Corporate Governance in Asia|GMGG5314

Abstract Corporate governance nowadays plays a big role into corporation or private company. The raises number of implementation of corporate governance has been affect to made trust among companies, shareholders, management system and involve customer to ensure equity among them. Besides that, getting public trust through clear of regulation, standard of work even assurance according business performance in long term also one of many reasons how investors started thinking to join once company. Other than, profit oriented of course is the main important thing why people join once business or became a shareholders. When the discourse of corporate governance we will highlights into U.K and U.S. both of these country have expert with corporate governance and formulate code of that. In U.K and U.S wherein the failure of companies cause happened with lack of clear financial system, minim participation of board directors make results of collapse of the companies and impact to other such as government. Meanwhile, corporate governance in Asia was introduce after Asian financial crisis (AFC). There are several countries such as: Indonesia, Malaysia, Thailand, South Korea encounter to monetary crisis circumstances. There are many State Owner Enterprises (SOE) and private enterprise/company has had trouble with that condition. Regarding to go out from that circumstances Malaysia for instance has been conduct the Malaysia Code on Corporate Governance (MCCG). The purposes MCGG is to conduct more accountability, transparency and effectiveness into business assurance and applying the principle of good governance. In addition, when we discuss about corporate governance we could not rule out to organization and management. The most important of management function is control besides planning, organizing and directing. Therefore, there is necessary in corporate governance as organization play the role of control in organization. According to control in corporate governance there are also create space to relation government and companies. In area of specialization how share holders, board directors even government conduct the external and internal control into ensure corporate governance walk away as well as possible. Keyword: Management, control, companies, corporate governance, government, good governance, shareholders, boards of directors.

Management of control One part of the management function is control, as one of step to goal starting from planning to set standard, objective and set the direction before project will be starting. Afterward continue to leading addressing to inspire effort and controlling to ensure what has be settling in the beginning would be same in the progress and what is out come or result will achieve as well. Controlling in organization in management will encourage with word organizing, this is to set the structure of organization to execute and run the organization. Following to Schermerhorn as he said, control plays a positive and necessary
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role in the management process and to have things under control is good; for things to be out of control is generally bad (Schermerhorn:2011). In addition, Robbins also mentioned that in control management involves monitoring activities to ensure that they being accomplished as planned and correcting any significant deviations. Besides that, the effectiveness of control system is determined by how self it facilitates goal achievement (Robbins, Cenzo: 2008). One of the most important in control management in the organization is the control process there are such as figure in bellow: Figure I The Control Process
Compare actual performance with standard Is standard being attained?

Yes

Do Nothing

No
Is variance acceptable?

Yes

Do Nothing

Objectives

Standard

Measure actual performance

No
Is standard acceptable?

Yes

Identity Cause of variation

No
Revise standard

Correct
performance

Source : Robbins, Cenzo : 2003 Organization purposes is make what the plans are goes with the goals at the end. At the same time, what has be done in the beginning will work with their action or we called Organization Performance. In Corporate governance, these necessary ensure what was set in the annual of year for instance, will be reach in the end of year or in the other words is target. However, there is not easy to get the target as well following the planning because of surely in the progress stage invariably face the problem. even in big company such Toyota.
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Inc, General Motor .Inc and Ford Motor .Inc. Case in below show that giant company like Toyota face the problem with their product. Furthermore, in example case how Toyota have failure to control they are car in the cases of Toyota to recall 7.4 million vehicles over power window glitch (Kobuta;2012). There are some fatalities of control Toyota Motor Corp (7203.T) said it would recall more than 7.4 million vehicles worldwide as a faulty power window switch was a potential fire hazard, the latest in a series of setbacks that have dented the reputation of Japan's biggest automaker. There is some fact that missing of control-out of control will affect into the reputation as mentioned in news above and if we related with the management which process had been missing of attention?. There is case when we are looking into the Toyota group company was establish in 1937 and now with 668,186 shareholders and including selling in five continents, see figure I. Thus, how they are have mistake during production and affect to their customer? .Reflect to management system principle, they are must to check into the process what wrong an in which step must to resolve directly even they are sell but at the same time they can more delivered their control. Figure II Toyota Sales by region
Region
North America Latin America Europe Africa Asia Oceania Middle East Overseas total Japan Worldwide total
2002 1,908.9 128.8 764.8 139.8 493.4 182.2 220.3 3,838.3 1,680.5 5,518.8 2003 2,031.3 162.1 851.5 160.6 682.4 215.1 251.4 4,354.5 1,715.9 6,070.4 2004 2,230.3 214.9 946.9 206.7 846.3 232.8 270.9 4,948.8 1,758.8 6,707.6 2005 2,436.1 270.5 995.2 227.2 1,062.9 236.9 325.3 5,554.1 1,713.1 7,267.3 2006 2,738.3 339.4 1,124.1 265.7 1,106.7 250.3 404.8 6,229.3 1,692.3 7,921.6 2007 2,822.2 379.4 1,238.6 313.5 1,329.6 275.9 482.7 6,841.9 1,587.3 8,429.3 2008 2,441.8 370.2 1,119.5 288.1 1,438.6 277.7 590.1 6,526.1 1,470.0 7,996.1 2009 1,975.4 293.6 886.0 201.4 1,533.9 231.2 482.5 5,604.0 1,375.5 6,979.6 2010 1,935.5 342.1 785.8 197.6 1,895.9 249.6 532.0 5,961.1 1,566.1 7,527.3 2011 1,806.9 333.5 801.9 211.9 1,998.2 215.9 527.5 5,895.9 1,201.0 7,096.9

(1 unit = 1,000 vehicles) Note: Regional classifications are those of the Japan Automobile Manufacturers Association, Inc. The number of vehicles produced includes the Toyota and Lexus brands. As a result of rounding, the numbers do not necessarily add up to the total shown here

Source: Toyota Motor Corporation

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Table in above shows the number of selling in Europe, Latin America, Africa, Asia and Oceania. However, the number of recall because error in power window system make public trust decrease because fatality management control of quality by Toyota. In Addition, Toyota must fix as fast as possible if they are do not want to lose more consumer. There is example shows how is it control play into corporation because of market will made assessment into their products.

The importance of corporate governance Good corporate governance is key to the integrity of corporations, financial institutions and markets, and central to the health of our economies and their stability. Corporate governance has become talk of the day in the corporate world, especially with when the large scandals that befall companies in the UK and the United States in the 1980s. In the UK in late 1980s following the scandals of UK listed firms such as Poly Peck and Maxwell. Polly peck was reported that healthy profits at that time but afterward in the next year they are declared to collapse. Following of that there was Bank of Credit and Commerce International (BCCI) lost of billion dollars for its depositors, shareholders and employees (Shamsul: 2009). The UK initiative to launch Cadbury Report by 1992 the aims for Financial Aspects of Corporate Governance and sets out recommendations on the arrangement of company boards and accounting systems to mitigate corporate governance risks and failures. Moreover, Malin (2003) Published in the United Nations Conference On Trade And Development, selected issues in corporate governance: regional and country experiences explain there are actually many different definitions of corporate governance but they all address the following elements: Systems of controls within the company Relationships between the companys board/shareholders/stakeholders The company being managed in the interests of the shareholders (stakeholders)
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Greater transparency and accountability to enable users of corporate information to determine whether the business is being managed in a way that they consider appropriate Therefore, system of control in the company will be playing the important stage into the organization as mentioned in above. Besides that, in corporate governance that mentioned by Steger and Amann (2008), Corporate governance key task to establish this accountability and create transparency in this regard for stakeholders. In the other word, managerial definition of corporate governance namely: Corporate governance establish clear structures regarding accountability, responsibility, and transparency at he head of company, And defines the role of boards and management (Steger, Amann: 2008). Moreover, The Organization for Economic Cooperation and Development (OECD) define that "The primary role for regulation is to shape a corporate governance environment compatible with societal values that allows competition and market forces to work so that corporations can succeed in generating long-term economic gain. Specific governance structures or practices will not necessarily fit all companies at all times" (OECD 1998a). The OECD identifies the following key elements of good corporate governance: The rights and obligations of shareholders Equitable treatment of shareholders The role of stakeholders and corporate governance Transparency, disclosure of information and audit The board of directors Non-executive members of the board Executive management, compensation and performance Each of these is discussed in more detail below. The rights and obligations of shareholders A corporate governance framework should protect shareholder rights. It should ensure that there is one vote for one share. It should ensure that management provides sufficient and relevant information. It should encourage shareholders to participate in annual general meetings and vote. Shareholders should be able to share in residual profit (dividends). Minority shareholders should be protected. It should ensure fairness and transparency in the operations of the company. Obligations: use voting rights.
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Equitable treatment of shareholders A corporate governance framework should ensure equitable treatment of all shareholders, including minority and foreign shareholders; Same voting rights (within same class of shares etc); All shareholders of same class should be treated equally. The role of stakeholders in corporate governance A corporate governance framework should ensure that the rights of stakeholders are protected by law and that these rights are respected. It should provide effective redress for violation of rights. It should encourage stakeholders to assume a role in the corporation that enhances the performance of the corporation and the market; It should provide for disclosure of information relevant to the interests of stakeholders. Transparency, disclosure of information and audit A corporate governance framework should ensure the full, timely and detailed disclosure of information on all material matters, including the company's financial situation, performance, ownership structure and governance. It should include the establishment of an (internal) audit committee. Transparency/disclosure includes disclosure of information on: Financial/operating results Ownership structure Members of the board of directors and management Quantitative and qualitative matters concerning employees and Other stakeholders in the corporation Governance structures and policies Corporate targets and prospects Execution of unusual and complex transactions, transactions Including derivative products and their level of risk The board of directors A corporate governance framework should ensure the strategic leadership of the corporation, the efficient monitoring of management by the board of directors. Accountability of board to its corporation and shareholders. Meetings, for example one a month; process; Chair/CEO (separation of duties and responsibilities) etc. Non-executive members of the board These members should form independent judgements, especially with respect to the corporations strategy, performance, asset management and management appointments; Non-executive members should be independent from executive members of board (e.g. family members should not be admitted) and should not have a business relationship with the corporation or any other commercial involvement that may affect their independent judgment Interlocking directorships should be avoided.
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Executive management, compensation and performance Management compensation should be tied to the corporations general level of profitability and overall performance. Total compensation should be disclosed in financial statements. Procedures for determining compensation should be disclosed. A remuneration committee (or review committee) should be established.

Internal and external control into corporate governance

Achieving good corporate governance by control process by two approaches namely, Internal and external control. Internal control defined as corporation should do monitoring into their progress of work by them self. In contrary, external control defined by performing by outside of corporate delivered their assessment. It is related to controlling function in term of measurement and correction of performance in order to make sure that enterprise objectives and the plans devised to attain them are accomplished (Koontz:1980). The important thing that corporate governance have to do inside of organization is internal monitoring whether from shareholders, board of directors, management system or by employees. This step to ensure that overall planning will be goon as well as possible. Thus, first step of control of corporate governance following the internal control by standardizations establish by internal organization. For instance, in the case of stepping up the privatisation plan by the Indonesian Government has its critics. Privatisation frequently creates a negative impression as it can lead to large-scale job losses, contract labour and outsourcing, thus generating public resistant. Economists also argue that there were serious problems with the privatisation process in Indonesia (Bullard, 2008). There is one of corporate governance control shall effectively to deliver assessment for government if not probably it would dysfunction among private and public trust.

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Internal control Nowadays, there are many country adopted corporate governance into their national system for ensure doing business and effort from country to safe them from financial crisis. In addition, COSO define internal control as a process not merely at the event. It is a series of occurrences that permeate an entitys activities see in figure III (Keasey & Wright: 1997). On the other hand, The analyses of Fama (1980) and Fama and Jensen (1983) suggest that various aspects of organization structure (including the board of directors) whereby the management and the control of decisions are separated can alleviate the agency problem. In complex organizations, diffusion of ownership among a large number of shareholders creates the need for delegation of decision control (ratification and monitoring) and decision management (initiation and implementation) to agents within the corporation (Rediker, J, K and Seth, A.: 1995) For instance, in U.K established the Cadbury Report to consider that all directors, whether or not they have executive responsibilities, should take position and carrying out of the necessary controls over the activities of their companies are in place and working (Code of Best Practice, 1.8, p. 58). Regarding of that statement, board directors also have to involve to control of management even they subordinate job description (Keasey, Wright: 1997). Figure III

Monitoring
Communication

Control Activities Risk Assesment Control Environment

Information

The COSO Framework for internal control

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External control External corporate governance controls encompass the controls external

stakeholders exercise over the organization, see figure IV. Examples include: Competition Debt covenants Demand and assessment of performance information (esp. Financial statements) Government regulations Managerial labour market Media pressure Takeovers However, external control nowadays giving more benefit into corporate and government and make customer even shareholders will be easy to have inform extra from outside corporation. Nevertheless, in my opinion also we can found sometimes lack of clear of external control by media into corporate governance and it make public trust through media change. In spite of that, there is pro and cons and hope it would be deliver benefit into those have been involve with corporate governance whether as shareholders, board of director or employees to improve their productivity and performance to achieve good governance .

Takeovers

Competition

Media pressure

Debt covenants

Managerial labour market

Demand and assessment of performance information (esp. Financial statements)

Government regulations

Control in organization: corporate governance perspective

Figure IV: External control influences to corporate governance

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Conclusion Finally, control in corporate governance basically come from management and that is in organization system management play the important role to be effective and efficient. In addition, corporate governance emerge in the past because several fault by whom involve in contrast not taking position into management system also lack of clear about regulation. The role of government at this time also necessary to control the corporation even they are SOEs because it will related to national financial system. The important of control in corporate governance addressing good corporate governance and equity principle for those may concern in corporation. In the same way, public also could be agent of control to CG and improving to be better in the future. Therefore, control in CG distinguish as two approach. Firstly, internal control define as monitoring treatment conduct by inside organization. Secondly, external control define as outsiders control into CG for giving impact process and assessment what wrong and what have to be done. Thus, what has planning through control management system will achieving good result. In the end, control in the company even conduct in internal or external have purpose to create healthy organization system. One most important thing could not forgetting is how made healthy economic competitive climate without fraud in the organization and deliver equity. Lastly, sharing the data and information through technology access probably make easier to control management system, check and balance what arrive and what was deliver.

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Vallabhaneni, S. R. (2008). Corporate management, governance, and ethics best practices. Hoboken, N.J.: Wiley. Toyota. (2012) Figures : Market / Toyota Sales and Production Toyota. Retrieved from http://www.toyota-global.com/company/profile/figures/

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