What is corporate governance?

Introduction: Corporate governance has succeeded in attracting a good deal of public interest because of its apparent importance for the economic health of corporations and society in general. However, the concept of corporate governance is poorly defined because it potentially covers a large number of distinct economic phenomenon. As a result different people have come up with different definitions that basically reflect their special interest in the field. It is hard to see that this 'disorder' will be any different in the future so the best way to define the concept is perhaps to list a few of the different definitions rather than just mentioning one definition.

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Definitions

1. Corporate governance is a field in economics that investigates how to secure efficient management of corporations by the use of incentive mechanisms, such as contracts, organizational designs and legislation. This is often limited to the question of improving financial performance, for example, how the corporate owners can secure that the corporate managers will deliver a competitive rate of return.
2. “Corporate governance deals with the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment”, The Journal of Finance, Shleifer and Vishny [1997, page 737].
3. "Corporate governance is the system by which business corporations are directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as, the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. By doing this, it also provides the structure through which the company objectives are set, and the means of attaining those objectives and monitoring performance", OECD April 1999. OECD's definition is consistent with the one presented by Cadbury [1992, page 15].
4. "Corporate governance - which can be defined narrowly as the relationship of a company to its shareholders or, more broadly, as its relationship to society -….", from an article in Financial Times [1997].
5. "Corporate governance is about promoting corporate fairness, transparency and accountability" J. Wolfensohn, president of the Word bank, as quoted by an article in Financial Times, June 21, 1999.
6. “Some commentators take too narrow a view, and say it (corporate governance) is the fancy term for the way in which directors and auditors handle their responsibilities towards shareholders. Others use the expression as if it were synonymous with shareholder democracy. Corporate governance is a topic recently conceived, as yet ill-defined, and consequently blurred at the edges…corporate governance as a subject, as an objective, or as a regime to be followed for the good of shareholders, employees, customers, bankers and indeed for the reputation and standing of our nation and its economy” Maw et al. [1994, page 1].

 

The Value Chain
Concept
A method to identify all the elements in the linkage of activities a firm relies on to secure the necessary materials and services, starting from their point of origin, too manufacture, and to distribute their products and services to an end user.
A value chain is a chain of activities for a firm operating in a specific industry. The business unit is the appropriate level for construction of a value chain, not the divisional level or corporate level. Products pass through all activities of the chain in order, and at each activity the product gains some value. The chain of activities gives the products more added value than the sum of added values of all activities. It is important not to mix the concept of the value chain with the costs occurring throughout the activities. A diamond cutter can be used as an example of the difference. The cutting activity may have a low cost, but the activity adds much of the value to the end product, since a rough diamond is significantly less valuable than a cut diamond. Typically, the described value chain and the documentation of processes, assessment and auditing of adherence to the process routines are at the core of the quality certification of the business, e.g. ISO 9001.
Activities
The value chain categorizes the generic value-adding activities of an organization. The "primary activities" include: inbound logistics, operations (production), outbound logistics, marketing and sales (demand), and services (maintenance). The "support activities" include: administrative infrastructure management, human resource management, technology (R&D), and procurement. The costs and value drivers are identified for each value activity.
Significance
The value chain framework quickly made its way to the forefront of management thought as a powerful analysis tool for strategic planning. The simpler concept of value streams, a cross-functional process which was developed over the next decade, had some success in the early 1990.
The value-chain concept has been extended beyond individual firms. It can apply to whole supply chains and distribution networks. The delivery of a mix of products and services to the end customer will mobilize different economic factors, each managing its own value chain. The industry wide synchronized interactions of those local value chains create an extended value chain, sometimes global in extent. Porter terms this larger interconnected system of value chains the "value system." A value system includes the value chains of a firm's supplier (and their suppliers all the way back), the firm itself, the firm distribution channels, and the firm's buyers (and presumably extended to the buyers of their products, and so on).
Capturing the value generated along the chain is the new approach taken by many management strategists. For example, a manufacturer might require its parts suppliers to be located nearby its assembly plant to minimize the cost of transportation. By exploiting the upstream and downstream information flowing along the value chain, the firms may try to bypass the intermediaries creating new business models, or in other ways create improvements in its value system.
Value chain analysis has also been successfully used in large Petrochemical Plant Maintenance Organizations to show how Work Selection, Work Planning, Work Scheduling and finally Work Execution can (when considered as elements of chains) help drive Lean approaches to Maintenance. The Maintenance Value Chain approach is particularly successful when used as a tool for helping Change Management as it is seen as more user friendly than other business process tools.
Value chain analysis has also been employed in the development sector as a means of identifying poverty reduction strategies by upgrading along the value chain. Although commonly associated with export-oriented trade, development practitioners have begun to highlight the importance of developing national and intra-regional chains in addition to international ones

Location Economies:

 

V= Consumer Value P= Market Price C= Cost of Production V-P=Consumer Surplus P-C= Profit Margin V-C= Value Added

    

P-C

                   

V-C

     V                                  

                    P

                            C

 

                                   Fig: Location Economies

As we know that countries differ along a range of dimensions, including the economic, political, legal and cultural and these differences can either raise or lower the costs of doing business in a country. The theory of international trade also teaches us that due to differences in factor costs, certain countries have a comparative advantage in the production of certain products. Japan might excel in the production of automobiles and consumer electronics; the United States in the production of computer software, pharmaceuticals, biotechnology products and financial services; Switzerland in the production of precision instruments and pharmaceuticals; and South Korea in the production of Steel.

What does all this mean for a firm that is trying to survive in a competitive global market? It means that, trade barriers and transportation cost permitting, the firm will benefit by basing each value creation activity it performs at that location where economic, political and cultural conditions, including relative factor costs, are most conductive to the performance of that activity. Thus, if the best designers for a product live in France, a firm should base its design operations in France. If the most productive labor force for assembly operations is in Mexico, assembly operations should be based in Mexico. If the best marketers are in United States, the marketing strategy should be formulated in the United States. And so on.

Firms that pursue such a strategy can realize what we refer to as location economies, the economies that arise from performing a value creation activity in the optimal location for that activity, wherever in the world that might be (transportation costs and trade barriers permitting). Locating a value creating activity in the optimal location for that activity can have one of two effects. It can lower the costs of value creation and help the firm to achieve a low cost position, and/or it can enable a firm to differentiate its product offerings from those of competitors. In terms of above figure, it can lower C or increase V, which in general supports higher pricing (P). These considerations were at work in the case of Clear Vision. Clear Vision moved its manufacturing operations out of United States, first to Hong Kong and then to mainland China, to take advantage of low labor costs, thereby lowering the costs of value creation (C). At the same time, Clear Vision shifted some design operations from the United States to France and Italy. Clear Vision reasoned that skilled Italian and French designers could probably help the firm better differentiate its product, increasing perceived value (V). In other words, Clear Vision thinks that the optimal location for performing manufacturing operations in China, whereas the optimal locations for performing design operations are France and Italy. The firm has configured its value chain accordingly. By doing this, Clear Vision hopes to be able to simultaneously lower its cost structure and differentiate its product offering. In turn, differentiation should allow Clear Vision to charge a premium price for its product offering.

Globalization is not the bed of roses

At present the world has changed global village. Economic liberalization (i.e. economic freedom, free trade policy), increase in FDI, advancement in transport and communication and other infrastructure have developed globalization concept.

Today even a person staying in Nepal are able to know the world news, even they can watch the movies in the India’s famous multiplex BigCinemas. People can use the product of world famous brand Lorealls. Even we are able to ride Mercedes, we are able to chat with friends in yahoo, facebook and other social websites. The companies in Nepal are able to install new technology. We are able to do all these stuff because people and all the business organization and institution are socially integrated in a single globe.  And this is Globalisation.

In globalization, and each country creates open environment for other countries’ business organization to expand their business activities in own country. They are allowed to expand business activities in the global market.

The advantages of globalization to the enterprise are: they can expand their market to new geographical boundaries; creates greater employment opportunities in the country; technology transfer and so on. But this does not mean that globalization is like taking photographs even that is challenging. Managers should be able to grab the opportunities created. There are peoples from the different social values, cultures, religions, and family backgrounds and posses many other challenges.

Workforce diversity: When an organization enters into the global market there are various people who are from different cultural backgrounds. They share varied ides and way of thinking. The way of taking task has greater differences. They share different value system. They varied on their qualification, experiences and ability. It may be greater challenges to the managers of the business organization to manage the workforce in the organization.

Changing technology: It is a headache for the small enterprises to adapt with the new technology. Big corporate houses invest their huge amount of capital to develop more effective technology to increase their competitive strength.

Immense competition: When any organization enters to global markets. They faces large numbers of competitors. It is their very difficult task to increase their competitive strength. Big organization dominates the smaller organization.

Exploitation of physical resources: For a least or under developed countries, when big corporation enters in the market, it is very important for them to control over-exploitation of the resources. The tendency of the big business organization is to take profits to their own country. They use the maximum resources of the home country, take maximum profits.

Laws and regulation: For the organization in some country it is very challenging to act according to rules of that country. In some countries where there is communism business organization faces greater challenges regarding the laws.     

1.1 Meaning of research

Research is a solution to everyday problem situation. Research is logical approach to investigation to know more about something. Research can legitimately apply to various contents. Research is logical approach to investigation to know more about something. Research can legitimately applied to various contexts: in academic areas, in work areas and to much more everyday problem solution.

According to Sekran 2000 “Research is an organized systematic enquiry or investigation into a specific problem undertaken with the objectives of finding answer or solution to it.”

Research process based on philosophical, principals and mechanism to solve the problem is known as RESEARCH METHODOLOGY.

1.2 Types of research: applied and fundamental research

Applied or decisional research

·         Done to find a solution for specific problem

·         More concerned with knowledge that has immediate application

           Fundamental research

·         Also called pure or basic research

·         Undertaken to improve understanding of specific problems that commonly occur in organization and hw to solve them

·         These are the research works of professors, scholars and professionals devoted to generate new knowledge in particular area of their concern.

·         They contribute in theory formation

1.3 Scientific research

It pursues a step-by-step, systematic, logical organized and rigorous method to identify problems, gather data, analyze the data and draw the valid conclusions.  

1.3.1Scientific research process 

1.      sensing and realizing problems

2.      problem identification and theoretical framework

3.      hypothesis formulation

4.      designing research plan

5.      fieldwork and data collection

6.      summarizing and analyzing data

7.      interpretation and generalization of findings; i.e. refinement of theory or practice

	Source: Borders and Abbort (2006)

 

1.4 Managerial research

It is related to specific problem to make solution. This type of research is focused on one particular activity, scheme or project launched by management.

Examples of managerial research include those concerning the market potential for a new product, or best approach for the implementation of a new MIS system.

1.5 Action Research

It involves a continuous gathering and analyzing of research data during the normal on-going operations of an organization. Action research  is a methodology that combines “action” and “knowledge of research” together. 

The basic features of action research are: addressing the real-life problems, generates new knowledge, participatory e.t.c.