Impact of Corporate Governance on Stackholders Satisfaction

1.1 Background Much of the worlds public attention of the early years of the 21st century had it origin in failures within Big Multinational Corporations such as Enron or Parmalat, that evidenced that the functioning of certain elements of late 20th century Corporate Governance models based on maximisation of shareholders interests, were not able to ensure sustainable development of Corporation activities (Berle, 1931). Corporate governance through the protection of a wider set of interests can be regarded as an alternative way of efficiently conducting Corporate Governance. Taking into consideration other stakeholders interests is often regarded as fairly recent in development, and Freeman is generally cited as its landmark. However neither this idea nor many of its practices are new. From a philosophical standpoint it has been related with expansion of democratic ideas (Buchholz & Rosenthal, 2002). From a practical perspective, 21st century chocolate manufacturers in Europe devised ethics codes and built model factories to the benefit of their workers, supplied health and adult education facilities and reduced the length of working week. In the USA pharmaceutical such as Merck developed Codes of conduct, which underlined the Corporations goal to serve public health. These two are just a sample of Corporations respect for constituents other than shareholders (Cooper, 2009). More recently, academic and practical interest for other constituencies approach to Corporations management has evolved in parallel with the critics of Corporate Governance theories that evolve around the maximisation of short-term revenue to shareholders. It has occupied much of the academics works in the last decade. Sometimes it appears hidden behind terms such as Corporate Social Responsibility, corporate citizenship, corporate accountability, or triple bottom line (of environmental social and financial reporting), in other occasions it is used as a rebrand to Corporations charities and donations. Many Corporations have started to formalise their practices and to publicise them (Dodd, 1932).

Most Fortune 500 companies make their Social practices known through their Web sites and Public Relations materials, and have adopted policies and codes and have acted in consonance

Impact of Corporate Governance on Stackholders Satisfaction

with the goals of sustainable good governance. It is difficult to decide whether they have acted simply in order to promote their contribution to community development or to gain and sustain a competitive advantage. The Body Shop promotes community trade, opposes animal testing, defends human rights, and protects the environment (Druker, 1994).

1.2 Problem Identification Corporate governance is the system by which companies are directed and controlled. It involves regulatory and market mechanisms, and the roles and relationships between a companys management, its board, its shareholders and other stakeholders, and the goals for which the corporation is governed. 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. Much of the contemporary interest in corporate governance is concerned with mitigation of the conflicts of interests between stakeholders. Ways of mitigating or preventing these conflicts of interests include the processes, customs, policies, laws, and institutions which have impact on the way a company is controlled. An important theme of corporate governance is the nature and extent of accountability of people in the business.

1.3 Problem Statement Corporate governance plays a vital role in shaping the future of the company, its business, performance, and ultimately its stakeholders. The stakeholders satisfaction is also very important for the future business of the company, because stakeholders are satsified mainly due to the performance of the company, which results in rising of the shares prices because of good perception of the company in the minds of the different kinds of stakeholders and literature tells us that good corporate governance increases the satisfaction of stakeholders. So stakeholders satisfaction is very important and that is why this would find out how corporate governance impacts the satisfaction of different kinds of stakeholders.

Impact of Corporate Governance on Stackholders Satisfaction

1.4 Objectives of the Study The main objective of the study is to find out the relationship between the independent variable, Corporate Governance, with the dependent variable, Stakeholders Satisfaction. The goals of the study are listed below: To examine the relationship between corporate governance and customers satisfaction. To examine the relationship between corporate governance and suppliers satisfaction. To examine the relationship between corporate governance and creditors satisfaction. To examine the relationship between corporate governance and employees satisfaction. To examine the relationship between corporate governance and communities satisfaction. To examine the relationship between corporate governance and goverment satisfaction. To examine the relationship between corporate governance and investors satisfaction. To examine the relationship between corporate governance and shareholders satisfaction.

1.5 Need of the Study

This study will be an important endeavor in improving the importance of this concept in the corporate world. It would bring several benefits to many parties like corporate managers, shareholders, creditors, suppliers, and communities in forming their plan of actions and also to the existing literature.

This study can provide the management an understanding of the factors that could affect stakeholders satisfaction in the context of corporate governance, which would ultimately impact organization performance and make organization a profitable entity. Also this can be useful for companies to draft strategies which would help in increasing stakeholders satisfaction in the benefit of the corporation.

1.6 Significance of the Study

Impact of Corporate Governance on Stackholders Satisfaction

Corporate governance has always been a very significant topic in the history of the corporate world and still it is of great importance. As far as concerned to our country, corporate governance is considered very weak in this country and also most of the stakeholders are not satisfied from the perofrmance of their related corporations in their own contexts. This study would relate corporate governance with stakeholders satisfaction that how stakeholders satisfaction level is affected through corporate governance. The study would also add a lot to the body of existing literature and can serve as a reference for researchers on the topic of corporate governance and also stakeholders satisfaction.

1.7 Scope of the Research This study is conducted to determine the relationship between corporate governance and stakeholders satisfaction. This study will give an idea that how much corporate governance affect the satisfaction level of different kinds of stakeholders like: Employees, communities, government, shareholders, creditors, investors, suppliers, and customers. Also a good understanding of this research and the usage of its suggestions can help organizations to improve performance by maximizing the satisfaction of the shareholders.

1.8 Limitations of the Research This research is being conducted in AIOU, which is an educational institute. The study is done on identifying the impact of corporate governance on stakeholers satisfaction. The sample size of every stakeholder is limited because of time, finance, and many other constraints. However there are certain other limitations in the research those are as follows. 1. The study is to be conducted in a limited geographic area that is Rawalpindi & Islamabad. 2. The respondents might not answer the questions seriously, thus some data error might occur.

Impact of Corporate Governance on Stackholders Satisfaction

3. There is a possibility that the people outside this geographic location might not act or behave according to this particular problem. 4. There is a possibility that the respondents may be hesitant to answer the questions as what is the actual condition due to many other factors in this geographic location.

1.9 Research Question The questions that could be arisen are: How does corporate governance affect the satisfaction of customers? How does corporate governance affect the satisfaction of suppliers? How does corporate governance affect the satisfaction of creditors? How does corporate governance affect the satisfaction of employees? How does corporate governance affect the satisfaction of communities? How does corporate governance affect the satisfaction of government? How does corporate governance affect the satisfaction of investors? How does corporate governance affect the satisfaction of shareholders?

Impact of Corporate Governance on Stackholders Satisfaction

Literature Corporate governance, as a concept, has attracted various definitions. Metrick and Ishii (2002) define corporate governance from the perspective of the investor as both the promise to repay a fair return on capital invested and the commitment to operate a firm, efficiently given investment. The implication of this definition is that corporate governance has an effect on a firms ability to access the capital market. These authors argue that firm level governance may be more important in developing markets with weaker institutions as it helps to distinguish among firms. Cadbury (1992) defines corporate governance as the system by which companies are directed and controlled. Governance system can also be defined as the complex set of constraints that shape the ex-post bargaining over the quasi rent registered by the firm.

Corporate governance is in one hand concerned with ways of bringing the interests of (investors and managers) into line and ensuring that firms are run for the benefit of investors. Also, in the other hand, it is concerned with the relationship between the internal governance mechanisms of corporations and societys conception of the scope of corporate accountability (Deakin and Hughes, 1997). It has also been defined to include the structures, processes, cultures and systems that engender the successful operation of organizations. Corporate governance is also seen as the whole set of measures taken within the social entity that is an enterprise to favor the economic agents to take part in the productive process, in order to generate some organizational surplus, and to set up a fair distribution between the partners, taking into consideration what they have brought to the organization (Maati, 1999).

In the light of the foregoing analysis, it may be stated more generally that different systems of corporate governance will embody what are considered to be legitimate lines of accountability by defining the nature of the relationship between the company and key corporate constituencies. Thus, corporate governance systems may be thought of as mechanisms for establishing the nature of ownership and control of organizations within an economy. In this context, corporate governance mechanisms are economic and legal institutions that can be altered through the political process-sometimes for the better (Shleifer and Vishny, 1997). Company law, along with other forms of regulation (including stock exchange listing rules, and accounting standards), both

Impact of Corporate Governance on Stackholders Satisfaction

shape and is shaped by prevailing systems of corporate governance. The effect of regulation on corporate governance occurs through its effect on the way in which companies are owned, the form in which they are controlled and the process by which changes in ownership and control take place (Jenkinson and Mayer, 1992). Ownership is established by company law, which defines property rights and income streams of those with interests in or against the business enterprise (Deakin and Slinger, 1997).

Shleifer and Vishny (1997) argue that much of the differences in corporate governance systems around the world stem from varying regulatory and legal environments. They maintain that the differences between corporate governance systems in OECD countries, while important, are relatively small compared to the difference between these countries and others. For example, in less developed countries corporate governance mechanisms may be non-existent and, where they do exist, are often particularly weak and ineffective. However, even in rich OECD countries, corporate governance problems can still act as a major impediment to economic growth. For example, Blair (1995) claims that Italian corporate governance mechanisms are as underdeveloped as to retard the flow of external capital to firms. Therefore, understanding corporate governance and its effects can guide policy discussions, not only on the improvements in OECD countries corporate governance systems, but also provide a basis for understanding the changes that may be required in other countries where corporate governance systems are severely underdeveloped.

Impact of Corporate Governance on Stackholders Satisfaction

2.1 Theoritical Framework

Communities

Customers

Government Corporate Governance

Suppliers

Investors

Creditors

Shareholders

Employees

2.2 Hypothesis H1: Good corporate governance increases the satisfaction level of customers. H2: Good corporate governance increases the satisfaction level of suppliers. H3: Good corporate governance increases the satisfaction level of creditors. H4: Good corporate governance increases the satisfaction level of employees. H5: Good corporate governance increases the satisfaction level of the communities. H6: Good corporate governance increases the satisfaction level of government. H7: Good corporate governance increases the satisfaction level of investors. H8: Good corporate governance increases the satisfaction level of shareholders.

Impact of Corporate Governance on Stackholders Satisfaction Chapter 3 Methodology

3.1 Research Design The research study is would be quantitative. The population I have selected for my study is Engro foods. Sample size would be 90. Questionnaires would be used for getting the data, which would be developed by the researcher keeping in mind the variables and literature review. The data, gathered through questionnaires would be added into SPSS 17.0 for further testing of the hypothesis. First of all the internal consistency of the questionnaire would be checked through realiability analysis. After realiability the correlation among the variables would be checked. At last regression test would be applied to analyze the data and test the hypothesis. 3.2 Population The population of this study includes the top & middle level managers of Engro Foods, Lever Brothers, and Proctor & Gambles, government officials relating to policy making of the corporate world, and the general public including the customers, supliers, investors etc of these companies. 3.3 Sampling technique Non-probability based convenient sampling technique would be used for gathering the data. 3.4 Sample Size Sample size would be 100.

3.5 Research Instrument Questionnaire would be used to collect the data, which would be developed by the researcher. This would be a five point likert scale questionairre ranging from 1-Strongly Disagree to 5Strongly Agree.

3.6 Data Collection Data would be collected through secondary sources such as from books, research articles, internet etc. as well as from primary sources through questionnairs.

Impact of Corporate Governance on Stackholders Satisfaction CHAPTER 4 Data Analysis & Interpretation

In this part I will analyze my data and would test the hypothesis to accept or reject them to assess the significance level of this study.

Impact of Corporate Governance on Stackholders Satisfaction CHAPTER 5 Conclusion

4.1 Findings

In this chapter what has been inferred from the analysis of the data would be written down. 4.2 Conclusion

The conclusion of the data would be drawn on the basis of findings of the data and its relationship to the literature.

4.3

Recommendations

After conclusion recommendation would be given to help managers and for further research support.

Impact of Corporate Governance on Stackholders Satisfaction References:

Berle, A. For Whom Corporate Managers Are Trustees Harvard Law Review, num. 44, (1931), 1365,1372 Buchholz R.A, and Rosenthal, S B Social responsibility and Business Ethics en Frederick RE (Ed), A Companion to Business Ethics, Massachusetts, Blackwell Publishers, 2002. Cooper, S, Corporate Social Performance: A Stakeholder Approach, Ashgate Publishing Cia, London-Hants, UK. Dodd, E.M. For whom are Corporate Managers Trustees? Harvard Law Review, num. 45, (1932) 1145, 1448. Druker, P The new meaning of Corporate Social responsibility, California Management Review, number 26, pages 53-63. 1994.

Cadbury, A., Chairman, (1992), Report on the Financial Aspects of Corporate Governance. Metrick A, Ishii J (2002). Firm-level corporate governance. Paper presented at Global Corporate Governance Forum Research Network Meeting, Washington, D. C. Maati J (1999). Le gouvernement dentreprise. De Boeck Universit, Bruxelles. Deakin S, Hugues A (1997). Comparative corporate governance: an interdisciplinary agenda. Journal of Law and Society, 24: 1-9. Shleifer A, Vishny RW (1997). A Survey of Corporate Governance. J. Financ., 52: 737783. Jenkinson T, Mayer C (1992). The Assessment: Corporate Governance and Corporate Control. Oxford Review of Economic Policy, 8(3). Deakin S, Slinger G (1997). Hostile takeovers, corporate law, and the theory of the firm. Journal of Law and Society, 24: 124-51. Blair MM (1995). Ownership and Control: Rethinking Corporate Governance for the Twentyfirst Century. Washington, D.C: Brookings Institution Press.

Impact of Corporate Governance on Stackholders Satisfaction

APPENDEX

Dear sir/madam I am a Research student (COL MBA) at AIOU Islamabad. I am doing research on PARTICIPATION DECISION MAKING AND JOB SATISFACTION Your contribution in helping us is valued highly. Completion of this information is voluntary and confidentiality is assured. No individual data will be reported. Please dont mention your name on this questionnaire. If you want me to contact or have any query, just email me on. Thank You! Demographics: Please tick in the appropriate space for your response. 1. Gender Male Female

Age group

20 - 30 years 41 - 50 years

31 - 40 years Above 51 years

Education

Bachelor/Graduation MS/M.Phil/Post Graduation

Master PhD

other

Impact of Corporate Governance on Stackholders Satisfaction

Employees Participation in Decision Making

1 I am always enthusiastic to take part in organizations decision making. 1 strongly disagree 1 strongly disagree 1 strongly disagree 2 disagree 3 neutral 4 agree 5 strongly agree 2 disagree 3 neutral 4 agree 5 strongly agree 2 disagree 3 neutral 4 agree 5 strongly agree 2 disagree 3 neutral 4 agree 5 strongly agree 2 disagree 3 neutral 4 agree 5 strongly agree 2 disagree 3 neutral 4 agree 5 strongly agree 2 disagree 3 neutral 4 agree 5 strongly agree

I believe that decision would be very legitimate when most of the employees involved in it.

A collection of minds from different departments can take a good decision.

I believe that lots of dimensions are considered when most of the employees are involved.

1 strongly disagree

I like the environment of my organization for being cooperative in decision making.

1 strongly disagree 1 strongly disagree

I believe that employees participation is very important for the success of organization.

I always tend to look high for being participated in the companys decision making process.

1 strongly disagree

Impact of Corporate Governance on Stackholders Satisfaction

Employees Satisfaction
8 I am very influencial person when considered to organizatinal decisions. 1 strongly disagree 1 Strongly Disagree 1 strongly disagree 1 strongly disagree 1 strongly disagree 2 disagree 3 neutral 4 agree 5 strongly agree 2 disagree 3 neutral 4 agree 5 strongly agree 2 disagree 3 neutral 4 agree 5 strongly agree 2 disagree 3 neutral 4 agree 5 strongly agree 2 disagree 3 neutral 4 agree 5 strongly agree

I regularly take part in every decision taken for the betterment of the organization.

10

I love the valuing of employees by the management in a decision making process.

11

I like to be the part of every decision making process.

12

I love my organization.

Employees Commitment
13 I tend to get very motivated when called for a decision by the management. 1 strongly disagree 1 strongly 2 disagree 3 neutral 4 agree 5 strongly agree 2 disagree 3 neutral 4 agree 5 strongly

14

I always look for the betterment of my organization.

Impact of Corporate Governance on Stackholders Satisfaction

disagree 15 I always provide extra services for the organization when required. 1 strongly disagree 1 strongly disagree 1 strongly disagree 1 strongly disagree 2 disagree 3 neutral 4 agree agree 5 strongly agree 2 disagree 3 neutral 4 agree 5 strongly agree 2 disagree 3 neutral 4 agree 5 strongly agree 2 disagree 3 neutral 4 agree 5 strongly agree

16

I love to work for longer hours when required.

17

I want to see my orgnization to be the leader of the industry.

18

I always help others to their work efficiently and effectively.

Employees Productivity
19 I always finish the work on time or before time. 1 strongly disagree 1 strongly disagree 1 strongly disagree 2 disagree 3 neutral 4 agree 5 strongly agree 2 disagree 3 neutral 4 agree 5 strongly agree 2 disagree 3 neutral 4 agree 5 strongly agree

20

I always get praised and rewarded for high performance.

21

I believe that the high participation in decision making reduces ambiguity.

Impact of Corporate Governance on Stackholders Satisfaction

22 Employees tend to be very productive because of the cooperative environment. 1 strongly disagree 2 disagree 3 neutral 4 agree 5 strongly agree