Accounting

Corporate governance is a vital element in organisational success.  Management, leadership, communication systems and even decision making systems in an organisation are affected by the corporate governance structures that an organisation has in place.  Firm performance is considered by both internal and external organisational stakeholders as an objective measure of the efficiency in utilising resources.  To a management team, the performance level that they can muster is viewed as reflective of the levels of coordination and commitment to organisational cause.  To investors and customer who are considered important external stakeholders, improved or positive firms performance implies increased value on returns on their investment and improved service delivery respectively.  Thus, the external entities view improved firm performance as the first step in ensuring that organisational strategies are aligned to their expectations.  Improved firm performance within an organisation is associated with increased employees satisfaction and development of structures that facilitate employee interaction and operations.  Such developments resulting directly from improved firm performance could be vital in aiding organisational success.  Improved performance leads to multiple avenues for an organisation to seek its operational goals (Rebeiz  Salameh 2006).  This widening of platform for developing operational strategies results in organisational systems that can easily support innovation and creativity.  Innovation and creativity within an organisation considerably boosts organisational efforts towards attaining its operational goals, mission and driving at its vision. 

It is therefore apparent that a firms performance is an important measure in assessing its ability to meets its stakeholders expectations and drive at its operational goals.  Understanding the variables that affect firm performance and organisational systems that can improve performance are a requirement in analysing organisational value generation efforts (Garg 2007).  Determination of whether there is a causal relationship between corporate governance characteristics and firms performance which is the main goal of the study helps develop a further understanding of measures that organizations should put in place to facilitate their operations.

Methodology
In a nutshell, the study seeks to determine if corporate governance structures and strategies affect firm performance.  It is noteworthy that though causality does not imply dependence, dependence between the variables being analysed is a requirement for causality.  Therefore, the existence of a non-zero correlation between corporate culture characteristics and firm performance is a requirement for the existence of a causal relationship between these two variables.  Another important consideration that has played a role in paving the methodology is the multiple qualitative and quantitative studies that have been carried out on firm performance and corporate culture.  Existence of information on the variables being considered in the study and their interaction implies that secondary data collection strategies can be used.  This is an important aspect in choice of a qualitative research methodology based on positivism used in the study. 

Positivism as a philosophical school of thought states that authenticity of information should be judged by observed practical phenomenon and empirical evidence (Research methods Knowledge Base 2009).  Development of logical statements on the nature of interaction between two variables is an aspect that is ingrained in positivism.  Since the goal of the study is to explain the nature of the relationship between corporate culture characteristics and firms performance, explanation and prediction will be involved.  To develop a clear picture of the nature of relationship between corporate governance and firms performance, the sufficient and necessary conditions for causality have to be analysed in their relationship (Value of Knowledge Reference 2009 UMSL 2009).  This is one of the key reasons for adoption of positivism as the philosophy that guides the study since it supports the quest for such conditions.  By developing empirical evidence and deductive logic, the study will help develop an accurate picture of the nature of the interaction between the two variables.  It is further noteworthy that the emphasis placed by positivism on observation and practical evidence implies that the findings in the study will be supported by both the existing logic and observable practices in business.  Review of existing studies for empirical findings on the nature of relationship between corporate governance characteristics and firms performance will be supported by business theory and observable phenomena in the global business environment in addressing the research objective.  It is apparent that a positivist review allows for use of multiple research sources which helps improve accuracy of the findings developed in the study. 

Use of secondary data collection and review of the existing literature in the study helps develop multiple perspectives in analysing the nature of the relationship between corporate governance characteristics and performance (IEEE 2010).  The approach also allows for incorporation of cases and data developed from both qualitative and quantitative studies.  These add to the logical and empirical aspects of positivism which help in reinforcing the adopted research framework.  It is however noteworthy that the accuracy and integrity of the sources of data used in the study affects the validity and consistency of the findings (Key 1997).  Web articles with no visible traces of bias and journal articles will be used extensively in the study and the findings analysed in light of the existing business principles.

Findings
Corporate governance within firms is concerned with the management of all organisational issues that contribute to value generation.  Corporate governance is considered a set of processes, policies and laws that determine how a corporation is controlled and managed (Beiner, Drobetz, Schmid  Zimmermann 2004).  It is noteworthy that corporate governance also affects interaction between the principals in an organisation.  By affecting the nature of interaction between shareholders, the management and board of directors corporate governance helps ensure that their expectations and those of other stakeholders for instance employees, suppliers and the community are addressed.  Corporate governance is also concerned with the development of internal organisational systems and measures that help facilitate attainment of operational goals (Bebchuk  Hamdani 2009).  The importance attached to corporate governance is due to its role in development of operational strategies, goal setting, determination of organisational systems and impacting on organisational performance (Williams, Fadil  Armstrong 2005).  It is noteworthy that firms performance in this context refers to the level to which operational strategies have been aligned to stakeholders expectations and the degree to which they contribute to addressing the set expectations.  Failure in meeting the expectations of any stakeholder or total disregard of the existence of a stakeholder can only result in reduced performance. 

Corporate governance can direct and control management activities in an organisation through positive business savvy, promoting accountability and upholding integrity.  From this consideration, it is apparent that corporate governance is to a large degree an internal organisational factor that affects performance (Wade 2002).  In addition, the development of effective corporate governance practices is affected by market place commitments and the board culture which is an extension of the values and norms being pushed for by an organisation.  It is noteworthy that a positive culture facilitates the attainment of corporate culture goals and is characterised by the inclusion of multiple measures aimed at safeguarding policies and practices.

The importance of corporate governance is brought out in the fact that the perceived quality of corporate governance systems put in place by an organisation can potentially impact on an organisations share value.  The impact that the perceived quality of corporate governance has on share prices effectively implies that it can affect the cost of raising capital and therefore overall operational costs in an organisation.  It is noteworthy that quality of corporate governance practices is largely determined by forces that are external to a firm such as the financial market and external market forces (Al Farooque, van Zijl, Dunstan  Karim 2007).  Addressing the internal environment issues is a vital aspect in corporate governance which helps firm develop characteristics that facilitate differentiation from other competitors.  However, despite the awareness that has been developed on the need for effective corporate governance structures as avenues to value generation, poor corporate practices still persist and have been labelled as the leading cause of corporate decline (Kyereboah-Coleman 2007).  A reason for the persistence of poor corporate practices despite awareness on its importance is that the debate on corporate governance has centred on legislative policies aimed at deterring fraudulent activities while upholding transparency.  This has resulted in executives dealing with symptoms of poor corporate governance whereas the causes are left unattended. 

The spate of fraudulent activities that hit the US corporate scene in the late 2000 and early 2001 was attributed to legislative and corporate culture systems that did not protect the stakeholders and promoted greed (Core, Guay  Rusticus 2006).  A review of the firms that were involved in the fraudulent activities reveals that they had boards that were considered effective which played a role in improving their share prices in the stock market (Berkant 2009).  However, for a board to allow the adoption of accounting practices that did not allow proper disclosure, engagement in insider trading at the stock market and generally permission of practice that are potentially negative on investors value it must have personal interest or has attached little importance to investors value.  This is an example of a case where an organisation can be considered to be displaying positive strategies with respect to corporate governance whereas their internal systems do not effectively addresses cause of poor corporate practices and values. 

The after effects of the corporate scandals were a near collapse of the Wall Street as investors confidence on the financial market thinned.  This is a reflection of the effect that corporate governance as on the society and is further supported by the measures that were taken to deal with the loopholes that facilitate the major scandals (Yabei  Izumida 2008).  The collapse of firms that were implicated in the corporate scandals and their reduced performance are a reflection of the importance that should be attached to corporate governance in organisational performance.  The negative reputation associated with poor corporate governance structures negatively affect a firms ability to access resources and generate value.  In addition to thinning a firms market share, negative reputation leads to a reduction in the number of firms that are willing to be involved in any business transaction with a firm.  Cancellation of contracts and low credit ratings are observable effects of poor corporate governance structures which reduce operating capital availability and reduce the breadth of the platform that an organisation has for value generation (Radin 2007).  Thinning of the platform that a firm has for value generation is one of the effects of poor corporate governance that may affect organisational performance.  Availability of operating capital and development of a firms market share are vital requirements for successful value generation.  Therefore, there appears to be an indirect causal relationship between corporate structure values and firms performance. 

The effects that a poor corporate governance structure has on share price and value affects availability of capital and willingness to invest in an organization.  This negative reputation may be transmitted to the market resulting in reduced market penetration and susceptibility to the effects of competition (Weinberg 2003).  This reduces revenues got through sales or service delivery and with time reduces the influence that a firm has in the market or industry segments that it operates in.  Such developments resulting from corporate governance practices generally make it hard for a business to generate value in its operations and if left unaddressed could lead to corporate decline.  Studies on corporate decline support this assertion in that over 90 of recorded cases of corporate decline are a result of the inclusion of poor governance structures and adoption of values that either ignore or do not fully address the expectations of organisational stakeholders (Shaver 2005 Alexander  Lee 2006).

Corporate governance is a crucial component in the proper functioning of an organization.  The existence of corporate governance structures within an organisation is a proof of their legitimacy and goes a long way to prove credibility of their financial reporting.  However, corporate governance as a study area covers an array of corporate phenomena which is one of the reasons for the multiple misunderstanding on the requirements in implementing effective corporate governance measures (Bainbridge 2003.  Ensuring managerial accountability and financial reporting credibility and integrity are the two main areas that corporate governance structures and measures seek to address.  However, with the advent of capital markets and dilution of firms ownership, the importance attached to corporate governance has taken on a new dimension.  The existence of agency problems within firms is a result of atomisation of ownership (Griffith  Lusch 2007).  The fact that the owners of a firms are not directly involved in is daily running results in numerous operational requirements.  This is mainly because the cost of unsupervised management is considered to be high in the market unless proper measures are put in place to ensure oversight is bestowed on a separate entity that will push for the interest of the shareholders. 

The board of directors is formulated with the aim of ensuring that the strategies adopted by an organisation are aimed at not only successfully harnessing opportunities and dealing with threats but also serve to return value on shareholders investments (De Miguel, Pindado  De La Torre 2005 Garg 2007).  The existence of board of directors is therefore primarily aimed at ensuring that various stakeholders interests are addressed and dealing with numerous agency problems associated with corporate operations (Young  Buchholtz 2002).  Board of directors is charged with minimisation of agency problems that are inherent of a system of operations where ownership and control have been separated with the objective of preserving shareholder value.  From this consideration on the rationale in formulating a board of directors, it is evident that the structure, composition and power of the board of governors to a large extent affect the nature of operational strategies and the management systems that an organisation adopts.  Management and organisational systems directly impacts on the levels of performance that is attained by a firm with respect to improving internal operational efficiency and minimising wrangles.

Though shareholders interest is an area of concern to board of directors, other stakeholders interests have to be addressed for this mission to be attained.  A poorly performing organisation as an example does not return value to investors irrespective of the focus of its corporate governance structures.  Generation of value by addressing both internal and external operational requirements is therefore a critical requirement for board of directors (Van Liedekerke 2004).  The ability of the board of directors is a factor that directly impacts on the levels of performance attained by a firm.  This is the central rationale in dissolution of board of directors as a corrective measure in cases where firms report corporate decline. 

Though in most cases the board of directors is made up of shareholders who have considerable knowledge in the industry that a firm operates in diversity is considered a vital requirement in constituting a board of directors.  Diversity of the board of directors is a definitive variable in determining the nature of corporate governance systems that will be adopted by an organisation.  A diverse board is likely to be appreciative of new strategies and display higher levels of dynamism (Kyereboah-Coleman  Biekpe 2007).  However, researchers have come up with conflicting results on the effects that diversity of a board has on a firms performance (Chan  Hoi 2008).  This from consideration on strategic management principles and management of diversity is expected considering that the internal structures defining the interaction between members differ between firms.  Though diversity holds the promise of creativity and innovation, it could also result in provocation of interpersonal processes, conflicts and disagreements which may considerably affect the levels of performance attained by an organisation.  Thus diverse boards require multiple communication and interaction system to facilitate troubleshooting and develop an understanding of each others perspective for its potential to be realised.  However, most firms believe that they have this capability even if their practical ability may not support diversity requirements (Wright, Gardner, Moynihan  Allen 2005).  The result is reduced organisational performance and multiple board issues which reduce their efficiency in executing their corporate duties.  Therefore there is no direct link between diversity of a board of directors and firm performance though diverse boards are predominantly more creative and innovative if they are well supported (Quibria 2006).  It is however evident that board constitution has considerably effect on the levels of performance and could potentially affect the levels of innovation and creativity afforded by a firm. 

The importance of diversity to a firm can be derived from the fact that board of directors share numerous interests with other stakeholders.  Simply, the success of an organisation is just not determined by how well shareholders interests are represented rather is affected by other organisational systems for instance the levels of creativity and innovation displayed in developing interactive communication systems (Davis 2002).  A diverse board of directors is better placed to oversee the development of internal systems aimed at ensuring that the interest of all stakeholders is addressed.  A diverse board of directors is better placed to determine the areas that an organisation is lacking and aid in development of measures aimed at value generation.  Furthermore a diverse board of directors is likely to push for values that promote diversity in an organisation (Ayogu 2001).  It is noteworthy that diversity is potentially synergistic depending on the nature of systems that an organisation has in place to facilitate its management.  In this way, the composition of the board can affect the perceptions that an organisation has of diversity which affects the level of creativity and innovation and may also impact on organisational system requirements.

Organisational failure due to corporate decline is common place.  Corporate decline is a state where an organisation continually loses value irrespective of prevailing operational environment condition.  The causes of corporate decline are internal to an organisation and are a manifestation of systems that have been developed with little emphasis on attainment of synergy and improved interaction and coordination between different organisational facets (Watson  Wooldridge 2005).  Lack of boardroom configuration is highlighted as the most common cause of corporate decline.  The allocation of responsibilities and the number of independent directors are areas that most boards err.  In a case where a board is not sufficiently autonomous due to factors like combination of the roles of chairperson and CEO, there is likely to be conflict of interest which could considerably affect the functionality of the board.  Agency problems between the principals and the agent or rather managers are more likely to occur in a case where there is conflict of interests between the members of the board of directors and organisational operations.  The Sarbanes-Oxley Act seeks to enforce adherence to independence standards after the realisation of the effects that it could have on firms performance and stock market performance (Johnson, Davis  Albright 2009).  Defining the composition of the board of directors in a manner that seeks to maximise autonomous decision making is vital in maintaining objectivity of the board.  Failure of a board in carrying out its tasks due to conflict of interests or personal goals that conflict with organisational operations affect board performance and complicate decision making within firms.  Such avoidable complexities result in reduced and subjective decision making and poor performance which are hallmarks of organisational failure (Kit  Tan 2007).  In a dynamic competitive environment, objectivity in decision making and the speed with which an organisation makes critical decisions affect the levels of performance that it can attain.  Lack of speed and objectivity results in missing out on opportunities for professional development and is a risk to organisational performance.

Organisations that have stable and effective governance structures attract investors and display relatively stable share prices.  A well governed organization is considered by many as an organisation in which the directors have no management ties, the directors are outside entities, readily present information on organisational performance and evaluation of directors is done formally.  From the fact that efficacy in developing management systems considerably affect the perceptions that the community and other stakeholders have of an organisation, it is apparent that organisational reputation and sustainability of its operational systems is affected by corporate governance structures.  Empirical studies in the US show that the firms with the highest corporate governance ratings were also defined by high financial returns (Emslie, Oliver  Bruce 2006).  This implies that the perception that the community and stakeholders have of the corporate structure put in place by an organization affects their levels of performance.  It could also imply that assessment of the corporate governance structures put in place by an organisation is in most cases affected by the levels of performance recorded by an organisation.  Though there is no empirical finding to support the latter, consideration on quality and strategic management in general reveals that success of an organisation is often a result of internal structures that are aligned to the nature of the external operational environment and the expectations of all external stakeholders.

Discussion
A causal relationship can only exist in a case where there is dependence between the variables being considered and a logical link on how one variable affects the other.  A review of the existing literature reveals that there are multiple avenues through which corporate governance characteristics affect a firms performance.  Furthermore, empirical findings assert the role of poor corporate governance structures in corporate decline.  The existence of correlation between the structural configurations and the actual composition of the board of directors and organisational financial performance and share prices leave no doubt on the existence of a relationship.  A review of strategic management systems reveals that there is a clear link between the corporate governance structures and the levels of a firms performance through the nature of internal systems developed by an organisation.  The impact of corporate structure characteristics on a firms performance can either be positive or negative depending on the nature of systems that an organization has in place.  Corporate governance characteristics affect the internal organisational systems that a firm adopts and directly impact on share prices.  This is observable in the impact that an overhaul of a board of directors has on the share prices of an organisation.

There are cases where the relationship between corporate governance characteristic and firm performance is not clearly defined.  This is the case in analysing the effect that diversity of the board of directors has on thee levels of performance that can be attained by an organisation.  Diversity of the board of directors could result in either increased or reduced performance depending on the nature of systems that have been put in place by an organisation.  Therefore, for firms to benefit from the potential benefits associated with diversity they should have multiple systems aimed at dealing with risks associated with diversity.  Simply, management of diversity within board of directors can significantly determine the effect that it has on a firms performance.

Conclusion and Recommendations
A causal relationship exists between a number of corporate governance characteristics and firm performance.  Corporate governance affects a firms performance both directly and indirectly.  Moreover, organisations should be wary of how individual corporate governance structures affect their performance.  There are cases where a mapping between a corporate governance considerations and firm performance cannot be developed.  Focussing on organisational systems aimed at value generation and appreciation of basic tenets of corporate governance are requirements in improving a firms performance.  However, there is need for extensive empirical studies that will help develop an understanding of more corporate governance characteristics and how they affect a firms performance.