Corporate Governance and the Private Sector - Example

Name Tutor Institution Date Corporate Governance and the private sector Introduction Corporate governance refers to the way through which a corporation’s power is exercised by those who are stewards in the total portfolio of the corporation in terms of assets and resources. The objective is to increase and maintain the value of shareholders and satisfaction of all stake holders as part of its mission as a corporation. Corporate governance involves the creation of balance between social and economic goals and at the same time encourages accountability in exercising power, using resources efficiently and stewardship so that the needs of society, individuals and corporations are aligned (Monks, Robert & Minow, Nell p.70). Corporate governance seeks to promote efficiency, fairness and transparency in corporation administration in order to meet objectives which should be well defined. Corporate governance also involves structures and systems of controlling and operating corporations with the goal of reaching strategic goals in the long term which satisfy customers, owners, suppliers, financiers and customers and at the same time carry out compliance with regulatory and legal requirements as well as meeting the needs of society and the environment (Clarke, Thomas & dela Rama & Marie p.145). Relevance to private sector Corporate governance is a process of creating and adding value to see to it that strategic plans and objectives have been set by the board and proper structures of management such as people, organization and systems have been put in place to help in the realization of the set objectives and goals in the private sector. The structures established are important for maintaining corporate reputation, integrity and responsibility toward every stake holder. The board takes the role of a catalyst where it initiates, influences, evaluates and monitors strategic actions and decisions made by management and management is accountable to it. Corporate governance ensures that the board does not just exist as a formality taking a back seat and leaving all strategic decision making to management (Colley, Doyle, Logan, & Stettinius p.210). It also sees to it that the board establishes mechanisms to make the corporation operate under the objects that share holders have established. It should also be working under the mandate it received from society, make proper use of resources given to it in an efficient and effective way as it pursues the mandate given to it. Through this it should meet the expectations of all of its stake holders in the right way (Monks, Robert & Minow, Nell p.56). Corporate governance ensures that systems, mechanisms and processes have been established to regularly see to it that there are appropriate and effective governance practices, there is accountability and transparency to stake holders and that the corporation operates in compliance to the regulatory and legal requirements. It also ensures that stake holders are given all important information, and that change, management risks and innovation are well monitored effectively. The corporation should also remain competitive, legitimate and relevant besides being viable, sustainable and solvent (Clarke, Thomas & dela Rama & Marie p.112). Corporate governance therefore is concerned with establishing an appropriate institutional, economic and legal environment which makes it possible for companies to flourish as entities which are out to advance long term value of share holders and maximum development centered on people and at the same time concentrate on responsibilities to stake holders, the society and environment. Good corporate governance aims at promoting sustainability, efficiency and effectiveness in corporations so that they can give their contribution to society through creation of employment, wealth and solutions to challenges that are coming up. It also aims at the creation of accountability and responsiveness in corporations as well as the protection and recognition of the rights of the stake holders (Clarke, Thomas & dela Rama & Marie p.200). Through corporate governance there should be created legitimate corporations managed with probity, transparency and integrity. Corporate governance ensures that in the private sector there is an inclusive approach founded on democracy and legal participation and representation. The private sector needs corporate governance so that it can attract foreign and local investors with the assurance that there will be security and efficient management of their investments with accountability and prosperity. Corporate governance promotes competition and efficiency in businesses and companies. It enhances the performance and accountability of people in the corporation management. It also fosters effective and efficient utilization of resources (Colley, Doyle, Logan, & Stettinius p.150). Factors influencing corporate governance in the Private sector In the private sector corporate governance has potential to achieve much in the control of corporations. It can ensure efficient and effective management of these corporations if some important factors are born in mind. Corporate governance is influenced by the board’s ability, adequacy of processes, levels of commitment of board members, corporate reporting quality and stake holder participation in the management activities. The ability of the board to make decisions and follow up their implementation is important. The board must have the capacity and willingness to adhere to the code of corporate governance in the country concerned (Clarke, Thomas & dela Rama & Marie p.94). Members of the board should be committed to the requirements of the corporation which involves proper management and adoption of corporate governance guidelines. Corporate governance will not succeed if the board is not active. Good governance shows personal values and beliefs which represent the values of the organization, actions and beliefs held by the board. Good governance requires that there be a distinct identification of responsibilities, accountability, roles and powers of the board chair man, the board and the CEO (Garrett, Allison p.12). Corporate reporting should be effective. The board must have correct, regular, timely relevant, reliable and comprehensive information put in a quality and form that can facilitate its activities of monitoring the performance of the corporation. Board independence is also necessary. “Enough independent directors should be involved to bring about this independence in order to avoid conflicts of interest.” Stake holders should be actively involved in management activities. This is necessary in order to safeguard their interests and satisfaction by ensuring that their views and decisions are incorporated into the day to day operations of the corporation (Sunp. 56). Other factors that affect corporate governance include legislation. There must be unambiguous legislation that is clear for corporate governance to be effective. Legislation which is unclear or hard to interpret and needs to be interpreted legally in a continuing manner daily can bring about misinterpretations or deliberate manipulation. The management environment is another influencing factor to corporate governance. It involves the establishment of objectives that are clear and an ethical frame work that is appropriate, creating due processes, promoting transparency and accountability, spelling out responsibilities, implementation of proper business planning, promoting risk assessment in business, putting the right skills and people on jobs, establishment of guidelines desirable behavior, establishment of measures for evaluating performance, performance evaluation and adequate recognition of contributions from individuals and groups (Denis & McConnell p.136). The code of conduct is critical to corporate governance. The code of conduct and the norms of ethical practices of the organization should be made clear to all stake holders and that every organization member understands and follows them. There should be established systems to check the level of commitment to the code and if possible evaluation and recognition done for adherence to the code of conduct. Risk management is also critical and a corporation should therefore have a way of identification, analyzing and treatment of risks. Audit committees should have a quality which can make meaningful contributions to the company’s governance (Colley, Doyle, Logan, & Stettinius p.14). Strategy setting affects corporate governance and therefore the company’s objectives must have clear documentation in a corporate strategy or yearly business plan alongside measurable targets of performance. Community as well as business consultation is also a major factor since every business must also attend to the obligations of the community. The board should approve documentation of the obligations of stake holders. Stake holders should then be given information about any initiatives that have been proposed or are being implemented in order to meet the requirements of social responsibility (Garrett, Allison p.189). Corporate governance Private sector guidelines for the public sector Guidelines developed for the private sector could be applied to the public sector because all these sectors involve businesses that could be operating under identical environments, legislation and country policies. Good governance in the public sector depends on moving along with best practice in corporate governance in the private sector. Corporate governance has valuable practices and principles with potential to up lift public sectors if well adopted and implemented. Adoption of private sector corporate governance guidelines should however have the understanding and consideration of the gaps and tensions that are encountered in the process. This ensures proper and appropriate modification of the corporate governance for the public sector (Monks, Robert & Minow, Nell p.68).  In practical terms there can exist parallel developments of arrangements of governance in the public and private sectors. The existence of these parallels hint to the fact that issues of governance are critical to public and private sectors. Adoption of the same foundational good standards of corporate governance has made to private and public sector to developed different unique models of governance, mechanisms and practices that suit the circumstances of each organization. Adoption of good corporate governance principles from the private sector into the public sector can help the public sector to learn from the private sector so that future governance can be improved upon (Garrett, Allison p.51). In general terms many governance principles and guidelines can be applied in both public and private sectors. Governance in business enterprises fully or partly owned by the government does comply with auditor and legislative expectations which are identical to those of corporate law applied in the private sector. More creative governance though, deals with arranging entities like partnerships and advisory boards which are not found in the in a similar way within the private sector (Clarke, Thomas & dela Rama & Marie p.34). However some experts on corporate governance such as Wattenhall, (2004) in (Garrett, Allison) argue that the experience of governance in the public sector happens to be long standing and that most of the methods employed in the private sector do not work well in the private sector. They suggest that the structure of an organization influences the model of governance to be adopted. Within the private sector the corporation’s law governs the business enterprises (Garrett, Allison p.212). Corporate governance practices for Virgin Atlantic Every entity of the private sector must adopt sound corporate governance practices for it to have improved performance. Virgin Atlantic Air ways is an air line owned by the Virgin Group which belongs to Sir Richard Branson and Singapore Airlines. It is based at Gatwick and Heathrow airports in London. Virgin Atlantic like any other entity must have corporate governance practices incorporated in its management for better performance. The benefits of corporate governance for the airline will include increased efficiency in the management of the company’s affairs (Denis & McConnell p.145). For the administration of the airline to be more effective and have transparency as well as fairness which are instrumental in meeting its objectives it should have corporate governance practices. Satisfaction to customers, financiers, suppliers and the realization of the goals of the air line will be achieved through it as well. The needs of the environment and society must be met through the inclusion of these practices in business. Virgin Atlantic can easily achieve its goals and improve on its performance when the good governance practices are followed. Better performance comes with better administration (Clarke et al p.168) There is bound to be a balance created between economic and social goals and the leadership of the airline will be obliged to be accountable in the way they handle the affairs of the company. Leaders will utilize resources with efficiency in order to meet the requirements of the society, the company and individuals. Corporate governance will ensure that the members of the board of the company are accountable to the share holders and even the company itself. This in turn will help to shape the behavior of the company towards banks, customers as well as employees. With proper corporate governance in place the company will have the capacity to underpin the efficiency and integrity displayed by financial markets. The potential of the virgin Atlantic as a private entity will grow and enable it to escape financial difficulties accompanied by fraud. Corporate governance practices and guidelines when adopted in the company can help improve the rating of the air line among other air lines. This enhances healthy competition which can put the air line on top of others and in the process enable it reputation to grow. A good reputation will ensure that the company gets many more customers and business growth (Garrett, Allison p.312). Conclusion In conclusion this paper has examined corporate governance and its importance to the private sector. It also includes the major factors that influence the practices of corporate governance in the private sector. Corporate governance involves among many other things how the power of a corporation is executed by the management and leadership of the same company. Corporate governance within the private sector is influenced by a number of factors which determine its success in the management of companies. Such factors as has been discussed include risk management, legislation, corporate reporting, freedom of share holders and their commitment and participation of share holders in the management among other things. Guidelines developed for the private sector can be borrowed by the public sector since both have some thins in common. However some pit falls should be considered before such a move is taken. Finally the paper has a discussion on Virgin Atlantic which is an air line operating in the U.K. Adoption of the guidelines of corporate governance will help the air line to remain relevant in the market and in the process increase its performance. Works Cited Sun, W. How to Govern Corporations So They Serve the Public Good: A Theory of Corporate Governance Emergence, New York: Edwin Mellen, 2009. Colley, J., Doyle, J., Logan, G., Stettinius, W., What is Corporate Governance? (McGraw-Hill, December 2004. Denis, D.K. and J.J. McConnell International Corporate Governance Journal of Financial and Quantitative Analysis 2003, 38 (1): 1-36. Monks, Robert A. and Minow, N. Corporate Governance Blackwell 2004 Clarke, Thomas & dela Rama, Marie (eds.) "Fundamentals of Corporate Governance (4 Volume Series)" London and Thousand Oaks, CA: SAGE, 2008. Garrett, Allison, "Themes and Variations: The Convergence of Corporate Governance Practices in Major World Markets," 32 Denv. J. Int’l L. & Pol’y). Read More