BM628: Corporate Strategy and Governance Report on NMC Healthcare

This report delves into the core concepts of corporate governance, emphasizing the critical role of financial statement transparency within organizations. It addresses the issues and failures in corporate governance, particularly highlighting the case of NMC Healthcare. The report explores the concept of corporate governance, its role in organizations, and the importance of financial statement transparency. It analyzes the NMC Healthcare case, where accounting irregularities and corporate governance failures led to significant market decline, stakeholder distrust, and financial penalties. The report also examines the impact of these failures on the company's stakeholders, market position, and investor confidence. Furthermore, the report provides recommendations and an action plan for improving corporate governance and financial transparency in healthcare organizations. The study uses literature reviews, analysis, findings and conclusions to provide a detailed overview of the subject.

CORPORATE STRATEGY
AND GOVERNANCE

Abstract
This study will show the main concept of corporate governance and issues associated with it. The
major issue as well as problem which organization has faced from past few years is financial
statement transparency.NMC healthcare faced the corporate governance failure where the great
issue was reported in the accounting system. In the following year, the 4 senior executives were
being suspended for the improper disclosure of the financial statements. Further, it will also
show importance of implementing corporate governance system in healthcare as it allows
managers in managing risk and performance as well.

Table of Contents
Abstract............................................................................................................................................2
Table of Contents.............................................................................................................................3
INTRODUCTION...........................................................................................................................4
Chapter 2: Literature Review...........................................................................................................5
Concept of corporate governance................................................................................................5
Role of corporate governance within organizations....................................................................6
Importance of financial statement transparency in corporate governance..................................9
Conclusion.................................................................................................................................11
Gantt Chart.................................................................................................................................11
CHAPTER 3..................................................................................................................................12
Research Methodology..............................................................................................................12
CHAPTER 4: Findings and Analysis............................................................................................14
CONCLUSION..............................................................................................................................34
CHAPTER 5 RECOMMENDATIONS & ACTION PLAN.........................................................34
REFERENCES....................................................................................................................................30

INTRODUCTION
Corporate governance is basically the well-through system of practices, rules as well as
processes that directs the organizations and thus controls them. The problem of corporate
governance has become one of the major concern across all the organizations and thus have
affected their functioning. It is generally the way in which an organization is controlled and
governed. In short, corporate governance is mainly the mixture of various laws and rules through
which businesses and their organizations are regulated.
NMC healthcare is one of the leading and well-known healthcare chain and distribution business
which was established by 1974 by B.R.Shetty and headquartered in Abu Dhabi, United Arab
Emirates(Adiputra, Siregar and Wardhani, 2017). This is the second largesthealthcare
organization which has market share of around 17.5% and thus have a great profit ratio. The
issue of corporate governance has always been the major problem in NMC healthcare which has
affected its overall operation and market position. In December 2019, NMC healthcare shocked
the market by the announcement which acknowledges their profits for last six months were $153
million lower than the company announced months earlier. This has been one of the massive
failures of overall auditing process at this company. This eventually affected the market position
of NMC healthcare to a high extent and in addition, also impacted their stakeholders. Actually
the suspension of 4 senior executive directors of NMC healthcare was majorly followed by
scandal of overstating profits of company by around $153mand later on revealed that company
experienced profit of nearly $322m. The main purpose for overstating the profits within
foretasted profit was to entice the shareholders as well as increase the investment as well as
funds to retailer. Due to this failure of the corporate governance as well as miscommunication
issues, a large number of people within company were being suspended who were engaged
within this accounting fraud. The stakeholders blamed the company and said that NMC
healthcare should have a tight policy as well as procedures that ensure their accounting is
appropriate and correct. Despite the company’s external auditors who are responsible for
checking that everything is in line and correct, NMC healthcare faced a huge brunt in its
corporate governance that eventually led to the decline of their position in market.
1.1 Background of the Study

Transparency in financial statement means statements which are user friendly and clear,
everything in such statements are properly disclosed and includes facts which can be easily
understood (Ghoorah and et.al., 2018). The objective of the financial statement is that it should
be interesting and easily understood for the people who are not having any specific knowledge of
accounting and financial terms. Auditing and cross checking ensures that financial statements are
free of any error and fraud. Transparency in financial statement also includes that all the figures
in the statement are clearly recorded (Gassen and Muhn, 2018). Fraud in financial statement
includes that financial statements are willingly presented with wrong figures and data. Financial
frauds are illegal and unethical because they are not able to present correct information. This
study will discuss transparency in financial statement because of increasing cases of fraud in
financial statement (AL-Massoodi and Dawood, 2019). Contribution that corporate governance
can make in transparency of financial statement and for corporate governance importance of
financial statement will be discussed in the study.
1.2 Problem Statement
The major issue as well as problem which organization has faced from past few years is financial
statement transparency. The corporate governance relates to carrying out the activities of
business according to the desire and needs of stakeholders. It is usually all about balancing the
individual as well as societal goals and economic goals. NMC healthcare PLC is basically known
for the great corporate governance as their core framework and also the company is primarily
known for safety as well as ethics towards environment along with people.
This great failure of the corporate governance in NMC health care resulted in great decline in
their market share to around 11.4% and thus affected their overall stakeholders. Due to this
misapprehension, the confidence and trust of their customer ultimately declined in the company
and in the following year, sale and profit ratio of the company reduced to more than 45% and
this impacted their market position(Filatotchev, Poulsen and Bell, 2019). Along with this, NMC
healthcare also lost their most of the shareholders after this case and the company was later on
alleged to pay a handsome fine of around $613m towards end of year. Along with this, more than
12 investors filed accounting fraud upon NMC healthcare PLC as well as claimed that company
had been misleading them and lying for gaining funds.

1.3 Research Objectives
 To understand the concept of corporate governance
 To analyze the role of corporate governance within organizations
 To explore the issues in corporate governance affecting organizations
 To study the importance of financial statement transparency in corporate governance
Chapter 2: Literature Review
Concept of corporate governance
As per the view of Xia and et.al., 2017Corporate Governance contributes organization in creating
value, this includes entrepreneurial, innovation, development and exploration and provide
accountability and control system of the companies. Corporate governance is system of rules,
practices and processes through which a company is directed and controlled by its board and
management. Corporate governance significantly involves managing and safeguarding the
interest of various stakeholders’. In context of rules and regulations company is governed by
corporate governance but this is more than corporate law. In its practice corporate governance is
a well-laid out system, it leads to building of a legal, commercial and institutional framework
within all functions are performed. Objective of corporate governance is not limited to fulfilling
legal requirements of the company but it also includes commitment of board and its senior
officers in managing the company in transparent manner for ensuring long term value for its
shareholders. Diverse interest group such as employee, owners, managers, investors, business
partners and creditors are termed out to be crucial part to the enterprise. With help of providing
transparency in decision making process the entity can able to ensure success and develops
economic growth. Thus, one of the main issues of corporate governance is to influences their
plan of action and competitiveness. Thus, implementation of corporate governance leads to
create the conflict of interest among the member of the enterprise who is directly conflicts with
the objectives of corporation.
As stated by Habbash, 2016Corporate governance refers to the accountability of the board of
comapnies to all the stakeholders of the corporations, these are shareholders, employees,

customers and society. This also includes giving a corporation a fair, efficient and transparent
administration. Corporate governance of the company also refers to code of conduct; this is
required to abide by the directors along with running the company as per all the corporate
governance. There are various reasons which Wide Spread of Shareholders, in this company has
very large number of shareholders spread all over the nation and even around the world. Through
corporate governance company can ensure well-being of all the shareholders. Corporate Scams
and Scandals is another reason for corporate governance. These days corporate are significantly
facing corporate scams and this is why it is important to have corporate governance.
.
Role of corporate governance within organizations
It is already stated that corporate governance is a system which supports companies in
making an effective decision by managing and directing them. In the context of roles of this
system Alsalim, Amin and Youssef, (2018) stated that this system influences ways as how
companies set and achieve their objectives. It also allows companies in managing as well as
monitoring risks and optimizing performance. It is considered as an effective system because it
consists of several principles, defined responsibilities and policies on which basis, all
stakeholders of companies including healthcare can overcome conflicts of interest and help
companies in accomplishing their goals. In addition, they also stated that corporate governance
system not only allows stakeholder to perform their activities and solve conflict of interest but
also work as like mediator between all stakeholders of company like company management,
board of directors, shareholders etc. By making them able to communicate and interact with each
other’s they shape corporation’s performance. It also allows them to deal with determining all
those ways which can make them able to take strategic decision. Taking an effective strategic
decision can be the key of the success of an organization.
On the other hand, in the context of importance of roles of corporate governance
Schijven, Haleblian and Kolev, (2017)said that it changes ownership structure in an effective and
positive manner. One of the main role of developing or using this system in companies is it
prevents companies against scams and frauds. In this context, it can be said that scams and frauds
are increasing day by day which can become the reason of poor image and poor productivity of
organizations. There are several ways by which hackers can scam and loot public funds in stock

markets and banks. But with the help of corporate governance, companies can prevent
themselves against all these scams and problems. One of the other main roles of corporate
governance is it increases investor trust which is importance and can be helpful for companies. In
this context, it can be said that investors consider corporate governance one of the important
factors as like financial performance when they evaluate companies for making decision of
investment. So, it can be said that by making an effective and appropriate use of corporate
governance system, companies can increase shares, revenues and trust of investors.
For supporting this view, Ahmad and et.al., (2018) interpreted that corporate governance
system allows companies to increase their valuation and add value in customers’ services. They
manage accountability as well as improve operational transparency which also make companies
able to fulfill expectations of investors. When investors and stakeholders feel satisfied than they
also support companies in accomplishing their goals. This satisfaction and accomplished goals
increase value of companies and make them able to take competitive advantages. With the ability
of an effective communication, board of companies can select, evaluate as well as compensate
the CEO and oversees the talent programs of the company, especially those related to executive
leadership and potential successors to the CEO.
Issues in corporate governance which affects organizations
There are several authors who stated that corporate governance is one of the main
effective systems which can help them out in accomplishing their goals. It also has several
benefits but on the flip side, it can also be said that corporate governance can create several
problems. There are some risks are associated with this system which can create barriers in the
path of the success of companies Ibrahim and Zulkafli,(2016) stated that accountability issue is
one of the main problems which is associated with this. In this context, it can be said that from
the top level executives to low-level tier employees, each level of corporation requires to report
and be accountable to another as like system of balances. Without proper accountability, each
division of actions of corporation may endanger success of companies and may cause
stakeholders to lose interest or willingness of investing in companies. When investors lose their
interest of investing in an organization then it may affect their reputation and number of shares
and sales.

Whereas, Zhao, Chen and Xiong,(2016) stated that ethics violation is other main risk or
problem which is associated with this corporate governance system. In this context, they stated in
a detailed manner that all members of board of directors have keen desire and ethical duty to take
decision based on the interest of stakeholders of making investment. Corporation or healthcare
has another ethical right or duty to protect social welfare of community for which and in which
they operate. Some ethical duties include: reducing pollution and eschewing manufacturing in
countries. But poor establishment of corporate governance can exploit all these ethical rights and
duties of organization. It can directly affect image of the company in a negative manner.
Other main issue which is associated with this corporate governance is conflict of
interest. In this context, it can be said that corporate governance is the system which has ability
to allow companies to avoid conflict of interest but on the other hand, it may create problem
when an officer of an organization has financial interest only. This interest may create situation
of conflict with objectives of corporation. So, it can be said that different interest of members of
board or authorized member of corporation can create conflict of interest. It can directly affect
trust of shareholders and can make corporation vulnerable. In addition,Muriuki, Cheruiyot and
Komen, (2017) also be said that for making an organization or corporation profitable and
successful, it is important for them to report their accurate profit and losses to those who evaluate
profit and loss report while making decision of investing money in companies. But, overinflating
profits and continuous decreasing losses can be harmful or can give some serious danger to
company. Because this overinflating profits and decreased losses put pressure on investors and
they suspect on companies. It can make relationship of shareholders and company’s worse. In
this type of situation, investors think that they are making a false decision of investment under
false pretenses. So, it can be said that a lack of transparency is one of the main problem which
can even expose the company to fines from regulatory agency.
Importance of financial statement transparency in corporate governance
Financial reporting plays an important role in companies including NMC healthcare as it
allows companies in solving agency conflicts among firm’s directors, managers as well as capital
providers. It can only be happening by corporate governance which is an effective set of
contracts, help in aligning different committee and managers’ interest with interest of
shareholders. So, from this example, it can be said that financial reporting is vital or key of the

success of any organization. In this context of Bidabad, Amirostovar and Sherafati,(2017)stated
that for making financial statement transparency it is important for organizations to understand
difference between formal and informal contracting relationship because by understandings
them, companies can identify whether financial transparency in corporate governance is good or
bad. In this context, it is also stated that both formal and informal plays a vital role as it shapes
an organization’s overall governance structure as well as information environment. Formal
contracts refer written employment agreement which is often quite narrow in the scope and also
difficult to analyze it. On the other hand, informal contracts govern multi period relations and
allow all parties of contract to interact and engage in a board set of activities.
In the context of role of corporate governance in enhancing financial transparency as well
as facilitate production of information stated that this system separates position of CEO and
board chair of healthcare or other institutions who are mainly responsible for accuracy of
financial reporting like accurate data of profit and loss. In this process, board chair support CEO
in increasing transparency by providing information of incentives which may help preventing
large losses to stakeholders. After separating roles and position of CEO and board chair, this
corporate governance system, identifies successors in order to replace key members of executive
management team of companies, who facilitate smooth as well as effective transition and flow of
credible information. After that, third and main important role of corporate governance
framework for health care Banks and other institutions is, it makes an incentive structure
effective and able which rewards manager in an efficient manner. By getting effective rewards,
managers share both types of information like good and bad in order to make stakeholders aware
about the actual position of company in the market. After that managers of corporation also
cooperate with regulators for effective establishment. Other main and important role of corporate
governance structure is it has an ability of peer assessment which is important for making
organization successful and knowing the actual position. This strong peer assessment, board
evaluation and ability to share both good and bad information with regulators facilitate the
replacement of ineffective directors. When ineffective directors are replaced than companies are
more likely to achieve all their objectives and making their business successful. The last main
role of this framework is it allows creditors in playing their role more prominently and
effectively in demanding accurate information. This demand of accurate information allows them
to improve efficiency of their own monitoring of performance.

On the other hand, Siringo-Ringo and et.al., (2020) stated that financial statement and
transparency in it is one of the important for any sort of business. Corporate transparency is all
about the degree to which organizations including healthcare’s actions are observable by
outsiders or shareholders. It is also stated that financial transparency is one of the key steps to
corporate governance and makes sure that management of organization will never be engaged in
unethical or improper behavior. This system makes able to all managers in providing information
related to their profits and losses in an accurate manner. This transparency in financial reporting
makes investors, creditors as well as market participants able to evaluate financial condition of
companies in both positive and in a negative manner. This evaluation helps them out in making
the best and effective decision of investment. So, it can be said that corporate governance system
and financial reporting transparency increases confidence in the fairness. Financial transparency
to corporate governance is also important because it makes managers of corporation able to
evaluate and measure effectiveness of management and taking immediate effective actions when
required.
Conclusion
From the literature review, it is concluded that corporate governance have several
features which allows managers of healthcare organization in accomplishing their goals. It has
been also summarized that making this implementation successful, company needs to analyze it
is an effective manner as there are several problems occur in the path of the success. With the
help of effective strategies, all problems like financial transparency and other can be solved out.
Gantt Chart
Gantt chart
Activity 1-
3day
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3-5
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6-8
days 9-
13days
14-8
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days 25-27
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27-28
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Producing Aim
and objectives
Conducting
literature
review
Research
methodologies
drafting
Designing of
questionnaire
Data gathering
Data
interpretation
Discussion of
results
Final
submission of
project