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Corporate Governance

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Introduction

Combinations. Corporate Governance; " Corporate governance - ten years ago the phrase was not used, today it is commonplace. The work of company directors is in the spotlight. The issues are legion: How to improve corporate performance and strategies, how to ensure corporate conformance through executive supervision and accountability, the role of outside directors, audit committees, chairman and CEO, directors' remuneration, German two-tier boards, Japanese boards, institutional, investor power..... " (Corporate Governance, Bob Tricker, 1984) The term 'corporate governance', in recent years has been used in a number or contexts, particularly in relation to that of boards of companies listed on the stock exchange. But many of the issues surrounding corporate governance have had implications for boards of privately owned companies too. Indeed, governance is the central role of all boards of directors, so an understanding of what it is and the issues involved can provide a useful insight for directors. This report will not only present the requirements of the 'Combined Code of Practice on Corporate Governance' but also take a look at the debate that has evolved around corporate governance within the UK over the past years. It will discuss some of the specific initiatives that have been undertaken to help clarify and codify some of the issues raised, look at some of the definitions that have been used. The corporate governance debate has flourished in the last few years, not only in the UK but all over the world. The ranges of issues are substantial and varied. Company performance, individual performance, role of directors, roles of shareholders... the number of relevant issues appears infinite. Yet, while much of this explained in its name, it is difficult to find a clear, universally accepted, definition of what is meant by corporate governance. But many countries regard a better corporate governance practices as a way to improve economic dynamism and therefore enhance overall economic performance. ...read more.

Middle

The initial work of the Cadbury Committee and Greenbury Report not only raised awareness but also formulated a framework for addressing the major concerns of shareholders and companies. A further Committee on Corporate Governance under the chairmanship of Sir R. Hample reviewed the work of Cadbury and Greenbury and produced its own report which again the Stock Exchange incorporated into its listing rules in 1998 as a new Combined Code of Best Practice. Sir Ronald Hampel has said that this committee will issue a consultation document before finalising a 'supercode' that combines the Cadbury, Greenbury and Hampel reports. The Hample Report realised that the importance of corporate governance lies in its contribution both to business prosperity and to accountability. In the UK the later has preoccupied much public debate over the previous years with the 'emphasis on accountability tending to obscure a boards first responsibility - to enhance the prosperity of the business over time'. Yet, also that good corporate governance would ensure that fellow constituencies with a relevant interest in the company's business should be fully taken into account. Both the Cadbury and Greenbury Reports had responded to things that were thought to have gone wrong - corporate failures in the first case, unjustified compensation packages in the privatised utilities in the second. Understandably, both concentrated largely on the prevention of abuse. The Hample Report was equally concerned with these matters, but also the positive contribution good corporate governance cold make. But it was the view there was no need for a permanent committee on corporate governance. The London Stock Exchange could in future make minor changes to the principles and code. The Institute of Chartered Accountants in England and Wales (ICAEW) was asked by the London Stock Exchange to produce a guide to assist companies. The guidance is known as the Turnbull Report because it was prepared by a working party chaired by Nigel Turnbull, Finance Director of Rank Group plc. ...read more.

Conclusion

Larry Fish, of the Royal Bank of Scotland, who runs the bank's Citizens division, received a basic salary of �1.3 million, a 30 per cent increase on the previous year, and an �8.3 million bonus, reflecting a 35 per cent jump in profits at the US bank. His pay more than four times the salary awarded to his boss. PERFORMANCE-RELATED bonuses for directors at egg, Prudential's Internet bank, accounted for nearly 40 per cent of total executive pay last year despite the fact that the shares trade below last year's flotation price and the bank has rising losses of �155.5 million. 'Tomkins PLC, a UK manufacturing conglomerate that owns Smith & Wesson guns, said Chief Executive Greg Hutchings resigned after the company opened an investigation into "evidence of some corporate excesses". The audit firm of Arthur Andersen further investigated allegations that both Hutchimg's wife and housekeeper had previously been on the company's payroll. They also looked into the use of two apartments and four corporate jets owned by Tomkins yet 'leased' to another company as well as 'contributions' made to non-business bodies". Former BA chief Bob Ayling got a �2 million "golden parachute", plus a � 260,000 a year pension after seeing the airline's value plunge from �7 billion to �3 billion. But the world's biggest pay-off went to ex-MEI music chief Jim Fifield in 1998 - he got �12 million. Conclusion Good corporate governance is not just a matter of prescribing particular corporate structures and complying with a number of hard fast rules. There is an underlying need for broad principles that extend beyond immediate economic effects to social consequences. And the ways in which a company gives effect to these principles will differ according to its size, complexity, and whether its shares are made publicly available. This idea of good governance will then apply to a small corner shop in as much entirety as a multi-national conglomerate. ...read more.

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