Institutional and structural factors preventing management improvement of corporate performance

¶ … institutional and structural factors in Britain and America prevent management from improving corporate performance. Use examples to illustrate points

Particularities of corporate performance management in the United States and the United Kingdom

Regardless of the location of their headquarters, economic agents across the globe operate with the universally accepted objective of increasing their profitability. The more common approach to increasing profitability is represented by the emphasis placed on corporate performance.

The concept of corporate performance management generically refers to managerial efforts made in the sense of reviewing and enhancing the results of the organization. In assessing the performances of the organization, emphasis is placed on various performance indicators, such as the return on investment or the organizational revenue (Search Data Management, 2006).

"Corporate Performance Management encompasses strategic planning, budgeting, forecasting, workflow, reporting, modeling, scenario planning, profitability analysis, KPI monitoring, and consolidation. CPM addresses both operational and financial performance to include the process of collecting the data and performing analysis and reporting in a collaborative fashion for executives, managers, and staff through all levels of an organization" (Micro Strategy, 2011).

A common question which is being posed in relationship with the management of corporate performance is represented by the forces which impact it. While the final objective is the same across institutions, the management of corporate performance would vary based on diverse particularities. Some examples in this sense would include the managerial style at the economic agent, the resource availabilities and constraints or the industry in which the respective entity operates (Paladino, 2010).

At a deeper level however, it is important to assess whether there are any country-specific features which impact corporations in managing their performances. Particularly, emphasis is being placed on the identification of any structural or institutional factors which would prevent American and British firms from enhancing their corporate performance.

In their Britain's economic performance, Tony Buxton and Paul G. Chapman (1998) find that an important force driving corporate performance in both the United States as well as the United Kingdom is represented by the salary package offered to the top managers. Specifically, when the executives are highly rewarded, they are better motivated and strive to increase the corporate performance. Vice versa, low wages of the top executives would have a negative impact upon the performances of the firm.

While this relationship is obvious within the short-term, it is not sustainable within the long-term. In other words, high salaries of the executives drive performance within the immediate future, but do not manage to generate a massive increase in productivity or profitability.

"On the whole, the evidence points to a positive, but potentially weak, association between managerial compensation and corporate performance, both in the United Kingdom and the U.S. Does this coupling of top pay to performance actually imply greater sustainable corporate profitability? Here, the evidence is disappointingly thin" (Buxton and Chapman, 1998, p.262).

Another feature also common in both the United States and the United Kingdom is exemplified by Jill Solomon in Corporate governance and accountability. The findings regarding the impact of institutional factors on corporate performance were retrieved with the aid of input provided by investors. For both of the countries, a strong conclusion was drawn that the quality of the corporate performance management act is highly influenced by the corporate governance at the firm.

Specifically, a strong corporate governance, manifested through positive relationships with the various categories of stakeholders, generates positive impacts on the performances of the economic agent. Vice versa, when the corporate governance within the economic agent is poor, the performances of the corporation would also be weak.

"Indeed, it has been shown that U.S. companies with weaker corporate governance structures (indicated by substantial agency problems) perform less well than companies with better corporate governance structures" (Solomon, 2007, p.71).

Another factor revealing a strong connection with the corporate performance is represented by the organizational ethics. In a context in which the competition intensifies within both domestic and international markets, when consumers become more demanding and pretentious and when the legislations are stricter, economic agents use ethical conduct as a new means of creating competitive advantages.

In the absence of ethical conduct as such, the economic agents would encounter severe challenges to increasing the performances of the companies. One of the most relevant examples in this sense is represented by case of Enron, the American company which hid its financial problems from its investors. It built upon a lie and the bubble eventually exploded to cause the life savings and jobs of tens of thousands of American citizens (BBC News, 2002).

A fourth factor impacting the performances of American and British corporations is represented by the policies implemented regarding the management of the human resource. The organizational staff members are now the most valuable organizational asset (Hickman, 2005) and their adequate management supports the development of the company. In other words, a corporation which does not place sufficient emphasis on the staff members is less able to increase its performances (Bernardin, 2002).

One example in this sense is offered by Wal-Mart. The company is the largest retailer of the United States and it enjoys positive returns on its investments. Even in times of crisis, as the other economic agents face difficulties, the results of Wal-Mart thrive. Still, despite the positive financial performances, the company was faced with the dangers of a negative public perception.

Wal-Mart was as such blamed for sacrificing the well-being of its employees in an effort to reduce costs and offer the minimum possible price to its consumers. In this setting, the employees were paid minimum wages; were asked to work long hours and were not provided adequate medical insurance (Greenwald, 2005).

The poor HRM policies negatively impacted the image of the organization and forced the company to reshape its business model. Particularly, the retail giant found itself in a situation in which it could not continue with its operations and was forced to develop and implement a more comprehensive HRM and social corporate responsibility program. The development of such a program decreased the final results as it forced the company to approve more expenses. In other words, in the case of Wal-Mart, its poor HRM policies generated an indirect impact on the company's ability to support its performance. An opposite situation was encountered at UK retailer Tesco, which developed a complex HRM strategy which supported it in increasing its performances (Wilton, 2010).

The final institutional factor to be assessed is represented by the very external environment. Whenever a corporation expands its operations to a different global region, it has to adapt its business model to fit the particularities of the new market. In other words, an economic agent unable to adapt to the local culture would encounter challenges in maximizing its performances.

The most relevant example in this sense is also offered by the American retail giant. Wal-Mart is the leader of the U.S. retail industry and it sought to expand its operations into Europe as well. Here however, it faced tremendous competition and it failed to customize its strategy to the features of the European employees and consumers. The company implemented the cheerful Wal-Mart salute, which was unwelcome by the more reserved Europeans; the managers selected were Americans who did not want to adapt to the local culture. In Germany for instance, the Wal-Mart executives did not want to learn German and declared that English was the primary language in the company (Knorr and Arndt, 2003). Gradually as such, the company raised barriers and its performances in the region only generated losses rather than gains.

All in all, the management of corporate performance is a complex and intricate effort, which depends on several issues. Within the United States of America and Great Britain for instance, the forces most often assimilated with corporate performance are represented by the pay of the top executives, the corporate governance, the ethical conduct, the human resource management policies or the features of the external environment.