Английский язык. Практический курс для решения бизнес-задач

Parties involved in corporate governance include the governing or regulatory body (e.g. the U.S. Securities and Exchange Commission), the CEO, the BoD, management, shareholders and other stakeholders.

All parties to corporate governance have an interest in the effective performance of the organization. Directors, workers and management receive salaries, benefits and reputation; whilst shareholders receive capital return. Customers receive goods and services; suppliers receive compensation for their goods or services. In return these individuals provide value in the form of natural, human, social and other capital.

A key factor in an individual’s decision to participate in an organization (e.g. through providing capital or expertise or labor) is trust that they will receive a fair share of the organizational returns. If some parties receive more than their fair return (e.g. exorbitant executive remuneration), then participants may choose to not continue participating (e.g. shareholders withdrawing their capital). Corporate governance is the key mechanism through which this trust is maintained across all stakeholders.

Principles

Key elements of good corporate governance principles include honesty, trust and integrity, openness, performance orientation, responsibility and accountability, mutual respect, and commitment to the organization. In particular, senior executives should conduct themselves honestly and ethically, especially concerning actual or apparent conflicts of interest, and disclosure in financial reports.

Commonly accepted principles of corporate governance include:

– Rights of, and equitable treatment of, shareholders.

– Interests of other stakeholders.

– Role and responsibilities of the board.

– Integrity and ethical behavior.

– Disclosure and transparency.

Mechanisms and controls

Corporate governance mechanisms and controls are designed to reduce the inefficiencies that arise from moral hazard and adverse selection. For example, to monitor managers’ behavior, an independent auditor attests the accuracy of information provided by management to investors.

Internal corporate governance controls

Internal corporate governance controls monitor activities and then take corrective action to accomplish organizational goals. Examples include:

 – Monitoring by the board of directors: The BoD, with its legal authority to hire, fire and compensate top management, safeguards invested capital. Regular board meetings allow potential problems to be identified, discussed and avoided. Whilst non-executive directors are thought to be more independent, they may not always result in more effective corporate governance. Executive directors possess superior knowledge of the decision-making process and therefore evaluate top management on the basis of the quality of its decisions that lead to financial outcomes, ex ante.

 – Remuneration: Performance-based remuneration is designed to relate some proportion of salary to individual performance. It may be in the form of cash or non-cash payments such as shares and share options, superannuation or other benefits. Such incentive schemes, however, are reactive in the sense that they provide no mechanism for preventing mistakes or opportunistic behavior.

– Audit committees.

External corporate governance controls

External corporate governance controls encompass the controls external stakeholders exercise over the organization:

– debt covenants;

– external auditors;

– government regulations.

Rules versus principles

Rules are typically thought to be simpler to follow than principles, demarcating a clear line between acceptable and unacceptable behavior. Rules also reduce discretion on the part of individual managers or auditors.

In practice rules can be more complex than principles. They may be ill equipped to deal with new types of transactions not covered by the code. Moreover, even if clear rules are followed, one can still find a way to circumvent their underlying purpose – this is harder to achieve if one is bound by a broader principle.

Corporate governance models around the world

There are many different models of corporate governance around the world. The liberal model that is common in Anglo-American countries tends to give priority to the interests of shareholders. The coordinated model that one finds in Continental Europe and Japan also recognizes the interests of workers, managers, suppliers, customers, and the community. Both models have distinct competitive advantages, but in different ways. The liberal model of corporate governance encourages radical innovation and cost competition, whereas the coordinated model of corporate governance facilitates incremental innovation and quality competition.