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MGT 4803 Corporate Governance

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MGT 4803 Corporate Governance

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Course Code: MGT4803
University: Georgia Institute Of Technology

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Country: United States

Question:
Describe the Corporate Governance For Selection Process.

Answer:
The evolution and expansion of the idea and abstraction of corporate governance in UK has evolved. The basic idea and abstraction of Corporate governance has occurred in 1932 with the book ‘The Modem Corporation end Private Property’ which was written by Adolf Berle  end  Gardiner  Means.Adolf  Berle  end Gardiner Meonshave specifically’ stated that there should be clarity and there should be no ambiguity in the defining the roles and responsibility of the members and directors of the company. The ownership and control should be separate and this is the main cause of conflict and problem in corporate governance.
The present Code of Corporate Governance 2014 in United Kingdom is based on ten essential elements of good governance that is concerned with the five areas mentioned below.

Leadership – This area of corporate governance suggests the regular board meeting in frequent internal and define the specific, different and independent roles and responsibility for the managing director chairman and chief executive. If suggests non- executive to apply the doubtfulness in order to check the effectiveness of management.
Effectiveness-  The nature, size, skills and stability between the executive and non- executive directors must be accurate and appropriate in order to work and function with the challenge of the business and complication as ii elf as difficulty of its industry . There are certain rules and regulations which are required to follow in order to maintain the effectiveness and transparency in the operation of the business such as the non-executives directors of the company should be independent.  There should be clarity and there should be no ambiguity in the appointment process and procedures of the board its evaluation and re- selection process and procedures. All the directors of the company, executive  or  non-executive directors  should  perform  and  execute  their  roles and responsibility and while expressing commitment must get the full support from the senior members and the board of directors for the purpose of forming a proper understanding of the business and the nature of its industry.
Accountability – The prime duty of the management and the Directors is that of ensuring that the books and the accounts are true and fair. There should be true, fair approach and accurate assessment of the company status and position in its annual reports. The senior members and the Board of Directors should specifically state in the annual and half-yearly financial statements the basic accounting principles such as a growing concern, consistency, conservatism and matching concepts that has been properly followed while preparing the financial report of the company. It is also accurate and suggested to adopt the concerned principles while preparing the financials of the company and in case of identifying any material uncertainties which may affect the company’s position to continue its business for the coming year since the time its financial statements are approved. So the management and the Directors must mention the concerns related to the growth of the company in the annual and half-yearly reports. It must contain the risk factors that are there in the operating system of the company, along with the liabilities that are to be addressed at different time periods. In the same way, it must be assured that there is consistency in the accounting principles that is adopted while preparing the financials of the company. The role played by the audit committee in the preparation of the financial report is also of paramount importance. The committee must verify and cross check the financial matters, the reporting and working papers of both the internal and external auditors. In an audit committee, at least one member must be a qualified accountant.
Remuneration – The remuneration of the directors must be decided based on the quality, capacity and experience of the director. There should be no involvement of the director in deciding the remuneration of the directors. The process and procedures that goes into this decision must be independent of any external or personal influences bordering around nepotism. There should be clarity and transparency in the process and procedures for the same.
Relations with shareholders – The senior members and the Board of Directors must maintain transparent relation with the shareholders. All the Directors of the company should be acknowledged and the expectations and opinions of the shareholders should be taken into account.

The role of the audit committee is extremely vital in this case and it plays a pivotal role in the preparation and finalization of the financials. The employees of the audit committee must possess the suitable experience and adequate exposure in the various in the respective field. The committee should have full support from the management and the Directors regarding the disclosure of all the necessary information, adequate training and guidance, so that the committee can perform its roles responsibly and accurately. There must be transparency and no ambiguity between the management and the audit committee. The respective roles and responsibilities of the committee should be determined by the administrative body. The audit committee must review the financial report which requires approval from the administrative or governing body. This body, consisting of the Board of Directors, should meet frequently, and there should be at least three board-meetings in every financial year. The senior members and the audit committee must examine the efficiency and the performance of the committee annually.
The company’s functions must be aligned to the interest of the stakeholders – shareholders, lenders, investors, directors and the employees. The profit maximization must be one of the main motive of the company, but it should not be the only incentive for the company’s performance. There are also other areas which are required to be taken care of while running the business. The corporate governance focus on the areas mentioned below:

Pay more focus and attention on attaining and reaching the long-term deliberated and planned objective and desire of the management and stakeholders, such as enhancing shareholder qualities or developing a massive market share as well as balancing a technical lead in specific area. The same differs from one organization to another.
Should focus on maintaining and achieving the targets, and should also define the priority for the care and well-being of the employees, both existing as well as the retired ones.
The company must perform and define its business in such a way that it does not affect the interests of the local community as well as the environment in adverse ways. The company must take care of the requirements and desires of the environment and the local community. The operations of the business must not influence the cultural aspect of the local people.
The company must focus on the fundamentals of business, such as providing quality products and services to the customers, and best after-sales services to the customers, warranties in order to create and maintain excellent relationship with group associates of the business such as customers, clients, investors and suppliers.
e) The company should take proper care and follow all the rules and regulations associated with the industry. The company must have a team to look after the day to day compliances along with the legal applications and requirements of compliances under the purview of the company in regards to its business.  

EVOLUTION AND EXPANSION OF THE IDEA AND ABSTRACTION IN UK REGARDING CORPORATE GOVERNANCE ALONG WITH ITS EFFECTIVENESS OF THE PRESENT CODE OF UK
The concept of corporate social responsibility is that it is considered to be a significant area where companies usually operates for the purpose of achieving their goals. In this regard, it is important to invest to certain areas which has been specifically confessed and appreciated the factors of ESG in relation to the factors of Environmental, Social and Governance.
The issues of CSR need to be considered and hotly debated in various board meetings on a regular basis. From the very beginning, the duties of the directors are concerned with the promotion of the triumph and victory of the organization for the purpose of ensuring the well-being and interests of the stakeholders as a whole. The nature of the below mentioned points are such that it should be considered while achieving the above mentioned requirements`

The would be consequences of the decision in the long run
The benefits and well being o the employees of the company
The company should encourage in order to develop the business relationships with the stakeholders of the company such as clients, suppliers, customers and others.
The community has an effect in the company’s operations and environment.
The attractiveness and appeal on the part of the company has encouraged and promoted reputational development for the purpose of increasing standards of business conduct.
The company should act and perform in a way for maintaining transparency within the members of the company.

With the advent of the strategic report under the provisions of the Companies Act, 2006 the issues regarding corporate social responsibility has been addressed. It is essential for the organizations to specify in the report that has been mentioned below, for the purpose of understanding of the advancement and expansion or the position of the company’s business that is consisted in the strategic report.

Nature and environmental activities has an effect on the same of the company’s business and performance.
Staff and workers of the company
Issues regarding community, civic, public and human rights.

In regard to the above mentioned points, it is important to include the details and specification regarding the existing rules, regulations, vision of the organization and the effectiveness of the above mentioned policies. The evolution and expansion of ideas and abstractions relating to corporate governance has been beneficial for the management and board of the company to focus on vital areas. There should be no existing variants between a senior management under supervising body according to the company law. Articles of Association of the company state that the directors are responsible and accountable for effective and efficient governance of the activities and business of the government. It depends of the board of the directors for taking a decision to delegate the specific authority and the powers of the committee. The directors and non-directors and the management or the managing director is involved. Articles of Association help in nominating the chairman with the help of a casting vote. However, at the same time all the chairman do not have casting votes. Therefore, few of the companies are associated with the agreements with the trade unions that produce the representative employees on the board.
There is an existence of ceiling and maximum limitations on the number of directors of an organization, which have been depicted in the act. In the presence of Articles of Association, the organization could not set maximum limits. In general, there is a presence of two different types of companies. They are private and public companies. According to the provisions of Company Law, a rule is there which is regarding the fact that a private company must have atleast two directors of which one must be a natural person in case of public companies. Certain criteria are that which is regarding the limitation of maximum age limit i.e 16 years defined for any individual selected or elected as the soul director. However, no specified definitions are mentioned regarding maximum age limit. In relation to the nationality, no requirements are mentioned in this regard. In the presence of the articles of the company for instance in case of non-UK residency essential for tax purpose, there is no such general criteria.
The executive and non-executive directors of the company face a few obligations that have similar obligations and responsibilities. It can be said that there does not exist any particular definition that discusses board non executive and executive directors as per the law. They all are also explained that there does not exist any kind of differences between the responsibilities and duties of the executive directors associated with the company and also the non executive ones.
Thereafter it was observed that a non-executive director cannot be considered to be an employee of the company as it is generally understood that a directive is basically the head of the management team. The basic role of the non-executive directors is to produce an advice to the boat by challenging the strategy of the company where the management are expected to be a part of. Whereas, an executive director is considered as an employee of the company who is expected to be engaged with the matters of the company and must hold a senior management and executive role. Despite these differences there does not exist any such differences between their duties and responsibilities.
Similarly according to the role of an individual it is said that the Law has not compose any kind of limitation but the articles of association of a few companies limit the authority and roles of a few individual directors. It has been observed that there are suggestions and opinions as per the code regarding the responsibilities for directors of listed companies that should be separated. For instance the code suggests that a person should not have unrestrained and unrestricted powers of decision and that there must be a define and transparent segment of all the existing responsibilities at the head management of the company. The basic duty is to run the boat and carry on executive responsibility for running the business. Similarly, the court there after suggests that the same person cannot carry out the duty and responsibility of Chairman and the role of a chief executive.
While appointing the directors the procedure for that is not similar to that of the public and private companies. The steps for selecting and electing directors has been mentioned in the articles of association of the company and in some cases by the agreement that were made with the shareholders or any other agreement in case of private companies. The articles of association of the company specified that the board of directors must appoint a director or the director may be appointed by passing an ordinary resolution by the shareholders that exist in the company in case of private companies.
While dealing with the listed companies it has been suggested by the code that the committee can make a nomination, which will lead the usual procedure for appointing the members of the board. The initial committee includes the independent non-executive directors. However, the boat should support the process of appointments that must be confirmed by the shareholders for passing a General resolution during the Annual meeting.
Similarly, concerning any limitation based on the process of appointing the directors the lord will not be applied in such scenario. Therefore, the articles of association of a few companies do produce for the rotation of retirement. A company includes articles of association that basically lays down the fact that the directors are accountable and answerable for the necessary effective and efficient management of the performance and activities of the company. According to the law, it does not make any difference between a supervisory body and the management. It can be said that the director’s authority and powers are restricted as it has been defined by the articles of association.
The company regulate the ability to delegate the powers of the directors as per the articles of association. Usually the directors have the power to allocate and give any kind of authorities and duties as well as power, which are granted on them as per articles of association to anyone such as individual director or committees. Allocation of power is generally exercised for the usual process of the management that should be delegated to the CEO of the Managing Director as per the legal provisions.
The UK corporate governance code shows the listed companies as it provides the fact that there should be a list of matters that are restrained for the decision of the board. There after the directors of the company must develop and maintain the following:

Nomination Committee – this committee must make a few recommendations to the boat that will lead the process of the appointments.
Audit Committee – the primary role and responsibility of this committee is to maintain the relationship with the external auditor management and risk by checking on the control of the internal system.
c) Remuneration Committee – the primary role and responsibility of this committee is to lay down the remuneration of all the directors of the company including the non executive directors, the Chairman and the executive directors in a similar manner so that the duty suggests in structuring the remuneration for senior management.

The basic obligations and duties of the directors must follow the following:

To perform inside the authority as it has been defined by the constitution of the organisation.
Encourage the development and Rise of the organisation
Take independence decision and in right manner
Take into consideration proper care, skill and due diligence
Eliminate and diminished conflicts of interest
Avoid to fetch favours from the other third parties
Disclose the various interest that are concerned with the arrangements of the company

Hence, the duties that have been mentioned above in the Act are enforceable and known as the statutory duties. The basic treatment for the violation of the above mentioned duties consists of:

Instruction and ruling comfort and relaxation
Defining and eliminating the transaction at the request of the company
Restoration of the excess income
Destruction

It can be said that there is an available remedy if there is a breach of the duty while exercising. It can include reasonable care, skill and diligence that has caused damages or an individual has suffered any kind of loss. The directors must have a duty of confidentiality towards the organization he or she is working. The terms and conditions on which day got associated with the company especially related to the executive directors may impose further obligations and duties.
The Law defines that a director can be held liable both potentially as well as criminal if the following breaches are made:

The concept of market sharing
Forbidden any kind of production and supply dishonestly
Agreements that consists of price fixing and are anti competitive
Bid-rigging

Apart from these there are separate other consequences that States the fact that a director can also receive it is qualification order that can prevent him from carrying out his activities as a director in the company.
Along with this there are also other liability where the directors can income in case of a breach of other existing laws. They are as follows:

Companies Act, 2006 – this act covers the offences that can take place in can take place in a company. For instance if an individual fails to make any kind of necessary actions then the directors will be held liable for such scenario.
Data Protection – as per the data Protection Act 1998 a few circumstances have been mentioned where the directors can be held liable criminally.
Company director’s disqualification Act 1986 – if any breach of law takes place in such a situation then the director will be disqualified immediately as that will stop him from performing his duties as well. 

Conclusion
It can be said that among the most effective tools to fight corruption corporate governance is treated to be as the most effective one. The basic purpose of the law is to improve the practice of good governance by inventing transparency responsibility and promoting the openers in a company. The company therefore must comply with the necessities that have been mentioned in the code. Hence, it can be said that no individual can argue with the rules and regulations of Corporate governance that are mandatory and necessary to follow. However, the basic kind of corporate governance lattice imposed in the United Kingdom has been transacted from the approach of the Germans. The current situation of the United Kingdom system of corporate governance regulates, monitors, and controls the affairs of the company. The purpose is to protect the basic interest of the stakeholders and shareholders who are associated with the organization.
References:
Aguilera, Ruth V., William Q. Judge, and Siri A. Terjesen. “Corporate governance deviance.” Academy of Management Review 43.1 (2018): 87-109.
Armstrong, Christopher S., et al. “Corporate governance, incentives, and tax avoidance.” Journal of Accounting and Economics 60.1 (2015): 1-17.
Bottomley, Stephen. The constitutional corporation: Rethinking corporate governance. Routledge, 2016.
Dimopoulos, Theodosios, and Hannes F. Wagner. “Corporate Governance and CEO Turnover Decisions.” (2016).
Dobbs, Stevie, and Chris Van Staden. “Motivations for corporate social and environmental reporting: New Zealand evidence.” Sustainability Accounting, Management and Policy Journal 7.3 (2016): 449-472.
Hay, David, Jenny Stewart, and Nives Botica Redmayne. “The Role of Auditing in Corporate Governance in Australia and New Zealand: A Research Synthesis.” Australian Accounting Review 27.4 (2017): 457-479.
Iliev, Peter, et al. “Shareholder voting and corporate governance around the world.” The Review of Financial Studies 28.8 (2015): 2167-2202.
Kelsey, Jane. Reclaiming the future: New Zealand and the global economy. Bridget Williams Books, 2015.
Koerniadi, Hardjo, Chandrasekhar Krishnamurti, and Alireza Tourani-Rad. “Corporate governance and risk-taking in New Zealand.” Australian Journal of Management 39.2 (2014): 227-245.
Kraakman, Reinier, and Henry Hansmann. “The end of history for corporate law.” Corporate Governance. Gower, 2017. 49-78.
Levit, Doron, and NadyaMalenko. “The labor market for directors and externalities in corporate governance.” The Journal of Finance 71.2 (2016): 775-808.
Low, Mary, Grant Samkin, and Yuanyuan Li. “Voluntary reporting of intellectual capital: comparing the quality of disclosures from New Zealand, Australian and United Kingdom universities.” Journal of Intellectual Capital 16.4 (2015): 779-808.
Matiin, Nuuridha, Tri Ratnawati, and SlametRiyadi. “The Influence of Investment Decisions, Funding Decisions, Risk of Strategy, To Efficeincy, Finance Performance, Value of Firm, Good Corporate Governance As Moderating Variable In The Mining Company Coal Sub Sector Go Public In Indonesia Stock Exchange.” Archives of Business Research 6.6 (2018).
McCahery, Joseph A., Zacharias Sautner, and Laura T. Starks. “Behind the scenes: The corporate governance preferences of institutional investors.” The Journal of Finance 71.6 (2016): 2905-2932.
Musacchio, Aldo, Sergio G. Lazzarini, and Ruth V. Aguilera. “New varieties of state capitalism: Strategic and governance implications.” Academy of Management Perspectives 29.1 (2015): 115-131.
Reddy, Krishna, Sazali Abidin, and Linjuan You. “Does corporate governance matter in determining CEO compensation in the publicly listed companies in New Zealand? An empirical investigation.” Managerial Finance41.3 (2015): 301-327.
Samkin, Grant, Charl De Villiers, and Sydelle Pinto. “Corporate social responsibility disclosures during the global financial crisis: New Zealand evidence.” New Zealand Journal of Applied Business Research 12.2 (2014): 33.
Schmidt, Cornelius, and RüdigerFahlenbrach. “Do exogenous changes in passive institutional ownership affect corporate governance and firm value?.” Journal of Financial Economics124.2 (2017): 285-306.
Stout, Lynn A., and Margaret M. Blair. “A team production theory of corporate law.” Corporate Governance. Gower, 2017. 169-250.
Tricker, RI Bob, and Robert Ian Tricker. Corporate governance: Principles, policies, and practices., 2015.

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