The goal of this research proposal is considering the effectiveness of corporate governance practices in the hospitality industry. It took 12 weeks in data collection which were derived from different sources: The Combined Code issued by the Financial Reporting Council (FRC), the Listing Rules issued by the Financial Services Authority (FSA), the Department for Business Enterprise and Regulatory Reform (BERR) website, and the Companies Acts, interviews, commentaries, home journals, emails, communication, action plan writing, a conversational and group interviews.
The Cadbury Committee was set up in 1991 for raising the standards in corporate governance in the UK and provided the most well-known definition of corporate governance: 'Corporate governance is the system by which companies are directed and controlled' (Para 2.5 - Cadbury Committee, 1992). The board of the company is ultimately responsible for this. "Every company should be headed by an effective board, which is collectively responsible for the success of the company."(Combined Code 2003 - Main Principle A.1)
Keywords - Corporate Governance, Research Methods, Hospitality Industry
1. Research Question
To what extent effective corporate governance impact in Hospitality Industry?
2. Introduction
The hospitality industry which ranges from single-person business to worldwide corporations collects assets which arise from capital contributions made by the shareholders and creditors which fall under the control of the managers are part of the corporate governance picture.
There are over 180,000 hospitality and leisure centres in the UK and they incorporate more than 2 million people. That form part of approximately 7 per cent workforce of the UK.
In the field of hospitality it provides more than 80 different jobs in the industry. This industry is not just hotels and restaurants but incorporates 12 other different sectors of the industry including tourist services, travel services, visitor attractions, holiday parks, hostels, membership clubs, self catering, pubs, bars and nightclubs, hospitality services, gambling, contract catering, casinos or betting shops where corporate governance plays dominating role.
3. Aim: To analyze and examine the mechanisms of effective framework for corporate governance in hospitality industry.
4. Research Objectives
(a) To identify the needs for corporate governance;
(b) To explain the position of institutional shareholders;
(c)To evaluate corporate governance for exploring performance of hospitality industry.
5. Literature Review of Corporate Governance
5.1 The problems and the needs for the corporate governance
An unexpected corporate failures in the late 1980s and early 1990s (e.g.,Robert Maxwell pension fund fraud, financial scandals in the Bank of Credit and Commerce International (BCCI)) triggered initiative in the field of corporate governance.
In response to these failures Cadbury Committee was organised on the instructions of the FRC, the London Stock Exchange and accounting professional bodies, thus starting a process to enhance the corporate governance and that continues until today. Institutional investors in the form of foreign investors, hedge funds, sovereign wealth funds and very recently the government have started playing like bigger players in the bigger role for rescuing companies/banks in UK company ownership.
5.2 Corporate Governance Practices Framework in the UK
In 1992 Cadbury committee took initiative in studying the financial aspects of corporate governance. Cadbury committee pointed out for the division of responsibilities between Chairperson and Chief Executive Officer of companies, clear reporting, non-executive director's role be strengthened, and incorporation of Key Committees/delegating of powers to the sub-committees.
The Rutteman committee on the directions of the Institute of Chartered Accountants in England and Wales/Scotland was organized in 1994, for studying the internal control system of companies and their effectiveness.
The Greenbury Committee on the instructions of the Confederation of British Industry organised for identifying good means/practice in finding remuneration for directors in all companies and prepared a Code of such practice to use by the UK companies.
The Hampel Committee under the direction of the London Stock Exchange proposed the report by combining it with Cadbury report in 1996 on directors' remuneration which gave birth to a Combined Code 1998. Hospitality industry companies are required to report on how they have applied the main principles of the Code, and either to confirm that they have complied with the Code's provisions or - where they have not - to provide an explanation.
The responsibility for updating the Combined Code lies with the FRC who issued updates in 2003, 2008. In 2009 thorough review of the codes for learning lessons from the financial crisis was conducted, and updated code, known as the "UK corporate governance code" was issued on 1 June 2010. It placed greater emphasis for the need of effective risk management.
The regulatory framework for all companies is provided by the the 2006 UK Companies Act.
6. Research Design and Methodology
The research has been conducted by with a fast food restaurant, school canteens, hotels, hostels which are part of a larger project investigating corporate governance in the hospitality industry and its impact in the Profit making. Data gathering for the research reported in this paper included 5 in-depth interviews with employees of three different sectors of the industry namely, food restaurant, hotels, school canteens. Furthermore, data gathering incorporated four focus groups with 4-6 customers each in three different sectors of the hospitality industry of the UK. The views gathered from the interviews of a total of 20 customers and employees were used as data in the qualitative analysis.
The study is based on the 'qualitative' research which is also an inductive design. By following qualitative research techniques, the finding and interviewing of customers and employees forms a basis for conceptual understanding which builds on the questions asked from them is attached as Appendix 1.
It is interesting to note the results obtained during research study by asking the general questions, such as 'What is Corporate Governance and its impact on hospitality industry, and 'What does it entail' 'type of service' 'choice of menu', 'time taken to have the meal', 'clean and healthy food' and 'music and décor'.
During investigation it was found that corporate governance makes hospitality industry as profitable only if the UK corporate governance code is implemented in true letter and spirit. During research it is revealed that the service requirement of every person is different. Every individual is having different taste for the type of service or food.
Hospitality industry is required to know and to identify people's taste and needs and accordingly offer services and food matching their needs. Certain individuals need a cheap room meaning they want just a place where to put their head down. A hostel could be the best answer for such people. Certain individual's needs luxury and they want to be more comfortable than they'd have in their own home. They need a TV having more than 30 channels and incorporating home movies, containing bar with room service, of course wants a robe and slippers especially lots of good smells to use in the bathroom.
Certain people simply want to visit casino duly dressed up nicely, wants three-course meal and subsequently while gambling need drinks served to them through waiters.
While some people have interest in going to their local bingo hall in order to have a snack and spending couple of hours in gambling, with visiting the bar in between games.
6.1 Research Method
I have also made use of the research method known as deductive method. In doing so I carried out detailed consultation of hard law (the Companies Act 2006, and the FSA Listing Rules) along with soft law which exists in the shape of best practice principles (the UK corporate governance code issued by the FRC). I obtained lot of information from published material such as books, journals, magazines, newspapers, and websites as declared in the bibliography. My research identify that the corporate governance practices by the hospitality industry in the UK could rescue it from the present credit crunch. My study empirically examines the effects of board characteristics, the roles, duties, and responsibilities of executive and non-executive directors especially the highly paid directors of the companies.
7. Recommendations
"Comply or Explain" Principles of the UK corporate governance code must be implemented in true letter and spirit by the hospitality industry.
Every company should have Clear division of powers at the top. The chairman is responsible to run the board, while CEO is responsible for running the company business.
Formal and transparent procedures for appointing directors, duly ratified by the shareholders.
Evaluation of the effectiveness of the board and its committees at regular interval.
Balanced assessment about the company's position must be disclosed by the Board annually that they have identified, evaluated, and managed significant risks faced by the company.
A significant proportion of executive remuneration linked to performance duly ratified by the shareholders.
The present turmoil in the financial sector provides that any adventure by regulators to micromanage remuneration structures will not produce the desired results. So concentration on improving the practical application of the existing corporate governance framework is recommended rather than to introducing any new corporate governance initiatives.
APPENDIX 1
Interviews
The conduct of interview was done by me face-to-face by making use of standard discussion guide. Each interview was recorded on a tape and then transcribed. Analysis was done thematically of the transcriptions and further material incorporated into it to make final paper. The interviews sought to address the following
key questions:
What is corporate governance and how it could effect hospitality industry?
What could be the corporate vision and corporate strategy in hospitality industry to make it profitable?
What could be the overall firm structure to provide best services.
What could be the culture - business unit autonomy?
How the senior management should work and who and how their remuneration be worked out?
What type of food people need and wants- choice of menu?
What type of services people wants?
How much time would be taken to have the meal from ordering?
Is the environment and area where food is prepared is clean and provide healthy food?
What is the taste of the people about music and décor?
