Ethics, Governance and Accountability: Corporate Governance Report

This report delves into the critical areas of ethics, governance, and accountability within the corporate landscape. It begins with an introduction that establishes the significance of corporate governance in the modern global economy, followed by a literature review that clarifies the definitions, functions, and mechanisms of corporate governance. The report then moves into a detailed case study focusing on Tesco Plc, analyzing its corporate governance practices, and evaluating the company's approach to risk mitigation and risk controlling. The analysis explores the 2014 accounting scandal, highlighting the importance of robust governance structures. The report also examines the role of risk management in assessing and identifying risks within the context of Tesco Plc. The conclusion summarizes the key findings, discusses their implications, and offers suggestions for improving corporate governance and ethical practices. This report provides valuable insights into the practical application of corporate governance principles and the importance of ethical conduct in the business world.

Running head: ETHICS, GOVERNANCE AND ACCOUNTABILITY
Ethics, governance and accountability
Name of the Student
Name of the University
Author Note

ETHICS, GOVERNANCE AND ACCOUNTABILITY
Table of Contents
Chapter 1: Introduction..............................................................................................................2
1.1 Background:....................................................................................................................2
1.2 Aims and objective:.........................................................................................................3
Chapter 2: Literature review......................................................................................................4
2.1 Explaining the corporate governance:..................................................................................4
2.2 Functions of corporate governance:.....................................................................................5
2.3 Mechanism of corporate governance:..................................................................................6
Chapter 3: Case study.................................................................................................................8
3.1 Evaluating the role of corporate governance in Tesco Plc:..................................................8
3.2 Examining the role of risk mitigation:...............................................................................11
3.3: Analysis of the case of Tesco Plc:....................................................................................12
Chapter 4: Conclusion..............................................................................................................13
4.1 Summary:...........................................................................................................................13
4.2 Implication:........................................................................................................................13
4.3 Suggestions:.......................................................................................................................14

ETHICS, GOVERNANCE AND ACCOUNTABILITY
Chapter 1: Introduction
1.1 Background:
An important place has been acquired by the corporate governance in the conduct of
corporate sector at the global level and the concept of corporate governance is increasingly
considered by the organization not just in creating wealth but also in addressing various
societal issues. In one of the studies conducted, that compared the firms founded in 1960 and
1900, it has been found that in both the set of firms, the growth of ownership diffused at the
same rate. It was argued based on this that the modern United Kingdom withdrawal of the
corporate governance by the founding families also operated. In addition to this, in the later
part of 20th century, the rights of the shareholders in the country was extremely weak and the
diffusion of the ownership was attributable to the legal protection of shareholders (Knapp
2018). It was in the middle of the century the pyramid of corporate governance gained
importance. Development of such pyramid was against the hostile takeovers who was less
risky to raiders after the implementation of corporate disclosure in 1948 (Ferraro 2019).
However, the private benefits extraction was precluded due to the governance of the
corporate insiders by ethical conduct of higher standards. This pyramid was dismantled and
the control blocks was sold and this has resulted into the prevalence of diffuse ownership of
British corporations.
The initial surge of interest in the corporate governance began in the United States,
for nearly decades, this concept was barely mentioned in Britain. It was in the beginning of
1990, corporate governance began its earnest before the establishment of Cadbury committee.
The growth intensity of the theme of corporate governance began in 1990s and the increasing
concern of the investors about the corporate governance initiated in UK. The first version of
the corporate governance code of UK was published by the Cadbury committee in 1992. The

ETHICS, GOVERNANCE AND ACCOUNTABILITY
code of corporate governance was revised over the years and its expansion accounted for the
increased demand on the framework of corporate governance of UK. One of the crucial
factors encouraging long term investment and delivering higher standards on governance is
stewardship activities of investors and collective responsibility principle within a unitary
board (Shrives and Brennan 2017). Nonetheless, the results of financial crisis and cases of
inadequate misconduct and governance intensified the debate about the extent and nature of
the framework. There has been rapid development in the environment in which the
companies, wider stakeholders and shareholders operate. Existence of any company cannot
happen in isolation and the society and economy is underpinned by the sustainable and
successful business by creating prosperity and providing employment. The long term success
of the company is dependent upon the relationship of the companies and directors with
several stakeholders and such relationship is enduring and successful based on trust, respect
and mutual benefit. In accordance with this, openness and integrity is promoted by the culture
of company imbibing a good practice of corporate governance (Holland et al. 2016).
1.2 Aims and objective:
The paper is developed to conduct a review of the literature of the concept of
corporate governance by demonstrating a detailed discussion on the functions and
mechanisms of corporate governance. Such concept is evaluated by using a case study on the
importance and role of governance in the chosen organization. This also involves discussion
on the role of mitigating risk and risk controlling in case organization. The chosen case
organization is Tesco Plc and the reason this organization is chosen for analysis is because of
their accounting scandal in year 2014 where the company was accused of manipulating the
financial figures that resulted in overstating its profit (Rudkin et al. 2019). The paper is
initiated with the detailed review on the literature of corporate governance which incorporates

ETHICS, GOVERNANCE AND ACCOUNTABILITY
discussion on the functions and mechanisms of corporate governance. This would help in
evaluating the corporate governance practices in Tesco Plc and its effectiveness. The
objectives of conducting this assessment is listed below:
 To define the concept of corporate governance
 To explain the functions of corporate governance
 To explain the mechanism of corporate governance
 To evaluate the role of corporate governance in the chosen organization
 To examine the role of mitigating risk and risk controlling in the chosen organization.
 To explain the role of risk management in assessing and identifying risks.
Chapter 2: Literature review
2.1 Explaining the corporate governance:
Corporate governance has many definition as policies, process, structure and
mechanisms and in spite of the difference in the focus, the concept mainly addresses the
rights and protection of the stakeholders and sustainable economic growth. It can be defined
as the practice and system that helps in controlling and directing the company and comprise
of a set of relationships between the management of company, its shareholders, its board and
other group of stakeholders. A structure that helps in setting the objectives are provided by
the corporate governance that helps in attaining the objectives and determining the
monitoring of performance. In other words, corporate governance can also be defined as the
set of incentives mechanisms that assure of the good management practice on behalf of the
management, stakeholders and shareholders of the organization. System of corporate
governance is viewed as the bundles of intertwined and interrelated internal and external

ETHICS, GOVERNANCE AND ACCOUNTABILITY
forces that helps in identifying the relationship between stakeholders and management of the
firms by providing processes and structures (Holland et al. 2017).
The stakeholder rights should be recognized by the framework of corporate
governance with the help of mutual agreements and established laws and thereby encouraging
active cooperation between stakeholder and corporations in creating jobs, wealth and
sustainability of enterprise. The corporate governance reporting of the company should
coherently relate to various other parts of the annual report such as complementary
information and other strategic report that assist the shareholders in assessing the governance
arrangements of the company and activities and contribution of the boards effectively. Every
company is responsible for adopting the good corporate governance practice and a
comprehensive framework of the corporate governance is provided by the law that assist the
introduction of best practices and high standard of governance in the governance system of
the company (Smith and Collin 2017).
2.2 Functions of corporate governance:
One of the most significant issues suggested and noticed by researchers and investors
following the great financial ignominy like WorldCom, Enron, Cisco and Adelphi is
corporate governance that addresses the requirement of management control of company,
improving board performance of accounting systems, mangers and auditors and maintaining
the rights of stakeholders and investors. The importance of corporate governance has been
measured in the multiple criteria for measuring the status of corporate governance and these
include relationships of financial stakeholders, ownership structure, disclosure and clearance
of the information and board of managers. The 21st century has marked corporate governance
as one of the most important terms in commerce. The function and roles of corporate

ETHICS, GOVERNANCE AND ACCOUNTABILITY
governance is different and is determined by the application of different theories such as
stakeholder and agency theories (Nordberg 2018).
 Corporate governance is described as the system as per agency theory and such
system helps in controlling the management behavioural interests. It is required from
the perspective of this theory that role revision should be independent of managers.
Some of the agency theory example is the managers of different department in an
organization and relationship between stockholder and managers (Kusumaningtias et
al. 2016).
 A framework for the accountability system of the institution is provided by the
corporate governance and the governance relates to the control, business direction,
supervision and control of managers.
 Organization with the help of corporate governance are able to create a culture of
accountability, transparency and enhanced disclosure of the information. Improved
process and structure of corporate governance would contribute in enhancing the long
term success and prosperity of the company, encouraging effective planning and
ensuring quality decision making in an organization. The business transactions are
transparent if there is a sound financial system of the company disclosing the
complete auditing and accounting procedures (Okaily et al. 2019).
 Organizations are entrusted with efficient and effective risk mitigation system in place
with the help of effective system of corporate governance. The board of directors
become well acquainted with the majority of the risks associated with different
strategies with the help of accountable and transparent system.

ETHICS, GOVERNANCE AND ACCOUNTABILITY
2.3 Mechanism of corporate governance:
The mechanism of corporate governance are of three types that helps in aligning the
objectives and interest of mangers with the shareholders. All the mechanism for designing
control and reducing the conflicts is incorporated in the corporate governance system. The
mechanism is divided into two parts that is internal and external (Madhani 2017).
 Under the direct mechanism, there is direct alignment of the interest of managers with
that of shareholders and thereby managers are induced to conduct the management in
an efficient manner. Some of the examples include stock options, compensation plan
of executives and direct monitoring by the board.
 In another method, corporate controls are dealt indirectly such as managerial labor
markets, capital markets and insider dealing prohibitions.
 Another mechanism involves offering greater incentive and the ability to monitor the
management to the shareholders and thereby strengthening their rights. The legal
protection from managers expropriation used in this approach helps in enhancing the
investor’s right. Some examples include making prohibitions against involving in
insider trading and shareholders right enforcement and protection. The shareholder
rights to control the company is supported by the legal framework and in many
scenarios, management and the board are accountable to the shareholders explicitly
(Bhaskar and Flower 2019).
Financial market is one of the eternal mechanism of the corporate governance that
assist in the stock market development. There exist a direct relationship between market
value, manager competence and efficiency. Management would always intend to sell the
shares if they are likely to hamper the shareholder interest and thereby decreasing the
company’s value (Knapp 2018). Therefore, the shares value is impacted by this

ETHICS, GOVERNANCE AND ACCOUNTABILITY
mismanagement and there exist the risk of being replaced after the new investors have been
taken over.
In developing the framework of the corporate governance, the most crucial role is
placed by the board of directors. It is the responsibility of the board to balance the competing
demands along with preventing conflicts and achieving adequate returns for their
shareholders and monitoring the managerial performance. Moreover, it is required by the
board to have some degree of independency from the management so as to assist them in
fulfilment of their monitoring role and they are the part of management in practical scenario.
The distinctive differences in the roles between the managers and board of directors forms the
basis of good corporate governance practice. The board of directors are not required to
indulge in micromanaging the company and rather they should focus on the planning and
oversight. However, some of the duties are delegated by the board to board committees.
Furthermore, board has the authority to replace the management of the corporation with the
management that is more effective and contributes in maximization of the profits. In addition
to this, the board is also entrusted with the responsibility of remuneration of the board itself
and key executives (Smith and Collin 2017).
The practical issue faced by the board of directors is that of the board becoming
entrenched. Such situation probably arises due to reviewing of the remuneration of the board
and executive and compensation due to their activities (Kusumaningtias et al. 2016).
Therefore, board of directors is one of the control mechanisms that has been much
debate over the last decade. This mechanism appeared as the most preferred because the
functions of controlling managers contributes to minimize the costs due to the separation of
control and ownership in any organization.

ETHICS, GOVERNANCE AND ACCOUNTABILITY
Chapter 3: Case study
3.1 Evaluating the role of corporate governance in Tesco Plc:
This section of the report demonstrates the critical evaluation of the framework of the
corporate governance of Tesco Plc. Tesco Plc is a leading retailer of Britain that has it’s
headquarter in Hertfordshire, United Kingdom and serves millions of customers. The
importance of corporate governance is recognized for supporting the sustainability and long
term success of the business. An effective and robust framework of governance is maintained
that helps in execution and application of strategy. The critical factor contributing to the
building of a successful business that is capable of sustaining in the long term is corporate
governance. The commitment of the board of directors is to maintain highest standard of
corporate governance in its accountability to the stakeholders and shareholders and managing
the various affairs at Tesco (tescoplc.com 2020). However, the corporate governance is not
about complying with the codes and checklist and thereby its existence is not in isolation. The
long term vision and the custody of the value of company rests with the board of directors
that provides guidance and strategic direction to the company. It has been ensured by Tesco
Plc over the past few years that the good governance is incorporated in the conduct of doing
the business and is a part of working and thinking (Oh et al. 2018).

ETHICS, GOVERNANCE AND ACCOUNTABILITY
The board of Tesco Plc is leaded by the chairman and he is entitled to promote the
highest standard of corporate governance and accounts of the various stakeholder groups
along with ensuring the effectiveness of the board. In the recent years, much of the focus has
been on the corporate governance that has resulted in the continuous evolving and changes to
the standard. The remit of nomination committee is enhanced for devoting adequate time on
the discussion and understanding of the maters of governance. Any changes in the
governance framework of Tesco Plc is done by the committee after reviewing the proposal of
financial reporting council (Kukreja and Gupta 2016).

ETHICS, GOVERNANCE AND ACCOUNTABILITY
There are five working committees supporting the workings of the board and the
effective operations of the board is dependent upon the work of committee. These committees
comprised of audit committee, nominations and governance committee, corporate
responsibility committee, remuneration committee and disclosure committee. On behalf of
the board, consideration of the work is done in greater detail and depth by the committee and
issuing relevant to their reference term. In addition to this, at every board meeting, they
present a report to the board of directors (accaglobal.com 2020).
It has been found from the annual report of Tesco Plc that complies with the relevant
provisions that is set out in the code of UK corporate governance along with the application
of main principles. It is the responsibility of the board of Tesco to account for concerns and
needs of the stakeholders and intends to build a sustainable business by maintaining strong
relationships with stakeholders. Another fact presented is in relation to the remuneration
policy that has been developed according to the principles of UK corporate governance code.
3.2 Examining the role of risk mitigation:
Assessment, identification and monitoring of the principal risks faced by the business
is done by the established process of risk management. The impact on monitoring and
development of the appropriate internal controls and assessment of the likelihood of risks