International Laws and Codes of Corporate Governance- Assignment
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Added on 2020-02-05
International Laws and Codes of Corporate Governance- Assignment
Added on 2020-02-05
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INTERNATIONALCORPORATE GOVERNANCELAW1
INTRODUCTIONCorporate governance refers to the rules, practices and regulations by which organization isdirected and managed by the directors. In every business organizations, shareholders plays animportant role in the stakeholders as they have ownership in the business through which they cancontrol operations and take part in the decision-making. Corporate governance ensure that all thedecisions must be taken by the board of directors and concerned committee in the interest ofstakeholders expectations. International corporate governance law emphasizes set of policies, rulesand practices so as to assure reliability, accountability, fairness and transparency of the businessoperations conducted internationally. It gives high confidence to the investors that company's directors will make decisions bytaking into account the desires and expectations of capitalist and satisfy them. Present projectassignment will critically analyse the extent to which international laws and codes of corporategovernance assist shareholders to take part in controlling business activities. Moreover, it will beexamined and compared with the role of Non-executive directors (NXDs) to assess its effectiveness.Along with this, UK corporate governance codes 2010 will be evaluated which the organizationsneeds to comply with. In addition to this, relevant case laws will be examined and explained tosupport arguments. Legal and theoretical issues raised by question posed In the present scenario, it can be stated the governance of many public corporation is nowmoving towards direction of shareholders. One of the main reason behind this is that the influenceof shareholders is increasing day by day along with the passage of time. Along with this theproposal, activism and votes of shareholders has also increased to a great extent. It can beexpressed that the term corporate governance is still a new concept for many businesses inmarketplace. In simpler terms, it can be defined as the process which helps in distribution of allrights and duties within managers and shareholders. Furthermore, the concept of corporategovernance also deals with areas related to directing and control of an organization 1. However, itcan be argued that one of the most important characteristic of corporate governance is to assistcompanies in developing long term and healthy relations with all its major internal and externalstakeholders. It can be also expressed that one of the most important group which plays a significantrole in corporate governance is the directors of a business enterprise. Both executive and nonexecutive directors play their own role in part in corporate governance. It is legal responsibility ofeach and every director to take care and manage all operations and activities of a company. On the1Tricker, R.B., 2015.Corporate governance: Principles, policies, and practices. OUP Oxford.2
other side of this, it can be argued that directors are also accountable and answerable to all theshareholders of an organization. At the time of carrying out their duty, directors needs to understandand become aware of the fact that they are the only one who is responsible for managing operationof a company in the best possible manner. In last few years there has been many arguments donein favour and against the topic that whether directors are owned to the company not to itsshareholders or not2. It can be stated that there are some duties which needs to be accomplished bythem in order to carry out smooth flow of activities and operations in long run. One of the majorduty among them is the duty of loyalty which is considered as a fiduciary duty. As per this conceptit is required by directors to make all decision which can results in providing benefits to company.It can be expressed that the decisions should provide good and effective results to company. Thus ,the duty of loyalty depicts the fact that it is the priority of directors to make sure that they preferdecision which are beneficial for the entire company instead of only benefiting shareholders.Another duty which needs to be accomplished by directors is the duty of care. This means that thedirectors are required to make sure that situations such as conflict of interest do not arise in anycase. The directors are entirely responsible to make the most appropriate decisions by payingattention on activities of a business enterprise. On the other side of this, arguments have beencarried out explaining that directors do not any kind of duty such as duty of care3. They are onlyrequired to sit at top level of management and make decision which cannot be considered as rationalor partial. In the present scenario, American court has clearly supported the fact that directors willnot be held responsible for their decision in situations where the decision has been taken due toconflict of interest. Another duty which needs to be taken care and accomplished by directors of acompany is the duty of disclosure. At the time of carrying out operations of a business enterprise ormaking any kind of decision it is required by directors to disclose all the facts and figures relatedwith the same. However, it can be argued that disclosure of information become must in two majorcases which are when conflict of interest gets completed and when shareholder are being asked andencouraged to give their respective votes. This disclosure is also important as it plays veryimportant role in claiming for compensations in court regrading the duty of loyalty which hasviolated by directors of company. In terms of theories of corporate governance, it can be stated that the simple finance model,the stewardship model and the stakeholders model are generally used. As per the theory of finances,the core or central problem which is linked with the concept of corporate governance is related to2Harford, J., Mansi, S.A. and Maxwell, W.F., 2012. Corporate governance and firm cash holdings in the US. InCorporate Governance(pp. 107-138). Springer Berlin Heidelberg.3Wolfe Jr, D.J. and Pittenger, M.A., 2015.Depositions and Discovery Practice(Vol. 1). Corp and Commercial Practice in the Delaware Court of Chancery.3
the development of rules and incentives regrading the same. Here the issue is that how rules can beestablished which can be aligned with principal of owner and behaviour of managers. Along withthis, this theory also lay emphasis on the fact that the ability of shareholders needs to be limited andthey are also required to make sure that only adequate and required information should be providedto them. On the other side of this, stewardship theory highlights the fact managers are one of themost important steward and they are required to put best of their efforts towards enhancingoperation and activities of an organization in order to provide better profits to all shareholder. Thistheory also encourages businesses schools to give more efforts towards enhancing the knowledgeand skill set of their students. It can be asserted that there are some fiduciary duties which are owned by directors andwhich needs to be accomplished. This can be justified by the fact that every directors plays a roleof company's agent and also act as a very important steward in managing its overall affairs. As perthe case of shareholders of Lloyds TSB and its directors the court made decision that there is nosuch as fiduciary duty which has been owned by a director of a company towards its shareholder4.The court also provide justification regrading the same that this is because they are director of acompany. Along with this, the legal relationship which exist between shareholders and directors isonly of providing information and suggestion to shareholder for a particular activity tasks oractivity.In the present age of globalization, it is essential for the organization to have a sound legalframework of corporate governance in order to assure smooth functioning of operations in thecapital market. It assure equitable treatment of investors by directors while carry out businessdecisions. The main role of it is to protect investors right by examining the impact of potentialdecisions on them. So that, board of directors will be able to meet their expectations 5. Corporate governance code 2010: Corporate governance refers to the rules and practices bybusiness units are directed and controlled. In the present era, each organization undertakes theframework of rules and practices which assists Board of Directors in ensuring the accountability,fairness and transparency in working aspects. This in turn provides high level of assistance to thebusiness unit in maintaining relationship with the stakeholders. With the help of corporategovernance process company makes focus on making balance between the different stakeholders ofa company includes shareholders, employees, suppliers, government, general public etc. It is the4Olson, J.F. and Lanin, A.B., 2015. Roles and Responsibilities of Non-Board Participants in Corporate Governance.Corporate Governance: Law and Practice,2.5 Soltani, B. and Maupetit, C., 2015. Importance of core values of ethics, integrity and accountability in the European corporate governance codes. Journal of Management & Governance.19(2), pp.259-284.4
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