IHS News

News From Around The World

A Case for the Need of Proper Corporate Governance

A Case for the Need of Proper Corporate Governance

Corporate governance encompasses an expansive range of practices that a company can observe and employ to maintain the structure and consistency of the organization. History is filled with examples of corporations that were shown to have adequate corporate governance best practices and a seemingly equal number who were found with a less than standard level of accountability and core values. Some of the most famous corporate scandals and challenges have revealed which companies take corporate governance seriously and hold their stated values dear and which companies lack the tools to effectively deal with issues that arise to challenge their standing and in some cases, their very existence.

Effective corporate governance is an essential part of a business if the business is to survive and prosper. Invariably, all corporations are going to be met with circumstances that will require the accountability and appropriate response that can only be delivered with proper governance as the company’s priority. In the case of the Toyota accelerator tragedies, the response from Toyota is widely regarded as an example of good corporate governance on display.

The dangerous and devastating issue arose when reports surfaced that accidents involving Toyota vehicles were due to a problem with the accelerator sticking and drivers being unable to slow or stop the vehicles before a collision. Toyota publicly and privately investigated the incidents to find out exactly what the causes of the accidents were. There was never a period of time where the company left the situations to be speculated as driver error. The accountability displayed is a pillar of corporate governance. Once the depth of the problem with Toyota vehicles was made clearer, Toyota acted decisively and swiftly to rectify the matter and more importantly, prevent future injuries or worse. 

Though the public relations hit was substantial, Toyota took aim at solving the crisis and ensuring the safety of the public – both Toyota customers and those on the road with the faulty Toyota vehicles. The result has been a renewed trust in Toyota and an almost forgotten incident in the common ideas of the public. The benefit of good corporate governance could not be clearer than in the case of Toyota.

Corporate governance that is ineffective has no better recent example than British Petroleum and their handling of the Deepwater Horizon oil spill. In the aftermath of the explosion that claimed the lives of the oil rig crew, BP initially made erroneous claims as to the amount of oil that was spilling into the Gulf of Mexico. Some speculated that the low estimates were intentional ways to diffuse outrage and reduce forthcoming penalties for environmental regulation violations. If the misestimating was not the result of any nefarious motive, BP made assuring the public more difficult by the seemingly cavalier attitude and insensitive remarks made by then-CEO Tony Hayward being broadcast almost daily.

BP was able to alter their course on the handling of the historic spill. CEO Tony Hayward was relieved of his duty and a change in strategy was clearly visible by the events that took place in the aftermath. Still, while BP has made great strides to rectify their initial missteps in handling the crisis, they could have learned from Toyota in the art of proper corporate governance and saved more than the expense of the cleanup and restitution.

Leave a Reply

Your email address will not be published.