Corporate Governance

Posted: March 26th, 2020

Corporate Governance

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Corporate Governance

Executive Summary

            Corporate governance is the most important aspect of the organization decision-making processes. Additionally, collective creation and reproduction in a social norm are important for overall performance measurement. The article details the differential models used from the Anglo-American, Japanese, and German systems. It articulates the issues and analyses United Kingdom’s approach towards governance structure offering a background of the standards and codes used. Finally, it delivers recommendations on the effective principles that can be used to guide the setting of corporate governance structures.

Corporate Governance

Introduction

            The process of decision-making and interaction among the involved members of an organization through a collective problem refers to the corporate governance undertaken. The process involves reinforcement, creation, or even reproduction of different structures that in turn affect the development in legal structures, culture, performance measuring methods, and evaluation of the governance requirements. The two distinguishing aspects of corporate governance relate to the manner of the board’s handling and the application direction. Principle players include the management, shareholders, and the board of executive directors. The different levels of stakeholders are suppliers, customers, employees, regulators, and the environment. The Anglo American, Japanese, and Germanic approaches have been earmarked as strategic governance structures that can be used in different organizations for effective success. Other levels include the multi-stakeholder model where civil law is central, shareholder where the tradition of common law is effective, as well as the hybrid between the two models where embrace of the two laws is simultaneous.    

Background

            Different forms of corporate governance structures have been used in various parts of the world. The three iconic structures include the Germanic, Anglo American, and Japanese. The Anglo American model is proficient to the wide and diverse shareholder base. In addition, the government, banks, and other interested parties have little stake in the organizations. The Germanic is characterized by the labour unions formed having the corporate seats and determining the governance decisions (Wong, 2011). The Japanese structures are ideally associated with management stints in the boardrooms and affecting the decision-making. The three structure models are influenced by the development of other nations and changes in legal structures, cultures, tax methods, and performance measurements criteria. The approach by the United Kingdom reflects on the development of the Anglo American model of corporate governance. It is effective through adoption and modification as means of increasing independence, liberalization, and assurance of success. It also assures reliance with shareholders.

Analysis of the Issue

            In the United Kingdom, there has been growing concern on the need for independence of the boards from the management. Due to globalization requirements, technological advancement, changing market landscapes, and effects of translated performance measurements to the stakeholders, the constitution of the governance structures has been under scrutiny for reforms. The population of the boards has significantly changed into the non-executive members as well as being organized from the overseeing management. Auditing and compensations have been earmarked with the countries’ preference of hybrid adherence to common and civil law (Kieff and Paredes, 2010). With the independence of the governance structures, the organizations become more attractive to different investors as well as being legitimate to the eyes of the customers and respective suppliers. The standard practices are thus maintained in an in-house capacity through independence and effective decision-making processes on the status of organizations.

            Investor interaction changes within the organizations have pushed for reforms on the structures used for governance in the United Kingdom. Consequently, the ability of the organization’s monitoring and use of appropriate measures on the same has been identified as the game-changer in the trends. With the adoption of the hybrid models between multi-stakeholder and shareholder structures, potential returns are then converged for overall organizational performances. In the effective changes towards the Anglo-American governance structures, the country has forged a reputable set of practices for decision-making. By respecting the civil and common law according to principles of corporate governance, the structure enacts a balanced approach on independence of the board as well as accountability of the decision-making procedure. Sharan (2008) argues that oversight committees are then used to reflect the interests of shareholders and stakeholders through reassertion and an influence on the organization’s placing.

            Regulatory requirements for industrialized nations have increased the pressure on corporate governance structures within the United Kingdom over time. Increased scrutiny of the organizations interested in being listed as public and private entities within the different categories of the country’s legal system have enabled a re-think of the approaches towards the formation. They are required to conform to the code of standards under the United Kingdom Combined Code on Corporate Governance. In addition, they are required to state the measures of differences under the same circumstances of corporate. Thus, the codes have influenced the law with strong expectations on the governance jurisdictions. Changes made are reflective of the modification of the Anglo American category. Mitchell (2009) notes that changes witnessed include reduce boards’ sizes with enhanced monitoring management and auditing, whilst respecting the cultures, taxation and performance measurements. In turn, effective standards have been raised and maintained with sustainability.

            The wide and divergent base of shareholders within the United Kingdom has led to increased changes within the governance structures. The evolvement of the Anglo American systems is typical with the little stake of shareholders in corporations as well as financial institutions like the bank and the government. The contrast witnessed in Europe is that there are larger shareholders, fewer but with cross-holdings by investment partners like the banks and overall capacitance by the administration (Financial Reporting Council, 2015). There is demand for representation within the boards since their positions within the society determines the organizations’ reputations. Therefore, modification was inducted into the Anglo American system through diversification of the corporate structures and inclusion of various societal representations. The changes were dramatic with the code of governance increasing reliability within the systems as well as overall decision-making processes, timings, and returns according to overall potential.

Recommendation

            Due to the divergent nature of the different countries, cultures, legal structures, tax methods and performance measurements criteria, approaches of governance structures have to be localized in order to obtain maximum returns. For example, the different standards and requirements of corporate governance of developed nations cannot be at the same level as those from the developing nations. Similarly, due to the models of attitudes and management criteria, American and European systems cannot be identical. Therefore, development of the structures should be in relation to the surrounding circumstances of the nation as well as incorporating independence (Wong, 2011). In addition, protection of the creditors, shareholders and interest of all stakeholder s have to be included at all times. Transparency in the board configuration is vital with the standards being respected and accountability provided.  

Conclusion

            Corporate governance is the most important aspect of the organization decision-making processes. Additionally, collective creation and reproduction in a social norm are important for overall performance measurement. The United Kingdom’s approach through evolvement and modification of the Anglo-American model has increased the positive results realised thus far. Intent is maintained in independence, accountability, and representation of the shareholders and stakeholders. However, with increased globalization demands and changes in market dynamics, governance structures should protect the stakeholders, localised for effective returns, and increase interdependence. In addition, respect for tax laws and standards code of governance should be maintained.

References:

Financial Reporting Council (2015). Developments in corporate governance 2012. FRC. Retrieved from https://www.frc.org.uk/Our-Work/Publications/Corporate-Governance/Developments-in-Corporate-Governance-in-2012.pdf 

Kieff, F. S., & Paredes, T. (2010). Perspectives on corporate governance. Cambridge [U.K.: Cambridge University Press.

Mitchell, L. E. (2009). Corporate governance. Farnham, Surrey, England: Ashgate.

Sharan, B. (2008). Corporate governance and accountability. New Delhi, India: Rajat Publications.

Wong, P. (2011). Corporate governance practices in developing countries. International Journal of Business Administration, 2, 1. 1-17.