Corporate Governance Legislation

Abstract

This text proposes the fact that without corporate governance legislation in our current times, it would certainly be formulated for the purpose of reducing the many risks involved in international trade for the trading confidence of the participating nations.

Governance practices that are proposed would first have to focus on self disclosure. The constituents of the products would have to be known using labels and other internationally recognized symbols.

Product safety recalls would have to be governed by law so that the efficient products are present in the world wide market.

Insurance would also have to be imputed into law to ensure that trade participants are guaranteed of their import and export safety in case of unprecedented risks note quoted under the terms of transaction.

Compliance with international trade guidelines and codes would have be legislated to ensure standard practices of trade as well as that of goods so that amicable resolutions can be attained in case of disputes.

Legislation on accountability of corporations in reference to financial vices would also be practiced as well as protection of whistle blowers of scandals.

Introduction

Before the 19th centaury when industrial revolution commenced, trading was ungoverned in most parts of the world. This was because business was localized within territorial boundaries. When industrial revolution began in Europe, business and trading activities started crossing international boarders. This was because the new inventions from steel coupled with the use of coal as a fuel caused the expansion of the transportation system by means of trains and ships. Goods started reaching remote geographical localities as demand grew due to increased population. Money was now being exchange as the main mode of doing business. This era opened the now popularized term of globalization as business corporations and nations in different places traded goods and services. However trust in doing business slowly declined over the ages due to the increasing disputes that were being recorded between trading partners that fostered corporate legislation for protection purposes.

Corporate Governance Practices.

Trust in carrying out business has severely dropped from the early nineteenth centaury to the present. This was and has been characterized by the insecurities that are prevalent in corporate trade. Hence Self disclosure in corporate trade come to be accorded as an important governance practice as it alerts the importers or end users of the traded product of its (product) consequential outcomes. With out this, many consumers would suffer from problems that they could have avoided if they new the content of the products they were consuming. This practice considers the use of labels that mention the substances used to make the product or its constituents for the knowledge of the consumer.

For example in the case of genetically engineered foods, the full disclosure practice has been applied to enable consumers know what they are consuming. This for instance has seen Malaysia adopt the Bio safety Bill that emphasizes on full disclosure of the products constituents in the market. Genetically modified alimentations have according to numerous researches been found to be potentially dangerous to the continual well being of health in man. The constituent elements of genetically synthesised foods contain bacteria that have been modified to constitute the nutrients of the foods. Their consumption has been found to cause tolerance to anti-bacterial treatment in humans due to resistance that is accorded by the bacteria in the genetic make up of the food thus making a person resistant to treatment. This is persists means that medication for the new evolving strains against anti-bacteria medicine would be passed by their production causing human deaths in nations where genetically made foods are in the market. This issue of disclosure Hs seen some governments block the importation of genetically made foods in to their boarders to fear that is attached to the health risks of the genetically made foods.

Wherever the Bio safety Bill is being applied in the world, the respective nations separate genetically made foods from organic foods in the markets and shop so that the consumers can choose whichever they prefer while knowing their potential risks.

The practice of product safety recall is another important governance practices that would have had to be instituted if legislation on corporate trade was not formulated long time ago. This practice focuses on the credibility of the exporter or manufacturer of the product to the receiving country.

For example in the US, a company by the name ‘Toys R Us’ issued a product safety recall on their infant feeding bottles from the market. The problem with the feeding bottles was that they were highly brittle. Their use could see them easily break producing tiny pieces that could have fostered an aspiration threat to young children. Consumers were advised to take the feeding bottles far from young children as quickly as possible and take them back to the stop where they bought them from in order to get a refund of their money. By this time, already over 110,000 sets of the bottles were in the market and this translated to huge losses for the company.

(U.S. Consumer Product Safety Commission, 1992)

The practice of insurance is also identified as another aspect that would have to be imputed into corporate trade in the event that there were no regulations and codes governing it. The acquisition of an insurance policy is important in corporate trade mainly between nations as this ensures that the importer receives the goods no matter what the circumstances that occur during its transportation. No loss is incurred in either of the trading partners as compensation is paid to the affected party.

A classical example of this appears in the oil trading and transportation field. In Saudi Arabia, one of the major oil exporting countries due to its vast reserves of oil takes up insurance cover for the transportation of its oil cargo to its destined customers. This is mainly via water mode transportation using ships. This cover becomes important due to the piracy threats that the ship cargo face in their way to their destinations. Its positioning along the Gulf of Aden where most piracy attacks take place makes it essential for Saudi Arabia to take these insurance covers against the oil consignments.

The pirate attacks have become rampant of late with major attacks happening in the Indian Ocean along the coast of the lawless Somali nation. This has caused insurance premiums to rise which price becomes subjected to the end user of the crude oil import.

(Satter, 2009)

Compliance with international law is also defined as a governance practice that would have seized to be if corporate governance laws were not instituted in the past. International laws subjects all nations to abide by the code of standards applied in them as a measure of diminishing risks and other significant threats on corporate trade.

The development of trade back from the nineteenth century caused trust between trading partners to decline due to the disputes that would arise. This then initiated the creation of the world Trade Organization. This international body was created in 1995 with the aim of solving disputes of international trade by making all nations abide by its stipulated rules. Without a legalized benchmark for carrying out trade in the world, disputes would be the order of the day and would slow economic growth in many nations. The compliance to the laws and regulations of the World Trade organization forces all nations to abide by guidelines put on matters such as tariffs and quotas, government subsidies, customs laws, standard levels of industrial and agricultural goods among others. (International Law Institute, 2007)

One example of the compliance to international trade rules is the practice of dumping. Dumping in the international trade arena is defined by the differentiation in pricing of an export commodity where by it is purchased at a lower price in the importing country than the normal higher price it is being bought in the exporting nation. The ban of CFCs from the proceedings of the Montreal protocol on ozone layer depletion required that trade in products containing CFCs be stopped. Products such as refrigerators and air conditioners where to be manufactured using non-ozone depleting materials. Because of this law, many manufacturing companies of CFC containing substances were prompted to dump these products to other nations in the form of trade to do away with them. This was more so in developing nations were the purchasing power of the people was weak compared to developed nations. The detrimental effects of CFCs to the environment could hence see the prosecution of the exporting countries according to the world trade regulations. (Benedick, 1999)

With advancement of international trade saw the vice of greed encroach the business sector and money laundering scandals and trading disputes started becoming evident making international trade even a more risky affair. An example of one such big scandal was the Chinese milk scandal. This scandal happened in 2008 in September where incidents of death of Chinese infants were detected when they consumed melamine laced milk products. The scandal arose from stiff competition between milk product processing companies that saw one introduce melamine in its product as it tended to show high protein composition. About six infants died from this crisis and many other fell ill. Since these milk products were being traded in the international market, many nations put alerts and bans against milk alimentations originating from China. (BBC News, 2009)

To counter such vices, laws and codes that would govern the import and export business would have to be implemented to secure the participants of trade from risks that would result in financial losses. An example of this is portrayed in the US Corporate accountability act. This came in to force in 2002 a midst of the rampant corporate and accounting scandals that captured the attention of federal regulators and the public. The American Congress then passed this law to curb corruption as well as protection of whistle blowers. The law focused on manipulation of documents or their deliberate destruction making the offenders punishable by imprisonment and/or other forms of punishment. (Warren, 2003)

Conclusion

            If corporate governance legislation was not present in our present times, then it would have had to be created so that trading countries could do so in confidence. This is because of the many risks attached with international trade such as delays, damage, disappearance or loss of goods among a multitude of other risks that bring with it financial losses and the resultant disputes between the trading partners.

References

Warren, W., H., (2003). “Corporate Governance Law: Its Implication To You.”  Accessed on    April 29th 2009. From     http://www.asaecenter.org/PublicationsResources/AMMagArticleDetail.cfm?ItemNumber=7171

Benedick, R., (1999). The Unavoidable Concept in the Montréal Ozone Agreement.       Accessed on April 30th 2009. From

http://www.earthinstitute.columbia.edu/library/earthmatters/sept1999/pages/page4.htmlInternational Law Institute, (2007). “Comp ling with the international rule on trade and                         investment.” International Trade Legislation Co., Washington, USA. Accessed on April            29th 2009. From http://www.ili.org/intlc.htm

BBC News, Jan 22nd 2009. “Health Crisis: China milk scandal.” Accessed on April 30th 2009.   From

http://news.bbc.co.uk/2/hi/asia-pacific/7720404.stm

Satter, G., R. “Piracy Steeples Shippers’ Insurance Premiums.” Accessed on April 29th 2009.      Fromhttp://www.myfoxchicago.com/dpp/news/dpg_Price_of_Piracy_SAB_041220092404184

U.S. Consumer Product Safety Commission, (1992). “Toy Company Recalls Infants’ Feeding                           Bottles.” NEWS from CPSC. Accessed on April 29th 2009. From                                                 http://www.cpsc.gov/cpscpub/prerel/prhtml92/92141.html