Corporate Governance: Board Size, Managerial Ownership and Operations Performance

Abstract

The purpose of this conceptual paper is to address the link between corporate governance mechanisms such as board size and managerial ownership have somehow influence the performance of the firm’s operations from the context of inventory performance. This paper highlight a total new approach whereby as for as concern to inventory decision will be solely handled by the low level management or the agent who act as manager. Best practices through effective corporate governance mechanism somehow tight up in deciding to minimize operational cost through the effort of reducing the asset called inventory that is accounted for almost 70 percent of total manufacturing cost. Therefore, this paper address the idea behind the scene of best practices reflects on corporate governance mechanisms will therefore have an impact on inventory performance.

Keywords: Corporate GovernanceBoard SizeManagerial OwnershipOperations ManagementInventory Performance

Introduction

Enhancing organizational efficiency is one of the companies approach to face stiff competition most likely will slow down if the measure for quick action and strategy is not in place. The area need for further scrutiny and challenges is the operations activity that if it not in control will directly affect the operations performance of the company. In order to stay competitive and to enhance organizational efficiency is to relook on the management activity that plays a crucial role and critical success factor towards administrative excellence by deploying best practices through engaging corporate governance. Malaysian corporations basically been entrusted to managers to fully functional as agents for the owners (shareholders) to run the operations activity. Agency theory recall the problem may arise between the shareholder as the principal and the managers as an agent. This problem can be solved if the agents who act as managers being transparent to the principal as the owners of the corporation and the fairness bestowed to the stakeholders (Al-Faki 2006). The performance of the firms largely depends to the agents who run the operations base on the financial resources and non-financial are available to a business. As for the non-financial resources such as inventory perspective if it is not been monitored or control will affect the operations performance directly. For corporation listed in Malaysia especially the manufacturing companies when been entrusted to the agent (managers) to run the operation most likely ending up having high operational cost if it is not been monitored and controlled. Therefore operations performance dictate from the inventory management specifically involve in the optimizing the resources such as stocks is important whereby it postulate the way and how many stock to keep meaning to say to high inventory will affect the profitability of the company triggered by high operational cost. Sachs (1998) reported back in 1990s during Japanese economic crisis further driven the 1997 Asian and Malaysia is not left. Concerning Malaysia, the investors’ confidence becomes dampen towards Malaysia capital markets and it was suggested that such perception cause by the country’s poor corporate governance.

Literature Review

Conceptual Model

This rational behind the conduct of this study is to make confirmation of the proposition. As this paper emphasize on the causal relationship through the chosen variables of corporate governance and operations performance through quantitative approach refer to figure 1 .

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Discussion and Implication

Basically there are many study focus mainly the link between company performance and corporate governance but the emphasize were on merely accounting numbers. Therefore this paper indeed in a way highlight the possibility link between inventories numbers instead. How the corporate governance mechanisms such as board size and managerial ownership have in a way influence in the inventory numbers that accounts for the operations performance? The executives have somehow involve in making decision towards improvement of the profit margin through the effort of controlling towards reducing stock and ensuring sufficient stocks can meet the production requirement. Base on this is the larger board size do influence the inventory decision or the other way round or the managerial ownership make differences in influencing inventory performance.

Conclusion

Best practices through effective corporate governance mechanism somehow tight up in deciding to minimize operational cost through the effort of reducing the asset called inventory that is accounted for almost 70 percent of total manufacturing cost. Therefore, this paper address the idea behind the scene of best practices reflects on corporate governance mechanisms will therefore have an impact on inventory performance.

References

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