Running head: CORPORATE GOVERNANCE 1

Corporate Governance

Student’s Name

Institutional Affiliation
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Corporate Governance

What is an agency relationship?

An agency relationship is a relationship that exists when one or more persons hire another party

as specialists in decision-making (Hitt, Ireland & Hoskisson, 2016). In such a case, the main

party delegates the responsibility of making decisions to the second party in return for

compensation. For example, when an agency relationship exists between managers and their

employees in the organizational context. Another example of an agency relationship is between

the consultants, the insured clients, and the insurer.

What is managerial opportunism?

Managerial opportunism refers to the use of deceit and guile to achieve self-interest by

individuals in administrative positions. It is both a behavior and specific actions that are done

towards achievement of self-interest (Hitt, Ireland & Hoskisson, 2016). Such behavior cannot be

seen beforehand. It is seen after it has happened. For those reasons, governance and control

mechanisms are essential to prevent opportunistic behaviors in the workplace. For instance,

conflict of interest is most likely to occur when the responsibility to make decisions is given

agents, especially for matters concerned with the wealth of shareholders. Also, directors and high

ranking officials within the organization make decisions which improve their welfare and reduce

risk (Hitt, Ireland & Hoskisson, 2016).

What assumptions do owners of corporations make about managers as agents?

Corporate owners and the large blocks of shareholders operate in a more diverse environment in

which they barely monitor the decisions made by managers. Also, higher levels of monitoring

are not necessary for effective organizational management because if they are applied, managers
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can avoid making strategic decisions that can harm the shareholder values (Hitt, Ireland &

Hoskisson, 2016). The owners assume that managers make decisions to the best interest of

organizations even without supervision. They use the board of directors to oversee managerial

decisions. They believe that administrative decisions should be made in a way that would

maximize shareholder wealth (Hitt, Ireland & Hoskisson, 2016). Managers are also expected to

collaborate with the board of directors and avoid potential conflicts with the members of the

board of directors.

What is the nature of corporate governance in Germany, Japan, and China?

In Germany, owners and managers may be the same individual, especially for private firms.

However, firms such as banks have shareholders (the lenders) whose ownership cannot exceed

fifteen percent of the total (Hitt, Ireland & Hoskisson, 2016). The managerial and director

positions in shareholder firms like banks are elected and regulated by shareholders through

supervisory boards. Large firms with more than two thousand employees have a complex

leadership structure made of two-tiered board structure, monitoring the managerial decisions.

The spread of administrative responsibilities over many people reduces the risk of dictatorial

managers or company executive officers (Ross & Crossan, 2012). However, it is difficult to

restructure the administration if it becomes ineffective.

In Japan, corporate governance is affected by the concepts of family consensus and obligation.

The Japanese believe in returning a service for one rendered, and that sense of responsibility

feels strong (Hitt, Ireland & Hoskisson, 2016). Companies are like families which envelop the

lives of the people and require them to exhibit allegiance to them. For example, corporations that

are tied together by cross shareholdings represent family context than an economic context.

Regarding consensus, corporate governance is expected to spend as much energy as possible to

gain agreement from other parties associated when making decisions and issuing edicts. In the

Japanese context, the consensus is central to management, even if it slows down the decision-

making process (Blair & Roe, 2010).

In China, security markets and corporate management has played a significant role in its

development as an economic powerhouse. Numerous legislations have been made to regulate

corporate governance of organizations, which re majors owned by shareholders (Lin, 2004).

Shareholders enjoy the same rights and bear responsibilities according to the percentage of their

shares in the organizations. They have rights to participate in the administration of the

organizations and protest their interests within the organizations. Individuals in administrative

positions are selected by consensus between shareholders through elections, and all institutional

investors are allowed to participate in the supervision of decisions and engage in essential

decision-making processes (Lin, 2004).

How can corporate governance foster ethical decisions and behaviors on the part of

managers as agents?

Corporate governance regulates managers and ensures that they make decisions that would best

serve the interests of the shareholders (Hitt, Ireland & Hoskisson, 2016). In such a case, the

minimal requirement for the stakeholders is likely to be achieved through corporate governance.

The actions and decisions by the board of directors are among the most effective tools used by

corporate governance to deter unethical behaviors and decisions by managers (Filatotchev &

Nakajima, 2014). The board holds managers responsible and accountable for their actions and

decisions within their managerial positions and hence discourage unethical decisions and

behaviors.
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What are the characteristics of the different functional structures used to implement the

cost leadership, differentiation, integrated cost leadership/differentiation, and focused

business-level strategies?

The functional structure of a corporation is made of a chief executive officer, some corporate

staff, and functional managers in proactive areas of the organization such as production,

marketing, accounting, engineering, and human resource department (Hitt, Ireland & Hoskisson,

2016). The role of the functional structure is to facilitate the sharing of knowledge and

professional development among functional specialists (Morgeson, DeRue & Karam, 2010). It

also ensures the implementation of strategies at the corporate and business level and reduces the

levels of diversification. Functional structures are multidivisional because they need to share the

large pieces of data from different departments to the respective departments for analysis and

presentation. The m-form makes each entity of the functional structure more responsible for its

performance rather than the entire system (Hitt, Ireland & Hoskisson, 2016). For cost leadership,

organizations purpose to sell large quantities of standard products. The strategy is effected

through collaboration between the production, central management, process improvement, and

the marketing staff to get the objective achieved. In the differentiation strategy, organizations

their products different for the market so that the customers may attach values to them

(Morgeson, DeRue & Karam, 2010). The approach is carried out through finding ways in which

new products can be differentiated from the old ones, by incorporating the departments of

engineering and design, production, and central management. Also, information can be collected

from people outside the firm (customer feedback) for identifying opportunities and weaknesses

associated with the available products.

What is a strategic network? What is a strategic center firm? How is a strategic center used

in business-level, corporate-level, and international cooperative strategies?

A strategic network is a group of firms that participate in cooperative engagements like joint

ventures or alliances, to create value by toggling opportunities that are beyond the scope of the

individual corporations (Hitt, Ireland & Hoskisson, 2016). It is a federation of partners which

mobilize resources to jointly take on complex projects flexibly for the benefit of all the members

(Andersson, Forsgren & Holm, 2002). The strategic center firm is the one around which all the

operations of the cooperation network revolve. At the business level, the strategic center is used

to combine competencies and complement the skills of each other in the realization of

standardized products for the market (Hitt, Ireland & Hoskisson, 2016). At corporate levels,

strategic centers are used to facilitate the diversification of the products and markets without the

partners necessarily competing (Andersson, Forsgren & Holm, 2002). It is concerned with the

synergy between the parties’ involved and different ways maximizing the consumption of the

goods in the market. In the international level, the strategic center is used to foster cooperation

and enable the parties to adapt to the differences in the regulatory measures in different countries

so that they can comply with the legal requirements.

References

Andersson, U., Forsgren, M., & Holm, U. (2002). The strategic impact of external networks:

Subsidiary performance and competence development in the multinational corporation.

Strategic management journal, 23(11), 979-996.

Blair, M. M., & Roe, M. J. (Eds.). (2010). Employees and corporate governance. Brookings

Institution Press.

Filatotchev, I., & Nakajima, C. (2014). Corporate governance, responsible managerial behavior,

and corporate social responsibility: organizational efficiency versus organizational

legitimacy?. Academy of Management Perspectives, 28(3), 289-306.

Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2016). Strategic management: Concepts and

Cases: Competitiveness and globalization. Cengage Learning.

Lin, T. W. (2004). Corporate governance in China: Recent developments, key problems, and

solutions. Journal of Accounting and Corporate Governance, 1.

Morgeson, F. P., DeRue, D. S., & Karam, E. P. (2010). Leadership in teams: A functional

approach to understanding leadership structures and processes. Journal of Management,

36(1), 5-39.

Ross, A., & Crossan, K. (2012). A review of the influence of corporate governance on the

banking crises in the United Kingdom and Germany. Corporate Governance: The

international journal of business in society, 12(2), 215-225.