Monday, August 26, 2019

The development of corporate governance code in UK since 1992 Essay

The development of corporate governance code in UK since 1992 - Essay Example The essay discusses that corporate failures such Maxwell Publishing Group, BCCI, Poly Peck and Coloroll in 1980s and early 1990s in UK brought the issue of corporate governance practices by publicly listed organizations. There is no set definition of corporate governance and mostly depends upon the specific country’s view and oversight of the issue. Generally, it is known as a system of rules and principles as to how an organization should be governed and controlled. The roots of corporate governance lie in ‘Agency Theory’, which explains the problem of principal-agent. The managers or agents are bestowed with the responsibility of managing the company on behalf of the company’s owners or principals. While these agents have informational advantage, the principals have to rely on the board appointed by them to oversee the agents’ management. Therefore, agency theory has had a deep influence in shaping the characteristics and reforms of corporate gover nance. A proper governance mechanism in organization was required in order to facilitate a prudent and effective entrepreneurial management to deliver the long-term success of the organization underlying assumption of corporate governance is that the board of directors is responsible for the management of business and control of risks faced by it. While the framework of an effective corporate governance is still is in development stage in most of the developed economies, the recent economic downturn has raised the doubt over the effectiveness of corporate governance can ever be achieved.... These two Codes are based on the Walker Review Committee being set up to review the corporate governance practices in banking sector. U.S. has addressed the issue of corporate governance and auditor’s independence through Sarbanes Oxley Act in 2002 in response to Enron collapse and other corporate scandals, and Dodd-Frank Wall Street Reforms along with Consumer Protection Act in 2010 (Copeland, 2010, p.1). These reforms and developments indicate that the importance of having an effective corporate governance framework in order to protect not just the shareholders’ interests but also the other stakeholders’ interests. Considering this, the development of corporate governance framework in UK and practices of the Code through the analysis of two UK-based firms Burberry and BP have been provided. Burberry is a manufacturer of luxury fashion clothing, fragrance and accessories in UK and was established in 1856 (Burberry, n.d.).Burberry is listed on London Stock Exchan ge. BP was established in 1908 through a discovery of oil well in Persia. The company is listed on London Stock Exchange and NYSE (BP, 2012). Both the firms follow the provisions of corporate governance practices in the new Code on Corporate Governance 2010 and the Company Act 2006. Corporate Governance Development The process by which the stakeholders of a company get assured that the board of directors of the company is performing their duties efficiently, which assigned to them. The board members of the company should design the process, so that the interest of the stakeholders maintained properly by the operations done by the company management. The company management should also look after that whether the company properly maintains the ethics, corporate social responsibility or not. In

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