The Significance Of Good Corporate Governance For Multinational Enterprises (MNEs)

1.Why is good Corporate Governance Essential for a MNE? 

2.What lessons regarding Proper Corporate Governance Practices, Especially when doing Business Globally, can be learnt from the Events referred earlier?

3.How does Financial Market Development Influence or relate to good Corporate Governance Practices? Explain.

 

 

Corporate Governance is the process of implementation of various rules, processes and practices that governs the various operations of the business organizations. The main aim of corporate governance is to direct and control all the operations of the businesses (Brealey et al., 2012). Corporate governance has a significant role to play in the financial activities of the business firms. There are instances of different kinds of financial scandals and fraud all over the world. The main reason behind this is the improper implementation of corporate governance. The main aim of the report is to anlyyze and evaluates various aspects of corporate governance regarding to financial aspects of the organizations.

1.The concept of the Corporate Governance has been gaining an increase from the past ten years or more and a wide range of continents and countries has achieved the interests in the structure of the Corporate Governance. The structure is just not applied to the larger corporations of the public but also includes the wide range of the other forms of the businesses that include the enterprises that are owned by states, also the firms owned by the families and also the nonprofit organizations. The Governance is related to the performances and thus, the deliverance of the good results must be provided to the shareholders and the same must include the society, stakeholders, community and the financial and economical aspects as a whole.

The better structure of a corporate governance leads to a contribution towards the facilitation of the competitiveness access towards the capital markets. It thus, helps in the development and the growth of the financial markets along with the upsurge of the economical development. The enhancement and the development of the practices in the corporate governance can help in the improvement of the decision making process that is a part of both the internal and between the governing bodies of the company. It thus results in the enhancement of the efficient procedures of the operations related to the business and finance of a company (Simionato, 2014).

The best practices of a corporate governance results in the improvement of the system of accountability and thus leads to the risk and fraud minimization. It should have an assurance of the compliances with the laws and regulations applicable for the conduct of an effective system of governance (Lojpur & Draskovic, 2013). The strong and effective governance gives access towards the capital and the growth in the economic conditions.

Good and strong corporate governance provides an assurance that the environment of the business is just and reasonably transparent in form. In strong governance, the businesses can be held liable and responsible for their dealings and procedures. On the other hand, if the corporate governance is weak then it can lead to misuse, negligence, and dishonesty. It must also be noted and remembered that even though, the practice of the corporate governance has come out as a way of managing the modern corporations, the same has an equal importance in the enterprises owned by states, family owned businesses and other cooperatives (Jeston & Nelis, 2014). Only a good governance structure has an ability of delivering the best performances of a good and sustainable business, regardless of any kind and nature of an undertaking.

2.Three of the major corporate governance scandals are the recent filing for bankruptcy by Hanjin Shipping; the Toshiba accounting fraud scandal and the Volkswagen emission scandal. The common theme behind these three scandals is the fault in corporate governance. However, these three scandals have taught many important corporate governance lessons to the world. These major lessons are discussed under:

The recent filing for bankruptcy by Hanjin Shipping: One of the major lessons of this case is that the business organizations need to be ready to face major disruptions in the process of business. The business organizations need to have precautionary methods to face these disturbances (Kim, 2016). The second lesson is that the business organizations must have control over the supply chain of the organization. The total production and distribution processes largely depend on the supply chain of the organization, Hence, the businesses must have proper grip over the supply chain of the organization. The business organizations need to take effective steps to maximize the production capacity of each business locations. This process will increase the revenue and profitability of the organizations. One of the major lessons is that the organizations must effectively outline the risk mitigation strategies (Sun, Zi-Yi & Yoshida, 2013). This is the major lesson that one can get from the Hanjin Shipping case.

The Toshiba accounting fraud scandal: One of the major lessons that one can get from the Toshiba accounting scandal is the fair and truthful representation of the financial information. There must not be any kind of unethical practices in the financial statements of the business organizations (FRAUDS, 2015). This lesson is applicable irrespective of the size and type of industry. Another lesson is that there must not be any kind of irregularity in the accounting process of the business organizations. Another important lesson is the proper conduct of audit operation in the business organizations (Jennings, 2015). It can be seen that there is a deep connection between the accounting process and the audit operation as both depend on each other. Hence, to avoid accounting scandal in the organization, the proper conduct of audit operation is needed.

The Volkswagen emission scandal: There are three major lessons that one can obtain from the scandal of Volkswagen. As per the first lesson, the business organizations must create diversity of thoughts and expertise in the governing bodies of the organization. For the proper running of the business organizations, the governing body plays a significant role. It is desired that the governing body is innovative (Blackwelder et al., 2016). These innovation leads to the development of diversified thoughts and ideas. The second lesson is to increase transparency in the organization by eliminating conflicts of interest. Different kinds of conflicts of interest can be seen in the organizations. in order to make the business operations transparent, the governing body must eliminate the conflicts of interest from the organizations. The third lesson is to ensure corporate social responsibility in the business organizations (Crête, 2016). The strategies of corporate social responsibilities help the organizations to earn goodwill. These are the major lessons that one can get from the three corporate scandal cases. 

3.It can be seen that there is a significant relationship between the development of financial market and the process of corporate governance. It is evident that corporate governance is a major positive factor in the financial growth of the market and business organizations. There are some major advantages of corporate governance in the development of financial market. First, Corporate governance helps the business organizations to increase their access to the external financing (ifc.org, 2017). This process has many advantages like it leads to large investments for the business organizations; it contributes to the higher growth of the financial markets; it helps the financial markets to create great employment opportunities and many others. After that, effective corporate governance leads to the lowering of cost of capital of the business firms. The lowering of cost of capital increases the valuation of the business organizations and the investment opportunities of the business firms becomes more attractive to the investors.

Effective implementation of corporate governance leads to better operational performance of the financial markets and this process contributes to the effective allocation of financial resources in the financial markets. As a result, all the business organizations can take advantage of this situation. In addition, this process creates the financial organizations wealthier. One of the major relations between the financial markets and corporate governance is that effective corporate governance helps to reduce the risks of the financial markets and business organizations. The reduction of risks is a major booster for the business organizations as due to the reduction of risk factors, they can operate freely. Apart from this, the reduction of risk factors from the financial markets helps to reduce the economic as well as the social costs. The proper implementation of corporate governance helps to establish better relationship between the business organizations and their various stakeholders. On the other hand, good corporate governance assists to improve social and labor relationship (Tricker & Tricker, 2015). These are the main relationships between the development of financial market and corporate governance.

As per the above discussion, it can be clearly understood that corporate governance is a major aspect in the financial operations of the business organizations. The main aim of corporate governance is to govern and direct the financial activities of the business firm. Ineffective controlling of corporate governance can lead to serious accounting and financial frauds and scandals. There major cases of accounting scandals are the recent filing for bankruptcy by Hanjin Shipping, the Toshiba accounting fraud scandal and the Volkswagen emission scandal. From the analysis of the second part of the report, it is clearly understandable that the common theme behind all these three scandals is the ineffective of corporate governance in the organization. The proper implementation of corporate governance leads to the development of financial markets and business organizations.  

Blackwelder, B., Coleman, K., Colunga-Santoyo, S., Harrison, J. S., & Wozniak, D. (2016). The Volkswagen Scandal.

Brealey, R. A., Myers, S. C., Allen, F., & Mohanty, P. (2012). Principles of corporate finance. Tata McGraw-Hill Education.

Corporate Governance and Development— An Update. (2017). Ifc.org. Retrieved 18 April 2017, from https://www.ifc.org/wps/wcm/connect/518e9e804a70d9ed942ad6e6e3180238/Focus10_CG%26Development.pdf?MOD=AJPERES

Crête, R. (2016). The Volkswagen Scandal from the Viewpoint of Corporate Governance. Eur. J. Risk Reg., 7, 25.

FRAUDS, C. (2015). TOSHIBA’S TOXIC CULTURE. Strategic Finance.

Jennings, M. M. (2015). TOSHIBA LESSONS: ON NOT BEING SO JUDGMENTAL OF THE COMPANY OR JAPAN. Corporate Finance Review, 20(2), 36.

Jeston, J., & Nelis, J. (2014). Business process management. Routledge.

Kim, M. (2016). A Cape Town Protocol for Marine Assets: What Can We Agree on Right Now?. The Journal of Equipment Lease Financing (Online), 34(3), 1.

Lojpur, A., & Draskovic, V. (2013). The institutional context of corporate governance and Corporate Social Responsibility. Montenegrin Journal of Economics, 9(1), 27.

Simionato, E. (2014). Sustainability Reporting and its Impact on Corporate Financial Performance (Bachelor's thesis, Università Ca'Foscari Venezia).

Sun, Y., Zi-Yi, G., & Yoshida, S. (2013). Diversification strategy of japanese shipping industry. Journal of Maritime Researches Vol, 3(1), 38-50.

Tricker, R. B., & Tricker, R. I. (2015). Corporate governance: Principles, policies, and practices. Oxford University Press, USA.