Enhancing Collaboration: The Key to Effective Corporate Governance

Collaboration

Collaboration in business can be found both inter- and intra-organization and ranges from the simplicity of a partnership and crowd funding to the complexity of a multinational corporation. Collaboration between team members allows for better communication within the organization and throughout the supply chains. It is a way of coordinating different ideas from numerous people to generate a wide variety of knowledge.

  

The recent improvement in technology has provided the world with high-speed internet, wireless connection, and web-based collaboration tools like vlogs, blogs, and wikis, and has as such created a "mass collaboration." People from all over the world are efficiently able to communicate and share ideas through the internet, or even conferences, without any geographical barriers. 

Collaboration is working together to achieve a goal, but in its negative sense it is working as a traitor. It is a recursive process where two or more people or organizations work together to realize shared goals— for example, an intriguing endeavour that is creative in nature—by sharing knowledge, learning and building consensus. Most collaboration requires leadership, although the form of leadership can be social within a decentralized and egalitarian group. In particular, teams that work collaboratively can obtain greater resources, recognition and reward when facing competition for finite resources.

The complex intergroup relationship and group dynamics leads to conflicting situations which depends upon the degree of goal compatibility and importance of the interaction to goal attainment. Goal compatibility is the extent to which the goals of more than one person or group can be achieved at the same time. In other words, the goals are compatible if one group can meet its goals without preventing the other from meeting its goals.

It is clear from the diagram that avoidance occurs when the interacting parties’ goals are incompatible and the interaction between groups is relatively unimportant to the attainment of the goals. Accommodation occurs when the parties’ goals compatible but the interaction between groups is relatively unimportant to the goals’ attainment competition occurs when the goals are incompatible and the interaction between groups are importance to meeting goals. Structured methods of collaboration encourage introspection of behavior and communication. These methods specifically aim to increase the success of teams as they engage in collaborative problem solving. Forms, rubrics, charts and graphs are useful in these situations to objectively document personal traits with the goal of improving performance in current and future projects.

Corporate governance

Corporate governance is a term that refers broadly to the rules, processes, or laws by which businesses are operated, regulated, and controlled. The term can refer to internal factors defined by the officers, stockholders or constitution of a corporation, as well as to external forces such as consumer groups, clients, and government regulations. In contemporary business corporations, the main external stakeholder groups are shareholders, debtholders, trade creditors, suppliers, customers and communities affected by the corporation's activities. Internal stakeholders are the board of directors, executives, and other employees. Corporate governance is a multi-faceted subject. An important theme of corporate governance is the nature and extent of accountability of particular individuals in the organization, and mechanisms that try to reduce or eliminate the principal-agent problem. 

A related but separate thread of discussions focuses on the impact of a corporate governance system on economic efficiency, with a strong emphasis on shareholders' welfare; this aspect is particularly present in contemporary public debates and developments in regulatory policy. A well-defined and enforced corporate governance provides a structure that, at least in theory, works for the benefit of everyone concerned by ensuring that the enterprise adheres to accepted ethical standards and best practices as well as to formal laws. To that end, organizations have been formed at the regional, national, and global levels. In recent years, corporate governance has received increased attention because of high-profile scandals involving abuse of corporate power and, in some cases, alleged criminal activity by corporate officers. An integral part of an effective corporate governance regime includes provisions for civil or criminal prosecution of individuals who conduct unethical or illegal acts in the name of the enterprise.

Popularly espoused principles of corporate governance

1. Rights and equitable treatment of shareholders: Organizations can help shareholders exercise their rights by effectively communicating information that is understandable and accessible and encouraging shareholders to participate in general meetings.
2. Interests of other stakeholders: Organizations should recognize that they have legal and other obligations to all legitimate stakeholders.
3. Role and responsibilities of the board: The board needs a range of skills and understanding to be able to deal with various business issues and have the ability to review and challenge management performance.
4. Integrity and ethical behavior: Organizations should develop a code of conduct for their directors and executives that promotes ethical and responsible decision making. It is important to understand, though, that reliance by a company on the integrity and ethics of individuals is bound to eventual failure.
5. Disclosure and transparency: Organizations should clarify and make publicly known the roles and responsibilities of board and management to provide shareholders with a level of accountability. They should also implement procedures to independently verify and safeguard the integrity of the company's financial reporting. Disclosure of material matters concerning the organization should be timely and balanced to ensure that all investors have access to clear, factual information.

Mechanisms and controls

1. Internal corporate governance controls
• Monitoring by the board of directors
• Internal control procedures and internal auditors
• Balance of power
• Remuneration
2. External corporate governance controls
• competition
• debt covenants
• government regulations
• managerial labour market
• media pressure
• takeovers
• demand for and assessment of performance information (especially financial statements)

Systemic problems of corporate governance

1. Demand for information: In order to influence the directors, the shareholders must combine with others to form a voting group which can pose a real threat of carrying resolutions or appointing directors at a general meeting.
2. Monitoring costs: A barrier to shareholders using good information is the cost of processing it, especially to a small shareholder. The traditional answer to this problem is the efficient market hypothesis, which suggests that the small shareholder will free ride on the judgments of larger professional investors.
3. Supply of accounting information: Financial accounts form a crucial link in enabling providers of finance to monitor directors. Imperfections in the financial reporting process will cause imperfections in the effectiveness of corporate governance. This should, ideally, be corrected by the working of the external auditing process.

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Sandeep Ghatuary

Finance & Accounting blogger simplifying complex topics.

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