Corporate Governance of Large Companies against Family Business

Question: Discuss Between Corporate Governance of Large Companies against Family Business? Answer: Introduction Corporate Governance includes regulations, practices and norms according to which a company functions and is directed or controlled(Bhagat, 2008). The field of corporate governance is necessary as it includes attaining a balance amongst various stakeholders interests which includes customers, suppliers, management, financiers, community and government such that companys greater objectives can be attained. Therefore, it includes internal controls for measuring of performance and various corporate disclosure norms especially those relating to accounting disclosures. Though there are specified norms in internal disclosures and accounting disclosures, corporate governance of large companies as against family businesses(Kolk, 2008). The hospitality industry in Australia is characterized by immense issues and scandals that has given rise to evaluate several corporate governance norms. The scope of the current report discusses contemporary issues and practices in corporate governance in fam ily businesses as against those of large companies in a specific industry. While large hotels in the industry follows Anglo-US model clearly other smaller organizations and hotels have failed to follow such norms creating stakeholder dissatisfactions and failure to adhere to corporate governance norms. Literature Review Contemporary businesses are facing major issues in relation to corporate governance that arises from role of board, quality of financial reporting, auditing, risks management, remuneration of directors, corporate social responsibility and so on(Brezeanu, 2008). These pertinent issues can be discussed according to pertinent theories and models of corporate governance that highlights the relevant roles and regulations for each member. There are three prominent models of corporate governance as Anglo-US model, Japanese model and German model. The Anglo-US model identifies share basis ownership of individuals who are separated from the corporation(Dittmar, 2007). Hence, there is a defined relation of management, shareholders and directors according to legal framework thus; there remains a clear and uncomplicated interaction between the corporation and its shareholders. This model of corporate governance is a much clearer framework and allows for special investment funds, there are clear expectation from shareholders within the organization as can be understood from the diagram below. Figure 1: Anglo-US Model Source: (asci.org.in, Retrieved on 1st May 2017) The Japanese model of corporate governance there is a high level of stock ownership from banks and companies which provides the shareholding patterns(Huse, 2008). In this model there is a multiplicity of services as accordance to their industrial policy which is prohibited in many countries worldwide especially in the US. Bank, Affiliate Company, management and government functions as the main players in the corporate governance, hence the model is relatively inapplicable in other parts of the world due to its key features. The German model of corporate governance is applicable across multiple countries across Europe however it remains inapplicable around the world due to its features. In this model there is a reliance on the two tier-board structure with voting rights restrictions and cannot be altered by the supervisory board. Thus, the primary focus of discussion across International Corporation is the Anglo-US model which has immense applicability and well-defined structures(Adam s, 2010). Analysis Corporate governance clearly has an indispensible role in functioning of businesses hence hospitality industry needs to abide by such norms to overcome issues faced in their businesses. Drawing from necessary literature review it can be well understood that while corporate governance might include clear cut regulations and disclosure norms often the selection of inappropriate models causes issues(Bowen, 2008). Evaluating the impacts and possible issues form Anglo-Us model it can be understood that as the model has clear format for instructions it is mostly followed across international and professional companies around the world especially in Australia. Large multinationals as Rydges Hotels follows this model such that there are no legal litigations and challenges faced in their businesses, however in smaller and family run businesses this is not the case. Issues in businesses especially arises in family run as there is no clear instructions that separates roles of shareholders as ag ainst multinational corporations. Australia Hotel is an Inn that is functioned by the family, friends and relatives of the family members(Bebchuk, 2009). Often the head of the business cooks when the chef remains absent and also doe house cleaning, with no clear defined roles there is a high level of challenges in services faced. Duties of Directors: The duties of a director though remains clearly defined in large hotel chains and international hotels but is not clearly defined in smaller hotels. Australia Hotel Inn director often faces issues that contradict his roles and responsibilities of being a director. He has to often play the role of a HR manager, Accountant and various other roles that hinder him from carrying out his defined roles(Hind, 2009). Composition and Balance of the Board: While in family businesses there is lack of board composition and even if they exists they are not professionally defined which results in their failure in the future(Larcker, 2007). As for example the Ridges has its Board members clearly defined and well structured, but in case of Australia Inn it is not. All family members are the members of the board hence there is an imbalance in the board creating improper composition and advice from people. The business functions according to direction and in accordance to what a member feels right or wrong. Remuneration and Reward of Directors: The Directors in family run businesses have often been seen to withdraw funds from the business for their personal usage. Such withdrawing of funds is against corporate governance rules and regulations. These arbitrary funds withdrawing occur as there is relatively less control over their roles. Reliability of Financial Reporting and External Auditors: Small businesses often make their financial reporting by family personnel or familiar personnel who can easily divert funds(Brennan, 2008). Such auditing and funds appropriation relatively holds less to no value causing little implication on corporate governance. Boards Responsibility for Risk Management and Internal Control: While in larger businesses responsibility for handling risks and incorporating for internal control is clearly laid out, in smaller businesses such appropriation is often handled by owners. This might result in increased and unforeseen risks and loss of internal control for the business. Shareholders Rights and Responsibilities: The shareholders rights and responsibilities are not clearly not spelt out in family businesses. While in larger firms responsibilities are clearly laid out and rights are defined no such barriers exists in smaller organisation creating challenges for shareholders. Corporate Social Responsibility and Business Ethics: There is a low perception regarding CSR and ethics in smaller businesses as compared to that of larger businesses. Smaller businesses often avert CSR norms and business ethics overlooking their importance altogether. Recommendation and Conclusion Corporations especially those family run businesses to conform to better corporate governance needs to abide by specific rules and regulations. While the field of corporate governance exists and various professional models and disclosure models are available the following recommendations will help accommodate specific regulations for better corporate governance practices. The duties of Directors in every type of businesses especially in family run businesses need to be clearly defined. Defining of roles of directors will allow them to accommodate for specific roles and there will be no overlap in the functionality and structure for such roles and responsibilities, which generally occurs in family businesses. The board member composition and balance of the Board has to be attained for clearly attaining of corporate governance. Remuneration and Reward of Directors are generally arbitrary in nature in family run businesses. In such businesses director withdraws amounts as and when he feels like and decides to which results in challenges while financial reporting. Reliability of Financial Reporting and External Auditors are clearly not defined and compliance requirements need to be met. Boards Responsibility for Risk Management and Internal Control has to be established in family run businesses. Responsibilities needs to be given to members within the business such that they can handle risks and regulate internal controls. Shareholders Rights and Responsibilities: While shareholders rights remain defined within legal documents they are not applied. The corporate governance rules and procedures books need to define them appropriately. Corporate Social Responsibility and Business Ethics: Family run businesses for gaining sustainability have to accommodate for CSR norms and ethics such that they can create and generate a greater impact for their businesses. Reference Lists Adams, R. B. 2010. The role of boards of directors in corporate governance: A conceptual framework and survey. Journal of Economic Literature, 58-107. asci.org.in. (Retrieved on 1st May 2017). Anglo-American model of Corporate Governance. https://asci.org.in/journal/Vol.27(1998)/V27_byraju.html. Bebchuk, L. C. 2009. What matters in corporate governance? Review of Financial studies, 783-827. Bhagat, S. . 2008. Corporate governance and firm performance. Journal of corporate finance, 257-273. Bowen, R. M. 2008. 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