The Corporate Governance in an Organization
Introduction
The term corporate governance is primarily use for the narrow rules, the laws, and the processes that operated, controlled, and regulated by the business. This can also refer to the internal factors defined by the stockholders, the officers, or the constitution and including the external factors as the government regulations, client, and the consumer groups. The well structured and well defined corporate governance provides the structural theory that functions for the benefit of everyone that is concerned for assuring that that firm adheres for the acceptance of the best practices, the ethical standard, and the formal laws. This means that the firm had started forming for the national, regional, and the global levels. This means that all of the three major players in the corporate governance which includes the shareholders, the board, and the management need to motivate and act as well as inform correctly act. Nevertheless, there is nothing perfect model of corporate governance as well as having no perfect financial structure. This primary goal of the structure of corporate governance is the fact that it should continually re-evaluated in order for the governance structure can adapt for the needs of changing needs and times. [1]
For the past year, the term had stolen its limelight for having been part of the high profile scandal that involves in the abuses and improper use of the corporate power. For some of the cases, there is also some of the alleged criminal activity that had been done by the corporate officers. Including in the integral part for the effective and efficient regime of corporate governance includes all of the provisions for the criminal and civil prosecution for the individuals that are conducting the illegal and unethical acts for enterprise sake. In this manner, there are now explicitly contracts amid the rewards and rights as well as responsibility for the stakeholders and to the firm. There must also be reconciliation in accordance with their interest, roles, privilege, and duties.[2]
The Growth of the Corporate Governance
The effectiveness and growth of the corporate governance had started by the influenced of its history, the culture, and the countries’ differences in accordance with its regulatory and legal frameworks which also includes its product structure and the market factors. This signifies that the growth of the corporate governance is rooted from the process of the push-pull involving the business driving forward in reaching for its targets. However, it also involves pulling back that starts from the improper or the illegal practices and the unacceptable risk. The good and efficient system of corporate governance had been started and covers the factors and components which can help the organization in reaching its success had been supported by the Audit. The effective arrangement of the board oversight and functioning, its accounting and accountability, the performance and risk of the management are also part of these supports. The growth also includes the wide variety of the objectives, the expectations, and the aims of the interest of the stakeholders. This involves that the shareholders has the requirements for the security, growth and dividends. The managers want the performance for the short term stocks and the long term growth. The employees are seeking for the security and opportunity in their improvement. The banker wants the client in working for his account while the supplier seeks the stable relationship. [3]
The operation of the Cooperate Governance in the Business
In the United Kingdom and in United States, the mechanism for the assurance of managers in the operations for the interest of its shareholders is considered to be the main situation to come up. Most of the managers openly stated these messages as their objectives. The common responsible for this kind of scenario is the external and the internal system of governance. The main system of external governance is the market for the control of corporation while the main system of internal governance is for the board of directors. These mechanisms’ effectiveness had been pushes by arguments and questions. Evidently, there are some facts that for the past years, the management and the CEO had been dominance by the board of directors. Nevertheless, the prices of the stock market for the acquirers and acquirees had risen when the takeovers and mergers had been announced.[4]
The law also stated that the board of the corporation is generally the one that is responsible for the management of the entire corporation. On the other hand, the board will delegate to be the day-to-day duties and management for the corporate executives. This also means that the board will also be remaining to be responsible for the assurance of properly management of the corporation. The corporate governance is also responsible for the cutting off in the corruption for the public sector reform for attacking the demand. The responsibility of the corporate governance had fallen under the board of directors. This means that the board of directors has the rights to use the lawyers and the auditors of the internal and external firms in assisting the corporate governance and its policies and procedures. The major act for the corporate governance includes the reporting through the publications of the account of the company, the restrictions in the loans for the dealings and directors and in the shares. Part of the operations of the corporate governance is the monitoring for the company which includes its growth and development as well its failure. Aside from that, it also covers the dialogue for both the directors and the non-directors regarding the future plans and the strategies suited for the current operation of the company. Voting also is part of the operation with regards to the specific issues of the company. The research for the policy had been part also so that it can achieve the great understanding for the existing shape and the future direction of the company. The public statement and the sponsoring debate are the operations for the specific and general company as well as for the clarification of the general principles of good practice. [5]
Taking the example of Antofagasta Plc in UK, it is a company for mining, water and transport and considered to be one of the most international producers of copper. The board of Antofagasta had been committed itself for the management and operations of the Group for the maximization of the shareholders. Every division had been carried out the day-to-day operations of the board of directors. The board does not believe in the full adherence for the combined code. Rather, it considers the balance and structure that must be appropriate and effective in the assurance of the interests of the shareholders of the company. Just in majority of the responsibility of corporate governance in any company, the board of directors provides the leadership and setting the strategic objective of the group as well as the key policies. It also ensures the appropriate resources for the place in the meeting the objectives of the Groups while reviewing the performance and overseeing the internal system control. [6]
The Role of Executive and Non-Executive Directors
In the United Kingdom, the board are primarily united which simply means that there is only one board for the responsibility of governance and management. This means that all of the majority board which includes the executive directors is found primarily in the subsidiaries or to the private companies. They have the managerial role for having been criticized in monitoring and criticizing its own performance. The executive directors are an effective employee of company that had operated under the contract of services. There are no major rules to the number of directors to employ. The primary role of the executive director at the level of board can have the dilemma due to the syndrome of so called “two hat”. This means that the executive directors are the people who are responsible for the governance and management. In accordance to the Institute of Directors, this scenario can give complexities and conflicts to the wearing of the directors. The role of the non-executive is the counterweight or control for the directors in order for presence of the non-executive directors can help for ensuring the individual group or person need not unduly influence the decision of the board. It has also the role for the contribution to be made by the non-executive directors to the entire development and leadership of the company. This implies that the non-executive must be properly selected with similar care and impartiality as the senior executives and this must be done in the formal process and must also considered by the entire board. The non-executive directors are not employees though can operate in the contract of services. [7]
The Unilever Plc in UK has its corporate governance are the assurance for its management and governance and resulted for merges of the similar directors for both NV and PLC. It comprises of the board of directors and most are the non-executive directors. This implies that the shareholders have the right to nominate the candidates for the Unilever’s board of directors for their assurance in the unity of the management. The persons that are eligible for the directors are the PLC and NV which must be recommended by the board and the requisitioned by the shareholders. For the general board, they are responsible for the promotions of the success of Unilever through supervising and directing the affairs of Unilever. The directors are also the one responsible for the strategic aims of Unilever, for ensuring the necessary human and financial resources for meeting its objectives as well as reviewing the management performance. They also provide the effective control which can enable in managing and assessing risk and providing the leadership within the prudent framework. Their responsibility also is the values and standards for the Unilever which can be outlined in the Code of Business and Principles of the company and ensuring that the obligation to shareholders are met and understood. In addition, for the strategic management of Unilever, the Non-Executive Directors must help in the developing the proposal and must be constrictively challenge. For the performance, they should also observe the performance of the management for the meeting of the objectives and the goals. Regarding the issue in the risk, they must be able to satisfy on they own selves with regards to their integrity for the financial position information and for the financial system and control of the risk management which are defensible and robust. They are also the one responsible in determining the appropriate levels of remunerations of the Executive Directors and the planning succession. In the process of reporting, takes their responsibility for the accurate performance of the Unilever’s financial position. These are also the one that keeps the compliance and governance with the process of the regulations and legislations which are under the conformity and review of the Unilever and accepted norms practices. [8]
Relations of Corporate Governance to Corporate Purpose and Ethics
The corporate governance has the significant impact and relations to its purpose and to its ethics. In its maximization for its effectiveness, the corporate governance is the one directed and covered in achieving the agreed purpose. Part of the role of the corporate governance is the assurance of making the corporate activities must be focused onto the fitness purpose in order to avoid waste and to enhance the outcomes. The key dimension also for the maximization of the effectiveness of the corporate governance also involves the actions in ensuring customer quality, building sustainable reputation and the minimization of the waste. The actions in improving the efficiency through the increase of productivity will also ensure the value for the money that can support this work. Nevertheless, there is growing criticism for the expansion of the corporate governance is through the driving out of the enterprise and can also force the companies in delist from the stock exchange. For the company’s sustainability which is part of its purpose, the corporate governance needs to focus on the achievement of results that can be sustainable for the future. The pace of the growth is the great requirements for the maintenance of the resources that can match the needs of the company. There are also links in between the ethic and the corporate governance in order to broaden the corporate governance from the focus and to the process that has the concerns regarding the behavior of the group and the individual. The behaviors are also the way for the demonstrations of the values that are part of the identity of the company. Most of the companies had been espoused to the different value but few had been learned for embedding the values in the culture. This intersection between the behavior and the values is considered to be the basic issue for the corporate governance.[9]
The corporate governance ethics are the level of the system ethics that relates in the development theory, the regulations and laws. Both factors can share the focus of the problems of the firms that can driven the empirical and theoretical work. Most of the commentators on the corporate governance had assumed to the board that if they are properly harnessed, they can bring the important gains and performance. Generally, the companies conduct and system that they chose for their controlled and regulations had been centralized on the areas of investigations regarding business ethics. This implies that most of the actions of the company have the large consequences in making the concept of accountability and responsibility. The corporate governance is primarily concerns in the ultimate rest of the integrity and quality of their employees and organizations.[10]
The Dimension Data Holding Plc had been operated in accordance to the code of ethics. Their employees had been encouraged in engaging in their partners and customers so that they can uphold their code of ethics. The company also has the policy of whistle blowing that can make their staff and their stockholders in escalating their concerns in the business fraud and ethics for the precise channels into the highest level of the organization. The company has the business approach of competitive though characterized by the frankness, integrity, and goodwill. They have believed on the openness and trust which shows vitality in the components for the interactions in their shareholders and clients. In this manner, the company is expecting to have the perfect conduct from their employees as they promote the principle of transparency, equality, and accountability into the group. There are no corrupt and no tolerations of illegal transactions as well as no political affiliations.[11]
Interest in the Diversifications of Stockholders
For any of the business, the primary important is the maximization of the value of the shareholders and only depends to the business strategy and to the corporate governance. Therefore, this stakeholders’ diversification must be under the factors for the growth of the corporate governance. In this manner, the corporate governance evaluation is not into its matter of procedural “hygiene” which can limit its flexibility. Additionally, in advocating the corporate control market, the corporate governance is not the only or the preferred criteria for investment. This is only a means yet the end is the substantive corporate objective achievement. Through paying attentions to the demand of the diverse stakeholders, the firms needs to compelled in the pursuing its objectives which are commonly ill-defined and the performance of the management needs to become more of difficult to evaluate which are not the ultimate interest of the shareholder and the great owners of the corporations. [12]
This had been done by the Taylor Wimpey Plc that properly communicates to its stakeholders through the CSR and annual reports. It is also involved in different business groups for the sustainability of it stakeholder development and diversification.[13]
Good and Bad Practice of Corporate Governance
There are many examples for the good practice of corporate governance that arises in the corporation. The United Kingdom had formed the codes for the corporate governance due to the number of factors that affects the corporations which includes the collapses and financial scandals, the concentration onto the share ownership to the investors, and the improvement of the technology. Upon the examination of the Standard Life and its corporate governance, it had been determined that it can have the point for having the good practice which includes the splitting of the roles of the CEO and chair while the board are comprised for the majority of the non-executive directors. Additionally, the company has the sub-committees of main board which includes the audit, the nomination, and the remuneration committee into the major change.[14]
For the bad practices of corporate governance, one example of which is the appointment for the family members in the family companies. This is considered to be the bad practice when it is potentially confuse for the issues on the family and to the company. The other bad practices for the strategies are focusing primarily on the compliance with the existing the regulations. This bad governance is primarily governed by the way for its inconsistency to the certain practices and concepts. This also means that the governance is being governed by the directors’ personal interests and not the best interest of their owners. For the example of the bad practices of corporate governance is the Enron that utter the fraud explosion, the governance failures and the corporate abuses. There are also mess on its corporate abuse, politicians, the public and the board of directors.[15]
Conclusion
The corporate governance now considered to be the global concept and had the significant impact to all of the sectors and to all of the countries in the field of commerce, business, and public services. It had been known by majority that the corporate governance is the process that the organization is controlled and directed. This is also the action for the performance of the business for its achievement and the management for the risks and success of the organization as well as it reputation in the market that includes the need for the business’ conduct in an acceptable and proper manner. This signifies that the corporate governance is simply the foundation for the success and failure of the business.
Bibliography
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Antofagasta Corporate Governance 2007, Antofagasta, viewed 06 June, 2008, http://www.antofagasta.co.uk/interior/investor/f_corporate.html.
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Davies, P 1997, Current Issues In Business Ethics, Routledge, United Kingdom.
Tan, K 2002, Asian Economic Recovery: Policy Options for Growth and Stability, Singapore.
Dimensions Data Holdings Plc 2008, Corporate Governance and Ethics, http://www.dimensiondata.com/InvestorRelations/GovernanceEthicsAndSustainability/EthicsAndWhistleblowing/EthicsPolicy.htm.
Mares, R 2004, Business and Human Rights: A Compilation of Documents, Marticus Nijhoff Publishers, Armsterdam.
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[1] Monks, R and Minow, N 2003, Corporate Governance, Balckwell Publishing, Oxford.
[2] Corporate Governance 2007, Business Dictionary, http://www.businessdictionary.com/definition/corporate-governance.html.
[3] Pickett, K 2004, The Internal Auditor at Work: A practical Guide to Everyday Challenge, John Wiley and Sons,
[4] Allen and Gale 2000, Comparing Financial Systems, MIT Press, Massachusetts.
[5] Mares, R 2004, Business and Human Rights: A Compilation of Documents, Marticus Nijhoff Publishers, Armsterdam.
[6] Antofagasta Corporate Governance 2007, http://www.antofagasta.co.uk/interior/investor/f_corporate.html.
[7] Mead, L and Sagar, D 2006, Fundamentals of Ethics Corporate Governance and Business Law, Butterworth-Heinemann, United Kingdom.
[8] Unilever Corporate Governance 2008, http://www.unilever.com/ourcompany/investorcentre/corp_governance/#tcm:13-69713.
[9] Davies, A 2006, Best Practices in Corporate Governance, Gower Publishing Ltd. United States.
[10] Davies, P 1997, Current Issues In Business Ethics, Routledge, United Kingdom.
[11] Dimensions Data Holdings Plc 2008, Corporate Governance and Ethics, http://www.dimensiondata.com/InvestorRelations/GovernanceEthicsAndSustainability/EthicsAndWhistleblowing/EthicsPolicy.htm.
[12] Tan, K 2002, Asian Economic Recovery: Policy Options for Growth and Stability, Singapore.
[13] Taylor Wimpey Plc Corporate Governance 2008, http://www.taylorwimpey.com/Home/CorporateSocialResponsibility/Stakeholders.
[14] Mallin, C 2006, International Corporate Governance: A Case Study Approach, Edward Elgar Publishing, United Kingdom.
[15] Munzig, P 2003, ‘Enron and the Economics of Corporate Governance’, Department of Economics, Stanford University. San Francisco.
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