Relationship between Law and Corporate Governance - Assignment Example

Corporate Governance number: Word count What is it? (150 words) Corporate governance refers to the practices and rules by the board of directors to ensure fairness, accountability and transparency in the firms relationship with all its stakeholders. The stakeholders include customers, financiers, employees, management, government and the community. 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 interests in accordance with their privileges, duties, and roles. The framework also contains the procedures for proper control, supervision, and information flows which are ought to serve as checks and balances system. Corporate governance provides a framework for attaining the objectives of the company. It makes it encompass practically every sphere of management, from internal controls and action plans to corporate disclosure and performance measurement. Most firms nowadays strive to have a high degree of corporate governance (Solomon, 2004). Most companies no longer desire to be only profitable but also demonstrate perfect corporate citizenship through ethical behavior, environmental awareness, and sound corporate governance practices. 2. Why is it important? (200 words) Corporate governance helps in streamlining processes and guides in giving people accountability. Corporate governance helps in the process of decision making. One of the primary goals of corporate governance is to explain clearly to the stakeholders, the board, and the shareholders what their responsibilities and duties are within the company. It becomes easier for the people within the firm to understand whatever they are accountable for, after understanding their duties and responsibilities. If the board has the responsibility for proper evaluation of the management of the company, then they are held accountable for it. If the companys management is poor, then the board is held accountable because it is its role to evaluate the management of the company (Sheikh, 1995). The blame will thus not be transferred to other members of the corporation and in this case the blame will be with the board. It thus helps in preventing situations in which there are no ways to know the accountable people for whatever actions. Accountability helps in decision making within the company setup. Accountability helps in finding out about who should get an acknowledgment for the good work done in their respective fields and who should get punished for the mistakes they have made. With good corporate governance structures, it is easier to understand what the key members of the business are ought to do. 3. What are the key laws that govern the field in Australia? (200 words) According to ASX Corporate Governance Council’s Best Practice Australian laws, all company boards have the responsibility of having functional audited and financial committees, with independent directors and also accounting and internal review standards. As per the ASX Corporate Governance Council’s Best Practice recommendation 2.3, the chair and the CEO should be separated. The ASX Corporate Governance Council’s Best Practice recommendation 2.1 indicates that independent directors should be a majority, and the chair should also be independent. As per the ASX CGCBPR 8.1, each firm must have a remuneration committee with an independent director as its chair. The committee must at least have three members, and the majority of the members are to be independent. According to the ASX CGCBPR 4.2, the minimum number of members of the audit committee should be three, with a majority of them being independent. The committee should be chaired and led by an independent director. The director must not be the chairman of the company. According to CA 2001 section 203D, for a public company, a meeting must be conducted with a two months notice where the company directors have the right to voice their opinions. According to the CA 2001 s 201H, the public company directors can manage the appointments of other incoming directors. 4. Discuss the relationship between law and corporate governance? (300 words) The laws developed and formulated should offer recommendations on the practices of corporate governance that promote accountability. The laws also set rules and regulations that ensure uniformity in corporate governance practices across all companies. The laws put in place provide guidelines for good corporate governance practices to be adopted by all the entities under the jurisdiction of the laws. The laws promote confidence among the investors and also guides the entities in meeting their expectations. Additionally, the laws guide the entities in determining the best practices of achieving good corporate governance. The laws will require that the company must benchmark their practices of corporate governance with the recommendations put in place by the council and in Australia. The recommendations will assist the company in knowing their conformity status in disclosures and the reasons behind the disclosures. The laws also encourage listed companies to adopt the recommended practices of the council (ASX in Australia). The laws also provide a listed company with the flexibility of adopting alternative practices of corporate governance. The alternative corporate governance practices can only get adopted if the board of the company considers to be more suitable to the particular circumstances. The adoption must also be subject to the requirement that the board must explain the reasons behind the adoption of the alternative corporate governance practices. Corporate governance has become a global force going beyond borders. Its global nature requires that there must be laws that govern it. Most of the institutional investors that played a bigger role in changing the way Australian companies get governed have over the past become global investors. The investors are demanding higher transparency and laws into the corporate governance system. It is to help protect their investment from poor governance and thus laws are important to regulate corporate governance. 5. Who are the key bodies that enforce Governance in Australia? (150 words) The main body that enforces corporate governance in Australia is ASX. The council accepted the leadership role in the year 2002 when it convened the ASX Corporate Governance Council. The councils main task remains bringing together various shareholder, business, and industry groups. Each category of groups offers valuable expertise and insights on corporate governance issues from the point of view of their particular stakeholders. The council operates under a charter adopted in the year 2012 (Milhaupt, 2003). Other than ASX Corporate Governance Council, there are other corporate regulators in Australia. They include the Australian Securities and Investments Commission (ASIC), the Australian Consumer and Competition Commission (ACCC), and the Australian Prudential Regulation Authority (APRA). These entire regulators establishments relied on their different acts 6. Provide two media articles that are examples of good corporate governance in Australia? http://www.business-standard.com/article/economy-policy/corporate-governance-our-rules-here-are-actually-among-the-global-best-114112500052_1.html https://www.professionalplanner.com.au/cut-and-paste/2014/12/07/fsc-statement-on-the-financial-system-inquiry-report-33073 7. What are the benefits of good corporate governance in an organization? (350 words) Several studies, both in Australia and abroad have indicated that investors and markets take notice of those companies that are well managed and that have a better response to investor and market changes. All those companies have a better corporate governance system which gives the management and the board sufficient freedom of gearing decisions towards company progress. The sufficient freedom will also allow the board and the management to increase their innovative capacity while remaining within the same accountability framework. The current world is global; the corporations and all global companies need to access the global capital pool as well as retaining and attracting the best human capital around the world. Under the scenario, a corporation will only succeed if it embraces corporate governance. Good corporate governance procedures offer credibility that helps to maintain investor confidence in both the domestic market and foreign markets. It will thus help the corporation to attract capital and thus an easier way of inducing capital financing. A corporation is a congregation of different stakeholders that include employees, customers, vendor partners, investors, the community and the government. Cooperation must exist among all the stakeholders for the company to grow. It will require that a corporation will have to be transparent and fair to all its stakeholders in all its transactions with the stakeholders. The corporation has to adhere to good corporate governance practices. The operational performance of the firm gains added value of good corporate governance of the firm. It will improve the strategic thinking of the top management by inducing independent directors who bring in new ideas and experience. Good corporate governance will also help operational performance by rationalizing the management and constant risk assessment and monitoring that a firm may face in the global market. Good corporate governance will also help in assuring the integrity of financial reports. The operational performance will also be improved by limiting the liability of directors and top management by the procedural articulation of the decision-making process. Good corporate governance will also offer a long term reputation effects to the company and to all its stakeholders. 8. Provide two media articles that are examples of bad corporate governance in Australia? http://www.brisbanetimes.com.au/rugby-league/league-news/we-are-all-equal-but-some-clubs-are-more-equal-than-others-20141205-120wak.html http://www.lexology.com/library/detail.aspx?g=3072fb29-61e5-47bd-aff7-fa12ccaa398b 9. What are the consequences of bad corporate governance in an organization? (350 words) Ineffective corporate governance can have negative effects on the confidence of shareholders by making them aware that the firm they have invested their money is not internally organized and thus not making smart decisions. Investors are likely to shun the company because an ineffectively governed company can make them have a negative return on their investment. Investor withdrawal can lead to decreased market confidence on the firm, and that will lead to decrease in stock value. When the stock value of a company drops, its overall value also drops. As the value of the company reduces, its ease in generating capital also reduces thus reducing its aim of sustainable growth. Bad corporate governance can have a negative effect on business growth, making it harder for the company to acquire funds for launching new products or acquiring new territories (Kim, 2007). Investors will shun the company because extending funds to a poorly run company with insecure infrastructure will be unnecessary for making smart financial decisions. A company with bad corporate governance strategies can have a negative influence on the larger economy and specifically for the business market. Lack of an effective corporate structure at the management and the executive level can make it difficult for the company to realize its financial obligations and thereby lowering its overall value (Mallin, 2004). Such cases were evident in the 2009 economic crisis when poor corporate governance leads to cascading failures in the automobile markets and the real estate industry. It caused mass job layoffs and the economy in the industries was slowing. Corporate governance strategies have impacts on the public perceptions of a company. A company with little concern on the impacts it poses to the environment emanating from its business practices can generate a lot of distrust from the public. Additionally, a company that does not care about the impact it causes on the health of its stakeholders can also be shunned by its clients. The distrust can also manifest itself in increased monitoring by the government. The increased oversight of the company by the government can lower public faith in it, and it has to invest a lot to make ensure that it adheres to the rules being monitored. 10. Locate the website for a Western Australian organization with a corporate governance program in place. Analyze the corporate governance program they have in place and explain what tools and resources they use to try and enforce good corporate governance. (400 words).(Talk about the policy of Navitas Ltd - http://www.Navitas Ltd.com) At Navitas Ltd, it is the role of directors to determine on all the matters relating to the institution’s strategic direction. The board is also the sole body that determines policies, academic quality and governance, management, practices and operations of the institution. The function of the board is to protect the interests and ambitions of its shareholders and other stakeholders of Navitas Limited. The other stakeholders include the employees, partners, and students, and aimed to create value for all the stakeholders. Navitas Ltd also adheres to the Corporate Governance Principles and Recommendations put in place by the ASX Corporate Governance Council, which articulates the core corporate governance principles which are eight in number. Navitas Ltd provides a report in its annual financial books that discloses the extent to which it has followed the recommendations put in place by the council in that specific reporting period. It also discloses the facts as to why it has not followed any of the recommendations of the council with the reasons that led to the departure from the recommendation. Navitas Ltd also discloses specific information in its annual report’s corporate governance statement as per the number of the recommendations of the council. The corporate governance statement of Navitas Ltd is structured with reference to the recommendations and principles of the council. The following are the principles followed by Navitas Ltd: Principle 1 Lay solid foundations for management and oversight Principle 2 Structure the board to add value Principle 3 Promote ethical and responsible decision-making Principle 4 Safeguard integrity in financial reporting Principle 5 Make timely and balanced disclosure Principle 6 Respect the rights of shareholders Principle 7 Recognise and manage risk Principle 8 Remunerate fairly and responsibly The corporate governance statement of Navitas Ltd also discloses the details of compliance of Navitas Ltd. Details of Navitas Ltd’ compliance with the Recommendations for the year ended 30 June 2011 is disclosed in this statement. Navitas Ltd is also reviewing its current policies and position that relate to the key areas of the amendments done to the recommendations by the ASX Corporate Governance Council. The amendments that were implemented by Navitas Ltd include the board selection processes and gender diversity. It is reviewing its policies with a view of implementation of the amended recommendations soon as possible before the changes come into effect. Therefore, it does this to avoid any penalties that will emanate from it. 11. Summarize a media article about future corporate governance trends. (Ensure you have your article approved by your lecturer before the assignment is submitted). (150 words) Privatization and Corporate Governance: Principles, Evidence, and Future Challenges. All countries including developing countries must embrace corporate governance. Embracing privatizations is unlikely to give the benefits that improve performance with accountability. Accountability is very important in the growth of any institution. The article conceptualizes the governance chains concept that has been proven to constrain the grabbing hands of private and public actors with the provision of accountability mechanisms and information to help investors in monitoring the management. The article uses empirical data from 49 countries that provide the estimates of the relative strengths and importance of formal and private chains of governance. The empirical benchmarks and frameworks help to give the explanations of the outcomes of past privatizations. It also suggests steps that the governments can pursue to ensure it gets most from future privatization activities. References Kim, K., & Nofsinger, J. (2007). Corporate governance (2nd ed.). Upper Saddle River, N.J.: Pearson/Prentice Hall. Top of Form Bottom of Form Mallin, C. (2004). Corporate governance. Oxford: Oxford University Press. Top of Form Bottom of Form Milhaupt, C. (2003). Global markets, domestic institutions corporate law and governance in a new era of cross-border deals. New York: Columbia University Press. Top of Form Bottom of Form Sheikh, S. (1995). Corporate governance & corporate control. London: Cavendish. Top of Form Bottom of Form Solomon, J., & Solomon, A. (2004). Corporate governance and accountability. New York: John Wiley. Top of Form Bottom of Form Ntysaari, P. (2012). Organising the firm theories of commercial law, corporate governance and corporate law. Dordrecht: Springer. Read More