Corporate Governance

Purpose The purpose of this research is to attempt to gain a deeper understanding on the firm's ability to integrate stakeholder insights into the process of organizational innovation from a sustainable development viewpoint. Design/methodology/approach Given the early stage of empirical research on the topic, an exploratory case study was used of two Spanish companies that have successfully learned from stakeholder dialogue and have generated innovations that are beneficial both for the company and for sustainable development in general. Findings The evidence from the two case studies suggests the existence of two simple capabilities – stakeholder dialogue and stakeholder knowledge integration – for generating innovations in accordance with stakeholder needs. Whereas stakeholder dialogue leverages organizational resources that promote two‐way communication, transparency and appropriate feedback to stakeholders, stakeholder knowledge integration relies on non‐hierarchical structures, flexibility and openness to change. Research limitations/implications The fact that the two companies studied are rather special cases of companies without shareholders might limit the results of the present research. Thus, future research could explore sustainable innovation as a response to the demands of other kinds of stakeholders and refine, validate and test the concept of dynamic capability identified in this paper. Originality/value The paper sheds some light on the under‐researched issue of linking stakeholder dialogue and sustainable innovation, and thus contributes to open the “black box” of dynamic capabilities and advance in the understanding of this fundamental organizational concept.

Those who use stakeholder theory as a reference are both underlining the correlation between facts and a certain conceptualisation thereof (Section 1) and trying to make the necessary shift from a “panoptic” analysis akin to a panoramic vision of texts and positions (Section 2) to an “in-depth” one geared towards an understanding of their foundations (Section 3). As a “theory of organisations”, stakeholder theory helps to nourish a relational model of organisations by revisiting questions about “who” is actually working with (and in) the firm. Stakeholder theory is part of a comprehensive project that views the organisation-group relationship as both a foundation and a norm.

Purpose – This paper documents the motivations of modern corporations in issuing corporate social responsibility (CSR) reports to their stakeholders. It further demonstrates why these entities have suddenly become more moral or ethical. Design/methodology/approach – An empirical methodology was used to gather and analyse the required information from companies drawn from two sectors of the capital market. Findings – The study results suggest that UK companies have different reasons for issuing CSR reports, for instance; in response to an increasing number of stakeholders requesting information on CSR, companies believe that doing so is good for business, to derive positive public relations benefits, to comply with the government's request for them to issue information on CSR, etc. Originality/value – Information on corporate entities' CSR activities is considered to be valuable by both academic researchers and business managers as it provides a working framework on which future studies can be based. In addition, it improves understanding of the social obligations which corporate entities owe to their stakeholders and society in general.

Purpose – The paper aims to describe the reach of the Sarbanes‐Oxley Act that was passed by Congress in 2002 to overcome corporate abuse of federal securities law. Design/methodology/approach – Analysis focused on the impact of the Act on corporate governance and the resulting effects on accounting and auditing functions. Findings – The Act is ab initio to correct corporate officers’ abuses. The research provides information of the range of consequences of the Act. Originality/value – The research is novel in reporting on the effects of the Act. It provides duties to parties in the corporation, directors and executive officers (specifically, CEOs and CFOs) and attorneys.

Purpose The purpose of this paper is to examine how corporate governance affects performance of firms in the non‐traditional export (NTE) sector in Ghana. Design/methodology/approach Panel data covering the ten‐year period 1995‐2004 were analyzed within the generalized least squares (GLS) framework. Findings For efficient performance, firms in the NTE sector in Ghana should have indigenous ownership and must ensure more non‐executive directors on their boards. Research limitations/implications More indicators of corporate governance are needed, due to the fact that corporate governance embraces a broader set of indicators. Practical implications There are practical implications for both academics and practitioners. Originality/value Provides an examination of the link between corporate governance and the performance of the NTE sector, which has hitherto not been researched.

Purpose – This paper aims to explore how existing collaborative governance arrangements in the context of corporate responsibility (e.g. the Global Reporting Initiative and Social Accountability 8000) need to collaborate more directly in order to enhance their impact. The objective of this paper is twofold: primarily, to explore existing and potential linkages between multi‐stakeholder standards; but, at the same time, to explore the potential for standard convergence. Design/methodology/approach – The paper follows a conceptual approach that is supported by a variety of case examples. First, the nature and benefits as well as shortcomings of multi‐stakeholder standards are explored. Second, a categorization scheme for the availability of such standards is developed. Third, linkages between the different standard categories are explored and discussed. Last but not least, the paper outlines practical implications. Findings – A variety of linkages between existing multi‐stakeholder standards exist. These linkages need to be strengthened, as the market for corporate responsibility is unlikely to support a great variety of partly competing and overlapping initiatives. Originality/value – The paper offers a structured discussion of potential linkages between multi‐stakeholder standards and thus complements the literature where such initiatives are discussed (usually without much mention of linkages). Practitioners will find the discussion useful to explore how their participation in a variety of initiatives can be better coordinated.

Purpose The purpose of this paper is to examine the propensity of sovereign wealth funds (SWFs) for shareholder activism and their potential impact on corporate governance. Design/methodology/approach The study highlights the relationships between SWFs and corporate governance and also applies eight antecedents/determinants of institutional activism to analyze whether SWFs have a predisposition for shareholder activism. Findings The study only finds two instances of SWF activism. Additionally, it finds that despite their mostly passive investments, SWFs possess a natural tendency toward shareholder activism. Some are more likely to engage in activism than others, however. SWFs with a higher proportion of their assets invested in equities, those with portfolios fully or partially constructed to emulate the broader financial markets through indexing, and those that depend less on external fund managers are the likeliest candidates for activism. The study also finds that the regulatory environment can curb the natural SWF inclination for activist behavior. Research limitations/implications Due to the lack of transparency within the SWF universe, this study largely depends on the limited data available for sovereign wealth funds. Practical implications Given the growing importance of SWFs, managers, directors, and policymakers must assess SWF activism, its influence on corporate governance, and its implications for public policy deliberations. Originality/value This project, to the best of the author's knowledge, is the first study that applies tested financial models to SWFs in order to determine if they have inherent activist tendencies.

Purpose – This paper aims to develop a framework of connotative meanings afforded to the term “corporate governance”. Design/methodology/approach – An examination of academic publications from 1985-2012 containing the term “corporate governance” was conducted. The articles are sorted into the theoretical constructs that influence the contemporary connotative meaning of corporate governance. Findings – That a combination of a weak definitional base coupled with strong motivational forces have aided the development of competing theoretical perspectives of the meaning of corporate governance. The dominant meaning is written from an agency theory perspective. Research limitations/implications – Theoretical analysis was restricted to articles found in academic journals published since 1985. Practical implications – This study provides a very useful analysis into the connotative meanings and theoretical bases used by academic writers in the study of corporate governance. Originality/value – This paper provides an updated and developed analysis to the theoretical dimensions that underpin the contemporary use of the term “corporate governance”.

Purpose – In the past more than three years, Wal-Mart has been embroiled in incidents of public scandals. In part, they pertain to Wal-Mart’s global strategy of growth and expansion, where the company’s senior managers have been implicated in using illegal bribery and corruption to secure business and to conceal this information from regulatory authorities. Another issue, albeit longer running, has been the incidents of fire and resulting deaths and injuries of hundreds of people, most notably in Bangladesh, but also in other countries where low-skill, low-wage manufacturing predominates, and where foreign multinationals have been accused of condoning and profiting from sweatshop-like exploitation of workers. Design/methodology/approach – The authors use Wal-Mart as a microcosm of corporate conduct which provides a prism through which to examine the exploitation of negative externalities, i.e. engaging in illegal and unethical behavior by using their bargaining power and market control these companies, pressure host countries to condone environmental degradation, violation of country laws in terms of wages, working conditions and operating in sweatshop-like conditions to maximize their profits at the expense of other factors of production, i.e. labor and resources. Findings – The authors contend that Wal-Mart’s unique business model, which focuses on everyday low price, absolute growth and market share expansion by any means possible and everyday low cost, has led to the company’s enormous success since its founding and has made it one of the world’s largest corporations by revenue. At the same time, this model seriously impedes the company’s ability to improve unit-based profit margins and thus forces it to take short cuts in achieving lateral growth and low-cost production. Social implications – The authors also examine in some detail the large gap that exists between Wal-Mart’s pronouncements of the company’s commitment to ethical and socially responsible conduct and its actual business practices. They demonstrate that the company’s communications and claims for ethical conduct are mostly aspirational and fail the test of accuracy, specificity, materiality and verifiability through independent, externally provided integrity assurance. Originality/value – Finally, the authors outline a number of measures that would need to be taken by Wal-Mart, industry groups that depend heavily on outsourcing from low-skill, low-wage countries for their products and host country governments and the governments of Western industrialized nations whose corporations and consumers are the primary beneficiaries of the exploitative sweatshops that fatten their companies’ bottom lines and enrich their denizens with ample amounts of inexpensive goods.

Purpose The purpose of this paper is to examine the relationship between gender diversity on the management board and the financial performance of Indonesian listed companies. Design/methodology/approach Cross‐sectional regression analysis was conducted based on a sample comprising 92.4 percent of public firms listed on the Indonesia Stock Exchange (IDX). The dependent variable was firm performance, measured by return on assets (ROA) and Tobin's q . The explanatory variable was gender diversity, proxied by the proportion of women, the presence of women, and a gender heterogeneity index. Findings It was found that the representation of female top executives is negatively related to both ROA and Tobin's q , suggesting that female representation is not associated with an improved level of performance. From correlation analysis, the results also reveal that smaller firms, which tend to be family‐controlled, are more likely to have a higher proportion of female members on management boards. This implies that large firms are “tougher” for women in terms of opportunities to hold seats on the board. Research limitations/implications The data only cover one single financial year (2007); hence, the results may lack generalizability. Originality/value Studies on the relationship between board gender diversity and financial performance have been conducted in the context of a few developed economies. This study contributes to the literature by examining such an issue in a developing economy that has a different environment from that of developed economies.

Purpose The extent to which microfinance succeeds varies greatly even among countries. The paper aims to look at why microfinance develops in some countries rather than others. It aims to identify institutional factors that can be introduced to enable microfinance to succeed in a country. Design/methodology/approach A small‐sample comparative approach is used, combined with correlation analysis. The research methodology was dictated by the need to find countries that are culturally similar and have the same regulation in order to be able to study other elements. Findings The authors find that the success of microfinance is linked to its economic performance, in terms of both levels of per capita income and growth, as well as regulatory and public governance, with the amount of remittances being received in a country and with life expectancy at birth. Research limitations/implications Different sources provide different data. So, the findings may not be robust but it is the best available data. Practical implications The data shows a high correlation between aid and the development of microfinance and also more so between remittances and the growth of this sector. This has some implications for policies aiming at developing entrepreneurship through microfinance. Originality/value Most papers when looking at the success of microfinance across regions have failed to take into account differences in cultures and regulations; thus there is a residual bias. The paper's originality stems from the fact that it explains the success of microfinance while controlling for cultural and regulatory factors, and also goes into public governance indicators. This kind of comparative institutional analysis has not been performed for this region.

Purpose – The purpose of this paper is to emphasize the importance and means of making corporate social responsibility (CSR) an integral part of corporate strategy with the help of case studies. Design/methodology/approach – The article explores the transformation of business from being egocentric to socially responsible. With the use of examples it demonstrates how integrating CSR into strategy can create sustainable business models. Findings – Firms need to develop a framework for integrating CSR into their business strategy for long term successful survival. Social implications – Corporates and society are intertwined and mutually dependent. Business cannot survive without society's acquiescence nor succeed without its active support. Originality/value – The article explains the benefits of CSR and how to make it an integral part of business strategy to gain a competitive advantage.

The process of business decline can be identified through various warning signals that are concomitant with the decline process. These warning signals are noticed in both the internal and external business environments. The successful turnaround of a failing or declining business requires that management analyze the causes of decline and then implement a strategy for reversal of the decline. This article addresses the signals of decline, internal and external business environments and the strategies for reversal of decline.

Purpose This paper seeks to illustrate the development of corporate governance issues in the transition economies of Central and Eastern Europe (CEE) and to analyze if codes based on directives or standards are better for these economies. Design/methodology/approach A chapter about corporate governance codes and the respective (dis)advantages of directives and standards starts the paper. Then common European and specific transition economies' corporate governance problems followed by a discussion of directives versus standards for CEE countries are described. Findings The paper finds that historical development of the transition economies in CEE leads to specific corporate governance problems such as high court delays, corruption and immature institutional investors. The introduction of corporate governance codes for these economies seems useful but should not rely on broad standards but on legally enforced binding rules accounting for the discussion of directives versus standards. Research limitations/implications Research on the weaknesses of legal systems in transition economies is mainly verbally argued and needs more empirical backing. The discussion of directives versus standards is limited as we live in a world of flux – standards are becoming directives over time. Practical implications The paper argues against the blindfold implementation of corporate governance codes of other countries and argues for country specific solutions keeping in minds the different effects of directives and standards. Originality/value The paper opposes the mainstream thinking that corporate governance codes are the ultimate ratio for transition economies in countries of CEE.

Traditional management theory is grounded in the concept of bureaucracy which provides a platform for managers to control behavior. When behavior is controlled, personal freedom and the ability to innovate are curtailed, yet creativity is a key driver competitive advantage. Creativity is unleashed when individuals are provided with the opportunity to express their individual freedom, when they feel their actions make a difference. Organizations, bounded only by economic motives, fail to provide such an environment, but when an organization extends its focus to encompass society and the environment, members of the organization can be inspired to share the dream of the organization. This paper explores the traditional management concepts, and presents the reader with a philosophy that both encourages individual freedom and maintains an ordered society. The paper concludes by applying the philosophy to a model for organization design, which facilitates individual freedom and retains the controls necessary to meet performance targets.

Purpose – This paper aims at discussing the determinants of strategic transparency and the governance structure of the East Asian firms. The relatively weak institutional infrastructure in East Asia raises the question about the adaptable governance structure and transparency in the East Asian firms. Design/methodology/approach – The paper presents theoretical underpinnings of the literature on corporate governance, corporate strategy and international business. This paper argues that one of the common factors that determine the success of corporate governance structure is the extent to which it is transparent to the market forces within particular institutional arrangements. Findings – When the institutional arrangements favor mandatory versus voluntary corporate disclosure, this study suggests a reform measure for the East Asian corporate governance system that relies, inter alia, on the percentages of long‐term and short‐term financing to total financing. The higher the percentage of long‐term financing, the more we can infer the extent of outside investors' confidence in the future of the East Asian firms. When more active role of banks involvements with the firms' business is permitted and an effective banks' and firms' strategic transparency can be assured, the East Asian banks and stock market can both lead firms to long‐term favorable achievements. This study also suggests that the protection of both shareholder's rights and creditors' rights can go in parallel lines with the latter is to be given first priority until the investors' confidence in the near and far future of East Asia corporate governance system is built. Originality/value – This paper extends the value of corporate governance structure to the East Asian firms through advocating the determinants of strategic transparency in East Asia.

Purpose – This exploratory study aims to provide preliminary evidence regarding the non-audit committee corporate governance determinants of audit committee functionality. Design/methodology/approach – The study is based on archival accounting, corporate governance data, and interviews of subjects of the top 100 companies listed on the Egyptian Stock Exchange (EGX100). A logistic regression is used to identify the non-audit committee governance attributes that affect the likelihood of of having a functional audit committee. Findings – Board size and board independence, (CEO-chairman duality) are positively (negatively) related to audit committee functionality, suggesting complementary governance relations. On the other hand, the authors document a negative relation between auditor type (Big4) and audit committee functionality indicating a substitutive governance effect. Originality/value – To the best of the authors' knowledge, this is the first study that explores the actual functioning of audit committees in Egypt beyond mere regulatory requirements. The study highlights the importance of assuring that the “spirit” of corporate governance laws and regulations is adhered to rather than the mere compliance with their “letter”.

Examines different approaches to the challenge of Australian corporate law enforcement and governance, and discusses success in this area and how it might be determined. Describes barriers to measuring success of regulatory action, and debates what level of law enforcement is appropriate and cost-effective. Concludes that a more broadly based approach to regulatory action and assessment is of prime importance.

Purpose The purpose of this paper is to document the effect of ownership structure and corporate governance on bank efficiency in the Ghanaian banking industry. Design/methodology/approach The author applies both accounting data and efficiency measures from the period 1999‐2007 via panel data analysis. Efficiency is measured by computing distances from the stochastic frontiers of estimated translog cost and profit functions. These efficiency measures are regressed on ownership and governance variables with dummy variables for bank types. Findings The results show that foreign banks are more cost‐efficient than domestic banks, but not necessarily more profit‐efficient. Nevertheless, foreign banks are more profitable than domestic banks and enjoy better quality loans. Managerial ownership leads to the cost inefficiency of banks. Banks with inside ownership are unprofitable overall but maintain a high loan quality. Governance (a larger board size) strongly improves profit efficiency but slightly worsens banks' cost efficiency. Finally, the capital adequacy ratio and bank size are both significant predictors of bank efficiency in Ghana. Originality/value Few, if any, studies have been carried out in the Ghanaian banking industry.

Purpose This paper aims to address partnerships between corporations and non‐governmental organizations (NGOs) dedicated to corporate community involvement (CCI). It seeks to focus on how to measure both business and community benefits derived from CCI, especially stressing the need for developing indicators beyond the input level considering outputs and impacts. Design/methodology/approach This paper follows a case study research strategy in a subsidiary of a multinational chemical and pharmaceutical company. Data collection is based on triangulation of data using interviews, action research, and documents. Findings Based on the case study presented, it was found that, when CCI is an integral part of corporate strategy, it is also possible to develop advanced performance measurement systems for CCI. Such measurement systems include input, output, and impact level metrics for both community and business benefits. Community benefits are best developed and monitored in collaboration with the NGO partner. Further, it was found that the measuring frequency partly transcends conventional reporting periods. Practical implications The research should motivate companies that engage in corporate community involvement to go beyond input‐level metrics in measuring the success of such initiatives. However, in order to successfully operate a performance monitoring on output and impact levels, partnering with an NGO that has greater capability in socio‐economic assessments is key. Originality/value This paper shows how NGOs can contribute to performance measurement as part of the strategic performance management system of a corporation and how this allows for metrics beyond common input‐level to address output or even impact‐level metrics.

Purpose – This paper aims to present the findings from a small study of social enterprise governance in the UK, taking a case study approach to uncover the experiences of internal actors who are involved in their board-level management. Design/methodology/approach – The study took a qualitative constructionist approach, focusing on stakeholder involvement in social enterprise governance. Initial theme analysis of 14 semi-structured interviews with board or senior management representatives revealed key issues in the governance of social enterprise, which were then explored through a comparative case study of two organisations. Findings – The study found that social enterprises surveyed employed a number of mechanisms to ensure appropriate stakeholder involvement in their governance, including adopting a participatory democratic structure which involves one or more groups of stakeholders, creation of a non-executive advisory group to inform strategic direction and adopting social accounting with external auditing. The research also highlighted the potential of the community interest company legal form for UK social enterprise, particularly in developing the role of the asset-locked body in terms of providing CIC governance oversight. Research limitations/implications – This survey was limited to the North West of England; however its findings can potentially support innovation in conceptual developments internationally. Originality/value – This research contributes to the under-researched field of social enterprise governance, potentially enabling these organisations to adopt more effective governance mechanisms that appropriately manage the involvement of beneficiaries and other stakeholders.

Our current social, environmental, and economic systems are being confronted with global, interlinked problems such as environmental degradation, loss of biodiversity, climate change, and social inequalities and exclusion. Against this background, corporate responsibility (CR) and sustainability have become topics of high interest in business, academia, and the political sphere alike. It is increasingly understood that organisations can not have a full perspective of the issues, opportunities and threats that they face without the help of outside experts. Thus, for organisations (especially large ones) it is increasingly common practice to engage in different forms of ‘stakeholder engagement’ in order to source external views and thereby improve internal decision-making. Possible examples of engagement techniques include stakeholder surveys, stakeholder dialogue fora and partnerships with non-governmental organisations (NGOs). However, existing research on, and the practice of, stakeholder engagement often too strongly focuses on mere ‘engagement,’ whereas the actual links to internal decision-making remain vague. In other words, there exists “a gap between stakeholder engagement and governance”. Indeed, few empirical investigations have evaluated how stakeholder input is taken into account in relation to internal decision-making. This paper will elaborate on (voluntary mechanisms of) stakeholder engagement with a focus on how stakeholders can indeed influence corporate decision-making – what we then call ‘stakeholder governance’ because their views have an impact on how 'companies are directed and controlled.' To pursue this goal, we use a systematic analysis of 51 company responses with reference to stakeholder relationships from the Business in the Community (BITC) Corporate Responsibility Index (2002-20081). While research has considered the importance of stakeholders being involved in corporate decision-making, apart from anecdotal evidence, few empirical investigations have evaluated how stakeholder input is taken into account within internal decision-making. Prior exploratory research has identified at least four dimensions as being important for stakeholder governance.

Purpose – This paper aims to understand the determinants of board structure of listed firms at institutional, industry and firm levels within an emerging economy. At the institutional level, the paper explores laws, managerial culture and the role of state in instituting and endorsing corporate governance practices. At the firm level, ownership patterns (family and non-family), experience in the capital markets, age and size of the firms are studied to find out the relation between these variables and the board structure. Design/methodology/approach – The research domain of the study is listed firms operating on the Istanbul Stock Exchange. The data for the study are collected at two phases; at the first phase, compliance reports, annual reports, articles of association and annual shareholders’ meeting reports of each firm in the sample are analyzed. At the second stage, secondary data are used for understanding the dynamics of Turkish institutional context. Findings – The results of this study reveal that boards of directors of listed Turkish firms comply with the governance practices instituted by state agencies, except on issues as independent members and committees that will influence the majority owners’ control domain and private benefits. Originality/value – This paper draws attention on institutional context and argues that “good governance” instruments developed for Anglo-Saxon stock market-controlled business systems provide limited explanation for an emerging economy that is characterized by close cooperation between the state, family-owned businesses and financial markets. The study offers insight to policy makers at a national level, interested in developing corporate governance principles regarding boards of directors of listed firms.

To date, corporate governance research agendas have tended to concentrate on one particular role that a board performs. For instance, agency theory concentrates on the monitoring role, resource dependence theory concentrates on the board providing access to resources and stewardship theory concentrates on the board’s advice-giving or strategic role. While these approaches provide practitioners with useful guidelines regarding issues such as board independence, we contend that practitioners need to take care not to act on the recommendations from a single theory in isolation from the others. To address this concern, we provide a model of board effectiveness that uses the construct of board intellectual capital to integrate the predominant theories of corporate governance and illustrate how the board can drive corporate performance. We further contend that boards that wish to improve their performance need to review their intellectual capital. We conclude by linking the model to a practitioner-focused framework that identifies four key areas on which a board must concentrate to develop its intellectual capital.

Governing boards are a bit like meteors above an organizational “planet”. If they position themselves too far above it all, they are likely to float at an innocuous distance, meaningless and without impact. On the other hand, if they plunge too deeply and quickly they are likely to burn up in the atmosphere, dissipating their well-intentioned energy in a spate of “micromanagement”. This article describes a process for capitalizing on a market “crossroad” as an opportunity for board and staff alike to “rehearse” alternative views of the future, gain experience in the process of grappling with associated policy matters and make peace with both a shared vision and a more appropriate relationship with one another. Relevant concepts, tools and processes are outlined for adaptation by governing bodies in similar circumstances.