Global Journal of Management and Business Research, A: Administration and Management, Volume 23 Issue 10

Sustainable Compliance Programs in Complex Organizations Global Journal of Management and Business Research ( A ) XXIII Issue X Version I Year 2023 5 © 2023 Global Journals One of the key areas not addressed in this literature relates to the organizational environment and its conduciveness to facilitate an ‘inquisitive’ and ‘problem-seeking’ culture. This involves facilitating bottom-up feedback and communication, especially in the area of internal control testing (CEB, 2004). Senior management’s commitment to facilitate such openness within the organization could act as the biggest influencer for inducing this cultural shift, discussed briefly in the next section. c) Corporate Governance Influencers A related issue in a changing regulated environment is the effectiveness of the overall organizational governance. Prior literature on this issue tends to focus on the degree of centralization of information systems and business compliance unit resources, or the question of outsourcing. However, there is little evidence on the broader linkages between a compliance cultures with the overall corporate governance system. This section briefly reviews the role of the board and the management in shaping the organization’s direction, which is proposed as being critical for the creation of a sustainable structure for managing compliance programs. The term “corporate governance” has had different connotations over time. Berle and Means (1932) initially suggested that professional managers who were unaccountable to dispersed shareholders ran the modern corporation. This point of view subsequently reflected the narrow question how to align manager’s work to better the interests of the shareholders, related to the principal-agent paradigm. A recent, more European-oriented definition of corporate governance views a firm as having many stakeholders other than its shareholders (Kay 1996). Given the different views on the definition of what corporate governance meant, it is not surprising that there has been an ongoing debate on the subject of these alternative models of corporate governance, and the effectiveness of internal and external mechanisms of governance. Vives (2000) and Goergen (2012)both make a distinction between two major models adopted worldwide for corporate governance, contrasting market-oriented (US, UK) versus a more bank-oriented or stakeholder model (Germany). In the latter, firms and banks enter into long-term relationships as opposed to purely financial transaction basis, associated with a market-oriented model. In contrast to the situation facing many large companies in Continental Europe, in both the UK the US, large companies have their ownership dispersed amongst institutional and private investors. The threat of hostile takeover ensures a level of corporate control on the managers of such firms. Furthermore, there are limits on cross holdings so competition is not restricted. In theory, the concern of hostile take-overs act as necessary external control and complement the board of directors who are held responsible for managing the firm’s internal controls. By contrast, in Continental Europe, the ownership of listed companies is usually highly concentrated, and there is a disproportionately high percentage of family ownership. In such a climate, hostile takeovers are rare, and pyramidal control schemes are common (LaPorta et al. 1999). The large commercial banks control companies through proxy votes in Germany. The hausbank of a firm plays a monitoring role and organizes proxy votes. Furthermore, there is a two-tiered system of company board for public corporations over 500 employees, which is consistent with the stakeholder theory. There is a supervisory board (50% represented by workers, and the remaining by other major stakeholders like, suppliers and customers) and a management board. The board of directors are pivotal in providing the ‘active’ control over the managers within the firm. Linck et al (2005), Fama and Jensen (1983), Raheja (2005) consider boards to be responsible for both monitoring the management on behalf of the share- holders and owners, and advising the management on strategy formulation. Eisenberg (1997) contends that boards therefore should take greater ownership of the “internal controls” monitoring. Charan (2005) and Bertsch (2005) find that the board’s ability to influence the management begins with the task of executive management officer (CEO) selection and planning. Hamelin and Weisbach (1998) and Raheja (2005) examine the departing CEO’s influence in succession planning. The effectiveness of the board is also influenced by the degree of independence wielded by the board in its interactions with the management and the quality of relationship that exists between them (Jensen, 1986). In this respect, the composition of the board is a critical factor (Hermalin and Weisbach, 2003). Clieaf and Kelly (2005) recommend boards take increased direct responsibility for performing accountability audit monitoring and assessing the alignment of the organization structure with its existing capabilities. Charan (2005) calls such boards “progressive”, in their thinking and actions. These boards come with the necessary skill set and the knowledge in the areas of governance and do not hesitate to act as ‘counter- balance’ to management. Linck et al. (2005) provide evidence which suggests a potential link of this behaviour to the size of the firm. However, it is unclear if this behaviour is a consequence of increased costs of monitoring (in large firms) or it just represents the synchronization of interests between the CEO and the shareholders (Linck et al., 2005). Boards in Anglo-American countries typically use committees to provide oversight, and advice over different areas of an organization, including ethical