Importance of a Global Approach to Regulating Corporate Governance - Essay Example

?Importance of a global approach to regulating corporate governance 8th December EXECUTIVE SUMMARY Corporate governance is concerned with how the companies or firms make decisions, how they manage and organize themselves and how they converse with shareholders and the entire world. It is responsible for issues like what responsibilities and mandate executives and boards have, how executives and boards are chosen, whether shareholders and stakeholders have rights to get involved in some types of corporate decisions through participating in voting and if they have, what form they take. Multi National Corporations needs to introduce excellent business practices, enhance their decision making and give valid reasons for people to invest in the company. Many companies around the world have failed due to lack of proper corporate governance. The global crisis is an example of how failure of executive and boards to manage the financial institutions, banks and other organization using proper corporate governance. The corporate governance problems are mostly experienced in countries where legal environment provides incredibly few corporate government strategies and practices, few shareholders right and few disclosure requirements. Companies can efficiently compete, and the economies can prosper well if they adopt the practices, and strategies recommended by International Corporate Governance Network. Multi national corporations should ensure that the shareholders exercise the rights through effective and open conversing and communicating information as well as engaging them in general meetings. This will be very useful and effective as it will lead to growth and expansion of companies. Transparency and disclosure of material matters concerning the Multi National Corporations should be balance and timely. Everybody interested in the company gains confidence because he or she will note the areas that need improvement or are well managed. Multi National Corporation should be aware that, disbursement of resources in proper corporate governance will inexorably bring good returns on investment and hence the corporations’ survival. They will be very successful when they adopt and implement good corporate governance strategies and practices. INTRODUCTION As corporate governance persists to be an area of spotlight for most companies especially Multi National Corporation, there are many issues and questions that firms still fight with:  what it is and what it is concerned with; the reason many governments and firms promoting advanced tactics in corporate governance (Ghosh and Chakraborti, 2010). Corporate governance is how the companies or firms make decisions, how they manage and organize themselves and how they converse with shareholders and the entire world. It deals with issues like how executives and boards are chosen, what responsibilities and mandate executives and boards have, whether shareholders and stakeholders have rights to get involved in some types of corporate decisions through participating in voting and if they have, what form they take. These issues are crucial because they endorse excellent business practices, good opportunities and decision making for investors to make certain the integrity of their investment. Since these issues are very important to improving and developing good businesses and best businesses environment, policy makers and companies are much interested in ensuring that excellent corporate government is widely adopted and is successfully institutionalized throughout the firm. Many companies and firms identify that good corporate governance is a good business strategy and good commerce practice (Bitanga and Bridwell, 2010). What many companies are focusing on is to advance their businesses specifically in the promising global market place where companies are repeatedly trying to outdo each other to ensure their businesses are effective and to magnetize new investors. Companies and firms especially the well managed ones, want to introduce excellent business practices, enhance their decision making and give valid reasons for people to invest in the company (Sharma and Tyagi, 2010). While such firms and companies are much interested and successful in implementing and adopting better corporate governance strategies, some other companies may not recognize the importance and the benefit of investing and adopting corporate governance. Companies that fail and refuse to use good corporate governance strategies may end up receiving negative and bad impact not only to their companies but also to the investors, communities at large and stakeholders. There are a number of examples of companies where failure of corporate governance has created huge liabilities for multi national corporations and their shareholders. A good example is company Enron, which provides a, famous example of methodical problems in a corporation that could have been tackled by advanced and improved corporate governance (Adams and Petrella, 2010). The current oil spill tragedy for BP Company also gives a very good example of problems associated with lack of using appropriate and strategic corporate governance practices. The global financial crisis is another good example of how the failure of executives and boards to manage and understand risks and uncertainties led to failure of governance with incredibly solemn consequences, not only for financial institutions and banks, but for national economies and individuals around the world (Williamson, 2003). Good corporate governance strategies are an essential part of business strategy and help firms and companies make good decisions. Policy makers have developed strong and a lot of interest in passing regulations and rules that make sure their companies adopt and use excellent corporate governance strategies and polices. This is because lack and failure of corporate governance can results to serious negative impacts that reach far past the firm or the company itself leading to methodical harm for national economies or even the worldwide economy. Many governments do not want to take the opportunity on allowing firms and companies to use good corporate governance strategies and policies (Ruggie, 2002). They are creating new regulatory frameworks to make sure that companies develop their corporate governance. Policy makers are identifying specific ways that multi national corporations need to do a superior job of corporate governance. They have been passing widespread laws on what corporations are expected to do to develop their ways of making decisions, give access and disclose to shareholders and stakeholders for some types of decision making. Globally, national regulators have received extensive and comprehensive mandates to expand new regulations and rules of improving corporate governance. Multi National Corporations are developing their own corporate governance processes and institutions, sometimes going far ahead of what are expected by law or what new regulations and policies will require (Hughes and Wilkinson, 2001). Many companies especially Multi National Corporations around the world never meet some of the basic necessities and yardstick for what the investors need in making decisions, in their investments. In some cases, multi national corporations have few policies and strategies on corporate governance, and if they do, there is no or there is little disclosure or transparency about what the policies are (Kell and Ruggie, 1999). The corporate governance problems can be experienced in countries where legal environment provides incredibly few corporate government strategies and practices, few shareholders right and few disclosure requirements (Rooney, 2010). These practices and policies create an environment where investors are unwilling and unable to invest in countries and firms with insufficient corporate governance policies and laws. GLOBAL CORPORATE GOVERNANCE PRINCIPLES AND IMPORTANCE In 1995, the international corporate governance network (ICGN) was founded at the investigation of financial intermediaries, academics, companies, represents investors, institutional investor as well as other interested parties in the development of global corporate governance strategies and practices. Through the accomplishment, of these strategies, companies can efficiently compete, and the economies can prosper well. OECD reports also present the ideologies that business are anticipated to operate to assure proper governance (OECD, 2009). Equitable treatment and rights of shareholders Firms, companies and organizations, are expected to respect the rights of the stakeholders and shareholders and assist them to exercise those rights (Buhmann, 2009). They should ensure that the shareholders exercise the rights through effective and open conversing and communicating information as well as engaging them in general meetings. This makes them fully aware that they are parts and parcel of the organization. When they are exercising their rights, they will get to know how they can increase their contributions or shares in the organization to better their shareholding capacities. The major strategic amendment to the core businesses of a corporation should not be made without aforementioned shareholders approval of the proposed changes (Baumann, 2010). Similarly, major corporate modifications, which may dilute the equity or wear away the economic wellbeing or share ownership rights of present shareholders, should not be made without earlier shareowner endorsement of the projected change. The shareholders should be given adequate information about whichever such proposal, amply early, to let them make knowledgeable judgment and apply their voting rights (Baumann and Scherer, 2010). Role and responsibility of the board The board should have relevant and sufficient skills, understanding and knowledge to challenge and review management performance (Byrd, 2009). It should as well have appropriate size and adequate levels of commitment and independence. Integrity and ethical behavior Reliability should be an essential requirement in selecting board members and corporate officers. Organizations, firms and companies are supposed to come up with a code of conduct for their executives and directors that promote responsible and ethical decision making. In a case of multi National Corporation, the board of directors and other managerial team members are responsible for setting the guidelines and strategies to be used by the stakeholders. This will be very useful and effective as it will lead to growth and expansion of companies (Baumann and Scherer, 2010). Shareholders will not demand anything beyond what they are supposed to be given. They will follow the policies recommended by that specific company, firm or organization. In addition, the firms should have stern and strict measures to the stakeholders who violate the rules and regulations of the company. They should be fined, sued, or even withdrawn to ensure smooth running of the company or organization. By so doing, they will learn to adhere to the rules and regulations. In simpler terms, multi national corporation discipline will facilitate to the growth and expansion of corporate governance. This will result to smooth and gorgeous management operations. Disclosure and transparency Companies, firms and organizations, should make openly and publicly known the responsibilities and roles of management and board to provide shareholders and stakeholders with enough accountability. There should be implemented procedures to safeguard and verify the reliability of the company’s or organization’s financial reporting (Bernhagen and Mitchell, 2010). Transparency and disclosure of material matters concerning the company, organization, or firm should be balance and timely to make sure that investors have access to factual or clear information. Transparency and disclosure of the company’s management roles to the public gives the potential and, existing investors enough guarantee to invest there. Everybody interested in the company gains confidence because he or she will note the areas that need improvement or are well managed. In large organizations like multi national corporations, investors are very prosperous people or firms (Gaffney, 2009). Interest to stakeholders Firms, organizations and companies should know that they have contractual, legal, market and social driven obligations to non- shareholders with inclusions of creditors, employees, investors, local communities, policy makers, suppliers and customers. It is the rights of the stakeholders to demand their transparency and accountability from the companies’ and organizations’ managers. Taking an example of Multi National Corporation, there are a lot of things (Sadler and Lloyd, 2009) that are gained when inventors trust is rebuilt. In order for them to gain the accountability and transparency, in involves detailed enhancement and reviews to existing governance frameworks and proactive engagement with the company’s shareholders. A Green Paper has been released in the EU. The paper launched a public consultation on possible ways forward to develop, improve and advance the existing mechanism of corporate governance addressing stakeholders and executing the ‘explain or comply principle’. The committee of European parliament, which is responsible, for monetary and economic affairs has currently responded to this and has gone, ahead to publishing its suggestion and suggestions setting out its ideas ahead of more formal proposals (Bitanga and Bridwell, 2010). Moreover, the EFAMA (The European Fund and Asset Management Association) has lately unveiled a code of paramount practice in corporate governance. It aims at promoting engagement between investee companies and investment management firms, and contains guidance on key areas including performance, company strategy, corporate social responsibility, remuneration and board construction. All the above strategies are meant to boost the stakeholders’ interest in Multi National Corporations because they will be fully engaged in the company’s management operations. The decisions regarding the future prospect, new practices and managements, will incorporate the stakeholders (Rieth, 2009). CONCLUSION Quite a good number of companies have failed due to lack of good corporate governance practices (Hall, 2007). Taking Enron Company as an example, one can effectively understand the importance of adopting good corporate governance strategies. Enron Company failed because of lack of using the appropriate corporate governance in their managerial activities. This results to doing of things without the necessary procedures. Another good example is BP Company. The stakeholders and other concerned managerial team lacked good corporate governance which resulted to oil spill tragedy. The tragedy posed a great risk to the company because it led to wastage of the company’s resources. It became impossible for the company to continue operating because what sustained them was not there. It can, therefore, be concluded that, lack of good corporate governance strategies and practices can lead to failure of multi national corporations (Runhaar and Lafferty, 2009). Corporate governance practices are crucial because they endorse excellent business practices, good opportunities and decision making for investors to make certain the integrity of their investment. Excellent corporate governance strategies are very important (Chen and Bouvain, 2009) to improving and developing good businesses and best businesses environment. Policy makers and multi national corporations are much interested in ensuring that excellent corporate government is widely adopted and is successfully institutionalized throughout the firm. Policy makers are identifying specific ways that multi national corporations need to do in order to adopt a superior job of corporate governance this is to be achieved using the current financial crisis as a catalyst. They have been passing comprehensive laws on what multi national corporations are expected to do to develop their ways of making decisions, give access and disclose to shareholders and stakeholders for some types of decision making. The dynamics of corporate governance is comprehensive and global, evolving hastily and will continue to impact businesses globally including promising markets. Multi national corporations in promising markets should be aware of the current changes and trends in corporate governance and make sure that they are up dated with what investors, businesses and governments are themselves promoting and implementing as good corporate governance. It is a fact that, the multi national corporations are capable of being leaders in adopting, promoting and implementing good corporate governance strategies and practices (Margolis et al, 2007). Multi National Corporations should identify the specific policies and requirements for the way corporate governance is developing, the practices and policies that are taken up as best practices, and diverse challenges and benefits in implementing these best stratagems in corporate governance (Deva, 2006). RECOMMENDATIONS Excellent corporate governance goes beyond the basic minimum of what the firms, companies organizations require to make decisions and form governance structure. Excellent corporate governance includes more stylish structure for developing decision making and forming avenues for shareholders engagement. These corporate governance techniques include how management is compensated or chosen, perfections in how boards are chosen or compensated, the level of information available to investors as well as the community at large, how firms analyze and identify risks including their disclosure, management and compensation issues, and providing rights for shareholders voting in the election of board. The current view is that, better placement of the interest of agent and principal of investors and managers, as well as other stakeholders, will result to better governance and steady financial systems. This will reduce problems associated to short term decision making and risks of ethical hazards. Compensation, which is linked, to long term performance will also be addressed and a solution found. Multi national corporations should seek expert aids and advises (Morgera, 2006) in order to improve the terms of reporting lines and reference and making organization changes make sure that, the board and the senior management have satisfactory experience and strength to oversee management of risk. Given the clear theme of corporate governance emerging across global regulation, the entire multi national corporation in the investment management sectors should take a hard look at their management and governance structures. They should review their business management as well as the management of investors’ money. Implementing good corporate governance may call for additional costs, but later when the economies revitalize, and the investments returns to growth, such strategies will be increasingly essential (Annan, 2005). The shareholders should be given adequate information about whichever proposals are recommended (Clapp, 2005) to let them make knowledgeable judgment and apply their voting rights. In addition, the major strategic amendment to the core businesses of a corporation should not be made without aforementioned shareholders approval of the proposed changes. According to McIntosh (2004), this will give incredibility to the shareholders, and they will feel that the organization is not for the board of directors but for them all. They will be certain that they are given opportunities to exercise their rights as stakeholders of the company. Proper procedures should be used to get right and qualified personnel to take the positions of the directors (Pouliot and Therien, 2004). They should have adequate skills and experience in order to handle their positions effectively. 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