Essay Sample on Corporate Governance

Introduction

In a broad sense, corporate governance refers to the management of firms so that their operations run effectively and efficiently. Ensuring that a company's operations run smoothly when the organization is based in the home country is somehow an easy concept to understand. This is because such an organization is usually affected by the same factors regardless of the different locations of its facilities in the country. However, in international business organizations, understanding what entails as the right corporate governance is usually a difficult conception. International corporations are affected by different factors in the different countries they operate in (Ambos 2009). Regardless of whether a firm operates locally or internationally, good corporate governance ensures that the additional resources generated by the firm are sufficiently allocated to ensure production so that the stakeholder's objectives are meant. In the same sense, if the aim of the organization is to reduce costs, good corporate governance will be evaluated based on the effectiveness of cost reductions strategies. Efficient governance helps the organization to survive and generate revenue for the stakeholders whether it is operating within the national or international economic conditions.

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This report evaluates the corporate governance of the Arup Group, an international engineering, and consultation company. To critically evaluate the firm's government, the paper will first give a brief overview of the company which will include its latest financial performance. The structure of corporate governance will be then described. Evaluation of the corporate governance will include its effectiveness and suitability in meeting the firms' objectives. Finally, the report ends in recommendations for Arup Group to improve its corporate governance.

Overview of the Company

Arup Group is a global design and business consulting firm involved in architectural, design, engineering, project management, and planning services. The company was founded in 1946 by Sir Ove Arup. The headquarters of Arup Group are located in London, UK. As of now, the firm has 92 offices in 35 countries across Africa, Australia, the Middle East, Asia, Europe, and North America employing over 13,000 employees. Its operations have a broader scope as it has participated in managing projects in over 160 countries (Yoshikawa & Rasheed 2009). Some of the notable works by the firm include offering acoustics engineering in the construction of Sydney Opera House and planning of the world's largest on-shore wind farm, Whitlee Windfarm in Scotland, a high-speed railway linking London and Paris, the A30 highway in Montreal, and the Hong Kong-Zhuhai- Macau bridge in China.

The company operates through various regional segments with U.K. and Asia accounting for almost half of its revenue in 2015. Other segments include Africa, the Americas, Middle East, and Australia. Because of the wide variety of services it offers, Arup Group is divided into different divisions such as vehicle design, transaction advice, and security consultation. Through the strategy of portfolio diversification, the organization has survived through the challenging economic conditions including the two economic crises.

Over the past few years, Arup Group has experienced lags in revenue growth because of currency fluctuations and poor market conditions. Opportunely, the company has been rebounding with the global economy. For instance, in the FY 2015, it saw its revenues increase by 7 percent owing to increased sales in the Middle East, Asia, and Africa. The company is taking advantage of the increasing demand for civil infrastructure in such countries to grow its revenues. The company recognizes that maintaining a high number of employees hurts its returns and strives to keep a relatively low number. The primary strategy by the company is expanding its operations in Africa, India, China, and Asia because of the high need for civil infrastructure, energy projects, and water. This provides the company with opportunities of securing contracts.

Arup Group Corporate Governance

Description of Arup's Corporate Governance Structure

One of the unique selling points of Arup Group is its corporate governance approach which makes it undertake each project with an independent mindset. Intellectual independence has been at the center of the firm's success across the different market segments which could range from advising European governments on their infrastructural development strategies to offering transaction advice on an African wind farm project. Through the intellectual independence, Arup offers clients with advice that is complete confidence free from influence by the pressures to chase short-term revenues for the shareholders or competing duties to third parties. To achieve this level of independence necessitated a change in ownership structure to become a Trust owned company (David, Sine, and Haveman 2013). This ownership strategy has benefited the employees making it possible to be free from the pressures of the shareholders. Currently, Arup Group is owned by three Trustee Boards with around nine members. Four of the members are normally selected from the highest leadership of the firm, three members are former Board Members, and two from the current Group Board including the chairman. None of the nine members whether employed by the company or not is paid for their Trusteeship.

The single most crucial role of the Trustees is to appoint the Group Board. In turn, the Board is responsible for directing daily business operations of the company which includes promoting the objectives of the firm across the world. The Group Board is headed by a Chairman with Philip Dilley current Chairman. Other members of the Board include 13 directors with two non-executives and supported by three officers. The Board is responsible for running a global management network dedicated to serving clients by delivering innovative, creative and sustainable solutions. There are five regions under the overall management structure including Australasia, Americas, Europe, East Asia, and UKMEA. Each of the five regional management team reflects the societal context of the region. However, the overall management structure shares a common structure to create an integrated knowledge network necessary to sustain the Group's distinctive strengths around the world.

Evaluation of the Corporate Governance Structure

The company's Board continually strives its effectiveness by ensuring that annual evaluations are conducted for the Board as a whole. The managers of the foreign market subsidiaries are also evaluated including their management team as a whole and on an individual level. Through the performance evaluations, an opportunity to identify areas that need to be addressed is created as well as a chance for continuous improvement of the company's management teams (Mole and Keogh 2009). Additionally, the evaluations make it possible to identify the strengths and weaknesses. For instance, in 2014 and 2015 the Chairman led the company in undertaking rigorous internal review processes which were followed by extremely facilitated external evaluation. Top management including the Directors and the Secretary of the Board evaluations include one-on-one interviews and are held annually so that the Chairman can recognize individual performance and contribution to the firm.

The effectiveness of the Governance Structure

The high-level corporate governance structure has made it possible for the company to maintain a sense of common purpose across the various regions, especially with the integrated information network. In addition to the five regions around the world, the firm operates three Global Practice groups including Building, Infrastructure, and Consulting. The two approaches have fostered close client relationships by establishing 18 dedicated businesses under the roof of Arup Group. As a result of the corporate governance, the whole organization remains stronger than the individual regional parts of the company because clients benefit from networks that can draw on a global skills base to supplement specific local market knowledge (Christensen, Wang, and Van Bever 2013). For instance, in running a project such as building a data center in Australia will heavily depend on the experience and expertise of local Arup employees as well as involve teams around the world to make sure that the facility meets the current levels of resilience and state-of-the-art information technology infrastructure.

As mentioned above, Arup Group's services to its clients are free from influence from the shareholders. This is possible because of the high level of accountability required by its corporate management structure coupled with the annual evaluations of the Board Members as well as regional leaders. One of the most consistent features of the company's performance is the ability to navigate the risks of the global economy which has demonstrated a high degree of resilience (Armstrong & Larcker 2012). For instance, Arup Group was able to reach the PS1 billion in revenue in 2013 despite facing challenges in the global economy including disruptions in the Middle East, and weaknesses in the Australian and European markets. The success is largely owed to the corporate governance structure that uses global profit sharing by which every staff around the world which contributes to the profits is awarded a part of it in return.

Technology is a critical factor in almost everything Arup Group does including running structural simulations, designing buildings, and sending email messages. As such, the company's IT systems have to be modern, stable, and available at all times. Unfortunately, due to the rapid generation of ideas of new uses of technology, the company may be unable to implement all the ideas. In this case, the Corporate Group leadership under the division of systems control has undertaken various steps to ensure that the company is doing the right IT projects to ensure that its Information Technology infrastructure helps its employees anytime anywhere around the world. This has necessitated the establishment of the Global IT Portfolio Management Office whose purpose is to get visibility of the delivery process of the various projects by the company in the various regions. From the reports from the PMO, Arup seeks to provide a consistent way of project delivery and reporting. Prior to the establishment of the PMO, Arup heavily relied on Microsoft Project and Microsoft Excel. These programs did not only lack consistency in project delivery styles but also limited the possibility of collaborations between different regions (Taminiau & De Lange 2009).

Suitability of the Structure

Delivery of the Company's Goals

Through the corporate structure adopted by the company, Arup Group can meet its business objectives of increasing shareholder value. The various departments are included in the five-year plans which include the financial targets of the company as a whole as well as its various divisions. As mentioned above, each business unit in the company is evaluated on its own to ensure that it meets its targets. The Group formally measures performance against these strategic goals and financial targets quarterly, with each Business Unit reporting its operational progress monthly (Von 2010).

Independence of the Organization

The Trustee ownership of the company has made it possible for its employees to conduct their services free from the control and influence of the shareholders. The employee ownership approach was a philosophy promoted by the owner Sir Ove Arup. He desired a high level of employee independence so that the firm could deliver high-quality work that was useful in solving social issue...