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Corporate governance case studies uk
Introduction to the role of corporate Governance
Introduction to the role of corporate Governance
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The need for clarification on the board requirements for a majority of independent directors as it relates to corporate governance is of great importance and would be discussed in this write up.
According to Shleifer and Vishny (1997), corporate governance is the system, by which corporations are directed and controlled. On the other hand, an independent director is a person that has at no time, worked for the company nor owned shares in the company. This director also would not be related to any of the key employees nor would have worked for any major supplier, customer or service providers, such as consultants, accountants, lawyers, etc.
In principle, as retrieved from Wikipedia, “an Independent director, is a director of a board of directors, who would not have a material or pecuniary relationship with the company or related persons, except sitting fees”. It is the duty of the independent director to ensure that the board is active, effective and performing well. It is also his duty to ensure that the CEO is executing his duty in line with the aims, mission and vision of the company, in accordance with the directives of the board.
The importance of independent directors’ roles cannot be over emphasized and the major role being improving the performance of the board and the company as a whole. These roles, however are constrained by various factors, the two most prominent, being the information that is available to the independent directors, and the position / size of the company affected by transitions / life cycle of the company and any significant changes the company may be experiencing. Having mentioned the need for an independent director, specific board positions should be held by independent directors (e.g. Chairma...
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...ive Regulatory System for Australia‟s Small Corporations: Governance for Small Business‟. Melbourne, Victoria Law School. ISBN 978-1-86272-692-5
Australian Corporations and Securities Legislation. (2011) ASIC Act 2001. Sydney, CCH.
Banks G. (2006) Reducing the Regulatory Burden: the way forward. Inaugural Public Lecture, Monash Centre for Regulatory Studies. Melbourne. 17 May. www.pc.gov.au
Joshua, K. (2007). The Board of Directors Responsibility, Role, and Structure. Retrieved from: http://www.eiilmuniversity.ac.in/coursepack/Commerce/CORPORATE_GOVERNANCE.pdf Nicholson, GJ & Kiel, GC 2007, ‘Can directors impact performance? A case-based test of the three theories of corporate governance’, Corporate Governance: An international
Overview of the regulatory and corporate governance framework, http://www.pc.gov.au/__data/assets/pdf_file/0007/93598/08-chapter5.pdf
Corporations functioning within the jurisdiction of the Australian Commonwealth are governed and regulated by the provisions of the Corporations Act, 2001. Common law principles developed through judicial
The corporation’s business is carried out by its management, under the direction of the Board of Directors. The Board, and each committee of the Board, has complete access to management. Also, the Board and committee member’s has access to independent advisors as each considers necessary or appropriate. Mallor, Barnes, Bowers, & Langvardt (2010) state that the Board of Directors also, issues shares, Adopts articles of merger or sha...
Government regulation hits our pocketbooks as surely as taxes do, but there is little information available about its cost. At a time when deficit spending is out of favour, and there is little appetite for tax increases, this lack of accountability makes regulation a tempting way for governments to achieve their goals without increasing their spending. Between 1975 and 1999, over 117,000 new federal and provincial regulations were enacted, an average of 4,700 every year. Over this twenty-four year period, federal and provincial governments have published over 505,000 pages of regulations contained in volumes that measure 10 stories when stacked.
With a society that is continually modernising and businesses that are forever changing it is of vital importance of the parliament to regulate the way businesses are operated. The parliament have five major functions, to provide for the formation of a government; to legislate; to provide the funds needed for government; to provide a forum for popular representation and to scrutinise the actions of government. The constitution has a vital role within society and has a major impact on the way that businesses interact. Including this legislations are a key way that enables parliament to regulate the behaviour of businesses
The foundations behind the responsive regulation are illustrated in the widely accepted regulatory pyramid from Responsive Regulation: Transcending the Deregulation Debate . It clearly demonstrates lighter sanctions at the base, escalating to severe sanctions at the top designed to be sufficiently undesirable that it would prevent certain behaviours. It was Ayers and Braithwaite’s belief that when using this model regulator and regulations should focus the majority of their time on the bottom of the pyramid and only intensify measures when absolutely necessary and de-escalate procedures whenever possible.
It is not surprising that a corporate or IT governance is largely debatable and dominant business topic nowadays (Weill & Ross, 2013). That is why there is such a significant number of the guidelines published on the issue. Anyway, it is highly important that these guidelines are being applied properly. The board of the organization is considered to be responsible for the implementation of these guidelines and principles (Weill & Ross, 2013). Nevertheless, the principles may vary considering the organization approaches. The application of the particular organization approach predetermines the principles a board is being guided by.
This report gives the brief overview of the concept of corporate governance, its evolution and its significance in the corporate sector. The report highlights various key issues and concerns that are faced by the organizations while effectively implementing and promoting Corporate Governance.
As a consequence of the separate legal entity and limited liability doctrines within the UK’s unitary based system, company law had to develop responses to the ‘agency costs’ that arose. The central response is directors’ duties; these are owed by the directors to the company and operate as a counterbalance to the vast scope of powers given to the board. The benefit of the unitary board system is reflected in the efficiency gains it brings, however the disadvantage is clear, the directors may act to further their own interests to the detriment of the company. It is evident within executive remuneration that directors are placed in a stark conflict of interest position in that they may disproportionately reward themselves. The counterbalance to this concern is S175 Companies Act 2006 (CA 2006) this acts to prevent certain conflicts arising and punishes directors who find themselves in this position. Furthermore, there are specific provisions within the CA 2006 that empower third parties such as shareholders to influence directors’ remuneration.
The debate whether diversity is beneficial to corporate governance or not has persisted over the years. In this context, the concept of diversity relates to boardroom composition and the wide-ranging blend of characteristics, expertise, and attributes supplied by individual board members (Grosvold, Brammer and Rayton, 2007, p. 344). What is more, diversity in corporate boards of directors can assume a variety of forms, counting individual demographics such as, nationality, race, ethnicity, and gender (Singh, Terjesen, and Vinnicombe, 2008, p.48). Boardroom diversity in listed companies is dictated by an array of diverse factors, including profitability, company size, as well as the size of the board (the number of non-executive and executive directors) (Grosvold, Brammer and Rayton, 2007, p.346). In listed companies, the board of directors usually serves at least four significant roles i.e. controlling as well as monitoring managers, providing counsel and information to managers, ensuring conformity with relevant laws as well as regulations, plus connecting the corporation to the external business environment (Carter et al. 2010, p.398).
Organizations that only have top management as the board members are more susceptible to accounting malpractices. Members of the board should preferably own shares in the company to ensure diligence when it comes to the interests of the company. Apart from the Board of Governors, there should also be an audit committee in place to oversee the financial dealings of the bank. Members of the board and the audit committee should have basic financial knowledge. Some of the members should also be experts in finances so that they can detect any anomaly that may take place in terms of financial reporting. An overhaul of the regulatory framework is required to empower authorities to intervene immediately, and make improvements. New technology is required. Manual antiquated processes should be eliminated because this causes greater human error and poor
The board membership, irrespective of executive or non executive membership, is very crucial in the governance and management of the company. However, as the duties and responsibilities of directors vary according to their type of directorship; the rewards should also match the responsibilities carried out and be in line with the performance shown over period of time.
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.
According to Carol Padgett (2012, 1), “companies are important part of our daily lives…in today’s economy, we are bound together through a myriad of relationships with companies”. The board of directors remain the highest echelon of management in any company. It is the “group of executive and non-executive directors which forms corporate strategy and is responsible for monitoring performance on the behalf of shareholders” (Padgett, 2012:1). Boards are clearly critical to the operation of companies and they are endowed with substantial power in the statute (Companies Act, 2014). The board is responsible for directing and steering the company. The board accomplishes this by business planning and risk management through proper corporate governance.
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).
Corporate governance is the policies, rules and regulations, by which a corporation shapes the way corporate officers, managers, and stakeholders perform their duties to create wealth for the entity. According to Lipman (2006), good corporate governance helps to prevent corporate scandals, fraud, and potential civil and criminal liability of the organization (p. 3). Most companies, whether formal or informal, have some type of corporate governance for the management to follow. Large companies will have a formal set of rules and regulations, while small companies frequently have spoken rules often due to lack time to form any type of formal policies. There is often no corporate governance with family owned companies.