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Compusoluciones Corporate Governance Case Solution
CompuSoluciones is a distributor of IT hardware, software, and other services. It is headquartered in Guadalajara, with the presence of its offices in Mexico City and Monterrey. The company was driven through a consensus-based model of management to account for the interests of all its parties. However, as the number of offices and the employee strength of the company increased, the company was faced with a challenge to make its corporate governance more effective. This is because the organizational structure of the business became even complex and require strong internal control measures to prevent financial abuse and ensure shareholder and stakeholder protection. The following report will assess the effectiveness of the corporate governance practices and functions at CompuSoluciones. Based on this, the changes to the corporate governance structure would be suggested. Furthermore, the opportunity and risk environment analysis for the future will be done for CompuSoluciones to gain further insights into its corporate governance structure.
Following questions are answered in this case study solution
Corporate Governance Structure Functions at CompuSoluciones
Changes in the firm’s governance structure
Opportunities and Risks faced by CompuSoluciones
Learnings from this situation about Corporate Governance
Recommendations and Implementation Plan
Case Analysis for Compusoluciones Corporate Governance
2. Corporate Governance Structure Functions at CompuSoluciones
At CompuSoluciones, the shareholder's assembly was responsible for selecting the members of the board that would make strategic decisions to the best of their interest. Looking at the composition of the board of directors, we can see that the CEO and Chairman of the committee were two separate individuals, which shows good governance. This is because if the board’s chairman and CEO are the same people, this may result in a conflict of interest. Similarly, the board comprised of three independent directors out of the total six members. This, again, is an effective measure as per the corporate governance code, aboard committee is expected to have at least one-third of its members as independent directors, which in the case CompuSoluciones was 50%.
Moving on, the board at CompuSoluciones met every quarter to review the business' long-term strategy and ensure the reconciliation of stakeholder and firm interest. However, considering the changing competitive landscape and very sensitive business environment, CompuSoluciones quarterly meeting did not seem to be an effective approach of dealing with important business decisions and reviewing the business and market’s performance.
Furthermore, CompuSoluciones also had an executive committee, which comprised of six members and was responsible for oversight of the execution of the strategies in line with the board meeting and the company vision. It was effective as the committee met weekly with set agendas to avoid missing out on any critical business aspect. However, one issue is that the executive committee directly reports to the CEO and does not communicate directly to the board. The indicated issue might result in information mishandling as the CEO will be a part of the executive committee as well as the board of directors, which can result in a conflict of interest or misrepresentative information being shared on the board.
Apart from this, CompuSoluciones also accounted for the external stakeholders in its governance structure, as can be seen by two of the councils set by the company, including the consultative council and the reseller's council. Both of these councils held quarterly meetings aimed at helping generate a future strategy for the business and also taking market perspective under consideration. Hence, this also ensured that the shareholders' interests were protected, which was the fiduciary duty of the directors. By having a reseller's council that invited one-third of the new members every year, CompuSoluciones ensured that it was open to new points of view in the council while ensuring business continuity. The exclusive and non-transferrable invitation of the members for both the councils ensured the inclusion of relevant people with great insight helpful for enabling the business to attain an edge in the highly competitive IT industry.
Overall, from a holistic perspective, the corporate governance functions are focused on minimizing the principal-agent problem highlighted in the agency theory. This is because the committees set by the company are entirely focused on enhancing the value of the business in the market, which would, in turn, reflect in improved profitability and higher yields for the shareholders. Also, there is an even distribution of responsibility and transparency as the establishment of different committees reflect the emphasis on the role of directors to fulfill their fiduciary duties and the duties assigned.
3. Changes in the firm’s governance structure
First of all, I would suggest to Medina Mora to understand the relationship between the executive committee and the power of the CEO. Medina should realize that the executive committee is responsible for hiring and nominating the CEO and hence should work alongside CEO rather than report to the CEO, which is the current practice at CompuSoluciones. This is because the executive committee is responsible for evaluating the CEO's performance and decides on the CEO's compensation, according to the pre-decided agreement. Therefore, this is why the executive committee acts as a liaison between the CEO and the board. In CompuSoluciones, however, the three managers reported to the CFO, who then reported to the CEO. The CEO reported the findings to the board. The hierarchy was complicated, which gave the CEO a higher degree of power and autonomy as compared to the other members, thus giving him increased leverage to abuse the power is given to him and reducing the accountability measures for him.
Secondly, CompuSoluciones has many business units, with resellers from one business unit requiring assistance, which might be under the domain of another business unit only. Also, in the absence of such facilitating mechanisms, I would suggest Jose Medina Mora to ensure that there is a high level of transparency and accountability across different business units. This would enable a culture of trust to be established in the company, and the stakeholders, as well as shareholders, would be encouraged to start considering the business as one fulfilling its ethical obligations. Hence, Jose Medina More should start considering integrating its business units to increase the level of synergies generated through the transfer of knowledge across different business units.
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