The And Regulatory Reform Act 2013

Corporate governance in itself has no single definition but common principles which it should follow. For example in 1994 the most agreed term for corporate governance was “the process of supervision and control intended to ensure that the company’s management acts in accordance with the interest of shareholders” (Parkinson, 1994)1. Corporate governance code is not a direct set of rules but a self-regulated framework which businesses choose to follow. This code has continued to change in the past 20 years in accordance with what is happening in the business world. For example the Enron scandal caused reform in corporate governance with the Higgs Report which corrected the issues which were necessary. Although it does not quickly fix problems, it gives a better framework to

The article is written to help readers gain a solid understanding the roles of corporate governance, both inside and outside the company. Its goal is simply to impart information, not make claims or arguments on its own. I will be judging it mainly on the sources gathered, numerous examples and explanations given and the overall effectiveness it possesses in effectively communicating its ideas.

Generally, under-performing companies are the prime targets of hostile takeovers, so it makes sense that aligning shareholder and executive goals is a major way to avoid that. One popular way of aligning these goals is through the use of elaborate, structured compensation plans for executives which directly tie an executive’s salary to the performance of the company, usually and specifically its stock price (Megginson & Smart, 2009). These compensation plans have become the norm for American corporations, and their effectiveness in solving the agency problem is debatable. On one hand, it should drive an executive to strive to maximize the shareholder wealth, and it also helps companies to attract and retain the best available managers. On the other hand, it serves to sometimes wildly inflate the compensation paid to these executives, either by corporations trying to stay competitive for the best talent, or through easily achievable goals and uncapped maximums. The structured plans, if done correctly, are an effective way to help insure the goal of wealth maximization, but they are also by definition agency costs. Hence, agency problems are inherent to our American corporate system.

In the view of many these increases of there pay were not justified , and was a contrast to shareholders investment money going down in value due to decrease in share prices of the company. What this showed was in some instances the objective of the executive’s were given priority of the shareholder which ultimately led to the shareholders losing out , and so introducing such power allowed shareholders to allocate pay rewards more closely aligned with corporate objectives and performance. These reasons overall echo the idea that it allows shareholders to have a greater say on how the company should be run by controlling the pay of executives as before this shareholders would be very limited in the say of pay with the only option being to replace committee members and directors. This in itself would not be a likely option as it could become costly in the long run and create uncertainty which may have more negative impacts.

Corporate governance refers to ‘the ways suppliers of finance to corporations assure themselves of getting return on their investment’ (Shleifer and Vishny, 1997: 736). Corporate governance discusses the set of systems, principles and processes by which a

Although subtle, differences do exist between publicly traded company and privately held companies. Public companies use the compensation plans as a tool to deliver the “right” amount of compensation such that it does not lead to unwanted scrutiny, whereas private companies wish to drive value creation. This difference reflects a distinction in the incentives and constraint of their governance structure. Indeed, the board of directors of public companies is composed primarily of independent directors, whose purpose is to care about shareholder value. In private companies, the board consists essentially of individuals with significant ownership. Hence, they have a personal stake in the performance of their company. Indeed, all decisions taken by private companies are most likely evaluated in terms of its expected impact on the company’s progress toward value creation; that includes, how they access information, track and review performance, and evaluate and reward performance. Furthermore, directors in private companies do not spend time worrying about what outsiders may think about their executive compensation package. Hence, they are free to design and implement performance measures and compensation plans based on what makes sense to them. However, private companies lack trading share, therefore it cannot be offered as a reward to the employees.

Moreover, one of the key futures of Britain best practice has been changed. The executive remuneration of directors will deeply influenced by the votes of shareholders, that the rights of the shareholders have become powerful.

Corporate governance is founded on laws, policies, processes, systems and behaviours and together they provide a system for the way in which an organisation is directed, administered and controlled. As such, the Charity Commission, (the ‘Commission’) recognises that to deliver its strategic aims, objectives and priorities successfully, it needs sound corporate governance arrangements in place, (Charity Commission UK). Corporate Governance is not - or should not be - about debate and discussion on executive compensation, shareholder protection, legislation and so on. In recent times, corporate governance became not only a subject of fierce debate and public outcry, but also, as a result of this and arising legislation, a subject which been wearisome for many company directors. The hidden gem here is to a great

In summary, studies such as, Emre (2013) examined the effectives of executive pay and shareholders value. Findings reveals that, though seen as the solution to an agent-problem, pay-performance approach actually exasperates it. Main reason being , most CEOs who have been running the organisation long enough uses their power to make hostage the board to mastermind pay increase at the cost of an organisation. As pay negotiation occurs between CEOs and the board, the terms of agreements may not be submitted for shareholder endorsement. An opposing argument to this claim came from Gong (2011) who found a relationship between pay-performance in the long run. Nevertheless, Gong’s study bared testing limitations and accuracy of which further study is needed to gain a richer appreciation.

Corporate governance refers to a framework of processes and practices which businesses follow as a guideline, this includes the way they conduct decisions for corporate affairs and the way which they pursue business objectives. This structure is applied by a board of directors to ultimately ensure that the company’s relationship with stakeholders is transparent and fair, which puts the interests of the company in line with their stakeholders thus ensuring accountability. A part of the corporate governance structure is that of executive compensation; this is a key aspect as compensation policies and practices are vital for the long-term sustainable performance of a company, which can impact shareholders and other stakeholders alike. Executive compensation consists of monetary and non-monetary benefits given to executives within organizations; benefits include salary, bonuses and stock options. The idea of executive compensation is to help attract the right person with qualities needed for that job whilst rewarding and incentivizing them to perform better for the company, enforcing the idea of performance related pay.

Issues regarding corporate governance of companies are growing in importance. Corporate governance involves ‘the system of rules, practices and processes by which a company is directed and controlled’ (Investopedia, 2014). A company should treat all its stakeholders with respect and integrity. A controversial branch of governance is the extent to which executives gain compensation. This may or may not reflect their performance or be within the best interests of their shareholders; who are the owners of the company. Since the formation of the limited company, whereby management is separated from ownership an agency problem has emerged, as executives and other directors’ aims may not be in line with shareholders’ interests. Different

“Corporate governance, according to the Organisation for Economic Cooperation and Development (OECD), is ‘the system by which businesses are directed and controlled.’” (cited in Britton & Waterston, 2010, p.235) Corporate governance of a company maintains the welfare of the stakeholders in an organisation. Stakeholders are people who are directly affected by the company’s actions and consequences, such as the directors, managers, employees, auditors, and shareholders. Executive compensation is an important part of the corporate governance. It is a financial return for the executives’ services to the company, which is devised to ensure that the directors are “kept in line” in terms of their actions and performance in the business’s

1. This article focuses on the Gompers, Ishii, and Metrick (GIM, 2003) study which found that strong shareholder rights lead to higher stock price returns and thus value. This is a great indicator that good governance has a direct effect on the performance of the firm. The article finds the correlation of corporate governance and the positive impact it has on the firm, management, and shareholders. However the article provides a subjective view, is good governance the correct metric of evaluation. The primary finding of the article is a comprehensive and economic analysis defending the relation between corporate governance and performance. This article examines the inter-relationships among corporate governance,

The traditional approach to corporate governance has typically ignored the unique influence that firm owners exert on the board, and by extension, the top management, to behave or make decisions in a particular way. Consequently, studies on corporate governance (Cubbin and Leech, 1982; Monks, 1998; Jensen, 2000; Shleifer, 2001; Frentrop, 2003; Donaldson, 2005; Huse, 2005) have not comprehensively identified and dealt with the complexities that are inherent in corporate governance processes. Perhaps, this is where the greatest problem of corporate governance lies.

Corporate governance is a field in economics that investigates how to secure/motivate efficient management of corporations by the use of incentive mechanisms, such as contracts, organizational designs and legislation. This is often limited to the question of improving financial performance, for example, how the corporate owners can secure/motivate that the corporate managers will deliver a competitive rate of return. (Mathiesen, 2002). Another definition is "Corporate Governance is concerned with holding the balance between economic and social goals and between individual and communal goals. The corporate governance framework is there to encourage the efficient use of resources and equally to require accountability