Corporate Governance, Marketing, and Consumer Behavior Models

Introduction to Corporate Governance Definitions

Two different yet related corporate governance definitions have been presented in the literature (Mallin, 2006, p. 3). Sometimes they cause confusion and controversy, and ultimately affect the implementation and tightening of governance (Windsor, 2009).

The 1992 Cadbury Report, which presented the major proposals for tightening governance, described governance as the system through which firms are managed, regulated, and supervised (Cadbury, 1992, p. 15). The fundamental agency idea emphasizes that corporate governance must deal with those ways in which corporate financial suppliers guarantee themselves the attainment of a positive return on investment (Shleifer and Vishny, 1997, p. 737). Corporate governance can also be described more broadly (Weil and Manges, 2002, p. 1). The OECD principles, revised in 2004, explain governance as a set of stakeholder relationships along with the structure for defining, achieving, and monitoring corporate goals and performance (Mallin, 2006, p. 3).

The mixture of these two definitions directly affects the organizational design of control, which focuses on top management. The difference between the two definitions is related to the role of stakeholders who have no investment in the company. The agency view of governance restricts it to financial stakeholders only. The OECD principles, on the other hand, broaden the governance role to other stakeholders as well. The EU requires both tightening of governance and increased expenditure on CSR. UK-based studies also suggest the broader stakeholder approach (Windsor, 2009).

The main OECD principles revolve around stockholders and customers. Financial stakeholders have become more active, as observed at Telstra in Australia (Washington, 2007). Management should understand this growing concern. Short-term profitability initiatives driven by stock-based managerial incentives do not lay the foundation for a sustainable long-term strategy (Zhang et al., 2008).

OECD Corporate Governance Principles and External Control

This growing pressure is a direct result of corporate scandals and financial crises since the 1980s. Given recent financial scandals (Harris, 2008), US stock exchanges have tightened their listing requirements. Corporate scandals destroy the reputation of the corporate sector (Fombrun, 2006) and led to the Sarbanes-Oxley Act of 2002 (SOX). Like the UK and US, EU nations are also facing growing demand for strict corporate governance. Multinational corporations should operate in complete compliance with local and host country laws (Windsor, 2009).

Some pressure comes from government, as seen in the US response to global scandals through the Foreign Corrupt Practices Act of 1977 (FCPA), which makes it compulsory for every type of organization to maintain comprehensive record-keeping. There is considerable debate in US circles over the costs and benefits of SOX (Brick and Chidambaran, 2008). Since late 2006, many governments across the globe have increased their market interventions; public companies must now address significant cross-continental and governmental concerns (Boddewyn, 2007).

Earlier, the OECD issued its guidelines in 1976 and revised them in 2000, stating that a company should not only support but also uphold high-quality corporate governance standards, and should not only develop but also apply sound governance practices (OECD, 2000, pp. 5, 19). These comprehensive guidelines motivate firms to communicate social, ethical, and environmental policies, as well as codes of conduct and material information regarding governance structure, key policies, management, and stakeholder associations (OECD, 2000, pp. 5, 20).

A significant development has taken place in various countries, where inquiries are being conducted into corporate governance standards and practices (Erakovic, 2007). This is especially true following the publication of OECD principles. The London Stock Exchange (LSE), for instance, constituted the Cadbury Committee after major British corporate scandals. The 1992 Cadbury Report contained 19 suggestions in a non-binding Code of Best Practice for improving financial performance, developed after studying companies that were generally well managed (Cadbury, 2006, pp. 21–22). These recommendations remain the central prescriptions for corporate governance standards and practices. Annual disclosure statements were required by LSE, specifying reasons for non-compliance and its areas (Cadbury, 2006, p. 23). Since many prescriptions proved contentious or inadequate, various further studies were conducted (such as the Greenbury Report in 1995 and the Hampel Report in 1998) and a Joint Code was established (Jones and Pollitt, 2004). These inquiries incorporated directors' remuneration, broad internal control beyond financial supervision, board administration of risk management, non-executive directors, and administration of the board of directors (Windsor, 2009).

Gone are the days when public-sector employees commanded natural respect and automatic attention from their customers. Being a public-sector organization no longer confers the privilege of simply arranging a product or service and waiting for the customer to come. This is the age of marketing — the age of satisfying the customer. Whether in manufacturing, services, or even individual job seeking, effective marketing is needed to satisfy those who pay for the work. The concept of complete customer satisfaction is no longer limited to the nature of the product; it has also entered the domain of who is selling it. This is where small businesses can play an important role.

Marketing and Corporate Governance

In this customer-first environment, small businesses need marketing and customer satisfaction tools to ensure that customers know, understand, and appreciate their service. For instance, St. Clair (1993) examines how organizations can better serve their customers in the information age, explaining the basic principle of putting yourself in the customer's shoes. In order to improve customer perceptions, management needs to view itself from the customer's perspective — understanding what customers really expect, what they actually receive, and what they do not value. Using basic business research methods, small businesses (even non-profit or not-for-profit ones) can ascertain what customers want. Three of the most commonly used methods are:

Conducting customer surveys involves developing questionnaires about customers' perceptions of services. Performing a needs analysis means interviewing customers directly or through focus groups, which are small groups that participate in deliberations over service quality issues, facilitated by a mediator. On a more complex level, information audits entail detailed procedures for analyzing information sources and services to achieve better information flow and more transparent communication between customers and management (St. Clair, 1993). A Customer Service Plan capturing goals and standards for customer service is also recommended by a number of researchers. However, the plan itself is insufficient unless followed up by surveys, focus groups, and continuous monitoring of consumer behavior and satisfaction.

Current research literature suggests that performance measures, quality assessment, public accountability, and benchmarking have been used extensively in government and higher education literature since the 1990s (Harer and Cole, 2005, p. 150).

In the past few years, the small business community has seen an increase in assessment activities, driven by shifts in technology and higher education. Most assessments attempt to survey, measure, predict, or analyze. According to Hernon and Altman (1996), "there are at least eleven questions about which assessment can be made: how much, how many, how economical, how prompt, how accurate, how responsive, how well, how valuable, how reliable, how courteous, and how satisfied." Thomas and Robson (2004) found that assessments yielding useful information should answer the following questions before data gathering begins: what you want to know, why you want to know it, from whom you will gather the information, how you will gather the information, and how you will use the information.