Strategic management is a fundamental aspect of the organization. It involves many issues especially in the contemporary society of management. Corporate governance is a key issue in modern strategic management. It involves managing a company in the most efficient way to achieve the organization’s goals.
It involves accountability for all stakeholders involved. The principles of stewardship and agency theory are indispensable in strategic management and corporate governance. When an organization applies these principles, it becomes easy to minimize risks, conflict, and achieve success for the company. When applied well, the principles of corporate governance reduce failures and companies are able to deal with the ever-looming financial crises.
Strategic management is a crucial field in management that all upcoming organizations should embrace in a bid to remain useful. It involves the principal initiatives that managers must take on behalf of the shareholders to ensure effective utilization of resources in achieving the firm’s goals (Chris 400). Strategic management involves determining the organization’s vision, mission, and core values and developing policies designed to achieve the vision.
Strategic management is a continuous process that provides direction to an organization. It involves environmental scanning, strategy formulation, implementation, and evaluation to determine the activities of competitors and develop a competitive advantage (Gill 455). There are many contemporary issues in strategic management that organizations practice. This paper describes the corporate governance as a key contemporary issue in strategic management.
As aforementioned, corporate governance is modern issue in management and most organizations are embracing it in an effort to remain competitive. It refers to a set of rules, processes, and customs that affect the conduct and administration of corporations (Doscher, and Friedl 310).
Corporate governance guides internal parties such as employees and shareholders as well as external parties such as creditors, competitors, and customers. The responsibility of corporate governance is on the board of directors. It maintains a fiduciary role of serving the interests of the various stakeholders in the organization rather than its own interests.
Corporate governance ensures best practices in an organization and enables the firm to avoid failure (Denis, and McConnel 25). The case of Enron is an outstanding example of a situation where the top management failed to practice corporate governance. The company collapsed because the top management’s interests collided with that of the shareholders. The management enriched themselves by using inside information to their benefit (Kathleen 399).
There was a breach of fiduciary duties on the part of the top management. Employees lost their jobs and shareholders lost large sums of their investment in the scandal. This case represents the importance of corporate governance in corporations. Had the organization followed the principles of corporate governance, the failure would not occur. From the failure of this company, organizations started embracing the principles of corporate governance.
It is necessary to pay directors of the board well so that they maintain the principles of corporate governance (Henze 87). Good remuneration is paramount in avoiding the conflict of interests with shareholders who are the owners of the company.
The current financial crisis brings into focus the importance of corporate governance in corporations. Managers of most of the collapsing corporations, which heralded the financial crisis, encouraged excessive risk taking and irresponsible lending. These practices show a complete breach of corporate governance principles by the managers.
There are various principles governing the practice of sound corporate governance. Integrity and ethics are key principles in ensuring success in the organization. A corporation should develop a code of conduct, which governs all elected board executives in the organization.
This code will ensure responsible decision making that serves the interests of all stakeholders in the organization. Disclosure and transparency is another principle of corporate governance (Hussey 87). It is essential for the organization to disclose matters relating to the relevant stakeholders in time. The disclosure ensures that stakeholders know their accountability areas. Management and the board should provide procedures to safeguard the firm’s financial reporting.
In addition, the roles and duties of the board should be clear to ensure maintenance of corporate governance (Thompson, and Martin 70). The board members should have the relevant skills and understanding of the operations of top management so that they can challenge their performance.
The board should be of the right size and have some level of independence to be able to carry out their duties (Saddler 70). Further, to maintain corporate governance, it is vital for the organization to understand that it has an obligation to protect the interests of all its stakeholders.
It should use creditor’s funds in the right way to improve the operations of the company. The firm should also invest wisely the funds of shareholders to ensure maximum returns. Corporate social responsibility should also be a practice of the organization for the benefit of the society (Moore and Porter 25 168). Maintaining these practices reduces conflict in the organization, as they are in line with the principles of corporate governance.
As a contemporary issue in strategic management, corporate governance involves the management of companies in the most efficient way to achieve its objectives. Most companies, which have embraced corporate governance in both the West and the East, avoid failures such as the one of Enron Corporation and the current financial crisis. Managers with the responsibility of corporate governance practice the agency and stewardship theory to protect the interests of stakeholders.
The board has a fiduciary role of protecting the interests of stakeholders over and above their own. The main aim of corporate governance is to ensure accountability of each stakeholder in the organization. When people know they are accountable, they minimize the risk of failure and reduce conflict of interest in the organization. In the end, the organization achieves its goals and becomes a leader in the industry.
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