CORPORATE GOVERNANCE

Corporate Governance and Ethical Leadership



Corporate Governance and Ethical Leadership

Corporate Governance

Corporate governance is an arrangement that deals with the methodologies of directing and controlling a company. It takes into account legislative and market procedures, and the duties and relationships of management at work, board of directors, stakeholders, and the objectives of an organization (OECD, 2004, p. 17-58). In a typical organization, the group of stakeholders is comprised of suppliers, distributers, employees, board of directors, government, debtors, creditors, customers, and other related agencies.

The corporate governance's main are of concerns are resolution of conflicts of interest in between company and stakeholders. In order to combat with these issues, corporate governance designs and applies certain processes, policies, values, behaviors, ethics, norms, and system that have significant impact on the governance of the organization. Corporate governance also emphasizes on the requirement of accountability of every individual to the business related activities.

Approaches of Corporate Governance

The key aspects of corporate governance in UK are implementation of strong check and balances, segregation of duties, separate reporting lines, fair and rigorous audit and compensation committees, and yearly performance assessment of the companies, and fulfillment all rights of stakeholders. The fundamental principal followed by UK pertaining to corporate governance is comply or explain (Financial Reporting Council, 2010, p.1 -12).

There are four levels at which UK corporate governance framework is operated. It is operating in form of Companies Act 2006 that addresses the basic legislations. It is also applied in form of Listing Rules, Disclosure and Transparency Rules, and Prospectus Rules that are designed and implemented by the Financial Services Authority. Financial Reporting Council operates it via UK corporate governance code for large organizations and shareholders. The corporate governance is also subject to Takeover code that is mainly regulated and overseen by Takeover Panel (bis.gov.uk, 2012).

All these approaches and methods address the best general practices for the organizations and the stated rules are subject to adequate provision in timely manner. The UK code of corporate governance has given flexibility to all companies with regard to complying with all stated requirements or explaining for their own approach (Arcot, S. et al., 2009, p. 2-29).

Theories of Corporate Governance

According to Hawley and Williams in 1996, there are four models of corporate governance, the simple finance model, the Stewardship model, the stakeholder model and political model. Shleifer & Vishny in 1996 emphasized on the ignorance of corporate governance on the sole preparatory firms and non profit firms. The finance model emphasized on the need of rules and regulations pertaining to compensation and incentives in order to stabilize the behaviors of managers and employees. This concept led to the establishment of several aspects of corporate governance with respect to regulation, political and legal framework. Nature and culture of the owners of any organization also affect the corporate codes.

The stewardship model states that managers fairly try to work hard for the company and truly aim at achieving maximum returns for shareholders as they better understand the company and act as ...