Corporations

 

Corporate Governance

 

 

“Corporate governance is the system by which businesses are directed and controlled.” Corporate governance is the set of rules and procedures governing the behaviour of a corporation and manages conflicts. It ensures investors have sufficient support to supply the firm with finance and credit, and shareholders/ owners have a set of rules to protect investors, creditors and themselves. Soundly, Corporate Governance deals with the ways in which financiers are assured of a return on their investment (Cadbury Report).

 

The Organisation for Economic Co-operation and Development (OECD) defines “Corporate governance” as the one key element in improving economic efficiency and growth as well as enhancing investor confidence.

Good governance is, therefore, a mixture of legislation, non-legislative codes, self-regulation and best practice, structure, culture, and competency that engender the successful operation of organizations, Keasey and Wright (1993).

 

Disclosure

The Company Act 2006 and the (2009) The Walker review, which Increases public disclosure about pay of high-paid executives. Companies that are publicly traded in the official list of the London Stock Exchange (LSE) are subject to the UK Listing Authority’s Listing Rules (2008b). Non-compliance with the above Acts, regulations and codes could amount to a criminal offence, especially with regard to Board of Directors’ duties.

 

 

Corporate Indoors Conflicts

 

The Owners v Managers Conflicts

 

The separation of power between owners and managers is a fundamental theory in the corporate world; (Keasey, Thompson, and Wright ).

Berle and Means (1932) suggest that ownership concentration should have a positive effect on value because it alleviates the conflict of interests between owners and managers. Fama (1980) explicates that separation of ownership and control can be explained as a result of “efficient form of economic organization”.

The directors are the managers of other shareholders’ money. Managers allocate resources as they see fit without absolute accountability for their decisions. The function above is prevalent in the UK corporate systems; there is a patterned relationship between shareholders and managers; the relationship is not greatly influenced by public policy, family dynamics or culture, which is a popular feature of the Middle East corporate world. To expose the owner v manager conflict we need to refer to the independence of the board of governance.

 

Board Independence Conflicts

Under the UK Company Act 2006, the director must act in the interests of the company. The role of the Board of Directors is to manage the corporation. This will likely include establishing policies. Most often the Board does not handle the day-to-day activities of the business, but leaves that responsibility to the managers of the corporation.

within the UK system you can cite the advantage of the separation of power, where the managers’ foresight and expertise steers the interests of the company towards the maximisation of profits. But as that appends with their bare privilege it turns to become a downside regarding the ultimate prosperity of the shareholders.

 

 

Shareholders Conflicts

 

The shareholders appoint the Board of Directors, which can, and often will, include some of the shareholders, who hold the majority of shares.

In recent times, the impounding of minority shareholders and creditors by the controlling shareholders has been globally widespread. In some cases minority shareholders returns on their investments will never emerge since the controlling shareholders confine them. In the UK, shareholders are the owners of companies and control the composition of the board, and delegate the operation and management of the corporation to the board of directors.

The Companies Act 2006 provisions give a minority shareholder leverage to curb the excesses of the majority. If a minority shareholder is determined to execute his plan, he will need to apply to the Court for protection and relief; generally, minority shareholders status is adequate and agreeable.

 

Afaf Taher

Lawyer

 

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