Nowadays corporate governance

Nowadays corporate governance is seen as the key of attracting investors. Capital flow seems directed towards the companies, which practice fair and transparent ways of governing their organizations. With the changing global business scenario the need of understanding and effective practice of fair and technologically advance corporate governance has also increased. In my speech I will first explain the notion of Corporate Governance. ICAEW (2002) has explained corporate governance in a very effective and comprehensive manner as â€Å" Corporate governance is commonly referred to as a system by which organizations are directed and controlled. It is the process by which company objectives are established, achieved and monitored. Corporate governance is concerned with the relationships and responsibilities between the board, management, shareholders and other relevant stakeholders within a legal and regulatory framework.† Sir Adrian Cadbury (1992) defined corporate governance as ‘the whole system of controls, both financial and otherwise, by which a company is directed and controlled’. There are no hard and fast rules for corporate governance, which can be prescribed for all the countries. These rules can be different for different countries according to their needs and cultural settings. According to ICAEW (2002) with all the contrasts present in the rules and regulations of different countries emphasis is given to generic corporate governance principles of responsibility, accountability, transparency and fairness. Responsibility of directors who approve the strategic direction of the organization within a framework of prudent controls and who employ, monitor and reward management. Accountability of the board to shareholders who have the right to receive information on the financial stewardship of their investment and exercise power to reward or remove the directors entrusted to run the company. Transparency of clear information with which meaningful analysis of a company and its actions can be made. The disclosure of financial and operational information and internal processes of management oversight and control enable outsiders to understand the organization. Fairness that all shareholders are treated equally and have the opportunity for redress for violation of their rights. According to Meigs et al. (1999) this information meets the needs of users of the information-investors. Creditors, managers, and so on-and support many kinds of financial decision performance evaluation and capital allocation, among others. (P.07) Corporations resolutely focus on maximizing profits and a ‘legal obligation to act in the best interests of their shareholders. By and large, this excludes acting ethically or socially responsibly†¦Ã¢â‚¬â„¢(Slapper and Tombs, 1999). (Shah, 2002) states that some Trans-national corporations make more in sales than the GDPs (Gross Domestic Product) of many countries. In fact, of the 100 hundred wealthiest bodies, 51 percent are owned by corporations. While this can be seen as a success story from some viewpoints, others suggest that these and other large corporations are largely unaccountable for the many social and environmental problems that they leave in their wake, and that their size means that their effects are considerable. It is not that every single corporation is inherently bad or greedy, but commonly, the very large, multinational corporations who naturally have vested interests in international development and trade policies (like any group) are able to deploy enormous financial resources in an attempt to get favorable outcomes. The political power that is therefore held by such a small number of people impacts the planet significantly. As a result a few of these corporations make up some of the most influential sources of political and economic power. Naturally, with such influence it is not clear   ‘who’ the regulator is. And as Clarkson’s (1999) earlier quote suggests money and power, in corporate activity, are paired. And where profit supersedes safety and power supersedes regulation there stands the conflict of interests, for the victims of corporate crime. These are for the most part neither wealthy nor powerful although, when they are liability is certainly applied copiously. For example in the case of Enron the former chief accounting officer, Richard Causey was indicted on charges of ‘ fraud, conspiracy, insider trading, lying to auditors and money laundering for allegedly knowing about or participating in a series of schemes to fool investors into believing Enron was financially healthy’ (findlaw.com). The ‘victims’ in this case were the investors who were identifiable and influential. Violations, which impact on financial systems, are subject to more scrupulous legislative administration, compared with social infringements (snider 1991 cited in Slapper and Tombs 1999:89). Increased attention to corporate crime would mean relating to large companies as ‘criminals’ (Slapper and Tombs, 1999). An issue, (Sullivan, 1995 cited in Clarkson, 1998) renders impossible on the basis that ‘crimes can only be committed by human, moral agents’. Media attention will focus on financial aspects of corporate crime due to its impact on a political scale and the sensational-factor that is the ‘respectable’ figures committing crime as well a the belief/knowledge that ‘scandal sells’. Scandal, is common reference for this financial aspect but noting the influence of language Slapper and Tombs (1999) note that this sets a’ scale’ for perceptions, rendering it uncommon/unusual. Another scale, which has been set in the last few decades, is the increasing complains of the least risk disclosure by the companies in their annual reports and financial statements. This is also accompanied by the misuse of the accounting techniques by the executive officers and managers of the corporations. As in case of Enron the technique of off balance sheet reporting was used in negative manner. Investors are often aware of the risks they take and in itself, off-balance-sheet financing is no vice. Companies can use it in perfectly legitimate ways that carry little risk to shareholders. The trouble is that while more companies are relying on off-balance-sheet methods to finance their operations, investors are usually unaware that a company with a clean balance sheet may be loaded with debt — until it is too late. (Morgenson, 2001) A change is required in the regulations. The accounting firm should not perform the consulting and auditing services both. The Companies should be required by the Government to increase their degrees of disclosure. The top-level management should be held more responsible by tightening up the regulations. They should also be held responsible in case of any frauds and regulatory violations of their subordinates. This in turn will give rise to the sense of responsibility in the people related at all levels. (Hanson, 2002) References Cadbury Sir Adrian, (1992). Report of the Committee on the Financial Aspects of Corporate Governance, Gee & Co Ltd., UK Clarkson, Max (Editor), The Corporation and Its Stakeholders: Classic and Contemporary Readings, University of Toronto Press, 1998. ICAEW, (2002). What is Corporate Governance? Institute of   Chartered Accountants in England and Wales, Retrieved 30/10/2007 from Hanson, K., (2002). Lessons from the Enron Scandal, interview about Enron by Atsushi Nakayama, a reporter for the Japanese newspaper Nikkei, March 5, 2002, Retrieved 30/10/2007 from http://www.scu.edu/ethics/publications/ethicalperspectives/enronlessons.html ICAEW, (2002). Corporate governance developments in the UK, Institute of  Ã‚  Ã‚   Chartered Accountants in England and Wales, Retrieved 30/10/2007 from Meigs, Robert F., Williams, Jan, R., Haka, Susan F. & Bettner, Mark S., (1999). Accounting: The Basis for Business Decisions, Eleventh Edition, Irwin Mc Graw-Hill, p. 07 Moregenson, G., (2001). Are New Woes Lurking in Financial Nether World? The Associated Press, December 23, 2001, Retrieved 30/10/2007 from http://pages.stern.nyu.edu/~adamodar/New_Home_Page/articles/isthisdebt.htm Slapper, G.,   & Tombs, S., Longman, (1999). Getting Away with Murder, Corporate Crime, Reviewed by Chris Moore, Issue 47, May 2000 Shah, A., (2002). Corporations and the Environment, Page Last Updated Saturday, May 25, 2002, Retrieved 30/10/2007 from