StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Issues of Corporate Governance - Coursework Example

Cite this document
Summary
The paper "Issues of Corporate Governance" discusses that it is quite clear that it is not enough for companies to cater to the needs of those who have staked their capital.  The company’s responsibilities have now been extended to public accountability.  …
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER91% of users find it useful
Issues of Corporate Governance
Read Text Preview

Extract of sample "Issues of Corporate Governance"

Company law corporate governance: The “question is whether company law should serve the interests only of those who contribute capital to companiesor whether the activities of companies need to be controlled in the public interest”. Critically discuss this statement in view of issues of corporate governance. How well a business corporation performs in financial terms is significant for a broad group of people that includes potential/existing investors, creditors, employees or managers. With differing information needs and purposes, each category of stakeholders should be provided with data that is comprehensive, relevant and reliable, so as to allow an informed opinion to be reached on the corporations financial performance. However, all too often, the general public is left out of this equation. A corporations operations have direct and indirect effect on the general public, who dont have a "stake" in the company in the conventional use of the term. Yet, business corporations are purely economic structures, whose sole purpose is profits and whose foresight stops with the next quarter. This essay tries to discuss the existing norms of accountability, its deficiencies and areas that need improvement. The only document that a company in the UK is required to release in the public domain is its Annual Report. Corporations whose shares are traded publicly issue an Annual Report at the end of each financial year for the perusal of its shareholders and other stakeholders. The stakeholders could be potential investors, creditors, employees, regulating agencies and competitors. In other words, Annual Reports indicate the financial health of a corporation to all concerned. It contains such information as financial statements, the Chairmans statement, and the managements assessment of prospects in the following years. The reports comprise a mix of charts, graphics and their descriptions. Some landmark events such as acquisitions or additional issue of stocks also find a place in these reports. Company law in the UK does not mandate the publishers of annual reports to explicate their company’s overall performance in relation to the welfare of general public and environment, which is seen as an evasion of responsibility by some ethicists (Wheeler, p.22). A closer look at the constituent elements of corporate annual reports indicates whose interests they serve. There are three important financial components to annual reports. They are the Income Statement, Balance Sheet and the Cash Flow Statement. Apart from these major financial components, other information of interest is also included. For example, the Chairmans Address to the Shareholders, Highlighting of major achievements over the year, Managements assessment of the year, an auditors note and a summary of all financial information. Having said this, there is no universally accepted format for annual reports within the UK. This gives opportunity for companies to show an impressive set of numbers, the reality of which can be deciphered only by reading the fine print. In this case, even the so called ‘stake-holders’ and capital contributors are at risk of being deceived, which makes a strong case for introducing stricter regulations for monitoring and reporting of the activities of a company. The resultant transparency would then empower the general public to see to it that their genuine interests are not jeopardized by the company’s activities (Chandler, p.45). Moreover, financial reports have other limitations. While they can accurately evaluate the values of tangible assets, more often than not the measure of intangible consequences of the companys operations are not accounted. For example, let us take a company that manufactures cosmetics. The manufacturing and packaging of the companys products involves chemical processes, the residues of which are purged into a nearby river stream or sea. The discharged residual matter is highly toxic and hence harmful for the aquatic life in the waters. This leads to the diminishing in numbers of many species. Those that survive this hazard and land in fishing nets are consumed by human beings. So, now the citizenry of the area surrounding the companys processing unit get affected. The affectation could be of varying degrees and can manifest slowly over a long period of time. These are all costs alright, but not for the corporation. These "externalities" are not accounted for by them (Wheeler, p.22). So who pays for the "externalities"? Well, let us say the sickened citizenry are hospitalized for treatment. The treatment costs could be imposed on the patients themselves (in a highly privatised economy) or by the government (if a public health-care system is in place). Either way, the corporation that was the culprit in this case goes scot-free. This is just one externality. There are others such as "contribution to global warming", "contribution to the erosion of ozone layer", "depleting fertile soils by industrial production policies", "contribution to air and noise pollution", etc (White, p.177). The economic structures of many countries (including the advanced ones like the United Kingdom) are not designed to make business corporations pay for the damages induced by them. This blatant unfairness had gained better awareness over the last decade or so - mainly through the persistent efforts of activists and intellectuals. The efforts of devoted activists are finally having an impact on the regulatory and legislative branches of governments to improve existing standards of accountability. While those contributing capital are not affected in a major way as a result of this degradation to the environment, the dependent wildlife and the unsuspecting general population bear the brunt of the consequences. Hence, it is not sufficient if company law serves the interests of those who contribute capital to companies, they should control the activities of the companies in the interests of the general public (White, p.177). The United Kingdom is no closer to a comprehensive legal regulatory framework than other advanced nations. Let us overview the measures already adopted and those in the pipeline in United Kingdom and their implications. The UK governments Corporate Social Responsibility (CSR) website proclaims, "We have an ambitious vision for UK businesses to consider the economic, social and environmental impacts of their activities, wherever they operate in the world" (www.csr.gov.uk). Consistent with its mission statement, the CSR engages in advocacy activities so that business corporations will adopt a sustainable model of growth and development. To help businesses with this transition, the CSR offers policies and institutional frameworks that encourage companies to adhere to the highest ethical standards. The CSR also provides substantial incentives for those companies that accept and adopt newer (and more just) regulations. The framework of CSR is very broad and it includes environmental protection, health and safety and workplace rights. The founding of an organization such as the CSR is in itself recognition of the fact that the responsibilities of business corporations need be extended to include public interests. Since CSR is not a government department in itself, it collaborates with other existing government institutions for policy initiatives. For example, in association with the Department of Environment, Food and Rural Affairs the CSR has initiated a handful of projects for sustainable commerce and environmental protection. In association with the Department for Business, Enterprise and Regulatory Reform a programme called "The business case for CSR" has been initiated. The programme is aimed at corporate decision makers and attempts to convince them through rational argument. In total, the CSR works with 14 government departments and has initiated nearly a 100 projects and programmes so far. The success of these programmes and projects is very crucial. Upon it lies the economic and social welfare of the future generations of people in the UK. (White, p.175) The environment and corporate social responsibility movement has already had an impact on legislations in the UK. For instance, the Pensions Act (amended in 2001), "requires trustees of occupational pension schemes to state their policy regarding the extent to which social, environmental or ethical considerations are taken into account in the selection, retention and realisation of investments" (Ferran, p.124). The Companies Act (enacted in 2006) requires corporations to comply by the proposed regulatory framework and drives home the point "that directors will be more likely to achieve long term sustainable success for the benefit of their shareholders if their companies pay appropriate regard to wider matters such as the environment and their employees" (Ferran, p.124). When Global Reporters Survey published its findings in 2006, the results showed companies in UK in a kinder light. The UK business community as a whole were placed in third place for their consistency and accuracy in reporting "all costs and benefits" of their business activities. This shows that the spirit of Corporate Social Responsibility is catching up fast and that business corporations are able to see their operations from a broader perspective. This trend needs to continue in the future too, so that the true implications of business activities do not get buried under an impressive facade of profits. Even a few defaulting companies can negate all other positive developments. In other words, the collective conscience of corporate decision makers has to change unanimously (Ferran, p.124). Apart from the legislative measures, companies in the UK are also voluntarily adopting a set Code of Ethics, which reflects its approach to business. These sets of self-imposed rules originate from the corporate social responsibility of business corporations. It also defines the values and standards by which the company conducts its business. It provides all stakeholders with a clear understanding of the procedures and processes at various levels of the organization. In other words it acts as the road map or set of guidelines to help the firm in acting and conducting itself in a socially and commercially acceptable manner. A well designed code of ethics will help highlight the resources available to achieve various goals set at the personal and corporate levels. A good code of ethics document will inspire confidence in all business associates – like suppliers, clients and employees. More importantly, it will also win the trust of the general public. (Shiner, p.10) Here, the importance of “liaising with regulators” is made note of, which is an often overlooked aspect of business conduct. It is understood that a regulatory atmosphere conducive to fair and competitive business can help raise ethical standards of all businesses involved. For example, far too often, when some “potentially illegal or unethical business conduct” (Shiner, p.10) does not affect an individual directly, then it is likely to go unreported and unaddressed. Keeping this in mind, the drafters of the code of ethics have included strict policies so that associates and employees can freely report their concerns about suspected breaches in the ethical code without fear of negative consequences. By making it a violation of employment agreement to not report such breaches and violations, the firm gives a clear message to its employees as to how important business standards are. Those who violate the company’s ethical standards, irrespective of designation or tenure, may be subject to legal disciplinary action that can lead to termination of employment (for employees) and contract annulment (for other associates) (Shearer, p.551) There are other companies in the UK which implement more novel enforcement measures that includes a central ethics committee who will make sure that the code of ethics is followed in letter as well as in spirit. Stakeholders involved in violating the code are subject to stringent disciplinary action that could lead to termination of employment contract. Even contributing indirectly to the violation of these rules can have negative consequences to the party. Failing to report known violations is deemed a punishable offence. In addition to that, disrupting or undermining the internal ethics committee investigations will amount to the same level of punishable offence. Finally, any retaliatory measures on part of the guilty party will attract even severe punishments. Hence, the accounting firm leaves no loop holes for its employees to digress from its commitment to the highest ethical standards (Shearer, p.551). In conclusion, it is quite clear that it is not enough for companies to cater to the needs of those who have staked their capital. The company’s responsibilities have now been extended to public accountability. Not only have newer legislations been enacted, but some companies have also voluntarily adopted ethical standards for their operations. Yet, one should exercise caution in reading these apparently positive developments. These days "environmental stewardship" and "corporate social responsibility" have become catch phrases in the business world. This is an acknowledgement of the fact that consumers (who are part of a larger public) nowadays expect high ethical standards from corporations. Partly to cater to this demand and partly to indulge in a Public Relations exercise, some multinational corporations in the UK have over the last few years issued reports covering these concepts. But these reports have to be read by keeping in mind the motivation behind all corporate action - Boosting the Bottom-line. Works Cited: Cheffins, Brian R. Company Law: Theory, Structure, and Operation. Oxford: Clarendon Press, 1997. Ferran, Eilís Ma. Company Law and Corporate Finance. Oxford: Oxford University Press, 1999. Roger A. Shiner., Accounting ethics: the general part, Business & Professional Ethics Journal 13.n1-2 (Spring-Summer 1994): p.p9(15).  Teri Shearer.,  Ethics and accountability: from the for-itself to the for-the-other., Accounting, Organizations and Society 27.6 (August 2002): p.541(33). Chandler, R., Bartlett, S.A., The Corporate Report And The Private Shareholder, The British Accounting Review, 1997 Jones, Clifford A. Private Enforcement of Antitrust Law in the EU, UK, and USA. Oxford: Oxford University Press, 1999. White, Allen L. "Why We Need Global Standards for Corporate Disclosure." Law and Contemporary Problems 69.3 (2006): 167+. Wheeler, D., Elkington, J., The end of the corporate environmental report?, Or the advent of cybernetic sustainability reporting, Business Strategy and the Environment, 2001. Corporate Social Responsibility in the United Kingdom http://www.csr.gov.uk/ukpolicy.shtml, retrieved on 23rd October, 2007. Department for Business, Enterprise and Regulatory Reform www.berr.gov.uk, retrieved on 23rd October, 2007. Department of Environment, Food and Rural Affairs (DEFRA) www.defra.gov.uk, retrieved on 23rd October, 2007. Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(Issues of Corporate Governance Coursework Example | Topics and Well Written Essays - 2000 words, n.d.)
Issues of Corporate Governance Coursework Example | Topics and Well Written Essays - 2000 words. Retrieved from https://studentshare.org/business/1720647-company-law-corporate-governance
(Issues of Corporate Governance Coursework Example | Topics and Well Written Essays - 2000 Words)
Issues of Corporate Governance Coursework Example | Topics and Well Written Essays - 2000 Words. https://studentshare.org/business/1720647-company-law-corporate-governance.
“Issues of Corporate Governance Coursework Example | Topics and Well Written Essays - 2000 Words”. https://studentshare.org/business/1720647-company-law-corporate-governance.
  • Cited: 0 times

CHECK THESE SAMPLES OF Issues of Corporate Governance

Dissolution of Enron Corporation

The second violation that led tocollapse of Enron was Issues of Corporate Governance (Jickling, 2002, p.... The third ethical violation in accounting practice by Enron was referred to as Accounting issues (Jickling, 2002).... In accounting issues, Jickling highlights, Enron used derivative to manipulate accounting figures, and this was an ethical violation of accounting ethics.... The fourth ethical violation was pension issues whereby, Enron's employees held large percentage of stock....
3 Pages (750 words) Essay

Board Diversity Issues and Corporate Governance

BOARD DIVERSITY ISSUES AND corporate governance Instructor name: The issue of corporate boards not being fairly represented in terms of female executives is not only common in the America or Europe; it is an issue that affects organizations internationally.... According to Joecks, Pull & Vetter (2012), the issues of women being underrepresented in boards is not only an issue in Germany but also internationally.... In addition, companies are needed to do away with governance regimes that do not meet the needs of the market, and changing times (Treanor 2013)....
7 Pages (1750 words) Essay

Leader Traits, Power, and Corruption

hellip; However the different traits of leaders may lead them to corruption as well because of their organizational powers, they can easily engage into activities which may be considered as unethical. Increasing corporate scandals and Issues of Corporate Governance suggest that modern organizations and their management often engage themselves into activities which can ultimately cost the survival of those firms too.... What happened at Enron as well as at WorldCom not only questioned the role of corporate governance and ethics within organizations but it also put on test the very qualities of the leadership because in all those episodes of corporate failures, leadership was the main culprit....
5 Pages (1250 words) Essay

Valuation of Nonlisted Companies in Emerging Markets

In the International Experts Meeting on Corporate Governance of non Listed Companies, held in Istanbul, Turkey on 19-29 April, 2005, a large number of policy makers, business leaders and other experts deliberated on the Issues of Corporate Governance of non listed companies, namely different ownerships, sourcing of capital, transparency requirements, professional management and the role of the policy makers in ensuring the above-mentioned factors.... he group concluded that there was a need for better corporate governance, meeting compliances, increase in size and capital ploughed in, transparency and working towards shareholders' benefit in non listed companies in the emerging markets to help the economy which, in many case was dependent on the success of these family-owned entities....
4 Pages (1000 words) Essay

History of WorldCom

It is recommended for MCI that they further strengthen their code of ethics so that in future such Issues of Corporate Governance can be avoided.... The first one was the way they grew through aggressive acquisition of companies, the second was the strategy of senior executive loans and the third and foremost was the way in which they did business which was against the code of corporate governance and had exposed them to threats related to fair and arm's lengths transactions (Kiron et al 2004; Securities and Exchange Commission 2003)Business Ethics forms an important part of the culture of the businesses....
7 Pages (1750 words) Essay

Sarbanes-Oxley Act of 2002

egal issuesThe legal business issues raised in SOX Act include corporate and accounting scandals,corporate board responsibilities,criminal penalties,auditor independence,internal control assessment,corporate fraud accountability,financial disclosure and corporate governance.... Weak corporate governance procedures made had made it impossible for businesses to grow but with the enactment of the SOX Act this problem was reduced.... Holt (2008) defined the Sarbanes-Oxley Act is an Act to protect investors by improving the accuracy and realiability of corporate disclosures made pursuant to the securities laws and for other purposes....
1 Pages (250 words) Essay

Ideas in management - ANZ Banking Corporation case study

The purpose of this paper is to focus on Issues of Corporate Governance and ethics of ANZ bank.... The issue of corporate governance has become an integral part of governing the success of banks.... ANZ have committed itself to the continuous development of corporate governance practices by embracing a system of continuous disclosure to its key stakeholders.... The corporate governance of ANZ is based on adopting the best practices in the banking industry that has been accepted internationally, to be the first mover in case of adopting ethical practices and take a proactive role in formulating best practices of corporate governance....
10 Pages (2500 words) Assignment

Analysis of Governance Issues Creating Unrest in the Corporate Sector

OECD published its report back in 2009, linking the global financial crisis with the absence and malpractice of corporate governance.... he initial enforcement of corporate governance has been a difficult task.... The first problem is the lack of understanding of corporate governance since traditionally there has been no culture of corporate governance....  … Governance issues can create unrest in the corporate world since corporate governance is related to the economy of any particular country....
6 Pages (1500 words) Research Paper
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us