Research Paper on Integrating Corporate Governance in government-sponsored institutions

Integrating Corporate Governance in government-sponsored institutions and how this affects Productivity: An Empirical Analysis of Publicly-Funded Universities in Australia.

Literature Review

Finalized Study Background

            Corporate governance is a common concept in the public domain and it mainly revolves around striking a significant balance between social and economic objectives as well as between personal and communal objectives. The concept is further popular among public officers particularly when exercising their power as they monitor, control and coordinate activities intended to perpetuate organizational objectives (Lozano, 2016). However, most organizational leaders in the public domain have failed to integrate the concept in preparing the organization for future eventualities, which has seen most of such organizations failing as a result of unforeseen circumstances. A study that was carried out by Tricker (2015) showed that many government institutions have closed down due to poor performance resulting from poor governance strategies. As a result, the concept of corporate governance has continually been integrated in public sectors in most countries from around the world with the aim of enhancing quality management of public resources to promote overall organizational performance.

Although the concept of corporate governance was initially popular in the private domain, public institutions from around the world started incorporating it in their operations especially in early 1990s. This was as a result of important work that was carried out in late 1980s as well as early 1990s, which portrayed the benefits that public institutions can reap upon integrating principles of good governance in their operations (Larcker & Tayan, 2015). While this work was initially conducted at a narrow range in United States in an inquiry investigating the financial aspects of good governance, the subject was broadened at the global level when United Kingdom’s Organization for Economic Collaboration and Development outlined the important principles associated with corporate governance (Zuckweiler & Hayes, 2016). The organization further published a status report with recommendations intended to perpetuate establishment of corporate governance in Asian countries. As a result, an updated version of important principles associated with corporate governance was issued in 2004. This has seen public administrators in this region being widely involved in perpetuating the principles linked to corporate governance for more than nine years. According to Khan, A., Muttakin & Siddiqui (2013), the association of public administrators in Asia issued their first report entitled Working with Groups on Corporate Governance in 2006. It has since then issued seven reports relating to various facets of corporate governance that public institutions ought to adopt if they hope to promote productivity and quality performance in their day to day operations. As a result, the term has increasingly gained significant usage in the modern public administration. Most contemporary theorists believe that corporate governance exists as a critical concept that directs administrators especially as administrative activities change from the bureaucratic to the “hollow” state (Henkel, 2015).

Research shows that the integration of this concept in the public domain has initiated a hotly debated topic within the last few decades. This is because there have been significant legislative transformations as well as provisions enforced on the government and public institutions across the globe to enhance their governance arrangements. Publicly-funded universities in Australia have constituted to some of the interests that have been caught up in the global surge aimed at enhancing governance of public institutions (Westphal & Zajac, 2013). According to research that was carried out by Guthrie & Johnston (2014), governance issues pertaining to size, composition of university governing bodies, their duties, responsibilities as well as relationships have widely been debated in various commonwealth government policy reports in Australia for over two decades. Australian universities have traditionally been structured as corporations under the commonwealth law. As such, the model of governance employed in these institutions tends to move away from the self-governance approach that allowed little government interference to a model that is closely related to business corporations (Harman & Treadgold, 2014). This means that Australian universities are being governed through administrative trends of public companies. On this note, formal activities in a public university are administered through a governing body as well as a board of directors, which constitutes of the elected and ex-official members most of whom hold non-executive roles. In addition to these developments, the Australian university segment has experienced significant policy changes that include new demands to improve their overall productivity and performance (Guthrie & Johnston, 2014). This, however, has not been achieved without various shortcomings associated with governance arrangements in publically funded universities. The following are important concepts that can help us understand the need to integrate corporate governance in government-sponsored institutions.

Concept of corporate governance: The term corporate governance has widely been defined in distinct ways although it is generally concerned with institutional structures as well as processes through which accountability, conduct, decision making as well as control of activities within organizations are perpetuated. According to Goodstein (2014), corporate governance refers to a framework through which relevant stakeholders’ interests are regulated as well as protected. Goodstein further defines corporate governance as the means through which organizations are coordinated and directed. Corporate governance is widely perceived to the primary means through which the reliability as well as the quality of financial information in the public domain is usually regulated thereby promoting accountability and efficiency. Good governance further enhances effective protection of stakeholders’ rights and interests.

Corporate governance practices and productivity: Understanding the link between corporate governance and productivity is critical because it enhances formulation of efficient management and regulatory policies in any public institution. Literature compiled by Gooding and Wagner (2011) shows that corporate governance enhances organizational productivity and there is a direct link between governance and productivity. As such, in-depth review of general corporate governance approaches is critical because it helps in understanding the various ways through which corporate governance in public institutions impacts productivity.

Corporate models: Certain theoretical models can be used to explain how the concept of corporate governance impacts government-sponsored institutions and their subsequent productivity. Such models include:

Stewardship model

As argued by Fan et al (2013), integrating corporate governance in a public institution should result to improved productivity and efficiency. On the same note, people are in dire need on government-sponsored institutions particularly because they need to access important services, including health, electrical power, water as well as waste management. As such, integrating sound corporate governance in a publicly-sponsored institution is a critical pivotal foundation for enhancing quality delivery of public services. As stated by Claessens and Yurtoglu (2013), the stewardship model ensures that organizational leaders in the public sector are good stewards for perpetuating efficiency and corporate governance. As argued by Flores-Macias (2010), principles of this model are founded on the social psychology model, which primarily analyses the conducts of executives and that their primary responsibility is to protect interests of the principal. The model asserts that corporate governance is critical in a public organization because it ensures that stakeholders’ interests as well as the long term stability of the organization are enhanced. It further asserts that corporate governance is important in promoting an organization’s capacity to move into the right direction, which mainly entails protecting stakeholder interests. According to this model, a steward will not digress from stakeholders’ interests because he/she is primarily committed to maximize overall success of the wider organization (Bijalwan & Madan, 2013).

Stakeholder model

            An important concept emerging from this model is that corporate governance should primarily be concerned about promoting long-term value creation rather than enhancing short-term monetary accountability indicators. The model represents the recognition by organizational management scholars that modern approaches to understand organizational environment fail to take into consideration a huge variety of people that can affect as well as be affected by an organization and its stakeholders (American Law institute, 1992). The contention of this model is that long-term productivity and performance particularly in public institutions is solely dependent on the relationship that such an institution has with its stakeholders. The fundamental consequence of this model in relation to promoting corporate governance is that ensures alignment not only between agents and their principals but also between agents, their principals as well as any other party that has a broader but reasonable interest in the larger organization. On this note, this model asserts that corporate governance is an important and managerially fundamental principle in promoting robust organization productivity (Bancaire, 1996).

The principle rational corporate governance: Rational corporate governance is critical in enhancing efficiency and productivity in a public institution. As stated by Cho et al (2014) internal governance ensures that stakeholders observe the level of productivity portrayed by managers, which in return ensures that an organization is able to realize its core objectives. For instance, Cho et al. (2014) emphasizes that internal auditors are liable for enhancing accountability and transparency in an organization by presenting the an audit report on organizational leaders’ performance to the Board of Directors for consent. They are further responsible for perpetuating balance of power by ensuring that each party plays his/her part in perpetuating overall organizational objectives. This means that internal mechanisms through sound corporate governance ensures that rational decisions are made while on the other hand enhancing rational checks and balances to ensure that overall productivity and performance is perpetuated (Bodnaruk, Massa & Simonov, 2013).

Finalized Purpose of the study

            This study has been designed to issue the high educational personnel in Australia with useful information pertaining to the integration of corporate governance in publicly-funded universities in the country. The study aims to investigate the efficacy of integrating corporate governance practices in public institutions and how this can affect productivity. The need to conduct this study emanates from the fact that the introduction of National Governance Protocols in Australia only sought to introduce a mechanism through which accountability, organization, performance as well as the expansion of the higher education sector as it moved towards commercialization could be coordinated. However, educational directors in this country will utilize this information generated through this study to perpetuate integration of useful governance structures as well as practices that can positively impact the performance and productivity of publicly-funded universities (Boubakri, Mansi & Saffar, 2013). The study will thus seek to understand how integration of corporate governance practices contribute to teaching, research as well as financial performance and productivity in publicly-funded universities in Australia. The study will look at the efficiency of governance practices that impact the higher education segment’s performance and overall accountability to stakeholders as well as investigate the link prevailing between governance mechanisms and the overall productivity of publicly-funded Australian universities.

Finalized research questions

RQ1: To what extent have publicly-funded universities employed corporate governance practices?

RQ2: What role does governance play in influencing public universities’ performance and productivity?

RQ3: What is the relevance of stewardship and stakeholder models in explaining the level of governance in publicly-funded universities?

RQ4: What recommendation can be made pertaining to governance and productivity measures?

Finalized data sources

            An already existing data set will be employed in this study to help address the research questions as well as respond to study hypotheses in an effective way. The data set will be derived from secondary sources, including various websites as well as annual reports of the studied government-sponsored universities in Australia. Data related to governance mechanisms employed in various universities as well as the level of productivity measured in terms of research, teaching as well as financial performance will particularly be derived from these sources.

 

Finalized Hypotheses

Please see the table below on finalized variable definitions

Finalized variable definitions

Hypotheses Variable definition Measures

 

Analysis
H1: integrating internal corporate governance mechanisms in a publicly-funded university positively impacts productivity IV1: internal corporate governance mechanisms, such as Council structure, process and composition.

This will be measured in terms of council size, independence on government regulation, committee meetings as well as transparency in reporting.

DV1: improved performance in research, teaching as well as financial prospects

Improved performance in teaching: overall satisfaction, progression in teaching, student staff ratio as well as permanent employment rates.

Performance in research: research income, research degree completion, as well as research and publications made per academic.

Financial performance: equity, assets turnover as well as the current ratio.

IV1:How many appointed, elected as well as ex-officials members does the university’s council have?

Does the council rely on government regulation on any of its activities?

Yes:

No:

How many committee meetings does the council hold annually?

Does the council reveal information pertaining to its operations in its annual reports?

Yes:

No:

If yes, what type and amount of information is revealed?

Multifactor model

IV1: Econometric tests, value of relevance of a test

DV1: Multicollinearity tests, autocorrelation tests

test: time series and cross-sectional observations

H2: integrating external corporate governance mechanisms in a publicly-funded university will positively impact productivity IV2:external corporate governance mechanisms:

Regulatory authority; based on conformity with the 2003 Corporate Governance Protocols for higher education institutions, and stakeholder influences; based on dependence on state funds

DV2: see above

IV2: does the council conform to the 2003 Corporate Governance Protocols for higher education institutions in regulating activities in the institution?

Yes:

No:

Does the council rely on state funds to support its operations?

Yes:

No:

IV2: : Econometric tests, value of relevance of a test

DV2: Multicollinearity tests, autocorrelation tests

test: time series and cross-sectional observations

 

Finalized Data analysis

            Data obtained from the secondary sources will be analyzed through a multifactor model so as to establish the relationship prevailing between corporate governance practices and the level of productivity in government-sponsored universities. Varying statistical analysis models will be used to measure the relationship prevailing between productivity of a university, which will be measured through evaluating level of performance in teaching, research as well as financial prospects and the internal and external governance mechanisms (Hair, 2008). Data that will be used in these tests will be derived through the integration of time series as well as the cross-sectional observations. In addition, econometric tests will be employed so as to accept or reject a substitute proposition. Similarly, value of a relevance degree of a test will also be employed in accepting or rejecting a substitute proposition that may have established the relationship prevailing between governance practices and productivity in universities. Multicollinearity as well as the autocorrelation tests will further be conducted to ensure that the study results are more robust. Econometric tests will be carried out to help establish whether the study instruments used in the various data sources were alternates or complements. Incremental tests will be carried out to establish the significance that individual variables have in the various study models (Hair, 2008).

Finalized Sampling design

            Important secondary data for this study will be collected from all the thirty-seven government-sponsored universities in Australia. Data relating to both the internal and external governance mechanisms will be obtained from various secondary sources including university web sites, the National data archives, yearly reports, the Career Council websites, and the Australian educational department. The collected data will be translated into varying measures for the various components included in this study (Gray & Owen, 2012). The external governance mechanisms will capture the impact of the regulatory authority, which will be measured on basis of conformity with the 2003 Corporate Governance Protocols for higher education institutions. Reliance on state funds will be used as the measure of the level of stakeholder influences. This measure will be computed as the percentage of state funds, including percentages of HELP and HECS as well as the total university revenue (Harman, 2013). On the other hand, internal governance mechanisms will be measured through construction of indices. For instance, council size will be calculated through counting the total figure of the appointed, the elected as well as the ex-officials of a council. Council independence will be measured on basis of the proportion of external members to the overall number of internal council members. The council committee indices will be measured on basis of the board committee measures prevailing in the existing literature. Council meetings will be weighed through literal calculation of the number council meetings conducted during the year. Reporting transparency will be measured by analyzing the degree and level of disclosure of information in yearly reports (Gomes & Novaes, 2005).

The performance indices, including teaching, research as well as financial performance, which will be used to measure overall productivity in the study will be measured on basis of criteria outlined in the literature. The various measures that will be used to weigh the teaching performance will include level of satisfaction, permanent employment rates (all of which will be measured using data obtained from the Australian Career Council) and employee-student ratio, which will be measured through dividing the number of full-time student by the number of permanently employed staffs. Measures for research performance will be based on the research income, publications and research degree fulfillment on basis of each academic. The measures will be computed through dividing the research degree fulfillment, publications and income of a particular academic year by the number of permanent employees of the year (Lozano, 2016). Measures for the financial performance, which will include assets turnover, equity return as well as the current ratios, will be measured using the criteria documented in the literature.

Finalized instruments

Please see the table above on finalized variable definitions

Finalized Limitations

            This study will solely obtain data from secondary sources. This limits chances of obtaining first-hand information from respondents that may include university staff, board of directors or council committee. This limitation is likely to affect the validity of data as that documented in the secondary sources may be biased as a result of simply being estimation rather than actual figures collected in the field. The study further limits its productivity measure on three levels of performance including research, teaching as well as financial aspects. This may as well affect the reliability of the ultimate results. This is because there are several other prospects through which performance and subsequent productivity in a university can be measured, including transparency, accountability as well as quality of education.

Step-by-step research method process

  • Selecting the study topic
  • Conducting preliminary research
  • Literature review
  • Consulting experts on the subject matter
  • Establishing the study purpose and deriving research questions
  • Developing the study hypotheses and defining variables
  • Determine the potential data sources
  • Conduct a preliminary test on the survey with the experts
  • Develop a sampling design
  • Obtain permission from the program administrator to conduct the study
  • Establish the study timeline
  • Gather relevant data
  • Conduct an intermediate analysis after completing twenty percent of the survey to authenticate internal validity
  • Complete the data collection process
  • Conduct data analysis
  • Data presentation and interpretation
  • Conclusions
  • Deliverable and recommendations

 

References

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Bodnaruk, A, Massa, M., & Simonov, A. (2013). Alliances and Corporate Governance, Journal of Financial Economics, 107(3), 671-693.

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