Measurement and Interpretation of the Application of Corporate Governance - Research Proposal Example

Research Proposal Table of Contents 3 Contextual Background and Research Rationale 4 Literature Review 5 Corporate Governance 5 Corporate Governance Code 6 Cadbury Report and UK Corporate Governance Code 7 Corporate Governance and Competitive Advantage 8 Effect of achieving Competitive Advantage on Market Share of Company 11 Research Aim and Questions 11 Research Approach and Methodology  12 Research Limitations 12 Timescale and Research Planning 13 Reference list 14 Abstract The research proposal aims at highlighting the steps that are undertaken for preparing a successful research. The research lays emphasis on depicting facts related to interpretation and measurement of application of corporate governance in companies, which helps in increasing its competitive advantage. Corporate governance is defined as the mechanism, which measures and interprets the behaviour of top level management in order to examine whether they are complying with the code of conduct and abiding by the set of rule and regulations that are determined by the organisations. The corporate governance codes are generated by the companies so as to satisfy the stakeholders, which include employees, investors, customers and suppliers. The research aims at understanding whether the corporate governance codes are effective enough to increase the strength of the company or whether it can be considered as one of the most important strategy to increase its competitive advantage. Therefore, corporate governance codes are defined along with its relevance at different levels of management. It is observed that the impact of effective corporate governance code leads to increase in market share of the company as the customers and investors are satisfied with their overall performance. Hence, the research will aim at establishing the relation between corporate governance and competitive advantage in a broader way. Introduction Corporate governance has become one of the active topics of discussion and research among the academic researchers and also a significant subject for initiating a debate. There have been several studies pertaining to corporate governance highlighting its importance and impacts on the performance of companies (Singh and Davidson, 2003). There are also researchers, who have focussed on the mechanism of corporate governance i.e. establishing a relationship between board of directors and stakeholders, transparency in the disclosure and safeguarding the interest of stakeholders. However, these researchers have ignored the importance of practising external corporate governance, which has the ability to prevent interference of the managers that may affect the welfare of the stakeholders (Singh and Davidson, 2003). In this case, it should be stated that both external and internal corporate governance are essential for gaining competitive advantage. The overall effect of the interference is reflected on effectiveness of the governance of the company. Therefore, in order to fill up the gap in the academic researches on this particular topic, a fresh research needs to be conducted. The research proposal highlights the steps that should be undertaken by the researcher to measure and interpret the application of corporate governance in order to increase competitive advantages of companies. Contextual Background and Research Rationale In the contemporary world of management, competition has affected business of many companies as they have experienced decrease in market share and profit (Singh and Davidson, 2003). The management have shown concern about the fact and have also concentrated on devising successful strategies that can pull them through the present situation. One of the best ways of doing so is developing competitive advantage, which will be unique and help the company to sail through the hard times. Corporate governance is a strong phenomenon that helps the companies in developing competitive advantages (Rouf, 2010; Kimber and Lipton, 2009; Singh and Davidson, 2003). Corporate governance has two-fold meanings; firstly, it relates to the association between the stakeholders and the company (Rouf, 2010). The stakeholders, amongst many, include employees, shareholders, competitors, creditors, suppliers and customers. Secondly, Rouf (2010) identified that corporate governance is defined as the mechanism that measures and interprets the behaviour of the top level management, whether they comply with the code of conduct and follow the rules and regulations of the company (Singh and Davidson, 2003). In a way, it checks whether the managers conform to the code of conduct that are specified by the company. The performance of managers add value to the overall performance of the company and thus, the governance code helps in preventing misuse of power of the managers in the company so as to safeguard the interests of the stakeholders (Biswas, 2012). The main rationale of the research is to decipher the objectives behind measuring and interpreting the application or mechanism of corporate governance for increasing the competitive advantage of the companies. Literature Review Corporate Governance A number of definitions are put forward by several authors, which aims at deciphering the importance of the topic in organisations. Hess (1996 cited in Biswas, 2012) had defined corporate governance as the process related to control and administration of human and financial resources in the company for safeguarding the interest of the owner. Moreover, Strenberg (1998 cited in Rouf, 2010) has described corporate governance as the method which ensures the assets, corporate agents and actions are involved in attaining the objectives of the company. The objectives are expanded by the shareholders so as to incorporate their ideas and opinions regarding the performance of the company. Shleifer and Vishny (1997) had defined corporate governance as the process, which ensures that the financial suppliers will receive good returns on their investments. Corporate Governance Code O’Donovan (2000 cited in Rashid, et al, 2010) had described that corporate governance codes are defined as the voluntary sets of principles, standards and recommendations that are issued by higher authorities in a country collectively. These codes are related with the internal governance of the companies operating in a country. The codes are generally designed for filling up the deficiencies that are present in the legal systems of the companies. Alves and Mendes (2004 cited in Singh and Davidson, 2003) had added to the definition of corporate governance codes that it is valuable for establishing the clear information and recommendation for adopting the organisational structure, so that it remains transparent to the stakeholders and general public. The codes are directed at the management so as to improve the level of governance within them. The following principles are added to the code so as to improve the corporate governance. CEO duality: It identifies that CEO is holding the position of Chairman in the Board of Directors. Nevertheless, according to the agency theory, when the CEO holds the position of Chairman in a company, he gains adequate controlling power and private benefits (Chugh, Meador and Meador, 2010; Rouf, 2010; Kimber and Lipton, 2009; Rashid, et al, 2010). Non-executive and independent directors: According to Mak and Kusnadi (2005), higher percentage of the independent directors increases the performance of the companies. Vafeas and Theodorou (1998) had identified that the association between performance of the company and the non-executive directors are not significant. Yammeesri and Herath, (2010) had identified that there are debates pertaining to whether the non-executive directors are responsible for monitoring the performance of the companies. Their effects are reflected on the improvements of the corporate performances (Nguyen and Nielsen, 2010; Rashid, et al, 2010). Audit committee: Siagian and Tresnaningsih (2011) had depicted that the audit committee and directors are not dependent on the management and thus it aims at improving the reporting system of the company as there will be no conflict of interest. Moreover, it should be noted that the independent directors serve as the professionals, who have experience in playing an important role in decision making (Vafeas and Theodorou, 1998; Nicholson and Kiel, 2007; Rashid, et al, 2010). Cadbury Report and UK Corporate Governance Code The Cadbury Report issued by the Committee on Financial Aspects of Corporate Governance has identified recommendations for arranging structure of Board of Directors and the accounting systems for mitigating the corporate governance failure and risks. The recommendations highlights inclusion of three non-executives Directors in the board and the designation of Chairman of Board (COB) and Chief Executive Officer (CEO) are to be occupied by two different persons (Dahya and Travlos, 2002). UK Corporate Governance Code is defined as the set of standards for maintaining good relationship with the shareholders. This codes are formulated so that the board of directors become effective enough to satisfy the customers and shareholders. The codes formulated are related to leadership, remuneration, accountability and effectiveness (The Financial Reporting Council Limited, 2015). Corporate Governance and Competitive Advantage As defined by Institute of Company Secretaries of India (ICSI), corporate governance is defined as the “best management practices, compliance of law in true letter and spirit and adherence to ethical standards for effective management and distribution of wealth and discharge of social responsibility for sustainable development of all stakeholders” (Dangi, 2013, p. 43). From this definition it can be observed there is a positive linkage between the competition or performance of a company and corporate governance (Rouf, 2010; Kimber and Lipton, 2009). Corporate governance codes are distinct in different countries across the world as it is prepared based on the framework of the countries, which is generally inward – focused i.e. dependent on the structure of the management at different levels. It is assumed that appropriate structure increases the efficiency of the management (Fernando, 2009; Naidoo, 2002). Moreover, it should considered that there are external factors that forces a company to build their capability in such a manner that it cannot be imitated; this is reason why the companies aim at building their competitive advantage. Thus, corporate governance play significant role in shaping competitive advantage of a company (Dangi, 2013). It is observed that corporate governance aims at addressing issues that are related to decision-making at different levels of top management and board of directors. It ensures that the decisions taken at this level are not biased and are aligned with the corporate objectives (Wells, 2010; Rashid, et al, 2010). Corporate governance is considered for responding against agency problems that are developed due to the separation of control and ownership. Therefore, it aims at defining the association between managers and shareholders (Classens, 2003; Ambastha and Momaya, 2004). Efficient corporate governance is required in a company so that the managers get incentives for working on behalf of the shareholders; moreover, the shareholders should be well informed about the decisions of managers. Therefore, it balances the desires between the shareholders and managers (Howson, 2009; Fernando, 2009; Naidoo, 2002). This helps the company to increase its competitive advantages by maintaining a good relation between the managers and the stakeholders. Corporate governance is one of the significant features that have gained prominence in past few decades (Aras and Crowther, 2010). It is certain that if a company attains high levels of corporate governance by following all the rules and regulations that are set up by the regulators, then it will have the ability to improve the corporate performances (Watson, 2003; Kor and Mahoney, 2005; Paine, 2009). There are number of benefits attached to this enhancement in corporate performance such as increase in productivity, credibility of the management and the long term expectation of the investors (Grenville, 2010). The productivity of the management increases only when the managers and employees share a good relationship and there is no work related confusion. The long term expectations of the investors are developed based on the overall performance of the company, which is obviously dependent on the performance of the employees and the managers. Hence, corporate governance plays a very important role in managing the relationship between the shareholders and management. Therefore, it acts as the competitive advantage because corporate governance can assist a company in increasing its strength in a particular area and also differentiate it from its competitors (Jinyu and Mahoney, 2009; Rouf, 2010; Kimber and Lipton, 2009). The main outcome of corporate governance and competitive advantage are fair competition, consumer interest, sustainable development and business entity. Corporate sustainability is identified as the alternative for profit maximization and traditional growth model. This includes environmental protection, equity and social justice and economic development, which are focused on to recognise simultaneous growth in corporate profitability. Therefore, in order to achieve competitive advantage the companies have to work on establishing sustainable development programs (Jinyu and Mahoney, 2009; Rouf, 2010; Kimber and Lipton, 2009). Fair competition in a particular market sets a standard that is related to transactions within business. It also develops standard for establishing the transaction between the consumers and business community. Therefore, it helps in developing an environment where small-to-medium sized companies and even the large ones can operate according to the definite standards and rules. These standards provide a measure of support and protection to the consumers in terms of prices and efficiency (Jinyu and Mahoney, 2009; Rouf, 2010; Kimber and Lipton, 2009). Hence, it can be stated that the companies can build competitive advantage by establishing their business in affair market. The structure of the management is developed in such a manner that it assists in increasing the efficiency of the company. Through the code of corporate governance, the company aims at securing good position among the consumers. All the activities are undertaken after considering the consumer point of view. Consumer interest and welfare unrestraint the interaction with competitive forces in the free market, aims at rational resource allocation for maximum material progress and avail products and services of acceptable and high quality at a reasonable price (Rouf, 2010; Kimber and Lipton, 2009). Therefore, the companies should consider this factors in order to survive in the market for a long time. Effect of achieving Competitive Advantage on Market Share of Company If the results of corporate governance are measured and interpreted, it can be observed that the company has achieved prominence in the market by distinguishing its operation from its competitors. Therefore, if the company follows the corporate governance code, they will be able to satisfy the expectations of the customers and shareholders, which also ensure healthy relationship between the two. The companies with adequate or effective corporate governance practices help in developing competitive advantage, which is significant for growth of the business in the future (Angley and Van Der Wal, 2001). Effective corporate governance is identified as the main driver of sustainable growth in corporations, which ensures its long term development (Johnson and Greening, 1999; Angley and Van Der Wal, 2001). It can be viewed as the differentiator among the companies. It is obvious that the companies with proper corporate governance, gains greater market share. Therefore, it is apparent that structure of corporate governance describes the main characteristic for efficient competition (Angley and Van Der Wal, 2001). Research Aim and Questions The main aim of the research is to measure and interpret the application of corporate governance for increasing the competitive advantage in the companies. The research questions formulated for achieving the research aim are given below: 1) What are the effects of corporate governance on developing competitive advantage of a company? 2) Does application of corporate governance helps in increasing the market share of the company? 3) What is the role of corporate governance in achieving the company objectives? 4) What are the ways of applying corporate governance mechanism in companies? Research Approach and Methodology  In this research, both quantitative and qualitative research approaches are applied for achieving the research aim. The data for the qualitative analysis are collected from the scholarly journals that are written by authors who have completed in-depth analyses pertaining to corporate governance and on the mechanisms that are used for safeguarding the interests of shareholders of the company. However, the quantitative data are gathered from the questionnaire survey that will be executed through a set of questions asked to a number of corporate managers of different companies. The questionnaires will be sent to these managers via e-mails for them to fill. These filled questionnaires will be analyzed to obtain the results that aim at answering the research questions. Research Limitations The main limitations of the research are that it considers small sample size for questionnaire survey. Small sample size is considered for the research as it is easy for obtaining the results without much difficulty. Nevertheless, the results obtained from the questionnaire analysis may not be reliable and accurate. Another main limitation of the research is the limited access to high quality journals. The research failed to consider journals, which depicts the ideas and opinions of renowned authors as these journals have restricted views; one who has access to international online libraries can read this journals. Therefore, the researcher has considered only those journals, which are accessible online. These journals have provided limited information pertaining to the topic (Jinyu and Mahoney, 2009; Kor and Mahoney, 2005; Shleifer and Vishny, 1997). Timescale and Research Planning The timetable for executing the research is given in the table below. Each and every task for executing the research are detailed so as to understand the steps that are to be followed for obtaining successful results from the research. Reference list Ambastha, A. and Momaya, K., 2004. Competitiveness of Firms: Review of Theory, Frameworks, and Models. Singapore Management Review, 26 (1), pp. 45. 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