The third report on corporate governance in South Africa came into being in 2009, because of the new Company Act of 2008. This report, known as King III was put together by the King committee due to the importance of putting financial results into perspective for ongoing businesses. This essay summarises and explains corporate governance and integrates King III for an easier understanding.
Corporate governance refers to systems by which organisations are directed and controlled, whether private, public or not for profit (Media, 2013, p. 68). There are several drivers of governance such as increasing globalisation and internationalisation, uniformity of treatment between domestic and foreign investors, financial reporting and high profile corporate scandals.
According to King III, there are four values of good governance that organisations should make clear in their ethics code of conduct (Specialists, 2012):
• Responsibility
• Accountability
• Fairness
• Transparency
Three difference perspectives on governance exist (Media, 2013, pp. 71-72):
• The Agency Theory- managements act in an agency capacity, service their own interests instead of maximising shareholders’ wealth.
• The Stewardship Theory- managers will act as responsible stewards of assets they control. This theory is the alternative view to the Agency theory as certain mechanisms are used to reduce agency loss.
• The Stakeholder Theory- this theory addresses morals and values in managing businesses, stating management has a duty of care, not just in creating value for shareholders.
Most corporate governance codes are set on principles, based on a number of reports that firms disclose (Media, 2013, p. 72):
• Aiding operative management by achieving targets
• To reduce r...
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...ation can be obtained from stakeholders on external events or market conditions and firms are advised by King to build and maintain stakeholder trust using transparent communication (Specialists, Chapter 8 Stakeholder Relationships, 2012) In order to avoid conflict and settle disputes, King III introduces a new principle called Alternate Dispute Resolution (Young, 2009, p. 10), an alternative to formal legal proceedings, whereby parties are mediated and attendance is compulsory. The corporate governance framework of a company should also license performance-enhancing mechanisms which help inspire employees such as representation on the board of directors or profit-sharing provisions for creditors (Media, 2013, p. 101).
In other words, corporate governance involves building, monitoring and sustaining all aspects of an organisation, internal as well as external.
The company should employ the stakeholder theory as opposed to the agency theory. Each member associated with Wal-Mart will be treated fairly and honestly. In incorporating the deontology perspective as opposed to the Utilitarian viewpoint, the company will show its desire to right previous wrongs.
There are also 5 golden rules that can be adopted for a best corporate governance practice which include Ethics, Align business goals, Strategic management, Organization & reporting.
Bibliography: Turnbull, S. (1997). Corporate governance: its scope, concerns and theories. Corporate Governance: An International Review, 5 (4), pp. 180--205.
Hence, the stakeholders which are described as those who are affected by the organisation performance ,actions and duties and those actions includes employees, clients, local community and investors as well. The theory of stakeholders also suggests that it is the responsibility of firm to make sure no rights of stakeholders are dishonoured and make decisions in the interest of stakeholders which is also the purpose of stakeholder theory to make more profit and balancing it while considering its stakeholders (Freeman 2008 pp. 162-165). In the other words organisation must also operates in a more socially accountable approach by carrying out corporate social responsibility as (CSR) activities.
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...
Solomon, J (2013). Corporate Governance and Accountability. 4th ed. Sussex: John Wiley & Sons Ltd. p.7, p9, p10, p15, p58, p60, p253.
Agency theory addresses three types of problems that could exist from the separation of ownership and management which might consequently affect firm value later. They are the effort problem, the assets’ use problem and different risk preferences problem.
Stakeholder can be defined as “any group or individual who can affect or is affected by the achievement of the organization’s objectives”. This theory focuses on wider aspect rather than only focusing on just the shareholder. Stakeholder theory is a fundamental theory about how business works at its best and how it could work. It is concerning on the value creation and trade on how to manage a business effectively.
1. Corporate Law for Ontario Business (2012). Farah Jamal Karmali 2. Business Dictionary (2010). http://www.businessdictionary.com/definition/separate-legal-entity.html
As far as the Asian countries concern regarding the corporate governance issues, they started to enforce their own Code of Corporate Governance to avoid any financial crisis in the future. Among the countries that established the Code of Corporate Governance after the financial crisis were Malaysia and Singapore, which in the year 2000 and 2001 respectively (OECD, 2014). In contrast, Hong Kong has become the first Asian country that produced the Code of Best Practice, which was officially released in 1993 (ACGA, 2012). By having the Code before 1997 Asian financial crisis, Hong Kong became a top-ranked country with strong corporate governance practice in early 2000s. However, as the development of corporate governance practices were actively took place in Asia, Singapore replaces Hong Kong at the top in 2010 while Malaysia shows good performance in improving its corporate governance practices (Lees, 2010). The improvement of corporate governance among these three countries can be seen by the revision of their ‘Code’. Hong Kong Stock Exchange revised the Corporate Governance Code in 2004, followed by Singapore in 2005 and Malaysia in 2007 (OECD, 2014). In 2012, these three countries faced t...
...can be an arbiter of business responsibility to society through the application of tax incentives or tax credits. In good corporate governance, the management should be able to meet their social responsibilities, these include making sure that their products are not hazardous to people and to the environment, sharing their profits for the good of the community as a natural person or human being would do, donating to social causes, organizing activities to benefit the community.
When using performance management to improve an organisation’s productivity you need to first decide who is the focus of the organisation’s long term goals, are they focusing on Shareholders or Stakeholders. The Shareholder approach focuses on the profit to the shareholders, no other factors need to be considered aside from the bottom line profits. The Stakeholder approach is a well-rounded, balanced approach to management, considering more than just how much money the organisation makes.
Corporate governance is the set of guidelines that determines the control and organization of a particular company. The company’s board of directors is in charge of approving and reviewing changes to this set of formally established guidelines. Companies have to keep in mind the interests of multiple stakeholders, parties who have an interest in the company. Some of these stakeholders include customers, shareholders, management, and suppliers. Corporate governance’s focus is concentrated on the rights and obligations of three stakeholder groups in particular: the board of directors, management, and shareholders. Corporate governance determines how power is split between these three stakeholders. A company’s board of directors is the main stakeholder that influences the corporate governance of a company (Corporate Governance).
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,
Today in the present world, most countries have the core object of governance in the “public good provisioning ” leitmotif. According to the main principles ; accountability, participation and transparency, from the governance ecology interaction between the State, Civil Society and Market –place, within the global-village environment, (Higgot and Ougaard 2002; Stiglitz 2003; Woods 2006) “Governance Deteriorate the Economical Progress of the Developing Countries”(Box 15.4 Kaufmann, Kray, and Mastruzzi, 2008 p 291 Governance Matter Vll: some leading findings). In my opinion governance on itself without parametric recognition is doomed to fail, instead of reflecting to new mechanisms of responsibility to steer and guide the social and economical issues, which I will try to clarify in the upcoming body breakdown. Governance is supported as structure through institutions, as process through instruments and as agenda through elements of good governance, generating the capacity to improve significant development and positive impact of economic growth and to cut back destitution. Despite of the fact that developing countries can come in line with the quality of governance by accepting it as a crucial determinant of developmental performance, it didn’t came into effect. The underlying fact of weak and poor governance was identified as a result, for not effectuating the measureme...