Research Some Aspects Of Corporate Governance : Corporations Law Assignment

Question Regarding Corporations Law Assignment Help: Research Some Aspects Of Corporate Governance

Answer :

Independent directors:

The independent directors are the directors who do not have any material or pecuniary relationship with the company or the company related persons in Corporations Law Assignment Help, except the sitting fees. The independent directors of the organizations do not own shares of the company. There are some sources that state that the non-executive directors are different from the independent directors as the non-executive directors are allowed to hold shares of the company whereas the independent directors are not allowed to do that (Agrawal and Knoeber, 2010). In UK, independent directors make up 66% of the all boards and 72% of the S & P company boards.

Governance Corporations Law

Specific board positions of the independent directors:

The independent board director is an advisor to the CEO in organizations who provide active oversight of the business of the company to minimize the corporate risks and promote the creation of the values of the shareholders. The job of the independent board directors is fiduciary according to Corporations Law. The director is an active monitor of the management. A successful independent director can challenge the business operations, strategies, business models in Corporations Law Assignment Help and underlying assumptions, leadership development, operating performance etc present in Corporations Law Assignment Help. The independent directors are subject to election and they need to attend at least 6 to 8 board meetings every year and they need to participate in the key committees such as the audit and compensation which meet an additional 8 to 12 times a year (Beach and MacKinnon, 2009). The independent directors might not be considered as the specific board positions of Corporations Law such as chairman because they might not have enough knowledge about the organization because they are external people who join the company as independent members who are only responsible for providing advice to the board of directions which consists of the chief executive officers, chief operating officers, and chairman. The positions of CEO, COO and Chairman are usually held by the people who are engaged with the company for many years and who are well aware of the clear vision, mission of the company and who can easily attain the objectives of the organization through proper strategies of Corporations Law.

Primary role of board of directors in Corporation Law:

The board of directors or directory is one of the forms it can take the board and representation of a corporation. Under UK law, it is the way, the organizations must always choose the directors of the company is entrusted jointly to more than two people. It is characterized by its nature the advice of a body, which takes decisions by majority avoids the possible existence of three or more administrators joint powers could hinder or impede the process of decision making. This delivery system has a long tradition in corporate practice, mainly in larger companies (Beasley, and Petroni, 2010). Council members are foremost administrators, who are bound by both the general scheme of these own. The internal organization of the board can be freely decided by each company. However, there are a number of mandatory elements in almost all legislation.

Specifically in UK there is a set of rules for the board of directors which is quite mandatory in Corporations Law Assignment Help:

  • The board meeting shall be called by the president
  • The council is validly constituted when attend the meeting in person or represented more than half of its components
  • In general, and unless the statutes provide for a greater majority, the decisions of the board are taken by absolute majority of the Directors attending the meeting
  • The law also requires that the discussions and decisions of the board are carried a minute book, having to be signed by the president and secretary.

There are two main functions of board of directors. They are:

  • The policy direction of the company, the directors act as consultants in the organization, using information about the organization or the environment they have, their experiences, knowledge, enrich the decision making in the company law (Bird, 2010). It is observed that the efficiency advisory role increases with the size of the board and with the presence of independent, generally have extensive experience, and usually are or have been members of other boards, which enriches the vision may have on a particular subject, and also tend to be professionals who have an excellent reputation in this field.
  • The control of the managers and serve as liaison with shareholders. The board should act as a control tool to monitor the management carried out by the directors of the company, to try to reduce conflicts of interest that can be created between managers and investors when there is a separation between ownership and management assignment help (Black, 2009). Conflict can also occur between majority and minority shareholders, and in these cases the board must ensure that they are not injured the interests of the latter. Thus, the board must safeguard the interests of small shareholders, avoiding the divergence of interests between majority and minority shareholders to lead to injury or expropriation of small investors (Byrne, 2009).

To achieve this, a series of actions among which the most important are those relating to the composition of the Board, which should become part recommended called “independent directors,” the right to information and the directors’ remuneration and managers of the company.

Importance of having a major number of independent directors on the board of directors:

There is huge importance of having a major number of independent directors on the board of directors . The independent directors can help the board of directors in different aspects of their duties. For example, the chairman is the person who leads and board and the chairman always has the duty to drive the board and to understand the views and perspectives of the different members of the board (Boyd, 2009). The code of the chairman and CEO are different and their principles are also different. If there are a major number of independent directors present in the board of directors then the board can use the knowledge of the independent directors in the decisions taken by the board and they also get proper support from the independent directors. The main function of the independent directors is providing entrepreneurial leadership and setting the strategy of Corporations Law Assignment Help. The independent directors are usually highly experienced and qualified and thus, it becomes quite easier for the board to set their business strategy accordingly.

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Correlation between the independent board and corporate performance:

A number of empirical studies have been done in UK assignment help in recent years to find out whether there is any correlation between the independent board and the corporate performance of the companies. A study conducted by Baysinger and Butler (1985) stated that the high proportion of the independent non-executive directors are positively correlated with the return on the equity. On the other hand, a study conducted by Klein (1998) stated that high proportion of the independent directors does not have any influence on the better future performance of the organization. The research of Klein is particularly important because this is the first large scale and long time horizon study conducted in the area (Butler, 2011). The authors used 957 companies to conduct the research and thus, it can be concluded that the independent boards do not have any positive influence on the corporate performance of the organizations.

Identification and brief explanation of both a theory of corporate governance that supports a formal regulatory approach and a theory that supports a voluntary, self -regulation approach:

As per Skau (2012), a major issue in corporate governance is assessing whether a firm’s management is focused on protecting the interests of stakeholders, or not. Corporate governance focuses on taking decisions and behaving in a way that provides improvement to shareholders, and, adds value to stakeholders. Corporate governance can be used to predict good performance. There are different approaches of corporate governance in terms of regulation. The first approach is a formal regulatory approach. In this approach, the state or government establishes rules or policies related to corporate governance. All organizations must ensure that their corporate governance complies with these laws. Due to the increasing number of corporate frauds and other unethical activities of organizations, different countries have established frameworks which highlight legal aspect that protect the interests of shareholders and investors.

In this paper, the case of Sony has been considered to assess the different approaches of corporate governance. According to Shleifer and Vishny (2012), Sony is considered to be a legal identity as per the legal system of the countries it functions in, and is recognized by the jurisdiction of specific areas, states, etc. Though the identity varies from place to place, this identity allows Sony to function individually without involving any other references. This legal identity relates to specific laws which the companies need to abide by. However, apart from statutory laws, the company is also affected by common law in many countries. The governments ensure regulation through different laws which companies need to comply with. This is the formal approach of regulation. A example of this is the Foreign Corrupt Practices Act (FCPA) in USA. This Act was passes in 1977 in order to ban bribing government officials. Also, it forced companies like Sony to make sure that accounting was effective. This Act is enforced by the U.S. Department of Justice and the Securities and Exchange Commission (SEC). In UK, a similar Act called the Bribery Act was introduced in 2010. This made briing illegal. Another major formal regulation is through the Sarbanes-Oxley Act of 2002. This Act was designed to prevent corporate frauds. It was introduced in USA, and has led to the creation of similar Corporations Law in many countries.

According to Özekmekçi (2014), this Act makes it compulsory to establish a Public Company Accounting Oversight Board (PCAOB) in order to ensure effective and ethical auditing. Before the passing of this law, auditing was self regulatory. This Act also makes it compulsory for CEO and CFO of an organization to attest the financial reports. Before this law assignment had been passed, many CEOs had avoided liability for fraudulent and unethical practices by making claims that they were unaware of unethical practices and frauds and had not reviewed the financial reports (Tricker, 2009). At present, all companies need to comply with the above mentioned legal aspects. For example, multi national companies like Sony need to ensure that a PCAOB is involved in the auditing. Also, the CEO and CFO of Sony need to review financial reports and attest them. The company cannot bribe any government official or any other party. Sony also needs to make sure that the auditing board has independent members. It also must disclose whether a financial expert is present on board. In case of absence, the reason must be disclosed. External auditing companies cannot provide specific consultations and, the company must be changed every 5 years (Sapovadia, 2013).

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On the other hand, as per Sun (2009), the voluntary or self regulation approach of corporate governance involves the activities or practices that an organization does voluntarily, without any compulsion mentioned in Corporations Law Assignment Help. It must be noted here that many of the formal regulations were initially self regulatory. Due to inadequacy and failure of self regulation, formal regulatory approach was established to protect interests of shareholders and investors. For example, initially, companies like Enron used the self regulatory approach to disclose information through financial accounting, auditing, etc. However, Enron used unethical practices in order to spread false financial information (OECD, 2004).

As per Touffut (2009), this approach has been assessed with the case of IBM. The moment IBM went public, it establishes a contract with the financial Corporations Law community. The Stock exchange and its rules acted as the mediator. This contract establishes a duty of the company to disclose information publicly. The relevant information like financial data, business performance, etc. are shared based on the disclosure policy of the contract, rules of the stock exchange, etc. However, this contract is of incomplete nature and the disclosure of information is partially dependent on the company’s willingness to disclose. This establishes a need for self regulation. Self regulation of Corporations Law makes sure that a business performs ethically and protects the interests of shareholders and investors, even though there is no legal enforcement. At a micro environment, the process of spreading or disclosing information publicly is led by managers of IBM and involves monitoring and accounting the organizational structure. The diffusion and the timing of disclosure of information influences the value of IBM in a market. This also influence cash flow and how the company is perceieved (Touffut, 2009).

In turn, the prices of the company’s products and/or services are influenced. Thus, it can be seen that effective self regulation depends on the management’s ethics. As per Tydecks (2012), self regulatory approach in Corporations Law Assignment Help provides IBM with a window to manipluate information to portray a desired image of a company, or, generate a desired value. In order to prevent unethical practices in the self regulatory approach, certain guidelines and codes have been established. One of the most widely used guidelines are the OECD principles. The OECD principles are guidelines, and, are not laws (OECD, 2004). They cannot be enforced, but, they can help companies ensure that best corporate governance practices are implemented. The OECD guidelines are adapted by different nations to create localized guidelines. The United Nations Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR) created the Guidance on Good Practices in Corporate Governance Disclosure based on the OECD principles. By following these principles, IBM can make its self regulation effective and ethical (Murray, 2013).