Corporate Governance & Corporate Performance-Samples for Students

Question: You are requested to write up a report, which addresses the relationship between Corporate Governance and Corporate Performance. Answer: Introduction: Corporate governance is referred to a system that includes norms, processes and practices through which an organization is controlled and directed. The corporate governance is a balancing system by which the stakeholders of the organization as well as their interests are balanced and managed (Tricker and Tricker 2015). In short, the corporate governance is a way by which the corporation is governed and maintained. The concept of corporate governance implies the harmonization of the various activities within the firm. In other words, the corporate governance keeps the system and organizational activities of the firm healthy and balanced. It must be noted that the corporate governance determines the corporate performance of the firm. In regard to this, the concept of the corporate performance must be cleared. The corporate performance is the composite assessment of the firms execution on its most important business and organizational parameters, typically financial, stakeholders and ma rket performance. Along with this, the corporate performance defines the business intelligence or the business analytics which is concerned with the firms health. The following report will discuss the relationship of corporate governance with the corporate performance with the means of failure in corporate ethics in Murray Goulburn. The report includes the detail discussion of the relationship and the case study of the chosen organization along with proposed recommendations. Relationship between Corporate Governance and Corporate Performance: The scholars have been conducting many researched on the relationship of the corporate governance and the corporate performance over the last two decades. Considering the fact that the corporate performance is dependent on the corporate governance of the firm, it must be understood that any deficiencies in the governance system can lead the firm to lose its grounds in the market. If the corporate governance of the organization does not perform its functions properly, the first crisis will come from the financial aspect of the firm. The failure of the corporate governance is capable of disruption the financial performance of the firm in the competitive market by reducing the profit from the business activities (Aebi, Sabato and Schmid 2012). It must be noted that the corporate governance is influenced by the ownership of the firm to certain extent. For ensuring the proper execution of the corporate governance by the firms, The Organization of Economic Cooperation and Development (OECD) has set some principles that must be considered by the organization in its organizational activities. The principles are ensuring the effectiveness of corporate governance framework, rights of key ownership and shareholders functions, equitable treatment of the shareholders, role and responsibilities of stakeholders in the corporate governance, transparency and disclosure and the responsibilities of the board (Fernando 2012). All the principles are intended to ensure the proper execution of the corporate performance. It must be understood that the corporate governance varies from firm to firm. Every corporation has its different system of corporate governance. Therefore, there is no perfect system of governing the organizational activities and diversities among the organizational corporate governance of firms are not surprising (Tricker and Tricker 2015). However, the failure in the corporate governance is definitely not intended as the case of Murray Goulburn refers. The failure in the corporate governance not only prevents the firms financial growth, but also disrupts the public image of the firm. The corporate governance of the firm is responsible for maintaining an effective and meaningful relationship with the stakeholders. The maintenance of the meaningful relationship between the firm and stakeholders are considered as the corporate performance of the firm. Therefore, any disobeying any of the proposed principles by OECD can lead an organization to disrupt its relationship with the stakeholders. The following case study will discuss the details of corporate governance ethics failure of Murray Goulburn. Background of the Case Study: The case study of the Murray Goulburns corporate governance failure is one of the biggest case in the dairy industry of Australia which not only disrupted its public image, but also created hazards in the international dairy business. The organization along with one other firm in the dairy industry cut the farmers price without notice, which made many of the farmers sell their cows. Murray Goulburn is considered to the largest milk processor of Australia. The firm slashed purchasing price of the raw materials from the farmers from $6.00/kg to $4.70/kg in April, 2016 (Jasper 2017). After the sudden cut in the price, the scenario of the farmers shows that around half of the farmers sold their cows and left which caused the firm to lose its potential suppliers (Gannon 2017). On the other hand, the company lost is public image along with the revenue. In fact, one of the largest Canadian dairy company is trying to takeover Murray Goulburn for $1.3million (Jasper 2017). Therefore, it is evident that the failure in the corporate governance of the firm not only made company lose its potential suppliers but also completely ruined the companys existence in the competitive international market. Along with this, it is noteworthy that the huge price cut of the milk created a major and severe crisis in the dairy industry of Australia as well as in global market. The following section will discuss the reasons and recommendation of the organizational failure of corporate governance in detail. Deficiencies in Corporate Governance and Ethics of Murray Goulburn: As per the principles of the OECD any firm must maintain the transparency and clarity in the disclosures of the roles and responsibilities of the firm as well as of stakeholders, rights of the key ownership and shareholders functions and equitable treatment of the shareholders. However, it is found from the case study of the Murray Goulburn that the firm did not seem to follow the principles which caused the failure of the firms corporate governance. To match up the steps with the growing market revenue of other competitor companies especially Fonterra, the firm slashed the milks price for the farmers without being aware of consequences of the same (Lockhart, Donaghy and Gow 2016). The deficiencies in the corporate governance implies that the firm has failed to maintain the meaningful relationship with its shareholders. The case study makes it clear that the firm proved itself incapable of providing proper and equitable treatment to its shareholders. The firm cut the price of raw materials without prior notice which led the company as well as the farms to face existential crisis. The predicament of the failure of Goulburns signifies that the firm did not follow the principle that secure the rights of the key ownership and functions of shareholders. In fact, the farmers blamed the company for not informing them about the cut off of the price of milk for which they had been affected severely (Lockhart, Donaghy and Gow 2016). The deficiencies are clear from the discussion which leads the company to breakdown. Circumstances leading to Breakdown: As discussed earlier in the report that the failure in the maintenance of the corporate governance led the firm prove its poor corporate performance in the market. The company establishes a perfect example of the poor corporate performance not only to its potential suppliers but also to the competitor companies and customers. It is evident from the case study that failure of the firms corporate governance has resulted in such a circumstances that led the firm to breakdown. The poor corporate governance of the organization has affected its suppliers. The sudden cut off of the milks price had negatively impacted the farmers in terms of not having affordability to have the cows (Lockhart, Donaghy and Gow 2016). The farmers could not afford the maintained of the cows because of almost nil profit out of the selling of milks. The farmers were ill-treated by the firm and they had to sell their cows in order to recover the loss from the cut off of milks price. Eventually the farmers left the firm which made the firm lose its primary suppliers which resulted into the breakdown of the company in the competitive international market (Gannon 2017). In regard to this, the ineffectiveness of the corporate ethics of Murray Gould can also be considered as the reason for the organizational breakdown. Organization Failure: Considering the fact of corporate governance failures, the firm shows its organizational failure on terms of whistle blowing. The whistle blowing is an act of opposing the unethical and illegal practice of the firm and making the stakeholders aware of the same. It is clear from the case study that the firm does not properly follow the OECD principles of the corporate governance. However, it is also found that the company also does consider the disclosure of the whistleblower protection. Therefore, the employees are afraid of lodging any complaint about the company unethical practice. In addition, it also must be noted that the employees are also not aware of the whistle blowing act and as well as the policy for protecting the whistle blower. This circumstances prevented anyone within the organization to blow whistle about the unethical practice of price cut off. Mechanism to Protect the Whistle Blowers: There has been numerous laws and regulations in Australia for protecting the whistle blowers in any organization. It is found from the above case study that no one from within the organization blew the whistle to prevent the unwanted cut off of milks price. The first law that needs to be mentioned is the parliamentary act for the protection of the whistle blowers of the firm (Lee and Fargher 2013). The parliament of Australia took steps for the protection of whistle blowers since the year 1998 (Lewis 2013). Though various laws and the modification of the same the whistleblowing act has in short is aimed at the protection of the whistle blower in all circumstances. The law also encourages for engaging into the act of whistle blowing for preventing any firm from doing unethical practice. In the case of Murray Goulburn, the no one of the firm took the responsibilities to blow the whistle for the unethical practices of the corporate governance by the firm. The OECD along with its corporate governance principles, implies the norms for whistle blowers protection interns of encouraging the people of the organization to take necessary steps in needed. In according to the report of OECD the disclosure of the whistleblowers protection is created for preventing and reducing the corruption from the firms (Fasterling and Lewis 2014). On the other hand, the Australian Securities and Investment Commission (ASIC) also pays attention towards the protection of the whistle blowers as well as to the maintenance of the corporate governance of the organizations (Brown 2014). Insufficiency of Mechanisms: Despite the existence of the various laws and regulation for the protection of the whistle blowers of any firm, it is found that no one from within the organization raised voice against the unethical practice of the corporate governance of Murray Goulburn. There are many other example of the failure of the corporate governance in Australia and one of the fine and fair example is the case of the Fonterra from the dairy industry. In fact, it can be said that Murray Goulburn is the follower of Fonterra in terms of milks cut off price (Lockhart, Donaghy and Gow 2016). Therefore, the mechanisms for the protection of the whistle blowing can be considered as both ineffective and insufficient. The poor corporate performance is the result of improper maintenance of the corporate governance and ethics (Bushee, Carter and Gerakos 2013). In addition, no one took any step to prevent the unwanted corporate activities of the firm. The existence of the mechanisms for the protection and encouragement of the whistle blowers made no impact on the people of Murray Goulburn. It may be possible that the employees of the firm were aware of the activities but at the same time were afraid of the act of whistle blowing. Therefore, the mechanisms are not sufficient for protecting the various stakeholders of the firm. Conclusion: Therefore, it can be concluded from the discussion on the case of Murray Goulburns failure of corporate governance and ethics that the firm does not properly follow the rules and regulation of the OECD principles of the corporate governance. The relationship between the firms corporate governance and the corporate performance is not effective and strong which has led the organization to disobey the basic ethics of the business in terms of the corporate governance. It has been found that there are various laws for the protection of the stakeholders in case of whistle blowing. However, it is also evident from the discussion in the report that in spite of the existence of various mechanisms for protecting the stakeholders, no one from within the organization raised voice for preventing the failure of the corporate governance and ethics of Murray Goulburn. Therefore, the following section present some recommendations to the firm as well as to the stakeholders to avoid such situation of c orporate governance failures. Recommendation: To avoid any such situations in near future this section of the report suggests some recommendations for all the organization operating its business in a broader context. Since the corporate performance is determined by the effectiveness of the corporate governance, the company must consider the importance of the same at the highest priority. The organization needs to maintain the OECD principles of the corporate governance properly by every means for protecting the rights and responsibilities of the firms stakeholders. On the other hand, the employees of the firm must be aware of the mechanisms that protects the whistle blowers of the organization in any situation. In addition, the organization must ensure the proper execution of its ethical consideration by all the employees for all the stakeholders. Along with this, the managerial implication also suggests that the managers of the firm must ensure the equal treatment of all the stakeholders in the organization in terms of avoiding any turnover as in the case of the Murray Goulburn References: Aebi, V., Sabato, G. and Schmid, M., 2012. 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Available at: https://www.weeklytimesnow.com.au/news/opinion/murray-goulburn-will-struggle-to-regain-farmer-trust-after-price-collapse/news-story/7d06b4422e70b5ac43a3d66ff478cd80 [Accessed 20 Nov. 2017]. Jasper, C., 2017.Canadian dairy giant Saputo to buy Murray Goulburn. [online] ABC Rural. Available at: https://www.abc.net.au/news/rural/2017-10-27/canadian-dairy-giant-saputo-to-buy-murray-goulburn/9083574 [Accessed 20 Nov. 2017]. Jasper, C., 2017.Dairy farmers still struggling a year on from price cuts. [online] ABC Rural. Available at: https://www.abc.net.au/news/rural/2017-04-27/dairy-farmers-still-struggling-a-year-on-from-price-cuts/8474302 [Accessed 20 Nov. 2017]. Lee, G. and Fargher, N., 2013. Companies use of whistle-blowing to detect fraud: An examination of corporate whistle-blowing policies.Journal of business ethics,114(2), pp.283-295. Lewis, D., 2013. Resolving whistleblowing disputes in the public interest: is tribunal adjudication the best that can be offered?.Industrial Law Journal,42(1), pp.35-53. Lockhart, J., Donaghy, D.J. and Gow, H., 2016. Milk price cuts reflect the reality of sweeping changes in global dairy market. Lockhart, J., Donaghy, D.J. and Gow, H., 2016. Murray Goulburn and Fonterra are playing chicken with dairy farmers. Tricker, R.B. and Tricker, R.I., 2015.Corporate governance: Principles, policies, and practices. Oxford University