Corporate Strategy and Governance - Case Study
Added on 2021-01-02
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Corporate strategy andgovernance
Table of ContentsINTRODUCTION...........................................................................................................................1Overview of research..................................................................................................................1Background of research...............................................................................................................1Review of the problem faced......................................................................................................2Literature review .............................................................................................................................3Role of corporate governance in auto mobile sector...................................................................3Contribution of CG in profitability.............................................................................................4Impact of change in corporate governance on profits ................................................................5Secondary Research And Primary Research Undertaken................................................................6CRITICAL REVIEW OF THE RESULTS OF THE RESEARCH..............................................104.1 Critical review on the basis of secondary research.............................................................104.2 Critical review on the basis of primary research.................................................................12Recommendation and conclusion..................................................................................................20.......................................................................................................................................................23REFERENCES .............................................................................................................................25
Title – “To evaluate dependence of company profits on corporategovernance” A case study on automobile sector INTRODUCTIONOverview of researchCorporate governance is a concept that is followed by business in order to remainsustainable in industry for long term (Su and Sauerwald, 2018). It consists of rules andregulations, process, etc. that are followed by business. this helps in maintaining balancebetween interest of shareholders and activities of company. Usually, a firm is directed andcontrolled by stakeholders. Corporate strategy of an organisation plays essential role in thebusiness activities of company and manages its sustainability at market place. It also open upshuge range of options for business organisation which can be adopted by them in order to attaintheir aims and objectives ( El Ghoul, 2017). Principles of corporate governance also ensures thatwhile performing business activities the company always take care of interest of all stakeholders.This directly contributes in enhancing brand image of the company at marketplace and improvesits sustainability level too. Corporate governance also works as the guidelines for business organisation whichcontrols and directs them that how they should execute their work in effective manner by whichorganisational goals and objectives can be achieved. Along with this, it also provides value to thecompany that is beneficial for all stakeholders for longer period of time. They are responsible fordoing business in transparent way. The main purpose of this research is to identify howprofitability of firm is affected due to change in corporate governance in auto mobile sector. Itwill help in determining factors that enable companies to work in interest of stakeholders.Inautomobile sector there is major are many issues related to corporate governance that arises. Ithas created a great impact on profitability of company. Also, many companies are involved incontroversies and legal cases. Background of researchCorporate governance plays an essential role in every organisation as it guides them toperform their business activities effectively by taking care of interest of their stakeholders as wellas organisational profitability ( Kraakman, 2017). It can be said that if an organisation follows allof their principles of corporate governance then they can easily obtain their aims and objectiveseasily. The present research is based on Volkswagen which is an Multinational company belongs
to auto mobile industry. The company was founded in 1937 by Adolf Hitler German LabourFront (Too and Weaver, 2014). Volkswagen is one among largest car automaker which providesits car across the world. But, with this much popularity the company have been indulged intomany issues which have impacted negatively on its brand name. The company has also facedcritical issues ( Means, 2017). They are been involved in scandals that has led to decline in salesand profits. This has occurred due to ineffective implementation of corporate governance. Thisresearch will help Volkswagen in reducing impact of issues related to Corporate governance. Forthis, it is mandatory for the company to firstly understand meaning of corporate governance andhow it impacts over profitability of the company. This research will also help Volkswagen inanalyzing that how they could minimize the impact of these negative scandals and maximizetheir profitability ratio. It will also help the company in improving its hold on customers bysatisfying their interest by following their principles of corporate governance.2
Review of the problem facedIn this research, investigator has chosen specific issue of Volkswagen that is emissionscandal. The issue mainly based on Volkswagen who have willing cheated government as wellas its customers by producing an cheating software. According to the US regulations that isClean Air Act, it is mandatory for car makers to go pass laboratory emissions testing beforeintroducing or selling them at market. But, Volkswagen have intentionally prepared an cheatingdevice that holds capabilities to pass this laboratory test. This device have helped company inclearing this test effectively ( Setó‐Pamies, 2015). Bur, in actuality vehicles produced byVolkswagen emits huge level of nitrogen oxide which is really harmful for all. The companyhave deployed this software in around 11 million cars across the world. It has been analysed thatimpact of this scandal was really negative for the brand name of the company. But, at the sametime, it is harmful for the environment as the pollution emitted by these vehicles generates manyharmful diseases. This present research is conducted to identify the impact of this scandal on the company'sbrand name. It will also highlight that how corporate governance influences profitability of thecompany ( Wheelen, 2017). The research will guide Volkswagen to improve their brand nameby taking some preventive measures.Research aim“To evaluate dependence of company profits on corporate governance. A case study onVolkswagen.Research ObjectiveTo access role of corporate governance in auto mobile industryTo analyze contribution of CG in profitability. To evaluate impact of change in corporate governance on profits Research QuestionsWhat is the role of corporate governance in auto mobile sector?How profits are related to corporate governance?What is the impact on profits due to change in corporate governance?3
Literature review Role of corporate governance in auto mobile sectorIn such as changing business environment it is very important to companies to follow aneffective corporate governance strategy. This is because it will be beneficial in sustaining inmarket for long term. According to Davies, (2016), change in environment forces business towork in interest of stakeholders (Arthurs, 2018). It enabled them to earn huge profits. Theprofitability is entirely dependent on corporate governance (Chu, Teng and Lee, 2016). Itreflects values, rules and regulation on that company follows in their operations. a rigid structurewill enable in generating higher profits.In view of Barkemeyer, Preuss and Lee, (2015), practices followed includes protectingatmosphere, using renewable resources, etc. this creates a positive impact on performance ofbusiness and outside it. due to this they are able to provide new products and high qualityservices to customers. As said by Mallin, (2016), the more contribution of business towards stakeholders willenable in reflecting a better image in industry. They will be able to sustain in market for long.Auto mobile sector operates globally. Thus, they have to follow strict rules and regulations andwork with government. As elucidated by Jiang and Kim, 2015, proper communication betweendirectors and managers will create better relationship. This influences overall organizationalculture. Moreover, internal attributes of firm shows corporate governance. In opinion of Sako and Zylberberg, (2015), globalization has create a positive impact onbusiness. It has allowed companies to promote their ethics, fairness, etc. in dealing withcustomers, suppliers, etc. it has resulted in small number of scandals and frauds (Driver andThompson, 2018) .It is expected that a good governance depicts good performance of business. According to the thoughts of Cooper, (2015), it has been analyzed that corporategovernance is a set of rules and regulations through which an organization is guided andmonitored. It's main responsibility is to check that company do not crosses their limits andindulge into illegal activity for maximizing their profitability. It also creates positive balancingbetween society and its stakeholders like customers, suppliers, government, financial team,management staff, Shareholder etc. in order to satisfy interest of all. The author also believes thatcorporate governance places an essential role in auto mobile industry as the sector is very broadin size and requires some directive instruction as well as controllable authority which stops them4
by indulging into unethical activities. It can be said that corporate governance also helps indetermining financial health and stability of business. It has been analyzed that with the changing time importance of corporate governance canbe seen in the form of improved competitive performance of companies which belongs toautomobile industry ( Crane, 2016). This has become possible only because of control ofcorporate governance which do not allow companies to follow any unethical or wrongmisconduct which might harm anyone. In this regard, businesses belongs to auto mobile industrynow works on improving their quality in order to sustain longer in same industry. Thesecompanies also tries to introduce some new features in their vehicles which enhancescompetitiveness in the industry. As a result, it also influences interest of customers towards thesector and increase its overall profitability. Contribution of CG in profitabilityAs per the thoughts of Hussain, Hussain, and Awais, (2015), it has been evaluated thatcorporate governance holds major responsibility in the company and also contribution in theirprofitability. According to the thought of author, it has been seen that if an industry has goodcorporate governance and they also follows effective strategy, then they simply avoids manyscandals which might impact negatively on their profitability. As a result, it helps whole industryin maximising their profit earning level. It can be said that corporate governance is the set ofrules and regulation by which an organisation monitors and controls their business decisions thatmeans all the decisions are required to be taken by satisfying interest level of each stakeholder.In context to auto mobile industry, it has been observed that Corporate-governance plays anessential role in this sector and helps its organisation in executing their business activities inethical manner (Roy, 2014). An effective Corporate governance of the company also developspositive relationship among overall management people of the company like shareholders,stakeholders, board of directors and auditors. The main purpose of this governance is tomaximise wealth of shareholders. This helps the firm in influencing more people to become theirshareholder and which contributes in bringing more investment to organisation as a result, theycan now use this invested money in executing their business activities in more effective manner.It directly contributes in maximising profitability level of organisation. Further, it has been observed that it is important for an organisation to have strong andstable corporate governance so that they could they improve their relationship with employees5
and persuades them to work more effectively. It helps in reaching corporate objective of businessorganisation soon as they are fulfilling each and every legal requirement of government as wellas company, it also develops positive image of business organisation in front of its customers.This is because, a good corporate governance remains transparent to its customers about itspolicies, decision making process, strategies which have been adopted by them. Thistransparency formulates an positive image of the organisation in front of its shareholder as theyknow about each and every activities which is being followed by the company. Therefore, it canbe said that corporate governance plays an crucial role in organisation, no matter it belongs towhich sector ( Sadhukhan, 2014). Along with this, it has been observed that an effectivecorporate governance is really helpful for companies in maximising their performance anddirectly contributes in enhancing its profitability.Impact of change in corporate governance on profits According to the point of view of McCahery, Sautner and Starks, (2016), it has beenanalyzed that if corporate governance of an organization changes then it will definitely impactupon its profitability. This is because, corporate governance holds strong position in the financialdecisions of company and if in case they changes then it will directly impact on financialperformance of an organization. It has been identified that if company follows its principles ofcorporate governance strictly then they can easily attain higher range of profits. But, at the sametime any change took place in its principles then it definitely going to consume huge time of allof its employees to understand and accept. This consumption of time will going to have negativeinfluence on performance of employees. As a result, its reflection can be seen in the decline ofprofitability level of the company. As per the thoughts of McCahery, Sautner and Starks, (2016), it can be said that if ancorporate governance is not good then and does not protects rights of stakeholder then it isessentially required by the company to change it. The author have stated that change which havebeen implemented to improve principles of corporate governance is positive. Therefore, it ishighly important for companies belongs to auto mobile sector to apply desired modification inprinciples or norm of corporate governance in order to enhance its efficiency towardsmaximizing profitability of the company. But, at the same time if the formulated changes havenot been accepted by the employees or other stakeholders then it's outcome will not be in afavorable condition. Apart from this, it has also been analyzed that it is essential for companies6
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