Company Background

Discuss about the Governance in the Globalised World.

Corporate governance refers to the system that the organisations use for financing, operating and organising the internal activities. According to Tricker (2015), the corporate governance process is associated with several mechanisms, such as legal and regulatory system, laws, and securities of the company. The corporate governance is driven by the efficient Board of Directors, for instance, the executive directors and non-executive directors. Denis (2016) explained that the corporate governance structure is classified into two different divisions, Unitary Division and Two-Tier Boards. The cooperativeness of the both executive and non-executive directors is essential in the Unitary Division. Most of the companies in UK, US, and Australia follow such structure to establish an efficient corporate governance procedure (McCahery, Sautner and Starks 2016). On the contrary, the companies in the Europe continent usually adopt the two-tier structure that separates supervisors from the operational operation managers.

It is to be noted that the internationalised corporations have been focusing on increasing the global practices of corporate governance. The use of the advanced technologies requires to be utilised appropriately. The effective corporate governance decides the procedure of allocating the required resources in a structured manner. The study will be presenting the comparison between the Unitary Division and Two-Tier structure of the corporate governance. Depending on the internationalised form of governance procedure, the entire study will be analysed. Moreover, the case study will be following the corporate governance procedure maintained by Alibaba Company. The discussion based on the internationalised context will also be presented in this study.

Alibaba is the e-commerce business, which provides the fundamental technologies infrastructure in order to help the brands and other merchants (Alibabagroup.com 2016). The corporate governance profile of Alibaba group is considering the high level of risk to public shareholders. Alibaba Group is often controlled by other companies due to the voting agreements and partnership businesses. The outside investors are trying to maintain the investment risks and higher degree of governance due to the limited rights of the minimal number of public shareholders. In the year of 2014, Jack Ma, the founder of Alibaba made a surprising announcement to the potential investors (Alizila.com 2016). In order to maintain the effective corporate governance, the company is seeking to increase the profit ratio by using the IPO technology. However, the company needs to pay attention towards the efficient corporate governance practices ensured in the globalised business market. Concentrating on such requirement, the further study will be discussed.

International Context

The application of the rights and responsibilities is necessary for maintaining efficient corporate governance. It is to be noted that the corporate governance is the most significant process that can be applied for improvising the organisational performance. It is considered as the key driver for determining the growth of the service quality. Acharya et al. (2013) pointed out that the emergence of liberalisation is creating the independence for the business companies. In such regards, the corporate governance serves for avoiding the conflicts between the business and markets. However, it is seen that there are some of the recognisable debates over the efficient corporate government procedure in an international context. It is required to understand that due to the globalisation effects, the companies need to implement the hard laws and effective codes of good governance (Wintoki, Linck and Netter 2012). The emerging economies in this globalised world create the significant impacts on the enterprises.  It is seen that in this current globalised world, many of the emerging economies are controlled by the commercial enterprises. The fruitful corporate governance is necessary for financial growth and enhancing the reliability on business.

In the previous time, it is seen that the market was much focused on cultivating more sophisticated systems related to the corporate governance. However, in this globalised world, it has been seen that the market leaders are manly fond of improvising the current system. Moreover, the recognisable debates over the British and US system are also creating the significant impact on the regulatory designs of emerging markets (Chen et al. 2014). In order to implement the corporate governance structure, the issues associated with the political governance is also visible. It is to be noted that the policies related to the corporate governance is required to be implemented by maintaining the confidence and consistency. The private sector and the public forum needs to work together to consider a trustworthy, non-negotiable, and effective processes (Van den Berghe 2012). In this global world, the effective corporate governance serves as one of the most significant tools for preventing corruptions.

It is already mentioned that the efficient corporate governance determines the establishment of the effective relationship between the stakeholders and the business markets. In order to implement a significant process of corporate governance process, it is required to keep the focus on the proper theoretical practices (Khan, Muttakin and Siddiqui 2013). The board of corporate governance is classified into two diversified structures. These two different general models are the Unitary Board and Two-Tier board. The most common type of the structure is the Unitary Board, which are much influenced by the Anglo-Saxon style (Block and Gerstner 2016). Both the executive and non-executive directors are associated with the governance process and they undertake the decision by unifying together. Similarly, on the other hand, Two-Tier based structure signifies the combination of two different types of the boards, such as the supervisory boards and management board. The associated members with the management board are focusing on the executive departments and the operational issues (Cumming and Chakrabarti 2014). It is important to note that the executive directors resolve the issues by making the relevant decisions.

Corporate Government Theory and Practices

On the other side, the supervisory board is mainly associated with the management board and strategic decisions. In such regards, the chairman of the company has to take the major responsibility to manage the non-executive and supervisory decision (Rejchrt and Higgs 2015). It is needless to mention that the supervisory boards are considered as the driving force for introducing the group of the different stakeholders. The two-tier based boards are often the major platform for offering the fruitful opportunities to the diversified stakeholders. The difference between these two structures of the corporate governance process is creating the significant impact on the organisational functionalities. However, the identified differences are as follows:

Formal Structure: It is to be indicated that these two types of the structures are associated with both the executives and non-executive directors. The different directors assemble together to formulate the separated boards. When the executive directors distribute the responsibilities to the different management personnel, the functionalities become much easier. However, Aebi, Sabato and Schmid (2012) argued that the dual board structure is often decreasing the scope of establishing the interactions. The non-executive and the executive directors become less interested in discussing their decisions with the other responsible executives. Hence, the interpersonal relationship gets hampered accordingly. On the other hand, the Unitary Board maintains the unity between the board members and they consult with each other before undertaking any relevant decision.

Leadership Structure: It is noted that the roles and responsibilities of both the CEO and the chairman is divided in two-tier board. On the contrary, the one-tier board brings them together and initiate a combined perspective. In such situations, the functionalities of chairman and CEO are specified as CEO-duality. In the two-tier based structure, the directors are usually eliminated from both the supervisory board and the management board. Comparatively, the one-tier structure is considering the CEO-duality even though it is not recommended. The literature based study on such conceptual idea is determining that the chairman has to be considered as the independent non-executive directors.

Arrangements of Boards: The board is formulated for facilitating several roles related to the strategy, control, and service. The major responsibility of these two structures is to determine the diversified roles that are required for establishing the effective corporate governance process. It is noted that the Unitary Structure or the on-tier board addresses and fulfils the entire responsibilities accordingly (Du Plessis et al. 2012). Such structure is somewhat not clearer to the executive and non-executive directors. On the other hand, it has been noted that two-tier structure is associated with a dual board organisation that is helpful enough in exercising strategies and service roles. In this regards, the supervisory board controls the management, which is separating the roles and responsibilities of the legal structures.

Example of Recent Corporate Governance Practices

Representation of the Stakeholders: The stakeholders receive the greater opportunity with the help of the two-tier boards. The stakeholder based models are mainly associated with the interests of shareholders. In order to provide the better services to the stakeholders, the participation of the workers is essentially needed (Burke and Mattis 2013). In fact, it is even implied that the direct support provided to the stakeholders is also much important for the business growth. Hence, it is much important to identify the fruitful corporate governance structure that is necessary for the business sustainability.

Alibaba Group, the Chinese e-commerce company, has been providing the B2C, C2C, and B2B services through web portals. The company has been even dealing with the e-payment and cloud computing services. The corporate governance structure maintained by this company is focusing on the ethical principles, procedures, policies, accountabilities, and responsibilities (Harford, Mansi and Maxwell 2012). The efficient corporate governance associates have been engaging the stakeholders in order to overcome the conflict of interests that may occur within a corporate setting.  The corporate governance structure of Alibaba Group is associated with the Board of Directors, Alibaba Partnership, Board Committees, and Senior Management. In this current scenario, the company has been facing many controversies regarding the maintenance of the sustainability in future. However, overcoming all such controversies, the corporate governance procedure has been concentrating on increasing the market value. The new governance structure ensured by the company is to establish the business entity in Hong Kong market (Seidl, Sanderson and Roberts 2013). The board of members associated in the corporate governance process have been gathered together to make the relevant decision and mitigate the probable business risks.

The corporate governance is the key driver towards organisational success. The above discussion has been analysing the effective corporate governance practices. However, the efficient governance process is based on several other good practices. Determining such importance, few of the recommendations are provided further:

At the initial stage the board of members need to recognise the proper compliance, legislations, regulatory factors, and business practices. The board can elaborate the roles and responsibilities in a clarified manner. The recognition of the major functionalities is also essential. The determined functionalities are needed to be addressed to the associated people in the organisation. Accordingly, the management can upgrade the skills and consider an effective business program that can be fruitful enough for the upcoming future of the business. The associated members need to get the clear about the roles and responsibilities of the board members. During the implementation of any fruitful organisational strategy, the board members need to provide the information. The effectiveness of maintaining such transparency is essential for building the effective interpersonal relationship.

The final and most important recommendation is signifying the effectiveness of Unitary Corporate Governance Structure. It has been noted that the unitary structure is much beneficial for the organisation. It is noted that the unitary structure helps in flowing the information related to the good governance system. It helps in gathering people to consult about the strategic decision making process. The board is generally associated with the various committees. The continuous communication with the other executives brings the sense of reliability and security. Unitary structure helps in making the faster decisions by consulting with executive and non-executive members. While the communicational transparency is frequent, it strengthens the organisational position in a better process. Hence, it is important to recognise the potentiality at the first place.

The frequent meetings arranged in the unitary division helps the executive to measure and monitor the organisational performance. It clarifies the relevant strategic decision that will be beneficial for the future sustainability of the organisation. If the board of management in Alibaba can maintain such structure, it will provide the most insightful idea about the effective management process. It has been observed that the company had to face several controversies regarding the ineffective corporate governance management. The unitary structure provides the better control over the workforce management. Hence, it is required to understand the effectiveness of undertaking the unitary structure of corporate governance. Better familiarity with the management process helps the organisation to grow in this competitive world.

Conclusion

The study has been focusing on the importance of the corporate governance process in a global context. The two types of the corporate governance structures are mostly used in the organisation worldwide. The single-tire or the unitary structure defines the assimilation of the executives and non-executive directors. The decisions undertaken by consulting the other associates would be fruitful for the organisational success. On the other hand, the two-tier based structure is depended on the proper supervision of the supervisory panel. However, it eliminates the idea of communicating with the other executives. Hence, this type of the corporate governance is not so much fruitful for organisational success. In this particular study, the corporate governance procedure of the Alibaba Group is described. In this global world, the technologies have improvised. Due to such reason, the organisational practices have also been improved. Hence, it is necessary to undertake the fruitful procedure of corporate governance. The entire discussion is thus describing the importance of unitary corporate governance procedure for the future sustainability.

References

Acharya, V.V., Gottschalg, O.F., Hahn, M. and Kehoe, C., 2013. Corporate governance and value creation: Evidence from private equity. Review of Financial Studies, 26(2), pp.368-402.

Aebi, V., Sabato, G. and Schmid, M., 2012. Risk management, corporate governance, and bank performance in the financial crisis. Journal of Banking & Finance, 36(12), pp.3213-3226.

Alibabagroup.com, 2016. Alibaba Group. [online] Alibabagroup.com. Available at: <https://www.alibabagroup.com/en/about/overview> [Accessed 22 Sep. 2016].

Alizila.com, 2016. Alibaba Offers an Alternative View of Good Corporate Governance. [online] Alizila – News about Alibaba Group, Taobao, Alibaba.com and China e-commerce. Available at: <https://www2.alizila.com/alibaba-offers-alternative-view-good-corporate-governance> [Accessed 21 Sep. 2016].

Block, D. and Gerstner, A.M., 2016. One-Tier vs. Two-Tier Board Structure: A Comparison Between the United States and Germany.

Burke, R.J. and Mattis, M.C. eds., 2013. Women on corporate boards of directors: International challenges and opportunities (Vol. 14). Springer Science & Business Media.

Chen, V.Z., Hoskisson, R.E., Fadol, Y.Y., Wocke, A., Moon, H.C., Sheng, H.H. and Meyer, K.E., 2014. Emerging Market Global Players: Home-Country Institutions and Corporate Governance.

Cumming, D. and Chakrabarti, R., 2014. Global perspectives on entrepreneurship: public and corporate governance. Corporate Governance: An International Review, 22(2), pp.73-76.

Denis, D.K., 2016. Corporate Governance and the Goal of the Firm: In Defense of Shareholder Wealth Maximization. Forthcoming in the Financial Review.

Du Plessis, J.J., Großfeld, B., Luttermann, C., Saenger, I., Sandrock, O. and Casper, M., 2012. German corporate governance in international and European context. Springer Science & Business Media.

Harford, J., Mansi, S.A. and Maxwell, W.F., 2012. Corporate governance and firm cash holdings in the US. In Corporate Governance (pp. 107-138). Springer Berlin Heidelberg.

Khan, A., Muttakin, M.B. and Siddiqui, J., 2013. Corporate governance and corporate social responsibility disclosures: Evidence from an emerging economy. Journal of business ethics, 114(2), pp.207-223.

McCahery, J.A., Sautner, Z. and Starks, L.T., 2016. Behind the scenes: The corporate governance preferences of institutional investors. The Journal of Finance.

Rejchrt, P. and Higgs, M., 2015. When in Rome: how non-domestic companies listed in the UK may not comply with accepted norms and principles of good corporate governance. Does home market culture explain these corporate behaviours and attitudes to compliance?. Journal of Business Ethics, 129(1), pp.131-159.

Seidl, D., Sanderson, P. and Roberts, J., 2013. Applying the ‘comply-or-explain’principle: discursive legitimacy tactics with regard to codes of corporate governance. Journal of Management & Governance, 17(3), pp.791-826.

Tricker, B., 2015. Corporate governance: Principles, policies, and practices. Oxford University Press, USA.

Van den Berghe, L., 2012. International standardisation of good corporate governance: best practices for the board of directors. Springer Science & Business Media.

Wintoki, M.B., Linck, J.S. and Netter, J.M., 2012. Endogeneity and the dynamics of internal corporate governance. Journal of Financial Economics,105(3), pp.581-606.