Quality And Safety/Governance Framework

Quality And Safety/Governance Framework

Assignment 2



Quality And Safety/Governance Framework

Further, Institutional Theory Perspective in corporate governance for modeling firm behaviors asserts that organizations attempt to incorporate norms in their institutional environments so that they can gain legitimacy, resources, stability and enhance survival prospects (DiMaggio and Powell as quoted in Yoshikawa & Phan, 2001, 188). Though this view of organizational behavior flies in face of standard economic theory, it suggests that contemporary corporations should pay more attention to their corporate governance practices because of increased public expectations for corporations to deal with this issue. Accordingly, Institutional Theory Framework suggests that such pressures and expectations force organizations to show conformity, because organizations compete not only for economic resources but also for political power and institutional legitimacy. According to Yoshikawa and Phan, as a path to legitimacy this perspective rejects rational choice as motivator of firm behaviors but instead put a greater emphasis on appearance of rationality. Thus management of legitimacy has become one of important tasks for managers and this is achieved by conforming to exogenously created norms (existing rules, belief systems, and examples). An example is cited from Japanese context to justify adaptation of this perspective to governance mechanisms.

A main characteristic of Japanese industrial system has been its tight network of supplier and buyer companies (keiretsu), which are known for their extensive cross shareholdings among members and their banks (Yoshikawa and Phan, 2001, 185-186). Consequently, boards of directors of many Japanese firms have given more attention to claims of competing stakeholders (such as employees, suppliers, banks) and thereby traditional Japanese corporate governance system is stakeholder-centered. There is anecdotal evidence that an increasing number of firms within corporate groups under stakeholder-centered governance system are slowly adopting one or more elements of stockholder-centered governance system (Table 1).

Case Analysis: Pramuka Savings and Development Bank Ltd. (PSDB)

Central Bank of Sri Lanka liquidated PSDB with effect from December 19 2002, due to detection of mismanagement, unsound, improper and imprudent practices at bank by those who were responsible for affairs of bank (Daily News, 21 Dec. 2002, p. 5). By time of liquidation, bank had 160 employees and 15,000 account holders. main allegations that were made against management and board of directors were found as following.

Loss situation in bank and high level of non-performing loans

Alleged fraudulent transaction relating to purchase of a house at Gregory's Road, Colombo 7

Gratifications given to public officials to bring in business to Pramuka Bank- Heads of 33 government departments had been given gratifications over Rs.40.5 million as incentive “Gold Certificates” from over Rs.70.2 billion state funds deposited in Pramuka Bank from 1997 to 2002.

Withdrawal of money by Chairman and by Managing Director after serving of Suspension Order-funds have been withdrawn from accounts by two working directors of bank after bank was suspended.

Alleged exchange of shares for land at time bank was established in 1997 and obtaining minimum required share capital through this maneuver without an actual cash infusion

However, a fundamental question is that who is responsible for ...