Effective Corporate Board Underpins Corporate Governance - Coursework Example

?An Effective Corporate Board Underpins Corporate Governance. Critically Discuss Why This Is So and What Makes A Board Effective. Consider Diversity within Your Essay. Table of Contents Table of Contents 2 Introduction 3 Significance of Corporate Board towards Corporate Governance 4 Interest of Shareholders 5 Compliance of Business Principles and Code 5 Corporate Social Responsibility (CSR) 6 Business Ethics 7 Role of Diversity 9 The Effectiveness of Board 10 Critical Evaluation 12 Conclusion 15 References 16 Bibliography 22 Introduction Corporate governance is identified as a system in accordance with which companies are controlled as well as directed. Notably, corporate governance is related to the functioning of the Board of Directors (BOD) and comprises of specific rules as well as regulations on the basis of which the BOD is required to make decisions. Moreover, the relationship between stakeholders and managers of companies are maintained by the code as well as principles of corporate governance (Calder, 2008). Corporate sectors are therefore required to operate according to the rules and policies of the corporate governance for better growth as well as performance of transparent and responsible business functions. It also facilitates companies to conduct its business operations in accordance with the rules and the regulations prescribed under the companies act. Corporate governance offers specific guidelines on the basis of which policymakers and regulators ascertain that the policies and rules formulated are in compliance with legal provisions. Furthermore, it ensures that companies perform their business operations in an ethical manner (Fernando, 2009). Corporate governance ensures that a company is guiding its business activities in the right direction. In this regard, the BOD of companies are determined to be accountable for formulating appropriate strategies and policies in order to make sure that the company is operating ethically. It also seeks that the structure of the board is appropriate, executives are properly compensated and shareholders are reported correctly. The principles as well as codes which are undertaken in the policy of corporate governance of companies accumulatively signify that companies are responsible for satisfying the requirements of its shareholders and stakeholders by a large extent (Tricker, 2012). Emphasising on these aspects, the study will intend to critically discuss about the importance of corporate governance in companies. The functions or operations of BOD of companies will also be discussed in order to ascertain that companies are conducting its business operations in an ethical manner. The important policies as well as codes will be further emphasized in this paper, which is the most significant aspect for corporate governance of companies. Due significance will also be rendered towards diversity as a crucial facet in the contemporary corporate governance frameworks. Significance of Corporate Board towards Corporate Governance Corporate governance of companies can be identified as largely dependent on the norms and functions of the BOD. The BOD of companies is recognised to be an important element as the participants or rather the board members are responsible for the formulation of policies as well as strategies for improved performance of companies and are also entitled develop or restructure the Articles Of Association (AOA) and Memorandum Of Association (MOA) for the company. These strategies, norms and policies are implemented with the intention of ascertaining that companies perform their business operations in adherence with legal policies, companies act and rules as well as regulations of the government. Business organisations are thus required to conduct its activities in accordance with the policies formulated by the BOD in order to ascertain that the planned business activities are performed ethically (Copnell, 2010; Ayuso & Argandona, 2007). Interest of Shareholders The key role of BOD is to act as a representative of the shareholders. Moreover, the BOD seeks that the operations of companies are conducted with the best interests of the shareholders and stakeholders who are also considered as the major parties involved with the corporate governance system in an organisation. It has often been argued in this context that board members of companies should take various actions as well as measures in order to ensure that they are able to govern the company in a more effective manner. The BOD is also required to provide a transparent culture inside the organisation which will facilitate stakeholders towards understanding the performance of the company. BOD of companies should be effective as well as creative in their approaches to execute better present and future performances (Deloitte Touche Tohmatsu India Pvt. Ltd, 2013). Compliance of Business Principles and Code Members in the BOD of companies are entrusted with the responsibility of governing the company efficiently towards the right path. In this regard, corporate governance is determined on the role played by the BOD. Correspondingly, the BOD of companies set values as well as principles which are to be complied with in order to perform business operations effectively. Code of business is also formulated and implemented under the norms of corporate governance for improved practices as well as functioning of BOD. The management of companies are required to follow these policies and measures so that companies are able to comfortably and ethically achieve its vision as well as mission. The codes prescribed as per the corporate governance system developed by the BOD are based on specific principles which ensure that a company is governed effectively in relation to profitability, accountability, sustainability and accountability which is further determined to be a rigid set of regulations to be followed (The Financial Reporting Council Limited, 2012; Tomasic, 2011; Burton, 2000). Corporate Social Responsibility (CSR) The BOD members of companies support corporate governance for various reasons or factors. The notion of ‘Corporate Social Responsibility’ (CSR) policies has acquired immense importance in the present day business scenario. In this respect, corporate sectors are required to devise CSR policies with the objective of sustainable growth and prosperity of companies. The CSR polices further tend to assist in sustainable development of companies in three areas in relation to economic, social and environmental factors. The BOD of companies is responsible for formulating policies as well as principles with the intention of enhanced performances along with the development of societal and environmental factors. Moreover, with the assistance of all these policies board members will be able to facilitate with better sustainable growth and progress in every aspect of business operations. The sustainable development of companies is mainly dependent on certain factors which include societal influences, organisational cultural elements, environmental impacts and finances. Societal influence implies the impact which societal contracts and commitments have on the business operations and stakeholders’ attitude towards the company and thus needs to be duly addressed in corporate governance. The policies also enable to incorporate a better corporate culture inside organisations due to healthy relationship among internal stakeholders i.e. employees and corporations, which can further be determined as a core responsibility of BOD. Furthermore, corporate sectors, with the assistance of these policies and code will be able to conduct its business operations with minimal impacts on its surrounding environment. The companies are also required to perform their business operations with better financial returns for enhanced progress which are addressed with the proper alliance of BOD. Additionally, the board members, with the formulation of all these (CSR) policies, will be able to offer better corporate governance for sustainable development and growth of the company (Aras & Crowther, 2009). The BOD of companies is responsible for formulating as well as implementing strategies which will be beneficial for business operations wherein the corporate governance structure tends to specify the roles and responsibilities of every member in the board (Rose, 2006). Business Ethics Corporate governance is recognised to be of immense importance for companies to conduct their business operations ethically. In the recent business scenario, business ethics play an important role for enhanced performances of companies on a worldwide competitive environment. It has been observed that companies are intended to take risks with the objective of maximising their profit margin at often instances irrespective of the probable consequences to be witnessed by the company’s stakeholders. In this regard, companies select board members with the intention of managing risks in an enhanced manner maintaining a balance between the organisational goal of profit maximization and stakeholder’s interests. Moreover, the BOD of companies is required to offer effective policies and measures in order to ascertain that there is an efficient internal control to its investors. The board is also entrusted with the task of seeking that the audit committee is conducting audit operations in accordance with the codes and laws prescribed in its AOA, MOA and also in the relevant Companies Act (Fraser & Henry, 2007; Jones & Pollitt, 2001). It has been observed that a relationship exists between corporate governance and the construction of internal control. The structure of internal control comprises of the BOD, internal auditors and the audit committee. It is in this context that corporate governance is adopted in organisations with the aim of controlling as well as directing the activities of a company (Nagy & Cenker, 2002). The key objective of corporate governance is to promote better corporate culture and management. Hence, it is essential to have a better relationship as well as interaction among management, board, internal and external auditors in order to accomplish objectives of a company effectively. The board members of a company play an important role in this regard for supervising as well as adopting policies with the objective of minimising risk factors in business operations. The auditing activities of companies are required to be performed by both internal as well as external auditors with the aim of ascertaining the suitability of financial reports which are disclosed by the company targeting its stakeholders at periodic intervals. It is perceived that along with BOD there are other agents including internal as well as external auditors who are responsible to seek that a company is performing in accordance with rules and standards (Holm & Laursen, 2007). All these will assist in providing an appropriate reporting of facts in relation to financial terms and performances of a company. A company with superior internal control and risk management capabilities will be facilitated with the opportunity of conducting its business operations in an ethical manner. It is worth mentioning in this context that the number of financial scandals has been demonstrated to increase by a large extent in the recent years. In this respect, companies in developing countries are observed to focus on obtaining better corporate governance in relation to community as well as environmental development prospects. Furthermore, companies also aim towards conducting its business operations in accordance with business practices and labour standards with greater efficiency. A company with effective board members will therefore be able to make decisions in an appropriate manner which will facilitate to administer the operations of a company successfully. All these factors will boost confidence among investors to invest in the operations of companies (Grant Thornton UK LLP, 2011; Guyatt, 2005; Monks, 2005). Undoubtedly, the board with the assistance of these factors will be able to govern the activities of companies proficiently. Role of Diversity It has often been observed that in the present day business culture that women are recognised to be playing a vital role in governing the activities of companies. In this regard, women are perceived to be acquiring a large number of positions as board members as well which has certainly influenced the approach of corporate governance within those companies inclined towards a feminine culture by a certain extent. Furthermore, with the increasing effects of globalisation, cultural diversity has also created a significant impact on the overall performance of the company. Contextually, the board members are entitled with the responsibility to supervise the decisions of managers in relation to financial statements, investment as well as dividends in accordance with the differing cultural perspectives and their implications. The board will also be facilitated with high quality and improved decisions in relation to strategies as well as practices successfully which imbibe the diverse set of cultures and managerial notion followed within the company whether influenced by feminine culture or a patriarchy (Carter & et. al., 2010; Nielsen & Huse, 2010). It has often been argued in this regard that a diverse culture in the management of a company should be executed by the BOD as an integral part of its corporate governance system with the objective of managing the operations of a company in a more skilful manner. Studies have thus revealed that diversity in the workplaces and board members will assist in making better decisions which in turn will offer better competitive advantages to such companies (Doldor & et. al., 2012; Dublin, 2010). In the recent days it has been observed that the notion of gender diversity among board members has increased which has further created a significant impression on the corporate governance system and its performances. Gender diversity within BOD is also perceived to be of great importance for conducting business operations in a defensive way. Theorists have often argued in this context that with a large number of female as board members, it shall be possible to execute their business activities efficiently at times of intense market conditions with better returns on profit margins (Credit Suisse Group AG, 2012). The Effectiveness of Board Undoubtedly, after the scandals which were witnessed among large corporate sectors, the importance of corporate governance has increased. In the UK, a principle named ‘comply or explain’ has been adopted by companies since the year 1998 under the ‘Combined Code’. This principle or code was formulated with the objective of ascertaining that the business operations of the companies are conducted in accordance with law by the BOD and through effective corporate governance practices. Moreover, this code is also identified to be flexible as it allows the board to take actions which do not comply with the predestined codes or principles, thus making the complex corporate governance framework much comprehendible. In this respect, at times, when board performs in non-compliance procedures are required to explain the reasons for such actions to its stakeholders and is remarked as the failure of corporate governance system practiced within the company (Keay, 2012; Pass, 2006; Webb & et. al., 2003). The shareholders are also required to be aware of the activities which are conducted by the BOD in order to ascertain that these activities are performed in compliance or non-compliance of law which can be accordingly communicated through an effective corporate governance practice. The business operations of companies are therefore required to be disclosed in adherence of company law and also in compliance with governmental rules as well as regulations. These are the various facets which are perceived to be accountable for practicing a good governance principle in the UK and worldwide business environment (MacNeil & Li, 2006; Arcot & et. al., 2005). Stating precisely, it can be affirmed that significant concern towards the aforementioned factors related to laws and regulations shall play a major role in improving the effectiveness of the entire board towards better corporate governance practices which can further facilitate proficient performances of companies. Critical Evaluation It has often been argued that the perceptions in relation to corporate governance have been developed being highly motivated with the shift observed in relation to the objectives of companies from profitability to value maximisation. Apparently, unlike the traditional business context, companies today intend to create value with better transparent as well as effective policies. These transparent policies are further observed to assist in conducting business operations in a highly ethical and effective way. Moreover, it has been perceived that with the rising incidents of financial scandals and collapse of numerous renowned and branded companies in the worldwide context has raised the importance of corporate governance by a substantial extent. In this regard, there is an increased importance of corporate governance among companies to conduct their business operations in a fair as well as transparent manner. It is worth mentioning in this context that an effective corporate governance seeks that organisations are controlled as well as directed to perform their business operations in a fair and just manner with due regards towards organisational objectives and its commitment to stakeholders’ as well as shareholders’ interests (Sharma, 2011). Furthermore, corporate governance is determined to be an assurance for protecting the rights and is held accountable towards stakeholders of companies. It also acts as an assurer for investors who invest in companies with the motivation to receive a fair return on their investments. The BOD of companies is therefore determined to be an essential element of corporate governance in order to safeguard policies and principles which are formulated in accordance with the guidelines mentioned in the AOA, the MOA and the relevant Companies Act. It can be thus stated that the BOD of companies performs two major roles which include controlling and directing of business functions. In the control function, the BOD members tend to monitor the operations and performances of the management. The key job of the BOD is therefore to ascertain that the expectations of shareholders are met effectively. The board members are also entrusted with the responsibility of making sure that the activities and operations of the business functions of the company are carried out in accordance with law and legal procedures. With respect, to the directional role, the BOD is required to direct or guide the operations of companies with better strategic decisions with the motive of enhanced future performances (Sharma, 2011). The corporate sectors are also required to follow specific principles as well as code with the intention of conducting business operations with better governance practices. The BOD of companies can thus be held accountable for recognising the nature as well as the risks which a company is willing to undertake in order to improve its performances (Sharma, 2011). Summarising the aforementioned discussions, it can be comprehended that the BOD members in a particular company is quite essential for controlling as well as managing its overall activities to comply with the set corporate governance standards, maintaining transparency and effectiveness towards both profit and value maximisation. Moreover, the board members are responsible for supervising and governing the various business operations within an organisational setting. Contextually, the discussions reveal that the activities which are performed by board members in order to improve the effectiveness of corporate culture are directly related with the codes and standards of corporate governance which are further essential to determine a company’s success. In this respect, it can be identified that effective board construction is a necessity for supporting corporate governance related competitiveness. Conclusion Corporate governance comprises of policies as well as standards in accordance with which companies are required to conduct their business operations in a transparent and efficient manner. The policies and measures of corporate governance are to ascertain that business operations of companies are controlled and managed in an efficient manner. The BOD members are therefore required to make decisions on the basis of rules as well as regulations as mentioned in the codes and standards of the corporate governance system practiced within the organisation. Moreover, the corporate governance system also acts as a communication channel for the BOD members to convey the organisational expectations, planning as well as preserve the intentions of transparency in satisfying the interests of its stakeholders. The main objective the board members are to ascertain that a company is performing its business operations in accordance with standards and code of business ethics which can further be identified as a significant facet of its corporate governance system. To be precise, corporate governance conveys the principles on the basis of which companies attempt to manage its risks and business operations efficiently. Moreover, with the increased incidents of financial scandals among large corporate sectors, the concept of corporate governance has acquired great importance among modern day companies in order to conduct their business operations ethically and to serve the stakeholders for better growth and development. Apparently, these factors confirm the relationship between corporate governance and the board of a company owing to which it can be affirmed that “an effective corporate board underpins corporate governance”. References Aras, G. & Crowther, D., 2009. 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