Evaluating Corporate Governance's Influence on Company Profits

This report examines the critical relationship between corporate governance and company profitability, with a specific focus on the automobile sector. The research begins with an overview of corporate governance principles and their significance in ensuring long-term sustainability, stakeholder interests, and ethical business practices. A case study on Volkswagen is presented, exploring the impact of the emission scandal on the company's brand image and financial performance. The report reviews the problem faced by Volkswagen, which includes intentional cheating on emissions tests, leading to a decline in sales and profits. The literature review explores the role of corporate governance in the automobile sector, its contribution to profitability, and the impact of changes in governance on profits. The research methodology includes both secondary and primary research, providing a critical review of the findings. The report aims to evaluate the dependence of company profits on corporate governance, offering recommendations and conclusions based on the analysis. The study emphasizes the importance of effective corporate governance in maintaining a positive brand image, ensuring stakeholder satisfaction, and ultimately, enhancing profitability in the dynamic automobile industry.

Corporate strategy and
governance

Table of Contents
INTRODUCTION...........................................................................................................................1
Overview of research..................................................................................................................1
Background of research...............................................................................................................1
Review of the problem faced......................................................................................................2
Literature review .............................................................................................................................3
Role of corporate governance in auto mobile sector...................................................................3
Contribution of CG in profitability.............................................................................................4
Impact of change in corporate governance on profits ................................................................5
Secondary Research And Primary Research Undertaken................................................................6
CRITICAL REVIEW OF THE RESULTS OF THE RESEARCH..............................................10
4.1 Critical review on the basis of secondary research.............................................................10
4.2 Critical review on the basis of primary research.................................................................12
Recommendation and conclusion..................................................................................................20
.......................................................................................................................................................23
REFERENCES .............................................................................................................................25

Title – “To evaluate dependence of company profits on corporate
governance” A case study on automobile sector
INTRODUCTION
Overview of research
Corporate governance is a concept that is followed by business in order to remain
sustainable in industry for long term (Su and Sauerwald, 2018). It consists of rules and
regulations, process, etc. that are followed by business. this helps in maintaining balance
between interest of shareholders and activities of company. Usually, a firm is directed and
controlled by stakeholders. Corporate strategy of an organisation plays essential role in the
business activities of company and manages its sustainability at market place. It also open ups
huge range of options for business organisation which can be adopted by them in order to attain
their aims and objectives ( El Ghoul, 2017). Principles of corporate governance also ensures that
while 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 improves
its sustainability level too.
Corporate governance also works as the guidelines for business organisation which
controls and directs them that how they should execute their work in effective manner by which
organisational goals and objectives can be achieved. Along with this, it also provides value to the
company that is beneficial for all stakeholders for longer period of time. They are responsible for
doing business in transparent way. The main purpose of this research is to identify how
profitability of firm is affected due to change in corporate governance in auto mobile sector. It
will help in determining factors that enable companies to work in interest of stakeholders. In
automobile sector there is major are many issues related to corporate governance that arises. It
has created a great impact on profitability of company. Also, many companies are involved in
controversies and legal cases.
Background of research
Corporate governance plays an essential role in every organisation as it guides them to
perform their business activities effectively by taking care of interest of their stakeholders as well
as organisational profitability ( Kraakman, 2017). It can be said that if an organisation follows all
of their principles of corporate governance then they can easily obtain their aims and objectives
easily. 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 Labour
Front (Too and Weaver, 2014). Volkswagen is one among largest car automaker which provides
its car across the world. But, with this much popularity the company have been indulged into
many issues which have impacted negatively on its brand name. The company has also faced
critical issues ( Means, 2017). They are been involved in scandals that has led to decline in sales
and profits. This has occurred due to ineffective implementation of corporate governance. This
research will help Volkswagen in reducing impact of issues related to Corporate governance. For
this, it is mandatory for the company to firstly understand meaning of corporate governance and
how it impacts over profitability of the company. This research will also help Volkswagen in
analyzing that how they could minimize the impact of these negative scandals and maximize
their profitability ratio. It will also help the company in improving its hold on customers by
satisfying their interest by following their principles of corporate governance.
2

Review of the problem faced
In this research, investigator has chosen specific issue of Volkswagen that is emission
scandal. The issue mainly based on Volkswagen who have willing cheated government as well
as its customers by producing an cheating software. According to the US regulations that is
Clean Air Act, it is mandatory for car makers to go pass laboratory emissions testing before
introducing or selling them at market. But, Volkswagen have intentionally prepared an cheating
device that holds capabilities to pass this laboratory test. This device have helped company in
clearing this test effectively ( Setó‐Pamies, 2015). Bur, in actuality vehicles produced by
Volkswagen emits huge level of nitrogen oxide which is really harmful for all. The company
have deployed this software in around 11 million cars across the world. It has been analysed that
impact of this scandal was really negative for the brand name of the company. But, at the same
time, it is harmful for the environment as the pollution emitted by these vehicles generates many
harmful diseases.
This present research is conducted to identify the impact of this scandal on the company's
brand name. It will also highlight that how corporate governance influences profitability of the
company ( Wheelen, 2017). The research will guide Volkswagen to improve their brand name
by taking some preventive measures.
Research aim
“To evaluate dependence of company profits on corporate governance. A case study on
Volkswagen.
Research Objective
 To access role of corporate governance in auto mobile industry
 To analyze contribution of CG in profitability.
 To evaluate impact of change in corporate governance on profits
Research Questions
 What 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 sector
In such as changing business environment it is very important to companies to follow an
effective corporate governance strategy. This is because it will be beneficial in sustaining in
market for long term. According to Davies, (2016), change in environment forces business to
work in interest of stakeholders ( Arthurs, 2018). It enabled them to earn huge profits. The
profitability is entirely dependent on corporate governance (Chu, Teng and Lee, 2016). It
reflects values, rules and regulation on that company follows in their operations. a rigid structure
will enable in generating higher profits.
In view of Barkemeyer, Preuss and Lee, (2015), practices followed includes protecting
atmosphere, using renewable resources, etc. this creates a positive impact on performance of
business and outside it. due to this they are able to provide new products and high quality
services to customers.
As said by Mallin, (2016), the more contribution of business towards stakeholders will
enable 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 and
work with government. As elucidated by Jiang and Kim, 2015, proper communication between
directors and managers will create better relationship. This influences overall organizational
culture. Moreover, internal attributes of firm shows corporate governance.
In opinion of Sako and Zylberberg, (2015), globalization has create a positive impact on
business. It has allowed companies to promote their ethics, fairness, etc. in dealing with
customers, suppliers, etc. it has resulted in small number of scandals and frauds (Driver and
Thompson, 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 corporate
governance is a set of rules and regulations through which an organization is guided and
monitored. It's main responsibility is to check that company do not crosses their limits and
indulge into illegal activity for maximizing their profitability. It also creates positive balancing
between 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 that
corporate governance places an essential role in auto mobile industry as the sector is very broad
in size and requires some directive instruction as well as controllable authority which stops them
4

by indulging into unethical activities. It can be said that corporate governance also helps in
determining financial health and stability of business.
It has been analyzed that with the changing time importance of corporate governance can
be seen in the form of improved competitive performance of companies which belongs to
automobile industry ( Crane, 2016). This has become possible only because of control of
corporate governance which do not allow companies to follow any unethical or wrong
misconduct which might harm anyone. In this regard, businesses belongs to auto mobile industry
now works on improving their quality in order to sustain longer in same industry. These
companies also tries to introduce some new features in their vehicles which enhances
competitiveness in the industry. As a result, it also influences interest of customers towards the
sector and increase its overall profitability.
Contribution of CG in profitability
As per the thoughts of Hussain, Hussain, and Awais, (2015), it has been evaluated that
corporate governance holds major responsibility in the company and also contribution in their
profitability. According to the thought of author, it has been seen that if an industry has good
corporate governance and they also follows effective strategy, then they simply avoids many
scandals which might impact negatively on their profitability. As a result, it helps whole industry
in maximising their profit earning level. It can be said that corporate governance is the set of
rules and regulation by which an organisation monitors and controls their business decisions that
means 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 an
essential role in this sector and helps its organisation in executing their business activities in
ethical manner (Roy, 2014). An effective Corporate governance of the company also develops
positive relationship among overall management people of the company like shareholders,
stakeholders, board of directors and auditors. The main purpose of this governance is to
maximise wealth of shareholders. This helps the firm in influencing more people to become their
shareholder and which contributes in bringing more investment to organisation as a result, they
can 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 and
stable corporate governance so that they could they improve their relationship with employees
5

and persuades them to work more effectively. It helps in reaching corporate objective of business
organisation soon as they are fulfilling each and every legal requirement of government as well
as 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 its
policies, decision making process, strategies which have been adopted by them. This
transparency formulates an positive image of the organisation in front of its shareholder as they
know about each and every activities which is being followed by the company. Therefore, it can
be said that corporate governance plays an crucial role in organisation, no matter it belongs to
which sector ( Sadhukhan, 2014). Along with this, it has been observed that an effective
corporate governance is really helpful for companies in maximising their performance and
directly 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 been
analyzed that if corporate governance of an organization changes then it will definitely impact
upon its profitability. This is because, corporate governance holds strong position in the financial
decisions of company and if in case they changes then it will directly impact on financial
performance of an organization. It has been identified that if company follows its principles of
corporate governance strictly then they can easily attain higher range of profits. But, at the same
time any change took place in its principles then it definitely going to consume huge time of all
of its employees to understand and accept. This consumption of time will going to have negative
influence on performance of employees. As a result, its reflection can be seen in the decline of
profitability level of the company.
As per the thoughts of McCahery, Sautner and Starks, (2016), it can be said that if an
corporate governance is not good then and does not protects rights of stakeholder then it is
essentially required by the company to change it. The author have stated that change which have
been implemented to improve principles of corporate governance is positive. Therefore, it is
highly important for companies belongs to auto mobile sector to apply desired modification in
principles or norm of corporate governance in order to enhance its efficiency towards
maximizing profitability of the company. But, at the same time if the formulated changes have
not been accepted by the employees or other stakeholders then it's outcome will not be in a
favorable condition. Apart from this, it has also been analyzed that it is essential for companies
6

belongs to automobile sector to initially understand actual requirement of change and identifying
its core requirement only the company should go for changes.
Secondary Research And Primary Research Undertaken
There are several methods that are followed while conducting research. They help in
developing a framework so that research is conducted in systematic way. For present research
methodology is as follows:-
Research design – These designing approaches focus on preferences made by the
researches for data analysis and collection ( Grant, 2016). This project will use both qualitative
and quantitative methods for designing purpose.
Research philosophy - Research philosophy describes the ways in which knowledge
data for the research can be gathered and evaluated so that it can be used for research purpose.
There are various types of research philosophies such as positivism, interpretivism, etc. (Amran,
Lee and Devi, 2014) Positivism approach will be used by researcher.
Data collection- In order to answer the proposed questions of research various types of
data are collected. Data collection methods are classified into two categories namely primary and
secondary. Primary data will be collected through questionnaire.
Data sampling- A technique to select sample from population. The sample selected will
be 30 corporates that are engaged in auto mobile sector.
Data analysis- it is very essential to analyze data as overall results are based on this. In
context to this, researcher will use thematic analysis technique. also, graphs, charts, etc. will be
developed to get precise outcomes.
Access and ethics
Ethics - The research study must ensure that ethical considerations are not neglected
During research it was assured that none of the participant was harmed and their dignity was
maintained during process (Mair, Mayer and Lutz, 2015). Prior to study the consent was taken
from all the participants so that accurate conclusions can be dehe major challenges faced by
company due to labour division and its poveloped.
Access – In this researcher must have the access for collecting and analysing data. For
present study researcher will follow a systematic way for this. It will help in getting specific and
precise results.
7

In order to conduct a research in effective manner, researcher adopts several methods to
collects authentic data or information on the chosen topic. There are mainly two types of data
collection method that is primary and secondary by which investigator can collect information
that will contribute in identifying relevant outcome for the research. In relation to the current
research of Volkswagen, investigator have chosen both of these method in order to complete
this research with authenticity and within the provided time frame ( Schrempf, 2014). Both the
primary as well as secondary method of data collection is defined as below along with their
different sources:
Primary Method: In this method, collected data is completely raw as it indirectly
collected from selected respondents. In this researcher mainly collects data by communicating
with respondents one on one. This information can be collected by using different sources like
interview, questionnaire, observation, surveys, field trials etc. It has been analyzed that primary
method is a time consuming consuming process which might affect deadlines of the project, but
at the same time many researcher have admitted that even though it is a time consuming process
but the actual result which have been obtained by it, is really valuable for the research. Along
with this, it also helps in satisfy a research topic because researcher is connected to the research
topic all the time. Different sources by which researcher can collect desired information is
defined as below:
Interview: It is the process in which interviewer asks certain set of questions from
interviewee on some specify topic. Interview can be conducted in two manner that is face to face
or telephonic. It can be said that interview is the best approach that helps researcher in getting
answers of their questions on specific topic as it allows them in analyzing how effectively
interviewee is giving the response ( Cheng, 2014). Along with this, researcher can also modify
their questions according to the present state in order to collect maximum possible response.
Researcher often adopts telephonic interviews due to complete research in shortage of time.
Observation: In this method, researcher simply observes reactions and response of
respondent while performing their work or activity. The investigator also makes record of each
and response in order to use it at the time of working on final conclusion on research.
Survey: This method of primary method of data collection mainly relies on collecting
information from large number of respondents. Here, researcher often usages advance
technology to gather information from chosen population. For this, they uses mobile phones,
8

tablets, etc. researcher also uses online survey in order to reach maximum range of population.
This method helps understanding actual perception of huge number of respondents and also
contributes in reaching true conclusion for the same.
Questionnaire: A questionnaire is written paper which contains certain set of questions
that have been formulated by researcher. These questions also contains its answers in the form of
options and are based on research topic ( Epstein, 2018). In this method, researcher asks its
chosen respondents to fill questionnaire according to their perception from the given option.
Further, researcher can use these answers in order to obtain research outcome.
Secondary method of data collection:
In this methodology collected information is mainly based on work of someone else
which have been done by them in past. Under this, researcher gathers information from already
published data in the form of articles, newspapers, books, journals, past researches etc. This
method is often adopted by researcher to meet project deadlines without compromising with the
authenticity of data. In the present report, researcher have used secondary method of data
collection for covering overall section of literature review. Some of the methods by which
researcher can collect secondary information is defined as below:
 Public libraries: It is a place where researcher can find out desired information on
its research topic. Under this, they can search their specific topic business directories,
books, newspapers and some government publication in order to find out relevant
information which meet up with research topic. It can be said that this method is
much helpful for researcher in identifying reliable information.
 Data available on internet: In this method, investigator mainly collects information
from online sources like website, online articles etc. It can be said that if a researcher
is conducting research on specific company then they can refers its own website as
they can collect authentic information from their.
 Commercial information sources: Under this, invsetigat9or also collects
information from some paid sources like magazines, TV, radio etc. It can be said
that, it provides some additional information to researcher regarding external market
scenario, business trend and political situations which might have influence over
research topic as well.
9

In the present research report, researcher have used questionnaire for obtaining true
outcome on research topic.
Questionnaire
A questionnaire research instrument consist of variety of questions, which helps
researcher in collecting relevant information related to its research topic. A questionnaire is cost
effective and provides speedy results to the investigator.
Questionnaire
Q 1) Are you aware with the concept of corporate governance?
a) Yes
b) No
Q 2) What is the importance of corporate governance in business growth?
a) Enhancing performance of business
b) Running business in ethical manner
c) Ensure profitability more
Q 3) Do you think following of principles of corporate governance helps auto mobile industry
in enhancing sustainability of the company?
a) Yes
b) No
Q 4) Do you think profitability of the Volkswagen is related to corporate governance?
a) Agree
b) Disagree
Q 5) Does corporate governance plays an essential role in auto mobile sector?
a) Yes
b) No
Q 6) Do you think changes in corporate governance will impact profitability of business
organisation?
10