CCopious improvement in corporate governance practice has occurred after the major financial scandals since the 2000s.
Corporate governance failure and/or governance structure absence; that is, the power of influence localised in a few directors, can lead to management ineptitude, theft and other fraudulent practices in an organisation.
Generally, corporate governance is the system through which stockholders’ rights are safeguarded and protected or a conveyer belt for transmitting quality management for profits and that which facilitates monitoring efficiency and effectiveness or a framework that embodies agreement, accountability, transparency in the laws for organisational regulation.
The rapid change in governance practice is caused by strategic tools deployment to create value for enterprises and make capital invested generate more returns for technology and corporate infrastructure.
However, reducing the life-cycle of capital for quick and fast investment for more dividend is a dangerous attempt.
Thus, leadership critical thinking for innovation is required in effective decision-making and implementation for tasking responsibilities.
This leadership task influences effective internal system and sets regulatory checks for managers’ conducts and those who are managing equity capital for higher performance.
Nowadays, enterprises’ ability to source for finance capital is based on good corporate governance practices.
Research shows that institutional investors are ready and willing to offer a premium of 20% for shares of companies that adopt good governance principles in their management.
Good management system, therefore, promotes effective crafting of methods, simplifying processes, undertaking research and development, benchmarking best practices, and reducing bureaucratic red-tapism.
Research and development provide a means by which corporate entities retool and modernise human capital.
Business manpower gains information advantage for sophistication in production through research, and this information can be training in know-how, which is not available to other business rivals leading to important opportunities creation, including superior products design and risks reduction.
Regrettably, information technology transformation waves of knowledge seem to elude some managers, who are incapacitated in their abilities to access and acquire specific knowledge explosion.
While top managers cannot grasp and process the abundant information in existence, their capacity to innovate and act in that direction is restricted, and are far remote from the actual phenomena, thereby making use of secondhand and previously worked on data.
The implication for this is that these managers forfeit the advantages of analytical talents and most often end up dwelling on automatic decision rules that reduce data manipulation needs.
In this regard, it is a cost to an organisation when top decision-making executives disregard specific knowledge within the lower ranks.
For instance, investment in technology without probing its reliability is dangerous to an organisation. This specific, unique, diverse and relevant knowledge necessary for an organisation’s working force may not necessarily be located within top management.
Consequently, management must utilise the knowledge and/or expertise at the lower management level for organisational benefits.
More often, management loses touch with specific and relevant knowledge as the enterprise grows larger, requiring different layers of governance.
It is logical that decision-making is decentralised to lower management, who possess relevant information. Increased discipline and monitoring of performance by outsider lenders who are not administrators insulate the organisation from market forces.
The argument that divergence exists between knowledge-based power and position-based power is sustained, especially when decision rights are concentrated in the hands of top management, who are not abreast of time and reality of the day leading to serious ramifications for technology improvement.
Inasmuch as there is a need for position power in an organisation, consideration should be made to utilise the expertise of junior staff, who constitutes the critical mass and has important information.
One of such avenues to make use of the expertise at the lower level of management is to allow them to participate in joint decision-making with senior management; hence giving significant decision-making authority to specific knowledge at the lower level, which is crucial for business success.
The diversity of knowledge and its distribution supports decentralisation of institutions undergoing rapid transformation and should accord decisions power to those individuals in organisations conversant with the knowledge of the day.
Adaptation is not the best method of sharing relevant and specific knowledge with some senior officers. As decentralisation challenges corporate management, managers must purge themselves of the inherent problematic human realities (seeking personal welfare) for robustness of systemic rules, safeguarding and rewarding evaluation rights of individuals wielding decision rights via organisation’s reward systems.
Meanwhile, the complexity of the modern enterprise poses tremendous tasks to management, more especially when building working relationships between the headquarters and the subsidiary executives.
This challenge occurs when the decisions and goals of the subsidiaries are in direct contrast to headquarters.
Attempts to control subsidiary units through assigning headquarters’ personnel with supervisory powers over subsidiaries only results in tall bureaucratic imperatives because agents in the subsidiaries are delegated with increased decision-making discretion or autonomy with much information than the headquarter’s supervisors.
Again, information asymmetry creates huge, challenging and mundane supervisory responsibility for headquarters’managers, more particularly with foreign subsidiaries serving completely different commodities and markets.
This situation, practically, makes headquarter’s monitoring activities ineffective because the bulk of the information is held by the subsidiaries, a challenge refers to as the “lateral centralisation”.
Additionally, intense competition poses a problem from within the autonomous subunits. The healthy competition that usually ensues among the leaders of these units enables them to contrast the value propositions in their enterprise and the marketplace.
Consequently, when the external proposition is better than the internal benefits and coupled with a high chain of command in organisations, defection by more qualified managers is possible.
To avoid this, there should be a balance between management incentives and oversight supervision within the organisation, implying that a tailored ownership arrangement for middle-level management should be developed to reduce the vulnerability of losing well-informed corporate staff.
By ALPHONSE KUMAZA
The writer is a Senior Tourism Officer
Ministry of Tourism, Arts and Culture