Organizational Governance and Performance Management Question Answer 2022

Organizational governance and performance management
0
Organizational governance and performance management
System04116
8/17/2019

Organizational governance and performance
1
Question 1
There are various reasons of Parmalat’s collapse but the three main corporate governance
related reasons are described below. Firstly, the main reason behind collapse of Parmalat was
related to non-executive directors as there was lack of independence from their side. The
reporting system and framework of board of directors was not disclosed to the management and
this led to biased decisions by the directors who were working from a long time. At the time of
investigation, it was founded that first financial report of Parmalat was disclosed in 2001; at that
time out of thirteen directors four was appointed as the independent directors and the information
related to them were never disclosed by the management. “This demonstrates that the corporate
governance structure was a mockery of an effective and strong governance process and largely
unethical”. Another issue was same person for two different positions. The failure of Parmalat
highlights the fact that same person cannot hold the different positions at the same time in the
same organization as job role or responsibilities of both the position differ. Mainly a chairman of
board is responsible to fire, hire, compensation and management of the employee performance
including CEO of the organization but in case of Parmalat the single person cannot perform these
tasks from both the positions. “Separation of chairman and CEO roles can lead to better
management and oversight because an independent chairman is able to perform the duties and
ensure that the board of directors is fully engaged”. At last, according to Solomon (2007) the law
of Italy states that when a company is controlled by group of shareholders it becomes an
important aspect for the company to appoint some of independent directors to control
shareholders. “At the core of strong governance system is an effective compliance process that
ensures a corporation complies with the relevant rules and regulations in order to promote
accountability, good governance and citizenship status in the society”. Whereas, Parmalat was