TRƯỜNG ĐẠI HỌC VĂN LANG

KHOA KẾ TOÁN KIỂM TOÁN

TS. LÊ PHAN THANH HÒA

VLU, 12.2021
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BUSINESS ORGANISATION STRUCTURE, FUNCTIONS AND GOVERNANCE

1. Formal and informal organization

2. Business organization structure and design

3. Organizational Culture in Business

4. Committee in business organization

5. Corporate governance and corporate social responsibility

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 Formal Organization

Formal organization come with clearly defined policy, procedures, structure, line of
reporting and responsibility. It is structured clearly in a manner which facilitate
organization to achieve its business objective.

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 Informal Organization
Informal organization reflects how the organization actually worked in practice; it is a network
based on social relationship of individuals in organization. It provides greater motivation and
communication between different employees in organization due to social bonding.

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 Component of Organization
According to Henry Mintzberg, organization is formed by five components. Mintzberg theory
highlight the separation between the role of ‘directing’ (strategic apex) andthe role
‘managing’ resources and implementation of plan (middle line).

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 Organization Structure
An effective organizational structure allows clear communication of roles and responsibility
with employees and facilitate achievement of business objective. Few common ways of
structuring an organization are discussed as follow:

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Organization Structure

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Organization Structure

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Organization Structure

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Organization Structure

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 Knowing Terminologies
Ownership of company is associated with shareholding; owners of company is known as shareholders.
When organization is small, owners are usually the manager of business. However, when business grow
separation of ownership and control occur. Therefore, organization is owned and managed by different
group of people.

Direction concern with the role of giving direction and leading organization towards sustainable success.

Management ensures business objective set by directors are being achieved through effective and efficient
use of resources.
Role of direction is taken by board of directors of company, involve responsibility to:
- Set direction (purpose, vision, mission, value)
- Understand and monitor (stakeholders and business environment)
- Monitor internal control system and risk management system
- Monitor management team implement strategy effectively and efficiently

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 Knowing Terminologies
Scalar chain refers to the level of hierarchy along the reporting line. Longer scalar chain
will likely slower communication.
Ease of communication and information processing has causes delayering which reduce
level of hierarchy in organization.

Span of control refers to the number of subordinates directly report to a manager.

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 Knowing Terminologies
In centralized organization, majority decision making power remain with top
management.
In contrast, decentralized organization delegate decision making authority throughout
organization.

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Knowing Terminologies

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 Knowing Terminologies

Offshoring involves
relocating certain
function of organization
to other country.

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 Knowing Terminologies
Shared service approach attempts to consolidate common business function (those used
by many part of business) in one place.
Department that often being ‘shared’ include but not limited to accounting, human
resources and information technology.

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 Organization Structure

According to Anthony
hierarchy,
organization activities
can be analyzed into
strategic, tactical and
operational level.

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 Main Departments
Research and Development Department: Research and Development function is in-
charge to improve existing or develop new product, service or business process.

Purchasing department concern with acquiring necessary goods and service in the right
time and value for organization. Purchasing mix outline the factors to consider when
making purchase decision.

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 Main Departments
Production department is in-charge to convert raw material and other resources into
finished goods.
Direct Service Provision: Provision of service directly to client. (e.g., barber, auditor,
doctor) Service is differentiated from goods due to its characteristic.

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 Main Departments
Administration: Support function in an organization, involve in function such as processing
and organizing resources, decision making, information.

Finance and account department is usually responsible over recording of financial

transaction, producing financial reports, implementing and maintaining financial control,
setting and maintaining budget, arrangement of capital and etc.

Marketing Department: Marketing is the process to identify, anticipate and satisfy

customer needs and wants in efficient and profitably manner. Marketing is essential in
order for business to sell their respective service or goods.

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Main Departments

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Main Departments

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Summary – Organization Structure

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 Test Your Understanding
Question 1: Which of the following statement relates to informal organization is INCORRECT?
A. It exists in every formal organization
B. Dynamic change of structure
C. Reflected by organization chart
D. May involve by anyone in organization

Question 2: Which of the following structure allow quickest decision making?

A. Entrepreneurial
B. Functional
C. Divisional
D. Matrix

Question 3: Organization A has complex transaction and tasks in organization, the management has centralized decision making. T
above statement is likely describing
A. Tall Organization
B. Flat Organization

Question 4: Organization may opt to influence buying decision of client by running higher level of advertisement to create grea
publicity and brand awareness. The above statement is associated with which ‘P’ of marketing mix
A. Product
B. Price
C. Place
D. Promotion
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 Organizational Culture
Organizational Culture refers to the shared value, belief, assumption which guide behavior
and practice of workforce in organization.

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Organizational Culture

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 Organizational Culture
Theory by Charles Handy

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 Organizational Culture
Theory by Geert Hofstede

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Summary – Organization Culture

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 Test Your Understanding
Question 1: Organization culture can be observable such as the dress code of employees and layout of office.
The above statement is associated with which level of culture?
A. Artefact
B. Espoused Value
C. Assumption

Question 2: In organization A, powers and controls is determined by hierarchical level and position.
The above statement is best associated with which culture stereotype?
A. Power culture
B. Role culture
C. Task culture
D. Person culture

Question 3: People from Country A has preference over clear rules and responsibilities and dislike changes and risk.
The above statement is reflecting
A. Low power distance
B. Low individualism
C. High uncertainty avoidance
D. Low uncertainty avoidance

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 Committee
Committee refers to an arrangement where: Group of people; Given authority and
responsibility to perform task; Adhering to formal procedures.

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Committee

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Summary – Committee

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 Test Your Understanding
Question 1: Due to recent frequent production breakdown, the organization set up a committee to investigate the
reason behind the frequent breakdown. The committee was disbanded after investigation was completed.
Which of the committee type is reflected by above scenario?
A. Standing Committee
B. Ad-hoc Committee
C. Sub Committee
D. Joint Committee

Question 2: Which of the following does not represent common characteristic of a committee in workplace?
A. Shared responsibility in decision making
B. Given sufficient authority to carry out task
C. Go through formal process of discussion
D. Lead by the most senior member

Question 3: Which of the following does not represent task under committee chair’s responsibility?
A. Decide agenda for committee meeting
B. Sign on meeting minutes
C. Arrange venue and time of meeting
D. Maintain discipline in committee meeting

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 Agency Theory
Agent being a person or entity that is given authority and therefore able to make decision
on behalf of principal.
Agency theory often used to describe relationship between shareholders and directors.
Shareholders employ directors to run company on behalf of shareholders, therefore
directors are accountable to shareholders.

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 Corporate Governance
Corporate governance is often described as the system or mechanism of which companies
are directed and controlled.

Development of Corporate Governance

Growth of companies may lead to separation of ownership and control, a scenario which
company is run (directors) and owned (shareholders) by two separate group of people.
The separation potentially cause problem such as conflict of interest, where directors and
shareholders have different interest.
Therefore, risk arise where directors may run companies pursuing their personal interest
rather than interest of shareholders and other stakeholders**.
Therefore, corporate governance is a system introduced to reduce such ‘agency problem’.

** Stakeholders’ theory recognizes the importance of taking care relationship with

stakeholders such as customer, supplier, government, banker etc. (not just theshareholders)
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 Corporate Governance

Objective of Corporate Governance: Corporate governance aims to ensure companies are

run in best interest of shareholders and stakeholders.

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 Corporate Governance

Best Practice of Corporate Governance: Recommendation for effective corporate

governance is referred as ‘best practice’.

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 Corporate Governance

Best Practice – Non-executive Director: Unitary board comprise of two type of directors,
namely ‘executive directors’ and ‘non-executive directors.

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Corporate Governance

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 Corporate Governance

Best Practice – Remuneration Committee:

Remuneration committee comprise of only non-executive director, responsible to decide on
remuneration of executive director. Including to set overall remuneration policy and
individual pay package for each executive director.
It is important that remuneration committee only consist of independent NEDs as no
director should involve in setting their own remuneration.

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 Corporate Governance

Best Practice – Audit Committee: Audit committee comprise of only non-executive

director, it consists of at least three independent NEDs with at least one with recent and
relevant financial expertise.

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 Corporate Governance

Best Practice – Nomination Committee: Nomination committee consist of only non-

executive director, responsible to monitor and recommend appointment of directors to
board to ensure effective and balanced composition.

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 Corporate Governance

Best Practice – Public Oversight:

Public oversight involves public to understand and monitor the governance system of
organization. It is often done by reviewing annual report (including financial statement)
published by companies (often available in relevant regulatory body in the country,
respective company’s website and stock exchange listing site).
Information such as composition of board, committee, remuneration of directors can be
obtained in annual report.
Public oversight boards are also available in certain countries to monitor the practice of
companies whether in compliances with rules and regulation, representing public interest.

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Summary – Corporate Governance

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 Test Your Understanding
Question 1: Which of the following statements relating to corporate government is INCORRECT?
A. System of which organizations are directed and controlled
B. Compulsory compliance from all organization is required
C. Aim to ensure organization activities are conducted in best interest of stakeholders
D. None of the above

Question 2: Which of the following does NOT represent best practice relates to ‘non-executive directors?
A. Should not have significant interest in organization
B. Should not have close relationship with executive directors
C. Should constitute at least half of the board
D. Should involve in operational task to get familiar with organization’s operation

Question 3: _________ Committee is responsible to provides an overall review over financial statements and
financial information released by the organization.
A. Remuneration
B. Nomination
C. Audit
D. Task

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 Corporate Social Responsibility
Corporate social responsibility refers to the concept where business organization should
be accountable to stakeholders (rather than only to shareholders) including to contribute
towards economic development and betterment of stakeholders’ life quality.

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Corporate Social Responsibility

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Corporate Social Responsibility

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Summary – Corporate Social Responsibility

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 Test Your Understanding
Question 1: Which of the following represent minimum expectation from society on organization?
A. Philanthropic Responsibility
B. Ethical Responsibility
C. Legal Responsibility
D. Economic Responsibility

Question 2: Corporate social responsibility is voluntary in nature as it requires organization to incur

additional
cost for benefit of public. The above statement is
A. True
B. False

Question 3: Which of the following type of corporate responsibility concern with bettering life quality
of society?
A. Financial
B. Environmental
C. Social
E. None of the above
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