The impact of corporate governance structures on firm performance

¶ … Corporate Governance on Organizational Performance

Corporate governance implies to decisions made by the management in organizations, which influence the overall performance of the firm. Corporate governance focuses on organization's governance and the performance of duties within firms. Management of firms develops specific strategies or set of mechanisms that influence their decision-making. These decisions are crucial in firms where there is a clear difference in ownership and control. Some of the strategies the management team might use are employing the participation of the board of directors in decision-making, encouraging shareholders in the management of organizations or decisions made on market operations (Aguilera, Filatotchev, Gospel & Jackson, 2008). Decisions instituted by members of these teams directly influence the performance of the firm. Moreover, decisions tasks undertaken by the management and the shareholders contradict, but are very crucial to the overall performance of the organization.

Corporate governance is a highly powerful aspect to any organization. Its contributions cut across all field including finance, accounting, management and in strategic management. Corporate governance is a system where organizations functions monitoring take place. The structure of corporate governance defines details that constitute the rights and responsibilities of different stakeholders in an organization. The system also specifies rules and procedures to use when making decisions. One can say that corporate governance provides the structure, which organizations use to reach at their goals while at the same time, incorporating influences from the society, regulatory bodies and the market environment. The strategy also reflects on the interest of various stakeholders.

Organizations control focuses at the external and internal structure of governance. Manager's actions and those of board members need monitoring for better governance. These monitoring procedures prevent the company from losses by mitigating the effects of agency risk that may stem from actions of the firm's staff. Internal stakeholders of an organization include the management, board of directors, department heads or other employees. External stakeholders include the shareholders, debt holders, credit holders, customers or the government (Larcker, Richardson & Tuna, 2007).

The main objective of corporate governance is to prevent the effect of conflict of interest between managers and the firm. Conflicts of interest mitigation comes by, laws, procedures and there are some institutions especially government ones, who control the functions of a company. The outcome of a well-governed organization is efficiency on the use of resources and better emphasis done on the interests of shareholders. In large firms where there is separation of powers of ownership and control, organization may suffer losses. Management or the agent might have different stake on the organization and may lead to the collapse of the company. Since management is considerable, more informed on the operation of the corporation, it is easy to formulate corrupt practices that affect the firm economic status. The board of directors chosen to oversee functions of the management may become complacent and together with the management team destroy the firm (Aoki, Jackson & Miyajima, 2008).

Corporate Ownership and Control

Legal documents of laws relating to limited liability companies have separated control of a corporation from ownership. These separation focal points are the real investors of the firm and those employed to oversee the operations of the firms (Larcker, Richardson & Tuna, 2007). Like at Emirates Airline Corporation, company's management task is to guard the interest of the owner. Nevertheless, divergence of interest of management and their tendency to engage in wasteful practices only affects the value of the corporation. Over the years, unethical management practices of executives have necessitated the creation of a monitoring body in organizations that are the board of directors. Boards of directors are very significant in overseeing the operation of managers to minimize corruption within firms operations (Adams, Almeida, & Ferreira, 2005).

"Best practice" contemporary issue

Management

Best practices on the practices of managers in a corporation affect performance. Management who relate to best practices remains profitable and effective. However, like in the case of the influence of board members, best practices in management in corporate governance do not ensure profitability. The board of directors constantly monitors the management team duties. Management's task is to look after the interest of owners of a corporation. Management teams draw salaries out of corporation profits. Their functions are decision-making, management of employees, and planning for future actions of the firm. Management of a corporation governs operations using theories they acquired in school reflecting at the government policies and laws.

It is not obvious that management best practices will yield better performance for the corporation. One thing one must consider is that, management teams of corporation consists of human being. Even though human beings are factors of productions in an organization, they have complex personal characteristics. It is not easy to generalize performance of human beings since they have different opinions and perception about the world. Different people react differently to situations; in the case of Emirates Airline, the performance of the marketing department should not equate to the performance of the accounting department. Different personality differences influence performance of managers or the way one manager reacts to situations may make it different to equate their performance. The organization may be undergoing losses, and from analysis of this situation, the planning team institutes a financial strategy (Bebchuk, Cohen & Ferrell, 2009).

Employees of the organization remuneration done according to regulations and the management team trained on ethical practices. Application of best practices acquired in this program helps management improve performance. Results from this strategy improve on the efficiency of task within the organization and at the same time improves on organizational profitability. However, we have to note that, best practices of management of the organization will not fully reflect the performance of an organization. One has to understand that human have different strengths and are creators with different mindsets (Adams, Almeida & Ferreira, 2005).

"Best practice" on customers

Customers are consumers of products created in corporations. Their importance is crucial to the performance of the organization. For the Airline Company, the need of customers to travel has led to the growth of the flight companies. Consumers' rights have continually influenced performance of the organization. Consumers have different taste and preferences, which have made organizations, develop strategies to meet the ever-growing demand. These changes in customer preferences have increased competition in almost every field. Therefore, any organization that needs to improve its performance must seek to understand its customers. The organization should ensure their production procedures are efficient. The organization should be ethical when providing services or when producing goods (Adams, Almeida & Ferreira, 2005).

There are certain conditions or standards of trade that every management team should practice when satisfying needs of customers. Customers are always right; it is up to the corporation to reflect on best performance of an organization. A company reaches at the competitive advantage when their marketing strategy is stronger than that of competitors. For competitiveness advantage achievement, best practices are crucial in the development of strategies. Strategic management decisions affect the performance of an organization and on its reputation. Reputation of an organization reflects on the efficiency of the organization in the market (Larcker, Richardson & Tuna, 2007). Marketing structure of Emirates ensures that they remain a superior Airline organization in the world. Reputation on the way they handle employees needs, reliability, their social responsibility, leadership, management and their responsibilities on quality, have made the organization prosper.

A strategy of "best practice" promotes customer contributions to the overall organization output. Corporate reputations include trustworthiness, responsibility, credibility and reliability on the part of the corporation. Reputation of organizations attracts employees, customers and institutions. Employee's health and safety needs, investments on community projects, respect of the people surrounding the organization needs management considerations. Organizations should adhere to the principle of fair competition, transparency, accountability and in maintaining supplier relationship. Company's reputation influence on customers loyalty and thus increase on performance of organizations. For Emirates, good reputation status acquisition is an effort of all departments. Employees of all departments promote reputation. Good reputation is an asset, for any organization, an application of it enhances performance. Customers prefer organizations that produce high quality products and services (Cornett, Marcus, & Tehranian, 2008). Good reputation encompasses employee relations, leadership structure, and social responsibility of an organization and communication system. Financial consideration may include financing activities that promote customer relations. These best practices promote performance of Emirates Airline.

Shareholders "Best Practice"

Shareholders are particularly significant in corporate governance. Shareholders own organization their contribution constitute the organization. For Emirates, corporate governance helps in protecting assets of shareholders and improving organization performance. Institution shareholders have a significant influence on performance of organizations and hold the large share holdings. The goal of companies is to reflect on interests of shareholders and that of the management. These means that companies should use best governance policies (Bebchuk, Cohen & Ferrell, 2009). These policies designed with the approval of the institutional shareholder promote performance of organizations. The importance of these policies is that it provides a base for broad solutions, align both shareholder and management interest, enhancing the value of the firm by increasing on productivity. The strategy determines misconduct or fraud and promotes participation of shareholders.

By institutions meeting best practice, they fulfill their responsibilities on investors. Corporations use all technological trends in order to serve as a leader in the modern financial market. The roles of owners of a public corporation are decision making. Owners have voting rights that are relative to the amount of shares held. Since there are different classes of shareholders, super class is the highest class of all and their contribution are highly critical. Shareholders responsibilities are the selection of members of the board of directors. Shareholders influence performance of companies since they have the power to hire and fire board members. If the performance of the board of director is in question shareholders have right to reconstitute the whole board, it is the responsibilities of shareholders to conduct audits, manage finance and evaluate corporate financial system (Aguilera, Gospel & Jackson, Filatotchev, 2008).

Shareholders ensure those executives compensate executive based on their returns. Executive's compensation is a reflection of to the market prices. Shareholders determine all classes of workers to compensate. They review salaries and should provide detailed information on all information about rewards. Shareholders influence performance of organizations by the development of organizational policies with the approval of shareholders. Shareholders develop policies that incorporate those of the state. These policies improve the firm's reputation and performance rating. For Emirates, company's stock listed in the Mumbai stock exchange, has extensive terminals. The bureau provides constant information to shareholders (Bebchuk, Cohen & Ferrell, 2009). The organization publishes reports on their performance and avail them to their shareholders. One can conclude "best practice" on the part of shareholders affects companies' performance.

Recommendations

There is a need for the corporation to develop effective strategies. Application of best practices is essential to full realization of company's goals. The development of corporate governance procedures is essential in the realization of profitability. Management of organizations, shareholders and customers play an essential in the realization of the goal. Therefore, organizations should strive to satisfy the needs of shareholders. Financial assistance is essential in fulfilling the needs of customers, creditors, management and shareholders.