fia paper fab.sessions6-8
Post on 03-Jun-2018
217 Views
Preview:
TRANSCRIPT
-
8/12/2019 FIA Paper FAB.sessions6-8
1/96
Syllabus Heading B
Sessions 6-8
Business Organisation Structure,Functions and Governance
-
8/12/2019 FIA Paper FAB.sessions6-8
2/96
Informal Organisations
Informal organisations exist alongside the formalstructures and systems previously discussed.
The informal organisation is loosely structured,
very flexible and spontaneous embracingpractices and mechanism such as:
Social groupings e.g. cliques
Grapevines and informal communications
Alternative behaviours to the formal structures Power and influence structures outside the formal
command chains
-
8/12/2019 FIA Paper FAB.sessions6-8
3/96
Informal Organisations
While management of the formal organisation may allow theinformal organisation to develop, and may even interactwith it, they must never allow it to take over the formalorganisation or the authority and control it possesses.
They should ensure that the informal organisation does notalter the goal direction of the formal organisation.
Informal organisations may provide somebenefits:
Cooperation
Speed
Sharing of knowledge
Employee commitment
Responsiveness
-
8/12/2019 FIA Paper FAB.sessions6-8
4/96
Session #6
Organisational Structure
-
8/12/2019 FIA Paper FAB.sessions6-8
5/96
Considering Structure
Why is structure necessary?
To create a controllable networkof individuals, groupsand teams;
To allow greater coordination & monitoringoforganisation activities and functions;
To allocate authority and create a framework fordelegation, accountabilityand responsibility;
To enable a useful flow of work, resources and informationthrough communicationfollowing clear reporting lines;
-
8/12/2019 FIA Paper FAB.sessions6-8
6/96
What influences structure?
Organisational goals and objectivesas an entire unit andas departmental units;
Specific task and activitiesof the organisation;
Organisational size, complexityand formalisation;
Skills, abilities and expectationsof organisational humanresources;
Internal organisational principles, culture andenvironment.
-
8/12/2019 FIA Paper FAB.sessions6-8
7/96
Organisational Layers
Managerial hierarchy and activity has beenproposed by Anthony (a management writer) hasbeing classified: Strategic level managementmost senior directors and
management, handling the policy making, and providing
guidance and direction on a global level;
Tactical level managementmiddle management andtechnical staff, concerned with determining how to get thejob done, through resource allocation, innovation andcreation of detailed plans;
Operational level managementline supervisors and thework operatives ensuring the routine activity of providingthe good or service is achieved based on the tactical plansand guidance provided by middle management.
-
8/12/2019 FIA Paper FAB.sessions6-8
8/96
Organisational Hierarchy - strategic
Strategic level managementconcerns itself with theglobal picture for the organisation, devising corporategoals and strategies.
Goals and objective answer the question: where do wewant to be and when?optional directions forcompany
Strategies answer the question: how are we going to
get there?alternative approaches to achieving goals
Strategic level management must assess these questionsand select the most appropriate options.
-
8/12/2019 FIA Paper FAB.sessions6-8
9/96
Organisational Hierarchy - tactical
Tactical level management and staff, analyse theselected strategies and assess what the inputs,resources and timelines must be for achievementof stated goals, based on the strategic guidancegiven
They answer the question what do we requireand when?in order to move the business step bystep closer to where it needs to be
Its focus will be developing detailed operationalplans and forecasting resource needs, while beingresponsible for the control functionof the
organisation.
-
8/12/2019 FIA Paper FAB.sessions6-8
10/96
Organisational Hierarchy - operational
Operational level management and staff, carry thedaily tasks of getting the job done through effectiveand efficient implementation of the tactical plans.
Their functions and responsibilities provide theanswer to - are we there yet? Are we facing anychallenges or problems? what can we or mustwe do different?all the while providing feedback
and guidance to the tactical team in terms ofcontrolling performance.
This level is very task oriented.
-
8/12/2019 FIA Paper FAB.sessions6-8
11/96
Organisation Theories - Fayol Traditional and classical organisation structure was
linked to the principles of division of labour andhierarchy of authority:
Division of work; Authority & responsibility;
Scalar chain;
Unity of command;
Unity of direction;
Subordination of individual interests
-
8/12/2019 FIA Paper FAB.sessions6-8
12/96
Organisation Theories - Mintzberg
One of the many prolific writers on the structuringof organisations was Mintzberg. see diagram
In his writings and theories he suggested that everyorganisation could be seen as having 5 distinctcomponents with reference to their structure: Strategic apexensures goal achievement and provide
direct management and direction in relating to theenvironment;
Middle Linecreated tactics for achieving strategic
intentions, converting them into work flows for operations; Operating Coreconvert inputs to outputs do the work!;
Techno structureprofessional staff and analyticalsupport; assist middle line with planning and execution;
Support Staffall other ancillary services required for
functionality;
-
8/12/2019 FIA Paper FAB.sessions6-8
13/96
Basic Concepts of Structuring
Spans of Control Span of control refers to the number of
subordinates under the control of a manager, andreporting directly to the specific manager.
These spans of control may be:
Wide: a span of control where a manager has several
subordinates under his control;
Narrow: a span of control where the manager only has afew subordinates under is control;
-
8/12/2019 FIA Paper FAB.sessions6-8
14/96
Basic Concepts of Structuring
Spans of Control contd The following must be considered in terms of the
desired span of control:
Capability and ability of manager;
Managers workload;
Geographical dispersion;
Level of subordinates work;
Allowance and level of subordinate interaction; Supervisory support levels;
-
8/12/2019 FIA Paper FAB.sessions6-8
15/96
Basic Concepts of Structuring
Tall & Flat Organisations The scalar chain of an organisation indicates the
length of the command chain from most senior tomost junior position.
The length of the scalar chain will determine if theorganisation is referred to as a:
Tall organisation
Flat organisation
-
8/12/2019 FIA Paper FAB.sessions6-8
16/96
Basic Concepts of Structuring
Tall & Flat Organisations contd Tall organisations: an organisation which in terms
of its size has several levels of managementhierarchy, thereby resulting in narrow spans ofcontrol.
Flat organisations: an organisation which in termsof size has a small number management levels,thus creating wide spans of control.
Organisations may engage in delayering in aneffort to reduce the number of management levelsand boost efficiency and effectiveness.
-
8/12/2019 FIA Paper FAB.sessions6-8
17/96
Organisation Structure
Depending on their purpose, objective and othercharacteristics will structured in varying ways:
Entrepreneurial
Functional
Geographic Product / brand
Divisional
Matrix
Several writers have written theories on thevarious options for structuring organisationstowards effectiveness and efficiency, in theirareas of operation.
-
8/12/2019 FIA Paper FAB.sessions6-8
18/96
Structuring Organisations
Entrepreneurial Also referred to as a simple structure possesses the
following characteristics:
Exhibited within small, young organisations; Senior management retains direct control over the
operations and staff and dominate the organisation;
Staff usually operational, no need based on size fortechnical or other support staff;
Coordination by direct supervision;
Prone to succession crises who will carry on business;
Little standardisation or formalisation of behaviour;
Activities and operations centralised around management
-
8/12/2019 FIA Paper FAB.sessions6-8
19/96
-
8/12/2019 FIA Paper FAB.sessions6-8
20/96
Structuring Organisations
Geographical area The organisation is structured according to
separation by the territories or jurisdictions withinwhich it operates. The structure however, requiresa centralised head office that will at least retainsome authority over operations, though managedby territory.
Local decision making and management is made more
relevant; Often cheaper and more effective to have a presence
within each market area;
Some duplication and inconsistency may arise eachlocation may have functional or product structures
-
8/12/2019 FIA Paper FAB.sessions6-8
21/96
Structuring Organisations
Product / Brand The organisations departmentation or segmentation
is based on products being produced or servicesbeing offered, with common departments inexistence for the support services or functions such
as admin, HR, finance.
Each product will have its own marketing,production, sales and distribution areas/functions:
Accountability and performance is based on productperformance;
Greater coordination may be achieved;
Allows for effective brand awareness, recognition,differentiation and loyalty;
More complex structures result
-
8/12/2019 FIA Paper FAB.sessions6-8
22/96
Structuring Organisations
Divisional A business is divided into autonomous regions or
product businesses, each with its own source ofrevenues, expenses, asset purchases. As a result
they are responsible for a segment of thebusinesses profit or loss.
A division may be:
A subsidiary of a group; Profit or investment centre of a company;
A strategic business unit
-
8/12/2019 FIA Paper FAB.sessions6-8
23/96
Structuring Organisations
MAKING DIVISIONAL STRUCTURES WORK..........
Proper and effectively delegated authority is required;
Each divisional unit must be able to support themanagement it requires, without need to rely on headoffice;
Each unit is expected to have potential for sales growthand business expansion;
Related party transactions should be managed effectively
and transparently to ensure success.
-
8/12/2019 FIA Paper FAB.sessions6-8
24/96
-
8/12/2019 FIA Paper FAB.sessions6-8
25/96
Centralisation vs. Decentralisation
Centralisationrefers to concentration ofmajoraspects of control, management and authorityinone location over the resources of an organisation,with a view to enhancing effectiveness andcoordination.
Centralisation is usually achieved on geographicbasis or on the basis of authority. (see pg 89-90)
Decentralisationprovides more flexibility,through a spreading of responsibilities for control,management and coordination throughout theorganisation.
-
8/12/2019 FIA Paper FAB.sessions6-8
26/96
Departmental Roles & Functions
Each department within an organisation will becharged with the performance or responsibility forspecific task, functions and roles towards
achievement of the overall goals and objective.
These many roles and functions may be separatedwithin an organisation as follows, and provide the
following support or activities:
-
8/12/2019 FIA Paper FAB.sessions6-8
27/96
Departmental Roles & Functions
Research and development: this function willengage in pure and applied research anddevelopment. Pure research: original research to obtain new scientific and
technical knowledge, with no clear commercial or practicalapplications;
Applied research: original research similar to pure research, butwith a practical application or use already known or being used;
Development: using the scientific and technical knowledgegained through research to produce new and improvedproducts or systems with a view to commercial application oruse.
R & D activities will focus on: Product research: activity to create new products and
improvement of existing products;
Process research: activity to improve and revise the way ourcurrent and future products are made and services delivered.
-
8/12/2019 FIA Paper FAB.sessions6-8
28/96
Departmental Roles & Functions
Purchasing: the process of procurement andacquisition of materials resources, services andinputs for the facilitation of the organisationsactivities. The function is key to the production
process.
The best purchasing mix must be achieved by thefunction in terms of:
Quantity Quality
Price
Delivery / lead time
-
8/12/2019 FIA Paper FAB.sessions6-8
29/96
Departmental Roles & Functions
Production: this function oversees and managesthe creation and output of the organisations goodsand services. It plans, directs and controls theassociated activities.
All other organisational functions must support,integrate and filter their outputs into this functionin terms of: Finance
Human resource
Research
Sales
-
8/12/2019 FIA Paper FAB.sessions6-8
30/96
Departmental Roles & Functions
Service operations: any activity or benefit that onearea can provide to another, that is of an intangiblenature, not resulting in ownership of anything.
Services tend to be: Intangible
Inseparable
Variable
Services must be managed in terms of: Complexity
Price
Quality
-
8/12/2019 FIA Paper FAB.sessions6-8
31/96
Departmental Roles & Functions
Administration: responsible for daily operationaland support issues in the provision of theorganisations products and services.
These activities carry varying importance andwork levels depending in the existence of acentralised or decentralised structure.
-
8/12/2019 FIA Paper FAB.sessions6-8
32/96
Departmental Roles & Functions
Finance: responsible for finance and treasurymanagement, and accounting functions withinthe organisation with specific responsibilities for: Raising money
Recording and controlling
Information provision Stakeholder reporting
The function must has several roles in planningand control: Ensuring financial resources are available;
Integration of strategy into budget preparation;
Establishment of performance measures based onbudgets;
Management of the financial resource; Creatin financial controls
-
8/12/2019 FIA Paper FAB.sessions6-8
33/96
Departmental Roles & Functions Financial management:responsible for:
Investment decisions Financing decisions
Dividend policy
Treasury management:plans and control thesource and use of funds for the organisationthrough several techniques: Cash budgeting
Banking facilities
Foreign currency management Cash flow management and control
Financial accounting:recording and reportingthe financial effect of transactions financialposition, performance and cash flows.
-
8/12/2019 FIA Paper FAB.sessions6-8
34/96
Departmental Roles & Functions
Management accounting:provision of usefulinformation for the planning, control and decisionmaking functions.
-
8/12/2019 FIA Paper FAB.sessions6-8
35/96
Departmental Roles & Functions
Human resource management: concerned with theeffective use of the human resource of anorganisation. It deals with:
Recruitment and selection
Staffing levels
Motivation
Employee relations
Employee services
HRM evaluates and organisations human resourceneeds, finding the right mix of people andachieving the best outputs from this resource.
-
8/12/2019 FIA Paper FAB.sessions6-8
36/96
Departmental Roles & Functions
The function has the following objectives: Development of effective human component, that can
respond effectively to change;
Recruitment, selection, development and motivation of asuitable human resource;
Creation and maintenance of a cooperative environmentfor human relationships;
Meeting the social and legal responsibilties relating tohuman resource
The function is important to: Increase in productivity;
Enhancement of group learning;
Reduction and control of staff turnover;
Encourage initiative;
-
8/12/2019 FIA Paper FAB.sessions6-8
37/96
Departmental Roles & Functions Marketing: the process that identifies, anticipates
and satisfies customer needs in the mostprofitable manner.
Marketing activities will include: Sales supporttele-marketing and sales, customer
management; Marketing communicationsbrochures, catalogues, ad
promos and campaigns;
Operational marketingmarket research, brand mgt,product development, marketing programmes;
Strategic marketingcreation of new competitivestrategy
Organisations will spend time creating marketingstrategies through: Marketing audits
-
8/12/2019 FIA Paper FAB.sessions6-8
38/96
Departmental Roles & Functions
The marketing strategy will create a marketing
orientationfor the organisation:
Production orientation:assumes that customers will buywhatever we produce- therefore produce as many aspossible demand will exceed supply;
Sales orientation: assumes resistant customers, so activeand aggressive promotion is required to persuade customersales;
Product orientation: assumes that by adding features toexisting products, that demand will increase.
Marketing orientation: unlike the other orientations,assumes that the needs and wants of customers must be
ascertained in order to deliver more suitable products andtherefore eliminate the effects of com etition.
-
8/12/2019 FIA Paper FAB.sessions6-8
39/96
Departmental Roles & Functions
Marketing mix:a set of controllable variables andtheir levels that an organisation uses to influencethe target.
The variables in the mix are: Product:addresses product characteristics
Price: considers pricing objectives
Place: addresses how the product will be conveyed to the
customer Promotion: development of marketing communication and
promotion
-
8/12/2019 FIA Paper FAB.sessions6-8
40/96
Departmental Roles & Functions
Product variable: considers product or servicecharacteristics like design, features, quality, safety,image etc.
Products will possess core benefits or uses alongwith augmented or additional features and uses.
The following distinctions are also possible:
Class
Form:
Brand or make
-
8/12/2019 FIA Paper FAB.sessions6-8
41/96
Departmental Roles & Functions
Price variable: must determine most suitable andappropriate pricing for the product based on itsuse and expected profitability.
Demand will tend to influence pricing. Several
pricing strategies exist: Penetration pricing
Market skimming
Pricing also assists in creating an image for theproduct in the market.
Pricing is also the key tool in competitive wars
between organisations and their products.
-
8/12/2019 FIA Paper FAB.sessions6-8
42/96
Departmental Roles & Functions
Place variable: addresses two aspects in terms ofdistribution of the organisations products andservices.
Outlets: branches, locations and points from wherethe products may be sold;
Logistics: use of intermediaries, creation and
management of a distribution network,warehousing, storage and transportation
-
8/12/2019 FIA Paper FAB.sessions6-8
43/96
Management Functions: Planning, Control
& Decision Making
Planning: essentially involves the determination of adirection for an organisation over a defined period oftime, and is achieved through the following steps:
Setting Objectives: this answers the question - where do we
want to be - and tells the organisation clearly whatmanagement seeks to achieve and in what timeframe.
Choice of Strategy: answers the question - how will we getthere and seeks to determine what methods or options areavailable for management to choose in order to achieve thestated objectives.
-
8/12/2019 FIA Paper FAB.sessions6-8
44/96
Management Functions: Planning, Control
& Decision Making
Objectives: articulate what a business seeks to achieveover a specified period of time.
Strategy: involves the formulation of objectives and
goals for the organisation and the articulation of adirection for the organisation. It clearly indicates at ahigh level, where the organisation currently is andhow will get to where it wishes to be, through theefficient use of the available resources.
Planningis therefore is the overall process ofdeveloping strategy, tactics and implementingoperations to achieve them
-
8/12/2019 FIA Paper FAB.sessions6-8
45/96
Management Functions: Planning, Control
& Decision Making contd
Control: this phase begins followingsuccessful determination andimplementation of an organisational plan atall levels. The control phase involves two
main aspects: Comparisonthe actual results and performance of the
organisation need to be compared to the original plan(budget/standard), in order to determine if any varianceshave occurred;
Corrective Action where variances have occurred andare significant, some actions must be taken in order tobring performance back in line with the expected orplanned performance.
-
8/12/2019 FIA Paper FAB.sessions6-8
46/96
-
8/12/2019 FIA Paper FAB.sessions6-8
47/96
Organisational Planning & Control
Organisations are usually split into several levels,that correspond to various levels of seniority,management, roles and tasks.
These levels are:
Strategic Level board of directors, senior mgt, CEO etc.
Tactical Level middle mgt, operational and divisionalmgrs
Operational Level line supervisors, operatives etc.
Each level will be involved in their specific aspects of theoverall corporate planning activity.
-
8/12/2019 FIA Paper FAB.sessions6-8
48/96
Strategic, Tactical & Operational Planning
Strategic planning has been identified as theprocess of deciding objectives for the organisation,changes to these objectives, the resources requiredto attain these objectives and the associated policiesthat should govern acquisition and utilisation of
these resources.
This aspect of planning takes a global view of theentire organisation and where it needs to be within
a set timeframe, and is carried out by strategic levelmanagement.
-
8/12/2019 FIA Paper FAB.sessions6-8
49/96
Strategic, Tactical & Operational Planning
Tactical planning is dealt with by a range ofmiddle management staff including divisionalheads and technical staff. It addresses primarily theresource acquisition and allocation of theorganisation, as it relates directly to achieving thestated goals and objectives.
Tactical planning or management control, istherefore concerned with effectiveness, efficiencyand economy of the organisations operations.
Additionally, comparative and corrective actionsare vital.
-
8/12/2019 FIA Paper FAB.sessions6-8
50/96
-
8/12/2019 FIA Paper FAB.sessions6-8
51/96
Planning Information & Tools
All levels of management will require useful andmeaningful information that allows them toadequately carry out the specific planningfunctions outlined above.
Management and cost accountants will be chargedwith providing this management information on atimely basis and in a manner suitable to its
intended uses.
-
8/12/2019 FIA Paper FAB.sessions6-8
52/96
Planning Information & Tools - contd
Strategic information:
Originates from internal and external sources
High level summaries Provides a long term view
Provides a holistic, global organisation outlook
Qualitative and quantitative elements
Will include several forecasts and assumptions
-
8/12/2019 FIA Paper FAB.sessions6-8
53/96
Planning Information & Tools - contd
Tactical information:
Internally generated information
Lower level summaries Provides a short to medium term view
Provides a detailed analysis by activity, function, productetc.
Available frequently and follows routine preparation
Largely quantitative in nature
-
8/12/2019 FIA Paper FAB.sessions6-8
54/96
Planning Information & Tools - contd
Operational information:
Fully derives from internal sources
Highly detailed, as it usually includes raw data andlimited processed information
Provides a daily view and is very immediate in its outlook
Very task specific
Ongoing preparation each day
Provide a very initial and basic trends of activity to befurther analysed.
-
8/12/2019 FIA Paper FAB.sessions6-8
55/96
Planning Information & Tools - contd
Each level of management will employ variousmethodologies, tools and resources in an effort toexecute their planning functions:
Strategicexecutive decision systems; forecasting andplanning models; project management software;
Tacticalbudgets, cash forecasts, action plans andprogrammes;
Operationalperformance reports, customer service
measures, resource usage and requirements;
-
8/12/2019 FIA Paper FAB.sessions6-8
56/96
Planning Timeframes
The planning phases of an entity coverthree distinct timeframes:
Long term planning: also referred to as corporateplanning, it addresses a strategic plan covering a five to
fifteen year time period. Will involve assessment, objectiveand evaluation stages;
Short & Medium term planning: the overall longterm strategic or corporate plan can only be achievedthrough the implementation of smaller scale plans andprogrammes, outlining direcction for the immediateoperational future (12 months).
-
8/12/2019 FIA Paper FAB.sessions6-8
57/96
Session #7
Organisational Culture
-
8/12/2019 FIA Paper FAB.sessions6-8
58/96
The Concept of Culture
Culture refers to the behaviours and understandingamong a group of people as to how things are donewithin the group or organisation.
This group could be a nation, gender, population,profession or organisation.
Our focus is on the culture of organisations and howit or influences structure of the organisation.
-
8/12/2019 FIA Paper FAB.sessions6-8
59/96
-
8/12/2019 FIA Paper FAB.sessions6-8
60/96
Organisational Culture
The culture of an organisation may bedemonstrated through:
Organisational structure
Communication styles Office layout
Symbols, legends and myths
Management style
Attitudes to quality, risk, customers and technology
-
8/12/2019 FIA Paper FAB.sessions6-8
61/96
Shaping a Culture
The culture of an organisation is typically shapedby the following factors:
The founder of the organisation: founders oforganisations will set a foundation for cultural values andbehaviours that will be typically hard to change, evenwhen the founder no longer exists;
The history of the organisation: the period of time in
which the organisation was formed, giving considerationto what was readily accepted in terms of norms during theperiod will influence the culture that exists and remains;
-
8/12/2019 FIA Paper FAB.sessions6-8
62/96
Shaping a Culture
The culture of an organisation is typically shapedby the following factors:
Leadership & management style: managers and leadersare chosen that will promote and perpetuate the existingnorms and behaviours and ways of doing business;
The environment: behaviours and norms of theenvironment will influence internal organisational culture.
The environment will include: countries, regions,professions etc.
-
8/12/2019 FIA Paper FAB.sessions6-8
63/96
Theories on Culture
Several writers have proposed theories andconcepts of culture and how it influences structureand operations.
Three key theories were articulated by:
Sheindeterminants of culture
Handy cultural stereotypes
Hofstedeinternational perspectives
-
8/12/2019 FIA Paper FAB.sessions6-8
64/96
Sheins Theory
Shein defined culture as a set of shared andimplicit assumptions that are held by a group,determining how it perceives, thinks and reacts.
He suggested that the effect of the foundersimpression on culture was significant and becameembedded in the organisation for life.
He saw culture as hardest attribute of anorganisation to change and listed threedeterminants of culture:
-
8/12/2019 FIA Paper FAB.sessions6-8
65/96
Sheins Theory
Observable behaviour: the evident behaviours,norms, artefacts and attitudes within theorganisation;
Underlying values and beliefs: these give thespecial meaning to the behaviours and tend to becommunicated through mission statements, brandsand slogans;
Hidden assumptions: unspoken rules andprinciples that influence the beliefs and behaviours
-
8/12/2019 FIA Paper FAB.sessions6-8
66/96
Handys Theory
Handy gave greek names and his owninterpretation to the 4 types of cultural stereotypesdeveloped by Harrison:
Power (Zeus) culture Role (Apollo) culture
Task (Athena) culture
Person (Dionysus) culture
-
8/12/2019 FIA Paper FAB.sessions6-8
67/96
-
8/12/2019 FIA Paper FAB.sessions6-8
68/96
Handys Theory
Role/Apollo: signifies a more bureaucraticapproach to culture and assumes logic and rationalbehaviours exist.
Organisations with such a culture will have aformal structure, adhering to formal rules andprocedures.
Individuals are expected to fulfil their roles
without overstepping their authority.
The culture works well in a stable environment of alarge entity
-
8/12/2019 FIA Paper FAB.sessions6-8
69/96
Handys Theory
Task/Athena: management in this culture is seenas ensuring the completion of projects, tasks oractivities.
Performance will therefore be assessed on results,and their will be a greater demand for experts andspecialists to achieve the desired results.
The principal objective is getting the job done.
-
8/12/2019 FIA Paper FAB.sessions6-8
70/96
Handys Theory
Person/Dionysus: these cultures serve the interestof those making up the organisation.
Management within these cultures is lower in
status and less important than the personsensuring organisational success - the professionals.
Organisational success depends on the talent of
individuals, with management based on agreementwith individuals.
-
8/12/2019 FIA Paper FAB.sessions6-8
71/96
Hofstedes Theory His theory suggests 4 dimensions which impact
culture: Power distancethe extent of unequal distribution of power
being accepted;
Uncertainty avoidanceextent to which security, control,
risk taking and change are viewed and embraced;
Individualismdo people prefer to work together orseparately;
Masculinityhow does gender influence roles and culture In each of these cultures there could be a high or low
degree of each dimension, which determinesorganisational culture.
-
8/12/2019 FIA Paper FAB.sessions6-8
72/96
Session #8
Corporate Governance and Social Responsibility
-
8/12/2019 FIA Paper FAB.sessions6-8
73/96
Defining Corporate Governance
The system of ethics, accountability, transparency,control and rules by which a corporate entity isdirected and controlled by its management andsenior officers.
Corporate governance has a number of elements:
The reduction of corporate risks to all stakeholders;
A set of best practices enhance overall performance throughgood supervision and management;
An ethical framework exists for the pursuit of corporategoals and objectives;
The spirit and the letter of the law should be applied;
Accountability
-
8/12/2019 FIA Paper FAB.sessions6-8
74/96
Principles of Governance
Good governance systems will give consideration to:
Minimisation of risk;
Ensuring adherence to and satisfaction of strategicobjectives;
Fulfilling responsibilities to stakeholders, while minimising
potential conflicts of interest; Establishment of clear accountability guidelines for
management;
Maintenance of independence for those who have the dutyto review, monitor and scrutinise;
Provision of accurate and timely reporting of financial andoperating data that meet all relevant criteria;
Encouragement of more proactive involvement of ownersand members in the management process;
Promotion of integrity in business dealings
-
8/12/2019 FIA Paper FAB.sessions6-8
75/96
Perspectives on Governance The concept of governance is founded on three main
views of the relationship between the ownership andmanagement of the organisation:
Stewardship theory: management are essentially stewards ofthe organisations assets, charged with their effective and
efficient deployment; other stakeholders usually take nointerest;
Agency theory: management acts in an agency capacity,attempting to service their own interests, and encouragingperformance only where it meets these self interests;
Stakeholder theory: management has a duty of care,responsibility and accountability not only to owners, but also
to all of its other stakeholder and interest groups.
-
8/12/2019 FIA Paper FAB.sessions6-8
76/96
Forces on Governance Development
Increasing globalisation;
Differential treatment of domestic and foreign
investors;
Financial reporting requirements and issues;
Influences of jurisdictions and countries;
The effect of corporate scandals and failures.
-
8/12/2019 FIA Paper FAB.sessions6-8
77/96
Corporate Governance in the UK
Corporate governance frameworks and best practiceshave been developed through several reports anddevelopment of accepted codes by various writersand contributors.
Cadbury Report:
Issued in 1992, was a report on accepted best practices for thegovernance of corporate entities;
Greenbury Committee Report:
Issued in 1995, this report focused on governance issues interms of the levels of directors remuneration
-
8/12/2019 FIA Paper FAB.sessions6-8
78/96
Corporate Governance in the UK
Hampel Report: Issued in 1996, was yet another report on accepted best
practices for the governance of corporate entities;
The Combined Code: Issued in 1998, this report essentially combined the
provisions of the Cadbury, Greenbury and Hampel reportsinto a single enforceable code, articulating the principles ofgood governance and a prescribed code of best practice.
Turnbull Committee Report: Issued in 1999, this report assessed governance in light of
managements responsibilities for the internal controls andrisk management of any corporate entity
-
8/12/2019 FIA Paper FAB.sessions6-8
79/96
-
8/12/2019 FIA Paper FAB.sessions6-8
80/96
Identifying Poor Governance
Poor corporate governance practices are oftenevident where there is:
Domination of a single individual;
No proper involvement of the board of directors;
No proper internal audit or internal control systems;
Lack of supervision;
Lack of independent review on an objective basis;
Lack of contact, communication and interaction with
shareholders;
Emphasis on quick return and short term profitability;
Misleading accounts and information
-
8/12/2019 FIA Paper FAB.sessions6-8
81/96
Dealing with Poor Governance
Poor corporate governance practices increase therisks that an organisation, its owners, members andother stakeholders are exposed to.
High profile corporate scandals have created a newfocus on the governance of corporations worldwide,resulting in new measures and regulations beingenforced on companies especially with respect to
reporting practices and requirements: New regulations
New standards
New and stiffer penalties
-
8/12/2019 FIA Paper FAB.sessions6-8
82/96
Dealing with Poor Governance
The concept of governance has to be one clearlylinked to the core values, beliefs and ethicalprinciples of the senior management and boards ofdirectors of companies personal and professionalqualities.
The main recommendations on best practice oforganisations and the roles of specific groups inperpetuating these practices should be noted.
-
8/12/2019 FIA Paper FAB.sessions6-8
83/96
Stakeholders in Governance
The proponents of strong governance have outlinedthe various roles and tasks that specific groups in theorganisation should have in terms of responsibilityand accountability.
These groups are:
Boards of directors
Non-executive directors
Remuneration committees
Audit and internal review committees
Public oversight
-
8/12/2019 FIA Paper FAB.sessions6-8
84/96
Stakeholders in Governance
Boards of Directors: have responsibility to provideand define purpose for the company and set thevalues by which this purpose will be pursued, onbehalf of the stakeholders noted. The board should:
Have a schedule of matters for decision;
Monitor the CEO/MD;
Oversee strategy;
Monitor risks and control;
Monitor human capital issues;
Ensure effective communication;
-
8/12/2019 FIA Paper FAB.sessions6-8
85/96
Stakeholders in Governance
BODs should comprise a mix of experience, ability andknowledge and should include a balance of executive and non-executive directors.
The board has a personal reponsibility to ensure that it is
satisfied that it has been furnished with all relevant informationrequired for the decision making process saying I didntknow is not acceptable. There should also be a division ofresponsibilities.
The performance of the board, its Chairman and CEO shouldbe appraised independently and by owners.
S k h ld i G
-
8/12/2019 FIA Paper FAB.sessions6-8
86/96
Stakeholders in Governance
Non-executive directors: possess no dailymanagerial functions in the organisation, butprovide a useful mechanism for keeping thegovernance of the entity in check. One of their keyroles should be in reducing conflicts of interestsbetween executive directors and other interests.
Their key roles should be:
Contribution to strategy formulation;
Performance review of management;
Ensure risk reduction especially in corporate reporting;
Setting direction and management remuneration
S k h ld i G
-
8/12/2019 FIA Paper FAB.sessions6-8
87/96
Stakeholders in Governance
Non-executives should bring their externalexperience to bear on the operations of the entity,providing perspective, comfort and independence tothe role of the board.
There should be an adequate number sitting on eachboard to ensure the weight of their views can be ofsignificant influence.
Non executive directors should have no financial orbusiness connection with the entity, no shareownership, be appointed for specific terms.
S k h ld i G
-
8/12/2019 FIA Paper FAB.sessions6-8
88/96
Stakeholders in Governance
Remuneration committees: these committees willconsist of independent non executive directors. Theyplay a key role in the establishment of policies onremuneration packages for directors and seniormanagement.
Criteria in developing this policy may be:
Setting of the policy by independent personnel;
Linking the policy and remuneration to measurableperformance or growth in shareholder value;
Full transparency in directors remunerations and thedisclosure of it.
S k h ld i G
-
8/12/2019 FIA Paper FAB.sessions6-8
89/96
Stakeholders in Governance
Internal Control & Audit committees: thesecommittees will again consist of independent nonexecutive directors. They role is the independentreview and liaising with external auditors on issuesof internal audit and review, supervision and
financial accounting function, management andadvise on internal controls and supervision of theexternal audit process.
The Cadbury report addresses benefits of auditcommittees see pg 16.
St k h ld i G
-
8/12/2019 FIA Paper FAB.sessions6-8
90/96
Stakeholders in Governance
The main duties of the committee will be:
Review of financial statements and systems:
Liaison with external auditors: Appointment and removal of auditors;
Consider threats to independence;
Determining the audit scope;
Ensuring provision and access to information; Being available for meetings and consultation;
Addressing any reservations of the external audit team;
St k h ld i G
-
8/12/2019 FIA Paper FAB.sessions6-8
91/96
Stakeholders in Governance
Review of internal audit: Setting of standards
Detailing scope
Allocating resources
Reporting methods and arrangements
Audit work plan
Link to external audit work
results
Review of risk management:
The potential risks faced by the entity based on its adoptedstrategies and policies must be analysed appropriately
St k h ld i G
-
8/12/2019 FIA Paper FAB.sessions6-8
92/96
Stakeholders in Governance
Review of internal control: Monitor adequacy of controls
Set codes of conduct and ethics for compliance
Address risk of fraud
Review and test the controls, analyse reports
Recommend to auditors suggested risk areas
Review high risk and other transaction samples
Investigations:
The committee should request and implement investigationsand detailed reviews of accounting practice and internalcontrol compliance as deemed necessary to ensure properadherence and transparency in reporting.
C t S i l R ibilit
-
8/12/2019 FIA Paper FAB.sessions6-8
93/96
Corporate Social Responsibility
The concept requires businesses to ensure thattheir business practice provide benefits t thesociety at large and do not only serve their internalinterests or those of a minority of the stakeholders.
It is an assumed responsibility to take actions, thatare not required but are undertaken in the bestinterest of all stakeholder groups, showing theentity to be a morally and socially aware citizen.
-
8/12/2019 FIA Paper FAB.sessions6-8
94/96
Reporting Governance and Social
-
8/12/2019 FIA Paper FAB.sessions6-8
95/96
p g
Responsibility
Companies are required to disclose their in theirannual reports and financial statements theprinciples adopted and applied to ensure goodcorporate governance in accordance with thecombined code and any other rules or regulationssetting standards on governance.
Any relevant costs and information has issued orprepared by the stakeholders of governance shouldalso be adequately disclosed.
Ethics Go ernance & Responsibilit
-
8/12/2019 FIA Paper FAB.sessions6-8
96/96
Ethics, Governance & Responsibility
Their must be clear interaction between the rulesand principles of ethics, governance and corporateresponsibility as they relate to the safeguarding of
stakeholder interests.
The effects of all sources should be clearly evidentin the behaviours and operations of any corporate
entity, at all levels of staff and management
top related