Corporae Governance

"Corporate Governance: A true partnership between Managers, the Board and Shareholders", holds at its core the term 'partnership'. Partnership is defined by the Oxford dictionary as "an association between two of more people as partners". Partnerships create ideas around collaboration and cooperation, and it is in this context that the term is considered for this assignment. There are also many definitions of Corporate Governance and there does not appear to be any conclusive definition. The main contrast in definitions around corporate governance appears to be whether they are written as a rule book for past actions or concerned more with where the organisation wants to go and how that is attained. Two examples illustrate this, firstly the OECD definition that reads "Corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined" (OECD, 2004, Pg 11). Compared this to the ASX Corporate Council  definition: "Corporate governance is ‘the framework of rules, relationships, systems and processes within and by which authority is exercised and controlled in corporations’. It encompasses the mechanisms by which companies, and those in control, are held to account" (ASX, 2010, pg 3).  In considering these definitions and the topic question, the OECD definition immediately raises the issue that there are more than the three entities who require consideration, as this definition identifies Stakeholders as a fourth element.

The set of relationships in question, being the Board, Management and Shareholders are perhaps often as separate entities and not collaborative. An example is cited when consideration is given to the  rise globally of shareholder activism (Filatotchanv & Desenko, 2015). Given different sets of rules in different jurisdictions, this shareholder movement suggests that boards and management of companies may be at odds with each other. The arguments arise over whether this is a partnership or a combative relationship.  The literature sights evidence that supports  the notion that shareholder activism is detrimental to the career of directors who are targeted (Yermack, 2004), so hardly a basis for a true partnership.

Corporate Governance has been too specific in its agenda, again referring more to the past and deciding where mistakes have been made and whether rules have been followed. Contrast this to a more holistic approach to the governance question, and focusing on future goals around success, environment, implications for all stakeholders and placing recommendations that future dealings can use as a guiding post to decision making. In an idealistic world, the emergence of a true partnership between all the entities has some framework to commence, particularly from a stewardship theory perspective where all the parties are aligned with common purposes. Globally, the differing approaches to Corporate Governance provide comparisons to the considerations of who is to be considered in the 'partnership'.

The Board of Directors in the US has a clear agenda to represent the best interests of its shareholders. "The board exists primarily to hire, fire, monitor, and compensate management, all with an eye towards maximizing shareholder value" (Denis and McConnell, page 2). This description focuses all the efforts in one direction. Ironically perhaps, the board of directors in the US and locally, include some of the same managers who will be under the boards scrutiny. It is common for the chairman to be the CEO in the United States, the question around CEO's also holding the Chairman position on the board creates a challenge in balancing this relationship.  Questioning this balance, how does the term partnership fit here when the same individual is a member of the board. Indeed, the question could arise when considering executive directors. Is this is a partnership when they are active in both entities? Also, it is common for management to be involved in the recruitment of board members. Clearly the third party, the shareholders are not considered a true partner if they are excluded from some of these practices.

Some countries have sought to separate these entities with strategies to promote more accountability. In Germany and Austria, a two-tiered board structure is mandatory where the firm's board and a supervisory board exist. Employees are represented on the supervisory board through a process termed co-determination which is mandatory (Denis & McConnell, ). Again, the true partnership in German boards clearly involved more than the trinity of Mangers, Shareholders and Boards. The bank-centered economies of Germany and Japan provide a contrast to the market centered economies such as the US and Australia. The question around the financial institutions being the most prominent in these bank-centered economies is clouded slightly in Germany as it appears the family centered businesses are the main holders of influence(Franks and Mayer, 2001). Arguably Germany sees Corporate Governance with a more holistic view than its US counterparts. The true partnership in Germany as previously stated can be seen as the long-term success of the company and the desire to leave a legacy. Boehringer - Ingelheim, the largest family-owned pharmaceutical company in the world provide evidence of this in their company statement from the 2012 Board meeting. Christian Boehringer is quoted saying " one of our goals as a board is to hand over the organisation to our grandchildren" Boehringer-Ingelheim, 2012)