I. Introduction:
At present, having an efficient governance system is becoming more important for
companies around the world. This is because empirical evidence shows that having a
well-rounded governance system can help companies perform better in the market.
Corporate governance systems are sets of rules and practices which determine how
companies should be governed and directed to fulfill their missions. Corporate
governance involves the interests of all stakeholders in the company, which include
shareholders and workers. This reflection paper will briefly summarize five journal
articles first, and then compare and criticize them. Lastly, this reflection paper will apply
the knowledge of corporate governance systems to the tobacco industry in the UK and
Finland.
II. Article Introduction:

“Comparative and International Corporate Governance” written by Ruth
V. Aguilera and Gregory Jackson in 2010.

“Stakeholder Rights and Corporate Governance: A Cross- National Study
of Hostile Takeovers” written by William D. Schneper and Mauro F. Guillén in
2004.

“Corporate Governance Systems as Dynamic Institutions: Towards a
Dynamic Model of Corporate Governance Systems” written by Chukwunonye O.
Emenalo in 2012.

“Differentiated Governance of Foreign Subsidiaries in Transnational
Corporations: An Agency Theory Perspective” written by Bongjin Kim, John E.
Prescott and Sung Min Kim

“Corporate Governance for Competitive Advantage and Cross - Culture
Management” written by Dr. A.M.Singhvi.
III. Reflections on Article Comparative and International Corporate Governance:
1. According to Aguilera and Jackson (2010), the most common issue which exists in the
current models of any corporate governance system is the “agency problem”. As
proposed by the agency theory, agents such as a CEO would only be driven by selfinterests thereby ignoring the mutual benefit of the company for their companies and
shareholders. This behavior is the lead up to the agency problem. Aguilera and Jackson
demonstrate that “agency problems may be solved through blockholder control, where
one or few [principals] retain tight control over the firm through concentrated ownership
and are thus able to exert their influence over management”(2010, p. 496). However,
these principles may not be the experts in management which may potentially harm
companies’ performance in the market. To solve this problem, Emenalo proposed a
dynamic model of corporate governance systems. This model requires agents and
principles to negotiate their governance systems based on the missions of their
companies. Emenalo believes that the outcomes of companies’ governance systems can
reflect who the companies’ agents are. Thus, he proposed that when the company’s
mission is non-financial such as increase employee satisfaction, the company should look
for agents who are highly motivated by extrinsic factors to fulfill these missions. On the
other hand, if the mission is to reduce the R&D cost by certain percentage, the company
should look for agents who focus on the financial perspective. To increase these agents’
productivity and efficiency, the company should mainly use financial incentives to
reward them so that they can be highly motivated.
2. In “Comparative and International Corporate Governance”, Aguilera and Jackson
briefly introduced how multinational corporations transfer corporate governance practices
to their foreign subsidiaries. There has been little research regarding these governance
practices within multinational corporations specifically (Aguilera & Jackson, 2010). The
authors referred to the article by Kim, Prescott & Kim as an example of one of the very
few articles on this topic.
According to Kim, Prescott & Kim (2005), due to globalization, multinational
corporations need to change their global governance strategy in order to be efficient.
Today, more transnational corporations are trying to treat their foreign subsidiaries in
variety of ways based on the different locations, instead of treating them in a “uniform
manner (2005)”.
According to Birkinshaw and Morrison, foreign subsidiary roles can be categorized in
three ways: “local implementers” who respond to the local environment; “specialized
contributors” who integrate the competitive positions across national markets; and “world
mandates”, who manage local responsiveness and global integration simultaneously
(Kim, Prescott & Kim, 2005). In regards to local implementers, they try to meet the local
demands and needs. As a result, the decision-making process is highly localized and
quick location-sensitive decisions can be made without needing to wait for the
headquarters’ decisions (Kim, Prescott, & Kim, 2005). Unlike local implementers,
specialized contributors are “highly dependent” on their headquarters (2005). Because of
this dependency, the decision-making process is centralized, and there is generally a
common organizational way of thinking in the whole multinational enterprise. This can
restrict the ability of the foreign subsidiary to make any type of managerial decisions
(Kim, Prescott, & Kim, 2005). World mandate works with the headquarters and other
interdependent subsidiaries to come up with decisions for the company that blends the
local interests with the transnational goals and interests of the company as a whole. As a
world mandate company, there is less dependence on the headquarters, but there is not
“total subsidiary autonomy” (Kim, Prescott & Kim, 2005).
Although the study by Kim, Prescott, & Kim discusses transnational corporations, it is
important to have more real-life examples of company practices in order to better
understand how those companies adopt to new environments in a different locale.
3. The two articles written by Aguilera and Jackson, and Dr. Singhvi demonstrated
different opinions on the importance of the employee voice in a company. Aguilera and
Gregory Jackson indicated that employee voice at the broad level can help boost the
firm's productivity and enhance human capital by reducing labor turnover and preserving
skilled workers (2010). However, they did not give a clear explanation of the model they
use which demonstrates how to reduce the conflicts between shareholders' interest and
the employee voice. Dr. Singhvi, on the other hand, introduced a model which achieves
abnormality free culture. This model provides a socially related and culturally oriented
system which might successfully solve the conflict between labor concern and
shareholders' values. In this sense, Dr. Singhvi ‘s article complements the missing point
in Aguilera and Jackson’s article on the topic of employee voice in the governance
system of the company.
IV. Reflections on Article “Stakeholder rights and corporate governance”
1. According to Schneper and Guillén, shareholders are interested in hostile takeover of
the company because they own part of the equity and in the position to maximize their
wealth (2004). However, they did not explicitly explain who the shareholders are. As
mentioned in their article, hostile takeover is a risky practice of corporate governance
systems. If the shareholders, ones who do not directly participate in management in the
company, are principals, Emenalo stated that they tend to take hostile approaches such as
hostile takeovers because they focus on the financial perspective (Emenalo, 2012).
However, as proposed by Emenalo, shareholders, ones who take control of the
management in the company such as CEOs and managers, would take hostile governing
approaches like hostile takeovers in some cases because they are forced by their
principals (Emenalo, 2012). Thus, we can conclude that Schneper and Guillén’s argument
on shareholders in general are interested hostile takeover is not sufficient.
2. Schneper and Guillén explained that the main effect of a workforce takeover from a
target company is a reduction of labor job security (2004). To extend the fact, they
pointed out that a major consideration of a company’s workforce is job solidarity.
Therefore, in order to consolidate the organizational infrastructure of a target company
during a takeover, the primary method used is to reinforce workers’ job security.
However, when a hostile takeover occurs in the process of a merger, existing workers’
job security will be negatively affected thereby making the situation more challenging
and difficult for the buyer to handle (Schneper and Guillén, 2004).
Dr. Singhvi’s article gives some relevant suggestions on the issues mentioned above
particularly, solving the issue of companies entering into new regions and serving clients
with different cultural backgrounds. Specifically, Dr. Singhvi suggested that
organizations need to “share and re-use their knowledge among different applications for
various types of users” (p.125). By applying this method to treat targeting companies’
employees as a client with new culture, executives can better manage worker job
insecurity. This becomes especially applicable in a situation where one company takes
over another and begins the process to manage both operations as one entity. For
example, by sharing and reusing the existing knowledge sources, the buyer company can
reorganize the culture of existing labors so that they can establish a developed version of
governance system (Singhvi, n.d.). Also, Singhvi stated that the company can take extra
steps to create a culture that will encourage knowledge sharing within the company in
order to improve the relationship among the executives and the workers (n.d.).
According to Schneper and Guillén (2004), hostile raiders could be discouraged from
pursuing future deals as a result of being threatened by the new buyer. The profitability of
the newly merged corporation can drastically decrease as reviewed from previous cases
(for example the Nestle vs Perrier in 1992). As explained from Wikipedia, hostile
takeovers happen in three major ways including tender offer, proxy fight, and creepy
tender offer (2013). Schneper and Guillén held that hostile takeovers tend to always result
in job cuts through any of the takeover methods as above (2004). This is one of the
biggest reasons that existing employees would feel so threatened when they find the
original company is taken over by a new owner.
Back to Dr. Singhvi’s article, the author explains that flexibility is also required for
managing in cross cultures (n.d.). By taking this idea to the case of a hostile takeover, Dr.
Singhvi’s ideology can be regarded as a practical way to manage the conflict brought by
hostile takeovers. He emphasized the idea that it is “very evident, as different cultures of
various countries require a customized approach”(p. 130). It is true that having a
customized approach to acquire a new company is vital to its success. The solution to
settle a new working environment is not necessarily the result of cutting off the existing
workers. In fact, corporations may suffer more from the decision to minimize their
workforce such as the public opinion of the company. Hence, this action will not help to
ease the remaining employees insecurity either. By having a flexible policy created from
the merging of both companies’ cultures, the buyer company can effectively help the
executives collect the trust and loyalty of the existing workforce.
IV. Industry Application:
In order for an industry to run successfully, companies should focus on a corporate
governance system to govern the organization. A tobacco industry in both the U.K and
Finland can focus on a hostile takeover; however, the company should not focus on
mainly satisfying the shareholders. Workers should be as important as they have the
ability to influence the organization of business (Schneper & Guillen, 2004). As
mentioned, hostile takeover would achieve efficiency and profitability, but would affect
the job security of employees. Therefore, the company can focus on ensuring on a
positive outcome for jobs such as favorable working conditions and pay. By adding
tangible and intangible benefits, this could help protect the workers’ rights during a
hostile takeover. Examples could include extrinsic factors and financial incentives.
References
Aguilera, R.V. & Jackson, G. (2010). Comparative and International Corporate
Governance. The Academy of Management Annals, 4(1), 485-556. Doi:
10.1080/19416520.2010.495525
Emenalo, C. (2012). Corporate Governance Systems as Dynamic Institutions: Towards a
Dynamic Model of Corporate Governance Systems. African Journal of Business Ethics,
6(1), 39-49. Doi: 10.4103/1817-7417.104701
Guillén, M.F. & Schneper, W.D. (2003). Stakeholder Rights and Corporate Governance:
A cross- national study of hostile takeovers. Administrative Science Quarterly, 49(2),
263-295. Retrieved from http://www.jstor.org
Kim, B., Prescott, J. E., & Kim, S. M. (2005). Differentiated governance of foreign
subsidiaries in transnational corporations: an agency theory perspective. Journal of
International Management, 11(1), 44, 50-52. Retrieved from
http://www.sciencedirect.com.
Singhvi, A.M. (n.d.). Corporate Governance for Competitive Advantage and Cross Culture Management. Retrieved from
http://www2.ifm.eng.cam.ac.uk/cim/imnet/papers2001/singhvi.pdf
Wikipedia. (2013). Retrieved from http://en.wikipedia.org/wiki/Takeover