delegation is
appropriately recorded in the minutes book of company.
Competences: The competences of a director acting within Board of a company comprise
of dealing with issues associated with general management of processes and activities except
those issues which come under the competence of general meeting of company's shareholders
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(Lim, 2017). There are a number of issues that pertain to the competence of directors of an
organisation, some of these include:-
 Approval of agenda of GM of shareholders
 Ascertainment of priorities within organisation's activities
 Placement of issuable securities such as bonds
 Monetary valuation of any property, redemption of issuable securities
 Purchase of bonds, shares and other such securities which are issued by
organisation in association with cases laid down in Federal Law on joint stock
companies.
To make a board effective, it is essential that members make use of their competence,
character, commitment and creativity in order to ensure contribution towards collaborative
working (Bebchuk and Hamdani, 2016). In this regard, the board of ABC International hold the
right to take decisions on many important matters and it is owing to their effective composition
and collaboration that ABC International is performing well within markets. This organisation is
performing well which can be observed from the fact that its revenues exceeded the expectations.
Further, the company invested the profits back to development of new products and expansion of
production capacity. This reflects that the directors are committed towards making effective use
of their rights, powers and competences to lead the entity towards accomplishment of
organisational goals and objectives.
Committee work
Audit refers to an assessment activity which is carried out by an independent practitioner
to render assurance to any principal (e.g. shareholders) over financial statements of an enterprise
which is considered to be the prime responsibility of directors, against the criteria, laws and
legislations provided in GAAP (Generally Accepted Accounting Principles) and IFRS
(International Financial Reporting Standards) (Khelil, Hussaineyand Noubbigh, 2016). Audit
committee is appointed by the board and is responsible for effectively giving their participation
in annual audit, giving recommendations in relation to hiring of independent authors, conducting
review of financial procedures and policies as well as ensuring compliance with regulatory
procedures. Audit committee holds the position to offer an overall review and analysis of
organisation's performance by practising objectivity, quality and independence at all the times.
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ABC International carries out annual audit owing to which it is at the top position within
electrical equipments and telecommunication systems market. The financial statements of
organisation represents its strong market position and brand value. This organisation is reluctant
on making Mr. Y. K. Chan join the audit committee. Thus, Mr. Y. K. Chan is seeking to gain
more information about the working and purpose of audit committee.
Purpose of the Audit Committee
The major purpose of Audit Committee is to provide assistance to the board in relation to
their regulatory check upon the financial and accounting procedures of company, audit of
organisational financial statements, audit functions as well as internal controls. They are largely
responsible for:-
(a) preparation as well as presentation of an organisation's financial statements
(b) ensuring the compliance with accounting as well as financial reporting principles
(c) the internal controls of an enterprise and processes devised and developed for
promotion of abidance with the stipulated laws and regulations as well as the accounting
standards (Hines and et. al., 2015).
The independent auditing firm of an organisation is tasked with the responsibility to
perform an independent audit of the company's consolidated financial statements in appropriate
and adequate alignment with Generally Accepted Auditing Standards abbreviated as GAAS
(Inaam and Khamoussi, 2016).
Types of Audit & Auditors role
Internal Audit: This audit function independently conducts analysis and appraises the
effectiveness as well as adequacy of organisation's internal controls and risk management. This is
generally conducted by employees of the enterprise. The internal auditor has a direct reporting to
board audit committee as well as towards the Board of Directors, have access to ask for
necessary data and aspects related to management (Brennan and Kirwan, 2015).
External Audit: This is one of the most important and significant ways to carry out check
upon the corporate governance of company. The prima-facie focus of external audit is to render
an independent and honest opinion about the applicability of truthfulness as well as fairness
while carrying out preparation of the financial
statements. This assists in adding value to the corporate governance procedures by enhancing
the confidence of investors in the honesty of board as well as corporate management.
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Board structure and styles
There are two types of board structures which are used for effective corporate governance
within organisation.
The ‘unitary’ board structure is generally composed of a combination of executive as
well as non-executive directors
who together provide supervisory and management role for executive management team.
The ‘two-tier’ model comprise of two individual boards. Here, management board deals
with day-to-day and operational
dealings of company and constitutes of executive management of organisation while supervisory
board supervises management board and comprises of representatives of employees,
shareholders and other such key stakeholders.
Styles
The various types of board styles are described below:-
Entrepreneurship Management (Top Management Dominance): Here, there is no
involvement of board and immense involvement of top management. This reflects that board is
ready to agree with the decisions of top management.
Chaos Management: Here, board as well as top management have least indulgence in
strategic management. Board awaits top management for bringing their proposals.
Marionette Management (Board Dominance): Here, board is immensely indulged in
strategic management while top management is just concerned about operations.
Partnership Management: Here, board and top management work collaboratively to
establish and attain mission, vision, goals and objectives of company. The members of board
members are significantly involved in committee work so as to provide feedback to top
management upon formulation of agreed-upon policies and strategies (Nahum and Carmeli,
2019).
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(Source: Corporate Governance Styles, 2019)
Transparency and accountability of the company
It is essential that firms maintain transparency and accountability at all the times. They
should keep the operations and functions of enterprise transparent in order to make sure that the
trust of investors remain intacked in the company (Castilla, 2015). It is the pillar for ensuring
effective corporate governance within the company. Thus, it has been comprehended that it is
necessary for a firm to maintain transparency and accountability at all the times so as to avoid
any legal intervention.
CONCLUSION
From the above report, it can be concluded that effective corporate governance is the key
to the success of a company. Also, it has been analysed that board of directors are the most
essential element of an organisation who are highly honest, knowledge and competent to be able
to ensure a transparent functionality across the organisational premises. Besides this, it has been
ascertained that there are a number of board structures and styles out of which the most
appropriate should be selected by an enterprise.
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Illustration 2: Corporate Governance Styles

REFERENCES
Books and Journals
McCahery, J. A., Sautner, Z. and Starks, L. T., 2016. Behind the scenes: The corporate
governance preferences of institutional investors. The Journal of Finance. 71(6).
pp.2905-2932.
Yermack, D., 2017. Corporate governance and blockchains. Review of Finance. 21(1). pp.7-31.
Shi, W., Connelly, B. L. and Hoskisson, R. E., 2017. External corporate governance and
financial fraud: Cognitive evaluation theory insights on agency theory
prescriptions. Strategic Management Journal. 38(6). pp.1268-1286.
Omar, P. J. ed., 2018. Directors' duties and liabilities. Routledge.
Mire, S. L., 2016. Independent directors: partnering expertise with independence. Journal of
Corporate Law Studies. 16(1). pp.1-37.
Lim, E., 2017. Corporate Governance and Company Law: The Disconnect between
Accountability and Directors' Duties. Hong Kong LJ. 47. p.733.
ANDREW. KEAY, L. L. B., 2016. DIRECTORS'DUTIES. JORDAN Publishing Limited.
Bebchuk, L. A. and Hamdani, A., 2016. Independent directors and controlling shareholders. U.
Pa. L. Rev. 165. p.1271.
Khelil, I., Hussainey, K. and Noubbigh, H., 2016. Audit committee–internal audit interaction and
moral courage. Managerial Auditing Journal. 31(4/5). pp.403-433.
Hines, C. S. and et. al., 2015. Board risk committees and audit pricing. Auditing: A Journal of
Practice & Theory. 34(4). pp.59-84.
Brennan, N. M. and Kirwan, C. E., 2015. Audit committees: practices, practitioners and praxis of
governance. Accounting, Auditing & Accountability Journal. 28(4). pp.466-493.
Inaam, Z. and Khamoussi, H., 2016. Audit committee effectiveness, audit quality and earnings
management: a meta-analysis. International Journal of Law and Management. 58(2).
pp.179-196.
Nahum, N. and Carmeli, A., 2019. Leadership style in a board of directors: implications of
involvement in the strategic decision-making process. Journal of Management and
Governance. pp.1-29.
Castilla, E. J., 2015. Accounting for the gap: A firm study manipulating organizational
accountability and transparency in pay decisions. Organization Science. 26(2). pp.311-
333.
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