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Corporate Governance And Globalization

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Globalization and Corporate Governance

Over the last few decades, globalization has become one of the leading concepts that have become a major factor in the business life of organizations. The phenomenon called globalization affects all aspects of the society – economy, business life, and environment – in different ways and this has affected almost all organizations in the world over.

Some of the things that have been brought about by globalization include; increased competition, rapid changes in technology and information transfer, which has led to organizations being more profit oriented rather than having a long-term sustainable vision.

Due to the fact that organizations are an integral and vital part of society, they need to be properly organized as such there is the need for some form of social norms, rules and principles in the society and business. This is the role played by Corporate Governance.

In defining Globalization, it can be said to be – the free movement of goods, services and capital. It can also be said to be a process which helps to integrate world economies, culture, technology and governance. This is because it involves the ability for the transfer of information, skilled employee mobility, exchange of technology, financial funds flow and some form of geographic arbitrage between developed and developing countries of the world.

Based on this definition, the major question that arises is – How organizations will try to adapt to these changes being experienced?

Firstly, it is important for organizations to understand the various aspects and effects of globalization. This is because as with any other theory of business, it comes with its own sets of opportunities and threats.

An organization will have to learn how to protect it from the negative effects and how it can get and utilize opportunities from globalization.  Some of the ways in which globalization affects the economy, business life, society and environment include the following;

  • Increasing Competition
  • Technological development
  • Knowledge and information transfer
  • Portfolio investment ( this could be the transfer between developed countries and emerging markets)
  • Regulation, deregulation and international standards
  • Market integration
  • Intellectual capital mobility
  • Financial crisis contagion effect global crisis

In order to understand the concept of global governance, it is necessary to note that all systems of governance are primarily concerned with the managing of governing of associations and therefore have political authority, institutions and ultimately controls. Global governance in its sense denotes some form of formal political institutions which aims to coordinate and control various interdependent social relations between organizations and which have the ability to enforce such decisions.

In view of the above, we may consider global governance as the management of global processes in the absence of any form of global government. As such the use of global governance does not in essence infer that such a system exists, it is just to indicate that in this increasingly globalized world there is the need for some form of governance to deal with multinational and global issues. The term global governance is therefore a descriptive term, which recognizes the issues referring to concrete co-operative problem solving arrangements.

As it has been said, good governance is essential for organizations to have good corporate performance and one way to view good corporate performance is through stewardship. Good governance is important in every aspect of the society whether it is within the corporate environment of organizations or the society in general or be it in the political environment.

As it is today, it is obvious that we do not have a global framework for governance of organizations, however in our increasingly globalized world; this writer believes that it would be something beneficial to the way organizations interact internationally and will eventually emerge. It is important to note also that for the world to have this framework; different cultures would have to contribute towards the development of the framework.

The question of how globalization affects governance is not related only to the last two decades alone. There is evidence from economic history that shows the benefits of moral behavior by organizations and economic growth. As such it is clear that there is nothing new about economic growth, development and globalization. Economic growth generally brings out some consequences for the community and society in general.

The other question on the issue of globalization and governance has to do with who has the responsibility for ensuring the wellbeing of the society and safeguarding their wealth. Is it the responsibility of governments, business organizations, consumers, shareholders, or of all the people?

There are so many reasons for organizations to behave ethically and ensure that they are socially responsible. However the good news and the expectations are that competition amongst organizations will no longer have bad influence on an organization’s behavior. This is because the expectations of the various stakeholders is no longer related to only the cost of the products and/or services provided by organizations, but also related to the quality, the process of creating and providing these goods and/or services and the environmental sensitivity.

The failure of some of the world’s major corporations over the last two decades has brought out a lot of issues relating to governance and these have increased attention to the role of business ethics in organizations. The managers and chief executives of some of the organizations have been considered responsible for these failures and they come across as cases of “CORPORATE IRRESPONSIBILTIY”

Corporate governance helps protect organizations from long-term loss. As such when organizations have social responsibilities, they will calculate the risk and the cost of failure for such organizations. It is important for organizations to understand that they are responsible to the shareholders and also to all the stakeholders, which invariably ensures that they have a responsibility to the society at large.

As was seen from all these major scandals of organizations; corporate failures have an important impact on all of society. Some of them affect the economy as a whole, whilst it also has a significant impact on the human capital of the organization and the society as a whole.

Like in the case of Enron, managers were aware of all the regulations, even though they have known all irresponsible and unethical problems in the company’s management; they did not change their approach and their behavior. This act further revealed that it is not always possible to control the behavior and corporate activities with only rules and regulations.

Organizations need to consciously focus on creating value and not only in financial terms but also in ecological and social terms. One of the major challenges facing these organizations is how to go about setting these standards and meeting the expectations.

In conclusion, globalization has a huge effect on the society and the business life of organizations, which can manifest in different ways. So organizations need more regulation and proper and socially responsible behavior that they used to have in the past. The relationship between corporate governance and globalization must continually undergo review processes in order to maintain the balance of society.

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