CORPORATE GOVERNANCE

Corporate Governance



Corporate Governance

Introduction

Corporate governance is basically a system by which the corporations in a country are managed, directed and controlled. The structure of the governance aim to specify the distribution of the responsibilities and rights of the different participants that are involved in a corporation including the managers, directors, shareholders, auditors, creditors, regulators and a number of other stakeholders. In addition to this, corporate governance also specifies the rules and procedures for making effective decisions regarding the corporate affairs. It is very important to understand that effective governance plays a vital role in setting the structure of the corporations and also a way to pursue their objectives in an effective manner. It also plays a vital role in considering the social, market and regulatory environment along with the pursuance of the correct policies of governance for corporations. It is very obvious that governance could be referred to be a mechanism for monitoring the policies, actions and decisions taken by the corporations. It is also a very important point that corporate governance involves the alignment of interests among the stakeholders. Corporate governance is a very important mechanism of any country (Fernando, 2000, pp. 90). The core focus of this paper is to discuss and identify the corporate governance approach of the United Kingdom in comparison with the rule based approach to corporate governance of another country. In addition to this, a number of individuals will play a vital role in discussing a number of other related aspects to the subject of corporate governance under specific situations.

Discussion

It is very obvious that corporate governance is a very important mechanism through which the corporations could be managed and controlled. The following is the discussion based on the comparison of the principle based approach to corporate governance in the United Kingdom in comparison to the rule based approach to corporate governance prevailing in the United States.

Comparison of the Corporate Governance in the United Kingdom and the United States

The corporate governance approach carried in the Unite Kingdom is the principle based approach. A principle based approach to corporate governance generally adhere the organization to the spirit rather than letter of code. In this approach, the organization must either comply itself with the code or provide explanation through the reports to the appropriate people and its shareholders. The approach of corporate governance in the United Kingdom is a principle based approach and its adherence is a part of the requirements of the stock exchange. In addition to this, it could not be considered to be a voluntary for larger corporations. According from the 1992 Cadbury Committee report on The Financial Aspects of Corporate Governance “Corporate governance is the system by which companies are directed and controlled. Board of directors is responsible for the governance of their companies. The shareholders' role in governance is to appoint the directors and auditors and to satisfy themselves that an appropriate governance structure is in place. The responsibilities of the board include setting the company's strategic aims, providing ...