Effect of Corporate Structure on Corporate Governance

Effect of Corporate Structure on Corporate Governance

Corporate structure has been defined as the manner in which departments in an organization are organized. Corporate structures often differ across organizations based on their goals as well as industry within which an organization operates. There exist different corporate structures that influence corporate governance. They include functional, divisional, matrix, and hybrid corporate structures. A functional structure is characterized by the grouping of employees into departments due to the skills that they possess. Employees with similar skills, experience, or accountabilities are placed in the same department. The use of such a structure has significant implications on corporate governance. Firstly, there is easy flow of communication between the management and the employees within a department. Decisions are easily made since there is minimal consultation between the organizational stakeholders (Ringel, Hiller & Zietsma, 2018). Therefore, governance issues such as rules, policies, decisions, and processes are easily implemented in the functional organizational structure.

The other type of organizational structure that influences governance is divisional structure. In this structure, activities within an organization are divided based on the products and services offered to specific market niches. The teams in this structure are organized in such a manner that they duplicate the products or services that are offered to the target market. The use of this structure has some implications to corporate governance. The management can focus its interventions on improving the quality of products and services offered to the target markets. There is also easy flow of information from the managers to the employees (Albadri, Nasereddin & IGI Global, 2019). The structure provides organizations with benefits such as easy decision-making and implementation of policies and procedures.

Moreover, another corporate structure that has an influence on corporate governance is the matrix organizational structure. This structure combines the use of both divisional and functional structures. The combination eases governance within an organization since there is decentralization of decision-making. The employees also have a great sense of autonomy due to enhanced interdepartmental interactions. Consequently, there is enhanced productivity in this structure. However, corporate governance faces challenges that include high operational costs and conflicts caused by horizontal and vertical production lines.

The last structure that influences corporate governance is the hybrid organizational structure. This structure is similar to matrix structure since it combines both divisional and functional structures. However, the tasks are divided into divisional or functional departments (Ringel et al., 2018). The structure eases governance in organizations due to specialization in product and service provision.

Governance plays a wide range of roles in an organization. One them involves determining the goals as well as objectives of a firm. The goals and objectives are evidenced in the organization’s mission and vision. The set goals and objectives are achieved with the adoption of a defined strategic plan. Through it, organizations understand their purpose in their markets and the manner in which it can be achieved. The interventions of teams in an organization should aim at facilitating the realization of the set goals and objectives. Team members must be united towards ensuring that their efforts underpin the realization of the set goals and objectives (Mallin, 2018). Therefore, open channels of communication should be created to foster sharing of ideas in an organization.

The determination of the organizational ethics forms the second role of governance in an organization. Organizational performance and competitiveness are dependent on the behaviors demonstrated by its stakeholders. Thus, governance ensures that a focus is placed on interventions that promote sustainability, stakeholder engagement, and corporate social responsibility. They ensure that organizations behave in a manner that protects the health and safety of its stakeholders. As a result, rules as well as standards that govern the behavior of the employees must be developed. The development of organizational behaviors should be done with a consideration of team inputs (Mallin, 2018). Organizational stakeholders should work together in exploring the desired behaviors that will promote the realization of the mission and vision of the organization.

Moreover, creating organizational culture and ensuring compliance is also a role of governance. Organizational governance facilitates a culture that determines organizational behaviors. It determines the manner in which the organizational enviro