Corporate Citizenship

What is corporate governance?

The corporate governance is "the system by which companies are directed and controlled" (Cadbury Committee, 1992). It is the framework under which a corporation is monitored and controlled; it helps in maintaining balance between different stakeholders of the company.

In this dynamic environment, a concrete and comprehensive theoretical framework is necessary to govern a corporate. Corporate governance model used in United State of America is the Anglo-American corporate governance model; the liberal model provides the basis for this model. The government system inspires the Anglo-American corporate governance model, and the USA and the UK follow this system. Free market concept is the major fundamental of this model, so it heavily relies on the prerequisites mechanism for successful operations, like power and responsibilities, accounts, annual general meeting (AGM) and takeover.

The Anglo-American corporate governance is a mechanism, which ensures the powers and responsibilities of directors; the role of the director is to ensure that the company is following the constitutional objectives set by the shareholder. The director represents the corporation and has a trustee responsibility, to use the corporate assets and corporate power to achieve the business objective set by the shareholder. They also have the responsibility to monitor the corporate operations and act like a watchdog for its firm. Those are reason for the existence of non-executive (independent) director on the board committee (Elaine Sternberg, 2004).

Another prominent element of corporate governance is Accounts, which often gets misinterpreted; the main financial mechanism for corporate governance is reporting periodically to shareholders of the corporation. Shareholder uses the annual report to measure the performance of the business before publishing annual reports, the shareholder presents the report for approval in Annual General Meeting; these accounts get subjected to audit. Audit is an activity that checks the financial accounts of a corporation to find out the fairness of these accounts and whether these accounts represent the actual picture of business financial performance or not (Elaine Sternberg, 2004).

AGM is an important part of Anglo-American corporate governance model, where corporate shareholders officially receive the financial accounts, decides new directors and auditors, vote on the major issues like merger and acquisition, raising more capital: and declare dividends in case corporation makes profit. At AGM shareholders have the power to remove the existing director by voting against him. Shareholders also have control on strategic decision, like whether to accept the takeover bid or not. The Extraordinary General Meeting (EGM) also conducts the voting for the bidding decision (Elaine Sternberg, 2004).

Another mechanism of Anglo-American corporate governance is the takeover, in which one firm acquires another firm by buying up its shares. The main purpose of Takeover is to control board and management of acquired firm. The takeover can serve as a threat to existing director and management because their poor performance will cost them to lose their jobs. Therefore, its board and management try harder to achieve the shareholders' objectives. In majority case the acquirer often gains from takeover activity, but nevertheless existing shareholder of acquired firm also gets ...