Internal Control System in Business

An internal control system (ICS) provides guidelines concerning the optimal decision-making outline for all employees. The accomplishment of company goals is a multidimensional phenomenon that involves the intersectionality of dynamic institutions. The pillars that attribute to the function of a business enshrine effective human resource management, compensation scale, profitability margin, and the core competitive advantages (Banks, 2004). It is the responsibility of directors to establish solutions on exaggeration regarding remuneration. One of the key problems that affect firms encompasses the large indemnification range despite the institution’s financial performance. Corporate governance is an essential factor within an organization due to efficiency in managing all production elements.

Roles of the Board of Directors

The optimal performance of an organization depends on the professional engagement among the relevant stakeholders. Within the ICS spectrum, the board of directors’ responsibility is to ensure adherence to rules and regulations during functions. Additionally, the executive team asserts effective implementation of the Articles of Incorporation during the management of dynamic factors of production. It is the mandate of an administration to empower the institution on performance outlier based on proficiency in alleviating risks and supervising the execution process. The researcher notices lack of association between the compensation scale and a chief executive officer (Baker et al., 2019). The concept fosters the emergence of a major problem regarding the CEO’s pay justification relative to the company’s revenue.

Different issues contribute to the board of directors’ failure, hence the importance of incorporating strategic management. One of the challenges is the lack of an incentive to optimally assess the spectral overview about the CEO’s compensation scale. It is important to integrate initiatives enhancing competence. Business capacity involves the intersection of distinct variables, such as the perceptive aspect of investors’ return on financing. A disparate advance attributing to the botch across the executive team is outbound accountabilities from other practices. The division of attention contributes to the assumption on the relationship between the chief executive officer’s justifications of salary range (Brickley et al., 2015). The lack of adequate skills and knowledge on the utilization of internal control systems primarily hinders the realization of financial consequences for the CEO’s remuneration.

Flaws of Internal Control Systems

Significant variables attribute to functionality of internal control system in a company. Organizational culture plays a proficient role in the capacity building among the relevant stakeholders in a corporation. It is the responsibility of ICS to detect fraudulent activities, foster insight on financial information, and the accountability scale on asset security. Various outliers that influence the impact on personality encompass operational, technical, administrative, and architectural. Researchers indicate that the optimal realization of the major weaknesses includes regular inspections, risk assessment, cataloguing procedures, educating the executive team, and evaluating the inherent reports (Brickley et al., 2015). Coca-Cola is examples of firms whose financial management was negatively affected due to lack of board of directors’ initiative to implement the relevant controls proficiently. Enid is another institution whose risk is intensified based on the exposure to database corruption, hence the bank’s fraudulence (Baker et al., 2019). In a different spectrum, the compromise of Equifax’s digital catalog showed the prominent fragility of the structure. Sustainable financing is an entity within the ICS construct that provides a profound opportunity on the competency.

Sustainable finance is a multifaceted phenomenon that involves the integration of dynamic facets during investment decision-making. The initiative’s main goal encompasses fostering a long-term effect and security for the client through the projects and activities. As a result, it is vital to consider the social structure, governance, and the environmental state in corporate banking. The initial policy in corporate financing engulfed the provision of capital without regard to its benefit to the region (Lurie et al., 2021). However, the onset of the post-pandemic era renders the prominent factor in considering the importance of the facility to individuals and the effect on the governance structure in America. The major products involved in the conceptual framework encompass savings, insurance, credits, and investment funds.

Primarily, the advent of coronavirus fostered the profound loss of job opportunities globally, increasing the poverty rate. Lack of finances is an issue that affects the entire international community due to the essence of poor living conditions, the flow of economic operations, rise in debts, and dependence levels. As a result, it is the responsibility of the banking sector to establish green approaches in lending money while monitoring the optimal utilization of resource to boost the quality of living within America. The internal control system is a foundation of a company’s performance within the marketplace (Monks and Minow, 2011). After the advent of coronavirus, the banking sector faced an optimal problem concerning the payoffs of the loans, but the board of directors anticipated the inherent value of empowering the clients for optimal relations.

It is the responsibility of a company’s management team to establish initiatives that steer the growth and development of the entity. In this case, researchers indicate that one of the major ideologies that enhance employees’ skills and capacity effectiveness encompasses choosing an efficient and compatible action plan (Gupta et al., 2018). The main reason for the administration’s participation in this step engulfs integrating the disposition with the enterprise’s goals (Gupta et al., 2018). An excellent example of an undertaking is determining the approaches of improving teamwork and the best benchmarking firms. Although distinct corporations utilize different mainframes to boost the performance outlier among the workers, benchmarking provides a platform for exchanging values that contribute to the improvement of standards (Lurie et al., 2021). It is the mandate of the relevant parties to initiate articulate and engaging propositions to advance competition among the ventures.

The final step of the strategic plan entails the implementation process that indicates the significance of skills and capacity endowment between employees. The workers feature the highest asset value of an organization. Therefore, it is the responsibility of all relevant stakeholders to ensure prominent prioritization of initiatives that enhance the expertise among the staff (Benischke et al., 2018). On the one hand, the laborers’ attainment of dynamic professionalism reflects through the institution’s competence. On the other hand, the concept intensifies the contest within the entrepreneurship scape. Mastery in delivery on customer service experience involves acknowledging the client’s needs and the desired purchasing value.

Corporations with Challenging Internal Control System

One of the companies that face a proficient challenge from internal control system is General Motors cause of the significantly high remuneration for the executive team. The General Motors board of directors faces the issue of reducing the CEO’s pay due to the relation on the security stock market. In comparison to the effectiveness of increasing the employees’ remuneration, researchers indicate that a fifty percent reduction on administrators’ salaries poses a significantly higher profit margin (Donatiello et al., 2017). The three core factors that limit the team’s functions enshrine consideration of stock market pricing, hierarchical structure, and excessive compensatory framework.

In a different spectrum, Nike is another company that faces the issue of the regulation of CEO’s compensation due to the profound internal control system. Although the CEO’s salary package is enormous, the board of directors attains dynamic influence on utilizing diverse factors of production to enhance yield. It is difficult to regulate the remuneration for the executive essence due to the relation between the high profitability scale and the investment margin from the investors. A different organization with a significant range between CEO and workers’ pay is Coca-Cola. Research indicates that the median employees’ compensation is $11,342, while the CEO gets $18 million (Burrows, 2021). The distinction poses a major challenge for the board of directors to ensure the functional ICS and protect investors’ capital. Despite the decrease in Coca-Cola shares by one percent, the administration sect lacks the prominent phenomenon of reducing the indemnity of the CEO.

Over the decades, business competence intensified due to technological advancement, thus the prominent adoption of initiatives to enhance acquisition of leading market position. One of the approaches to enhance an institution’s expertise involves boosting the skills and capacity among the employees and developing a functional organizational culture (Baum, 2018). The major function of a company’s mores entails steering the nature of interaction among the workers. The interdependent relationship between the enterprise’s values and the laborer’s dexter primarily fosters the proficiency in a firm’s adeptness to achieve significant financial and product development goals.

In a different spectrum, a distinct aspect in developing and implementing a strategic plan entails the establishment of assumptions. There are dynamic, unpredictable situations in the business environment due to the variant stakeholders participating in the build out of value from the products (Donatiello et al., 2017). An excellent example of a premise is the adequate availability of resources and time to execute the aspects. Identifying the fundamentals fosters the prominent prioritization of initiatives, such as promoting the well-being of the employees. The framework enshrines intensifying the skills and capacity of the staff. As a result, it is crucial to determine the interdependent variables contributing to the proficient enterprise competition. Another phase of the enactment is researching the disparate aspects of accomplishing the objectives (Liu, 2021). A significant percentage of corporations focuses on integrating the organizational culture and the employees’ expertise. Therefore, it is crucial to establish the key factors that enhance the set purposive initiatives’ accomplishment and the dynamism of the conceptual framework.

Consequences of Overpay of CEOs in Organizations

Skills and capacity development is an approach embedded with a strategic management plan that significantly impacts the performance of an organization. The lack of equity in the remuneration faces dynamic issues. These entities include inadequate finances facilitating operations in the organization, lack of transparency across the executive team, significant marginalization of other workers, poor CEO’s performance scale, and dysfunctional internal control system (Karthikeyan, 2018). The prominent asset of a company is the workers hence the importance of integrating values and expertise. Researchers establish a seven-step procedure that enhances an organization’s performance under the spectral view of tactical framework ideology (Kamara et al., 2017). The first phase engulfs understanding the importance of the prudent mainframe. It is crucial to establish the purpose of a disposition to optimally integrate dynamic stakeholders during the implementation process (Wu et al., 2018). The second maneuver is the setting of objectives. The aspect significantly contributes to the new behavioral response by the participants due to the articulate guideline to sustain the progressive change in the enterprise. Different institutions uphold distinct concepts during operations and practice.

Overpaying CEOs poses profound risk to the organizations due to the limited funds for the facilitation of the operations. One of the consequences is the bankruptcy and collapse of Lehman Brothers cause of the excessive compensation of CEO despite institution’s poor performance. The board of directors lacked the influential value on changing the internal control system due to lack of transparency in the financial audits (Schnatterly et al., 2018). Corporate fraudulent activities led to the fall of Enron involving the embezzlement of funds from the firm fostering bankruptcy.

A major factor that attributed to the strains on the stability of the entity encompassed the high remuneration scale of the CEO. Apart from Enron’s closure, a different enterprise that capitulated is Arthur Andersen for the corrupt deals during the evaluation of the bookkeeping records. The framework rendered inordinate stipends based on the indication of CEO’s package (Mitra et al., 2018). During the increase in the wages for Coca-Cola workers, the management faced the problem on sustainably facilitating the process ascribed to disproportionate determination of CEO’s payoff. In the Alphabet conglomerate, the CEO received a significantly massive reward at the expense of other employees’ earnings leading to prominent turnover rate.

Three Ways CEO’s Compensation is Excessive

Branding is a strategic management plan initiative that engulfs the intersection of dynamic values to boost effectiveness from internal control system. An excellent example of an enterprise whose competitive advantage relies on imprinting is Nike. It is an international company that focuses on the production of sportswear for both men and women. The lack of funds to facilitate certain operations is a trait that deems CEO’s salary excessive (Al-Shaer and Shaman, 2019). The phenomenon risks loss due to reliance on limited resources despite the executive’s remunerations. Another key factor that poses negative impact of CEO’s package is the hindrance on intensifying scalability (Tang et al., 2017). On the one hand, the institution received optimal support from the government due to the trickle-down effect of benefits. On the other hand, poor organizational culture and human resources led to the emergence of lawsuits regarding child labor while the workers strike for additional pay (Yusoof et al., 2017). The company’s focus on productivity over the welfare of the employees in Vietnam significantly affected the brand identity and marketability within the region.

Nike’s market penetration to Vietnam is a factor that highly affected the company’s productivity and marketing. Ten years after establishment, the firm had employed at least 130,000 Vietnamese in the factories (Nguyen et al., 2018). Apart from providing employment opportunities, the organization and the Vietnam government attain 14% of the extra duty on exports to America (Tien and Ngoc, 2019). In this case, both entities achieve significant benefits based on business profit optimization. The interdependent relationship between Nike and the Vietnam legislative poses significant enterprise growth and development. Regardless of the optimal success, certain organizations as Lehman Brothers faced bankruptcy cause of the excessive compensation of CEO against the poor financial performance in the stock market.

In conclusion, compensation for a CEO is a challenging factor for the board of directors cause of the lack of correlation to the profit margin performance. Despite the executive team’s initiative to incorporate change, the internal control system is a significant framework that impacts the delivery process. It is the responsibility of the governing entities to establish the key variables that foster profound sustainability in the financing of the organizations’ operations.

Reference List

Al-Shaer, H. and Zaman, M. (2019). ‘CEO compensation and sustainability reporting assurance: Evidence from the UK’, Journal of Business Ethics, 158(1), pp.233-252.

Baker, D., Bivens, J. & Schieder, J. (2019). Reining in CEO compensation and curbing the rise of inequality. Economic Policy Institute.

Banks, E. (2004). Corporate governance: Financial responsibility, controls, and ethics. Hampshire, Palgrave MacMillan.

Baum, T. (2018). ‘Sustainable human resource management as a driver in tourism policy and planning: a serious sin of omission?’. Journal of Sustainable Tourism, 26(6), pp.873-889.

Benischke, M.H., Martin, G.P. and Glaser, L. (2018). ‘CEO equity risk bearing and strategic risk taking: The moderating effect of CEO personality’. Strategic Management Journal, 40(1), pp.153-177.

Brickley, J., Smith, C., and Zimmerman, J. (2015). Managerial economics and organizational architecture. McGraw-Hill Education.

Burrows, D. (2021). America’s worst CEO-to-worker pay ratios. Kiplinger.

Donatiello, N.E., Larcker, D.F. and Tayan, B. (2017). ‘CEO talent: A dime a dozen, or worth its weight in gold?’. European Financial Management, 24(3), pp.301-308.

Gupta, A., Briscoe, F. and Hambrick, D.C. (2018). ‘Evenhandedness in resource allocation: Its relationship with CEO ideology, organizational discretion, and firm performance’. Academy of Management Journal, 61(5), pp.1848-1868.

Kamara, R. D., Leonard, S., and Haines, R. (2017). ‘Enhancing the capabilities of municipalities for local economic development through skills training’. SocioEconomic Challenges, 1(4), pp 35-44.

Karthikeyan, K. (2018). ‘The role and effectiveness of the board of directors’. International Journal of Business Management & Research (IJBMR), 8, pp.9-12.

Liu, X. (2021). ‘NIKE’s general company analysis based on its 2020 annual report’. In 6th International Conference on Financial Innovation and Economic Development (ICFIED 2021) (pp.799-803). Atlantis Press.

Lurie, N., Keusch, G. T., and Dzau, V. J. (2021). ‘Urgent lessons from COVID 19: why the world needs a standing, coordinated system and sustainable financing for global research and development’. The Lancet.

Monks, R.A.G. & Minow, N. (2011). Corporate governance, 5th Edition. Wiley.com.

Nguyen, K. T., Van Nguyen, P., Le, K. A. N., and Bui, T. D. D. (2018). ‘Identity representation in customization: A case of Nike shoes’. International Journal of Supply Chain Management 7(5), pp.582-597.

Schnatterly, K., Gangloff, K.A. and Tuschke, A. (2018). ‘CEO wrongdoing: A review of pressure, opportunity, and rationalization’. Journal of Management, 44(6), pp.2405-2432.

Tang, Y., Mack, D.Z., and Chen, G. (2017). ‘The differential effects of CEO narcissism and hubris on corporate social responsibility’. Strategic Management Journal, 39(5), pp.1370-1387.

Tien, N. H., & Ngoc, N. M. (2019). ‘Coping with challenges and taking opportunities in international business strategies of foreign enterprises in Vietnam’. International Journal of Advanced Research in Engineering and Management, 5(7), pp.18-23.

Wu, H., Li, S., Ying, S.X. and Chen, X. (2018). ‘Politically connected CEOs, firm performance, and CEO pay’. Journal of Business Research, 91, pp.169-180.

Yusoof, S., Zuber, F., Hazrin, M. N. S. R., Zamziba, N., & Toriry, S. (2017). ‘Wages of labor discrimination: Case study on Nike company Indonesia’. International Journal of Academic Research in Public Policy and Governance, 4(1), pp.2312-4040.