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1. examine the concept of corporate governance and the role of managers and directors in creating socially responsible organisations.
2. analyse and explain the role of corporate governance and risk management in responding to various stakeholders’ needs
3. analyse leadership and management processes in organisations with respect to governance and policy compliance
4. analyse the conceptual, contextual and ethical issues which bear upon corporate decision making with respect to corporate governance and risk management.
5. critically evaluate and apply different organisational approaches to corporate governance and risk management

Definition of Corporate Governance

Corporate governance plays a very significant role in ensuring legitimate distribution of rights and responsibilities among the management, employees and the external stakeholders. Business organisations serve several stakeholders both internal as well as external. They are legally and ethically bound to protect the interests of all the stakeholder groups. The apex management of business organisations today form formidable corporate governance strategies based on their visions and missions. Kraakman and Hansmann (2017) descried corporate law as the basic law of corporate governance. Arora, and Sharma (2016) mention that corporate governance is closely related to performance of the firms in the emerging economies which already experience high level of market competition. Thus, it is evident that corporate governance occupies a very important position in the present commercial organisations, especially leading multinational companies. The aim of the paper is to explore the role of corporate governance in different areas like risk management, CSR, leadership and policy compliance. The base of the study would be lent by one of the largest fast moving consumer goods marketing companies in world, Unilever (Unilever.com. 2018).

The term corporate government as per Kraakman and Hansmann (2017) can be defined as the procedures and policies which the apex management of business organisations take to ensure that the rights and interests of stakeholders are protected to the feasible extent. The feasible extent here refers to the acceptance of the benefits taking into account the legal and ethical parameters.  Armstrong et al. (2015) point out that corporate governance plays very important roles in the operations of multinational companies like Unilever. It can clearly be pointed out that this pressing importance of corporate governance calls of leadership from the apex managers.

Managers play very significant roles in the corporate governance of business organisations, thus contributing towards creating socially responsible corporate citizens. This fact comes into play in the global corporate governance strategies of Unilever. This is evident from the unified codes of business principles determined by the apex management which apply to Unilever PLC, Unilever NV and the subsidiary companies, thereby referred to as Unilever Group. The company maintains similar directors for both Unilever PLC based in London and Unilever NV, based in Rotterdam, both functioning as the headquarters. The company in order to ensure uniform decision making process appoints similar directors for the boards of both the headquarters. The company follows a uniform procedure of operations like accounting procedure, product quality assurance and convening shareholder meetings (Unilever.com. 2018). The uniform corporate governance throughout Unilever Group ensure transparency and stakeholder benefit. For example, nomination of similar senior managers at both PLC and NV would result in uniform decision making in the headquarters of Unilever Group, thus paving ways for effective execution. Secondly, the company maintains a uniform quality for its products its markets in the global. These uniform product quality parameters enable customers of Unilever obtain high quality, thus benefiting the former. Thirdly, uniform financial decisions and uniform publication of its financial information benefitting the shareholders around the world. This means that the corporate governance of Unilever under the leadership of the apex managers has enabled the company to establish itself as a socially responsible organisation.

Corporate Governance and Multinational Companies like Unilever

Corporate governance plays a very significant role in risk management in responding to the needs of various stakeholder groups. The discussion on the role of corporate governance in risk management can be initiated by mentioning the work of Van Grembergen and De Haes (2018). The authors point out that information technology has become a very significant part in maintaining competitive advantage and risk management. However, the use of IT in risk management in today’s organisations rests on effective corporate governance. Almeida, Hankins, and Williams (2017) point out that in order to obtain high quality supply of raw materials, business organisations have to hedge with the suppliers of raw materials. This statement points out to three risks which companies need to management efficiently, namely, supply chain risks, legal risks and legal risks, all in order to maintain economies of scale. It is evident from the discussion that management of these three risks require strict supervision of the apex and middle level management. This once again points out that effective risk management is not possible without corporate governance from the apex management.

Mason and Simmons (2014) points out that corporate governance plays very significant role in risk management which business organisations can obtain by protecting needs of various stakeholder groups. A closer analysis of this opinion of the author points out that it is closely linked to the opinion of Almeida, Hankins, and Williams (2017) and in fact lends in further substance. It can be pointed out that hedging in the supplier market actually enables business organisations like Unilever obtain high quality raw materials for manufacturing their superior quality products at economic rates. This enables the companies like Unilever protect the consumer interests by providing high quality products at legitimate rates. The companies like Unilever are able to earn immense revenue by offering consumers appropriate products, thus managing revenue risks. Thus, in other it can be pointed out that protecting customers’ interests help multinational companies like Unilever manage revenue risks. The strict governance of apex management is evident from its central product strategy which applies to all the subsidiaries of Unilever and appears on global website of the company (Unilever.com, 2018).

Hedging in the suppliers’ market enables the companies like Unilever to tackle supply chain risks and protect interest of suppliers, both commence under strict corporate governance of the apex management (Aguilera, Judge & Terjesen, 2018) For example, Unilever hedges in the supplier market under the supervision of a dedicated board of directors which enables the company to obtain superior quality raw materials. Thus, the company using corporate governance manages supply chain risks. The company has central supplier management codes which provides information to suppliers regarding the supply chain strategies of the company. Unilever has a central ‘Procurement to Pays service desk’ which makes payments to suppliers and provides information about invoices which is once again proves the involvement of corporate governance of the company in benefitting the suppliers by providing time payments (Unilever.com, 2018). Thus, it can be affirmed that corporate governance enables multinational companies manage supply chain risks by protecting interests of suppliers which are one of the primary stakeholders (Epstein, 2018).

Corporate Governance in Risk Management

Corporate governance plays a key role in acquisition of financial capital, investments of the same in the markets and gaining supernormal returns, thus management investment risks. Lebedeva eta l.(2016) point out that apex management of business organisations have to supervise the entire process of financial capital acquisition from the stock market and investment of the capital in appropriate asset classes in order to earn high returns. As far as Unilever is concerned, the share price of the firm has remained high as shown by the graph below. This means that company has benefitted the investors by giving them high returns which has enabled it to attract more capital, which is evident from the rising share prices. The corporate governance document of the company clearly points out that the directors have responsible for sanctioning of investments in assets in both home and host countries. The directors are also responsible for approving payment of dividends to investors. It can be pointed out strongly, the corporate governance ensures protection of investors’ interest as well as utilisation of funds in the global market, in order to give high ROI to the former. Thus, it can be affirmed that corporate governance ensure protection of investors’ interests and appropriate investment of funds, thus, managing investment risks (Eling & Marek, 2014)).

The management plays a very role in corporate governance and compliance with various policies. The management of multinational companies form central strategy of operations to ensure the operations in the company commences in compliance with the laws in place in both home as well as host countries (Sale & Langevoort, 2016). This fact is very much applicable for Unilever which complies with several laws both in its countries of domicile as well as in the host countries. Legal compliance in Unilever is taken care of by dedicated legal teams both in its global headquarters and regional headquarters. The company complies with the UK Modern Slavery Act Transparency Statement as well as the UN and the Human Rights rules. The company has a well specified supply chain policy which once again proves the strong corporate governance exercised by the management to ensure legal compliance.

Corporate decisions in multinational companies regarding corporate governance and risk management comes under the influences of several conceptual, contextual and ethical issues. Omokhomion, Egbu and Robinson (2018) point out that corporate governance plays a very important role in corporate decisions and enable them to tackle conceptual, contextual and ethical issues. For example, as far as Unilever in concerned, the British multinational company has regional apex management bodies in all the subsidiaries which functions under the directions of the apex management bodies. The regional management bodies apply the central strategies according to the local market contexts like customer preferences and legal conditions. Again, this integration of global and regional corporate governance in Unilever comes into play. Unilever participates in social development activities around the globe which uphold the ethical strength of the company. For example, the company works with the UN in flood prone regions in different parts of the world. The company is also working towards refugee rehabilitation which again upholds the ethical side of the company under the leadership of senior management. The company also applies concepts like niche market in marketing goods in the global market. Thus, it can once again be pointed out that Unilever under the governance of its apex management takes corporate decisions regarding concepts, contexts and ethics.

Corporate Governance and Investment Risks

The three organisational approaches considered to evaluate the corporate governance and risk management at Unilever are functional structure, team structure and divisional structure. `As far as functional structures in Unilever are concerned, it can be pointed out that they function efficiently under the guidance of the apex management. It can also be pointed out that the apex management of Unilever upholds equal opportunity to all employees and cultural intelligence while employing human resources around the world. This is evident citizens from different countries in the world in top positions. The corporate governance of Unilever ensure strong team work and collaboration of employees from different departments. However, an evaluation divisional structure of Unilever shows inequality between different divisions which actually point out the flaw in corporate governance of the company. For example, the wholly owned subsidiaries of Unilever in markets like the US, China and India enjoy more powers compared to their counterparts in underdeveloped markets like Africa. In fact, the apex management allocates more resources to manage risks in these markets compared to underdeveloped markets. The difference between the official websites of Indian and Kenyan subsidiaries points out this lack of equality in corporate governance. The Indian subsidiary of Unilever, Hindustan Unilever Limited is one of the largest subsidiaries of Unilever and is a leading Asian public limited company. The official website of HUL mentions the apex management dedicated to the Indian region and gives a wide range of information about products. The Kenyan subsidiary’s website gives no such information about regional leadership as well brands. It can be interpreted from this huge disparity between the official websites of the two subsidiaries, that the apex management bodies based in London and Rotterdam give priority to risk management to the former at the expense of the latter. Thus, this points out that corporate governance and risk management in Unilever lacks parity.

Conclusion:

It can be concluded that corporate governance plays a very significant role in corporate decisions and risk management in business organisations. As far as Unilever is concerned, it can be pointed out that the British multinational company has a strict corporate governance policy which takes into account interests of stakeholders. The corporate governance strategies of the company is designed to manage risks which the company faces in the home and host countries. However, it can also be pointed out that governance of Unilever differentiates between subsidiaries based in developed and emerging markets and underdeveloped markets. The subsidiaries based in the developed and emerging markets gain more priority compared to their counterparts in underdeveloped markets. The apex management of Unilever must take steps to empower these weaker subsidiaries.

References:

Aguilera, R. V., Judge, W. Q., & Terjesen, S. A. (2018). Corporate governance deviance. Academy of Management Review, 43(1), 87-109.

Almeida, H., Hankins, K. W., & Williams, R. (2017). Risk management with supply contracts. The Review of Financial Studies, 30(12), 4179-4215.

Armstrong, C. S., Blouin, J. L., Jagolinzer, A. D., & Larcker, D. F. (2015). Corporate governance, incentives, and tax avoidance. Journal of Accounting and Economics, 60(1), 1-17.

Arora, A., & Sharma, C. (2016). Corporate governance and firm performance in developing countries: evidence from India. Corporate governance, 16(2), 420-436.

Eling, M., & Marek, S. D. (2014). Corporate governance and risk taking: Evidence from the UK and German insurance markets. Jo

Epstein, M. J. (2018). Making sustainability work: Best practices in managing and measuring corporate social, environmental and economic impacts. Routledge.

Jensen, M. C. (2017). Value maximisation, stakeholder theory and the corporate objective function. In Unfolding stakeholder thinking (pp. 65-84). Routledge.

Kraakman, R., & Hansmann, H. (2017). The end of history for corporate law. In Corporate Governance (pp. 49-78). Gower.

Lebedeva, T. E., Akhmetshin, E. M., Dzagoyeva, M. R., Kobersy, I. S., & Ikoev, S. K. (2016). Corporate governance issues and control in conditions of unstable capital risk. International Journal of Economics and Financial Issues, 6(1S), 25-32.

Londonstockexchange.com. (2018). Londonstockexchange.com. [online] Available at: https://www.londonstockexchange.com/exchange/prices-and-markets/stocks/summary/company-summary/GB00B10RZP78GBGBXSET1.html [Accessed 17 Nov. 2018].

Mason, C., & Simmons, J. (2014). Embedding corporate social responsibility in corporate governance: A stakeholder systems approach. Journal of Business Ethics, 119(1), 77-86.

McCahery, J. A., Sautner, Z., & Starks, L. T. (2016). Behind the scenes: The corporate governance preferences of institutional investors. The Journal of Finance, 71(6), 2905-2932.

Omokhomion, I., Egbu, C., & Robinson, H. (2018). Corporate governance and investment decision-making in real estate investment trusts (REITs).

Sale, H. A., & Langevoort, D. C. (2016). We Believe: Omnicare, Legal Risk Disclosure and Corporate Governance. Duke LJ, 66, 763.

Unilever.com. (2018). Unilever.com. [online] Available at: https://www.unilever.com/sustainable-living/values-and-values/ [Accessed 16 Nov. 2018].

Van Grembergen, W., & De Haes, S. (2018). Introduction to the Minitrack on IT Governance and its Mechanisms.

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