CORPORATE GOVERNANCE
Corporate governance involves a system of principles, policies, procedures and responsibilities which are being defined in a clear way and it is being used by stakeholders for ensuring that, there is reduction in the level of conflict of interest to a certain extent. Corporate governance involves the way in which the organisation is being governed at a particular point of time.
It is a way used by organisation regarding the manner in which these are being directed. It is regarding balancing the individual and societal objectives along with social goals. Corporate governance is going to help in ensuring that, transparency is being identified along with balanced economic growth at a particular point of time (Calder, 2008). This ensures that the interest of the people is being protected to the highest possible extent to avoid any kinds of issues which could arise at a particular point.
Corporate governance has gained importance after the occurrence of various scandals such as Enron, and it has also involved various organizations such as WorldCom, and others. This has resulted in creation of certain regulations in the name of Sarbanes and Oxley Act of 2001. This has helped in ensuring that, a strong system is being developed in the country and with the help of this system, it is being ensured that, proper areas of working is being identified without any trouble or issue arising at a particular point of time.
Objectives of Corporate
Governance
- Elimination of
conflict of interest
- Efficient and
effective use of resources of the organization
- Creation of an
appropriately designed board so that, the board is being performing the
tasks well without any kind of trouble or issue arising at a particular
point in the area of doing the working.
Importance of Corporate
Governance
- Ensuring corporate
success and economic growth is being generated by the organization.
- Maintenance
confidence of investors in a positive way.
- Reduction in
capital cost
- Minimization of
corruption, risk and mismanagement
- Help in enhancing
reputation of the organization
Principles of Corporate
Governance
- Defining rights of
stakeholders
- Defining
responsibilities of managers towards stakeholders
- Identification and
measurement of accountabilities for performance of responsibility
- Equal treatment of
managers, directors and shareholders in a proper and appropriate way
- Transparency and
accuracy in disclosures being made regarding operations, performance, risk
and financial positions
Issues in Corporate
Governance
- No distinction in
role of management and board. The board should not influence the
management in the course of doing the tasks which are being assigned at a
particular point of time.
- Various issues
arise at the point of composition of board. There has to be a combination
of executive and non-executive directors along with not 50% of the board
of directors to be considered in the category of non-executive directors.
Level of independent directors would be dependent upon the fact that
whether chairman is executive or not.
- There is no
separation in role of CEO and chairperson within the organization.
Combination of both these roles is going to influence the way in which
decision making is being carried out. The chairman of the board should be
independent to ensure that; counterbalance is being checked in a proper
and appropriate way.
- Directors and
executive remuneration: This is one of the sensitive issues in the course
of corporate governance to be carried out. The organization should give
importance to such issues in a proper way so that, there is avoidance of
these issues and the tasks are being carried out appropriately so that,
better working is being identified without any trouble or issue arising.
Anti Trust Laws
Anti
trust laws are the laws which are being framed for ensuring that, full and fair
competition is being carried out in the workplace at a particular point of
time. It helps in protection of interest of the customers to a greater extent
for ensuring that, better results are being identified. One of the antitrust
laws is Sherman Act (Monks, 2011). This act helps in ensuring that, formation
of cartels in the United States of America is being stopped to a certain extent
and there is avoidance of these kinds of issues at a particular point of time.
These areas are to be taken into consideration in a proper way so that, best
results are being generated in the course of achievement of the tasks which
have arisen at a particular point of time.
Code of Ethics
It
involves standards of working of individuals within the organisation. It works
in a particular way wherein, the organisation is being involved in
identification of proper tasks and accordingly key areas are being carried out in
the course of achievement of positive results at a particular point of time.
The mission and vision of the organisation is being documented by way of code
of ethics.
Corporate Social
Responsibility
This
involves commitment of the organisation to work in a particular way wherein,
the organisation is in the position to ensure that, it provides quality
products to customers and works towards welfare of the people so that, best
area of working is being carried out without any kind of trouble arising. This is
going to help the organisation a great deal towards achievement of best tasks
at a particular point of time. It is an extension of corporate governance
wherein, the organisation not only works towards welfare of the employees but
also ensures that, economic development is being carried out at the place where
the organisation is being doing its activities at a point of time.
Benefits of Corporate
Social Responsibility
- Helps in winning
new business
- Enhances influence
on the industry
- Helps in retention
of customers
- Differentiating
organization from its customers
- Building up good
reputation
- Enhancement in
relationship with stakeholders of the organization.
Financial Reporting
This
is another crucial concept to be taken into consideration by the organisation.
In the course of this concept, it is being identified that the organisation
should always consider reporting of its financial statements in a way that,
fair position of the organisation is being identified. The financial report
should include clear information for the stakeholders. The stakeholders of the
organisation would include customers, employees, business associates,
investors, suppliers, and unions. The financial statements of the organisation
would include balance sheet, income statement, cash flow statement and
statement of retained earnings in a proper way. Along with this, management
discussion and analysis report is also included in the area of financial report
of the organisation.
Objectives of Financial
Reporting
- The organization
is able to ensure that, it gets involved in the area of ensuring that, its
financial decision making is being carried out in a proper way. With the
help of appropriate decision making, the organization can ensure that, it
achieves the targets well and avoids occurrence of issues arising to it.
This is going to help the organization to have comparison with its
competitors in a proper way.
- Financial
reporting also provides proper information about financial health of the
organization. With the help of proper financial health, it becomes easier
for the organization to ensure that, it is being doing well and achieving
better results in the area of doing the activities being assigned to it at
a particular point of time.
Business Ethics
Ethics
involves principles which govern the way in which an individual is being
working. In the area of ethics, it is being identified that whether a
particular person is being doing the tasks in a positive way or not. The
unethical decisions should not be taken as these kinds of decisions would
result in the fact that the organisation is being involved in carrying out
various kinds of positive practices at a particular point of time.
Philosophical
Approaches
- Friedman Doctrine:
In the course of Friedman Doctrine, there is being discussion in the
course of social duties as against business ethics. One of the social
duties to business is to ensure that, the assets of the organization are
being utilized to the fullest. Friedman states that, business
organizations should ensure that they are being behaving in an ethical way
and should not get involved in deception or fraud at a particular point of
time in the area of doing the working.
- Utilitarianism and
Kantian Ethics: It is being focused on maximization of good things and
reduction in base things. This approach has its focus on the needs to
ensure that, requirements are being measured precisely and all social
responsibilities are being taken into consideration. The best decision is
to ensure that, greatest good for greatest people is being identified.
- Rights theory:
This theory states that, decision making within the organization should be
on the basis of fundamental human rights of the individuals. As noted
earlier, stakeholders have basic rights and these rights should be
respected. There should not be issues arising at a particular point
wherein, there is violation of these rights of the people.
- Justice Theory:
This theory has focus on attainment of just distribution of economic goods
and services. It is being considered as fair and equitable.
Non-Executive Board of
Director
A
non executive board of director is an individual who is not being considered as
a part of executive team. He does not take part in day to day affairs of the
organizational management and is not involved in decision making in the
workplace. These individuals are
generally being held liable as executive board of directors under certain
requirements of statutory laws being created.
Wealth
This
is a concept which involves enhancement in the wealth of the shareholders. It
involves increase in the current value of shares being held by the shareholders
within the organisation at a particular point of time. It is a broad concept in
comparison to maximisation of profits just as the case of wealth maximisation.
Here, the company looks forward to enhance returns to shareholders in
comparison to measurement of capital gains and dividends in a proper and
appropriate way. It should work towards minimisation of the level of risks at a
given point to ensure that, overall results are being generated in the best way
so that, proper areas of working are being carried out. The objectives of
wealth maximisation would include the following:
- Maximization of
market value of shares of the organization
- Maximization of
net present value of the shares
- Accounting for
timing and risks of expected benefits
- Measurement of
benefits in terms of cash flows generated.
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