Corporate Governance Evaluation and Rating
Nowadays it is not unusual for an investor to reflect governance matters while deciding about investment determinations. As a result, numerous corporations are in the business of rating corporate governance procedures of public companies. Some corporations offer credit ratings in addition to governance ratings. As far back as the 70’s organizations have dealt with business ethics in a host of different approaches which includes the institution of compliance platforms and supervisors, adding of ethics boards, initiating codes of conduct, preparing, and distribution of company mission and values. Because of scandals in the recent past, there is heightened emphasis for US corporations and government agency’s to offer more stringent structured governance and ethics platforms so that corporations are accountable to the communities in where they function (Barrett, Todd, Schlaudecker & Perrin, 2004).
Corporate governance ratings corporations have started providing rating service as well. The clients for the service are diverse, and the audience is growing continually. Prospective clienteles of rating services comprise small investors, fund managers, institutional investors, accounting companies, executive search companies, recompense and governance consultant companies, and insurance companies. As a result of dubious conduct from personnel and as well as corporate executives has brought about vital queries about improving corporate ethics endeavors and addressing the fundamental reasons for these misconducts, in addition to the growing demand for preemptive social accountable, and supportable business procedures (Barrett, Todd, Schlaudecker & Perrin, 2004).
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It is still uncertain the importance of corporate governance ratings and how they will effect investors. Certainly, the usefulness of these types of ratings is deteriorated by the ostensible lack of uniformity amid rating agencies. To the degree ratings are comparative; they are likewise becoming unimportant since practices have largely improved with time. Numerous institutional investors have individual platforms for calculating governance and do not depend on outside services to measure those concerns. Some investors basically do not think those ratings are pertinent to investment determinations about the value of a corporation or their managers. However, issuers and investors might determine it more and more challenging to circumvent the consequences of governance ratings that might be observed as a proxy to a business’s respect for the shareholder.
Shivdasani, A., & Zenner, M. (2004). Best practices in corporate governance: What two decades of research reveals. Journal of applied corporate finance, 16(2/3), 29-41.
It's difficult not to be cynical about how “big business” treats the subject of ethics in today's world. In many corporations, where the only important value is the bottom line, most executives merely give lip service to living and operating their corporations ethically.
An organization that lacks a true culture of ethical compliance can create problems with integrity issues with stakeholders and customers. When a major company such as Enron, was structured their approach to ethics on the surface appeared to oppose progressive innovation. The policies and ethics programs were set up to protect the company and its shareholders. According to author Berenbeim, The Enron company had a detailed code of ethics it was not enough the organization needed to incorporate ethics and integrity throughout their corporate culture. Enron had to focus on business ethics issues raised by the conduct of the company’s directors, officers, accounts and lawyers (Berenbeim, 2002).
Executives have to avoid conflicts of interest regarding business transactions pertaining to investments, and sensitive information. “Conflicts of Interest,” in regards to investments ensures that an officer or director should avoid participating in any transaction or investment that conflicts with, or gives the appearance of a conflict with, the interest of the company. This is key in maintaining ethics because a person who is in a leadership or management position must be loyal to only one organization; otherwise, all decisions that are made are suspect as to the integrity of the choice, especially concerning money matters. A second key area of the code of ethics for Executives shall maintain the confidentiality of the Enterprise’s confidential information and any confidential information of third parties in accordance with the Company’s confidentiality policies and any confidentiality agreements entered into by the Corporation because it is apparent that leaks of information can destroy a
An organization needs to adhere to ethics in order to effectively implement its mission, vision, and objectives in a way in which offers a solid foundation to management and their subordinates to properly develop and implement its strategies. By doing so, the organization as a whole is essentially subscribing to one commonality that directs all of the actions of the employees of the organization. Additionally, it assists in preventing such employees from divergence in regard to the proposed strategic guideline. Ethics additionally ensures that a strategic plan is developed in accordance to the interests of the appropriate stakeholders of the organization, both internal and external (Jin & Drozdenko, 2010). Likewise, corporate governance that stems from various regulatory parties makes it necessary for organizations to maintain a high degree of ethical standards; this is done by incorporating ethics within the organization’s strategic plan so as to foster a positive corporate image for the stakeholders and general public (Min-Dong Paul, 2009).
7). From a more astute viewpoint, a worker (counting CEO) may be set in an authority position (p. 272) where practicing a certain measure of expert or coercive power (p. 272) makes a nature's turf, which prompts redundant patterns as seen at Enron and Fannie Mae. Indeed, as indicated by Collins (2011), advertising and deals have generally high rates of truth bowing and work related deception of items and administrations (p. 8). An alternate part of unscrupulous conduct history may be a consequence of a disappointment to survey representative and officer conduct with ethical culture assessment (p.176). These appraisal instruments, for example, Corporate Ethical Values studies measure administration's conduct inside the association (p. 176). An alternate is the Ethical Culture review, which additionally measures top administration's conduct, additionally workers (pp. 176-7). The Ethical Climate study is broader than the recent two as it measures moral mindfulness, techniques, assets, and administration (p. 177). In conclusion, the Self-Assessment and Improvement Process (SAIP) could distinguish, report, evaluate, and figure out if a business' corporate citizenship is as per organization principles, arrangements, and mission with the expansion of change recommendations (p.
Over the years many companies have decided abandon ethical practices is lieu of higher profits. Because of the high value placed on profits in America, many companies have taken extreme measures to increase profits and increase payouts for shareholders. Arthur Andersen LLP is a prime example of how business executives have been willing to make unethical business decisions in order to please clients and gain an edge on competition. In the short run, these unethical decisions may have seemed beneficial, but in the long run, the extensive consequences of this behavior was not worth any anticipated gain. Arthur Andersen made many unethical business decisions in lieu of higher profits that had drastic consequences that extended father than any executive
Bibliography: Turnbull, S. (1997). Corporate governance: its scope, concerns and theories. Corporate Governance: An International Review, 5 (4), pp. 180--205.
The end of 2001 and the start of 2002 saw the end of a period of magnified share prices and booming businesses. All speculations of misrepresentation came to light and those firms which once seem unconquerable were now filing for bankruptcy. Within this essay, I shall discuss the corporate governance mechanisms and failures which led to the Enron scandal resulting in global corporate governance reforms being encouraged.
Tsui, J., & Gul, F. A. (2002). Consultancy on a Survey on the Corporate Governance Regimes in Other Jurisdictions in Connection with the Corporate Governance Review. Hong Kong: CityU Professional Services Ltd.
Nottingham Trent University. (2013). Lecture 1 - An Introduction to Corporate Governance. Available: https://now.ntu.ac.uk/d2l/le/content/248250/viewContent/1053845/View. Last accessed 16th Dec 2013.
In the aftermath of Enron, Washington Mutual Bank, TYCO, and World Comm these companies went against the grain of what good ethical behavior is and what their respective company’s code of ethics were. The criminal justice system has made it clear that it will not allow companies and their executives to get away with the misuse of public trust by allowing them to make themselves rich at the expense of the employee. Where these crimes are both ethically and morally wrong, the CEO’s of major corporations are being punished by a ...
As a result of modern corporate scandals and rapid development of international business environments, social responsibility (SR) has become a key aspect of corporate competitive contexts. (Brammer, Williams and Zinkin, 2007). Businesses are under increasing pressure to incorporate SR amongst their profit-driven aims and have become increasingly accountable for their social and environmental actions. Increased interest in CSR developed in the mid 1990s as consumers began to lack their former trust in companies due to both environmental and financial scandals and it became noticeable that society was moving towards values incorporating harmony, quality of life and environmental conservation (Carrasco, 2007) Additionally, major corporate failures over the past two decades have resulted in increased demand for stronger, corporate governance (CG) rules. (Sui, Wright & Evans, 2007). Superior CG rules are needed in order to preserve the integrity of corporations, financial institutions and markets and the health and stability of world economies. (OECD Website)
Corporate governance is the set of guidelines that determines the control and organization of a particular company. The company’s board of directors is in charge of approving and reviewing changes to this set of formally established guidelines. Companies have to keep in mind the interests of multiple stakeholders, parties who have an interest in the company. Some of these stakeholders include customers, shareholders, management, and suppliers. Corporate governance’s focus is concentrated on the rights and obligations of three stakeholder groups in particular: the board of directors, management, and shareholders. Corporate governance determines how power is split between these three stakeholders. A company’s board of directors is the main stakeholder that influences the corporate governance of a company (Corporate Governance).