1. Introduction In the past decades, corporate governance attracts the whole world’s attention for its exposed scandals, and even criminal activity by corporate directors in some cases. (e.g.: the bankrupt of Enron Corporation). As we all know that an efficient and effective corporate governance regime should include provisions for civil or criminal prosecution of corporate directors who conduct monkey business or illegal acts, but what is the functional method to avoid such situations? This article looks at the significance of directors’ duty of care in achieving this goal. 2. What is corporate governance? What is efficient and effective corporate governance? 1) What is corporate governance? Corporate Governance refers to the set of institutions and practices designed to ensure that managers and directors act in the interests of the company and ultimately shareholders. It encompasses: “the framework of rules, relationships, systems and processes within and by which authority is exercised and controlled within corporations. It encompasses the mechanisms by which companies, and those in control, are held to account.” Thus corporate governance is not simply a product of government regulation. Companies have inherent incentives to establish governance procedures to demonstrate their bona fides to investors, in order to attract capital. Directors also have incentives to deliver good performance to maintain their professional reputations. 2) What is efficient and effective corporate governance? Good corporate governance promotes investor confidence, which is crucial to the ability of corporates to compete for capital. Efficient and effective corporate governance should performs well against criteria such as board accountability, finan... ... middle of paper ... ...e must disclose the information specified under s 300A which includes broad polices for determining the nature and amounts of remuneration, the relationship of such policy and the company’s performance and details of the nature and amount of each element of the remuneration packages of each director and the five highest paid officers of the company., Disclosure of the remuneration policy is a fundamental requirement for remuneration reporting. 4. What if a director breaches his duty of Care? What is judgement rule? I. What if a Director breaches his duty of Care? The statutory duties which trigger the civil penalty provisions of care and diligence(s 180), if it has been contravened the court can impost the following orders: 1) a pecuniary penalty of up to $200,000 (s 1317G) 2) disqualification from management (s 206C) 3) Compensation for damage suffered (s 1317H)
Shivdasani, A., & Zenner, M. (2004). Best practices in corporate governance: What two decades of research reveals. Journal of applied corporate finance, 16(2/3), 29-41.
Friedman argues that, for example a corporate executive has a responsibility to his employers, which is usually to make as much money as possible for the company while conforming to the laws and ethical customs of the society. This employer, outside his work, may devote his time and money to certain charities that he regards as worthy and while these are social responsibilities they are the individual’s social responsibilities, not the company’s. Friedman in a sense says how entities have responsibilities; it is the people that have the responsibilities. A corporation in a way is too vague of an entity to assume responsibilities. Again, he feels ‘’that the key point is that, in his capacity as a corporate executive, the manager is the agent of the individuals who own the corporation…. And his primary responsibility is to them’’ . The only responsibility a director should have is to its shareholders and not to society or any other interest group or public good. And so if the interest of the shareho...
With duty of care, directors are obligated to be honest and to use prudent business judgement in the conduct of corporate affairs. They must use the same degree of care in their business decisions as they would with their personal ones. In the scenario, the Board of Directors closely examined the proposed transaction but they were unable to discover the gross inflation of Television Inc because of Jimmy’s forgeries. The directors executed their responsibility to the best of their ability and they should not be held liable. The shareholder should not have a case against the directors for violating their fiduciary duty of
This report gives the brief overview of the concept of corporate governance, its evolution and its significance in the corporate sector. The report highlights various key issues and concerns that are faced by the organizations while effectively implementing and promoting Corporate Governance.
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.
Bibliography: Turnbull, S. (1997). Corporate governance: its scope, concerns and theories. Corporate Governance: An International Review, 5 (4), pp. 180--205.
The end of 2001 and the start of 2002 saw the end of a period of magnified share prices and booming businesses. All speculations of misrepresentation came to light and those firms which once seem unconquerable were now filing for bankruptcy. Within this essay, I shall discuss the corporate governance mechanisms and failures which led to the Enron scandal resulting in global corporate governance reforms being encouraged.
The Principle of Separate Corporate Personality The principle of separate corporate personality has been firmly established in the common law since the decision in the case of Salomon v Salomon & Co Ltd[1], whereby a corporation has a separate legal personality, rights and obligations totally distinct from those of its shareholders. Legislation and courts nevertheless sometimes "pierce the corporate veil" so as to hold the shareholders personally liable for the liabilities of the corporation. Courts may also "lift the corporate veil", in the conflict of laws in order to determine who actually controls the corporation, and thus to ascertain the corporation's true contacts, and closest and most real connection. Throughout the course of this assignment I will begin by explaining the concept of legal personality and describe the veil of incorporation. I will give examples of when the veil of incorporation can be lifted by the courts and statuary provisions such as s.24 CA 1985 and incorporate the varying views of judges as to when the veil can be lifted.
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.
In the aftermath of Enron, Washington Mutual Bank, TYCO, and World Comm these companies went against the grain of what good ethical behavior is and what their respective company’s code of ethics were. The criminal justice system has made it clear that it will not allow companies and their executives to get away with the misuse of public trust by allowing them to make themselves rich at the expense of the employee. Where these crimes are both ethically and morally wrong, the CEO’s of major corporations are being punished by a ...
Achieving excellence in corporate governance by promoting good compliance and corporate governance culture as well as strengthening self and market discipline is one of the objectives of MCCG. The MCCG 2012 had sets out for about eight principles which followed by 26 corresponding recommendations. The principles mentions above are an establishment of clear roles and responsibilities, strengthen composition, reinforce independence, foster commitment, uphold integrity in financial reporting, recognize and manage risks, ensure timely and high quality disclosure and lastly strengthen relationship between company and shareholders. The first principles of MCCG which is roles and responsibility of the board shows that director’s code of ethics is a major part in corporate governance in Malaysia. where in this principles, formalizing ethical standards through a code of conduct and ensuring that company strategies promotes sustainability is required to be done by the directors. Moreover, this principle also is being expected also to formalize a Board charter. In sense of ethical issue, the director required to questioning themselves about the
This paper discusses the role of ethics in corporate governance. I seek to show the application of moral and ethical principles in corporate governance. Ethics is a topic that has generated a lot of interest in the last decade especially after high profile scandals. The failures of prominent companies such as WorldCom, Enron, Merrill lynch and Martha Stewart portrays the lack of corporate ethics. The failure of such business has seen an increased pressure to incorporate ethics in corporate governance. The result of corporate scandals has been eroding investor and public confidence. The entire economic system has experienced some form of stress from loss of capital, a falling stock market and business failures.
Corporate law is an area of law that directly relates to dealings with corporations within our legal system. “In Ontario, law compromises of statutes, regulations and cases. This means that to understand the law in any area, you must familiarize yourself with the statute or statutes that relate to that area, check related regulations where required, and read cases that show you how the courts have applied those statutes and regulations in real life situations” (Corporate Law for Ontario Businesses, 2012, pg. 2). In this paper I will be doing just that. I am going to be looking at a particular case that happened and examine how the courts applied legal regulations to a real life situation. I will also be examining what it means for a corporation to be a separate legal entity, as well as the level of importance a shareholder has within a company. All of these topics directly relate to the case I will be examining and are important to knowing in order to understand why the court made the decision that they did. Lastly, I will be discussing my own personal opinions on the case and the decision made by the courts.
The office of the Director of Corporate Enforcement (ODCE, 2015), Ireland defines Corporate Governance as “the system, principles and process by which organisations are directed and controlled. The principles underlying corporate governance are based on conducting the business with integrity and fairness, being transparent with regard to all transactions, making all the necessary disclosures and decisions and complying with all the laws of the land”. It is the system for protecting and advancing the shareholder’s interest by setting strategic direction for the firm and achieving them by electing and monitoring the capable management (Solomon, 2010). It is the process of protecting the stakes of various parties that have their interest attached with a company (Fernando, 2009). Corporate governance is the procedure through which the management of the company is achieving the goals of various stake holders (Becht, Macro, Patrick and Alisa,
Based on this article, Malaysia involved in the economic crisis in the end of 1997. The Malaysian economic downturn exposed the consequences of poor corporate governance and prompted the formation of a high level Finance Committee on Corporate Governance (FCCG). The main focus of FCCG is to review and reform corporate governance in Malaysia comprehensively. In order to make a reformation, FCCG has played their role by sets out the principles of good corporate governance for Malaysia as a guideline and also proposes the code of best practice for companies. All of the recommendations of these principles are to strengthen laws, enhance disclosure and transparency, promote effective enforcement and emphasis on training of directors. Malaysian Code emerged from an urgent demand for businesses to exhibit greater transparency and accountability as it is largely modeled after the UK Codes. In UK, listed company under London Stock Exchange must disclose in their annual report the extent of compliance. The Hampel report’s main objective is to produce a set of general principles that allow flexibility in interpretation. Then the UK Code Combined derived from the Hampel report. So, there are similarity that we can see here when all companies in Bursa Malaysia are al...