The purpose of this paper is to highlight the importance of corporate governance and its impact of running business, it is very important to discover and understand the relation between Corporate Governance and Strategic Management as both focuses on company’s practices in regards of achieving strategic goals in the light of interest of various stakeholders.
Corporate governance and strategic management in different contexts: fostering interchange of a crucial relationship
Five important studies have been investigating this relation from different points of view aiming to widen the research agenda to assess the managerial impact of the interconnection of corporate governance and strategic management. As a critical study over these five studies, the relation between corporate governance and strategic management is seen from three different points of view. First, see them as completely different functions that cannot have any interconnection or conversion among them. Second, finds that having at least two relations of intersection and integration between corporate governance and strategic management (see figure 1).
Third point of view adopts Machiavelli’s quote about the Fox and the Lion seeing that corporate governance role should be as the intelligence of Fox and the strategic management role should imply the courage of a Lion.
(Capasso & Dagnino, 2012) Argues that time has come that the company lives an alternative phase of dominance either corporate governance of strategic management. It concluded that whether the company id corporate governance oriented or strategic management oriented, troubles arise if the quality of anyone of them is poor.
(Shen & Gentry, 2014) focused on effect of strategic management on corporate governance and suggested a model that involves in the relation between corporate governance and strategic management that stands on the impact of company’s strategic decision on ownership that will influence corporate governance mechanism and hence the future strategic decision. This model reflects the tension relation between corporate governance and strategic management.
Also (Harrigan, 2012) focused on the comparison between Japanese and USA BOD characteristics and its impact on the strategic decision of the firm. The study was concentrating on governance and strategy issues such as independent directors, shareholder value maximization, audit and compensation committees and business exit strategies. Her analysis covered about 45 Japanese firms and 72 US firms shows that there are still significant differences in corporate governance practices between Japanese firms and U.S. firms which discovered that Japanese managers are not willing to exit an unprofitable firm specially if it may result in terminating large number of workforce, while the US counterparts and on the opposite side do not consider such issue.
(Gutierrez & Surroca, 2012) made comprehensive review of the various internal corporate governance mechanisms (managerial incentives, board of directors, ownership concentration, and banks …etc )and external corporate governance mechanisms (market for corporate control, managerial labor market, and product market) of Spanish firms in comparison with firms in other developed economies including US, UK, Germany, France, Japan, and Italy. It was concluded that the corporate governance system in Spain has evolved toward a hybrid model that stands in an intermediate position between the market oriented model and the bank-oriented model.
(Slomka & Golebiowsk, 2011) has examined the relationship between bank representatives on the supervisory board and firm financing in Poland’s post communist economy and suggests that this cooperation strategy was not only insufficient in the Polish context to eliminate the financial constraints faced by the firms, but also made the firms susceptible to bank influences in financial and strategic decisions.
In my opinion, corporate governance is of the importance that can affect the future of any corporation or business firm as it is the rules and guidelines and practices that controls the direction of a company and specifies the rights and responsibilities of stakeholders within the three main groups affecting the company’s march in business which are shareholders, board of directors and management team.
The main concern of corporate governance is to determine how power is distributed between the three groups to insure fairly running of business for the interest of all stakeholders.
This leads us to be on concrete that there is a strong bonding between corporate governance and strategic management as the strategic goal of business cannot be achieved without a function that backs the management applying the company’s strategy and provides the protection and fair power distribution that leads the company’s ship to reach the shore if success.
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> Gutierrez, I., & Surroca, J. (2012). Revisiting corporate governance through the lens of the Spanish evidence. Journal of Management & Governance, 989-1017. doi:10.1007/s10997-012-9250-5
> Harrigan, K. R. (2012, November). Comparing corporate governance practices and exit decisions between US and Japanese firms. Journal of Management & Governance, 975-988. doi:10.1007/s10997-012-9249-y
> Shen, W., & Gentry, R. (2014). A cyclical view of the relationship between corporate governance and strategic management. Journal of Management & Governance, 18. doi:Shen, Wei & Gentry, Rich. (2014). A cyclical view of the relationship between corporate governance and strategic management. Journal of Management & Governance. 18. . 10.1007/s10997-012-9248-z.
> Slomka, A., & Golebiowsk. (2011, December 29). Are the corporate governance standard in banks in the CEE countries low hanging fruits. Munich Personal RePEc Archive, 18.