Main Aspects of Corporate Governance and Social Responsibility - Coursework Example

PART A Question The OECD Principles of Corporate governance Businesses and markets are the major players in the stability of economies. Corporate governance involves principles that govern the relationship between all parties in the economies including shareholders, managers, employees and creditors. These principles are guidelines for policy makers, market participants and regulators in improving the regulatory and legal framework that mainly focuses on publicly traded companies. The company should ensure that it addresses all the main areas stated by the OCDE principles. The company should ensure that the corporate governance framework promotes transparency and efficiency in the markets, articulate the division of responsibilities among the different authorities and be consistent with the law. The company should respect the rights of shareholders as stipulated in Company’s act which involves equitable treatment. The company should recognize the rights of the stakeholders as stated and encourage co-operation with other companies in creating wealth, jobs and for financial sustainability. The board should ensure compliance to all the rules and regulations governing businesses in a particular country. The board should ensure that all taxes are paid to the government. The company should ensure disclosure and transparency on all matters including ownership, financial position and governance of the company as explained in the OECD (2004). Sarbanes-Oxley Act of 2002 This act was passed to protect investors from accounting fraud by companies and mandates strict reforms to improve financial disclosures by companies. The board should ensure that financial statements are according to the accounting principles as stated by Dagwell, Wines and Lambert (2007).The board should ensure that all reported financial statements are certified by a senior official. The board should ensure proper accounting policies have been used according to Zyla (2009).The board is required to set up internal controls and reporting methods on the efficiency of the controls. The election and nomination process of members of the board should be a transparent process. Combined code 2003 The board is required to release an annual report on performance of directors, operations and decisions made by the board. It should clearly state the division of responsibilities among key employees. The board should determine the independence of its Non-executive directors and highlight circumstances that affect their independence. There should be statements on the audit work, remuneration and nomination committees. The composition, remuneration and positions of the members of the committees should be as explained by Calder and Watkins (2003). The audit committee should comply with requirements for provision of non-audit services by external auditors, monitoring and reviewing internal audit activities and staff promotion. The Australian Securities Exchange (2007) The company should establish and disclose responsibilities of the board and management in order to enhance oversight. The board should have an effective composition and size and this enable proper discharge of responsibilities. Members should be competent and have no conflicting interests so that they make ethical and responsible decisions. Financial statements should be verified by an independent body to safeguard integrity of financial reporting and there should be proper disclosure. The board should pay dividends in accordance to the profit made by the company and give them accurate information on matters concerning through meetings and publications according to Dunne & Morris (2008). Question 2 Corporate social responsibility Initiatives Businesses operate in a given environment and they are surrounded by other corporations and the society at large. The concept ensures that a company upholds ethical standards, abides to the law and international standards. Companies integrate environmental and social matters in their activities according to Steiner (2009). Companies have an impact on the environment, communities and stakeholders and they should embrace responsibility for their existence in a given environment. Businesses should focus public interest before making any corporate decision as their activities have direct effects on the immediate environment. The board can employ the members of society in various positions in the company creating employment for lower income in society. The mining company needs manual labour and can employ them alleviating poverty and involving them in the production which has a direct impact on the economy. This leads to increased production generating more income resulting to wealth creation. The board should lay down policies to conserve and maintain the environment. In the past there has been an increase in cases of environmental pollution that has led to drastic climate change, destruction of natural habitats and increase of illnesses. Company should take responsibility and dispose off the waste products safely. Companies should conserve energy by use of alternative sources of energy in order to conserve natural sources including natural gas, coal and firewood. The board should adopt environmental policies that will conserve the environment and protect the communities who rely directly on natural resources for their survival. In so doing the company minimizes the risks caused by pollution and helps conserve the environment for future generations. The board should improve education and social awareness through sponsorships and seminars on sensitive issues in society this equips people with skills and they can contribute to the economy by working. They should depart from the mentality that business are solely profit making ventures and place the need of the stakeholders first. As suggested by Kotler & Lee (2005) the company should be involved in philanthropic initiatives that extend relief to the needy members of society by donation of items that they need to survive. The board should come up with policies in packaging and pricing of their products making them affordable to all members of society as stated by Werther & Chandley (2006). The company can realize more profits through this by focusing to all the members of society. They can discover a market base from the low income earners while helping them by offering affordable commodities. Part B Question 4 Motivations for large companies to address social responsibility An increase in the number of large companies has been noted globally leading to a rise in the negative effects associated with the companies. Large companies take up so much space and this has led to the displacement of population to allow for their expansion. People relocate in cases where companies emit toxic products that are harmful to their health. The companies should address such issues by compensating them and by constructing social facilities in their new homes to help them settle fast. The companies are seen to cause the problems and they should address them and take full responsibility for any negative effects. Shell Oil was accused of labour abuses and ecological pollution in Nigeria and in the North Atlantic. The company pledged an annual contribution to social responsibility in Nigeria. Large companies are in most cases international companies with a huge market in different parts of the world. These companies earn revenue from all over the world and make huge profits. The companies should create employment to the citizens of the particular countries and should be involved in charitable events. Social responsibility can be used as a marketing strategy as it creates massive awareness on existence and the kind of products and services a company deals with. Large companies name their projects after their names, the members of society identify with such projects and they opt to buy products from such companies. According to Mohr, Sengupta and Slatermbers (2009) when a company is involved in corporate social responsibility it markets its products. Pharmaceutical companies in the US are governed by a code of conduct that emphasizes on making profits and serving public health which was later practiced by companies in South Africa. They gain positive image in society (Sale 2004) and it is a risk management strategy since if involved in fraudulent activities its market may not be adversely affected. It is in the interest of such corporations to address social issue in the long run since the government is lenient on such companies. The company’s future operations in such are assured since the government will support such a company financially and may partner the company in some events and society at large. The company enjoys stability where such a relationship has been established. Large companies have reserves of financial capital and man power. The companies can participate in social corporate responsibility without strain on their resources and with no interference with their daily activities according to Idowu and Filho (2008). Large companies have branches have branches that widespread and the negative effects they have on the environment affect a large number of people. The company should therefore be involved in corporate social responsibility to change the lives of the people. This helps in the creation of a wider market base for the company’s products. Disincentives for large companies to address their social responsibility The companies specialize in production and corporate world is not equipped with skills to handle social matters, it should be left to the relevant authorities. The companies lose when they participate in social responsibility as it drains their resources and wastes their time. It is against the key motive of the operation of a business which is profit making and social responsibility should be left to the government .Large companies that assume social responsibility are placed at a competitive disadvantage as compared to those who do not. They use constructive manpower on issues they are not trained in and use the generated income non-beneficial matters instead of investing. This places the company at a disadvantage as compared to other countries internationally as stated by Clarke (2011). Question 3 Key causes of unethical issues among board of directors in light of the Australian Stock Exchange Principle 2, 2007 There has been conflict of interest between executives and company directors prompting to non-legislative reforms to safeguard the interest of shareholders and improving independence of the company through appointment of non-executive directors. The non-executive directors participate in decision making, monitor activities of company executives and contribute business expertise according to Dunne & Morris (2008). Independence of some board may be interfered with where there is conflict of interest among members of the board. Some members of the board may have self interest affecting their decision making. All members of the board should make an independent decision concerning all matters that affect the company. The board should have independent professional advice in some situations at the company’s expense. Proper disclosure should be made if there is any relationship that affects the independence of a member of the board. This occurs where the director is a major share holder or an officer of the company in other situations that may affect judgment. It is considered unethical where the director fails to disclose this important fact and continues to hold office. The board should have the right composition and the correct number of members who are committed to perform their duties as stated in the OCED (2004).This helps the board perform its duties efficiently. Some boards have a larger composition of members than stated and this may lead to poor working as decision making may be difficult under certain circumstances. The board should be composed of competent members with the appropriate expertise in order to effectively discharge its mandate. There should be constant board renewal to ensure that they are conscious of the directors’ tenure and consider when succession is due it is unethical when they fail to. There should be transparency in election and nomination of new directors should be conducted by the nomination committee which should be chaired by an independent director, have at least members and consist of a majority of independent directors as explained by Dunne& Morris (2008). The committee has the duty of appointing and holding re-election of directors. It is unethical where the board fails to disclose the election and nomination process. The financial statements of the company should be prepared according to the stipulated accounting principles and should file its returns at the end of every financial period according to Dowel, Wines and Lambert (2007). The board should ensure that taxes are paid to the relevant authorities and calculation of tax payable should be done using the accurate methods. References Calder, A & Watkins, S 2003, IT governance: A managers guide to data security & BS 7799/ISO 17799, 3rd edn, Kogan page publishers. Idowu, OS & Filho, LW 2008, Global practices of corporate social responsibility. Kotler, P & Lee, N 2005, Corporate social responsibility: Doing the most good for your company and your case, John Wiley and Sons. Dagwell, R, Wines, G & Lambert, C 2007, Corporate accounting in Australia. 4th edn, UNSW Press. Dunne, P & Morris, DG 2008, Non-Executive directors handbook, 2nd edn, Butterworth-Heinemann. Mohr, JJ & Slatermbers, SS 2009, Marketing of high technology products and innovations. OECD, 2004, Corporate governance: A survey of OECD countries, Business & Economics. Plessis, JJ, Großfeld, B, Luttermann, C 2007, German corporate governance in international and European context. Sale, JT 2004, Advances in international accounting, Vol. 17, Elsevier. Steiner, FJ & Steiner, AG 2009, Business, government and Society; a managerial perspective 9th edn. McGraw-Hill Education. Werther, WB & Chandley, D 2006, Strategic corporate social responsibility: Stakeholders in a global environment. SAGE. Zyla, LM 2009, Fair value measurements: Practical guidance and implementation.   Read More