Corporate Governance | Essay

Corporate Governance
Student’s Name:
Student’s ID:

1
Table of Contents
Introduction................................................................................................................ 2
Define company......................................................................................................... 3
Define shareholder..................................................................................................... 4
Discussion of shareholder power................................................................................ 5
Explanation of board and director.............................................................................. 7
Director’s power......................................................................................................... 8
Shareholder primacy vs director primacy.................................................................10
Position in the company........................................................................................... 12
Conclusion................................................................................................................ 14
Bibliography............................................................................................................. 16

2
Introduction
Corporate governance is known as the combination of laws, processes and rules by which
organizations are controlled, regulated as well as operated. It encompasses both the external and
internal aspects that impact the interests of the stakeholders of the company which involve
management, government regulators, suppliers, customers and shareholders. It is also referred to
the promotion of corporate fairness, accountability and transparency. The major objective of
corporate governance is to simplify efficient and entrepreneurial administration that could
convey the long-term victory of the firm. It is noticed that the board members are held
accountable for the authority of their corporations. In the UK, corporate power is the part of the
legal structure of listed corporations and applies to improve accountability along with
transparency.
Corporate governance is the interaction amongst several participants to shape the presentation of
the corporation. One of the key advantages of corporate governance is that it enhances the
reputation of the company by ensuring its success and economic growth. It allows the company
to share internal information with primary shareholders to make them feel confident. Another
advantage is that it enables the company to take steps to remain compliant with laws and
regulations. The board of directors conduct a review of the hiring practices of the corporation to
follow the rules. Thus, it reduces the possibility of expensive lawsuits or fines. Decrease of
conflict and fraud is the other advantage of corporate governance which limit the potential for
the bad behavior of workers. Through corporate governance, the company draft a statement of
conflict of interest and forbid loans to family members.
Corporate governance is significant to the corporation’s today in various ways. It assists the
company in changing ownership structure by forcing them to become accountable or transparent
and make customer-friendly policies for protecting the social groups1. It is noticed that several
scams or frauds are rising due to the misuse of money in companies. Corporate governance is
relevant to ignore the scams and misappropriation of money in corporations. Moreover, it is
crucial in expanding to the international market to attract foreign investor as well as customers. It
is observed that directors or shareholders abuse their power for their profits, and thus, corporate
governance is important to guard all the key stakeholders all the entity.
1 Mudji Utami and Bertha Silvia Sutejo, 'The Importance of Corporate Governance'.

3
The UK corporate governance code guides the listed companies and allows them to develop
along with preserve effective relationships with all stakeholders2. The code in the UK applied in
the company to change its culture and enable to provide a responsive view to each stakeholder.
Enron was the company considered as the root of rising of contemporary corporate governance.
The corporate scandal was taking place in Enron Company due to accounting errors and
reduction in net equity of shareholders3. UK code establishes standards of good practice to
ensure accountability, effectiveness and leadership. The UK corporate governance code July
2018 applied to the companies within the accounting period in January 2019. The code provides
guidance to the directors related to risk management, financial reporting and internal control.
Define company
A company can be defined as an entity that engaged in business and a legal entity created by a
number of individuals for operating a business4. It refers to the incorporated business
organization that is registered under the company act 2006. A company can also be referred to as
the business organization that earns money by selling products or services. It can be different
types which include limited company, public company, unlimited company, private company,
statutory company, firm limited by shares and guarantee. A company comes into existence after
gets registered under the relevant Companies Act. Moreover, it is an artificial legal person that
contain rights to acquire as well as dispose of any property as per the company’s law. In
addition, a company is required to fulfil all the requirements related to memorandum of
association, directors, share capital, shareholders and article of association.
Furthermore, being an artificial individual in the perspectives of the law, a company uses its
common seal for the signature to keep the legal document bind. In order to incorporate a
company, there should be at least one shareholder, one director, and name as per the country,
office address and legal documents. However, a company is usually formed to earn revenue from
business operations. A company possess numerous legal rights along with responsibilities such
as the right to sue, pay taxes, borrow money, enter into contracts and own assets5. Besides this,
the majority of international investors form a company in the UK, and the country contains all
2 Mercedes Rodriguez-Fernandez, 'Social Responsibility and Financial Performance: The Role of Good
Corporate Governance' (2016) 19.
3 'Enron: An Investigation into Corporate Fraud' (Law.jrank.org, 2020).
4 Austin Smyth and Luke Kelleher, 'Differences in Control and Regulatory Structures of Public Transport
within the United Kingdom and Ireland: Implications For Quality And Effectiveness Of Service Delivery'
(2018) 2672.