Corporate governance

"Corporate governance is neither regional nor parochial in nature. It is of global provenance. Comment on these statements." Executive Summary Firstly, I will take a look into the situation of corporate governance, and to then see its effect on a global scale to justify, or falsify, the statement that "corporate governance is neither regional nor parochial in nature. It is of global provenance." To do this I will use various resources, including lecture notes, textbooks, Internet websites, and online journals, not to mention case studies, to define what corporate governance is and to then analyse its placing on a global or national scale. Only then will I be in a position to fully discuss the topic, and title, raised.

Main Content and Discussion Corporate governance is indeed a world-wide phenomenon, not simply a national or regional idea. It dictates the way in which companies are run throughout the world, having says in the control of companies. It is the way in which Corporate Boards and officers decided to handle the affairs of their corporations, being defined by Sir Adrian Cadbury in 1992 as "the system by which organisations are directed and controlled". Originally, the main focus of corporate governance was shareholders, although now stakeholders are becoming more of a priority.

The difference between a stakeholder and a shareholder is that stakeholders are anyone with an interest in a company, such as employees, as well as the shareholders. Due to this, corporate governance is concerned with: 1. Effectiveness and efficiency of operations 2. Reliability of financial reporting 3. Compliance with laws and regulations 4. Safeguarding of assets2 The need for corporate governance is down to numerous reasons, such as making the facts and figures of a firm, and also a business environment, available for everyone involved to see, not just investors. This allows people to get the full idea of the financial state of the company, whether it is in a financial state of disaster or in the midst of an all-time high.

The effects of poor governance in a situation like this, due to the current technological environment, i.e. the Internet revolution, can be instantly turned into local, national, and global news. With corporate governance it is vital to understand, and comply with, various Codes of Conduct and Government Regulations. Annual reports are released in order to show compliance with these. In previous years there have been some big name companies that have lost face due to not meeting the required regulations. These include, in the UK, Polly Peck, BCCI, and the Maxwell group, in the US there was Xerox, and in Japan there was the Daiwa Bank.

There have also been a number of business failures in recent times. Major companies have suffered major setbacks, companies such as WorldCom, Enron, One-Tel (Aus), and Barings Bank. Many of these failings have been down to corporate greed and the negative involvement of senior managers and directors. In order to successful, on both a national and international level, a firm needs to have a strong governance structure. The governance structure of a typical global company would be similar to: As well as corporate governance and regulation, firms also have to deal with ethical codes of conduct.

The definition of an ethical code of conduct is "do unto others as you would have done unto you" 4 Ethical codes are not so straight forward as corporate governance regulations, they rely more on making a standard ruling on a matter, one that the majority of people accept as fair with regards to their own personal viewpoint from a business, and personal, standpoint. Ethical codes of conduct are based more on principles than corporate governance. They use business principles to communicate corporate values, responsibilities and obligations. No 2 codes of ethics are ever exactly the same. Major work in the state of ethical codes of conduct came in the late 1980's and early 1990's. During this time there was severe amount of pioneering work carried out in the UK by the Cadbury Committee, work which was further developed by the Hampel Committee.

This led into the creation of the UK Combined Code, the Combined Code of the London Stock Exchange, of 1998 and, later amended in, 2003. Other codes of conduct that have raised eyebrows over the world have been the Securities Regulatory Commission (2001) in Chine, the Code of Best Practice (early 2000's) in Hong Kong, the Code on Corporate Governance (early 2000's) in Malaysia, and the Corporate Code of Governance (2003) in Singapore, a code that was a basic copy of the UK's Combined Code (2003).

These efforts are noted in various research sources, such as a speech made by Howard Davies to the Securities Regulatory Commission in China. Davies compares the corporate governance situation in economies, like China, with the more established regulatory regimes, such as those in the UK and US. Davies claims that good corporate governance brings "greater investment but there is important disciplines which ensure the strength of corporate governance and which must be firm but evolving to ensure success." 

Next, to understand the global nature of corporate governance, we will look at Corporate Social Responsibility (CSR). This is the role of corporate bodies and their interaction with society and the business environment. A big influence on any actions taken by these corporate bodies is the consideration of international barriers, such as the influence of international working conditions. By this I mean such aspects as pay norms, minimum wage levels and enforcement, as well as the markers and possibly customers. By taking this information on board, they are taking into account any regional and global politics and policies that may affect national policies and ambitions within their own country.

It is the corporate bodies' task to make sure that any decision that they make have been fully assessed against other nation's decisions on similar issues. An example of this is to make sure that if setting a minimum wage level that they are within legal rights to set it at such a level, but also to take a look at its international competitors to make sure that they the levels that they set are advantageous to them, and not favouring their opposition.

If the case was such that they set a wage level lower then their competitors, then this may well drive out members of their workforce to their competitors, as money talks. CSR is not required by actual statute, although in some countries there are implied legal requirements. These are basic and obvious points, such as health and safety regulations, the working environment is up to a satisfactory level, that the practices of employment are satisfactory, and that there are no forms of discrimination whatsoever. If these are not met then legal action can be taken against the firm in question.

Good corporate governance should be a part of everyday, normal operating procedures. It should be an everyday way of running a business, not merely something attached to a business, or something seen as an "add on". It plays a vital role in an organisation's achievement of success, and so should be looked upon with the most consideration. It is vital that regulations and codes are followed, that the board follows it's responsibilities to the full, with the stakeholders receiving the full information that they require.

Implications and Conclusions

Is corporate governance of a global origin? My answer would be yes, it is. Whilst it is seen as a national issue, the international and global picture simply cannot be ignored. If matters of a nation's corporate governance are merely construed to the needs of that particular country then that would lead to a major downfall, as it would fall out of line with other nations. It is vital to consider the regulations and codes of other nations when looking at corporate governance.

It is important that corporate social responsibility is understood by all parties involved. Corporate governance is a global situation. It can be argued that, given the different cultural settings of different nations, it would be a very difficult task to have a universal law of corporate governance. A problem with this is also the emergence of transition economics, which further complicates matters. The origins of corporate governance are of a global reasoning. The main problem from here, though, is that with nations becoming stronger and stronger, and the different cultural aspects of nations, it may be hard to maintain a universal code with certain countries.