Corporate Governance

This document discusses the importance of corporate governance and the role of directors in ensuring the overall well-being of the company. It emphasizes the need for directors to consider all aspects of the company's affairs, including shareholder interests and potential issues such as selling services to nonprofits, entering into contracts, and transferring loan money. Failure to address these issues can harm the company's reputation and future activities. The document also explores different models of corporate governance, including shareholder primacy, stakeholder's model, and enlightened shareholder value.

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corporate governance

Corporate governance
1. The Board of Directors is entrusted to look after the company in a manner that will help
the company to steer in the correct direction. In lieu of this, it has become evident that the
directors need to look after all affairs if the company because a small affair can turn out into a
grave issue. Directors are the hands and brain of the company and therefore, the entire
responsibility falls on the directors. The interest of the shareholder is prominent and needs to
be tackled by the directors that are vividly laid down. However, when it comes to other
interest such as:
When the company sells services to the nonprofits and pertains to the area of investment,
computer, and profit1.
When a contracting contract is entered into by the company
The loan money is transferred ahead of the market interest rates.
In lieu of this, it can be stated that the board should arrange accordingly for the matter stated
above. Such issues demand attention. If the board of directors fails to consider these issues
then it can harm the reputation of the company. It is to be noted that the firm cannot operate
only by dint of the shareholder services, it requires that the overall scenario should be well
established. Hence, the directors need to tackle such issues otherwise it can tantamount to the
huge problem. Every company is entangled with certain activities that are of the immense
problem and needs to be clear. If the directors look after the shareholder interest ignoring the
other aspect then it can dent the future course of activities. Ignorance will tend to enhance the
ill impacts that in turn cause major losses2. Therefore, it is high time for the directors to look
into the overall activity of the company. Going by the concept of governance, it is well
established that the directors should guide the destiny of the company and in order to ensure
1 William, F, Messier, Auditing and Assurance Services - A systematic approach, 9th ed.
(Australia: McGraw Hill, 2013)
2 Elder, J. R, Beasley S. M.& Arens A. A 2010, Auditing and Assurance Services (Person,
2010)
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Corporate governance
this, the directors should be well aware of the company’s happenings. If any problem persists
then the directors should look into the overall issue and then derives on a conclusion3.
If the director fails to consider the problem then the company will suffer from such issues and
will end up getting highly affected. In such cases, the board should ensure that the positions
should be used to trace the issue and provide immense output4. The board members need to
understand the boundaries so that it provides a better answer to the frameworks and issues.
When the board of directors is of the opinion that a conflict arises and there is a strong
suspicion then the board should ensure to provide a better understanding. Such a step will
ensure that the directors do not neglect the duty. The board of directors should ensure that all
the material events are properly handled as these constitute the major guidance. Conflict
arises in every organization and hence, it is imperative that the directors in order to ensure a
smooth functioning must look after the potential disagreements5.
3 Manoharan, T.N, Financial Statement Fraud and Corporate Governance (The George
Washington University, 2011)
4 Clarke, Thomas, International Corporate Governance (London and New York, Routledge,
2010)
5 Paradise, Ruth & Rogoff, Barbara, Side by Side: Learning by Observing and Pitching In’,
(2009), 37, Ethos, 102–138
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Corporate governance
Answer – 2
Shareholders primacy model
The shareholder's primacy theory is a very dominant principle of the Corporate Law that
helps the corporate decision maker to focus on the shareholder's interest and work in
accordance with it. Some of the economist and scholars have tried to question the structure of
the model because it has been generally accepted that the objectives of the company are to
maximize the shareholder's profit at any cost.
Stakeholder’s model
The stakeholder’s theory is a very important theory in relation to the capitalism that helps to
connect businesses and its customers and increase the profitability of others who have a stake
in the organization6. The theory tries to suggest that every organization should create value
for all stakeholders and not just shareholders. This model is said to be instrumental in nature
as it can be useful for achieving business goals by increasing sustainability, growth and
profitability. The model of the stakeholders also helps to test the connection between the
managing stakeholders and reaching the ultimate goals of the organization7.
Enlightened shareholder value
It is a real fact that shareholder primacy is a foundational concept. Also, the basic principle of
profit maximization comes with the question that what is the main purpose of the corporation
and Corporate Law. It has been depicted in much debate that the economic history and the
academic scholarship over the many generations have been centered because of the
6 Khondkar Karim, Ashok Robin, SangHyun Suh, ‘Sarbanes-Oxley: are audit committees up
to the task? (2015) 22(3). Managerial Auditing Journal. 255-67
7 Marc, Goergen, International Corporate Governance (Prentice Hall, 2012).
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Corporate governance
shareholder's matter8. Also, this question raised the concern of shareholders primacy to be a
positive law and remain unsolved even today.
The preferred model is the shareholders primacy model
It is a common fact that the doctrine of the shareholders are used when they are considered as
the owner of companies ceases when the organization shifts its business from small scale to
medium or large scale public companies. It is a common fact that the shareholders of small
scale companies are very different from the shareholders of medium or large skilled
companies because of the difference present in the day to day business of their owners. Also
in many of the article should have been suggested that the shareholders are not concerned
with the direct interests of the organization and its assets in the early 19th century. This can
be clearly understood with the example of a very enlightened case of Bligh V Brent. In this
case, the court concluded that the shareholders have the right to dividend and hence they also
had the right to shares but they had no direct interest in the properties and Assets of the
organization. The Appeal of shareholders ownership was rejected by the court in the case of
Short V Treasury Commissioners. A few years later, the concept of shareholders ownership
was completely denied by an English representative and the organizations were further
distinguished to be a separate corporate personality because of which the organizations were
separated from the shareholders. The shareholder's control and ownership were also criticized
by saying that they had the power to control the property they own but not the properties that
are being owned by the organizations and operated by the corporations and hence the primacy
model is used
8 Julia S. Kwok & Elizabeth C. Rabe , ‘Conflict Between Doing Well And Doing Good?
Capital Budgeting Case Study – Coors’, (2010), 6(6), Journal of Business Case Studies, 123-
130
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Corporate governance
Answer – 3
MEMO TO: CEO’s
FROM: Larry Fink
DATE: 2018
SUBJECT: Role of sustainable growth in the economy
The sustainable growth rate of a business is the highest growth rate that can be achieved by
the organization without increasing the financial leverage all the debt financing. Other ways
that can be used to increase the growth rate all the sustainable growth rate is to try and
improve the revenue of the organization, utilization of assets, dividend payout and debt ratios.
The role of the organization as financer also needs to develop businesses. Also as a banking
organization, it is one of the most important duties for them because this will help them to
extend their reach far beyond the provisions of funding. The organization itself is trying to
improvise new methods of innovation and entrepreneurship like founding partner for Startup
fest Europe and also it has been involved in various types of new programs like startup boot
camp. The organization has tried to connect people with each other so that they can increase
their networks by the help of events and other online platforms.
The values are said to play a significant role in the choice of decisions we make in the
business world and projects that we support as they will help us to increase sustainability.
One of the most important values is sustainability and hence we should believe that
prosperity should not come by sacrificing welfare. For attaining a sustainable environment,
organizations can try to improve the balance present between prosperity and welfare and
thereby support its customer by providing them more profitable financial solutions9. It is
viewed that the organization is playing an important role because in the current scenario, the
company is not only looking after the wealth but also the long term benefits. The bank has
implemented the environmental and social management system that helps to consider the
concerns of the client and ensures that the risks are mitigated at the earliest.
9 Philipp Kruger, ‘Corporate goodness and shareholder wealth’, (2015), 115(2). Journal of
Financial economics, 304-329
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Corporate governance
The organization is not supposed to support the business customers to adopt sustainable
practices but they need to encourage their retail customers to make sustainable choices in any
way possible. For this, organizations can switch to sustainable investment that can help them
who make their company more efficient in nature.
Behavioural finance is used as parties have a strong bent of mind to reap profits. Therefore, in
all probability it can be said that the banks tries to influence the people in a manner that they
are influenced to save more and attain their desired goals. Moreover, adapting to
technological changes has ensured the bank to have innumerable benefits and literacy level
has surged enabling more participation. Overall, the main motive is to enhance wealth of the
related parties and to earn more income through an active participation. This leads to better
level of business and higher level of engagement.
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Corporate governance
References
Clarke, Thomas, International Corporate Governance (London and New York, Routledge,
2010)
Elder, J. R, Beasley S. M.& Arens A. A 2010, Auditing and Assurance Services (Person,
2010)
Julia S. Kwok & Elizabeth C. Rabe , ‘Conflict Between Doing Well And Doing Good?
Capital Budgeting Case Study – Coors’, (2010), 6(6), Journal of Business Case Studies, 123-
130
Khondkar Karim, Ashok Robin, SangHyun Suh, ‘Sarbanes-Oxley: are audit committees up to
the task? (2015) 22(3). Managerial Auditing Journal. 255-67
Manoharan, T.N, Financial Statement Fraud and Corporate Governance (The George
Washington University, 2011)
Marc, Goergen, International Corporate Governance (Prentice Hall, 2012).
Paradise, Ruth & Rogoff, Barbara, Side by Side: Learning by Observing and Pitching In’,
(2009), 37, Ethos, 102–138
Philipp Kruger, ‘Corporate goodness and shareholder wealth’, (2015), 115(2). Journal of
Financial economics, 304-329
William, F, Messier, Auditing and Assurance Services - A systematic approach, 9th ed.
(Australia: McGraw Hill, 2013)
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