QUESTION
LiteratureReview&Report
LiteratureReview and Report
- Criteria& Marking:
Students will be assessedagainstthe Management Conceptsassessmentrubric. The report is 1500 words in length (excludingreferences, tables and directquotes). Use APA or Harvard referencing. Write in report format, however do NOT include an executivesummary. Furtherinformationonsubmission and format will be provided in lectures.
- Description:
Students arerequired to write a LiteratureReview and Reportbasedon a managementissue or potentialissuethattheyidentify in a nominated case study (Olympus case study). The problem should be related to a topicdiscussed in thiscourse, such as theroleofthe CEO, organisationalculture, whistleblowing, culturalissues in management.
Havingreadthe case study – AND havingidentifiedonemanagementissue or potentialissue in the case (thereare a numberofissues/potentialissueswithinthis case – chooseonethatrelates to material covered in thiscourse) – you must thenfind at leastfiverefereed journal articlesthatarerelevant to themanagementissueyou have selected. You must identifytheauthor’s argument in the REFEREED journal articles and compare it withthe arguments ofotherauthors in yourresearch. This is theLiteratureReview part oftheassessment.
NB. STUDENTS MUST SOURCE A MINIMUM OF NINE (9) REFEREED JOURNAL ARTICLES. FAILING TO DO THIS WILL RESULT IN LOWER MARKS (NOT MORE THAN PASS) FOR THE ASSESSMENT
In writingtheirLiteratureReview and Report students must usereport format and must NOT usedotpoints. A recommendedstructure is:
1. Introduction (1-2 paragraphs)
This sectionshouldincludethefollowingcomponents: a briefdescriptionoftheresearch problem identified from the case, a rationale for investigating it, and a briefbutclearstatementofthe argument to be developed in theReview (for example, a statementsuch as: ‘This paperwillarguethat, in order to solvethe problem ofpoor staff motivation, thecompanyneeds to redesignthewaywork is organised and performed. Research indicatesthatthe Hackman and Oldman (1980) modelprovidesthe best overall outcomes’). The statementof argument becomescentral to thedevelopmentofyourReview. It needs to be given somethought. A secondparagraphmayfurtherexplaintheproblem/potential problem by providingevidence from the case and supported by academicliterature.
2. LiteratureThemes or Arguments (2-4 paragraphs)
In thissection, identify at leasttwo arguments or themes in theresearch in relation to theidentified problem. Youwillfind, in all areas ofresearch, at leasttwo (and often more) perspectives or arguments onanyissue. (For example, someresearchersthinkextrinsicrewardssuch as moneyarethe best way to motivate staff; othersbelievethekey is intrinsicrewardsassociatedwithhavinginteresting and fulfillingjobs). Youneed to evaluatethese arguments critically and workoutwhich is the best supported and has the most application to your case. For each argument (or theme), addressthefollowingquestions:
Whichauthors support or agreewith a particular argument? Whatevidence do theyuse? Whichauthorsdisagreewiththis argument? Whatevidence do theyuse?
3. Conclusion and Recommendations (1 paragraph)
Summing up your problem, thedifferentperspectivesyoufind and theperspectivethatyoufeel is best supported by theresearchyouconsidered. Youalsoneed to make recommendationsthatwillsolvethe problem thatyouidentified in the case study.
SOLUTION
1. Introduction
Japan’s was an economy in disarray at the end of the Second World War, and how some of the world’s top companies have emerged from the ashes is a testament to its people and its culture. However, one rotten apple spoils the whole bunch and on the face of it, it appears that Olympus, the $2.5 billion consumer electronics giant, could well be rotten. With the top management of the company indicted for fraud and financial mismanagement, and the board of directors and auditors seemingly in cahoots, the organization reeks of having no formal system of corporate governance in place. This is evident from the situation where Michael Woodford brought in accounting firm PricewaterhouseCoopers to commission an independent enquiry, and presented his findings to the board. Instead of taking action against Chairman Tsuyoshi Kikukawa and Executive Vice President Hisashi Mori for their alleged part in the fraud, the board sacked Woodford.
However, just labelling the matter as a case of poor Corporate Governance is a very simplistic understanding of the problem statement, often taken from an outside in view where one has no real concept of how business in a different part of the world operates. To get to the root cause, this paper will first attempt to explain how corporate governance in Japan, which matured in the post World War period as keiretsu (Kaen 2003), is different from the age-old global concept known as Agency Theory (Judge 2011), and then look examine solutions based on a mix of retaining the best of Japanese culture (Yoshimori 2005) while picking up on necessary elements laid down by Organization for Economic Cooperation and Development (OECD 2011).
2. Literature Themes or Arguments
Most American, nay global authors, who have written about the well documented situation prevalent at Olympus have quickly painted Chairman Kikukawa as the villain of the piece, and taken advantage of the opportunity to lash out at how Japanese companies have a poor system of Corporate Governance. While the former may be true, the idea of a systemic failure in Japanese Corporate Governance may not, hence at the start of this literature review it is crucial to understand what are the different systems that existed historically, and how each works brilliantly in its own way.
The three most popular global schools of Corporate Governance are the American, the German and the Japanese, with all other existing models largely minor variants of one of these (Kaen 2003).
1. American System – Has matured over a period of time with its roots from civil republicans to liberalism, to the trustee approach before eventually settling down into the agency model (Clarke 2005). By and large this is based on a ‘nexus of contracts’ which puts the shareholder at the centre, and the other stakeholders around it. The biggest arguments that take place in the American system are whether shareholders come first (contractarianism view) or whether other stakeholders and the shareholders have an equivalence of relevance (communitarian view).
2. The German System – Which is based on the Universal Banking System where Banks are both part owners and lenders to firms. In such situations, banks are committed to the cause, and will do everything in their power to make sure that the business has enough funds made available to make it a success. The flipside of his situation is that all decisions are based on very strong fundamentals. The potential for either financial jugglery or to get project approval in a negative NPV (Net Present Value) scenario are virtually non-existent. Individual investors though are likely to take a hit in such a scenario with the bank’s largely oblivious to stock price movements, and more concerned with firm’s survival. In recent years though, more German firms have sought to get themselves listed on international stock exchanges, and have revamped their Corporate Governance models to American standards to gain international acceptability.
3. The Japanese System (keiretsu) – Which is based on an intertwined network of companies who have both ownership and contractual relationships with each other. The Japanese System has obvious advantages like long term relationships and immense knowledge sharing of each other’s operations, and some serious disadvantages like being insulated from the real world and having limited often no real accountability.
Yoshimori in a 2005 paper in ‘Corporate Governance: An International Review’ examined how this model which focused on putting the employee at the center worked wonders for organizations like Toyota and Canon, which were beating their American counterparts GM and Xerox respectively, hollow in the market place. While the American firms lived and breathed Shareholder Value, Toyota chairman Okuda called their style of Governance as that of a “market economy with a human face”, and strongly opposed the American culture where business decisions were taken based on “stock market logic”. (Yoshimori 2005)
Mantras for Corporate Governance in Japan included lifetime employment, promotion based on seniority, large 50 plus member boards – consisting of members of other contracted companies – having virtually no diversity (no academics, no outside directors, no women even!), etc.
Now putting the actions we observed in Olympus in this context, it is easy to understand why an “outsider” appointed as CEO found absolutely no support in the board, and Woodford’s actions while noble and democratic would have gone against the basic fabric of Corporate Governance Japanese firms matured with through the 20th century. The keiretsu has always been a circle of trust, and board members have traditionally “looked after their own”, even protecting key management personnel for the sake of the long term relationship. Not all decisions taken made financial sense, and often were done at a loss to the individual shareholder, with different members of the keiretsu, including the banks, cushioning the blow. Hence, what Woodford saw as excessively high consulting fees being allocated to another corporation as an attempt at fraud, would have 20 years ago been easily deemed as reallocation of profits within the keiretsu.
The problem for Olympus though is that it is no longer just a Japanese company. 27.7% of the Organization is owned by Foreign institutions and individuals, including the Government of Singapore Investment Corporation, which has more than a 2.5% stake (Bacani 2011). Such investors expect a certain global standard of Corporate Governance to be maintained, and reallocation of cash instead of returning it to the shareholders is just not acceptable.
Wolfgang Harder in his 2006 paper on Director Ethics states that irrespective of the model being followed, and independent of the country in which it is being implemented, there are some basic model codes of conduct. These include loyalty, honesty, being responsible, acting fairly, being upright and acting in compliance with laws and regulations. With the exception of loyalty, Olympus is failing on all other fronts.
3. Conclusion and Recommendations
The OECD in its attempt to list globally relevant standards for Corporate Governance is doing its bit to help place organization’s the world over under one common umbrella. And, while every stock exchange has also listed its own acceptable norms for Corporate Governance, the Japanese stance of we will either do it our way, or delist, is not really a solution. What needs to emerge is a common ground where local sensitivities are addressed without placing at risk the most vulnerable stakeholder in a business, the minority shareholder. As William Judge, Editor-in-Chief of ‘Corporate Governance: An International Review’ puts it, Agency Theory needs to consider ‘the national institutional context’ because at a time when it was drafted, the only firms that were considered were Anglo-American. (Judge 2011). That being said, the board just cannot ignore the rights of the shareholder and need an independent mechanism which monitors and audits the information that is being released from the organization. Keeping the legacy of the keiretsu in mind, the auditor needs to be protected from tentacles of the firm to ensure that it isn’t made to suffer for reporting the truth. This is where government legislation needs to step in to ensure that someone is monitoring the monitor.
Recommendations
1. Publish to a universal forum the roles and responsibilities of the board and top management – The role of the board being distinct from that of management should be well defined, basically separating business operations from strategic decision making. Each board member should have clarity about his / her role, and these should be documented in the board charter.
2. Effective composition of board members – Membership of the board should not be based on years of service and allegiance to key personnel, but based on what value you add to discussions. A board member needs to have the ability to challenge the decisions being taken by the top management – a Why Man and not a Yes Man is what is needed. This is often best achieved through independent directors with extensive experience.
3. Independent verification of financial reporting – In addition to an independent auditor, the board should put in place an audit committee, sub-committee based largely of independent directors, not under the influence of either the CFO or the Chairman.
4. National context must be respected, but not at the cost of the rights of shareholders – local sensitivities need to be understood and respected while operating in international markets, but these cannot be done at the cost of the minority shareholder.
(ASX 2011)
References:
Kaen, FR 2003, ‘CHAPTER 11: ALTERNATIVE GOVERNANCE SYSTEMS: GERMANY AND JAPAN’, Blueprint for Corporate Governance pp. 187-210 American Management Association International Business Source Complete, EBSCOhost, viewed 11 April 2012.
Judge, W 2012, The Importance of Considering Context when Developing a Global Theory of Corporate Governance. Corporate Governance: An International Review, 20: 123–124.
OECD 2011, “Disclosure and transparency”, in OECD, Corporate Governance in Asia 2011: Progress and Challenges, OECD Publishing.
OECD 2001,Corporate Governance in Asia: A Comparative Perspective, Corporate Governance, OECD Publishing.
Kaen, FR 2003, ‘CHAPTER 1: CORPORATE GOVERNANCE: AN OVERVIEW’, Blueprint for Corporate Governance pp. 1-16 American Management Association International Business Source Complete, EBSCOhost, viewed 11 April 2012.
Harder, W 2006, What’s all the talk about Directors’ Ethics?, Corporate Governance eJournal (Bond), viewed 11 April 2012.
Clarke, A 2005, The Models of the Corporation and The Development of Corporate Governance, Corporate Governance eJournal (Bond), viewed 11 April 2012.
Yoshimori, M. (2005), Does Corporate Governance Matter? Why the Corporate Performance of Toyota and Canon is Superior to GM and Xerox. Corporate Governance: An International Review, 13: 447–457., viewed 11 April 2012.
ASX 2011, Principles of Good Corporate Governance and Best Practice Recommendations: 11-70, http://www.shareholder.com/visitors/dynamicdoc/document.cfm?CompanyID=ASX&DocumentID=364&PIN=&pagenum=4&keyword=Type%20keyword%20here, viewed 11 April 2012.
Bacani C, 2011, The Olympus Scandal: When a Foreign CEO Rebels,
http://www.cfoinnovation.com/content/olympus-scandal-when-foreign-ceo-rebels?page=0%2C2&utm_source=lyris&utm_medium=newsletter&utm_campaign=cfo_weekly§ion=features, viewed 11 April 2012.
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