Discusión y Conclusiones

This section seeks to discuss the various cultural norms that have long been embedded beneath the boardroom carpet and to propose some effective change to such conventional cultural norms in order to effectively implement good board ethics in a corporation. This is also necessary to strengthen the abovementioned best practices of corporate governance.

To begin with, an empirical study was conducted by Hirota, Miyajima and Katsuyuki (2007) on the corporate culture of Japanese corporations and it was found that “the strength of corporate culture significantly affects corporate policies such as employment policy, management structure, and financial structure”. The study also concluded that corporate culture is central to the understanding and formulation of the corporate policies which would lead to better corporate performance. Nonetheless, there shall be material change in the mindset of directors in order to effect any transformation in the corporate culture.

First and foremost, there shall be gradual board departure from the corporate cultural norms of complying with the majority rather than voicing out one’s constructive dissent and views. In this context, Sang-Woo Nam and Il Chong Nam (2004) commented on the modest corporate culture in Asian corporations where “independent directors may be far less independent in their behavior than those in Western countries”. This is where independent directors need to play their roles effectively within a board. To do so, they

177 may have to adapt to mindset change that challenge the decision or action by the other directors in a corporation.

While having internal board discussion, Sonnenfeld (2002) opined that “the highest performing companies have extremely contentious boards that regard dissent as an obligation and that treat no subject as undiscussable”. This is in accordance with

Corprimacy notion that board should always seek to create and add value to the

corporation. It is almost certain that value will not be created if a board is composed of many “Yes” directors rather than “No” directors. As business judgment rule is perceived as part of the duties of a director, there is nothing wrong for a board to encourage contentious arguments in board meetings. Such constructive arguments will certainly help to enable a fruitful discussion that bears effective solution at the end of the day.

In relation to this, boards should be easily acceptable to the idea of constructive discussion as part of good corporate cultural reform. Arguments should not be taken negatively as a challenge to each director sitting on the board. Rather, board arguments should be given credit as a “constructive conflicts” which produce different opinions and fresh perspectives from the directors. It is better to have more minds than just having one mind in generating positive results to corporate performance. Holloway and Rhyn (2005) rightly pointed out that “this would be better interpreted as ‘constructive’ conflicts, rather than just mere dissent, where the aim is to deliver more robust and effective decision outcomes”. They further proposed that “the roles of the chair and independent directors are central to guaranteeing that this robustness occurs by ensuring that both individual and collective voices/opinions are heard and valued”. Furthermore, it is appreciated that constructive conflicts are tolerable in terms of good corporate

178 governance as they bring about positive cultural changes to the boardroom. These changes are believed to have the effect of uplifting the level of board independence in making sound decisions that will eventually benefit the corporation as a whole. This is because a board should act and decide in concert as an entity regardless of any conflicting opinions amongst them.

Secondly, Holloway and Rhyn (2005) also argued for “more active involvement in the decision-making by employees through participative decision-making and enhanced levels of direct staff ownership in the organisation”. Such involvement would “entail ‘quantum’ changes in organisational values, culture, followership and prevailing senior executive top-down approach to decision-making. The leadership [then] becomes one of facilitation and support, not the current dominant ‘command and control” mindset”. To do this, a board may even do the courtesy of inviting certain employees or staffs in a corporation to channel their concerns and opinions pertaining to a particular board action or decision. With such involvement in the board decision-making process, employees will feel personal attachment with the board as well as a sense of belonging to the corporation when performing their daily duties. Employees will also better understand the policies of the board as they take part in the decision-making process. As such, employees will find it easier to facilitate and support the execution of board decisions from the bottom level of the corporation.

Thirdly, another proposed cultural change is that of enforcing substance over form when it comes to implementing the best practices of corporate governance. In this regard, corporation may choose to perfectly complying with the corporate governance standards rather than the gist of corporate governance principles. It may be true that there is no evidence as to the correlation between corporate governance and corporate performance.

179 As a result, directors or management of a corporation feel complacent over their inaction regarding the actual implementation of corporate governance best practices due to the missing link of better result in corporate performance. Nevertheless, it is high time for directors to rethink their beliefs as the effective enforcement of corporate governance best practices will provide sufficient protective shields against sharp decline in corporate performance and create reasonable opportunity to avoid corporate failures as well. For example, Sloan (2002) addressed that the main cause of Enron collapse was due to the lack of “legal and moral responsibilities to produce honest books and records” on the part of the board.

Fourthly, cultural reform within a board will not be complete without the highest level of board ethics being put in place. In this regard, Aminah (2005) brilliantly illustrated the need of business ethics as the “glue” that push all individuals to do the right thing in order to achieve the “same vision and mission”. This will help to ensure that directors and management stick together in a good value system of governance ethics. Speaking of board ethics, trust and candor are two essential elements in pursuing good corporate ethical responsibilities. It is clear that no law can test the level of trustworthiness and honesty a director has. It is something related to the sense of ethical responsibilities deep down in the heart of directors. Nonetheless, it may still be instilled through strong cultural values of trust and candor as an exemplary board to the entire corporation and society. Sonnenfeld (2002) emphasised that it is important to have “a climate of trust and candor” as well as “a culture of open dissent” in order to create a critical and constructive board culture and social responsibilities. As can be seen from above, the corporate scandal in Enron is equivalent with the failure of board to act effectively. Board should portray good board leadership and ethics from the top. It is evident that the auditors in Enron failed to perform their duties in detecting the fraud committed by

180 the management. It is partly attributed to the board’s breach of duties to oversee and direct the affairs of the corporation. Hence, board should supervise the management and filter whatever information and data produced by the management.

In a nutshell, all the aforementioned proposals, if implemented properly, will eventually lead to a healthy corporate culture that promotes strict adherence to board responsibilities and ethics. In turn, minority shareholders will reap the benefit from the creation and preservation of values in a corporation via drastic corporate cultural reform. In relation to this, Flanagan, Little and Watts (2005) proposed an alternative “professional” approach to governance which is more effective. Directors must act in a professional manner that upholds integrity and high board ethics in order to protect the interest of minority shareholders. The question of effective implementation will not arise if the aforementioned best practices are put in place in a corporation to encourage gradual transformation of corporate culture and board ethics. Nevertheless, it is correct to say that board ethics vary from corporations to corporations in view of different corporate structure and board composition. As such, it will be difficult to devise a set of board ethics that suit all corporations. Recognising the challenges faced in the self- regulation of board mindset, it is imperative to enhance shareholders’ rights and powers in order to provide a mechanism of check and balance.