Corporate Governance and Regulations - Joint Stock Corporation - Case Study Example

CORPORATE GOVERNANCE AND REGULATIONS Student’s Name Subject Professor University/Institution Location Date Corporate Governance and Regulations Introduction The corporation of today plays a critical role in the institution of highly developed free enterprise. The Joint Stock Corporation first came into life in the 20th century and Karl Marx who witnessed it saw it as a possibility towards the communal ownership of the means of production and as a way that would eventually lead to socialism. Corporations have been around for some time now and there seems to be no sooner end to them. As early as the mid 2000s, the World federation of Stock exchanges said witnessed the registration of over 400, 000 corporations in the stock market across the world, and increase of about 30 percent from 1997 (WFE 2008). Today, the structure of the joint stock company is such that it has led to a series of industrial developments that saw the Economist in the year 2006 attribute the failure of the Arab countries region’s failure to develop to the failure in instituting joint stock corporations. The current corporations, and specifically the Multinationals or international corporations some that are larger than some of the state economies of some countries in the world, have grown to the point where they have taken up the global political economy which in many cases has been a representation of a possible challenge to the conventional structures of the political structures, especially with regard to political considerations within the “state-nation” framework (Barca & Becht 2001). There is no doubt that corporations will continue being in existence as a means through which people and capital can be organized for as long as the need to regulate ups and downs in the global financial systems such as the recent financial crisis shall last. The question of who controls the modern corporation, how it is governed as well as the reason that is behind the need for regulation has become a very critical factors when it comes to the organization of production in the current market economy which is largely industrialist, and corporate governance is today some of the most critical factors in business and organizational circles. When the Enron and Worldcom scandals emerged, many people took it as a sign of greediness in the free enterprise in the US alone but other cases such as Ahold and Parmalat have led to the questioning of the answerability of those behind management in corporations and especially with regard to the protection of investors as well as personnel. The public in many western countries has risen up in the recent past to specifically question the remuneration of executives which is said to ever be on the rise, the large profits despite the challenging economic environment within which corporations have been operating in the recent past even in the midst of employee layoffs (Becht et al 2006). All these factors have led to a heated discussion related to social impartiality and equality. As the numbers of mergers and acquisitions increase further, with higher levels being observed in the US, many industries are increasingly becoming strategic economic sectors requiring that they should be protected against invasion by foreigners. This paper talks about the control of corporations, largely known as corporate governance in the midst of regulatory frameworks. Discussion It is more than five years now since the Enron scandal first came in to light and for some time now corporate governance has been a major subject both in the political and business scenes. There has been a major concern among corporate leaders that speedy regulatory frameworks could lead to over-stringency when it come to internal processes in corporations which may in turn lead to a mutilation of the capabilities of business leaders to effectively run corporations (Beyer & Höpner 2003). Aside from this, leaders have had to bear in mind the possibility of substitution when it comes to polishing the reputation of corporations and delivering growth as a factor, not only in business but in the economies of county states as well. The question that begs in the midst of the debate for regulations of the governance of corporations is whether investors are ready to constantly forfeit earning for the sake of moral principles (Bieling 2003). Regulation is just part if the answer to the problems that corporations face today and especially in as far as enhancing governance is concerned. Corporate governance is concerned with the way corporations are managed and led. The balance lies in multiple organizational and tactical decisions within corporate bodies be it in the area of choices related to stock selections or structures related to the management of threats, or even in the composition of the b oar dog directors in corporations or the distribution of powers when it comes to decision making matters in corporations (Bruff 2005). It is therefore imperative that corporate governance regulation should begin within the organization. The designing and implementation of corporate governance is very crucial but inculcating the right culture is very critical as well. Corporate leaders should have the capability to lay down the plan for this, and should be in a position to guarantee that the board of members are free to take part in open and consequential discussions within the organization. The basic assignment of the board of directors in organizations should also be understood in a manner that is concise and clear as being that of recognizing and endorsing both the risk factor desire within any particular corporation at any specific phase in its evolution and the procedures that are in place to keep an eye on risk (Callaghan 2008). The inherent tension between modernization and management, as well as between authority and expansion cannot be ignored. About 45 percent of leaders as seen in a survey carried out by the economist intelligence unit on what they thought about the impact of strict corporate governance on how their businesses function were of the opinion that mergers and acquisitions dealings would be adversely affected due to the increase in length of the processes of outstanding processes, and about 36 percent were of the opinion that the ability to take speedy and effectual choices would be compromised (Economist Intelligence Unit 2002). High-tech governance of corporate besides is capable of bringing lasting change to companies for sure through various benefits since it is one of the many ways through which hurdles have been introduced in the growth processes of a company Accountability when it comes to the governance principles is very important. So long as shareholders and financiers have a clear way of accessing information related to policies the market can be authorized to do the rest, with respect to the assignment of appropriate risk premiums to companies that have smaller numbers of independent directors or an excessively belligerent compensation strategy, or cutting the expenses that are related to capital for those companies that adhere to conventional accounting guidelines. There are very few companies that are truly accountable, but corporations should seek to do more in this area (Cioffi 2005). After the Enron scandal, the US went into action to formulate a new corporate reform bill that established an oversight group for public companies auditors as well as criminalized securities related fraud. Many companies that are not based in the US have found themselves under this new law and jitters that have to do with financial fraud have reverberated through financial markets across the world, and many countries such as the UK, Germany, and the EC took it in stride to do reviews that were related to governance. Inside corporate bodies, intense self scrutiny began and the question that has tended to emerge is largely that of what can be done differently (Cioffi 2006). Regulation Accountability, accuracy and honesty are undoubtedly critical when it comes to corporate governance, and the corporate turbulence that many corporations are going through today seems to be almost unparalleled (Bieling 2003). However this is not a new thing in corporate governance; not when we have globalization and the deregulation of international markets for purpose of international business on course. The anxiety that many corporate leaders have today is that these changes are bringing about unexpected change fast and has resulted in extensive rules, and, despite factors such as the main scandals that corporations have experienced in the past especially in the US, this paper reasserts in the words of the Economist Intelligene Unit (2002) the fact that corporate governace does workin many thousands of companies. Despite all these, regulation has over the years remained a blunt tool when it come to tackling the complexities that companies face in the modern globalized world. Corporate governance is faced with a situation that is not definitive enough with no black or white areas, and with no fixes. Corporate governance does not have a right or wrong way of doing it; rather there are only behaviours that are seen as capable of enhancing the results. Many people are of the opinion that many corporate scandals have occurred in countries that uphold cultures that are too legalistic such as America which put too much emphasis on structures which do not encourage open discussions when it comes to finding solutions to problems. The basic factor that underlies the whole scenario of regulation is whether financial statements are fair in the way they representing the position of the companies in a manner that is transparent to every stakeholder. There is a need for an approach that is based on justice and accuracy such as that which is advocated by the International Accounting Standards Board. There is also a need to empower boards that are related to auditing and accounting so as to device a strategy on how to ascertain the value of substance as opposed to form. Authorization of greater revelation is not necessarily the solution to the problem and one of the biggest problems of lucidity is that many are the times when disclosures become too huge that transparency can no longer apply. Regulators always have clarity and openness in mind when devising regulatory measures and policies but they have often been translated by companies as sheer volume of disclosure which is not an effective factor at all (Cioffi 2006). In the same way, any desire that is understandable when it comes to regulators and politicians to the extent that accountancy poses a “quasi-mathematical” accuracy and by this means errand chiefs can be sent to jail are nursing “wishful thinking”. Corporate governance cannot be measured accurately (Bruff 2005). A precise evaluation of the performance of an organization is an indefinable objective. This is due to the fact that there are different indisputable outlooks when it comes to the evaluation of the value of assets such as those associated with goodwill, brands, intellectual capital and the proper means of applying cost to items such as costs associated with bidding. Traditionally, accounting was such that managers were capable of differentiating expenses from profits but today there is far more room for moderately legal judgment. Culture Culture counts when it comes to corporate governance because corporate governance is not just about balancing sheets accurately. It’s about much more than that and except for cases where basic fraud occurs, balancing sheets are just about and production of diverse formational and tactical choices across the whole company whether in risk management factors or the distribution of powers related to decision making (Beyer & Höpner 2003). Corporate governance as a factor is something whose power lies within the organization rather than outside of the organization. According to Economist Intelligene Unit (2002) many executives who were asked to name the most significant barriers to corporate governance cited cultural and administrative antagonism when it comes to whistle blowing. Other factors include; increased focus on cash flow measures as opposed to profits for every share by shareholders and investors as well as a lack of monetary understanding on the part of senior executives and the board of directors. One interesting factors is that this survey did not find cost to be an important barrier as far as the top three barriers are concerned. It is worth noting that out of the three top barriers, two are related to the structure of the culture of an individual company. The third factor can be moderated through good governance. It is however not easy to describe good governance. Some of the factors that have been mentioned in literature as comprising of remedy to good corporate governance and mitigating the factors that hinder it include: full disclosure when it comes to off-balance sheet transactions and giving audit committees greater power and the performance of regular revolution when it comes to exterior auditors. However, obligatory revolution of exterior auditors serves up to lessen unrestricted powers of inspection committees. Accountants have also alluded to the fact that revolution makes the understanding of business by auditors weak. In addition to this, lessons learned from the Enron scandal have indicated that when the board of directors acts as the standard for best practice, then structures related to the structure of corporate governance don’t count for much if the culture on an organization is not right. Conclusion The modern corporation has become so invasive when it comes to the make-up of highly developed free enterprise in a local industrialized world, to the point where it is no longer easy to believe that it is one way through which production can be organized. Regulations as political and lawful prerequisites for corporate governance have been discussed in this paper and have been shown to have no effect when it comes to corporate governance unless the internal conditions within the organization are right. What remains to be seen is the fact that regulations should take into account the parties whose interests they purport to safeguard. List of References Barca, F, & Becht, M, 2001, The Control of Corporate Europe. Oxford: Oxford University Press. Becht, M, Mayer, C, & Wagner, H, 2006, Where Do Firms Incorporate? CEPR Discussion Paper No. 5875. Beyer, J, & Höpner, M, 2003, The disintegration of organised capitalism: German corporate governance in the 1990s. West European Politics Vol 26 Issue 4 , 179 – 198. Bieling, H, 2003, Social forces in the Making of the New European Economy: The Case of Financial Market Integration, New Political Economy Vol 8 Issue 2 , 203-24. Bruff, I, 2005, Making Sense of the Globalisation Debate when Engaging in political Economy Analysis, The British Journal of Politics & International Relations Vol 7 Issue 2 , 261-280. Callaghan, H, 2008, How Multilevel Governance Affects the Clash of Capitalisms, MPIfG Discussion Paper 08/5. Cioffi, J, 2006, Corporate Governance Reform, Regulatory Politics, and the Foundations of Finance Capitalism in the United States and Germany, German Law Journal Vol 7 Issue 6 . Cioffi, J, 2005, Corporate Governance Reform, Regulatory Politics, and the Foundations of Finance Capitalism in the United States, and Germany, CLPE Research Paper Series 6/2005. Economist Intelligene Unit, 2002, Corporate governance: The new strategic imperative -A white paper,. London, New York, Hong Kong: KPMG International. WFE, 2008, Annual Data. Retrieved September 27, 2012, from www.world exchamges .org: http://www.world-exchanges.org/WFE/home.asp?action=document&menu=10 Read More