Does the Corporate Governance Maximise Shareholders’ Wealth?
| ITV PLC
The main purpose of this report is to find out whether Corporate Governance (CG) does maximise shareholders’ wealth within a selected company. ITV PLC is the selected company for this report; their Annual Report (AR) 2011 will be used for statistical evidence. Also, existing theories will be applied to ITV PLC for qualitative evidence. Recommendations and advice will be given to help the company benefit from it in the future.
Cadbury Committee produced the first version of the UK Corporate Governance Code in 1992 where they stated ‘’Corporate governance is the system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies. The shareholders’ role in governance is to appoint the directors and the auditors and to satisfy themselves that an appropriate governance structure is in place. The responsibilities of the board include setting the company’s strategic aims, providing the leadership to put them into effect, supervising the management of the business and reporting to shareholders on their stewardship. The board’s actions are subject to laws, regulations and the shareholders in general meeting.’’ (FRC)
‘’ITV is the largest commercial television network in the UK’’ (ITV), they provide their services through platforms such as ITV Player and itv.com. ITV also operates worldwide and currently has offices in the US, Germany, Australia, Sweden and France.
ITV produces a Governance Report along with their Annual Report so that their investors and stakeholders can see that they complied with the requirements of the Corporate Governance Code. This report includes ‘’how the board works, effectiveness, accountability, relations with shareholders, audit committee report and remuneration report.’’ (AR, Page 56)
The diagram provided (see Appendix 1) shows the Governance structure within ITV PLC.
‘’The Board has established a process for the annual evaluation of the performance of the Board, its committees, and individual Directors.’’ (AR, Page 59) This is a process of ITV’s effectiveness as it allows the Chairman to decide whether these individuals should continue to fulfil the role. This process may be costly in the short-term as it takes time and money to undertake. These costs will be deducted from the company’s profit; hence less dividends paid. However, the company can eliminate the cause of any disadvantages to the company due to the individual. In the long-term, they can appoint an individual that is more effective and committed to the role. This may result in the company’s financial position improving which will be beneficial for the shareholders as it will have potential to produce higher profits.
The accountability of ITV can be seen in the Annual Report as they are prudent about their risk management, internal control and going concern concept.
Risk management has been undertaken by ITV as they have identified their current deficit funding, analysed their financial position and took action (see Appendix 2). ITV expects to make deficit funding contribution of £71 million in 2012. This reduces the risk of ITV not being able to pay their liabilities which is a positive impact on the company’s shareholders’ wealth as it minimises the risk on their investment. However, £71 million will be accumulated from different sources within the company like retained profit. This has a negative impact on the company’s shareholders’ wealth.
The internal control is reviewed and monitored on an annual basis by senior management, internal auditors and the committee. Necessary changes are made in order to replace any weakness within the control and improvements are made at any given opportunity. Reviewing and monitoring the internal control will increase the company’s costs as they will need to pay for auditors;...
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