Corporate Governance TABLE OF CONTENTS INTRODUCTION
Added on 2021-02-21
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CORPORATEGOVERNANCE
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................3MAIN BODY...................................................................................................................................3About corporate governance........................................................................................................3Agency theory .............................................................................................................................5Working of corporate governance in UK.....................................................................................6CONCLUSION................................................................................................................................7REFERENCES................................................................................................................................8
INTRODUCTIONCorporate governance is predominately the well defined set of the rules, principles andpractices through which a company whether big or small is governed. In short, this provide thebasic guidelines to the organization which tells them as to how they have to perform and in whatmanner in order to attain their goals and objectives. These guideline not only addresses thecompany but for the stakeholders as a whole. The corporate governance of UK is well known forits strict codes and practices and lays down various standards for the companies operating in thecountry. There are various legislation and laws in UK which directs the companies to workeffectively and ethically. This report addresses about corporate governance, Agency theory and the working ofcorporate governance in UK. MAIN BODYAbout corporate governanceCorporate governance is basically the well defined system of practices, rules andregulation through which the organization is directed as well as controlled. It mainly involvesmaintaining the balance of the stakeholders interest of the company like shareholders,executives, suppliers and the government. Corporate governance is basically the framework thathelps the company to achieve their long as well as short term goals. The corporate governancecode of UK which was formerly known by the name of combined code predominantly createsthe standards of the good practice for many listed companies on the board development,composition and accountability. This code is being published by Financial Reporting Council(FRC). In 2010, FRC released the corporate governance for UK along with report on codeconsultation that addresses the major issues which are raised during the process of consultation.During the early period of 2010, FRC conducted the extensive monitoring on the effectivenesscorporate governance combined code (Yermack, 2017). Thus in the end, this received thepositive response as it was mainly focussed towards transparency and fairness in each and everyaspect of the business. Cadbury committee is basically the set-up which was being established in 1991 with themain aim to overcome the crisis and problems of the scams as well as failures that occurs in thecorporate sector across the world. It was initially formed by FRC, London stock exchange along
with the accountancy profession. The main aim of this committee was to uplift the decreasedconfidence level both in auditors ability to offer the proper reports and the in the financialreposting. Besides this, the main objective of this committee was to review the rights andstructure of the boards of directors as well the shareholders. Whether it is corporate governancecode 10 or Cadbury committee in UK, the rationale behind any form of corporate governance isto provide transparency and accountability in each and every aspect of the business. One of themost significant function of corporate governance is that they encourages high degree ofaccountability to company management and directors. To regulate the effective corporategovernance, UK has an independent regulator which is Financial Reporting system Council(FRC) which is mainly responsible for setting the corporate governance in UK and regulating theaccountants and auditors. This code is basically the up-gradation over the other standards ofaccounting which are IAS and IFRC. IAS is basically the accounting standard which is issued byInternational Accounting Standards Board (IASB) which is independent international bodysituated in London. This IAS was replaced by International Financial Reporting Standards(IFRS) in 2001 where its main purpose was to set the rules to make the financial statementsconsistent and transparent. Approaches to corporate governanceThere are basically two approaches of corporate governance which is being used in UKnamely rule based approach wherein the companies are required to to abide by the various lawsin order to have good corporate governance principles. The forms of rules vary company tocompany but they are in abidance of the law (McCahery, Sautner and Starks, 2016). Anotherapproach which is principle based in which specifies that a single set of the rules and regulationis not enough for each and every company. There applies various principles for the companieswhich provide them the guidelines for effective corporate governance. Disadvantages of corporate governanceThe major disadvantage of corporate governance is the raised cost. Due to the corporategovernance, organizations generally incur high administrative cost to enter in financialagreement (Demirag, 2018). Another disadvantage is the illegal trading by insider. The corporatetrader somehow manages to trade the corporate shares and thus revels the confidentialinformation of the company.
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