Corporate Governance and Non-Executive Directors: A Good Start But Not Enough - Essay Example

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This study analyses the extent to which corporate governance issues had been resolved as a result of the greater role being played by non-executive directors. Parkinson was correct when he posited that the internal affairs of a corporation should not be insulated from regulatory intervention…
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Corporate Governance and Non-Executive Directors: A Good Start But Not Enough
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Download file to see previous pages According to the research findings it can therefore be said that the recession that has hit much of Europe and America and the widely-reported corporate scandals have highlighted the need to make corporate governance at the top of a company’s order of priorities and the overriding principle guiding its directors. The escalating protests in Wall Street in the United States demonstrate growing public outrage against corporate greed and white-collared crimes. In the United Kingdom, corporate scandals in the United States such as Enron, had at first been dismissed by the UK, believing at first that the mechanisms the latter had in place were enough to exact accountability from errant directors. However, this complacency had yielded when the revelations of corporate greed became more and more shocking. Public trust in capitalism had wavered to a degree heretofore unheard of and soon it became necessary for the UK to revisit its existing measures and determine if these measures were indeed enough. The UK government then embarked on a series of consultations, which resulted in reports that this paper will outline in greater detail later. The reports contained findings on problem areas in corporate governance and some prescriptions. By corporate governance, this paper adopts the definition in the Cadbury Report which defines the phrase simply as “the system by which companies are directed and controlled.” ...
by the Organisation for Economic Co-operation and Development (OECD) which states that corporate governance “involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders [that provides] a structure through which the objectives of the company are set and the means of attaining those objectives and monitoring performance are determined.” This paper will take on three parts. Firstly, it will discuss the contextual backdrop of the problem, specifically the gravity of the situation that warrants the need to create greater accountability measures against errant directors. Secondly, it will look at the policy prescriptions laid in place by the Cadbury report, the Greenbury report, the Hampel report and finally the Higgs report. Thirdly, it make reflections on whether or not the addition of Non-executive Directors (NED) can significantly help in promoting corporate governance. The discipline of directors In a company, virtually all policy-making is left in the hands of the Board of Directors or on the majority shareholders. While allowing directors to control business strategies has merit – for instance, decision-making is streamlined and businesses largely depend on the need to be able to respond to issues not only with soundness but also with dispatch -- some problems inevitably arise. Hence, the need to discipline errant directors has been discussed at length. In theory, a director, holding as he does a position of trust, is a fiduciary of the corporation (Dignam and Lowry, 2010). As such, in cases of conflict of his interest with those of the corporation, he cannot sacrifice the latter without incurring liability for his disloyal act. The fiduciary duty has many ramifications, and the possible conflict of ...Download file to see next pagesRead More
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