Governance Regulations and Ethics: the UK Corporate Code of Governance - Essay Example

Governance Regulations and Ethics The film inside the job remains one of the most crucial one that provides a comprehensive analysis of the global crisis, which occurred in the year 2008. The particular crisis was responsible for more than 20 trillion dollar loss. In fact, the economy was at its worst performance; companies went on a downsizing trend that rendered so many people jobless. This was done to cut down on the operation costs of the companies. Consequently, so many people lost their homes since they could no longer pay their mortgages. The financial crisis was considered the worst global crisis since the great economic depression. Many economists also perceived the financial crash as the worst in the economic history. The film under study is based on the most extensive research and exhaustive interviews with key financial insiders, politicians and journalists. Many academicians from different fields of knowledge were also included in the research to give their views on the subject. The film analyzed is based on the rise of a rogue industry, which has corrupted politicians, professionals, academicians, and regulators. The film unearths the 2008 global financial crisis that shook the entire global economy since the effects of this depression was felt either directly or indirectly in every sector of the economy. Arguably, the film portrays the financial crisis as a result of poor financial planning, forecasting and greed among some powerful individuals to amass wealth and enrich themselves. In fact, it is through such corruptions among certain powerful individuals, which shook the entire economy that the world is still yet to recover and recoup the financial losses. Definitely, this will take the country a lot of time and resources before it is restored to its former economic status (Furmston and Chuah 67). On the other hand, the entire globe still battles with the implementation of viable and some of the most appropriate economic policies, which steer economic development. Therefore, a lot of funds are required to be invested in the economy to promote economic growth and development. The UK corporate code of governance is also a crucial document that is very important in examining the elements of this case. Precisely, the corporate governance code 2010 was devised in a mid of the financial that shook the entire economy. This economic depression triggered a financial panic and suffering in the country and globally. The main aim of the UK corporate code was to investigate and monitor the performance of the listed companies and banks. This code has other aims and objectives as well. The corporate code was intended to facilitate effective entrepreneurial and prudent management for corporate governance to enable a company establish some sound management policies and guidelines, which can deliver the long term success of the entity. From the analysis of Nelson’s book, it is evidenced that good management principles and practices are essential in promoting the growth and development of the economy (Nelson 42). Moreover, the UK corporate code acts as a guide to a number of key components, which are involved in effective and sound governance. The code is based on good governance and transparency, accountability and focus to the core objectives and goals of various business entities. Importantly, the focus is on the long term entities of the corporations. The code aims to help the board of governance discharge their duties on the best interests of the company. In the review, the code saw few, but some significant changes in the “tone” of the code that guides the general behavior of the board with the hope that these changes help in promoting some clarity and understanding. In regard to the task of the board, and ensure there is efficient and effective communication with various stakeholders (Woodroffe 56). Furthermore, the code aims to ensure there is proper accountability and reduce underpin board ineffectiveness by encouraging that all the company directors are subjected to annual vetting and elections. Essentially, these companies are allowed to explain, rather than comply, if they believe that their existing arrangement is ineffective. Indeed, it seems that there is a strong belief that complying with the code is likely to constitute good governance. However, the code is limited to a guide that is in general terms and principles. Therefore, it is upon the directors to decide on the best behavior and practices, which promote economic growth and development. The decisive behavior on the sound and ethical practices should be based on the framework of the code. The code should also involve various stakeholders in its formulation and implementation stages to act as a guide to the accepted business practices and management behavior (Woodroffe 76). The UK corporate governance code is crowned by some important principles. These principles include, but not limited to leadership, effectiveness and accountability. The discussion below highlights some of these key principles. In leadership, the code requires that each company is headed by an efficient and effective board that is collectively responsible for the long term success of the company. Furthermore, the code requires that there should be a clear division of roles and duties. There should not be conflicts in terms of responsibility and roles, the duplication of duties ought to be discouraged. The roles and responsibilities of the board members and the staff must always remain clear (Woodroffe 82). The code discourages the management and the employees of the organization to desist from engaging in a conflict of interest. Such conflict of interest derails the performance of the company. Consequently, such act leads to corruption within the organization. And, is such unethical practice that denies the companies a lot of income since the revenue is greatly reduced as a lot of money is spent on meeting the business operating costs of the company. Besides, the code puts the chairman of a company at the helm of heading the board and ensures that it is effective on all aspects of the roles. However, even the chairman or any board member should not interfere with the power and the decision making process (Woodroffe 92). It is important to maintain effectiveness in operations and management of the company. The board and its members should have an appropriate balance of skill, experience, knowledge, and independence within the company. This particular principle enables the management and staff to carry out their respective duties and responsibilities in an efficient and effective manner. There should be a clear framework and structure for the appointment of new directors. The criteria must be vigorous, transparent and formative (Furmston and Chuah 52). The appointed directors must be able to allocate sufficient time to enable them serve the company effectively. In addition, the code requires that all the directors receive some special induction and orientation upon joining the board. This involves some frequent updates on the necessary skills and knowledge for running the company. All the company’s board members must make sure that they subject themselves to some rigorous annual evaluations on their performance, especially that of the committee and the individual directors. All the directors are required to submit for re-elections at regular intervals, subject to their continued satisfactory performance (Halbert and Ingulli 14). Another key principle contained in the UK code of corporate governance is the accountability. The principle of accountability is also vibrant in the analysis of this code. Directly targeting the board, the code requires that every board should promote a balanced assessment that is easy to understand the company’s position and prospects. It requires that the board is responsible and determine the nature and the extent of some potentially significant risks, which the firm is willing to undertake so that it can meet its strategic objectives. Through a proper management of risks and internal control systems, the board ensures there is a well managed accountability (Furmston and Chuah 94). The accountability can be achieved through the establishment of a formal and transparent arrangement, which maintain appropriate relationships with the company. The Level and Components of Remuneration This principle provides that there should be sufficient remuneration to support motive and encourage the directors to work efficiently. This will force them to maintain prudence in their business transactions. However, the principle puts it clear that the company should not pay more than is necessary for the purpose of business management and transaction, in the name of remuneration. After the analysis of the code, as highlighted above, it is important to understand what it is directed to. Generally, from the above evidence, the code is directed to the board and the directors of the company. The goal of such a direction is to make sure there is efficiency and transparency, which enable the company to succeed, especially with the aim of avoiding the repeat of the financial crisis that was witnessed in the year 2008 (Furmston and Chuah 102). The concept of the directors’ remuneration is clearly tackled in the principles and best practices of business and financial management. The main objective of this important concept is to make sure that the directors feel comfortable when they carry out their management activities. Good salary packages and allowances should be paid to the directors so that they are motivated to work hard and deliver the best and highest quality results. The remuneration package also helps the company to maintain the directors who have excelled in their areas of operations by giving the best results to the company. In fact, the directors who are satisfied in their areas of work would not leave the company to go somewhere else for a better paying job. Notably, the motivation of the directors is not only based on the monetary terms, but also non-monetary satisfactions, such the opportunities for personal growth and development. Besides, the conditions of the work environment also play a leading role in the employee development, support and satisfaction (Liebeck v McDonald’s Restaurants 2). However, the directors’ remuneration package should not be abused. For instance, the directors are not advised to engage in unethical business practices such as adding themselves more money without the knowledge of the other stakeholders of the company. When such malpractices are noticed in the company, the auditors, both internal and external should swiftly move in and raise such issues of concerns in the interim and final audit reports. The materiality of the misappropriated amounts are determined before the final audit reports are produced and publicized to enable the stakeholders take appropriate and prompt actions. In the extreme cases, the auditors are left with no option, but to qualify the audit reports, and in such cases severe disciplinary actions are taken against the persons involved in the malpractice activities. As discussed in the film, “Inside Job”, the 2008 global financial crisis was the result of men and women in the position of top financial management and strategic policy making. Therefore, the UK corporate governance code remains significant towards curbing any occurrences of sabotage. The UK corporate governance code provides a legal platform that seeks to guide the work and administration of companies by the directors. In addition, it ensures that any person who is found guilty of breaking the above codes commits a criminal offense that can be charged at the courts of law. This is an idea that is well supported by the green burry report of 1995 (Woodroffe 76). The film class action is centered on a plaintiff who finds himself in trouble after his attorney realizes that the counsel who was representing the manufacturer’s company is his daughter. Though, they had sour relationships, and the case became personalized. In the support, there is a liberal human rights activist who does not follow up her cases, after they are settled. The manufacturing company is accused of manufacturing station wagons, which have dangerous propensity to explode on impact, when making left turns. The manufacturer in the film also uses a “beam counting” approach to the risk management that is a projection of activities for probable deaths and injuries to the passengers and car owners. This a more expensive cost than the cost of re-tooling and re-manufacturing that is free of defects. Such practices can only yield short tem benefits to the company. However, in the long term, it is too expensive to bear since the company would lose its good brand and corporate image. The cost of servicing the defect vehicles are also too high to bear in the long term. The book, “Relationship with Consumer”, clearly down plays such attitude by the manufacturer. It is evident that the greatest satisfaction or concern of the producers of these vehicles is not to make the consumers enjoy or benefit from the cars, rather the manufacturing company wants to reap the highest profit income at the expense of the car users (Halbert and Ingulli 57). Indeed, this is a criminal activity that makes the honest buyers succumb to trickery of the dishonest manufacturers and vendors. Often, the consumers lack all the relevant information, which are crucial in making sound decisions. Such lack of information justifies the government intervention to set up appropriate policies, which help in protecting the consumer. It is clear that the consumer protection laws are there to ensure some fair dealings and to protect the interest of the consumers against such rogue manufacturers. In the film, the consumers life is at risks and even after investigations, it is clear that these particular station wagons are a risk hazard. If the cars are not recalled by the manufacturing company, it means that the lives of innocent citizens driving this model of vehicles continue to hang in the balance; their fate is unknown, possibly waiting for tragedy to happen. This is a crime that in many countries might account to an attempted murder because the life of the citizens are at risk since the manufacturer deliberately failed to spend a lot of money in manufacturing the most efficient and economic vehicles (Furmston and Chuah 54). In the United Kingdom, the sale of goods act is a significant law that can step in to protect the consumer against such unfair treatment or risk caused by the manufacturer. The law conforms that all the manufactured goods should be in satisfactory quality. Therefore, emphasis should be on the quality appearance and finish, free of minor defects, safe to use, good working condition, and durability. In this case, the particular act has been formulated. Therefore, criminal charges can be taken against the rogue manufacturers (Halbert and Ingulli 62). Through the implementation of the consumer protection act in the country, there is a clear intention that the government is striving to shield the consumers from the unreliable, selfish and rogue manufacturers. The act emphasizes that the consumer has the right to enjoy the best quality goods and services. This helps in eliminating suffering and injury caused by the sale of goods with defects. Though, the law is a bit rigid in the sense that for a consumer to claim for damages, he/she must prove that the damages were as a result of the faulty goods produced due to the manufacturer’s negligence (Halbert and Ingulli 39). Very strong measures and penalty should be taken against the manufacturers who have been found violating the law. In this case, it is the guilt of negligence that the manufacturer had foreseen some potential danger, but failed to take any necessary action. Under such circumstances, the company risks losing its business license to operate in the country. A consumer can as well ask for compensation, depending on the degree of damage and suffering. Therefore, the manufacturers are compelled to award very heavy damages to the consumers (Halbert and Ingulli 74). Ethical Theories According to the ethical theories and standards, this particular manufacturer has faulted the professional code of conduct and ethics. The manufacturer in the case defiled the systematic reflection of what is regarded as moral. The most appropriate theory in this case is the utilitarian theory. The discussion that follows shed some light on the utilitarian theory (Halbert and Ingulli 48). Utilitarian Theory The theory places more emphasis on the consequences of one’s person. For instance, it states what is likely to happen after taking a given step of action. The relevance of the theory to the case scenario is that it states that an action is morally right if it gives the satisfaction and pleasure to the recipient. However, the same action is morally wrong if the consumers fail to derive some level of satisfaction after consuming certain levels of utile. In such a case, pain is caused to another person. In this case, the manufacturers’ attitude of “bean-cost” shows that he has a deliberate action of satisfying himself at the expense of the consumers since he is geared towards reaping the highest possible profits from the business (Mallin 42). The manufacture of the faulty station wagons is not ethical. The utilitarian theory postulates that in order for someone to get maximum pleasure and satisfaction from a good or service, one must consider the consumers and other people who are involved in the process. Besides, one should take into consideration the need to satisfy their individual needs. However, if the people involved in this case, especially the consumers, then it means that the ethical theory has been broken (Mallin 83). Virtue and ethics require the actors to base their actions on the right virtues. Therefore, the central theme on virtue is shaping people to be morally upright and responsible citizens. In this case, the manufacturer of the station wagons is not ethical and morally upright. In fact, he is corrupt. Conclusion In sum, consumer protection should not be perceived as the government’s effort to frustrate or undermine the manufacturers, producers or suppliers, but appreciate its moral purpose that is to protect the innocent consumers from the scheming manufacturers and produces. Importantly, it is the fact that the government is mandated to protect people’s interest, using all the available means. The consumer protection brings a lot of elements, which are capable of salvaging the consumers from the unhealthy manufacturers. Some of these elements include the provision of market information on quality, market structure, type, and availability. In addition, it helps to eradicate unfair businesses practices and unhealthy competition, which compromise the quality of goods and services. The consumer protection act is at the forefront to fight business practices, which mislead the consumers into buying low and substandard products. Importantly, the consumers should be thoroughly educated on their rights. In fact, a significant and vibrant consumer protection should have played a leading role in the film to make sure that justice prevailed to the consumers, and stiff legal actions taken against the rogue manufactures. Works Cited Furmston, Michael and Chuah, Jason. Commercial and Consumer Law. United Kingdom, UK: Longman, 2010. Print. Halbert, Terry and Ingulli, Elaine. Law & Ethics in the Business Environment, (7th Ed.). Stockton: South Western Legal Studies, 2011. Print. Liebeck v McDonald’s Restaurants. McDonald’s Coffee Case. jtexconsumerlaw.com, 1994. Web. 01 Dec. 2011. Mallin, Christine. Corporate Governance, (2nd Ed.). Oxford: Oxford University Press, 2007. Print. Nelson. Directors Remuneration Report Regulations 2002. Regulations. bis.go, 31 Dec. 2002. Web. 02 Dec. 2011. Woodroffe, Lowe. Woodroffe and Lowe’s Consumer Protection Law and Practice, (8th Ed.). London: Sweet and Maxwell Publishers, 2010. 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