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corporate governance case studies uk
introduction about the role of corporate Governance
introduction about 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
According to section 301 of the Sarbanes-Oxley act, all the members of the audit committee will be members of the board of directors of the public company and be required to be otherwise independent (AICPA, 2004). In addition to this, Keinath and Walo (2004) state that one member of this committee will need to be an expert in the field of financial management. These requirements are likely to introduce changes in the composition of the audit committees of some public companies. According to a survey conducted by Keinath and Walo, 10% of companies did not have at least one member with expertise in financial management in their audit committees meaning they would have to alter the composition in order to ensure compliance to the Act. In addition to this, some companies made exceptions when it came to ensuring that members of the audit committees were independent (Keinath a...
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...
After all, directors are more familiar with company and its day to day transaction more than anyone else since that is their responsibility. Even though the directors have followed the procedures and received advice from qualified advisors from management and auditors that does not mean the directors do not have to assess the information received under s189 which was established in Sheahan v Verco & Hodge [2001] SASC 91. The directors stated that there were too many information which compromised of 450 pages. However, as Justin Middleton said the directors could minimise the information so they will only receive the vital information and that is intelligible to them. After all, it is important for directors to comprehend what sort of situation they are encountering and to certify that the financial statement is accurate. Otherwise, if the directors do not go through financial statement and relies solely on the auditors and management then being a director would have less requirements which can lead to an unqualified person becoming a director and causes the company to wind up. Not to mention, directors are meant to be more experienced and knowledgeable accumulated through their lifetime since that is what differentiate them from
It is the responsibility of the board of directors to select a qualified Executive Director for the organization. The board is responsible for determining the salary of the director as well as evaluating the director’s performance. The executive director acts as the liaison between the organization and the board and ideally keeps them informed on various legal, financial, planning, and policy, personnel issues. It is crucial to the organization’s success to have a healthy balance between guidance and supervision between the director and the board.
Also in an event study the authors show that firms announcing the appointment of multiple directors for the first time experience higher abnormal returns. Beasley (1996) finds that firms whose outside directors hold more board seats are less likely to commit fraud because inclusion of outside members on the board of director increases the board 's effectiveness at monitoring management for the prevention of financial statement fraud. Cotter, Shivdasani, and Zenner (1997) examine the role played by independent outside director during tender offers and they report that target firm with independent boards commands higher merger premium, because the authors find that target shareholder gains are higher in resisted offers also having majority outside directors. Similarly, Brown and Maloney (1999) find higher acquirer returns when directors with multiple board seats serve on the acquirer’s board. These studies all provide ample evidence that outside director has avital role not only in the corporate governance of the firm but also are beneficial for firm
"Audit Independence - Independence of Australian Company Auditors." Insert Name of Site in Italics. N.p., n.d. Web. 23 Apr. 2014 .
"Principles of Corporate Governance." 2012. The Harvard School of Law Forum. Ed. Noam Noked. Web. 2 April 2014. .
Secondly, companies have a duty to “seek balanced representation of each sex on their boards” . While the legal committee of the ANSA considers this to be a general principle without any legal force, for others, the provision is imperative. Every time a company appoints a new director, it has the obligation to show that it fulfilled its obligation (“Obligation de moyen”) to seek a balanced representation of its board.
The first one is on the percentage of non-executive directors (NXRATIO). There are many studies that support the use of non-executive directors as they are more likely to act on behalf of shareholders. As a consequence, the greater the percentage of non-executive directors on the board, the lower Agency costs, as the first hypothesis. Secondly, duality (DUALITY) is unenviable as it gives one person a potential ability to disrupt the decision-making process of the firm, hence the separation of CEO and chairman should reduce agency costs. Thirdly, the setting up of board subcommittees. There are several board subcommittees, but only nomination committee, which contains non-executive director(s), will be focused on. As mentioned previously, a non-executive director should acts on behave of shareholders, the presence of a nomination committee (NOMCOM) and the presence of an executive director on the nomination committee (NOMXD) should reduce agency costs. The length of the CEO tenure (CEOTENURE) is considered as the longer term he/she is in the office the more power will be, agency costs are escalated as a result. The last hypothesis is the higher the number of additional directorships held by the CEO (BUSYCEO), the lower agency costs because of the higher reputation and the positive impact on firm performance. McKnight and Weir (2009) do not construct hypotheses only on board characteristics,
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.
Since the adoption of the 1996 Constitution, South African law has been reviewed comprehensively. One of the scrutinised areas is corporate governance. Because company management is a vital task to the company and the shareholders, directors play a very important role in the execution of this task. It should be noted that a company cannot act in its own. It acts through its representatives which consist of the board of directors as entrusted with the management of the company’s business. Cumulatively they are subjected to fiduciary duties. These duties bind directors, individually and collectively, with the obligation to act in the best interests of the company and to do so in good faith. Within these director’s duties to act in good faith lies the duty of director’s not to unlawfully
The Role of the Directors in a Company is of a paramount importance in the discourse of the proper running of the company. Directors are the spirit of the company .The company is merely a legal entity, governed by its directors. These directors have certain duties and responsibilities. These are mainly governed by the Corporation Act, 2001. Section 198A (1) of The Corporations Act, 2001(The Corporations Act 2001 s 198A (1)), clearly states that, ‘The business of a company is to be managed by or under the direction of the directors’.
According to Company Act 1965, director includes any person that occupying the position of a corporation by whatever name called and also includes a person in accordance with whose directions or instructions the directors of a corporation are accustomed to act and an alternate or substitute director. It means the function performed by director is the indicator of a real director rather than his/her title. a director is a trustee or officer of the corporation as stated in Section 4(1) of CA1965 and he/she is liable for the default happen in the corporation due to his/her failure in complying with the Company Act 1965.
Solomon, J (2013). Corporate Governance and Accountability. 4th ed. Sussex: John Wiley & Sons Ltd. p.7, p9, p10, p15, p58, p60, p253.
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.