Impact of Corporate Governance on Business Performance Analysis

This report delves into the critical role of corporate governance in fostering sustainable business growth. It explores the multifaceted impact of corporate governance on business performance, emphasizing the significance of historical, cultural, political, and institutional factors. The report highlights how effective corporate governance contributes to achieving corporate social responsibility and minimizing operational errors, thereby enhancing an organization's success. It also examines various types of corporate governance models and their implications, such as the Anglo-American model, and underscores the importance of adapting to changing market dynamics, embracing innovation, and promoting a culture of accountability. Furthermore, the report analyzes how neglecting historical, cultural, and political factors can lead to poor governance and potential business failures, using examples to illustrate the practical implications of these concepts. The report emphasizes the need for businesses to understand and integrate these factors to ensure long-term sustainability and success in a globalized environment.

COLLAPSE OF COMPANIES HAVE LET TO THE NATION THAT
THERE ARE HISTORICAL, CULTURAL, POLITICAL AS WELL AS
INSTITUTIONAL FACTORS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Impact of corporate governance on success and sustainable growth ....................................1
Impact of Corporate Governance and historical, cultural, political and institutional factors on
business performance.............................................................................................................5
CONCLUSION................................................................................................................................8
REFERENCES ...............................................................................................................................9

INTRODUCTION
With advent of globalisation, application of information systems and rise of adoption of
technological advancements in the corporate world, it has become one of the burning issues to be
discussed whether to depend on the governance or not. However, it has been found out that
several firms, both small and large are facing challenges and collapsing by failing to reach the
targets and goals of achieving the profits or sales volume. Corporate Governance is the recent
trend to be implemented by firms to practice the rules, policies and procedures under a controlled
environment (Ledgerwood, 2017). This assignment is going to shed light on the impact of the
corporate governance in achieving the sustainable growth in any part of the continent. It will
include about the factors that companies must adopt successfully laid the foundation of a strong
governance and gain profits and benefits as well. Friedman termed the current period of
globalisation as 3.0 by differentiating it from previous globalisation 1.0 during this period
countries and governments were considered as protagonists, while during globalisation 2.0
multinational companies led to the way of driving global integration. Five major drivers of
globalisation are international trade, technological advancements, international investments,
communications systems and economic systems.
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MAIN BODY
Impact of corporate governance on success and sustainable growth
The corporate governance plays an important role in promoting sustainable growth. Its
contribution can help organisation to fulfil its corporate social responsibility and to achieve
higher degree of success (Neubauer and Lank, 2016). For instance Dell is operating in several
parts of the world. However, most of the new products of organisation are in alignment with the
new green policy and follows the biodegradable packaging and recycling options so that it can
contribute to the environment. It has enhanced the brand value of organisation as people are not
considering organisation as profit oriented technical company but as socially responsible
organisation.
However, such approach to sustainability is not possible without the support and
coordination from the organisational governance. The administrative and management
authorities regularly explore and monitor the market trends so that they can develop framework
which assures the long term sustainability (Ortiz‐de‐Mandojana, Aguilera‐Caracuel and Morales‐
Raya, 2016). From long term the technology companies were the topmost target of
environmental agencies. It was limiting most of the potential buyers to prefer repeated purchase
of the product and hence their sales were affecting. Along with this concern it was a great
challenge for the company to manage its waste which is increasing at exponential rate every
year. The concept of biodegradable packaging helps organisation to manage both of its concern.
Thus, in order to achieve the organisational goals it is necessary that the corporate
governance must be able to identify the issues and their possible solutions. For this purpose
innovations can be considered as the most effective tool (Hashim, Mahadi and Amran, 2015).
The organisation must encourage its employees so that they can determine the effective solutions
for the problems with innovative ways. The regular innovations in services without
compromising the quality and efficiency of products can guarantee long term success to business
organisations.
One of the most challenging aspect for the business organisations is that there is limited
understanding of the sustainability among upper managing authorities. Due to limited knowledge
of technology and resources corporates are lacking behind the vast success opportunities. For
instance Amazon has effectively used digital platform and online services to operate on global
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level. However, there is significant number of organisations which are still not ready to adopt the
changing patterns of leadership and management. For such governance it can be extremely hard
to sustain their growth in the market.
Taking inspiration from the leading giants of online retailing most of the retailers such as
Marks & Spencer, Tesla are closing their physical stores and choosing the online retailing. The
necessary support and motivation from the corporate governance is vital for the sustainable
growth and development of the organisation. Thus, in order to achieve targets business
organisations must assure that their governance structure is greatly supportive to innovations and
continuous development in their professional culture (Ferrero‐Ferrero, Fernández‐Izquierdo and
Muñoz‐Torres, 2015). The effective governance also minimizes the operational errors and
enhances the probability of the success within organisation. For assuring the position in highly
competitive business market improvement in governance is important for the business
organisations.
In regard to the above, it is understandable that without corporate governance, a company
might fall into darker side of the business world and might leads towards losses in terms of
economic and reputation (Kourula, Pisani and Kolk, 2017). Moreover, this governance is
refereed as the channel that helps in building relations with the shareholders, who are working
both in external or internal levels of an organization. There are several types of corporate
governance which assist in understanding the capitalistic values of the corporations and identify
the interests in regard with the taskforce, suppliers, customers and the entire community.
Corporations may vary depending upon the country's legal framework and the policy making of
the government. For instance, Anglo-American Model focus on fulfilling the requirements and
interests of the shareholders attached with a company.
Furthermore, the risk management is maintained by associating with proper adoption of
codes, principles, policies etc. through such governance (Davies, 2016). For e.g. there are many
companies which are members of the London Stock Exchange and thus these companies are
devoid from following any codes or suggestions while filling up the paperwork. This gives an
upper hand to those organizations and gain competitive advantages in the marketplaces through
compliance of such guidelines mentioned under corporate governance like OECD 2004 revised
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guidelines. Additionally, this assists in proper auditing and monitoring of the companies whether
they are following the responsibilities and set of instructions in proper manner.
Balance of Power is one of the important components that must be adopted by the
companies to remove the cultural and institutional barriers. With the help of separation of
powers, the management can bring transformational changes and divide the departmental works
to check the interests and retain the employees and customers as well (Escrig‐Olmedo and et.al.,
2017). There is an inclination to propose changes in the administrative services to establish
concrete improvisation at widespread levels. SCG is one of the cement producing companies
which have adopted the sustainable development approaches through adopting good corporate
governance. Their core values include development, learning through root methods and
recognising the market competition to sustain the pressures and challenges.
Another element to be considered is Human ingenuity, which must be promoted by the
companies to follow. This is one of the powerful tools to apply good governance to link a strong
framework for the sustainability factor (Baumgartner and Rauter, 2017). It is the approach in
which the minds of individuals get influenced through logic and reasoning to provide
constructive solutions and interactive sessions to gain innovative ideas. With globalisation and
technological advancements, companies are hiring and leading towards a work diversified
culture at the workplace in different continents. Employees, customers, suppliers must gain
insights that with great power comes great responsibility and must never ignore their tasks or
lack the ethical code of conduct while interpreting the principles, policies and the complete
legislative frameworks (Boatright, 2017). For instance, the employees at Tesco, one of the giant
retailers of United Kingdom started the initiative of conducting sessions and meeting to bring a
clear separation between the Chairman and CEO. This in turn helped in making the entire
taskforce accountable towards the needs and requirements of their customer base.
Corporate governance is proportional to accountability and it must be adopted by the
companies to generate awareness about the disruption of status quo and valuing dissent with
having a dialogue in order to maintain the cultural values and build trust and loyalty to ensure
this factor of being accountable (Welford, 2016). Moreover, it would be beneficial in assisting
the boards under a regulatory governance standards to enhance the codes, control the risks and
optimize the auditing committees and several measures. It further adds to establish control
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mechanisms in context to decision-making, timely completion of assigned tasks etc. where the
management focus on working in systematic ways. Along with this, there is also holistic
approaches that are useful in this governance which bring sustainability growth and accelerate
the success rate of the companies in all around the world. There is an alignment that validated the
collapse occurs with mismanagement of the company's policies or ambiguity with respect to the
company's administration (Dočekalová and Kocmanova, 2016).
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Compassion between Good and Bad Corporate Strategy:
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Illustration 1: COSO Model
(Source: COSO Enhances Its Internal Control—Integrated Framework, 2019)
Committee of Sponsoring Organisation (COSO) model defines the internal control as a
process which is effected by an entity's board of directors, management etc which is designed to
provide reasonable assurance in order to achieve the objectives of an organisation in the
categories like reliability of financial reporting, effectiveness and efficiency of operations and
compliance with applicable laws and regulations.
Impact of Corporate Governance and historical, cultural, political and institutional factors on
business performance
Historical, political and cultural factors are very important for the organisation in order to
operate smoothly, any organisation which ignores these aspects will have to face bad
consequence. By ignoring these aspects may even lead to collapsing of the companies and it will
be impossible for the companies to overcome due to ignorance of these factors. Due to ignorance
of these factors will result in the bad governance and may also decrease the profits for an
organisation. Institutional factors also get affected by ignoring historical, cultural and political
factors and which leads to the bad governance of the organisation. There are many historical
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factors which have an effect on the performance of the organisation it includes race, ethnicity,
background of a country etc which have an impact on the organisation (Trotter, Maconachie and
McManus, 2017). If any country is ignoring historical factors of any country, it may result in the
collapsing of a business in that particular country. If any organisation has not properly analysed
the historical background of a country it may result in poor corporate strategy and this also
results in weak governance structure of an organisation. For example in underdeveloped
countries like Angola, Benin, Central African Republic etc, technological companies like
Amazon can face problem in sustaining business in these underdeveloped countries as due to its
historical background these countries are considered as poor countries and are technologically
unsound which can have effect the sales of Amazon. Amazon is planning to establish its business
in these countries by ignoring the historical background it may result in the loss of the business
despite of its good corporate governance. So by taking historical factor into consideration. It is
also important for an organisation to cultural factors of the country into consideration and this
factor may have negative impact on the business of an organisation. Cultural factors can not be
ignored by the companies if they have sustained their business for the long time, and ignorance
of this factor may result in quick collapsing of a business (Stevens, Xie and Peng, 2016). It is
very important for an organisation to analyse the culture of any country in which the company is
willing to start a business. A country may have diverse culture a group of people may like one
aspect of the product but another may dislike it and this results in weak governance structure of
the organisation or even failure of it. Cultural factors plays an important role for any business
and needs to be analysed properly based upon the cultural aspects of various countries. Various
cultural factors like lifestyles, values, education level, language etc have an impact on the
business of an organisation by ignoring these cultural factors a business can not flourish by
minimizing cultural barriers of countries and cultural barriers within the organisation. Even the
employees of the organisation also may also come from different cultural backgrounds which
can also effect the internal functions of an organisation. For example India is a diverse country
with many cultures therefore it is important for organisations to consider various cultural aspects
in order to establish business in this country (Qiu and Homer, 2018). KFC established a business
in India but it was not aware of the culture of Indian people as majority of customers are
vegetarian so this majority of Indian population will not prefer KFC products as they serve only
the non-veg food (Hyatt, 2017). An even the people who prefers non-veg are muslims but they
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also prefer Halal food which was not even analysed by KFC which created difficulties in setting
up a business in India. Due to this factor KFC was not achieving desired profits in India which
impacted on their business in India and by ignoring this factors also led to weak governance
structure of KFC in India. So by not considering the cultural factors would have a negative
impact on the organisation and can effect their sales in that particular country (Maheshkar and
Sharma, 2018). Also, the political factors is very important for an organisation to be considered.
Political stability of a country have an influence on the business of an organisation and political
instability would result in the loss of business. If any company ignores the political situation of
country and establishes a business in that country it may result the huge loss for the owners as it
requires huge amount of money to be invested in order to establish a business in a country and
this loss can shake the governance structure of a company. Political factors includes government
policies, regulations, tax policies, protection laws, environmental laws etc. If a company fails to
analyse any of the political factors in any country, this will result in the collapsing of business in
that country. If any company does not follow the rules and regulations of a particular country it
may result in fines and closure of company due to which it would have to bear a huge loss and
which also effects the image of a company which may effects in other countries too (Aversa and
Jenkins, 2018). By ignoring this factor may result in the weak governance structure as company
is unable to analyse and overcome these political factors. There are number of institutional
factors like corporate culture, corporate politics etc which can directly result in the weak
governance structure of an organisation. It is important for an organisation to understand its
institutional aspects in order to operate effectively. If an organisation is facing problems like an
organisation is not able work in diverse workforce or there exists a bad organisational politics etc
this may have a negative effect on the organisation and even it may result in the collapsing of the
organisation. Cultural difference between the employees may result a conflict or lack of interest
from the employees which may result in the loss in the business of an organisation and also have
negative effect on the governance structure.
Companies have to understand the importance of corporate governance within the
organisation and how does a good corporate governance can help in dealing all the problems of
business and this can bring huge profits for a business. A good corporate governance is a heart of
a business and its essential for the financial performance of the organisation and can help in
meeting the financial objectives of an organisation (Jiménez and et.al., 2015). A good corporate
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governance can attract and increase investors from different nations due to the record of
observing a good corporate governance in the organisation which can increase the financial
performance of an organisation. By good corporate governance an organisation can give heed to
grievance of the employees and shareholders of the organisation which can increase the
productivity level of the employees and can protect the investments of investors (Rathod, 2019.).
A good corporate governance doest not ignore any of the external and internal factors of an
organisation which have impact on the performance of the organisation, the factors like political,
social, cultural etc and properly governed organisation make its decisions based upon these
factors which helps in improving the performance and brings probability for an organisation.
With the help of good corporate governance can help in meeting the financial objectives in
different countries by properly analysing various factors which can increase the profitability and
sustainability for an organisation.
Corporates governance is a system of rules, processes and practices by entire organisation
is directed and controlled so corporate governance works as a director which help in guiding the
firm and help in balancing the interests of a company and stakeholders. Even corporate
governance works as shareholders as it forms the important part of an organisation and helps in
operating the business of a company with a legal compliance which play a huge role in running
of business smoothly as a corporate governance helps in minimizing the errors in an organisation
which is an important function of corporate governance. Also, corporate governance helps to
determine the remuneration levels of executive directors and can also help in appointing or
removing executive directors, also helps in succession planning which is a function of non-
executives which helps to form a good organisation structure for a company. A good corporate
governance also brings transparency within the organisation which results in the smooth
functioning of an organisation and also results in the satisfaction of the employees and helps in
attracting more and more customers. Corporate governance also results in the risk management
strategies which involves the identification, evaluation and prioritisation of risks in order to
minimise the risks in the organisation. A good corporate governance also focuses on the policy
management in an organisation which includes the process of creating, communicating and
maintaining the policies and procedures in an organisation. A policy management system of an
organisation can help in minimising the risks. A strong corporate governance brings integrity
within the organisation as entire organisation works collaboratively in order to achieve its
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