Corporate Governance: Duality Issues Impact Analysis Report

This report provides an in-depth analysis of corporate governance, specifically examining the concept of duality, where the roles of Chairman of the Board (COB) and Chief Executive Officer (CEO) are held by a single individual. The report explores the positive and negative impacts of duality on various entities, supported by case studies of companies like Caterpillar Inc. and Renault. It reviews relevant legislation, including the Australian Corporate Governance Code, and analyzes the approach, guiding principles, and rules associated with corporate governance. The report also incorporates concepts such as the stewardship theory to evaluate duality's impact on corporate financial performance and stakeholder interests. It concludes with recommendations for companies regarding transparency, clear role definitions, and the importance of selecting qualified individuals for leadership positions to ensure effective corporate governance and maintain stakeholder trust. The report emphasizes the need for companies to stay updated on market changes and regulatory amendments to mitigate risks and enhance business outcomes.

Corporate Governance

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Corporate governance is a structure and system of rules, practices and processes by which
an entity is directed and controlled. An organization is required to follow corporate governance
because it balance the interests of the different stakeholders having capability to create an
influence on the working of the company (Tricker & Tricker, (2015). It is way of interacting with
the outside world in which the complete responsibility is given on the Board of Directors. This
report has been presented on the corporate governance duality issues by focusing on positive and
negative impact of it on various entities who have followed it. In addition to this, legislation,
rules, standards or guiding principles which are relevant have also been covered in this. Also, a
critical review of appropriate concepts, principles, tools and techniques regarding the concept of
duality are added.
MAIN BODY
OECD has defined “Corporate Governance involved a set of relationships between a
company's management, its board, its shareholders and other stakeholders. Corporate governance
also provides the structure through which the objectives of the company are set, and the means of
attaining those objectives and monitoring performance are determined.” It is a wide concept
which has designed certain principles and rules applicable on the organizations (Definition of
Corporate governance, 2019). There is no compulsion to follow corporate governance but by
complying with this, an entity can carry in an organized way by abiding by all the legislations. It
helps in creating a competitive advantage by which it can sustain for a long term. Also, entities
take accountability and maintain transparency in their work. Corporate governance emphasizes
on increased disclosure of documents and information to keep the trust of the stakeholders on the
companies in which they have invested their funds.
Corporate governance has gone through reforms by which new concepts are added after
considering the requirements for amendments. As a result of making updates, a concept of
“duality” has been included. Duality refers to assigning the roles, rights and responsibilities of
Chairman of the Board (COB) and Chief Executive Officer (CEO) to a single person. In other
words, a single individual acts as COB and CEO at the same time. The persons holding these two
positions have entirely different roles and responsibilities. Since, these two positions are of the
top management, they should be held by the personalities having required qualifications along
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with minimum experience. International corporate governance has focused on the issue of
duality on which different groups of people hold variety of perceptions which has created
divergent on this topic. There are some stakeholders who are in favour of separation of these
roles on the other hand, rest of the stakeholders suggest that the role of COB and CEO should be
combined.
Duality has positive as well as negative effects on the companies. There are many entities
which have their own opinions on the issue of duality. In the case of Caterpillar Inc. which is a
US based corporate. It is an American Fortune 100 company which is the world's largest
construction equipment manufacturer (Claessens & Yurtoglu, (2013). This company has
appointed its CEO Jim Umpleby as the chairman of the board. This company followed duality in
corporate governance because of the perception that a single person can focus on all the activities
and make better decisions. This has made Umpleby to feel pressurized and work efficiently
because of holding both positions at the same time. This has resulted positively on the company's
by which the revenue was increased and the growth was just doubled. Some of the decisions
taken by Umpleby has made the company make higher profits. Following this concept in
corporate governance, it has put double responsibilities on the person who has to work in both
the positions. The transparency increases along with accountability.
The negative effect of duality has been seen many a times which has declined the profit
and revenue of the companies. Renault is a company which manufactures cars and has ownership
in the Japanese company. It has refused to follow duality and appointed two different persons for
holding the positions of CEO and COB. The main reason behind this is that corporate
governance can be made better with the split in these two roles. The end to the custom of duality
was witnessed after its chairman and chief executive Carlos Ghosn was arrested because of
presenting wrong financial information of partner company Nissan Motor Co. Before the arrest
of Ghosn, he was acting in the capacity of COB and CEO at the same time. Ghosn had to
surrender all his rights on such arrest. This has caused number of losses in the form of brand
image, legal, regulatory and many other (Khan, Muttakin & Siddiqui, (2013). Renault believed
had there been two persons holding these positions, the working would have been continued
without any hindrance. The scenario would have been different in case it had appointed two
separate people. Lets take an example, if Ghosn was holding the position of CEO only then new
CEO could have been appointed. But in the real situation, two positions were vacated at the same
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time which increased the burden on the company. It is not easy to decide so quickly which
person can hold these positions. In this case, the concept of duality has caused huge problem for
the business of the company. It added extra efforts and time.
Duality is a huge term which can impact the business activities significantly. Therefore, it
can be reviewed on the basis variety of criteria which are as follows:
Legislation: Australian Corporate Governance Code has been revised recently which has
received positive outcome. It has emphasized on integrated reporting for better transparency with
investors. Whenever, a company appoint new chairman or CEO, it has to make a disclosure for
the same. Similarly, when a single person is given the positions of COB and CEO, then also an
organization is bound to make disclosure. Apart from this, major investment and other decisions
should also be notified to the general public and other key stakeholders. It has also made
amendments regarding the provisions of duality because the number of companies following this
trend has reduced in the current with a difference of 1%. Hence, this can serve the main base for
judging the impact of duality on the working of the company (Meaning of Duality, 2019).
Approach: The corporate governance experts conducted a survey for knowing the
reasons behind failure of company following duality. The research was conducted by using the
funds, databases, and attitudes of regulatory authorities towards CEO followed by an interview.
The outcome of the research stated that, there is no nexus between duality and failure of an
entity. This has made it clear and can be treated as a strong point for checking the business
declining due to duality. Furthermore, the fact was established that funds and downfall of a
business has direct relation which impacts the business majorly. From the analysis of previous
data regarding duality, it can be said that duality is not significant enough to be considered. It
does not impact on the policies and decisions of an organization.
Guiding principles: Australian Corporate Governance code has certain principles which
are considered the foundation of the whole business activities. Guiding principles act as
directions for carrying business activities. These should be included in all the situations for
making effective decisions (Guiding principles, 2019). It comprises of ten main principles which
are about role of directors in vision, decision making, ethical conduct, independent judgement
etc. These are the duties of a director. Similarly, there are different responsibilities and roles of a
chairman which is not at all linked with the role of a director. Therefore, duality can be reviewed
by forming a policy reflecting combined roles and responsibilities.
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Rules: Every legal system has some rules which are applied in addition to the law and the
standard. These rules are made to increase the application of corporate governance. The results
of which are reflected on the financial position, goodwill, brand reputation etc. These are the
detailed requirements put by the government for complying with them in order to maintain the
legality. There are corporate governance rules in Australia which are required to be followed if
the company if trading on Australian Securities Exchange (ASX). This provides a framework to
enhance the decision making in the companies.
Corporate governance of an entity can be analysed on the basis of concepts, principles
standards, theories etc. The same are as follows:
Stewardship theory- This theory states that people at the top management are called the
stewards of the company. These include company executive, managers etc. who act and make
decisions by taking into account the interests of the stakeholders. According to this theory,
duality can serve as a good governance practice with positive implications for corporate financial
performance. The reasons behind this is the uniform and unification of the command chain. This
helps in making decisions quickly (Corporate governance code, 2019). As per this theory,
duality assist in building a strong leadership for implementing unified command to the whole
organization. If the strengths of both the position holder are combined then great results can be
achieved. From evaluating it critically, it has been concluded that a person holding these two
positions can be made accountable to number of situations. Therefore, accountability is increased
which keep the confidence of the stakeholders because the board and CEO work closely which
have positive impact on the financial performance. Shareholders are interested financial position
of the company and potential shareholders are attracted to invest more amount.
Principles: Every company which is required to follow the corporate governance code
has to comply with the principles and if it is following the concept of duality, then more focus
should be given to the modifications taking place. The above two companies that have been
talked about have different perceptions regarding duality because of different outcomes they
have achieved. This provides that principles in the corporate governance code has given equal
importance to duality. It has assessed that a director and chairman, both are vital for the company
who need to exercise their roles diligently. When the roles are combined and given to a single
person, then this calls for more transparency and accountability in the working.
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Recommendations:
 Caterpillar and Renault both followed duality but the occurrence of this concept is
different. Renault has discontinued duality after its business was affected on the arrest of
its Chairman and CEO. On the other hand, Caterpillar took duality as a positive method
for making effective decisions. Hence, duality can not be implemented properly if
companies make breaches or contravention in the disclosure requirements. Corporate
governance requires transparency which is the demand of the stakeholders. Hence,
entities should comply with the requirements of the corporate governance code.
 The CEO and COB should understand their roles in a clear manner. Also, they should
realise that they have responsibilities towards different stakeholder. This necessitates
making decisions for the benefits of all the stakeholders and not just for the benefit of the
company itself. Furthermore, corporate governance is for the protection of the investors
and their confidence is important for raising funds in the company in future. Therefore,
no fraudulent acts such as reporting the misleading information should be avoided.
 Lastly, the companies should remain update about the amendments and current market
scenarios. This can reduce the unnecessary burden on the entity. Along with this, the
corporates should appoint individuals with appropriate qualification and experience. It is
important to choose the right person for such positions. Also, that person should be
selected who has good track record of performance without any conviction. This keep
the trust of the stakeholders.
CONCLUSION
From the above report, it has been concluded that corporate governance is important for
those companies who are trading on the Australian Stock Exchange. There are codes, rules and
standards related to corporate governance which should be followed by companies listed on
stock exchange. However, the entities not falling within the prescribed limit may also abide by
corporate governance to comply with the laws. It has introduced a concept of duality which
allows the company to appoint a single person as COB and CEO at the same time. Furthermore,
different factors have been described to analyse the impact of the duality on the business of an
entity. Furthermore, disclosure requirements should be focused in order to have high
transparency.
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REFERENCES
Books & Journals:
Tricker, R. B., & Tricker, R. I. (2015). Corporate governance: Principles, policies, and
practices. Oxford University Press, USA.
Claessens, S., & Yurtoglu, B. B. (2013). Corporate governance in emerging markets: A
survey. Emerging markets review. 15. 1-33.
Khan, A., Muttakin, M. B., & Siddiqui, J. (2013). Corporate governance and corporate social
responsibility disclosures: Evidence from an emerging economy. Journal of business
ethics. 114(2). 207-223.
Online:
Definition of Corporate governance. 2019. [Online]. Available through: <https://www.applied-
corporate-governance.com/definition-of-corporate-governance/>.
Meaning of Duality. 2019. [Online]. Available through:
<http://www.virtusinterpress.org/IMG/pdf/10-22495_cocv8i1c1p1.pdf>.
Guiding principles. 2019. [Online]. Available through:
<http://www.companydirectors.com.au/~/media/resources/director-resource-centre/
governance-and-director-issues/guiding-principles-of-good-corporate-governance.ashx?
la=en>.
Corporate governance code. 2019. [Online]. Available through:
<https://integratedreporting.org/news/revised-australian-corporate-governance-code-
encourages-adoption-of-integrated-reporting/>.
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