Involving a series of intentional fraud and corruption, the Enron, Worldcom, Northern Rock and Bank of Credit and Commerce International scandals were just a few of the biggest financial scandals ever recorded for the last two decades…
Download file to see previous pages...
Involving a series of intentional fraud and corruption, the Enron, Worldcom, Northern Rock and Bank of Credit and Commerce International scandals were just a few of the biggest financial scandals ever recorded for the last two decades. Intervention of regulatory authorities and shareholders for corporate governance increased (Burton, 2000) in a way that provoked the initiation of several conventions -- particularly notable are the Cadbury (1992), Greenbury (1995) reports and the Combined Code (1998). In this light, this paper determines whether the actual and strict compliance to the code, while may not be legally binding, had in a way assisted in improving corporate governance among listed companies. The Combined Code for UK Listed Companies It was following the bankruptcy of a large UK company, Polly Peck, the defunct of the Bank of Credit and Commerce International, and the fraud committed by Robert Maxwell when the Cadbury Commission was founded in 1992 and provoked the issuance of the code of best practice for corporate governance, the Cadbury Code (Davidson, 2008). The Cadbury Code clearly laid out the framework for corporate governance in the guise of accountability, integrity, or honesty (Applied Corporate Governance, 2009). The Greenbury Code, on the other hand, centered on the director’s remuneration and its lack of transparency . The Combined Code, a result of both the Cadbury (1992) and Greenbury (1995) codes (hence the name), includes the best practices for corporate governance specifically with regard to the quality of the board, division of offices of the chairman and the managing director, balance of the executives and the non-executives, remuneration of directors, and the nomination committee (Sealy & Worthington, 2007). As opposed to the previous codes, the combined code employs principles (Davidson, 2008). In the Cadbury convention, the most notable aspect which the Combined Code adopted was its approach on ‘compliance and explanation’ in a way that the listed firms should report the extent to which they have complied with the code and/or explain any form of non-compliance (Sealy & Worthington, 2007). This approach does not only produce external impacts but also importantly internal impacts for it allows a firm to identify which parts or principles of the code worked best for the company and what did not. As a head start, regulatory authorities may now be able to determine which parts of the code are faulty or that do not yield positive results. Added to strict rules and requirements for capital and liquidity, the said approach will define the most effective method for corporate governance (Walker, n.d. as cited in Haddrill, n.d.). Although the Cadbury report and the succeeding ones do not bind companies into a legal obligation, it has become habitual among listed companies in that the Stock Exchange deems it necessary (Sealy & Worthington, 2007). The Combined Code ensures that all constituents in the corporation incur optimal gains and minimal losses in the course of maximizing profit and reducing costs. In essence, the concept of corporate governance seems easy to apply. In practice, however, the connectedness between the shareholders and the managers for the most part creates conflicts of interests -- the agency problem. The abstraction arising from contracts allows agents (e.g. managers) to act in effort to benefit from an endeavor that may, in turn, work against the favor or interests of the principal (e.g. shareholders). Effectiveness of the Combined Code in
...Download file to see next pagesRead More
This paper explores two specific areas of corporate governance and how the Company Act 2006 is presently addressing it. The first is through granting more rights to minority shareholders. The second is creating more measures against opportunistic and predatory directors to exact responsibility and accountability for fraud.
CORPORATE GOVERNANCE LAW. Corporate governance is a system that has gained prominence in the management of organizations across the world and plays a critical role in facilitating organizations to be effective and efficient hence attainment of organizational goals and objectives.
For the purpose of fulfilling the objective of this paper, the definition of firm as a nexus of contracts has been presented and its relation to the agency theory has been evaluated. It was found that the assumption of agency theory with respect to this definition states that self-interest of the individuals is the main basis of their wealth maximization.
Agency theory is entirely an academic term and it defines the relation and conflicts between a principal and an agent. With the help of corporate governance any corporation and company can be managed and governed. Agency theory is a part of corporate governance as corporate governance is not complete without the committee members, shareholders and board of directors of a company.
ntrary to the traditional family owned business where the owner runs the business with his own capital and claims the profit generated by the company; the publicly traded organisations run on the shareholders invested capital, who might not take active part in managerial
Different processes that define corporate governance also promote transparency. Notably, corporate governance also involves a company’s compliance to both statutory and legal requirements. Companies that are committed to
The board had repeatedly requested for information during meetings and Viehbacher never provided (Feintzeig 1-2).
Notably, the current environment is distinct from the past. In the past, CEO dismissals were masked and regarded as embarrassing
Corporate governance has a framework that consists of implicit and explicit contracts between the stakeholders and the company for distribution of rights, responsibilities and rewards. It also consists of procedures for the reconciliations of conflicting stakeholders
The conclusion from this study states that the agency theory, besides a number of its weaknesses provides an approach through which the corporate governance problem can be solved. The theory proposes that to settle the conflicting interests of the shareholders there is need to reinforce the control systems by setting up an independent board structure and composition.