Introducing regulations, laws and processes into the market is detrimental to the very foundation and self-actuating forces balancing the free market economy pendulum. Imposing restrictions on free market trade will engender corporate decision making towards ensuring processes are followed that reduce the risk of personal penalties imposed by the courts rather than reducing the risk of making poor business decisions. Regulation changes do not address the role of the Board to investigate the strategy, ensure its reasonableness and oversee the implementation with vigour.
It must be remembered that standards have been in place for years and the legal system has proven, thought numerous failed class actions, that Boards can still operate legally whilst not acting in the best long term interest of the company and it’s stakeholders. BOARDROOM RESPONSIBILITIES Considerable detrimental effects are created to international business and trade by poor corporate governance, location dependent accounting principles and the supporting infrastructure for information dissemination.
A Board of Directors is responsible for correct governance by overseeing corporate activities, evaluating strategies and keeping pace with the changing world. Time conflicts resulting from Directorship appointments on multiple corporations limit the span of attention available to individual Directorship roles. Some corporate Directors are too busy keeping the peace (engaging in groupthink to retain their positions) within the boardroom instead of actively investigating strategy and operational decisions to ensure that personal responsibilities and long-term organisation viability is maintained.
Corporate governance standards are being formalised however these will not improve the moral or ethical values of the individuals in positions of power. Investors need to determine a methodology for incorporating a value of the Board of Directors when evaluating investment decisions. Only when this occurs (and possibly increase in tenure) will Board members have to make decisions that balance immediate and long-term trade-offs. ECONOMIC EFFECTS Large corporate failures, especially when caused by poor internal morals standards, undermine the general level of confidence in all organisations in the affected region.
The economic effects of this can be dire as seen previously with the Asian corporate crisis where exchange rates where battered by foreign exchange withdrawls and stock markets tumbled. Additionally there was a negative impact on FDI transactions as offshore investors were not confident in the corporate management. Underlying consumer and investor sentiment about the stability of local and global economic conditions can hinder capital raisings thereby stifling economic and technological development and leading to reduce levels of corporate growth.
INTERNATIONAL PERSPECTIVE (Phraya, Chao:2003) “It was only 4 years ago that Western critics went on a warpath of criticism of public and corporate governance in Asia to explain and vent their frustration at the bursting of the Asian bubble economies. Yet yesterday’s Worldcom bombshell is the latest evidence that quality of corporate governance is not an “Asian problem” – its an international problem – centered on the glamour companies of the USA’s late 1990’s new economy”.
Diversified cultures react differently to the assortment of methods available to conduct their business. It is argued that these international and culturally diverse firms may even be commenting that failures are an indictment on the perceived and predominantly American business aggressiveness used by US firms when going about conducting their trade. Their long-term reaction would be to learn from these mistakes and to ensure it would not happen to them. There has been a different view to the American problem by most of the International market.
The overuse of legalistic remedies and penalisation in the US psych to control, punish and litigate by using the courts is by far indelibly forced into the American culture. The problems with these firms and what could be argued as a primary cause of failure was in the control of the corporation by the controllers of the companies. A vast majority of firms are either the targets of takeovers, are sold or go bankrupt and they are in these positions because the controlling body has exposed their companies to their competitors either recklessly or through bad business decisions, investments or underestimating the market.
The international perspective could be argued that this is a hiccup in the business world and free market forces will automatically correct the situation. They don’t believe there is a overarching need for government intervention required to repair this problem. Given correct information on the dimensions of people, planet, profit and posterity, corporate and individual investors will punish the less vigilant and reckless corporations. CONCLUSION Global pockets of negative sentiments exist towards the U. S. for a variety of reasons including the perception that they have hidden agendas and continual self-serving interests.
This historical negativity, in conjunction with the fact that the U. S. is the lead advocate of a capitalist economy, means the U. S. (above all other nations) has a critical role to play and must ensure that governance of it’s organisations are based on the highest moral and ethical principles. Corporate hardship, and possibly collapse, caused by massive technological shifts or factors not reasonably predictable are all part of company renewal and rejuvenation.
Corporate failure due to Director and Senior Management complacency, misappropriation of funds, conflict of interest situations or self interest are unacceptable and undermine national economic stability along with the values and ethics held and enacted by the majority of corporations operating in the nation in which the failure occurs. Corporate failure affects the economic platform of nations due to implications on the levels of foreign direct investments, exchange rates and the distrust of global partners, suppliers and customers.
Implications of recent corporate collapses are easily visible in metrics like stock market values and sentiment towards economic indicators. However with time, like the October 1987 crash, the success stories will be remembered and the failures will seem a distant past. Kakabadse, Nada, K. , ; Kakabadse, Andrew. , 2003, provide a positive way to look at contemporary market economy corporate failures in their article by saying that ‘Collapses of large corporations provide critical events for elites to look beyond their privileged life.
Like Buddha, they are presented with four signs of awakening; the destructive value system they are leaving the next generation (posterity), increasing greed and poverty and the divide between ”haves” and ”have-nots,” the increased speed of planet destruction (decreased bio-diversity), as well as reflexivity’. If corporations and individuals alike do not learn from the most recent spate of avoidable collapses, considerably more is lost than investment capital and dignities of those who caused it.
Boyd, David P. , 2003, “Chicanery in the corporate culture: WoldCom or world con? “, Corporate Governance, VOL. 3 NO. 1 2003, pp.83-85. Kakabadse, Nada, K. , ; Kakabadse, Andrew. , 2003, “Polylogue as a platform for governance: integrating people, the planet. profit and posperity”, Corporate Governance, Volume 3, Number 1 2003, pp 5 – 38, MCB UP Limited. Phraya, Chao. , 2002, “WorldCom: What Corporate Governance? US business beats us at our own game”, Asia Finance, http://www. apmforum. com Rayman-Bacchus, Lez. , 2003, “Contextualising corporate governance”, Managerial Auditing Journal, 18/3 , pp 180-192, London, U. K. Zandstra, Gerald. , 2002, “Enron, Board governance and moral failings”, “Corporate Governance, 2-2, 2002; pp16-19, MCB UP Limited.