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Corporate Governance Responsibilities

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Question:

Discuss about the Corporate Governance & Ethics.
 
 

Answer:

Overriding responsibility of the boards of publicly-listed companies is to create shareholder value and that all other board governance responsibilities are secondary to the goal of maximizing shareholder valueThe responsibilities of the directors of the public listed companies are as follows:

The directors and the company secretaries have been assigned a huge responsibility in the Company under the Corporation Act .The functions are:

  • Obligations to the director for keeping record of the financials and passing of the solvency resolutions
  • All he listed Companies are required to lodge and present the annual statements with the ASIC and they must constantly keep the record for the changes to the company
  • The liabilities and the restriction imposed on the director of the company. Usually the Board of the listed company is entrusted with a huge responsibility. They are as follows:
  • They provide the company for the leadership and creating strategic objectives of the company
  • They help in appointing the Managing Director and to chair the ‘senior independent director’ of the company
  • The directors help in the appointment of the CEO of the company and also the appointment and replacement (Armstrong et al, 2015)
  • The director helps in the appointment and also the replacement of the senior executive and this is done through passing of the resolution in various meetings of the company
  • They oversee the company strategic objectives as well as manage the operating
  • The directors check that the that the entity complies with the accounting and the reporting system and also sees that the company complies with the regulation of the Act
  • The need to ensure that the incentives for executive directors and other senior executives encourage them to pursue the growth and success of the entity without taking undue risks
  • The director ensures that there is a functioning on the reporting system.
  • The director of the company ensures that there is satisfactory control of the company's and Group's compliance with laws and other regulations that apply to the operations.
  • In approving a formal work plan and instruction to the CEO annually the directors play a vital role (Davis and Chu,2015).
  • In approving the financial reporting and the form of interim reports and the year-end reports and annual accounts and publish it in the newspaper

In reality the listed companies has to keep the shareholders value since they are vital for the growth and sustainability of the company. Many companies have introduced stock option as a major component of executive compensation. The idea of the directors and the management was to align the interest of the management with those of the shareholders. To start the vesting periods, combined with a belief that short-term earnings fuel stock prices, encouraged executives to manage earnings, exercise their options early, and cash out opportunistically (Dimopoulos and Wagner, 2016).

The governance and the features of the listed companies help in the transparency and awareness of the company and the management. Corporate governance is a very important factor for the public listed company. Many responsibilities of the management is upon the shareholders of company. With the norms are regulated and there is globalization and privatization of the companies which will eventually improve the Corporate Governance and this is one of the important issue of the OECD program me (Jain and Jamali, 2016).

 

Overriding function of the directors in creating shareholders value

The Board of directors of the public listed companies have overriding duties which is to manage the affairs the of the company and act as a link between the owners and the employees therefore the directors and the company secretary has to manage the affairs and business of the company and for the benefit and the interest so as give the return and so that the company is satisfied in the long run in the best possible way (Yoshikawa, Zhu and Wang,  2014).

The Board of directors has the responsibility for ensuring that the organization has appropriate and the business is conducted in such a way that it is according to the requirement and it is appropriate in accordance to the articles of the Company and thus the company is able to apply the applicable laws and regulation and thereby to work as the requirement. The Board shall perform the Board work jointly under the leadership of the Chairman.
The Board and the CEO will be able to fulfill the directors’ accordance to the guidelines and the direction of the company. The Board and the CEO has followed the instruction and guidelines of the companies. The members shall not be responsible for the business and the functions of the organization. The Board shall be responsible for different lines of business or functions. The CEO and the Chairman have prepared and presented the rest of the Board prior to decision (Larcker and Tayan, 2015).

 

Goal of maximizing shareholder value is the primary goal for the company

Every business Corporation makes available to the public the goods and services and thus earns the profit that attracts the investments and thereby enhancing the economy. The main aim of the business is to enhance the value of the company and thereby helps in the growth of the company (Lazonick, 2014).

In order to improve the long term viability of the corporation and in order to improve the responsibility of the company and to take care for the well being of the society and the responsibility of the enterprises. The main objective of the business is to generate the economic returns to the owners. The directors as well as the CEO of the company should be focused on the shareholders value and the corporation will realize the value of the executives and the corporate board members and the shareholders will maximize the value of the shareholders. The shareholders value is defined as the present value of cash flow and the discounted rate that reflects the risk of the cash flows. The maximization of shareholders value is not the same as maximizing the short term profit as per share or manipulating stock prices through accounting fraud.

The corporate governance focuses on the listed companies and particularly in the Countries which have developed economy. The main governance issue is to align with the legal and the institutional and regulatory framework that helps to align the interests of shareholders and managers. The Policy maker has the incentive to the Board and the management to act in the interest of the company and its shareholders; and furnish investors with sufficient monitoring information. The primary risk is that of the non controlling shareholders and it will end up ina situation where the controlling shareholder may use his or her position to deprive the non-controlling shareholder of influence over major decisions and significant distribution of the business earnings. Many Countries have the jurisdiction which prevents them to abuse the non controlling shareholders and this apply to both the listed and public companies (Lazonick, 2016).

According to participants, a corporate governance framework elaborated listed companies could not only help to define the internal and external stakeholders’ expectations ex ante, but also, and more importantly, assist judiciaries, auditors, lawyers and other professionals in solving problems ex post. The prime responsibility of the corporate board of directors and this helps in protecting the shareholders asset and so that they can get a return on the investment. The boards of directors have a financial duty which helps in the shareholders value which is also known as the fiduciary duty. The board of directors is the highest governing authority within the management structure at a corporation or publicly traded business. It is the board's job to select, evaluate, and approve appropriate compensation for the company's chief executive officer (CEO).

The particular ownership structure of a corporation has a huge impact on the effectiveness of the board of directors to govern. In a company where a large, single shareholder exists, that entity or individual investor can effectively control the corporation. If the director has a problem, he or she can appeal to the controlling shareholder. In a company where no controlling shareholder exists, the directors should act as if one did exist and attempt to protect this imaginary entity at all times. In a relatively few number of companies, the controlling shareholder also serves as the CEO and / or Chairman of the Board. In this case, a director is completely at the will of the owner and has no effective way to override his or her decisions (McCahery, Sautner and Starks,  2016).

 

Corporate Governance helps in      

 (1) It ensures the accountability and responsiveness of the corporation to its shareholders;

(2) It promotes behaviors and compensation practices that reinforce a long-term perspective; and (3) It encourages a rich dialogue on matters of importance between investors and companies. The In order to focus on the enterprise and to improve the structure and then to focus on the “maximization of shareholder value.” Finally we can say that in order to improve the controlling power of the value-extracting CEO, including

  1. a) In banning stock buybacks (Omarova, 2016)
  2. b) In requiring executive compensation that rewards innovation rather than speculation and manipulation, and
  3. c) In placing stakeholders representing households as taxpayers, workers, and consumers on boards of directors of publicly listed companies, along with shareholders who represent households as savers.

An intellectual precondition for these reforms is the rejection of the ideology that companies should be run to maximize shareholder value, which means replacing agency theory with innovation theory as a mode of analyzing how the operation of an economy, supported by the strategies and structures of the business enterprises within it, can attain the objectives of stable and equitable economic growth (Tricker and Tricker,  2015).

Conclusion

In these days, it is important to choose a corporate objective for the firm and t is extremely important that the determinants have a success or failure of a corporation in controlling the market. In order to gain shareholder value maximization and stakeholders’ interest satisfaction the key role is to create the profit for company. Which governance is an important objective which should be followed by the corporation and it helps in maximizing shareholder value or satisfying stakeholder’s interests or balancing the interests of shareholders and stakeholders. Every corporation helps to pursue their own goal. Thus in order to grow the company and for sustainability and wealth maximization it is important that the company focuses on the wealth for betterment and the directors play a vital role in this process.

 

References

Armstrong, C.S., Blouin, J.L., Jagolinzer, A.D. and Larcker, D.F., 2015. Corporate governance, incentives, and tax avoidance. Journal of Accounting and Economics, 60(1), pp.1-17.

Davis, G.F. and Chu, J.S., 2015. Stability and Change in Corporate Governance. Emerging Trends in the Social and Behavioral Sciences: An Interdisciplinary, Searchable, and Linkable Resource.

Dimopoulos, T. and Wagner, H.F., 2016. Corporate Governance and CEO Turnover Decisions.

Jain, T. and Jamali, D., 2016. Looking inside the black box: The effect of corporate governance on corporate social responsibility. Corporate Governance: An International Review, 24(3), pp.253-273.

Larcker, D. and Tayan, B., 2015. Corporate governance matters: A closer look at organizational choices and their consequences. Pearson Education.

Lazonick, W., 2014. Profits without prosperity. Harvard Business Review, 92(9), pp.46-55.

Lazonick, W., 2016. The Value-Extracting CEO: How Executive Stock-Based Pay Undermines Investment in Productive Capabilities.

McCahery, J.A., Sautner, Z. and Starks, L.T., 2016. Behind the scenes: The corporate governance preferences of institutional investors. The Journal of Finance, 71(6), pp.2905-2932.

Omarova, S.T., 2016. Bank Governance and Systemic Stability: The Golden Share Approach. Ala. L. Rev., 68, p.1029.

Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and practices. Oxford University Press, USA.

Yoshikawa, T., Zhu, H. and Wang, P., 2014. National governance system, corporate ownership, and roles of outside directors: A corporate governance bundle perspective. Corporate Governance: An International Review, 22(3), pp.252-265.

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