Principles of the Governance of Corporations - Essay Example

CORPORATE GOVERNANCE By {Name} Class Instructor Institution Date CORPORATE GOVERNANCE a) Introduction Corporate governance is the association of different sets of laws and regulations, well-established procedures as well as regulations and the implicit rules which act as a guideline for a company to perform efficiently with minimal hitches. Corporate governance helps a company to establish a long-term connection with different stakeholders and at the same time consider widely the interests of all other stakeholders associated with the enterprise who include the buyers, the government and the immediate society related to the company (Rahman et al. 2008). Financial institutions involved in lending money to companies use the aspects of corporate governance as an element to consider before proving any exposures to a particular corporate. Corporate governance extends the elements of transparency and fairness in an organisation regarding operations and relevant disclosure issues as years go by for an organisation. With growth in many companies and corporates in a global capacity, corporate governance is an important feature for the institutions to maintain sanity and compliance with laws and regulations. For businesses to operate efficiently, the board members need to organise effective measures to ensure corporate governance is effectively implemented in the enterprise (Maletta et al. 2004). Companies as businesses have become more evident in the global perspective and therefore the importance of corporate governance is important in the long run. Through a diverse embodiment of the statements of operations and code of ethics, the shareholders and stakeholders in an organisation have a responsibility to confirm what is to be implemented and what is not. There are diverse mechanisms through which corporate governance can be successfully implemented. Corporate governance also provides a distinct structure for the achievement of the goals set by a company through various management design and implementation of the action plans and embodiment of the internal controls of a company relating to the performance measurement and the disclosure of the corporate issues (Rahman et al. 2008). b. Body Stakeholders’ interests In the embodiment of the business corporations, the primary stakeholders in an organisation include the buyers, debtors and creditors, the supply chain for the company, the immediate community where the corporation is located and the government through adherence to laws and tax compliance (Maletta et al. 2004). The internal stakeholders for a business corporation include the board members, the employees of the organisation and the executive members of the group. The interest and concerns of the corporate governance perspective of an organisation involve a diverse strategic move for solving the conflicts of interests which exist or might emerge in the stakeholders at large (Harford et al. 2012). In many large companies, the separation of ownership involves a corrective measure of control of the shareholders and developing a separate control of the management strategies and division of the upper executive members as well as the stakeholders and board of governors for a particular corporate. Apart from the shareholders having a role in the management of a company under the jurisdiction of the shareholders. Further, the board members are also responsible for ensuring control is implemented effectively (Baysinger et al. 2010). The aspects of involving the public in contemporary debates and diverse development agendas in the implementation of the regulatory policies both at the capacity of the company and the regulations of the law. The solutions towards the preventions of the conflicts of interests involve a diverse strategic move involving procedures and customs regulations which are crucial in determining how a company is controlled and developed for implementation of the goals of the company effectively (Harford et al. 2012). For the aspects of corporate governance to be successfully implemented, the extent to which corporate accountability is determined is crucial towards ensuring that the policies and measures towards implementation of laws are well considered (Girasa 2015). The application of the issues of corporate governance and developmental agendas are all intertwined in the economic efficiency of the company with a consideration of the importance of all the stakeholders as well as their welfares (Krishnan 2005). For this to be properly implemented, a different economic analysis is necessary for the literature of the corporate governance to be analysed and applied as per the dictation of the visions and goals of the corporate (John 2009). Principles of corporate governance The implementation of corporate governance is dependent on the instructions and transcription of three documents which were implemented and put in action since 1990 to date. They are; The Cadbury report which was implemented in 1992 in the United kingdom Principles of corporate governance which was implemented in three phases from1999 to 2015, and it is also referred to as the OECD (Organization for Economic co-operation and development). Sarbanes-Oxley Act implemented in 2002 by the United States of America corporate development team. Cadbury and OECD events dictate the overall guidance measures and the principles which each and every corporate is supposed to follow for the governance process to be considered as successful. Sarbanes-Oxley Act is a development by the US legislature which intends to guide corporates towards the expressions of the Cadbury and OECD directives in corporate governance (Krishnan 2005). The principles in the three reports indicate a diverse set of requirements for the operations and implementation of laws and regulations. a) Equal treatment of the shareholders and adherence to corporate rights The principle requires that every organisation should ensure the rights of every shareholder are well considers, and the company should take a step in ensuring the shareholders are aware of the rights and they exercise them effectively (Shleifer & Vishny 2007). The organisations are required to effectively implement this principle by ensuring the shareholders receive all the appropriate information and ensuring that the shareholders have the freedom and the will to engage in the general meetings (Rezaee 2005). b) Advocacy on the interests of the stakeholders Corporates are required to follow the legal specifications and corporate obligations to develop the interests of other stakeholders who are not primarily shareholders to the organisation by recognising their interests and developments in the structure (Rahman et al. 2008). The stakeholders include the employees of the corporations, the debtors and the creditors, clients or customers, the general community where the business is located and the policy makers in the particular region. c) The execution roles of the board members Each and every member of the board should process relevant skills required in corporate governance to be able to challenge any set of the decision made by the management as well as the policy makers in the organisation. The board should further have an appropriate size and a significant aspect of independence in the execution of agendas and show proper commitment to the institutions. d) Implementation of integrity and the ethics in the corporate Implementation of integrity should be essential in the choice of the officers in charge of control and the selection of the board members to run corporate governance in an organisation (Baysinger et al. 2010). The corporate is supposed to come up with a code of conduct, and practise regulations which are executable by the board of directors and the systems should act a guideline in developing a responsible behaviour of the business and good decision making in the organisation (Phelps 2003). e) Disclosure aspects and levels of transparency The body should develop a platform where the public is made aware of the responsibilities given to the board members and the management team (Rezaee 2005). The organisation has the mandate to ensure that the implementation process is open and ensure that the financial statements of the corporate are implemented by the plan (Anderson 2003). The exposure and delivery of the company’s materials should be done in an organised and timely way to ensure that the investors have a clear information access and on an equal time basis. Models of Corporate Governance Corporate governing is implementable on a variety of strategies which can differ from one organisation to another on the capitalist policy. One of the models used in corporate governance is the Anglo-American model which associates most of the interests of the organisation to the shareholders (ACG council 2007). Another model is the multistakeholder model which I a regional model of governance and includes the interests of the workers, customers as well as the extended stakeholders both internal and external. Continental Europe model In this model, the regional countries use the strategy of corporate governance ruled by a two-tiered management team involving the board of directors (Mickiewicz 2006). In this model, the administration of the company is run by the governing council which comprises non-executive directors separated from the organisation (Rezaee 2005). The board is responsible for hiring and sacking of the members of the board, and it is responsible for determining the compensation and other benefits for the members while making the majority of the decisions made by the business through peer review of the strategic decisions and directives by the firm. Anglo-American model The design puts more emphasis on the interests of the shareholders in corporate governance. The model entirely depends on a single tier as compared to the continental Europe model (Phelps 2003). The single-tier directors are controlled by a set of non-executive directors who are only selected by the dominant shareholders in a company (ACG council 2007). Due to the singularity of the operation methods, the method is referred to as a unitary system, and the members of the organisation do not have the power to question the decision of the governance by the single-tier board members. Codes and Conduct Guidelines in Corporate Governance The principles which guide the development of corporate governance are different from one country to another, and the corporations, as well as institutional investors, are responsible for developing the code of conducts and guiding principles (Shleifer & Vishny 2007). The laws are regulated by the development of stock exchange, and the institutions are supported by international organisations or the local government (Brennan 2008). According to the law, the compliance of a corporate the stipulated directives recommends that the governance strategies are not specified by the law but the codes stipulated through a thorough analysis of stock exchange should follow the listing requirements and instructions and the resulting effect develops a coercive development in governance. a) The organisation for economic co-operation and development principles OECD is a principle of corporate governance which has gained influence since it was first developed in 2009. The laws involve local codes being drawn up for a country or particular regional area (Kim 2010). The private sectors have also joined hands with a variety of international organisations to promote a different accounting and reporting developments for the implementation of corporate governance codes. The benchmarking process involves a different set of disclosure items which are distributed in 5 sectors which are; Auditing process for the company The structure of the management team and the board members Responsibilities of the corporate development as well as compliance strategies The financial credibility of an organisation as well as consistent disclosure of information The ownership strategies, structure development and control of the rights involved. The guidelines stipulated in this principle complement each other with the stipulation of the state-owned enterprise regulations and directives. b) Listing standards involving development of stock exchange The companies in a global capacity which are contained in the stock exchange rules are required to adhere to a particular set of corporate governance codes (Brennan 2008). The stipulations in the principles involve directives about independent directors, board meetings which stipulate the management strategies, the definitions of the requirements of a charter and the responsibilities of the board members and company performance. C. conclusion The expression of corporate governance by a company depicts the image regarding the reliability of the company, integrity factors and the relationship of the enterprise with the stakeholders. Excellent financial analysis and governance can result to scandals such as the scandals with Volkswagen Company in 2015 which was as a result of poor management in the corporate (Kim 2010). Ignorance of factors such as audit strategies can lead to a non-compliance regarding financial analysis and shareholders integrity. With an ineffective strategic decision of developing well-structured arrangements and sound corporate finance gives a company failure to comply with the expressions of whatever model is used by a corporation in governance (Maletta et al. 2004). Implementation of a transparent system of corporate governance results in a diverse level of corporate governance strategies which ensures that the incentives are aligned with the goals of the company. Any shareholder holds the interest of the business not on the profit basis only but a good image related to diverse measures of corporate governance and corporate citizenship. References Anderson, D., Francis, J.R. and Stokes, D.J., 2003. Auditing, directorships and the demand for monitoring. Journal of Accounting and Public Policy, 12(4), pp.353-375. Baysinger, B. and Hoskisson, R.E., 2010. The composition of boards of directors and strategic control: Effects on corporate strategy. Academy of Management review, 15(1), pp.72-87. BRENNAN, N. (2008). Corporate governance and financial reporting. Los Angeles, SAGE. Council, A.C.G., 2007. Corporate governance principles and recommendations. GIRASA, R. (2015). Corporate governance and finance law. [Place of publication not identified], Palgrave Macmillan. Gramling, A.A., Maletta, M.J., Schneider, A. and Church, B.K., 2004. The role of the internal audit function in corporate governance: A synthesis of the extant internal auditing literature and directions for future research. Journal of accounting literature, 23, p.194. Harford, J., Mansi, S.A. and Maxwell, W.F., 2012. Corporate governance and firm cash holdings in the US. In Corporate Governance (pp. 107-138). Springer Berlin Heidelberg. Hassan Che Haat, M., Abdul Rahman, R. and Mahenthiran, S., 2008. Corporate governance, transparency and performance of Malaysian companies. Managerial Auditing Journal, 23(8), pp.744-778. JOHN, K., MAKHIJA, A. K., & HIRSCHEY, M. (2009). Issues in corporate governance and finance. Bingley, Emerald Group Publishing Limited. KIM, K. A. (2010). Corporate Governance. London, Pearson. Krishnan, J., 2005. Audit committee quality and internal control: An empirical analysis. The accounting review, 80(2), pp.649-675. MICKIEWICZ, T. (2006). Corporate governance and finance in Poland and Russia. Basingstoke, Palgrave Macmillan. PHELPS, E. S. (2003). Needed mechanisms of corporate governance and finance in Eastern Europe. London, European Bank for Reconstruction and Development. http://books.google.com/books?id=z-clAQAAMAAJ. Rezaee, Z., 2005. Causes, consequences, and deterrence of financial statement fraud. Critical Perspectives on Accounting, 16(3), pp.277-298. Shleifer, A. and Vishny, R.W., 2007. A survey of corporate governance. The journal of finance, 52(2), pp.737-783. Read More