Corporate Governance as the System by Which Corporations are Concentrated and Managed - Essay Example

Name Course Lecturer Date Corporate governance and accountability Corporate governance is described as the system by which corporations are concentrated and managed. The structure of the governance specifies the channel of rights as well as responsibilities between diverse participants in the corporation. Instrumental as well as non- instrumental theories for corporate social responsibility are viable in today’s business. Instrumental stakeholders theory justifies the inclusion of claims made by the stakeholders in the strategy making by simply economic reasons. This creates good business sense that takes into account the views of the stakeholders that can lead to profitability. In today’s business, non instrumental or ethical dimensions theory is considered to be critical. This is because it distinguishes two strands in the research of stakeholders’ theory that is social science and business ethics strand. They both argue that every stakeholder holds an inherent value and calls for ethical directing measures for managers (Solomon, 2011). Stakeholders’ accountability is taking precedence in recent years in business. This is because corporate governance is all about the manner in which the boards supervise the running of the firm by the managers, and how the members of the board are accountable to stakeholders as well as the organization. This trend always has an impact for firm’s behaviour towards workers, shareholders, clients and banks as well. Lack of shareholders accountability weakens the potential of a company posing a great financial difficulties as well as fraud. Global financial crisis is paying greater attention to the corporate governance. This is because corporate governance influences the performance of financial firms at the time of crisis. Independent directors as well as institutional shareholders are found to have encouraged managers to enhance the returns of shareholders through greater risk taking before crisis. In regards to this, extreme stakeholders’ power is perceived to be the cause of short term fixation which led to financial crisis. The management of Enron firm behaved in unethical way. There was no transparency in the company’s balance sheet as well as other off balance sheet liabilities. Existence of a better corporate governance checks and balances would have detected this unethical behavior of Enron before it leading to fall of the organization and this would have circumvented the collapse of the organization. The main allegations of the company were fraud as well as material misstatement in the financial reports of the company. The company was discovered that it had had been using debt capital extensively on its balance sheet. In addition, the company was conducting inside trading where some executives some of the company’s share to other investors. The management of the company knew more than what they were letting on, keeping in mind that the annual reports showed financial prosperity. Despite that, People as well as organizations still had perception that the organization was too big to fail and they expected it to weather the storm. There are various corporate governance problems that led to fall of Enron. One of the problems is lack of transparency whereby the balance sheet of the company as well as other off balance sheet had problems. In addition there were also conflicts of interest and arrogance in the organization. Information asymmetry is another corporate governance problem found in Enron’s company. This is proved by the annual reports of the company that indicated prosperity in the company. The management of the company gave wrong information in order to show that the company is still strong in the market. These corporate governance problems are not of equal importance. The most important corporate governance ethical issue is transparency, whereby the balance sheets of the organizations shows the correct figures traded in the organization. Lack of transparency led to Enron’s collapse (Solomon, 2011). Non-executive director play a great role in company’s board. They are always involved in daily management of the company since that is their responsibility and it is shared with the executives. A non executive directors have no portfolio in the organization and not responsible in any part of the company, but they always interfere where necessary. The research has clarified the roles that a non-executive director can play in the company. The research identifies non executive role as that one of a watchdog as well as of a whistle blower that makes sure that the company as well as executive directors and workers adhere to good performance and respect for interest of other stakeholders. They also ensure adherence to the procedure of boardroom discipline. The research also approves the appointments of non-executive directors by their professional knowledge, experience, capability to objective and also ability to guide the board directors in consideration to corporate governable. The traditional cultivation procedure that many organizations pursue is the most effectual whereby a volunteers who serves in committee are elected by the company’s board. The individuals are elected to their respective positions and they are given the responsibilities of learning the board. It is very important to have a board with diverse perspectives. This is because every individual will contribute their own individual, professional contacts as well as their experiences in life to their service in an organization. With a assortment of experience, expertise as well as perspectives an organization is in a stronger position to counter chances as well as challenges. When an organization reflects the diversity of the society being served, the company can be in a position to make bridges to policy maker in the society. A diverse board develops the organization’s ability to react to external influences that transforms the surroundings in which it is functioning or those served. When an organization faces a major decision, the opportunities as well as risks can be identified by the diverse perspective in the board. A diverse board does not chase its own trail. In regards to this, all the members of the board does not travel in the same social circle, and identifying as well as cultivating new members of the board does not become a challenge. Internal control is an established as the major corporate governance system as well as disclosure of information about interior control mechanism which is viewed as a vital element in the procedure of reinstating public trust in corporate goodness in the wake of financial scandal. Reporting by boards of directors on the internal control mechanisms in their organizations expose needs in Both UK and US. The plan of the consultation answers differently. Responses to Turnbull review were directed in answering a series of particular questions. Internal control encompasses the plan or firm as well as of all coordinate systems as well as measures implemented in a business to protect its assets, verifies the accurateness and dependability of its accounting data. It also promotes operational competence, as well as encourage adherence to recommend managerial policies. Corporate governance describes all the authorities affecting the institutional procedures. Categorization has been named as a useful tool that is used in order of enabling future analysis as well as discussion of corporate governance. Insider and outsider promote as well as develop accountability in organization globally. The outsiders watch over organizations and are allowed by law to intervene where necessary. They also help in nurturing more responsible corporate surroundings in organizations internationally. The UK corporate governance system operates on the foundation of complies or explains principle. The corporate governance is frequently re-examined in consultation with companies as well as investors. The system encourages free trade and good corporate governance. The US corporate governance is a market based model and is described in terms of activist institutional investors, an open market for corporate control, long term equity based compensation for executives, independent outside directors on the board. The UK corporate governance has taken another dimension by empowering shareholders. This is by provision of needed information in order for them to act as effective stewards. The US has been in the process of reforming its corporate governance mechanisms from other commands like Germany and Japan. It is also expanding powerful US found multinationals of their businesses into host countries. Due to the financial crisis, both US and UK engaged in regulatory endeavour in containing the detrimental as well as preventing a catastrophe like that happening again. By giving sustainability reports, the organizations inform non-shareholder stakeholders of impacts of the organization’s presentation as well as strategies to develop impacts. In addition, the organizations inform shareholders as well as market how good the firm deals with non-financial as well as financial risks. This is also for the sake of enabling organizations to establish areas of major risks as well as analyze performance. Organizations that do not undertake sustainability reporting faces financial difficulties than those that undertakes sustainability reporting. The workers, clients as well as investors in organizations that do not undertake sustainability reporting are not happier as well as committed to their work than the company that undertakes sustainability reporting. Climate change are a material anxiety for a long term investors as well as making sure that the risks are well evaluated in pension funds which is a vital role for trustees. Properties or assets are disclosed to risks from the direct impacts of climate transformation, regulatory risk in carbon-intensive companies, competitive risks as firms prove to be either more or less practical in tackling climate transformation and reputational and proceedings risks. Protrusion that is based on business as usual situations where climate risks are never tackled forecast rigorous impacts for financial sector. A research shows that pension fund assets can be greatly weakened by resource restraints arising from climate change, if only action is not taken to control these risks. Pension funds can be extensively reduced by the economic decline that institutional investors might face as resources get impacted by change of climate. In addition, climate linked investments can offer fund portfolios with some shield against climate risks while providing long term as well as sustainable investment choices. References Solomon, J. (2011). Corporate governance and accountability. 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