Corporate Governance Has Evolved Significantly since 1990 - Case Study Example

CORPORATE GOVERNANCE HAS EVOLVED SIGNIFICANTLY SINCE 1990, PARTICULARLY IN RESPONSE TO CORPORATE SCANDALS Introduction Significantly, corporate governance is one of the important aspects of organizational management in the business world; naturally, it entails the strategies, approaches and techniques that corporations apply as part of controlling and directing the different activities. Governance bodies dictate the dissemination of rights and role of the dissimilar parties in an organization from the top-level management to the subordinate staff members; additionally, this also affects even external parties such as suppliers, shareholders etc. Typically, corporate governance creates the basis for making decisions in an organization through setting different rubrics and measures relative to these affairs (Half 2014). Today, most management teams rely on corporate governance for everything including setting organizational goals and countering issues on the society, regulation and market atmosphere. Relatively, corporate governance practices are essentially effective because they advocate on the monitoring of every activity, dogmas and pronouncements of organizations and their proxies; the main reason why most of the leading organizations give it ample attention. Additionally, it is only through corporate governance that businesses can manage to meet every interest of the organization’s investors. Corporate governance has had an interesting history and in the 21st century, almost all corporations go to great lengths to make sure that it is part of their practices. Essentially, corporate governance practices mostly apply in making sure that organizational members comprehensively understand their responsibilities and can account for any problems during their watch. Principally, corporate governance practices attracted the attention of most corporations over a decade ago when a significant number of organizations collapsed. Resolutely, corporate scandals take most of the credit for the accelerating focus on the regulation of corporate governance for political organizations, corporations and the society, at large. Definitely, a significant number of scandals form the basis for the development of corporate governance with the most affected places being the United States United Kingdom, Australia, Japan and Italy (BIS 1994). With big corporations such as Enron failing in multiple facets of management and other organizational processes, corporate governance has evolved in a great way even from scandals that happened before. Decisively, this essay in a comprehensive exploration of how corporate governance has evolved for the past 25 years through the evaluation of major scandals that augmented the need for its practices. Moreover, the corporate scandals apply in supporting the different arguments and notions in the discussion part of the essay; typically, they put clarity and succinct in them. Discussion Significantly, the United Kingdom is among the leaders of the global economy and it is no surprise that they have made substantial impact on corporate governance in the European Union and the United States. On the matter of corporate governance, the UK is popular for its governance code that initiated as a number of principles dictating excellent corporate governance for corporations under the London Stock Exchange (LSE). The Financial Reporting Council oversees everything concerning these codes and regulations mostly by listing rules in the Financial Conduct Authority (Lowe 2014). Over the years, the FRC has made major contributions to making sure those companies in their jurisdiction make the best out good corporate governance and many of them agree that it is to an extent very beneficial. However, even with this in place, the United Kingdom still faces multiple corporate scandals each year and critics argue that the UK codes of practice and policy recommendations, first published in 1992, facilitated most of these corporate shortcomings. This might be due to the different harmful practices that management teams and organizations engage in under the protection of the UK Corporate Governance Code and Regulations. Firstly, it is clear that the rules have to get authority from the state according to an act published in 2000; secondly, dissimilar companies must comply with the code or explain why it is not applicable before FRC includes it in their listing. Relatively, this justifies the whole process of making corporate governance rules and the comprehensive foundation of the Financial Conduct Authority’s Listing Rules. Moreover, FRC does not restrict the regulation to parastatal; they also encourage incorporating them in private companies’ plans but it is not mandatory. Conversely, the code espouses a methodology that advocates for principles by providing general guidelines on what is best for the corporations to apply as governance practices (FRC 2014). Definitely, this is contrary to the approach based on rules that everyone must follow without any exceptions making the whole code seem as a form of assistance. Accordingly, there has been significant influence by UK’s FRC through the corporate governance code that has raised the state profile and accountability. Most of the Listing Rules reflect on scandals that happened before FRC took that particular initiative, an orthodox approach to economic issues; however, the corporate system still has faults in governance. In 2012, the United Kingdom had a significant number of corporate scandals, most of which were pinned on economics; however, a critical analysis of most of these situations shows that management (governance) is the key facilitator. Most of the losses that corporations in the UK face result from demoralized and subcontracted employees, consumers sold the wrong products misused contractors and wasted novelty. Moreover, this was not only common in 2012 as varying reports from 1980 and 2008 still display the same (BIS 1994 &KCG 2015). Compared to 2012, 2008 was more successful with the UK economy achieving a profit target set 30 years before but most people consider this achievement as a figment mostly because the scandals that followed unquestionably cancel the illusory profits. Benefits of UK Codes of Practice and Policy Recommendations In a corporate environment, the board of directors is similar to a cabinet of government officials in the aspect that their selection bears a lot of significance; however, shareholders do not give these elections the necessary responsiveness. In the United Kingdom, the corporate governance code and regulations counter this by creating a relationship between both parties requiring them to communicate regularly (FRC 2014). This way the shareholders are even able to track the movement of funds contributed to the corporation. In many states, this is a problem with groups of shareholders filing lawsuits under fraud allegations from different corporations; however, the codes of practice and policy recommendations in the UK countered it. Essentially, corporate governance practices are only effective when the management teams and stakeholders have a strong bond; nonetheless, many corporate scandals bring to light that shareholders lack essential information about their organization, especially anything to do with the board of directors. In fact, some do not know the number of directors. Naturally, shareholders think that their only role is giving the corporations funds and wait for the end of the year to receive a report. Shareholders perceive connecting management teams as a waste of time and distraction from all the financial gains that come with their core role; however, there is no way that they can participate without the directors advocating for it. Shareholders can contribute to and influence corporate governance just as much as all the other parties involved, which is a factor that FRC insists on through the different regulations and laws (Half 2014). This has extensively contributed to the increased development of corporations under the LSE and prompted the board of directors and shareholders to understand their roles clearly. Definitely, most people are not aware that the board of directors influences funds from investors in a vast way; in fact, their corporate practices dictate their failure and success. However, shareholders and other investors overlook the fact that they also have intense actions that could apply in making the best out of what they give to the corporations. For most states, such negligence from investors and other significant parties leads to multiple corporate scandals just like the British Bank Hijinks the UK and US faced before FRC’s revision of corporate governance code in late 2012. Consequentially, HSBS paid up to 2 billion dollars because of earlier claims on money laundering; obviously, this attracted a lot of attention and after thorough investigation, the Standard Chartered Bank faced similar allegations (4 News 2012). According to different reports, the bank had links with the government of Iran with more than 150 billion euros worth of transactions. Consequently, this corporate scandal involved four large banks and there was a lot of internal heat because some people in governance did not know anything about these funds yet there was evidence partly supporting the claims. According to statistics, most corporations only communicate with their investors during AGMs and media conferences, matter of fact, it is limited contact because the reports and newsletters are the medium of communication. Unfortunately, corporations lack forums where the shareholders get information on the board of directors or any other management teams. Appreciably, corporate leaders have annual shareholder meetings but very few investors attend because these gatherings lack crucial agendas. Substantially, this issue has a great deal of weight but the United Kingdom corporate governance code, through the development over the years, has been able to counter most of its facets. Obviously, different people have criticized the matter, especially for the British Banks situation two years ago but it is evident that today, corporations comprehend it in length. A good way to support the contribution of FRC is the UK Stewardship Code that entails standards that investors can adapt a part of monitoring and communicating with corporations. Typically, this has improved the eminence of discourse between shareholders and corporations as way of improving prolonged peril-attuned yields to investors (Cara 2011). Additionally, FRC, through the Stewardship Code gives different aspects of decent exercise that corporate stakeholders should apply as the basis of giving out their best to the companies. Definitely, the UK Stewardship Code is a ‘comply or explain’ initiative like the primal one hence those corporations that fail to integrate it have no one to blame. Noticeably, this is an example of the many advantages that result from the UK Corporate Governance Code; in fact, the Stewardship Code has every shareholder more answerable to their clienteles and legatees, on top of helping the corporations. Considerably, to add on to the merits, the FRC ensures gives out a sequence of regulation summaries that prepare corporations for different issues that face governance and culpability. Essentially, these guidance notes help different personnel in corporate governance from the board efficiency, managing risks, compressive control and assessment. Criticisms on UK Codes of Practice and Policy Recommendations As much as the codes of practice and policy recommendations have aimed at making the best out of corporate governance, it still has significant faults; however, these failures are mostly by corporations, the FRC has done enormously to achieve its part. It no news that corporate scandals contribute greatly to the evolution of corporate governance in the UK and other places hence the general perception is that they are the basis of most set regulations. All the same, the UK economy still faces scandals that require the development and revision of some regulations and rules by the FRC; conversely, this indicates that they are not utterly effective on corporate governance. Secondly, some regulations and laws improve particular aspects of corporate governance and negatively affect others simultaneously. For instance, multiple news reports on fund parties that refuse to give information on their finances unlike in the past, where corporations could give sufficient information without any hassles. The Regulation Fair Disclosure restricts giving out such information, typically, any non-public material before following the right corporate procedures that allow its disclosure (Fraser 2012). In other situations, the board of directors uses it as an excuse to not communicating with stakeholders; openly, this brings more bad than good, as most critics would argue. Nonetheless, ample evidence supports these complaints because some corporate leaders appear to be overlooking questions, especially those from the media. There is no way to know if it is intentional or if that particular information is non-public, which the law prohibits. Typically, the UK Corporate Governance Code affects the transparency of corporations to a particular extent, not just in withholding sensitive information, but also in a number of ways that critics voice in their articles, reviews and blogs. Late last year, the FRC produced a rationalized version of the UK Corporate Governance Code that also had a feedback section, which most critics were eager to look at. Unfortunately, the FRC did not address some of the critical and more appealing issues in corporate governance; in fact, most of the information focused on matters affecting the European Union rather than UK itself. In mid-2012, Barclays’ personnel were involved in another corporate scandal involving top-level leaders suspected of corruption; it was very humiliating for the United Kingdom because everybody started to question the competence of the major financial institutions in the state (4 News 2012). Accountability was the key factor identified to be missing because there was no one to answer how and why it happened. According to the director of the Transparency Commission of UK, the scandal was a clear depiction that corporate governance requires multiple reforms. Typically, this is an example of the multiple failures in corporations that are unable to liberate a candid accountability to society through acts such as leaders determining their own remuneration, corporations avoiding tax and putting profits before people. Additionally, auditors do not take their responsibilities seriously hence affecting their effectiveness; finally, even with the communication between management teams and leaders, some stakeholders still lack the required interest, especially in corporate governance (Cara 2011). Conclusion Nonetheless, different people have varying perspectives on matters such as this, especially on economic statures; definitely, without criticisms, complaints and negative statements, most of the good works and deeds would never happen. Appreciably, the United Kingdom has made its mark on the global economy in other commendable ways in areas such as exports/ imports trade, the labor market among others and in spite doing the same for corporate governance, there are situations or conditions that support criticisms by economic specialists that write influential papers on every regulation that FRC lists (Fraser 2012). Relatively, effectual corporate governance is not only about implementing the right strategies or having excellent approaches for countering corporate challenges. Due to the multiple advancements since 1990, the United Kingdom corporations insist on implementation of more investor-responsive policies, especially as initiatives from fund’s directors. This emanates from the fact that most corporates experience indignities because of lack of communication and distant relationships among personnel in authority. Generally, this is just one of the different ways that corporate governance has developed due to the influence from the UK Code of Practice and Policy Recommendations. On the other hand, corporate leaders are taking advantage of the different regulations for individual benefits or those of the corporation. Typically, the different rules and regulations set by FRC should also cover these areas; moreover, they should utterly advocate for transparency to make corporate governance practices effectual to the corporation and society. Accountability is the key aspect that lacks from corporate responsibility as of today, because even when corporate leaders determine their own remuneration or avoid taxes it is because none of them would be answerable. Assertively, UK Corporate Governance Code is a good example for other states to adapt in making the best out of corporate governance but FRC should revitalize the institutions of democracy through reforms of the current system. Bibliography Bank of International Settlements (BIS), 1994, ‘Corporate Governance in an International Perspective: A survey of Corporate Control Mechanisms among Large Firms in the United States, United Kingdom, Japan and Germany’. Viewed 21 January 2015, http://www.bis.org/publ/econ41.htm Cara, E. 2011, ‘Good Corporate Governance Benefits to Shareholders’: Morning Star, viewed 21 January 2015, http://www.morningstar.co.uk/uk/news/68705/good-corporate-governance-benefits-shareholders.aspx Financial Reporting Council (FRC), 2014, ‘Corporate Governance and Stewardship’, viewed 21 January 2015, https://www.frc.org.uk/Our-Work/Codes-Standards/Corporate-governance.aspx Fraser, I. 2012, ‘Britain’s Corporate Failures Invite to a Governance Revolution’: Shredded, viewed 21 January 2015, http://www.ianfraser.org/britains-scandalous-corporate-failures-invite-a-governance-revolution/ Half, R. 2014, ‘Corporate Governance- Developments in the UK’: Chartered Institute of Management Accountants, viewed 21 January 2015, http://www.cimaglobal.com/Thought-leadership/Research-topics/Enterprise-governance-restoring-boardroom-leadership/Corporate-governance-developments-in-the-UK/ Kingston City Group (KCG), 2015, ‘Corporate Governance Developments in the UK’: Journal of Accounting and Finance, vol.3, no.2, pp.119-120 Lowe, S. 2014, ‘Brief History of UK Corporate Governance’: Grant Thornton viewed 21 January 2015, http://www.grant-thornton.co.uk/en/Thinking/A-brief-history-of-UK-corporate-governance-animation/ 4 News, 2012, ‘British Banks Hijinks’: Top UK Business Stories in 2012, viewed 21 January 2015, http://www.channel4.com/news/top-uk-business-stories-2012-scandals-and-highlights Read More