Article Analysis: How good governance can stop toxic "bro behavior" at companies and Why is putting workers on boards better than inclusive ownership funds?

Scenario:

You have been engaged as an expert voice in the corporate governance area and are required to prepare a report (including an Executive Summary, introduction, recommendations and conclusion) responding to the questions asked in relation to the issues presented in the two articles below:

Article 1: Parent, M (2020), How good governance can stop toxic ‘bro behaviour’ at companies Instructions. The Conversation. Retrieved from https://theconversation.com/how-good-governance-canstoptoxic-bro-behaviour-at-companies-145826

(1)   Do you think that the Board of Directors took the right action? Why/Why not?

(2)   Identify another example or other examples presented in the media of either toxic Board and or CEO behaviour. Provide an overview of the issues and how they might be avoided.

(3)   What theory might contribute to a toxic ‘bro behaviour’? How/Why?

Article 2: Driver, C, 2019, Why putting workers on boards is better than inclusive ownership funds. The Conversation. Retrieved from https://theconversation.com/why-putting-workers-on-boards-is-betterthaninclusive-ownership-funds-127473

(1)    The Anglo/American model of governance would be strengthened by having workers on boards? Why/Why not?

(2)    The German model of governance has proven to be a stronger and fairer by having workers on boards? Why/Why not?

(3)    Argue the case for having workers on boards using a theoretical perspective of corporate governance?

ANSWER

Executive Summary

This entry presents a comprehensive review of two articles. The first article focuses on how good governance can stop toxic "bro behaviour" at companies. The reflection was on the decision of the boards of McDonald’s to sack their CEO for engaging in a sexual relationship with one of the staff, an act that is against the company’s long-established policies. It was stated that such a decision is right as it is needed to curb related behaviour in the future. The discussion looked at the relationship between this case and that of Uber, further solidifying the fact that McDonald’s was right in laying off their CEO. Implicit personality theories were found to be capable of influencing toxic "bro behaviour" in the workforce because of how individuals perceive others determines their attitude towards the person.

Why putting workers on boards is better than inclusive ownership funds was considered in the second analysis. Based on the stakeholder theory, it was concluded that the German model of corporate governance is better than the Anglo-American model of corporate governance because the German model considers the entire stakeholders while the Anglo-American model is focused on shareholders, even at the detriment of other stakeholders.

Introduction

Corporate governance has received increased interest from academia across different fields of life. The reason for this interest is that it reflects the company’s culture, values, and overall performance. How a company is governed determines what it can do and how it does that. Therefore, adopting the right corporate governance is imperative for the sustainable performance of any company. In view of this understanding, two articles will be reviewed to discuss and highlight the essence of corporate governance in corporations. The first article, titled "How good governance can stop toxic ‘bro behaviour’ at companies," will focus on creating and sustaining organizational policies that build against toxic relationships in the corporate system. This analysis will be divided into three parts. The first part will consider whether the board of McDonald’s made the right decision by laying off their CEO following evidence of a sexual relationship with another staff member. The second part links this issue to that of other companies by highlighting similarities, differences, and things that could be done to address them. The final part of this section considers implicit personality theory as a possible source of toxic bro-behavior in the corporate setting.

The second analysis, titled "Why putting workers on boards is better than inclusive ownership funds," will focus on why it is important to include staff on the boards of companies. This discussion will compare the Anglo-American model of corporate governance to the German model of corporate governance, highlighting that the German model is better based on stakeholder theory.

Article 1: How good governance can stop toxic "bro behavior" at companies

• Answer 1: Did the board make the right decision?

Obviously, yes!

The decision to dismiss the CEO was the right decision because the CEO violated an existing company policy not to have any form of sexual relationship with either the direct or indirect staff of the company. It is an existing policy that the CEO is obviously aware of, as demonstrated in his letter following the dismissal. Therefore, the only right decision by the board would have been to dismiss him in order to retain their overall public image and reinforce the need for all staff to adhere to the policy.

As Tarver (2021) pointed out, the culture of a company reflects the behaviors and beliefs that determine how the employees and management of the company interact and address business transactions outside the company. Normally, these cultures are implied, not expressly defined, and they are organically developed in the company over time through the accumulation and integration of the different traits of the company hired by the company. However, in the case of McDonald's, the culture was expressly written and the CEO was aware of that, implying that the disobedient was express and intentional and not a mistake. The company's only option to uphold this culture was obviously to dismiss the CEO.

The essence of upholding a company’s culture was discussed by the University of Ohio (2021), where it was stated that companies with the strongest cultures tend to have lower turnover rates, and the importance of a low turnover rate is reflected in the time and money the company will save. Additionally, cultures are known to contribute to employee happiness, and employees are more productive when happy. Therefore, dismissing the CEO to send a signal to other staff is imperative as it would force them to desist from such behaviour, leading to a better productive unit.

• Answer 2: Discrimination and sexual harassment in Uber: A case example

Reporting for the Guardian News, Levin (2017) discussed the criticism Uber received for the actions of its executive who was accused of ignoring claims of discrimination. Following the resignation of the company’s CEO, Travis Kalanick, questions were raised as to why the company’s Chief Technology Officer (CTO), who was one of the people included in an engineer’s viral account of discrimination and sexual harassment, was still active in such a top position.

The decision of the CEO to leave the company came after months of scandals, with the main highlight being allegations made by the company’s former employee, Susan Fowler, that there were rampant cases of sexism in the company and the management (on different occasions) refused to address such complaints. The top executive mentioned by the former employee in the claim was the CTO, Thuan Pham, whom the allegation accused of doing nothing after Susan revealed to the CTO that one of the managers had threatened to fire Susan for speaking to the HR about issues of discrimination (Levin, 2017).

The revelation by the former employee led to months of investigation that was spearheaded by Eric Holder, the former Attorney General of the US, which resulted in more than 20 employees having their contracts terminated, with the company promising major reforms, followed by the CEO leaving the company following immense pressure from the investors (Levin, 2017).

Although the only top executive mentioned in the case, and also accused of not doing anything following the report, Thuan Pharm, the CTO, weathered the storm and remained within the company’s high-profile position, and this led to criticism that the company has not been able to properly address the claims, failing to hold a powerful executive accountable and have sufficiently fixed the company’s misogynistic culture (Levin, 2017). Clearly, the investors focused on the CEO and ignored the CTO, probably because the CTO has a significant number of shares (5.4 million) in the company and, as such, could be considered an investor, leading to the "toxic behavior" from the shareholders. This resulted in numerous issues, especially a negative effect on their financial performance, in the company.

The right thing to do would have been to properly investigate the CTO, irrespective of the position occupied or shares held, focusing on the customers as they would be the ones having final say on the company’s financial performance. In the absence of trust, the customers will likely ignore the company’s offerings, and this will have an adverse effect on their performance.

• Answer 3: Implicit Personality Theories (IPTs)

The Implicit Personality Theories (IPTs) refer to the notions individuals hold about the personality characteristics that tend to occur in people. For instance, people might correlate a sense of humour with intelligence, or warmth with generosity. Through these IPTs, the social perceptions made about other people are influenced. To demonstrate this, if someone in a company is talking energetically when addressing other members of the company, and the listeners presume that there is a correlation between energy and intelligence, it would likely interfere in how they perceive the person and lead to viewing the person as intelligent (Dunning, 1995).

To put this into perspective, in the case of McDonald's, if the CEO presumes or perceives that the board is all words and no action, it would likely lead to the toxic behavior of engaging in sexual relationships (sometimes forced) with other employees, on the ground that the board wouldn’t do anything if they discover Therefore, the perception of the personality of an individual determines how people treat the person. Going further, if an employee perceives that another employee is less likely to report the issue of discrimination, sexual harassment, or any other toxic behavior in the workplace, there are higher chances of the person exhibiting this kind of behavior. Thus, the implied personalities of people determine how others view and treat them in the workplace (D'Andrade, 1965; Tomassetti et al., 2016).

Why is putting workers on boards better than inclusive ownership funds?

• Answer 1: Why would having workers on board strengthen the Anglo/American model of governance?

The Anglo-American model of governance featured extended calls for inclusion of different views and opinions before reaching a decision about a company. Therefore, under such a setting, the developed corporate strategy is not eventually implemented until all the investors and shareholders of the company reach a unanimous agreement. This model of business is normally premised on the idea of increasing shareholders’ value, that is, maximizing returns for the shareholders (dividends) and capital growth (share price) (Mullineux, 2010). Therefore, the interests of the shareholders are paramount, even at the expense of other stakeholders. It is a private enterprise, and all of its approaches are focused on the goal of maximizing profit.

The possible implication of this business model is that business operations might be run in an unethical way, a way that is not socially responsible. Therefore, arguments about having workers on the board will likely strengthen this model because the decisions made by the board have a direct impact on the workers themselves. For instance, in the Anglo-American business model, the CEO has stringent control and power over the board, and they can make use of this control not only to prevent challenges to their position, but also to aggregate themselves into maximum shares of the wealth that the company generates, both in the areas of rapidly inflating their salaries and massively growing stock options (Mullineux, 2010). The main reason why this is possible is that the CEO, in most cases, exercises the role of the chairman of the board, and this over-centralization of the power of the CEO is made manifest in the gap between the salaries of the CEO and that of other executives.

If the employees are part of the board, such behaviour will likely not occur or at least be stopped at its initiation. This is because the employees will have a better assessment of the performance-based reward system and would not permit such a rapid increase in the salaries of the CEOs if their own salaries are not increased along with it. Therefore, making the employees part of the board will likely strengthen the Anglo-American model of business because the employees will serve as an oversight to the decisions being made by the CEO and will inevitably prevent those that could affect the interests of the stakeholders. By strengthening labor representatives in the Anglo-American model, there will be an improvement in the ability of companies to discover weaknesses and opportunities in the organization, and such information will be used to improve their performance (Pillay, 2013).Answer 2: Why the German model of governance is fairer and stronger by having workers on-board

Traditionally, the German system of corporate governance is characterized by a two-tier board structure in which labor participation is encouraged to supervise the roles of boards at large corporations; the important roles played by banks and large shareholders; a legal framework that is founded on the German doctrine and based on statutory regulations; and the absence of hostile takeovers (Jäger et al., 2021). The efficiency criterion that corporate governance is expected to uphold is another distinctive part of the German regime.

The main reason why codetermination, the German model of corporate governance, is considered fairer and stronger is because it addresses the ethical issues associated with the Anglo-American business model. In the German model, employees are part of the board and partake in making decisions about the company. To this effect, they are able to present and represent their interests in the company by making sure that the management puts the interests of the employees first in their corporate strategies. Employees are given the voice to state what they want and the power to bring such a statement into reality (Lower, 2009). Through codetermination, the board cannot wake up and push policies down the throats of the employees because these employees are part of the people making such policies. Since employees represent the main asset of any company, fairer decisions in relation to the interests of the employees are reached under such a model. On the same note, while the Anglo-American model focuses on returning and maximizing profits for the shareholders at all costs, the German model focuses on the entire stakeholders as the shareholders are considered to be just one part of the stakeholders (Goergen et al., 2008; Gorton & Schmid, 2004). Through such focus, decisions reflect the interests of all the stakeholders, and the positive impact the company has on the stakeholders is more pronounced. As a result of giving employees a voice, the German model is fairer and stronger because decisions made reflect the employees' interests, and employees see more opportunities to improve the company's performance by improving their own performance.

Answer 3: The theoretical perspective of having workers on board in corporate governance: Stakeholders Theory

Stakeholder theory describes a company’s composition as being made up of different individual groups with different interests. Taken together, these interests represent the company’s will. As much as possible, business decisions should take into account the interests of these collective groups and encourage their overall cooperation (Kelly, 2021).Where these interests erode, conflict becomes inevitable. While it might not be possible to bring these distinct groups together to reach an agreement, it is imperative that the business decisions take these different views into consideration and be optimized in such a way to include all the voices of the stakeholders. This will aid in eliminating conflicts and creating a more sustainable business environment, which is a prerequisite for improved performance (Price, 2019; Abu, 2021).

Conclusion

From the onset, the purpose of this entry was defined as to review two articles bordering on corporate governance. The first article was based on the decision of the board of McDonald’s to lay off its CEO. In this section, it was found that the decision was right because the CEO was at fault in their long-standing policy of staff not engaging in sexual relationships with each other. The decision is meant to be a firm warning to other employees and also designed to sustain the company’s culture and values. Compared to the case of Uber, it was further demonstrated that the decision is right to sustain stakeholders’ trust and loyalty towards the company. The Implicit Personality Theories were found to be capable of inducing toxic "bro-behavior" in the workplace.

The second article looked at why including employees as part of the board is better than ownership funds. It was found that the German model of corporate governance, which is anchored in including the views of all stakeholders, is better than the Anglo-American model. This is because the German model considers the views of all stakeholders and, as such, can be used to reach fairer and stronger decisions. The stakeholder theory was found to validate this German model as it centres on considering all stakeholders in reaching corporate decisions.

References

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