Corporate Governance in Globalizing World: Case Study of Volkswagen

Governance in Globalizing World 1
Governance in Globalizing World
Name of Student
Institution
Instructor

Governance in Globalizing World 2
CORPORATE GOVERNANCE
Question 1
Introduction
A company as an incorporated body is an artificial person with the ability to own
property, contract, sue and be sued in its own name. Since a company is an artificial person, it
has to be controlled by natural persons who act as the driving soul and will of the company.
Generally, the transactions and decisions of a company are taken by a board of directors or
management. The board is the decision making organ of a company and decides on behalf of and
for the company. The board could in most circumstances elect or appoint one of the board
members to manage the company and deal with the day to day running of the affairs of the
company.
In this scenario, there has been discovery of a scandal at Volkswagen. There is a
supervisory board as well as a Chief Executive Officer. The Chief Executive Officer has decided
to resign due to the discovery of the scandal; on the other hand, none of the Supervisory Board
Members has resigned in the circumstances. The supervisory board is ultimately accountable for
the strategy and day to day activities of a company and should therefore be responsible for any
malpractice that a company engages in.
In answering this question, I shall discuss whether it is the Chief Executive Officer who
should have resigned or the Supervisory Board members. Corporate governance should be taken
seriously to ensure that a corporate body is managed and run well. There are several theories of
corporate governance that are relevant to this case scenario. The first theory of corporate
governance is the agency theory (ArAs, 2016, p.31). The agency theory is to the effect that there
are two individuals who are in the relationship of an agent and a principal. In this case, the CEO

Governance in Globalizing World 3
and the company are the two parties which are in such a relationship and the agency relationship/
theory is relevant to them.
The agency theory and relationship has three conditions that enable it to operate; the
agent is free to decide on various courses of actions, an agent’s action affect their growth and
those of the principal and it is very hard for the principle to monitor the actions of an agent since
the available information is very scarce (Clarke, 2017, p. 12). The principal should however
control the agent. There should be transparent accounting practices as well as disclosure by the
agent. This did not happen in the Volkswagen case and as a result, there developed a scandal.
The CEO as an agent of the company has to be accountable and by resigning, it showed some
level of accountability and responsibility (Bottomley, 2016, p. 24).
On the part of the Supervisory board members, they oversee the running of the company.
Major decisions on the running of the company have to be approved by the supervisory board.
Here, the stewardship theory is relevant. The supervisory board members are the company
stewards who should protect and make profits on behalf of the shareholders. Where there is a
scandal, they are the persons who should take responsibility and resign (Chan et al, 2014, p. 63).
In summary therefore, both the supervisory board members and the CEO should have
resigned and take responsibility for the scandal at Volkswagen.
Question 2
Introduction
Investors and activists are stakeholders in companies. By being a stakeholder, the
investors own shares in companies and are major shareholders in a number of companies.
Investors and activist groups exert a lot of pressure on the companies and corporate bodies so