Sustainable Corporate Governance and Financing - Assignment Example

SUSTAINABLE CORPORATE GOVERNANCE AND FINANCING STUDENT NAME INSTRUCTOR NAME INSTITUTION DATE Contents Contents 2 QUESTION 1; 3 Thesis statement 3 Effectiveness of voting in corporate governance 3 Conclusion 6 QUESTION 2 6 Introduction 6 Corporate codes 7 Conclusion 9 QUESTION 3 9 Introduction 10 What is ‘comply or explain’ approach? 10 Advantages of ‘comply or explain’ approach in sound corporate governance 11 Conclusion 12 QUESTION 4 13 Introduction 13 Unitary verses dual boards 13 Advantages of unitary board structures 14 Disadvantages of unitary board structure 14 Advantages of a dual board structure 14 Disadvantages of dual board structures 15 Impacts of globalisation on selection of board structure 15 Conclusion 15 REFERENCES 17 QUESTION 1; Voting is one way in which shareholders can express their preferences and views. How effective is voting as a means of increasing the focus of corporations on sustainability? In your answer you are required to also consider the role of institutional shareholders and the manner in which they may engage with voting. Thesis statement This paper will discuss the effective of voting in corporate governance. Shareholders decide on the management of a corporation through voting. Votes are in relation to the number of shares held in a company. Effectiveness of voting in corporate governance Prudent corporate governance is significant in protection of shareholders interest in a company. Shares represent ordinary shareholders assets in a company. Ordinary shareholders are the real owners of a corporation. Institutional investors are the major drivers of corporate governance reforms. Voting provides forms of representation in a company. Voting is the basis of aligning corporate governance with shareholders interest. Voting is an investor-led litigation to advocate for prudence governance (Mallin, 2013). Shareholders demand accountability through voting. Institutional investors monitor performance of a corporation through voting. The board of directors are answerable to institutional shareholders. It provides an oversight of board of management resolutions. Robust shareholders participation will enhance transparency by deterrence of misconduct and fraud. There is enhancement of firm value and increase of productivity. Leadership in current financial markets requires fulfilment of corporate fiduciary responsibilities to institutional investors. shareholders are the owners of corporations(public).voting is a direct participation in decision making and changes in long term changes of corporations. Voting is an expression of shareholders assets. Institutional investor considers presence of voting rights in a corporation before they invest in the corporation. Shareholders have voting rights in proportion of economic holding in the corporation. Some shareholders have super voting rights which determine majority vote issues in a corporation. Shareholders need full information to inform their voting decisions. This is through existing of transparent corporate information. Accurate, timely, and through information will appraise institutional investors of corporate developments. The information will inform them o their economic value of investments (Mallin, 2013). Board members are elected representatives of shareholders in a company. They are voted to represent shareholders interest in the corporation. Voting is the only method through which structures of a corporation are changed. Composition and structures in a corporation will determine election and nomination of members as this is important chances will increase effective governance of corporations. Voting will determine voting rules, duration of directors in office. Corporate laws and by laws ought to promote effective of shareholders in determining policy of a company. The corporate laws should not be there to protect the interest of directors of staying in office at the expense of good governance (Mallin, 2013). Corporate governance reforms need to correct staggered board problems.ths will facilitate institutional influence in the management of a corporation. The corporate reforms will require directors to discharge fiduciary duties with prudence, accountability and responsibility. Institutional investors need to consider criteria used to by the board to select oversight of external audit functions. This will ensure independence. Audits are supposed to independent of board of directors. Undue influence will compromise audit reports of a corporation. Auditor’s contract provides limited liability to a corporation to enhance independence. Maximisation of shareholders wealth requires effective linking of shareholders interest with management rewards. Voting will require performance and pay of board members are correlated in all aspects. There is no allowance for exorbitant allowances with poor performance of corporations. Compensation requires full disclosure to enhance transparency in management of a corporation. Institutional shareholders require detailed information in relation to compensation, performance shares, options, restricted stocks and severance agreements. Institutional investors will be attentive to re-pricing of shares and initiation of measures to remove mischievous executives (Mallin, 2013). Voting rights provides in a voice of shareholders in management of corporation and board of directors safeguarding their interest. Voting will determine ownership and capital structures of a corporation. Reform on multiple fronts will maximise institutional impact in a corporation. Internal activism of institutional investors through proxy voting will prompt governance reforms. Proxy voting provides effective communication channels and valuable assets. Conclusion Shareholders demand accountability through voting. Institutional investors monitor performance of a corporation through voting. The board of directors are answerable to institutional shareholders. It provides an oversight of board of management resolutions. . Accurate, timely, and through information will appraise institutional investors of corporate developments. The information will inform them o their economic value of investments. Voting provides forms of representation in a company. Voting is the basis of aligning corporate governance with shareholders interest. Voting is an investor-led litigation to advocate for prudence governance. QUESTION 2 Corporate Codes are an important regulatory tool that is used in corporate governance. Consider the manner in which the different Codes have attempted to incorporate issues of sustainability into corporate governance. Use any one specific Code in your discussion. Introduction Corporate governance principles requires corporation to come with codes of ethics to deter managers from poor governance, fraud and irresponsibility in management. Codes of ethics require integrity in regulating ethical behaviour in corporate governance. Codes of ethical behaviour will determine selection of corporate officers and members of board of management. Crucial element of governance is corporate accountability and this comes through code of integrity. Organization codes of conduct will regulate conduct of executives and directors in a corporation. This will promote responsibility and ethics in relation to decision making. Corporate codes Corporate codes are significant regulatory mechanisms as used in corporate governance. Different codes have inculcated responsibility in corporate governance. Codes have been developed and issued from corporations, institutional investors to support governance. There is no legal obligation for Corporates to comply with the developed codes. There is an exception that codes which link shares in listed company attract coercive effect. Ethical corporate codes are crucial in determining failure or success in corporaton. Corporates codes affect reputation f a given company. Codes will determine business models in strategizing for long term sustainability of a corporation (Mallin, 2009). Strong corporate codes will uphold law and add value to corporate brand. Absence of corporate codes will deem economic damage and undermine long term prospect of corporation. Codes will monitor effects of different policies on the performance of a corporation. For instances corporate codes prohibit management accountants from accepting bribery. Acceptance of bribery is evident of ethical irresponsibility and will ruin culture of a specific corporation (Grout, 2009). Corporates codes require senior managers to lead by example. The purpose of corporate governance codes is to facilitate effective and prudence management and thus success of a company. Let us consider the UK Corporate Governance Code. The code was produced in the year 1992.according to code, corporate governance is the manner which companies are controlled and directed (Butcher, 2007). The code requires shareholders to participate in the appointment of auditors and directors of a company. The code requires corporations to put in place functional governance structures in place to support operations of a company. Corporates codes provide a guideline necessary to effect board practice. The basis of corporate codes is underlying principles such as transparency, probity, accountability and accountability to enhance corporate success. The code cannot mute as it is in a position to endure so as to remain relevant (Mallin, 2013). It is argued that codes will not guarantee efficient and effective board behaviours. There are different situations which require change of tactic to succeed. Successful running of corporations is demanding task. Codes are there to guide board of directors to execute the responsibilities in the interest of shareholders. For instance, financial reporting codes guides board behaviours in disclosing information to shareholders. This will curb insider dealings which will hurt companies in the long run. Leadership as required by corporate codes requires division of responsibilities on the basis of specialization. Division is in relation to clear guidelines to separate execution of responsibility and running of a corporation. Corporate effectiveness requires transparent, rigorous and formal procedures when new directors are being appointed (Mallin, 2013). Principles which relate to accountability are very sensitive to many corporations. Corporate codes will determine significant risks to be taken by a given corporations. Corporate code of accountability requires boards to maintain internal control systems and sound risk management systems in as corporation. The code requires corporations to come up with transparent and formal arrangements to address issues related to corporate reporting, internal control principles, and risk management aspects (Grout, 2009). Leadership code provision requires effective discharge of duties. This is though formal schedules and disclosure of company operations. Transparency will require disclosure of financial statements to the shareholders during annual general meetings. Reforms in the corporate sector require corporations to formulate codes to regulate conduct of board of directors in sustaining success of a corporation. Codes of ethics will regulate code of behaviour of management. Codes provide monitoring, regulatory and implementation options of a corporation (Bacher, 2007). Conclusion The basis of corporate codes is underlying principles such as transparency, probity, accountability and accountability to enhance corporate success. The code cannot mute as it is in a position to endure so as to remain relevant. Codes have been developed and issued from corporations, institutional investors to support governance. There is no legal obligation for Corporates to comply with the developed codes. There is an exception that codes which link shares in listed company attract coercive effect. QUESTION 3 What are the advantages of having a “comply or explain” approach to aspects corporate governance? In your answer refer to the ASX Corporate Governance Council Advisory Guidelines which adopts this approach Introduction The Australian Stock Exchange guideline has 28 practice recommendations. The guidelines were built in consideration that a single size will not fit every company which is in Australian market. These guidelines contrast listing rules which oblige companies to meet specific practices. Companies are free to act in their own will. The act of forcing companies to comply with some provisions will negative the gain of good corporate governance. Corporate structures and procedures make operations in a company to face uphill task. The guidelines require corporations to encourage investors to act after thorough review of governance statements. What is ‘comply or explain’ approach? The ASL guidelines have evolved o come up with a worldwide accepted principle. The approach does not refer to absence of requirements in corporations. The approach recognises existence of alternatives in achieving good governance in corporations. It is agreed that transparency is the driving principle of this approach. Deviation from a code should not b presumed to be a substantial breach. There are accompanying explanations which support corporation thinking in achieving sound corporate governance (Mallin, 2013). This approach is use besides other approaches to enhance corporate governance. There is soundness in implementing the effectiveness of the provision or decrement of the ‘comply or explain’ approach. The ASL guidelines are adopters of tis approach. The practical significance of this approach is seen in meeting notices, independence and governance of corporations. The ASL guidelines require company auditors to attend shareholders meeting to response to accountability questions. The guidelines also give recognition to old and emerging issues in corporate governance. The guidelines also advocate for independence of auditors in their professional work. Advantages of ‘comply or explain’ approach in sound corporate governance The guidelines encourage electronic communication to the investors such s video conferencing, webcasting and teleconferencing. This form of disclosure will enhance transparency in corporate governance. Use of websites will form part of corporate memory including publishing of notice for annual meetings. Comply or explain approach promote proportionality, long term learning, innovation and substance over from aspects in corporate governance. The ‘comply or explain’ provisions promote acceptance of new ideas and in the provisions promoting innovation. New ideas tend to promote good governance. The approach will allow corporations to flex new ideas at their own pace. This is a realistic approach to experiences and circumstances facing different companies. The other advantage is about proportionality. It is costly to impose requirements which will overburden corporations. The approach provides an allowance or permission for companies to accept certain principles without necessarily considering cost implications (Mallin, 2013). The approach provides an inclusive approach to challenges facing corporations. The application of provisions by large companies’ will attract small companies to adopt the approach without fair of failure. Merit of substance over form implies that companies comply to new provisions with the belief that it will introduce real change in effective and better corporate governance of a corporation. The ‘comply or explain’ approach gives companies options to ether accept or reject new provisions. This freedom will allow companies to weight the implication of the provision without the idea of just accepting. The approach provides the idea of long term process of learning in a company. The process of continuous learning gives companies an opportunity to learn and internalise the new principles. This will inculcate principles of good governance among the staff members. The principle will be taken as norm. This is significant in complex corporate governance arenas. The approach is all about decision making, interaction and human behaviour. Companies are free to act in their own will. The act of forcing companies to comply with some provisions will negative the gain of good corporate governance. Corporate structures and procedures make operations in a company to face uphill task (Mallin, 2013). Conclusion Comply or explain approach promote proportionality, long term learning, innovation and substance over from aspects in corporate governance. The ‘comply or explain’ provisions promote acceptance of new ideas and in the provisions promoting innovation. New ideas tend to promote good governance. The ASL guidelines have evolved o come up with a worldwide accepted principle. The approach does not refer to absence of requirements in corporations. The approach recognises existence of alternatives in achieving god governance in corporations. It is agreed that transparency is the driving principle of ‘comply or explain’ approach. The ASL guidelines require company auditors to attend shareholders meeting to response to accountability questions. The guidelines also give recognition to old and emerging issues in corporate governance. QUESTION 4 Both the unitary board and the dual board have their own strengths and weaknesses. Discuss these strengths and weaknesses. In your answer discuss the manner in which globalization may affect the structure of these boards. Introduction The classification of boards to dual or single boards is in reference to membership of the boards. Globalisation is the continuo application of technological around the world. Through globalisation, the world has turned out to be a small village. Technological developments have led t developments such as videoconferencing; social communities which are products of the social media.th paper will define unitary and dual boards with distinction. It will also highlight merit and demerits of unitary boards. The last section will provide a highlight of impact of globalisation o structures of unitary ad dual boards. Unitary verses dual boards Unitary board is a one-tie board structure while dual boards are two-tie board structures. The unitary board structures are common in USA and UK and are characterised of one board with non-executive and executive directors. It is responsible for all company activities and the directors’ work toward achieving the same ends. On the other hand, dual boards have supervisors and executive board of managers. There is clear power separation in relation to management and supervision. Supervisors oversee business direction whilst directors or managers are responsible for day to day management of business of the company (Mallin, 2013). Advantages of unitary board structures When all directors are in a single board, there is a close relationship and clear flow of information. There is minimal conflict in direction and decision making process of the company. The unitary board structure is preferable in the event a company has prevailing shareholders. The combination of supervisors and managers and the functions ensure that there is no real conflict between board and shareholders. The objectives and goals of a company are defined by majority shareholders. This will introduce efficient in the process of decision making (Grout, 2009). There is board accountability as the supervisors and managers possess equal legal status and subsequent responsibility in law. There is a low likelihood of power abuse by office bearers. This is through the introduction of non-executive directors. They are supposed to scrutinise decisions and actions of executive directors. Disadvantages of unitary board structure There is lack of clear separation of powers. This is risky in terms of accountability. This is seen as an insider system. Lack of wide consultation will lead to rushed decisions and this will affect effective corporate governance. Advantages of a dual board structure There is clear separation of powers and responsibilities. Supervisors oversee business direction whilst directors or managers are responsible for day to day management of business of the company. This is an outside system of management. The dual board structure is sometimes used to undermine the functionalities of trade union of employees. This is trough duplication of powers and roles of conflicting personnel (Grout, 2009). Disadvantages of dual board structures There is high possibility of lack of accountability and power confusion. This is attributed due to lack of equal legal, status and responsibilities among the board members. The process of decision making is likely to take long as the supervisors and managers need to be consulted and eventually agree in relation to corporate aspects. Impacts of globalisation on selection of board structure Globalisation is the continued application of technology in revolution of world trade. Technology has brought with it developments such as video conferencing and possibility of holding meeting from remote locations. There is no need for physical locations and face to face e meetings with the current advancements in technology. Globalisation will deal redundancy some of the management functions. There will be prudence in supervision and management aspects. Convergence of supervision and management roles will see reduction of conflicts globalisation will see adoption of board structures in other countries. This is especially where they have proved to the effective and in lie to corporate governance. Technological developments have led to developments such as videoconferencing; social communities which are products of the social media (Malin, 2013). Conclusion Good and effective board structures do not guarantee good governance. There is a proposition that the unitary board structures are effective as compared to the dual board structures. This is due to lack of conflict in power and responsibility of board directors and supervisors. Decisions in relation to the selection of board structure depend on corporate laws in different countries, corporate culture and corporate ownership. Dual boards have supervisors and executive board of managers. There is clear power separation in relation to management and supervision. Supervisors oversee business direction whilst directors or managers are responsible for day to day management of business of the company. REFERENCES BACHER, C. (2007). Corporate Social Responsibility. München, GRIN Verlag GmbH. http://nbn-resolving.de/urn:nbn:de:101:1-2010081519066. COSKUN, E. (2008). Turkey real estate: year book 2008. The Hague, Europe Real Estate Publishers. DINGWERTH, K. (2007). The new transnationalism: transnational governance and democratic legitimacy. Basingstoke [England], Palgrave Macmillan. DU PLESSIS, JEAN JACQUES, MCCONVILL, JAMES, & BAGARIC, MIRKO. (2005). Principles of contemporary corporate governance. Cambridge University Press. http://hdl.handle.net/10536/DRO/DU:30000408. FUNG, H.-G., PEI, C., & ZHANG, K. H. (2006). China and the challenge of economic globalization: the impact of WTO membership. Armonk, NY [u.a.], Sharpe. GROOT, C. D. (2009). Corporate governance as a limited legal concept. Alphen aan den Rijn, Kluwer Law International. MALLIN, C. A. (2013). Corporate governance. Oxford, Oxford University Press. OXELHEIM, L., & WIHLBORG, C. (2008). Markets and compensation for executives in Europe. Bingley, UK, Emerald. REZAEE, Z. (2008). Corporate governance and ethics. Hoboken, N.J., Wile Read More