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The role of corporate governance
Corporate governance rules and principles
Definition of corporate governance essay
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Recommended: The role of corporate governance
Corporate governance is the framework designed to facilitate direction and performance of companies. Dees, Lumpkin, Eisner & McNamara (2012) itemized the primary participants as (1) the shareholders, (2) the management (led by the CEO), and (3) the board of directors (BOD)” (p. 330). Effective corporate governance can attribute to improved financial performance, customer satisfaction and growth for corporations.
Inside vs Outside Directors
Six out 10 total BOD members met the Independence Standards defined by The NASDAQ Stock Market. Dollar Tree requires a mix of inside and outside directors with majority of members serving on the BOD meeting Independence Standards defined by The NASDAQ Stock Market. Dees, Lumpkin, Eisner & McNamara (2012) explained regarding director independence, “a minimum number of insiders (past or present members of the management team) should serve on the board, and that directors and their firms should be barred from doing consulting, legal, or other work for the company” (p.335)
Separation of CEO and Chairman Positions
Dollar Tree’s Corporate Governance guidelines
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Supermajority votes limit how far a majority of shareholders can impose on management decisions. CalPERS expressed the supermajority vote of two-thirds of the BOD was impossible to obtain.
Staggered Board Terms
CalPERS proposal also included removing the BODs staggered structure. Staggered boards may protect ineffective management and encourage entrenchment. Kehan and Rock (2014) found, “These provisions could have a plausible impact on corporate governance because staggered boards can impede hostile takeovers and shareholders may seek bylaw amendments to, for example, establish proxy access or separate the positions of Chairman of the Board and CEO” (p. 2016).
Does analysis favor Dollar Tree or CalPERS’
Ralph Nader, Mark Green and Joel Seligman, in an excerpt from Taming the Giant Corporation (1976, found in Honest Work by Ciulla, Martin and Solomon), take the current role of the company board of directors and suggest changes that should be made to make the board to be efficient. They claim the current makeup of the board does not necessarily do justice to the company because “in nearly every large American business…there exists a management autocracy” (Nader, Green and Seligman, 1976, p.570). The main resolution they present is to make the board more democratic with the betterment of the company as its first priority. Currently the board no longer oversees operations, or elects top company executives and they are no longer involved in the business operations to the extent they should be. Nadar, Green and Seligman argue that that all of these things need to be changed. For a corporation so large to be successful there must be separation of powers just as there is in any current government system ( p.571). They claim this is the only and best way to success (Nader, Green and Seligman, 1976, p.570-571).
Since the SEC had been doubted for a long time that whether they had the authority to promulgate proxy access rules, especially the doubts arose by the filing of the Business Roundtable complaint , the Dodd-Frank Act’s providing of such statutory authority to the SEC was necessary to erase such doubts. And the SEC has already taken advantages of such authority and approved a rule that allows shareholders with at least 3% of a company’s stock to include nominees for up to 25% of the directorial positions.
Next, Bogle shows that the next thing to be reformed involves the idea that the stockholders of a company should be able to “place
Shareholder agreements allow for the rearranging of voting rights so that in the case of a corporate decision to make fundamental changes such as in the structure, the bylaws or to merge the company, the power is fairly distributed. These types of charter amendment decisions are usually adopted by supermajority voting of shareholders in order to protect minority shareholders from being excluded –their decision power is comparatively smaller than the majority shareholders. If there wasn’t a clause requiring supermajority for special resolutions in the shareholder’s agreement, a director appointed by the minority sh...
Corporate governance implies governing a company/organization by a set of rules, principles, systems and processes. It guides the company about how to achieve its vision in a way that benefits the company and provides long-term benefits to its stakeholders. In the corporate business context, stake-holders comprise board of directors, management, employees and with the rising awareness about Corporate Social Responsibility; it includes shareholders and society as well. The principles which...
The Board of Directors is consisted of 11 members: James M. Elliot, the Chairman of the Board, 3 inside members and 7 outside members. The economy is stable and profitable, but that also means a lot of competition in the market. This poses a great opportunity for the company to grow and gain more of the market share. The only foreseeable real threat that the company will face is new competitors in the market.
As a consequence of the separate legal entity and limited liability doctrines within the UK’s unitary based system, company law had to develop responses to the ‘agency costs’ that arose. The central response is directors’ duties; these are owed by the directors to the company and operate as a counterbalance to the vast scope of powers given to the board. The benefit of the unitary board system is reflected in the efficiency gains it brings, however the disadvantage is clear, the directors may act to further their own interests to the detriment of the company. It is evident within executive remuneration that directors are placed in a stark conflict of interest position in that they may disproportionately reward themselves. The counterbalance to this concern is S175 Companies Act 2006 (CA 2006) this acts to prevent certain conflicts arising and punishes directors who find themselves in this position. Furthermore, there are specific provisions within the CA 2006 that empower third parties such as shareholders to influence directors’ remuneration.
Evolving societal, political, as well as cultural perceptions of corporate boardroom membership are somewhat eliciting interest in the diversity of corporate directors. Additionally, the increasing worldwide desire for enhanced corporate governance is also a reason (Carter et al. 2010, p.396) and (Grosvold, Brammer and Rayton, 2007, p.347). For instance, in the UK, novel corporate governance laws after the Cadbury Report as well as the Higgs Review have highlighted the value of boardroom diversity, including gender diversity, and the necessity for choosing directors from a broader ta...
Bibliography: Turnbull, S. (1997). Corporate governance: its scope, concerns and theories. Corporate Governance: An International Review, 5 (4), pp. 180--205.
Organizations that only have top management as the board members are more susceptible to accounting malpractices. Members of the board should preferably own shares in the company to ensure diligence when it comes to the interests of the company. Apart from the Board of Governors, there should also be an audit committee in place to oversee the financial dealings of the bank. Members of the board and the audit committee should have basic financial knowledge. Some of the members should also be experts in finances so that they can detect any anomaly that may take place in terms of financial reporting. An overhaul of the regulatory framework is required to empower authorities to intervene immediately, and make improvements. New technology is required. Manual antiquated processes should be eliminated because this causes greater human error and poor
The board membership, irrespective of executive or non executive membership, is very crucial in the governance and management of the company. However, as the duties and responsibilities of directors vary according to their type of directorship; the rewards should also match the responsibilities carried out and be in line with the performance shown over period of time.
Nottingham Trent University. (2013). Lecture 1 - An Introduction to Corporate Governance. Available: https://now.ntu.ac.uk/d2l/le/content/248250/viewContent/1053845/View. Last accessed 16th Dec 2013.
K, . N., ER, w., DAVID, K., PAUL, M., WALTER, O., & EVANS, A. (2012). Corporate governance theories and their application to boards of directors: A critical literature review . Prime Journal of Business Administration and Management (BAM), 2(12)(2251-1261), 782-787.
According to Carol Padgett (2012, 1), “companies are important part of our daily lives…in today’s economy, we are bound together through a myriad of relationships with companies”. The board of directors remain the highest echelon of management in any company. It is the “group of executive and non-executive directors which forms corporate strategy and is responsible for monitoring performance on the behalf of shareholders” (Padgett, 2012:1). Boards are clearly critical to the operation of companies and they are endowed with substantial power in the statute (Companies Act, 2014). The board is responsible for directing and steering the company. The board accomplishes this by business planning and risk management through proper corporate governance.
Board of Directors) is expected to do an extensive research before taking such an important decision, which Andy clearly did not. Hence, Andy does have a liability under section 180(1) of the Corporations Act, since he did not take did not act with due care or diligence, which he was supposed to, being on the board of directors of the company. Further, (In Re Brazilian Rubber Plantations and Estates Ltd (1911) 1 Ch 425 at 437) Justice Neville said of a director of a company that- ‘He is not, I think, bound to take any definite part in the conduct of the company’s business, but so far as he does undertake it he must use reasonable care in its dispatch. Such reasonable care must, I think, be measured by the care an ordinary man might be expected to take in the same circumstances on his own behalf.’ In the case of (Australian Securities and Investments Commission v Healey (2011) FCA 717), it was held that, Each and every director has a cardinal role in the management of the company and is positioned at the top of the structure of the organisation. It is also a set law that the higher the position held by a person in an organisation the greater would be the responsibility on