Critically Discuss The Extent To Which

Topics: Corporate governance, Board of directors, Management Pages: 6 (1570 words) Published: January 6, 2015
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Birmingham Business School

Student ID Number: 1178691

Programme Of Study: Bsc. Business Management Year in Industry

Module: International Corporate Governance

Assignment Title: Critically discus the extent to which you consider the initiatives aimed at corporate governance reform in the UK represent an improvement to the system of corporate governance

Date and Time of Submission: 13/11/2014 11:00AM

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Corporate governance pertains to the implementation of a set of established policies in which influence the way an organisation is managed and the style in which it operates. For policies to be efficiently and effectively implemented the execution of corporate governance is not only vital, but also essential in satisfying an organisations customers, employees, management and the interrelations amongst stakeholders involved (Bhattacharya, 2000). The late 1980s and early 1990s witnessed major upheaval in regards to continuous instances of corporate failure of several prominent UK organisations including Polly Peck, BCCI and Maxwell Communications. These corporate collapses and financial scandals were the driving force behind the development of initiatives in attempt to reform weak governance systems. Governance practitioners and regulators displayed concern towards the effectiveness of the board of directors and other governance mechanisms following corporate collapses. In many instances the concealment of frauds committed by CEOs and senior management were a direct result of their dominance of the board of directors. The board of director’s role was one that was central and an integral part in the construction and implementation of corporate strategy within organisations, they also held responsibility for ‘information disclosures and financial reporting to external stakeholders’ and so their corporate control was easily exploited by senior management (Keasey, Thompson & Wright, 2005). The enormous losses suffered by shareholders due to scandals resulted in a re-examination of managerial roles with an initiative to separate the roles of chairman and chief executive to prevent future occurrences. Donaldson and Davies (1994) view separation of such superior roles as a positive impact on corporate performance and one that should result in the reduction of agency problems. Berle and Means (1932) on the other hand state that separation of ownership from control in large organisations has brought about ‘agency problems’. The Agency theory subsequently focuses exclusively on resolving conflicts of interest amongst shareholders and corporate management (Jensen & Meckling, 1976). This framework suggests that internal monitoring mechanisms ensure the formulation and implementation of policies consistent with maximisation of shareholder wealth. Literature points to critical role of non-executive directors and the key service they provide to board committees: audit, remuneration and nomination ( Mallin, 2013). Higgs (2003) reported on the effectiveness of non-executive directors on British corporate boards. Its intent primarily was to assist in the prevention of the ‘emergence of a major corporate failure’ (Corely, 2005) within a British organisation through reinforcement of the Combined Code of Corporate Governance (Financial Reporting Council, 2003) and thus reinforcing ‘good’ corporate governance practice. The Cadbury Report (1992) further emphasized the...
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