Best Practices for an Entirely New System for Corporate Governance
The effective governance system should be based on the two-tiered board structure, according to which the supervisory board is expected to be responsible for appointing the members of the management board. The supervisory board should include non-executive directors, independent directors, and founders. The members of this board should be both experienced and committed to the organization’s goals and values.
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The main tasks of this board are the supervision and provision of strategic decisions. The management board should include executive directors who are responsible for regulating the budget and operations in the company. Also, the audit committee is required, and external auditors should be invited to conduct assessments and report to the committee.
Standards of Governance: Required Through Legal Mandate or Adopted at The Discretion of the Company
The legal mandate cannot be viewed as the most effective approach to regulating corporate governance in terms of ethics. Thus, certain standards of governance should be adopted by companies with a focus on existing recommendations for the industry.
The reason is that there should be flexibility concerning standards, and certain recommendations should be provided at the industry level. It is expected that the list of best practices is prepared by a group of experts in the field. The adequate control is necessary, as well as the adoption of official standards, but the legal mandate can be discussed as an approach that cannot be effective in many societies where organizations rely on auditors’ reports.
Effectiveness of the Standard of Comply-Or-Explain
The standard of ‘comply-or-explain’ is effective for those countries where there is no legal mandate to regulate corporate governance. Thus, the company provides shareholders with the statement in which the issues that do not comply with the standards are explained. If noncompliance is observed, the company should revise its strategies. As a result, the standard of ‘comply-or-explain’ is a guarantee that only effective and ethical policies will be implemented.
The economic force to promote the standard is the necessity to address shareholders’ interests. Therefore, much attention is paid to their feedback regarding the provided statement. The social force is the necessity to approve only ethical practices selected by the company for developing business.
Representation of Employees on the Board
Employees should be represented on the board to consult managers regarding the implementation of the most effective practices. Therefore, their role should be associated with participation in the discussion of managerial practices. The management board is most appropriate for attracting representatives of employees.
While inviting employees to serve on the board in a large organization, it is necessary to provide them with the position of a consultant, as a result, the focus should be on increasing the strategic capacity of the firm. Although the board of supervisors may include employees in some Asian firms, it is possible to state that their expertise should be used for solving practical tasks.
Effectiveness of the Keiretsu System
The keiretsu system can be discussed as effective only in those societies where the role of all stakeholders is accentuated. The benefits of this and similar systems are in possibilities to address the interests of all stakeholder groups and work with several firms as partners. On the contrary, drawbacks associated with such systems are in the necessity to refer to the visions of external owners when their views differ from the ideas of founders or executives.
Another weakness is the significant dependence on banks that results in a situation when financial institutions can regulate the business activities of the firm. It is possible to state that representatives of affiliated companies on the board of a company are more effective than independent members because of their experience in developing effective and fair strategies.
Evaluation of the Board and Committee Structure Adopted by Toyota
The governance structure followed by Toyota can be discussed as effective because its principles depend on the company’s vision and values. The proposed system with the focus on internal directors and outside auditors is effective to regulate the company’s activities. The company’s interpretation of the keiretsu system allowed for achieving high results because the structure was adapted to address the particular needs of Toyota.
From this point, it is possible to state that the company’s success directly depends on its governance structure that is unique and developed regarding the company’s strategic goals. While developing the distinctive governance structure, Toyota can guarantee that the company’s goals and values are met, as well as to ensure that reports and activities are perfectly audited.
Company’s Retention of National Influence
The national impact can be discussed as a negative factor for the company that plans to develop as an international corporation. In this case, the company should have a transparent system of governance, and there are examples when the national impact did not contribute to the development of the transparent and ethical system. From this point, the owners of companies should determine the extent to which the government can influence the development of the business to avoid problems associated with entering foreign or global markets.