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Various Practical Approaches Describing Corporate Governance

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Corporate Governance

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Introduction

Business is considered as one of the most important activity for country. A business can be explained as involvement of an entity for the regulation of goods and services. A business entity is always involved in the exchange of good and services for consumers(Tricker, 2015). It is the duty of any business organisation to provide better consumer services so that consumer satisfaction shall be attained. With such kind of activities carried out by an organisation, it became easy for business organisation to enter into the market. In order to establish all the rules and regulation properly for business it is very important for a company to attain a proper internal as well as external environment and for that to happen a business must involve corporate governance in. the following project all the important aspect of corporate governance. The aim of the project is develop the better understanding on the provision of corporate governance and to build a skill and knowledge on same.

Question 1

Summary For Corporate Governance

The term corporate governance can be understood and the rules and the practices which has been carried out in a business organisation. Such practices are always controlled by board of directors of the company. It is very important to involve some kind of practices in a business organisation because such practices shall involve a proper working and management in the company(Larcker, Tayan, 2015). As it is a very well known fact that a business organisation is a block build by its stake holders that is the consumer, suppliers, creditors etc. and in order to balance the function governed by them corporate governance plays a very important role. When some kinds of rules and regulation are being applied to a company then it ensure the proper functioning of the company that is a proper management shall be formed with in the company as well as there are many kind of other goals which became easy to achieve(Collins, 2012) . Corporate governance is taken as the most essential element to the company because with the absence of any kind of ruled and regulation, no company shall be able to work or manage its work and management is the key element of a company(ArAs, 2016). Besides that corporate governance enable several kinds of practices to be carried out by an employee. They work as the guideline to the company by which the regulation of work will be carried out in a proper manner. A corporate governance bring internal control in the company. An internal control in the organisation can be defined as a controlled environment which is set in the premises of the company controlling the extra activity of the employee as well as of organisation. Internal control shall involve several of thing in which risk assessment is the most important factor(Leipziger, 2015). When an internal control is being established in the company, it became easy for the business organisation to conduct an assessment on the risk. It will help in enabling that how a risk shall be managed and what are the other objectives to be covered in risk. There are various kinds of processes which is used in internal control such as monitoring process which involves monitoring of employee and their activity as well as the activity which is being conducted on whole by the organisation(Governance Publishing & Information Services Ltd, 2017). The basic criteria which is being covered in the internal control is basic planning which will cover all the area. It shall also cover the objectives which is being decided by the company. Besides internal control there are other thing also which is generated by corporate governance that is there are certain kinds of principle which Is governed by corporate governance. Such principle shall involve all the rights and the duties of the organisation in context to the employee and the rights of employee as well against company(Harford, Mansi, Maxwell, 2012). There are many decision which has been taken in corporate governance in order to attain the objective of stake holders as well as there are many kind of policies which is being generated daily and there are many kind of plans and action which a company plan in order to incurred profits of the company to analysis such practice and to regulate the same, corporate governance play a very important as well as crucial role as the main function of this body is to keep monitoring the action, plans, policies, practices which is being generated by the company or the new ideas proposed in terms of business activity(ICAEW, 2017). Such monitoring is necessary for the company as it will bring accountability in the relation of company with its stake holders(Solomon, 2013). There are many situation in which it has been seen that company was entitled for fraud or misrepresentation by some of the activity. Such was happened because there is lack of corporate governance in the company. The body of corporate governance shall help the business organisation to establish certain rules and regulation for the employee and for the working activities as well so that there shall be no illegal practice carried out by the members of the company(Nini, Smith, Sufi, 2012).

There are numerous kinds of definition which are present to define corporate governance. This body narrowly defined as a system governed by law and sound approaches which helps in establishing direction and controlled for the internal as well as over external structure of the company with a motive to monitor all the activities conducted in context to policies, plans, actions decided for including management in company. Monitoring shall help the company to identify various kinds of risk which are involved in the company. Other definition of corporate governance stated that it is the set of condition which has been put by a firm in order to ensure a proper mechanism in the company(McCahery, Sautner, Starks, 2016). The firm itself is modelled as a governance structure acting through the mechanism of contract. A corporate governance may also involve relation to corporate finance. There fore it is very important for each and every organisation who is into business to enable corporate governance as it will bring proper management and proper functioning of the work.

Development Of Internal Control In UK And US

Development is the need of any area which is why it is very important to bring changes. Every change shall bring development in company by which the company will be able to proceed its work in more smooth manner. As corporate governance is considered very important aspect of company, it is necessary to bring certain changes(Bushee, Carter, Gerakos, 2013). It is the principle by which the company shall be able to bring management in the company. There are different kinds of plans and action which could be assisted by corporate governance. If changes has not been brought within the corporate governance then it became very difficult to introduce change and change is very much important in corporate governance because with change a stability shall be formed within the company and a strong corporate structure shall be made. There are various kinds of components in which changes can be bring by the company for an example.

Control environment

Environment is very much important for the corporate organisation if there shall be no working environment or there shall be no discipline environment then the company shall not be able to carry out its plans and actions in proper manner. There shall be proper environment establish for internal control(Walls, Berrone, Phan, 2012). If there shall be no environment that is so set of standard form of decision of regulation then a company wont be able to inculcate a good environment by which an internal control shall not be established. For making environment controlled by the hand of board of directors then company and its employee must comprises of ethical values and integrity(Prezi Lnc, 2017). There shall be responsibility among the people of the company because every work shall be carried out by responsibility which will include the process of doing any work with attraction and the motive of developing scenario(McNulty, Zattoni, Douglas, 2013). Such development in the environment shall help in establishing good internal control and a good internal control will bring a developed corporate governance such is done in UK.

Risk Assessment

An internal control in the organisation can be modified or developed with the measure of risk assessment also(Allayannis, Lel, Miller, 2012). It is very true that there are many kind of risk are there in a business activity. There are many kinds of internal as well as external risk which is important to assess because if such risk are not being assessed by company then it shall not be able to take all the precautionary steps regarding it. Besides that when a risk strike a company then it is the duty of corporate governance to minimize that risk because a risk always shake internal control. Assessment of risk and taking precautionary measure on the same shall help in developing an internal control better. Risk assessment will involve a report carrying all the necessary changed to be brought by the company in order to establish a better and strong internal control. Such is done in US(UK Corporate Governance Code, 2017).

Controlling Activities

There are several kinds of activities which is being carried out by the company but is a control is not being established on certain activities then probability of risk arise by which internal control get weak(Khan, Muttakin, Siddiqui, 2013). It is very important for company to establish good and developed internal control because it is the key principle towards establishment of corporate governance and in order to maintain a good amount of internal control, it is very necessary that certain activities which is to be carried out by the company shall be in control manner(IPE International Publishers Limited, 2002-2016.). Hence it can be seen that there shall always be a developed internal control to establish better corporate governances. Such is done in UK as well as US

Implementation Of Internal Control

As internal control is very important element for establishing corporate governance that is why there are certain measure are to be used within the organisation. Different organisation have different kinds of method for the implementation of internal control in corporate governance depending upon where the firm is situated and what kind of business is being carried out by the firm(mycommittee, 2017).
For an example the implementation process of corporate governance in UK is different from US. An internal control in UK is established by following steps:-

Creating a plan and team

While the concept of internal control is established in corporate governance in the company of UK there are various kinds of steps to be followed by company such a create a plan and team(Bell, Filatotchev, Aguilera, 2014). Whenever a company of UK implement internal control, a proper plan is being made by the company which will include all the important measure to be taken by company. In UK a plan has been made by the company before establishing internal control for corporate governance.

Paying attention to key points

There are several kind of principle which need to be considered and a focus is to be created by the company for establishing internal control. All the UK company for establishing internal control pay attention over the key points so that internal control shall be implemented properly in the company

Use of building block approach

An approach which has been observed in companies of UK regarding the implementation of internal control for corporate governance. In this kind of approach 5 major components are focused by the company so that implementation of internal control shall be much better for an example communication, plans, control environment, monitoring activities, risk assessment(Agrawal, 2012).

On the other hand there are various kinds of steps used by the company of US to establish internal control for corporate governance. Even for the company of US, it is very necessary to have corporate governance because for the company of US also it is important to establish certain plans and action which will govern the activity of the company as well as it shall bring the management into the work activities carried out by the organisation(Aebi, Sabato, Schmid, 2012). The various steps to be followed in US are :-
to identify the vulnerabilities that a company may face- for the implementation of internal control, the company must first of all assess all the risk which is being available in a company. For implementation of internal control it is very much necessary that risk must be identifies because a risk in any factor or in any activity shall not able the company to accomplish internal control(AccountingCoach,LLC, 2004-2017)

Use the illustrative tools and internal control over external- there are various kinds of tools which has to be used by the company in order to implementation of internal control(Michaely, Rubin, Vedrashko, 2014). For an example company may use or construct a compendium in which ll the ideas regarding the implementation of internal control ca be proposed by which it became easy for the company to include internal control for corporate governance.

Practical Applications

Practical application can be explained as the utilisation of resources and use of certain application in a practical manner while the work is going. In context to corporate governance, practical application can be explain as the set of principle which is being used in the formation of corporate governance(Michelon, Parbonetti, 2012). Generally they help in regulating many activities. There are various kinds of factors which is being covered under the practical application of corporate governance for an example the legislation which is being implemented by government for the establishment of corporate governance in a company. The coded which help in maintaining the financial stability of the company and many other. Some of the practical applications are being described below.

Corporate governance code

It is referred to the set of principle of a good corporate governance aimed at companies listed on London stock exchange. It will look for the benefits which is being occurred by the financial authority in the company. There are many content which is being included in the code of corporate governance. Section A of the code shall explain about leadership.

Every company shall have a leader which will be headed by the board. Such board shall be held responsible for the long time success to be occur in the company. The shall be divided among all the division of the company equally that the board and executive(Armstrong, Balakrishnan, Cohen, 2012). No person shall have all the power to regulate the company and its decision.
Section b of the code shall reflect about the effectiveness that is there shall be skills, experience and knowledge within the board of the company so then when corporate governance shall be established in the company then it will be effective enough. The procedure to be carried out must be transparent in nature for the appointment of new directors who will construct corporate governance.
Section c will discuss about the accountability that is the board shall present a balanced and understandable assessment of the company's position and prospect.
Section D will discuss about the remuneration a board is going to take place which shall be sufficient to attract and motivate directors so that a quality shall be provided to run the company.

Legislation

Another practicable application which is to be involved while the corporate governance is being established in the company is legislation(Dharmapala, Khanna, 2013). It shall included all the rights and duties which are implemented by the government for a company under certain acts or laws. For an example business law will be considered as a legislation for all the employee in a company which will determine the rights and duties of the employee. Such rights and duties will help in governing corporate governance. There are many employment rights which is being established in corporate governance(Larcker, Tayan, 2015). Such rights and duties will protect the interest of the employee which is very important for the company.

Another practical application of corporate governance is Stock list. Stock list can be defined as the inventory which is being maintained by the company regarding the data collected. Stock list shall consist all the items of stock at different places. It is very important for the company to maintain an inventory for goods and items which are available on a particular occasion. For establishing a good and better corporate governance it is very important that a stock list is to be maintained which will bring discipline in the company and shall help the company for managing the work(Nini, Smith, Sufi, 2012).

Conclusion

It shall be concluded from the above project that corporate governance is considered as one of the essential element of the company as it is the set of principle and rule which are essential for the company. It has been further described in the project that internal control is much essential for the company. There are different kinds of methods and resourced by which a company shall be able to establish internal control. There are various kinds of methods which has been described in report regarding the establishment of internal control. All the steps are described for the process of implementation of internal control in US and UK. There are many practical approaches also being described for corporate governance.

References

  • Aebi, V., Sabato, G. and Schmid, M., 2012. Risk management, corporate governance, and bank performance in the financial crisis. Journal of Banking & Finance. 36(12). pp.3213-3226.
  • Agrawal, A.K., 2012. Corporate governance objectives of labor union shareholders: Evidence from proxy voting. Review of Financial Studies. 25(1). pp.187-226.
  • Allayannis, G., Lel, U. and Miller, D.P., 2012. The use of foreign currency derivatives, corporate governance, and firm value around the world. Journal of International Economics. 87(1). pp.65-79.
  • ArAs, G., 2016. A handbook of corporate governance and social responsibility. CRC Press.
  • Armstrong, C.S., Balakrishnan, K. and Cohen, D., 2012. Corporate governance and the information environment: Evidence from state antitakeover laws. Journal of Accounting and Economics. 53(1). pp.185-204.
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