The Four Styles of Corporate Governance

Running head : The four styles of corporate governance

The four styles of corporate governance

Corporate Governance

A Business operates within a macro environment which is composed of various components

such as the shareholders , the customers and the suppliers . The internal components of the

business include the directors , the management and the employees . The management of the

business strive to achieve the corporate mission of the company . The corporate governance is

the framework of guidelines which helps the business achieve its corporate missions . In

12Management corporate governance is

described as

Policies , procedures and rules governing the relationship between the shareholders

directors and management of company , as defined by the applicable laws the

corporate charter , the company 's bylaws and formal policies

Thus corporate governance determines the manner , in which the company is directed

controlled and led

Three functions of corporate governance are listed in the 12mangement website . These are

Forming Function : The board of directors is responsible for setting the long and short

term objective for the company based on the mission statement Additionally the

board has to put in place series of process 's which will help them ensure that the

objectives are being achieved

Performance function : The board must constantly monitor the company 's

performance and actively participate in assisting the top management to devise

strategies intended for boosting the company 's performance

Conformance Function : The board must monitor the company 's adherence to its

corporate mission and confirm that the business function follows the corporate

strategy

Styles of Corporate Governance

Depending upon the nature of ownership of the business and its organizational structure the

corporate governance style has to be customized accordingly . All businesses can be classified

into 3 categories based on its nature of ownership

Entrepreneurial business : These business are owned by a single proprietor who is solely

responsible for the entire business function . The proprietor forms the apex of the management

hierarchy and bears all the liabilities of the business

Partnership business : In most aspect the partnership business is identical to entrepreneurial

business . However partnership businesses are owned by two or more then two individuals

who are referred to as business partners . The partners jointly form the apex of management

hierarchy so they are responsible for key business decision and jointly share all the

liabilities

Shared Ownership : Shared ownership refers to those businesses which are owned by a very

large number of individuals called the share holders . Any member of public can become the

owner of this business by purchasing shares . The company 's top management reports to a

group of major share holders who are referred to as board of directors The board of directors

manage the entire business with the help of the top management . Often an elected member of

the board of directors collaborates directly with the top management in to manage the

business such an individual is referred to as the chairman or the managing director . Major

decisions are made through voting process where each board member expresses his /her

opinion

The organizational structure of the business varys widely generally there are two types of

organizational structures 1 .Flat type structure , 2 ) Departmentalized structure . In a flat type

structure single individual or a group of individual are responsible for all the functions of the

business . In a departmentalized structure the business activities are split into functional areas

or departments and a departmental head is responsible for his /her department

There are four basic styles of corporate governance Entrepreneurship Management

Partnership Management

Marionette Management

Chaos Management

Entrepreneurship Management

The entrepreneurship management style of corporate governance is an extremely

domineering form of corporate governance style . This style is practiced by proprietary

businesses . The proprietor reserves the absolute rights of decision making , he forms the apex

of management hierarchy . Most entrepreneurs do not allow their subordinate to participate in

formulation of business strategy . The proprietor possesses in depth knowledge of all the

business processes so they guides the subordinates through all phases of daily operation

Most proprietary business operate through a flat type organizational structure , thus this helps

the proprietor to be aware of all aspects of daily operations . However when the business is

widespread and diverse the entrepreneur is forced to delegate a major portion of authority to

subordinates

Partnership Management

As partnership businesses have more then one owner the corporate governance of this kind of

business is designed around a functional organizational structure where each partner

individually and wholly manages a certain aspect of business . The corporate governance

system is built with procedures which allows the partners to regularly check the performance

of the departments which are not managed by him . When a major decision needs to be taken

all partners participate in the decision making process . Operation of vital business function

such as production , marketing and finance are regularly reviewed by each partner

Chaos Management

Chaos management style is adopted during crucial period of trouble . This system of corporate

governance is used by top management of large businesses where ownership of the business

is split among very large number of shareholders

Large corporations often encounter a difficult phase in their life cycle where it becomes

necessary to take drastic actions in to improve the company 's condition . Chaos

management requires a highly experienced and innovative individual at the apex of

management hierarchy who is capable of designing and implanting corrective strategies that

are capable of checking the company 's downhill momentum

In times of crisis the individual in charge of chaos management reassess the core business

processes and reformulates the policy 's and procedures , the new system is designed to curb

wastage of resources through cost cutting and resulting funds are used for implementation of

a revised marketing strategy

Marionette Management

Marionette Management style is incorporated into the company 's corporate governance

system in to limit all possibilities of scam and embezzlement Often Board of Directors

promote their favorites to key positions at top and middle management thus enabling them to

have a full knowledge of the intrinsic issues of each department

The chairman or the managing director is free to make decision on various aspects of

business without consulting the board of directors . However he needs to involve the top

management and departmental heads in this matter . By having puppets in key position the

board of directors get to indirectly exercise their opinion

Marionette management style leads to dirty politics between managers and also leads to

deterioration of interpersonal communication . Thus this management style has both its

advantages and disadvantages

Ideal management Style

It is almost impossible to suggest a certain style as being the best corporate governance

strategy because every business has its own functional environment so a management style

has to be ascertained by analyzing these environmental factors

Most S .M .E 's (small or medium businesses ) employ an entrepreneurial or partnership

management style . Such businesses have very limited scope of using the chaos management

or the marionette style of management . If however the business is diverse and multifaceted

marionette style may be used for the sake of monitoring performance

Large corporate firms almost always use marionette management style for monitoring

performance and for steering the strategies to a desired direction Large businesses often

come across a rough patch so chaos management or crisis management becomes mandatory

References

12Mangement from

http /www .12manage .com /_corporate_governance .html

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The four styles of corporate governance ...