BBAC 3013

BUSINESS ETHICS & CORPORATE GOVERNANCE

Semester & Year:

Sem 3 Year 2018

Group Assignment

Name Student’s ID Batch

GOH SIEW TENG B170332C BBA17-C2
TEY ZHI XIN B170242C BBA17-C2
BOON JING XUAN B170331C BBA17-C2
KEE LI YIN B170336C BBA17-C2
 Table of Contents

1. Executive Summary...................................................................................................1

2. Case Study..................................................................................................................3

2.1 Question............................................................................................................3

2.2 Mendolew’s Matrix...........................................................................................5

2.3 Case Study Analysis..........................................................................................7

2.3.1 The board of directors.............................................................................7

2.3.2 The founding family shareholders...........................................................8

2.3.3 The trade unions to which the home country workers belong................9

2.3.4 Migrant Workers...................................................................................10

3. Conclusion................................................................................................................11

4. References................................................................................................................12
1. Executive Summary

Corporate governance is a system by which the organisations are directed and

controlled, it is based on a number of concepts including transparency, independence,
accountability and integrity. Generally, corporate governance also can be defined as
the system by which companies are directed and controlled in the interest of
shareholders and stakeholders.
According to Cadbury Report 1992, it states that corporate governance us the
system by which companies are directed and controlled. An espansion might include
‘in the interests of shareholders’ highlighting tthe agency issue involved and ‘in
relation to those beyond the company boundaries’ or ‘and stakeholders’ suggesting a
much broader definiton that brings in concerns over social responsibility. The
coverage of governance is including direction from within and control from outside.
The direction from within means that the nature and structure of those who set
direction, generally means the board of directors. It also include the nned to monitor
major forces through risk analysis and the need to control operations which is internal
control. While, control from outside means that the need to be knowledgeable about
the regulatory framework that defines codes of best practice, compliance and legal
statue the wider view of corporate position in the world through social responsibility
and ethical decisions. Generally, control from outside includes laws, rules, regulations
and listing rules. The basic purpose of corporate governance is to monitor those
parties within a company which control the resources owned by investors. The
primary objective of sound corporate governance is to contribute to improved
corporate performance and accountability in creating long-term shareholder value.
In corporate governance, it consists agency principal which is agency relationship
and theories. Agency theory examines the duties and conflicts that occur between
parties who have an agency relationship. Agency relationships occur when one party,
the principal, employs another party, the agent, to perform a task on their behalf.
Agency theory can help to explain the actions of the various interest groups in the
corporate governance debate. The most important agency problem is considered as the
short-term perspective which relates to a tendency to foreshorten the time horizon
applied to investment decisions or to raise the discount rate well above the firm’s cost
of capital. Mostly this happenes as an individual pursue their self-interest and don’t
care about organization. There have three principal-agent relationships and corporate

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governance which are agency cost, residual loss and agent bonding cost.
In corporate governance, from the principles in the Combined Code, the key roles
and responsibilities of the board of directors are include decide on a formal schedule
of matters to be reserved for board decision; select and appoint the CEO, chairman
and other board members; ensure that company’s management is performing its job
correctly and more others duties. An effective board in corporate governance should
demonstrate the capabilities of clear strategy aligned to cabalities; vigorous
implementation of strategy and sharp focus on the views of key stakeholders. For a
good director should fulfil some characteristics such as motivated, proactive and
experienced, and also the skills such as listening, leadership and questioning.
In corporate governance, shareholders are the owners of companies. A small
business may have just one shareholder, the founder, while a public company may
have thousands of individual and institutional shareholders, such as mutual fund
companies, pension funds and hedge funds. Shareholders play an important role in the
financing, operations, governance and control aspects of a business. Shareholders
have rights to vote on company decisions. They can vote on a variety of corporate
matters including voting in officers, company acquisitions and mergers or liquidations
of company assets. Voting on these matters generally take place when corporations
have their annual meetings. Shareholders also have rights to inspect their
corporation’s financial information. Inspecting the books gives shareholders a chance
to view how their corporations are performing.
A family business is a commercial organization in which decision-making is
influenced by multiple generations of a family — related by blood or marriage or
adoption — who has both the ability to influence the vision of the business and the
willingness to use this ability to pursue distinctive goals. They are closely identified
with the firm through leadership or ownership. Family business continuity plans
commonly establish a governance structure for the family and for the family business.
The purpose of those structures is to improve strategy and control mechanisms of the
family business and, to organize the communication and relationship between family
owners and business executives.

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2. Case Study

2.1 Question
Goaway Hotels is a chain of hotels based in one country. Ninety per cent of its
shares are held by members of the family of the founder of the Goaway group. None
of the family members is a director of the organization. Over the last few years, the
family has been quite happy with the steady level of dividends that their investment
has generated. Directors are encouraged to achieve high profits by means of a
remuneration package with potentially very large profit-related bonuses.
The directors of Goaway Hotels currently wish to take significant steps to
increase profits. The area they are focusing on at present is labour costs. Over the last
couple of years, many of the workers they have recruited have been economic
migrants from another country, the East Asian People’s Republic (EAPR). The EAPR
workers are paid around 30% of the salary of indigenous workers, and receive fewer
benefits. However, these employment terms are considerably better than those that the
workers would receive in the EAPR. Goaway Hotels has been able to fill its vacancies
easily from this source, and the workers from the EAPR that Goaway has recruited
have mostly stayed with the company. The board has been considering imposing
tougher employment contracts on home country workers, perhaps letting number of
dismissals and staff turnover of home country workers increase significantly.
In Goaway Hotels’ home country, there has been a long period of rule by a
government that wishing to boost business and thus relaxed labour laws to encourage
more flexible working. However, a year ago the opposition party finally won power,
having pledged in their manifesto to tighten labour laws to give more rights to home
country employees. Since their election the new government has brought in the
promised labour legislation, and there have already been successful injunctions
obtained, preventing companies from imposing less-favourable employment terms on
their employees.
An international chain of hotels has recently approached various members of the
founding family with an offer for their shares. The international chain is well known
for its aggressive approach to employee relations and the high demands it makes on
its managers. Local employment laws allow some renegotiation of employment terms
if companies are taken over.

3
Required
You are acting as an advisor to the board, specialising in negotiating changes to
employment conditions. Using Mendolew’s matrix, analyse the importance of the
following stakeholders to the decision to change employment terms of home
country’s workers in Goaway Hotels.

(a)The board of directors

(b)The founding family shareholders
(c)The trade unions to which the home country workers belong
(d)Migrant workers

Professional skills marks are available for demonstrating evaluation skills in assessing
the importance of the different stakeholders.

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2.2 Mendolew’s Matrix

Mendelow’s matrix is a power-interest matrix which is a tool for analysing and

managing stakeholder groups. It is proposed by Aubrey Mendelow in 1991 that
suggest us evaluate our stakeholder groups based on Power (the ability to influence
the organisation strategy or project resources) and Interest (how interested they get
from the organisation or project succeeding). (Oxford, 2018) This model provides a
framework for assessing the general nature of action to be taken following
classification of stakeholders according to power and interest. It helps organizations
understand which stakeholder groups are important as they can influence them the
most and probably cannot be ignored. This matrix divides stakeholders into four
groups, namely categories A, B, C and D. Each category has different roles and
perspectives that influences over the organisation’s strategy and objectives. Some of
them may have different power or interest neither in both strategy and operation of an
organization. Category A (Low Interest and Low Power) show minimal effort
monitoring and little resistance in the organization like social organizations or general
public. Category B (High Interest and Low Power) have to be keep informed to
ensure that no major issues are arising. It includes consumers, employees, banks and
media who can point out any areas that can be improved or overlooked. It is essential
to keep satisfied of Category C (Low Interest and High Power) as they have the
potential to move into “High Interest and High Power” group. For example,
government can exercise their power to influence the organization. Category D (High
Interest and High Power) is those key players within the organization like
stockholder, creditor, suppliers, competitors and labour union. This stakeholders
group actively engage and influence a change or strategy. Different factors may
dictate whether a shareholder may exercise power according to Mendelow’s matrix.
Power means that who can exercise most influence over a particular decision
(though the power may not be used). These are including those who actively
participate in decision-making normally directors and senior managers, or those
whose views are regularly consulted on important decisions (major shareholders). it
can also in a negative sense mean those who have the right of veto over major
decision which means the creditor with a charge on major business assets can prevent
those assets being sold to raise money. Stakeholders may be more influential if their
power is combined with legitimacy and urgency. Legitimacy means that whether the
company perceives the stakeholder action to be legitimate, while urgency means that
whether the stakeholder claim calls for immediate action.
Level of interest reflects the effort stakeholders put in to attempting to participate
in the organisation’s activities, whether they are succeed or not. It is also reflects the
amount of knowledge stakeholders have about what the organisation is doing.
2.3 Case Study Analysis
The case study required us to analyse the importance of the stakeholders to the
decision to change employment terms of home country’s workers in Goaway Hotels
by using Mendelow’s matrix. As we known, stakeholders mean a stakeholder is
anyone, as an individual or a collective such as organisation that has an interest or is
concerned with the actions of a business to the extent they are affected by or they can
influence it. In case study, we can known that the stakeholders in Goaway Hotels are
including the board of directors, the founding family shareholders, the trade unions to
which the home country workers belong and the migrant workers.

2.3.1 The board of directors

Firstly, we will analyse the role of the board of directors to the decision to change
employment terms of home country’s workers in Goaway Hotels. In case study, the
directors of Goaway Hotels currently wish to take some significant steps to increase
profits and the area they are focusing on at present is labour cost. The board has been
considering imposing tougher employment contractson home country workers. For
the board of directors, it is belong in the segment B of Mendelow’s matrix which is
Low Power High Interest. The board of directors have low power, this is because of
the new employment legislation appears to limit significantly the director’s freedom
to reduce labour costs by changing terms. The new employment legislation has been
mentioned in the case study which the new government has brought in the new
employment legislation and there have preventing the companies from imposing less-
favourable employment terms on their employees. Hence, the board of directors may
not have the power to change the employment terms of home country’s workers in
Goaway Hotel. Besides that, the board of directors have little say over the decision of
shareholders to sell shares. If the sgareholder of Goaway Hotels want to sell their
shares, the board of directors cannot stop them as they have no power to say anything
about shareholder’s decision. The level of interest for the board of directors is high.
As changing the employment terms is a major decison, and it is integral to the
directors’ plans for the future of Goaway Hotels chain. It may also have a significant
effect on their remuneration. If the future of hotels is bad, it means that the profit may
be bad and the remuneration package will relate to potentially very low profir-related
bonuses. To make a employment contract, the board of directors should not make the
contract be too strict to the indigenous workers. This is because of new laws have
been brought by new government to give more rights to home country employees.
The board of directors should include incentives to employees in employment
contract which may include give them high bonus, provide free meal and beverage,
provide free accommodation or accommodation discount. Therefore, for the board of
directors they do not have a great ability to influence the strategy, but their views can
be important in influencing more powerful stakeholders. And they should be kept
informed for the decision.

2.3.2 The founding family shareholders

Secondly, we will analyse the founding family shareholders to the decision to
change employment terms of home country’s workers in Goaway Hotels. In this case
study, it stated that the founding family are holding ninety percent of Goaway Hotels’
shares but none of the family members is a director of the organization. Besides that,
an international chain of hotels has approached various members of the founding
family with an offer for their shares. Hence, for the fouding family shareholders, it is
located at segment C of Mendelow’s matrix which is High Power Low Interest. The
founding family shareholders have high power. This is because of the founding family
shareholders are currently in a position desire to sell their shares. If the shareholders
feel that they have received a good offer, they will sell their shares. If they sell their
shares, the unions and employees may find that the international company is able to
take a much tougher approach. If the international company take a much tougher
approach, the union and employees will face a more tougher employment contract and
employment terms and may be difficult for their work life. The level of interest for the
founding family shareholders is low. This is because of none of the family members is
a director of the organization, so there is none of them participate actively in Goaway
Hotels’ decision-making. For the founding family shareholders, they are mainly
concerned about whether they able to continue to take the dividends or realize a
capital gain from their investment to Goaway Hotels. They will be happy with the
steady level of dividends and it means that their investment is valuable and worthy.
Therefore, the founding family shareholders in segment C of Mendelow’s matrix must
be treated with care and they should therefore be kept satisfied.
2.3.3 The trade unions to which the home country workers belong
Furthermore, we will analyse the trade unions to which the home country workers
belong to the decision to change employment terms of hime country’s workers in
Goaway Hotels. In case study, the board of Goaway Hotels has been considering
imposing tougher employment contracts on home country workers, perhaps letting
number of dismissals and staff turnover of home country workers increase
significantly. The trade unions to which the home country workers belong is located
at segment D of Mendelow’s matrix which is High Power High Interest. Thefore, the
trade unions to which the home country workers belong has high power to the
decision to change employment terms of home country’s workers in Goaway Hotels.
This is because of the trade unions have the economic power to take legal action to
prevent Goaway Hotels from changing their members’ employment terms. Since they
have the power to take legal action, the Goaway Hotels may afraid and may not to
change the emploment terms of home country’s workers. And the home country’s
workers rights and policies in Goaway Hotels may be protected and may receive more
benefits. The legal actions that they may take is refer to the new government law as
new government has brought in the promised labour legislation which is tighten
labour laws to give more rights to home country employees. While, for the level of
interest for the trade unions also in high level. This is because of the trade unions wish
to protect their members which are the home country’s workers. They want to protect
their members’ employee rights in the organizations and give more rights to home
country employees. So, for the trade unions to the decisions to change the
employment terms of home country’s workers in Goaway Hotels, the Goaway Hotels’
strategy must be acceptable by the trade unions, at least as they have the right to
protect their members.

2.3.4 Migrant Workers

Lastly, we will analyse the importance of migrant workers to the decision to
change employment terms of home country’s workers in Goaway Hotels. For the
migrant workers, they are belong to segment A of Mendelow’s matrix which is Low
Power Low Interest. For migrant workers, their power to the decision to change the
employment terms is low. This is because the migrant workers normally act as a
replacement workers. They can be recruited easily from their home country. In case
study, it has stated that the EAPR workers are paid around 30% of the salary of
indigenous workers, and they receive fewer benefits. That’s why the companies prefer
to recruit the migrant workers. If the migrant workers have a dissatisfied with the
employment terms, they also may be send back to their home country easily, so that
they have no power to say anything. For their interest, the level of interest for migrant
workers also considered as low level. This is because that the migrant workers are
seem quite happy with their current employment terms, even though these terms are
not as favourable as the home country’s workers. They think that the terms and
benefits they received here is better than their own country, so they satisfiy with the
terms and not request for more benefits. So as they belong to segment A of
Mendelow’s matrix, the minimal effort is expended on segment A.
3. Conclusion

As the conclusion, from Corporate Governance class, we learnt about that it is the
system by which companies are directed and controlled in the interests of
shareholders and other stakeholders. In this subject, we realize that Corporate
Governance plays an important role in managing company’s activities. A successful
organization is not only deal with customer but it is also all of the stakeholders who
can affect or be affected by the organization's actions. They have a duty to care for
their stakeholders and comply with ethical and legal. In this process, we can
understand different agency problem and principles which may happen in the reality
working condition. Therefore, different actions or solutions would be taken by
organization to avoid from getting worse. They can also be classified according to
their power and interest as Mendolew’s matrix. The members of the organization can
make the most suitable decisions through understanding the shareholder and
stakeholder role in operation and strategy especially upper-level management.
Hence, after finish the analysing the case study, we can know that the founding
family shareholders and the trade unions has high power to decision to change the
employment terms of home country’s workers in Goaway Hotels, while the board of
directors and the migrant workers has low power to the decision to change the
employment terms of home country’s workers in Goaway Hotels. Although the level
of interest for each of the stakeholders may be different, but their power still can
affect the decison to change employment terms in Goaway Hotels. Through
Mendelow’s matrix, we will be more understand about the power and interest for all
stakeholders invloved in corporate governance. In Mendelow’s matrix, the
stakeholder mapping is used to assess the significance of stakeholders. This has
implications for the organisation which are the framework of corporate givernance
and the direction and control of the business should recognise stakeholders’ levels of
interest and power. The key blockers and faciliators of change must be identified. The
stakeholders mapping can also be used to establish future priorities. The Mendelow’s
matrix is the best approach to analyse the stakeholders and know their position and
importance.
4. References

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https://blog.oxfordcollegeofmarketing.com/2018/04/23/what-is-mendelows-matrix-
and-how-is-it-useful/

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Governance Finance Essay. Retrieved November 22, 2018 from
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3. Mendelow’s Matrix (n.d.) Retrieved November 22, 2018 from

https://bizzledizzle.com/strategy/mendelow-matrix/

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November 23, 2018 from https://smallbusiness.chron.com/shareholders-rights-
corporate-governance-61933.html

5. Brenes, E. R. & Madrigal, K. & Requena, B. (2009). Corporate governance and

family business performance. Journal of Business Research, 64 (3), pp. 280 - 285.
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