Management School: Corporate Governance - Essay Example

By The of the The of the School The and where it is located The Many corporate governance scandals have arisen because of a few individuals abusing their position within an organization. The falling of these firms and companies have led to intensification of the process re-evaluating and assessing of the UK Corporate Governance Code to the current 2014 version. The re-evaluation has helped stringently raising the bar of Corporate Governance in the country. It is currently nearly 20 years since the introduction of the Cadbury Code and eventual simultaneous adoption by the Listing Authority and also London Stock Exchange to aid in final restoration of trust in the City (David, 2014, pp.90). The current model or version of the UK Corporate Governance Code outlines nearly 19 excellent practice and principles and entailed provisions for the corporate governance (Andrew, 2014, pp.78). The current version exhibits a continuous and inherent compilation of the several years of works. This is achieved by various managers re-aligning the practice of showing sector borders on audit, role and arrangement of the board, and financial reporting on the firm’s position. The re-alignment should range into, internal control and board remuneration processes. Following the years of existence and operations, the Code has increased its influence over many years as underwent several iterations. Several other changes include the current administration under the FRC body and has principles making up to nearly 5,500 words which are approximately ten times in comparison to the original code. According to the evaluation, the Coded has systematically recorded significant output going to the low number of corporate scandals that has been registered in the last 20 years (Andrew, 2014, pp.89). While Corporate governance has been increasingly gaining escalated predominance globally especially in the past decades, it has systematically experienced downfalls by invasion by improper practices in the sector. Most of the harming deals in most firms are aimed at fattening the financial positions of a few people while denying the original stakeholders a chance of enjoying their rewards or even getting their finances back (Fernando, 2014, pp.67). By illustration, the fall of some firms could have been averted by the application of the current UK Corporate Governance Code 2014. The main improvements listed in the 2014 UK Corporate Governance Code have entailed mainly six changes in various sectors. The first area includes the improvement on risk management practice (Andrew, 2014, pp.45). This demand compels the restructuring of the company business model which must be able elaborate or push the managerial board to be responsible for determining the nature and entailed extent of the momentous risks it is willing to take. Most firms fall have always been associated with quite undetermined risks that always exposes the victim firms to intensive perils (David, 2014, pp.67). Determination of risks helps in averting the recurrent risks in the market. The second consideration for the 2014 version of UK Corporate Governance Code is the Performance-related pay. The code states that; it should be aligned with the constant and long-term interests of the firm and its risk strategy, and policy and systems. This was another loopholes abused earlier to fleece most firms of their profits as most of the executives raised their remunerations to suit their personal desires without consideration on the profit magnitude of the victim firms. Thirdly, UK Corporate Governance Code 2014 outlines that for increased accountability, every director for FTSE 350 companies must be undertaken recurrently and annually for re-election every year thus evaluating of their past performance. The assessment of the every director’s output can always be notable by consideration of the firm’s growth in terms of asset base and profit increase prospects especially by evaluating future possibility of the firm. The 2014 UK Corporate Governance Code avails considerate and timely to promotion of proper debate in the executive’s boardroom by focusing on particular introduced new principles of the leadership and roles of the chairman. The changes amplifies the significant roles and outlined responsibility of any non-executive director personality to timely avail and provide constructive input, challenge, and the time obligation expected of every director. The new changes also create a basis for the existent or facilitation of a good board which is devoid of “group thinking”. It is worth noting that there is high reasons for increased use of new principles on the entailed composition and collection of the board members. The advanced level provided for in the current UK Corporate Governance Code provides for the regulations on the updated need and urge for appointment of members on merit. This in relation to the benefits of multiplicity, against objective criteria and other factors including gender assortment. Lastly, another field that has been consistently improved is the facilitation and enhancement of the board’s performance and entailed awareness. This can be realized through focusing on the application of strengths and weaknesses which requires the chairman to hold regular development or reviews with another director. The application of the current UK Corporate Governance Code 2014 could have helped in the improvement and avoiding of the failure of the following companies (John, 2014, p78). Royal Bank of Scotland Group According to (John, 201, pp.45), Royal Bank of Scotland Group found itself insolvent as the international credit market was held up. This followed the takeover of ABN-Amro, and the eventual fall of the Lehman Bros, which perhaps constituted considerable risk to the firm. Later, the 58% of the shares were later bought by the UK government. This unexpected move portrayed the risky diversion the bank had taken, and it came dramatically in 2008. By reference to the newly modified UK Corporate Governance Code requirement, most of the keynote failure sectors could be averted intensely. The fall of the bank was fatal to the investors especially recognizing that under investigation in a 304 words long, the FSA communicated that they had found nothing relatable to regulatory fault undertaken by the RBS board. The findings also cleared the senior managers or executives of any involvements in the banks near crumple. The fall was inhibited by the channeling of the £45bn belonging to the taxpayer in support and some hundred billions of pounds through entrenched state –sourced loan facilities. The near crumble event was highly associated with poor or wrong decisions process that brought the bank into great financial distress. According to some investors, the Sir Fred had megalomaniac personality which made him always consider the size of the firm than the shareholder value. Recurrently evaluation of the firm’s risk and transparency would highly expose the main source of risk to the firm (Walter, 2014, p56). The move compelled Sir Fred to take up blame though he had built up a strong and undisputed reputation following the acquisition of the NatWest in 2000. He confronted his main shortcomings on tackling issues relating to Royal Bank of Scotland Group and in the subsequent year, 2006; he responded to the shareholders demands who were pushing for the increased and better returns. Considering the Royal Bank of Scotland Group was until then a slowly growing bank. The near fall of the bank could have been averted in case the new UK Corporate Governance Code 2014 was in place and considered for this process. Since the banks pathetic position was blamed solely on the decision by Sir Fred and according to UK Corporate Governance Code 2014, there is always a need or compulsion to spearhead or encourage boards to be precisely balanced recurrently avoid or shun “group thinking”. UK Corporate Governance Code 2014 outlines the leveled scenario for the selection of the new principles and leaders or composition and even choice of the board. The requirement points out the need for appointing members in terms of merit and against certain objective criteria. The regards also outlines the essence of the company placing the regards for the benefits or desirable of diversity that expands to include the gender diversity section. The bank management failed to define the business model. As a result, there was a failure to elaborate or determine the extents to which the listed board was responsible for determining the type and extent of the noteworthy or the significant risks it was willing to take. The bank management possibly entered into a deal whose risk was not conclusive evaluated considering the track record of the management which is a vital trait reiterated by UK Corporate Governance Code 2014. UK Corporate Governance Code 2014 also presses the need for the enhanced and promotion of proper debate while in the boardroom (John, 2013, pp.67). Northern Rock Bank According to (John, 2013), the British government nationalized the Northern Rock bank following intense problems with the subprime mortgage. Large number of the clients failed to pay the mortgage as required thus presenting huge loses to the bank and the subsequently in 2010 the bank was divided into two main segments. These parts included the assets and banking central sector thus facilitating the ultimate sale of the bank to the private sector. Subsequently the bank was allocated a liquidity aid by the Bank of England following its exposure to the credit market after the existent financial crisis. The back was later presented as a state ownership process (Andrew, 2014, pp.56). The nationalization process had followed a double bid to try to take over the bank, but both were not able to pay back the main savers and entailed investors’ money. Virgin money later purchased Northern Rock form the UK financial investments in a bid that was amounted at £1 billion. The default by mortgage clients prompted the massive bank run in the UK (Fernando, 2014, pp.34). According to David (2014, pp.55), the company would have not failed this terribly in case the current UK Corporate Governance Code 2014 were in place. This is because the failure of the company was promoted by poor or lack of diversification. The failure was apparently prompted by poor liquidity of the housing assets after default by the mortgage clients. Recurrent risk management process would highly inhibit that huge or significant loss from the mortgage customers. Bank run was the leading cause of the fall of bank that would have been averted since mortgage default is usually not an instant process but a slow process. UK Corporate Governance Code 2014 calls for increased elaboration and exposure to the main sources of risk and elaboration on the type of the investment undertaken by the bank. The UK Corporate Governance Code 2014 also presses on the increased accountability of the directors that it requires that director should be presented for re-election every year (John, 2013, p67). Consistent with David (2014, pp.67), the UK Corporate Governance Code 2014 also calls for increased answerability on the performance of the board. This allows for evaluating the strengths and weaknesses which compels the chairman to hold recurrent and regular development reviews. Proper evaluation of the risks for the company would have averted the looming loss in the construction and mortgage industry as most buildings similar to real estate investments are not easily liquidated (John, 201, p342). In conclusion, UK Corporate Governance Code 2014 has much section that hugely elaborates the essence of the current governance process. The code has mainly five sections that entail leadership, effectiveness, and relations with shareholders, accountability, and remuneration. The code also has some additional segments that elaborates on the Schedule of the Code. In addition, there is intense engagement of the Institutional Shareholders which is the schedule that mainly usually contains the three discussion with companies, shareholder voting and assessment of governance disclosures. According to research, the application of the past UK Corporate Governance Codes have increasingly reduced scandals and collapse of many firms. As a result, the code presents a hopeful trend in the investment sector since no one would invest his or her hard earned cash on a system destined for failure. Averting of such risks or failure is the main way of revamping investment in the firms and companies. Evaluation of risk and other managerial process are assigned roles of managers and directors thus they have the sole role of informing their investors of the financial positions. Huge losses experienced in the sales signed business agreements or deals present massive financial distress to the firm. The entailing of the current UK governance codes is a excellent tool aimed at invigorating the process of operation of firms and companies with least fears thus assuring investors of reduced risks inherent in their investment processes. Bibliography http://www.rbs.com/ John L. Colley (2013), Corporate Governance, McGraw-Hill executive MBA series, McGraw- Hill, 0071403469, 9780071403467,259 pages Fernando A. C. (2014) Corporate Governance: Principles, Policies and Practices, Pearson Education India, 8177585657, 9788177585650, 575 pages Walter E. ,( 2014) Corporate Governance: Principles and Practices, Aspen elective series Elective series, Aspen Publishers, 0735577315, 9780735577312, 529 pages David M, (2014) Corporate Governance: Practical Guidance on Accountability Requirements Thorogood Reports, Thorogood professional insights, Thorogood Publishing, 1854183540, 9781854183545, 135 pages Andrew K., (2014) The Enlightened Shareholder Value Principle and Corporate Governance Routledge Research in Corporate Law Series, Routledge, , 041568434X, 9780415684347, 303 pages Read More