Delivery in day(s): 5
Diploma in Business
Unit Number and Title
Unit 14 Accounting Finance Theories
This report has been prepared on the topic which relates to the corporate governance system prevalent in various countries located at different parts of world. The statement is given which states the system of corporate governance which has been implemented universally throughout the world is based on the objective that ensures that the companies in different countries establish themselves as good corporate citizens.This means accounting financial that this system shall enable them to prevent the scandals of corporate governance which have recently affected many companies worldwide. Thus by identifying and comparing the corporate governance systems in various countries, this report clearly evaluates the effect of these systems on the corporate existence and performance of companies and how these systems help in the prevention of scandals that are taking place frequently. This accounting finance theories assignment report includes a background of the system of corporate governance, comparison and contrasting of these systems in different countries, meaning of corporate citizen and evaluation of statement. This is explained in context of four countries which are United Kingdom (UK), United States of America (USA), Australia and India. The background of the system in these countries and their comparisons is included for better understanding along with evaluation of these systems in different countries.
Corporate governance system refers to as the policies and procedures, systems, rules and code which is used to provide direction to the company and determine the method by which company is controlled it majorly focuses on effectively handling the relationship of company with its stakeholders in a perfect and balanced way. The stakeholders of a company include a large group of people comprising of customers, suppliers, investors, shareholders, contractors, financial institutions, government, society and community etc. The scope of corporate governance includes areas of internal controls, management actions, corporate disclosures and performance of management in context of overall interests (Bucur, 2015). The pivotal role under the system of corporate governance is played by the Board of Directors through the management of company since they are elected by the shareholders being the owners of company and thus they represent the shareholders to safeguard their interests. The major components of corporate governance system are as follows:
Financial Reporting Council (FRC) through UK Corporate Governance Code under UK Listing Rules
Securities and Exchange Board of India (SEBI) under Clause 49 of Listing agreement and Stock Exchanges such as National Stock Exchange (NSE) and Bombay Stock Exchange (BSE)
Australian Securities and investment commission (ASIC)
Securities Exchange Commission (SEC) and other stock exchanges such as NASDAQ and NYSE.
Defining set of standards to follow best practices
Separating ownership from governance
Follow of regulatory guidelines and principles for management
Wealth maximization of shareholders
UK Listing rules
Clause 49 of Listing Agreement
Provisions of Corporate Governance Council and ASX
Sarbanes Oxley Act, 2002
Area or scope
Company accounts, annual reports, risk management, stakeholder relationship
Board composition, formation of committees and effective governance
Company operations, governance, risk management and compliances
Shareholders wealth maximization and effective performance
Corporate citizenship is a concept which ensures that the corporate bodies established in a country complies with their duty to be the part of country as a bonfire citizen. Citizen is a person who lives in a country or has a place of establishment in a country which defines his residential status with that country. Corporate bodies are the business establishments formed by a group of persons to achieve a common goal of earning long term profits and wealth maximization through conducting a business or providing services to consumers. As the corporate bodies have a place of establishment of their business in a specific country, therefore they are regarded as the corporate citizens of a country. This gives rise to the concept of corporate citizenship which specifies that every corporate citizen shall perform its duty towards the country to which it belongs with regards to environment protection, accountability towards the stakeholders and general public. Health and safety of every citizen, social responsibility and protection of rights and interests of individuals and others through avoiding the use of unfair and illegal practices. Thus, corporate citizenship involves social responsibility of businesses and meeting of ethical and legal requireemnts. The global corporate citizenship is based on four pillars which include value of business, its protection, creation and evaluation (Lin, 2010).
Corporate governance is linked with the concept of corporate citizenship in a way that they both focus on building public trust and manage the risks of businesses imposed by internal and external factors through effective governance structure which aims at achieveing the objectives by fulfilling the social and ethical responsibility. The aims of bioth these concepts coincide with each other including achieving good governance by doing minimum harm to others and ensuring compliance of legal and ethical issues with the overall obkective of fulfilling the social responsibility and corporate accountability as a part of society and communitry of the country. In this way the compliance of duties and responsibilities, being a responsible citizen of country of establishment through protecting the interests of other citizens as well aligning the corporate objectives with social responsibility (Sheehan, 2013).
The given statement discusses about the aim of the universal system of corporate governance which has been implemented worldwide by different countries in different parts of the world. The aim so to fully ensure that these companies establish themselves as better corporate citizens through implementation of corporate governance mechanisms within their policies, procedures and operations so that the corporate events and scandals happening in different economies of world can be prevented since they have the potential to adversely affect the performance and reputation of these companies financially as well as operationally in the global market. This not only influences the company but also the countries of operation and economy of those countries.
From the above discussion in context of the given statement about the effectiveness of corporate governance system and corporate citizenship established universally in preventing the corporate governance scandals, it can be concluded that corporate governance system is an effective tool or code of conduct which helps in determining the guidelines and principles which shall be followed by companies throughout the world to ensure that their responsibilities towards the stakeholders, society and country are accomplished and corporate accountability is undertaken. The comparison of corporate governance system in the four countries including UK, USA, India and Australia suggests that the corporate governance system of all these countries have a common goal of increasing business value and maintaining healthy stakeholder relationship through discharging social, ethical, legal and other responsibilities effectively. Also it can be concluded that the corporate governance system can be used as a universal concept to prevent the corporate frauds resulting in disasters and scandals which adversely affect a large number of people worldwide.
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Chung, K.H., Elder, J. & Kim, J. 2010, "Corporate Governance and Liquidity", Journal of Financial and Quantitative Analysis, vol. 45, no. 2, pp. 265-291.
Crane, A. & Matten, D. 2016, Business ethics : managing corporate citizenship and sustainability in the age of globalization, Fourth edn, Oxford University Press, Oxford.
Daghie, D. 2011, "Corporate Governance", EIRP Proceedings, vol. 6, no. 1, pp. 66-71.
HERMALIN, B.E. & WEISBACH, M.S. 2012, "Information Disclosure and Corporate Governance", The Journal of Finance, vol. 67, no. 1, pp. 195-233.
Kusumaningtias, R., Ludigdo, U., Irianto, G. & Mulawarman, A.D. 2016, "Rethinking of Corporate Governance", Procedia - Social and Behavioral Sciences, vol. 219, pp. 455-464.
Lewis, K. 2016, "Adoption of corporate governance recommendations", Governance Directions, vol. 68, no. 6, pp. 329.
Lin, C., Lyau, N., Tsai, Y., Chen, W. & Chin, C. 2010, "Modeling Corporate Citizenship and Its Relationship with Organizational Citizenship Behaviors", Journal of Business Ethics, vol. 95, no. 3, pp. 357-372.
Ntongho, R.A. 2016, "Culture and corporate governance convergence", International Journal of Law and Management, vol. 58, no. 5, pp. 523-544.Sheehan, M. 2013, "Corporate Citizenship: Good for Business; Good for Employees", Leader to Leader, vol. 2013, no. 70, pp. 26-31.