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Robert answered on Dec 22 2021
Governance, leadership and motivation
Introduction-
Corporate governance is a set of principle, process and a system by which an organization govern itself. These practices are in relation to board leadership and their effectiveness, accountability, remuneration, risk management and relations with shareholders. United Kingdom has some of the highest standards of corporate governance which not only helps the organization strengthen their own financial, market and on whole companies performance but also attract more and more investors from domestic territory and abroad to invest in the organization. It has now become an integral part of the organization as without sound corporate governance no organization can flourish in a long run. So, every board of director need to understand the importance of corporate governance and should follow the same as it is the need of an hour.
As the organization is focused for making a plan or initiative which helps them in delivering investment and growth to a declining local economy, corporate governance will be a key to success for them. It will not only help them in understanding the problem which arises due to the separation of ownership and management but will also help them that how keenly the stakeholders, society and country on whole is taking interest so as to ensure its adaptation in the organization.
Above is the figure representing the separation of ownership and management.
In this training process where the board of directors are from the diverse background and have no or very less knowledge about corporate governance we need to discuss what is corporate governance (discussed in the introduction), then how a good corporate governance can be achieved? So, let’s throw a light upon the code of best practices for companies. In 1992 Cadbury Report had built a code round the principle of transparency, probity, equity and accountability and it became a benchmark for good corporate governance in UK.
After this report different organization came up with different corporate governance principle but the globally recognized and acceptable principle came from the non governmental organization name Organization for Economic and Co-operation and Development and is highly recommended and followed by majority of the business unit by the name OECD principle.
Let’s have a look on OECD principles-
· The Rights of shareholders- OECD have clearly mentioned that shareholders have full right to secure the ownership of their shares, voting rights, they also have rights to full disclosure of the information, and they have rights to participate in a sale of corporate asset or in any modification of the same.
· Equitable treatment of shareholders- OECD have also shown concern about the rights of minority shareholders as many a times their rights are misused by directors and managers of the organization. So, they have formulated this principle so that each and every share holder gets an equal right to participate whenever an organization is taking any decision. For this purpose only they have also prohibited insider trading.
· The Role of Stakeholders in Corporate Governance- Organization should also be liable towards their stakeholders in a same way as it is towards shareholders. Here, stakeholders include employees, customer, bondholders, bank, suppliers etc. OECD has formulated different important guideline to preserve their rights and interest in the business unit.
· Disclosure and transparency- Key information ranging from a financial decision, to the governance structure which includes board of directors, their remuneration etc. should be very transparently disclosed. Apart from internal audit, external auditors should also perform annual audit in agreement with high performance standards.
· The responsibilities of the board- Board of directors are the highest management authority that any organization has in running their business effectively and efficiently. The function of board is not only to increase organizational profitability but its function also include protecting the business unit and its shareholders which include the concern about risk involved corporate strategy, compensation or remuneration, performance, efficient accounting and a proper reporting system.
OECD guidelines are more or less a basis or general to Anglo-American system and also to the European countries (mainly German system) but with rapidly changing business environment OECD principle should also be revised. OECD has taken a step towards the revision and that’s why they have revised the principle in 2004 by taking into account lessons learnt from different and much governance failure in the organizations.
After OECD UK government have published a Governance standard in 2005 which set out principle for good corporate governance, this document includes a file of supporting guidelines with number of practical applications so that it becomes easier foran organization to...