Investment and Banking Essay
The Availability of the Dimensions of Corporate Governance and its Impact in Promoting the Organizational Learning in Commercial Banks Operating in Jordan Eyad Taha Al-Rawashdeh Tafila Technical University College of Administrative & Financial Sciences Mailbox Post. Office: 179 Tafila, 66110, Jordan Abstract The study aimed at recognizing the availability of the dimensions of corporate governance and its impact in promoting the organizational learning in commercial banks operating in Jordan.
To achieve the objectives of this study, a questionnaire was developed for data collection. The study sample was composed of (248) subjects, where Statistic Package for Social Science, Version 16 (SPSS, 16) was adopted to analyze the questionnaire data. The most important findings of this study were as the followings 1. The perceptions of managers in commercial banks toward corporate governance came at medium level, while their perceptions toward the dimensions of organizational learning were at a high level.
2. There was significant effect with statistical indicators for the dimensions of the corporate governance on the organizational learning among responders. The study recommends the need to work on creating an organizational culture focused on the characteristics of corporate governance, through the development of skills of workers and provide strategic vision and clear the
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Keywords: Corporate Governance, Organizational Learning Introduction The practical experience in many countries has demonstrated the importance of serious commitment to the concept of good corporate governance, as a result of large avalanches of businesses — such as the famous scandal of Bank of credit and commerce international, and savings and loan banks disaster in the United States, This deteriorating situation began to reveal the bankruptcy of Enron Corp.
-the giant in energy areas- and WorldCom the second largest communications company in the world and Xerox Corporation the leading photocopiers and Merck the giant in medicine industry, leading to the collapse of prices for shares in companies, so the major stock indexes Dow Jones for the thirty great industrial companies and NASDAQ for the top 500 companies in technology field made losses of approximately $ 8. 6 trillion (Khalil, 2005).
In Britain, a report has been issued entitled “the financial aspects of corporate governance” after the failure of a group of public companies (Cadbury Report,1992 ), Auditing Standards Board also issued instructions to British Auditors how to prepare their reports to Journal of Money, Investment and Banking – Issue 25 (2012) 150 make sure that the application procedures for corporate governance (Catherine, et al.
, 2003), after that Jordan Securities Commission issued a draft guide for the rules of governance of the public shareholding companies in Amman stock exchange In September 2006 so as to promote economic progress (Middle East journal, 2003). Alamgir (2007) sees that the governance in the banking sector means performance monitoring by the Board of Directors and senior management of the Bank and the protection of the rights of shareholders and depositors, as well as taking care of the relationship of these foreign parties, which are determined through the regulatory framework and the powers of the regulatory body.
And governance in banking system applies both to public banks or private banks or the joint. Freeland (2007) mentions that the essential elements of corporate governance in the banking system are represented in two groups: the first is internal parties who are shareholders and Board of Directors and executive management and the internal auditors and supervisors.
But the second group re[resented by the external parties, representatives of the depositors, deposit insurance fund and the media means and classification and ratings companies, as well as regulatory and legal framework, while the fundamental pillars that must be met to complete the provisions of effective control over the performance of banks are summarized in transparency and availability of information and the application of international accounting standards (Basel II, for example) and upgrading human competencies through training.
Perhaps increased attention to organizational learning comes through vision researchers of the importance of this concept, and challenge faced in strengthening the underlying assumptions, and the definition of its role, the mechanism underlying the improved functionality. Inkpen(1995:48 ) showed that despite the belief of the importance of organizational learning in the success of organizations, this concept still lacks more studies in this area.
While others (Khandekar & Sharma, 2005)believe that the ability of a system to survive and preserve the integrity and balance requires that the resulting level of knowledge equivalent to at least the level of change in the environment. And because the organization is an open system are influenced by what is happening around them, it must fit rate of change and learning organization with the rate of change in the environment.
Hodgkinson (2000:159) assured that learning process is repeated and takes the form of a continuous cycle, beginning by getting feedback on the results achieved, in case there is a gap between planned and achieved results, the Organization shall identify the reasons for such a gap and corrective decisions, and using survey and experiences in formulating plans and applying new, again, feedback on results achieved, in the form of a continuous cycle.
This process leads to increased knowledge of the conditions of the Organization and its environment, modifying behaviors to access adequate consensus between expectations and outcomes, so that the learning that results from research become firm part in the mind of the individuals, reflecting their vision of how to deal with the problems of the Organization and its environment.
Others consider Learning organizations are those organizations that are able to collect, manage and use information in order to ensure the achievement of its goals (Berends et, al, 2003). Cavaleri emphasizes that Organizational learning occurs through shared knowledge, visions and standard forms of thinking based on past knowledge and experiences on memory organization.
Organizational learning is a continuous process stemming from the vision of the Organization’s members, targeting this process investment expertise and experience of the Organization, and monitoring of information resulting from these experiences and in the memory of the Organization and then review it from time to time for use in resolving the problems faced, in the framework of the support of the Organization’s leadership and organizational culture (Alzrikat and Alkhresheh, 2010).
The ability of a system to survive and preserve the integrity and balance requires that the resulting level of knowledge equivalent to at least the level of change in the environment. And because the organization is an open system are influenced by what is happening around them, it must fit rate of change and learning organization with the rate of change in the environment (Friedman et, al, 2005). 151 Journal of Money, Investment and Banking – Issue 25 (2012)
Commitment to the dimensions of corporate governance a necessary model to organizations that strive to promote the dimensions of organizational learning process and adapting to it, and the heart of the Mission of the Administration is to use logic and scientific forecasting rather than anarchy, where organizational learning is seen now as the primary key for organizations’ success and its competitive excellence and permeated every organizational success factors.
In order that organizations could enhance organizational learning, they must abide to the dimensions of corporate governance, which is a compulsory requirement for those organizations looking for achieving competitive advantages. Problem of the Study Great and rapid competition among organizations, which exceeded the regional borders, has led such organizations to search for means to strengthen the dimensions of corporate governance, so as to increase the effectiveness of business organizations and human behavior that leads to achieving excellence, exclusivity and improving efficiency.
Corporate governance also provides a structure through which organizations can appropriately develop objectives and means to achieve these goals, and to monitor performance. The problem of the study is concentrated in the existence of regulatory, human and environmental hindrances that make organizations suffer, which attributed more or less to the weakness of serious commitment to corporate governance to promote organizational learning dimensions; as the understanding of the relationship between the dimensions of corporate governance and organizational learning process reains limited, because the availability of the dimensions of corporate governance still in infancy stage in our Jordanian organizations and commercial banks in particular, due to poor organizational focus and weakness of the administrative attention to effective participation, and not linking it with the indicators of organizational learning, which is considered one of the important axes , which embodied the administrative and organizational problems, faced by some Arabic and Jordanian organizations in particular, this study came to investigate the role of the of dimensions corporate governance in promoting organizational learning process in commercial banks operating in Jordan.
Importance of the Study The theoretical importance of the study constituted of being touching one of the organizational concepts that is dimensions of corporate governance, which is an important theme in modern management thought, since it is an important source of sustenance of the survival of the Organization, especially in institutions that seek to adopt modern management strategy that allows for the participation of workers in decision-making, and exploit opportunities, increase their competitive and creative capabilities.
While the practical importance of this study stems from its investigation in the availability of the dimensions of corporate governance, and their impact in enhancing organizational learning process in commercial banks operating in Jordan, which helps stakeholders in these banks to adopt the recommendations of this study including information about corporate governance and organizational learning which can be utilized to develop a sound basis for effective corporate control in Jordanian organizations up to ideas and arguments that contributed to crystallizing organizational learning in organizations, and selecting and activating it within the behavioral and practical field in organizations; therefore this study will be a cornerstone for subsequent studies, henceforth the door will be opened for future attempts of the researchers and stakeholders, in their handling other topics related to organizational learning for the purpose of highlighting, and testing its effects within the organizational realities of Jordanian organizations in particular. Journal of Money, Investment and Banking – Issue 25 (2012) 152 Objectives of the Study This study aimed to: 1. Identify the availability of the dimensions of corporate governance in commercial banks operating in Jordan. 2. Identify the degree of organizational learning practice in commercial banks operating in Jordan. 3. Determine the impact of corporate governance on the dimensions of organizational learning process in commercial banks operating in Jordan. 4.
Provide Jordanian organizations with information about corporate governance and organizational learning, which could draw serious commitment to corporate governance, to promote organizational learning dimensions in Jordanian organizations to increase its effectiveness and to benefit from it in enhanced training programs due to the availability of the dimensions of corporate governance and increase awareness of the administrations about the importance of the organizational learning to achieve the desired organizational goals. The Study Hypotheses The first hypothesis: there is no statistically significant impact for corporate governance (participation, equity, efficiency, consensus-building and strategic vision, transparency, accountability) on environmental changes of managers at commercial banks operating in Jordan.
The second hypothesis: there is no statistically significant impact for corporate governance (participation, equity, efficiency, consensus-building and strategic vision, transparency, accountability) on the learning strategy of managers at commercial banks operating in Jordan. The third hypothesis: there is no statistically significant impact is for corporate governance (participation, equity, efficiency, consensus-building and strategic vision, transparency, accountability) on work as a team according to managers at commercial banks operating in Jordan. The fourth hypothesis: there is no statistically significant impact is for corporate governance (participation, equity, efficiency, consensus-building and strategic vision, transparency, accountability) on flexibility of organizational structure according to managers at commercial banks operating in Jordan.
The fifth hypothesis: there is no statistically significant impact is for corporate governance (participation, equity, efficiency, consensus-building and strategic vision, transparency, accountability) on creating knowledge to managers at commercial banks operating in Jordan. The Model of the Study Figure 1: Hypothetical Study Model Dependent Variable Independent Variable Corporate Governance Participation Equity Efficiency Consensus building and strategic vision Transparency Accountability Organizational Learning Environmental changes Learning strategy W ork as a team Flexibility of organizational structure Creating knowledge 153 Journal of Money, Investment and Banking – Issue 25 (2012) Methodology of the Study
This study adopted the descriptive analytical approach, which included desk survey method by reference to Arabic and foreign sources, to build the conceptual framework of this study, alongside with using field survey method for data collection by the study tool, and statistically analysis to test the validity of hypotheses and answer the questions. The Population of the Study The population of the study consisted of all managers at commercial banks operating in Jordan as referred to their numbers and distribution on banks, in the forty-sixth annual report of the Central Bank of Jordan-end year (2011) , and the statistics of Association of banks in Jordan by the end of the year (2011).
These statistics indicate that the sum of managers had reached (652) managers at the end of 2011 in sixteen banks within (582) branches and offices, including the main centers of banks throughout the Hashemite Kingdom of Jordan Sample of the Study A simple random sample was taken that represents about (50%) of all managers of the commercial banks operating in Jordan, (326) copies of the questionnaire have been distributed to all individuals of the sample, (256) copies have been restored, (8) copies have been excluded as it was inappropriate for statistical analysis, bringing the number of copies suitable for analysis to (248) which equals (38%) of the total study population and (76. 1%) of the sample of the study. It is obvious from table (1) that with regard to expertise, the workers with 5 years or less formed 18. 1% of the sample, while 23% of the sample their expertise were (6 – 10)years and 33. 5% of the sample were of person whose their expertise (11 – 15) years, finally persons with expertise more than 16 years formed 22. 6 of the sample.
Regarding to academic qualification variable it was found that persons who have Bachelor’s degree represents the highest percentage of 71. 8 followed by those who have community diploma who formed (15. 7%) of the sample, finally came the workers with higher degree studies, which amounted to (12. 5%). For the variable of age, employees aged between (41-50) years formed (38. 3%), followed by workers aged between (31-40 years) with a percentage of (25.
4%), followed by workers who were aged (50 + years) amounted (21%), finally came the workers who were age (30 years or less) ranked last by the percentage of (15. 3%). Table 1: The distribution of the sample individuals according to variables of ( Age, expertise, academic qualification) Variable Age Level 30 years or less 31 – 40 years 41- 50 years More than 51 years 5 years or less 6 – 10 years 11 – 15 years More than 16 years Community Diploma or less Bachelor Higher Studies Number 38 63 95 52 45 59 88 56 39 178 31 Percentage 15. 3 25. 4 38. 3 21 18. 1 23. 8 35. 5 22. 6 15. 7 71. 8 12. 5 Expertise Academic qualification Journal of Money, Investment and Banking – Issue 25 (2012) 154 The Tool of the Study
To achieve the objective of this study that is to examine the corporate governance, and its impact on enhancing organizational learning process in commercial banks operating in the Hashemite Kingdom of Jordan, the study was to develop a tool based on the theoretical literature of the concept and dimensions of corporate governance of organizational learning, in addition to investigating a number of questionnaires used in previous relevant studies. Best precautions were taken so that the questionnaire was adapted to the environment studied, and study tool includes three parts: Part I (Demographic Variables) This section consists of the following factors and includes: (academic qualifications, age, and years of experience).
Part II: the Independent Variable (Corporate Governance) The paragraphs of this variable were formulated with the help of the studies of (Majali (2009); Daudi (2008); Aljeade (2007); Alqashi and Al-khatib (2006); Abu Zer (2006)). The necessary adjustments Has been made to fit the objectives of the study, this section includes the following variables: participation and posed questions (1-4), equity and posed questions (5-7), efficiency and posed questions (8-11), consensus-building and strategic vision and pose questions (12-16), transparency and posed questions (17-20), accountability and posed questions (21-24). Part III: Working (Organizational Learning) The dimensions of this part has been developed by referring to questionnaires designed by (Marquardt & Reynolds, 1994 :91, Denton, 1998 ? .)4002??
The necessary adjustments has been made to fit the objectives of the study, this section includes the following variables: (environmental changes and pose questions (25-27), learning strategy and posed questions (28-30), working as a team and represented by questions (31-33), a flexibility of organizational structure and posed questions (34-36), creating knowledge represented by questions (37-39). Answers were classified according to typical five-level Likert item, and identified five answers were (always apply, apply often, sometimes, rarely apply, does not apply), and the answers were given numbers from (1-5), where number (1) indicates to (not applicable at all), number (2) and (rarely applicable), number (3) indicates to (sometimes applied), number (4) indicates to (apply often) and number (5) indicates to (always apply). The Validity of the Measurement Instrument
The questionnaire has been presented to (9) arbitrators of faculty members in Jordanian universities, and asked to refine and revise the paragraphs of the questionnaire in terms of clarity of language and quality paragraphs’ formulation, and how relevant it is to the field that has been divided, also they were asked to modify or delete any of the paragraphs which they consider not achieve the aim of the questionnaire. The collected data from the arbitrators then, has been formulated according to (80%) arbitrators agreed, where the majority of them agreed to modify some words, or replace other words, as appropriate to the environment studied. Consistency of the Instrument To verify the consistency of the tool, it was applied to an explanatory sample consisted of (30) employees was excluded from the sample of the study. Cronbach’s Alpha Equation of internal consistency was used to check the, reliability coefficient for each tool of the instrument of study. 155 Journal of Money, Investment and Banking – Issue 25 (2012)
Findings contained in table (2) showed that the reliability coefficients of the dimensions of corporate governance instrument ranges (0. 82 – 0. 90) and the reliability coefficients of the dimensions of organizational learning instrument ranges (0. 81 – 0. 89) and these are excellent values for the purposes of study. Table 2: Iillustrates the results: Tool Dimensions Participation Equity Efficiency Consensus building and strategic vision Transparency Accountability Environmental changes Learning strategy Work as a team Flexibility of organizational structure Creating knowledge reliability coefficient 0. 87 0. 82 0. 83 0. 88 0. 90 0. 86 0. 85 0.
84 0. 89 0. 85 0. 81 Corporate Governance Organizational Learning Statistical Treatment After data was entered using the statistical package for social sciences (SPSS. 16), the following statistical treatments were used: 1. Multiple regression analysis: to test validity extent of the study model, and the effect of the independent variable on the dependent variable. 2. Multiple ANOVA to test the variances of demographical variables on the perception of the sample individuals towards the dependent variable. 3. Stepwise multiple regression analysis: to test the role of independent variables in the forecasting equation for the dependent variable. 4.
Variance inflation factory (VIF) and tolerance test: in order to be assured that there is no Multicollinearity between the independent variables. 5. Skewness test: to ascertain that the data follow Normal distribution. 6. Cronbach’s Alpha: to test the internal consistency to verify the reliability of the measuring tool. Theoretical and Procedural Definitions The variables and dimensions of the study were procedurally defined as follows: A Independent variable (Corporate governance): includes the multifaceted and complex situation of associations, institutions, systems, processes, procedures, practices and leadership behavior in political, social and administrative programs to achieve the aspirations of citizens(Mukul, 2007). 1.
Transparency: frankness and openness and creative confrontation so that the employees have the ability to talk openly about their views and do not avoid sensitive or annoying issues but encountered and solved them by teamwork away from fear, threats and punishment (Ruth, 2004). 2. Accountability: accountability of all employees depending on the circumstances and need, and give each a right and treat them all equal before the law, non-discrimination, including all aspects of administrative work, and this requires the existence of legislation including (Margaret, et. al, 2007). Journal of Money, Investment and Banking – Issue 25 (2012) 156 3. Consensus-building: strategic vision of the Organization’s service to all stakeholders and personnel reconciling different interests, possessing a broad perspective on leadership and governance (Xiaoshan & Nan, 2004). 4.
Equity: opportunity for all employees to improve their lives and welfare, protection, and distribution of opportunities and privileges and workload among the staff of the Organization fairly and equally, each according to his/her requirements and qualifications (Bryane & Randy, 2004). 5. Efficiency: the Organization’s capacity to satisfy the needs through better use of resources. And work requirements in accordance with clear roles, motivated by achievement and goals in a non-traditional away traditional power lines and cumbersome organizational structures (Leslie, 2007). 6. Participation: is that granted freedom and opportunity management for personnel decisions without restrictions or laws imposed on them or limit their contribution, with the aim of providing better opportunities for their abilities and improve morale (Russell, 1999).
B Dependent variable (organizational learning) refers to an ongoing process stemming from the membership of the organization where this process aims at investment expertise and experience of the Organization and monitoring of all the information resulting from these experiences and to help in solving the problems of the Organization, within the framework of supporting the Organization’s leadership and organizational culture in General, and the following dimensions stem out of it: 1. Environmental changes: this refers to the follow-up of the environmental changes and the identification of opportunities and threats through strategic analysis of the external environment. Identification of the strengths and the weaknesses through strategic analysis of the internal environment and the desire to achieve competitive advantage and developing plans that support this feature, and developing alternative plans relying on the expertise and knowledge of the management (Khandekar & Sharma, 2005). 2.
Learning strategy: this refers to the process of learning and training as one of the priorities of future goals, and developing specific plans for learning and training of personnel and the development of their sense of the importance of learning, innovation and work to develop their skills and knowledge depending on the responsible task forces (AlKubaisi, 2004: 114). 3. Work as a group: means that the organization adopts change and development of responsible task forces, and disseminates this idea in all the sections of the Organization, and encourages the exchange of views and ideas between team members, and works on the transfer of knowledge and new skills to all employees in the Organization, and encourages these teams on the use of information networks (Ortenblad, 2004). 4.
Flexibility of organizational structure: refers to the reliance on an organizational structure characterized by being far from routine, bureaucracy, formalities and Centrality, and following an organizational structure characterized by a degree of flexibility for the ability to update and to seize the opportunities and speed of decision-making, and the lack of adherence to the literal work specification; in order to enable team members to control their behavior and the behavior of the rest of the employees in the Organization (Smith, 2006). 5. Creating knowledge: refers to the development of knowledge and skills in all levels of management and labor on the move between the different sections, and access to information related to the wishes of clients through comprehensive scanning and emphasis on communications technologies as an important means of information transfer and storage of such knowledge in databases and facilitate the task of individual access (Marqwardt, 2002). 157 Journal of Money, Investment and Banking – Issue 25 (2012) Previous Studies
The results of the literature survey and previous studies have referred – as known to the researcher – to the scarcity in studies that investigate directly in the availability of the dimensions of corporate governance and its impact on organizational learning as an applied study in Jordanian environment, so this study addressed some relevant studies in order to achieve the objectives of this study: Weldy (2010) conducted a study entitled “organizational learning and transformation: strategies to improve performance. ” the aim of this study was to explore the nature of the relationship between learning organization, conversion training as strategies for learning and knowledge management to improve performance and achieve competitive advantage.
The study was performed on (212) companies in the United States in Los Angeles, in the study the relationship between learning organization and conversion training as a strategy to facilitate learning and knowledge management was clarified, the study found that a learning organization and conversion training are important factors to improve corporate performance and achieving competitive advantage, and that there is a relationship between learning organization and conversion training and performance improvement and achieving competitive advantage. Another study (Daniel, 2009), which was entitled “a framework and methodology for linking individual and organizational learning: applications in TQM and production development” the methodology presented in this study offers a detailed process through which individual learning is translated into organizational learning through the utilization of integrated diagrams and maps, and how to use total quality in product development, and the role of managers in developing production as a team to move the individual learning to organizational learning and work, and the study included (259) employees in software companies in the Midwest of US.
, the study found that individual learning and learning Organizational impact TQM. Also in a study entitled “ the dimensions of learning organization questionnaire(DLOQ): a validation study in a Korean context” (Sung et al. ,2009), aimed to evaluate the content of the culture related to learning organization in South Korea through the specific dimensions of learning organization determined by (Watkins and Marsick), the study was applied to a wide range of sectors working in Korea, consisting of: electronic industries, telecommunications industry, information technology, construction industry, light industry, and the oil and gas industry, chemical industry, international trade, insurance and financing.
The study sample was formed of (1529) personnel working within these industries, the study found that the scale specified by (Watkins and Marsick) of the dimensions of learning organization is valid and good for application in Korean context in spite of multiculturalism. While Davis and Daly (2008) in their study entitled ” The learning organization and its dimensions as key factors in firms’ performance “, aimed to test the relationship between the dimensions of learning organization as prepared by (Watkins and Marsick) and the financial performance of the selected companies in terms of return on investment (ROI), return on equity (ROE), earnings per share ( EPS), net income per employee and percentage of sales from new products.
The sample of the study consisted of (2000) companies operating in the field of marketing and human resources working in the United States, and the sample’s individuals consisted of human resources managers and marketing directors or who are in their position in these companies, a questionnaire was prepared to achieve study objectives through reliance on the specific dimensions of learning organization as identified by (Watkins and Marsick). Many statistical methods such as multiple regression analysis, the study found that there is a positive relationship between the dimensions of learning organization and the financial performance of these companies.
Konidari & Abernot (2006) in their study entitled ” From TQM to Learning Organization: Another way for quality management in educational institutions. ” the aim of this study is to highlight the organizational learning as another way to develop management skills among school administrators in eastern Greece, instead of TQM, numbering (457) principals. The study concluded that principals have positive perceptions towards organizational learning, which lead to the Journal of Money, Investment and Banking – Issue 25 (2012) 158 creation of a Learning Organizationmoreover commitment to apply TQM contributes effectively to transform schools into learning organizations.
Gorelick (2005) in her study entitled ” Organizational learning vs. the learning organization: a conversation with a practitioner “, where she presented a conceptual framework aimed through it to identify the importance of organizational learning, and to provide appropriate definitions of organizational learning, and linking the concept of organizational learning with building a learning organization model for companies operating in the healthcare industry in the United States, the study found that organizational learning contributes to creating a learning organization, the study also found, that the process of learning will be effective firstly if a profound understanding of the learning cycle, then identifying m