Corporate Governance

Corporate Governance

Part 1

Section A

Introduction

Corporate governance is the system of mechanism under which companies and are controlled and given directions. The governance of companies is the responsibility of the respective boards of directors. The appointment of directors and auditors are the prerogative of the shareholders so that they are assured of an effective system in place (CIMA, 2010). The board is responsible for the determination of the strategic targets and objectives of the company, giving an able and efficient leadership, overseeing the strategic management of the business, and keeping the shareholders updated regarding the performance of the company.

UK Corporate Governance

The corporate governance code of United Kingdom is principle-based. The code is divided into various sections. There is the section of leadership in the code. It states that every company should be managed and led by an able board of directors. The board would have the overall responsibility for the success of the company in the long run. The allocation of responsibilities should be well-defined at the strategic level of the company regarding the board operations and the core responsibility for the operations of the business of the company. The company should not be a one-man show in terms of the executive decisions. The leadership to the board would be provided by the chairman. The board will also have to include non-executive directors as members, who are required to constructively question and criticise the various proposals on strategy (CIMA, 2011).

Another section of the code is related to ensuring the effectiveness in the management of the company. It requires that the board and management teams must possess the essential combination of expertise, independence, experience and knowledge regarding the company in order to assist in the effective conduct of the respective responsibilities and duties. There needs to be in place an official, ardent and explicit process regarding the appointment of directors for the board. The directors would be required to give enough time to the company so that the responsibilities and duties discharged are effective. The directors are required to attend induction session and should hone their skills by refreshing and updating their knowledge, for example by attending CPD courses. It is necessary and pertinent that the board are provided with information when it is required. The information should be of appropriate quality and in a formally-drafted form so that the directors find it convenient to discharge their duties effectively. The board should conduct a comprehensive and exacting review on a yearly basis of its own performance, and of the other management teams. The directors are also required to appear for re-election to the board on a regular basis, the outcome of which is dependent on their level of performance.

There is a section that also stresses the need for effective accountability. It states that the prospects and position of the company should be presented in a transparent, fair and comprehensible assessment. In the achievement of the strategic aims, it is the responsibility of the board to determine the limit and scope of the ...