Corporate governance is a key issue in majority of organizations and it is commonly associated with the many crisis cases experienced in the corporate world today (Ionescu, 2011). An organization has to select from a variety of management systems, the best running that suits it (Ahrens, Filatotchechy & Thomsen, 2011). Obviously, there are different factors that a company has to consider when selecting a governing system to use. At the same time, the roles of different personnel in management at present and prospected future should be clear to avoid rising of conflicts of interests (Ionescu, 2011). While the current environment of a corporate is essential in management determination, it is also vital to postulate the future of the organization to avoid chances of occurrence of crisis in management (Tarraf, 2011). Most scandals of corporate control arise from lack of projection for the future especially involving succession and share ownership (Bruner, 2011). Notably, weak integration of ownership and responsibility has resulted in the 2011scandals of the News Corporation and News International due to crisis in succession and share ownership, independence and control, between the chairman and chief executive, and the Board of Directors.
Integrate the ideas of ownership and responsibility
Private and, public corporate governance is a highly dynamic issue and it has currently attracted notable attention especially due to conflicts that arise related to ownership and governance (Ahrens, Filatotchechy & Thomsen, 2011). Stability of corporate is requires a sound leadership comprised of capable and experienced directors and management as well as clear-cut lines of responsibility and accountability. These are some learning opportunities in the corporate world that have commonly ensued from painful experiences of failure of establishments due to unhealthy governance. Much of the current trends in corporate managements have taken into account the lessons from the past failures of prominent companies. For instance, they have learnt that, the executive management of a corporate should be of outside directors such that they are sufficiently independent (Ahrens, Filatotchechy & Thomsen, 2011). The management should however, be knowledgeable about the business. They should also engage the company’s business where they serve as board. The independency of the management ensures that there is objectivity, force of character as well as insight essential in the progressive and competency of the organization.
Company executives should be well separated from the board as the executives are employees to the company and the board is representative of the owners of the company. In the light of this, the executives are expected to have sovereignty and not subjected to biased control from the board to which they are answerable. Evidently, lack of executive management that is an outsider to the corporate ownership has led to compromise of independence of management and competency.
In the case of the Murdoch media empire, the executive is seen to be drawn from the family relations with Murdoch’s youngest son succeeding Murdoch himself as the Chief Executive officer (CEO) as well as the chairman to the board (Guardian, 2011). As reported by Neate in the guardian (2011) the board of the News Corp was so passive even when things went in to mayhem due to the lack of independence to its members from the Murdoch family (executives) (Financial Times, 2011). In the same article, Murdoch is also reported to be operating the News Corp like a family plaything (New Yorker, 2011). He therefore failed to draw a line between public and family business, an act that compromised the succession of the management of the organization. Safe from compromising the governance succession in the Murdoch media empire, Murdoch’s assumed superiority has brought crisis in the News Corporation and News International managements (New Yorker, 2011).
Owing to the current surges in corporate, it is essential that the executive of the corporations be well defined and separated from their ownerships. Furthermore, when ownership dominance is felt in the management and making it to be biased, the result will be a compromise in the force of the executive board leading to jeopardy in decision making.
In as much as the executive of corporate is independent of the ownership dominance, it is vital that its structure, role and function of its members be outlined such that, each member knows his position as well as his responsibilities. Eventually, corporate will reduce the crisis of interests in its governance which could have unfavorable impacts to the operations of the business.
A good structure of governance of a corporate separates the executive board from the board of directors. In this case, the executive is seen as employees to the business mandated to administer the organization for the attainment of its mission and vision. The executive is headed by the chief executive officer (CEO). On the other hand, the board of directors that is headed by the chairman to the board is seen as the representative to the shareholders who own the company. It is therefore necessary to suppose that the board generally assumes the place of employers. Although many companies integrate the role of the board with that of the executive, it is essential to differentiate them to avoid conflicts of interests within the organizations.
It is clear that the management in the Murdoch’s media empire was not separated making the roles of the executive not to be clear from that of the board. This is especially because the board is handpicked by Murdoch himself who assumes the position of the CEO and the chairman to the board (Guardian, 2011). Notably, Murdoch owns 37% of the firm’s share making him an apparent owner to the corporate. Most of the decisions are made by Murdoch who has sovereignty in the governance. This form of governance has resulted to many shortcomings to the corporations as Murdoch makes exceedingly biased decisions which are rarely challenged. For example, the act of News Corps bid for full control of the BSkyB which landed the corporation into a downright scandal was not popular amongst the shareholders; the board was silent and unresponsive to this though ( Financial Times, 2011 ). At the same time, the executives are noted to be affiliated to Murdoch, for instance, the controversial drawing of Elisabeth Murdoch (Murdoch’s daughter) into News Corp board (Financial Times, 2011). It is therefore critical that the structure of governance in a corporate should separate the board from the executive with the roles and responsibilities of each clearly shown to avoid crisis.
Evaluate the performance and compensation of both directors and executives
Generally, the purpose of the board of directors is to establish executive compensation, advice and monitor top management, and protect the shareholders’ interests (Ionescu, 2011). Bearing in mind the close relation that exists between the directors and the executives, it is necessary to compensate them for their critical roles in the corporate management. There is the need to relate the compensation of the CEO and the directors so as to evade possibilities of lewd play. When the efforts of director deputies those of the CEO, clangs can arise.
It is crucial that the compensation of the director be clearly linked to the needs of the firm for monitoring and the difficulties of the tasks to be undertaken by the director. The determinants of the directors’ compensation are expected to be related to the complexity of the firm together with the risk to which the firm is exposed. The directors act as the employers in the firms and they represent the interests of the shareholders. It is therefore necessary that, they be compensated competitively to ensure that the shareholders capital is factored in to the payments.
The CEO's compensation in the other hand, should relate to the firms intricacy as well as the volatility of the cash flow within the firm. A key thing with the executive compensation is that, it includes the salary, incentives and bonuses which are usually negotiated and documented in the employment contract. In the negotiation for the compensation of the executives, the long-term incentives should be focused heavily on performance to enhance their competitiveness (Kirkpatrick, 2009).
When firms fail to set guidelines for the compensation of the board and the executives, crisis can arise (Bruner, 2011). As observed in the scandals concerning News Corporation and News International in 2011, Murdoch is seen be making decisions about compensations very secretively, and mixing the affairs of the corporate with those of the family businesses.
Compare and contrast international models of Corporate Governance Task
Recently, cases of corporate scandals such as those involving Murdoch’s media empires especially the News Corporation and News International have initiated a wide-range re-examination of standards for governance in firms. The repercussions of the re-examined standards have extended to financial regulation as well as the key standards of the financial systems (Ionescu, 2010). This is because the financial systems are the key component of the current enterprises meant for strengthening the architecture of international finance (Bruner, 2011). The initiatives touch on the corporate governance in their subjects, which therefore will lead to a less chaotic corporate world. The initiatives to reduce the cases of corporate scandals internationally, has made firms internationally to change their models and employ those that are recommended by the initiative.
Admittedly, the models for corporate governance are a dynamic phenomenon (Tarraf, 2011). The major models for firms government experienced today are the bank-based and the stakeholder-oriented. The stakeholder- models are categorized as an economic model (Bruner, 2011). Germany, Japan and the US are shifting to the bank-based models (Warchol, 2011). This is partly enhanced by the surge of law reforms in the corporate, employment issues in both Japan and Germany and the shifting in the banking and finance institutions. Another point of similarity between corporate models in the US, Japan, and Germany is that the board of managers tend to be promoted internally which means that their compensation is linked to that of the executives rather than being biased to the stake-holders incentives (Warchol, 2011). This has the advantage of making the managers less finance-oriented but rather they are able to focus on long-term achievements the firms (Sawicki, 2009).
Nevertheless, the influence of law is notably different in different countries, thus making the some differences in the model of governance in the firms (Tarraf, 2011). For instance, in Germany, Co-determination is a legal institution which makes the employee voice to be a matter of public interest key in politics (Warchol, 2011). There is also the effect of the two-tier-board system which shows prevailing strong legal intervention to the internal corporate make-up so as to offer checks and balances between shareholders and management (Bruner, 2011). While as in Germany governance is mainly in business associations, it is not so in japan.
Corporate governance has been seen to be crucial in the running of firms. Since many crises occur in the governance of organizations due to conflicting roles of the management and the executive, it is important that organizations integrate the ownership, succession and management of the business to evade scandals. It is especially important that the executive of the corporate be independent from the directors. The executive should be compensated by competitive salaries as well as incentives and allowances to enhance their performance. Firms should also emulate the corporate governance adopted by Japan, US and Germany, so as to ensure the decision making of the firms is not dictated by the owners.