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Theory and Conceptual Literature for Corporate Governance (Cg) Case Study Accounting Assignment Help

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Assignment Task

Task

The following extracts illustrate how the theoretical and conceptual literature can be applied to the case study of ethical/corporate governance (CG) failure that you have chosen to discuss. The draws on literature to discuss conceptual and theoretical issues in general terms. The writers move between the academic literature and the case study, explaining the ethical and governance concepts (text highlighted in blue) and showing how these concepts are illustrated in the case study (text highlighted in yellow). 

Extract A

The model of a reputable businessperson has been part of German business reality for centuries and there is a high level of awareness of its importance for individuals and society in any business venture (Schwalbach and Klink, 212). The belated adoption of corporate governance in Germany aimed to ‘find a balance between traditional principles of stakeholder value and recently introduced principles of shareholder value’ (Tuschke and Sanders, 2003, p. 633). Due to the traditional understanding, the engagement with the Anglo-American concept of Corporate Social Responsibility (CSR), was long seen unnecessary among German policy makers, business actors and academics (Beschorner et al., 2013). However, as a reaction to the financial crisis the CSR Action Plan was established in 2010, aligning with the core ideas of the European Commission that CSR reflects that “enterprises are responsible for their impacts on society” (European Commission, 2011). Although not considered “a new development”, nowadays CSR is highlighted as a “fixed component of German business culture” (BDA, 2018), whereby CSR is emphasized not as an “add-on” but as the core of business activities contributing to success (Federal Ministry of Labour and Social Affairs, 2018). 

Extract B

In its evaluation of what went wrong at organisation X, Standard & Poor concluded, “over-optimistic project reporting, ‘Reverse-factoring’ and rampant plundering of the pension fund in X kept the market in the dark” (Rogers, 2018 p.44). Reverse-factoring was used as a mechanism to conceal the true condition of the company finances: the bank received discount for paying X’s suppliers early, taking over the debt until X paid them back, and keeping it hidden from the balance sheet (Ryan, 2018). X showed a lack of transparency to its stakeholders and managed to hide almost £500m of debt this way. The UK corporate governance code sets out disclosure differences between regulation and code. The code is voluntary on a comply or explain basis, In this extract the writer outlines the ethical and CG corporate context in her country. This is useful context early on in the essay. She draws on a wide range of sources to provide evidence How the organisation concealed its problems What the code stipulates meaning listed companies have a duty to explain to the market why they are not complying. It clearly sets out that directors should confirm that they have carried out a robust assessment of the principal risks facing the company, including those that would threaten its business model, future performance, solvency or liquidity and that Directors should describe those risks and explain how they are being managed or mitigated, (Financial reporting Council [FRC] 2016). Clearly this did not occur, and within 6 months X was in trouble, with £845m value reduction in contracts, a fall in revenue and cashflow, and a suspended dividend, (BEISWP 2018; Plimmer, 2018; Sweet, 2018)

Extract C

Generally, there is a consensus that top management’s myopia and excessive risk appetite driven by the prioritization of financial considerations over stakeholder considerations were at the heart of this disaster (Bendell, 2010;

Blumberg and Lin-Hi, 2011; Kay Review, 2012; Thamo-theram and Le Floc’h, 2012; Solomon, 2013). Senior management pursuit of financial wins over other social and environmentally factors is often justified with reference to ethical egoism, a teleological or consequentialist theory. Crane and Matten (2016) point out that in ethical egoism, an action is morally right if one decides to pursue either their short-term or long term interests. This pursuit of self interest has long been regarded as beneficial in the economic sphere. In 1776, Adam Smith affirmed: ‘It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest. We address ourselves not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages’ It is worth mentioning that pursuit of self interest is not the same as selfishness.

As Crane and Matten (2016) clarifies:

‘The egoist can be moved by pity for others in seeking to remove his own distress caused by their plight [whereas] the selfish person is insensitive to the other’. However, in the case of X, we can infer that in pursuit of financial rewards, company profits, earnings per share and other self interests, senior management were in conflict with other stakeholder interests like employee safety, environmental concerns, regulatory guidelines and so on. This conflict of interests resulted in poor decisions. 

Extract D

Keaveney (2008) states that attribution theory predicts that the parties involved in a conflict will wonder why this is happening and attribute a cause categorizing the responses into personal or situational. As Payne & Giacalone (1990) highlight, attribution theory is used to assign responsibility and limit the extent to which a person is viewed as responsible for his/her behaviour. The crisis in X focused only on the technical approach to the problem rather than questioning senior executives’ values, beliefs and assumptions as corporate citizens (Chikudate & Alpaslan, 2017). Drawing on the concept of cognitive distortion, the directors of X may have seen themselves in a positive light, believing that their decisions were moral (Payne & Giacalone, 1990). In 2004, years before the 2009 crisis, when the authorities in Country Y questioned the quality of the product, senior managers in the organisation were reluctant to recall it, which later caused five serious accidents. They falsely assumed that the company could still have an excellent production system and their products would not have significant quality problems (Chikudate & Alpaslan, 2017).

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