Features of Corporate Governance of the Royal Dutch Shell Plc - Research Paper Example

Royal Dutch Shell Plc Introduction In relation to the current phenomenon of fiercely competitive business environment, organizations are often identified to be criticized in terms of their performance in terms of good corporate citizenship within their respective field. It is often observed that majority of organizations are highly focused on strengthening their financial positions aiming at financial gains rather to focusing on their transparent and integrated governance mechanisms which can enable them to strengthen their long-term sustainability within the market (Solomon, 2011). With this regard, an effective and incessant practice of corporate governance can be a major supporting option for the modern organizations to remodel their existence and supremacy to perform their dominant role in the global business environment (Bennett, Coleman & Co. Ltd., 2013; McGraw-Hill Education, n.d.). Emphasizing upon the different roles and significances of corporate governance in the organizational strategic plan, the primary objective of this report is to identify the good citizenship practice of Royal Dutch Shell Plc. (Shell) through evaluating and analyzing its practice of corporate governance, accountability as well as responsibility as applied within the global business environment. Moreover, the discussion of this report will further focus on outlining the roles of the various participants involved in the company governance system, structure of the board of directors, estimating and recommending appropriate corporate governance measures for Shell by evaluating the major corporate governance measures of major economies. The Corporate Governance Framework Brief Overview of the Company Shell is regarded as one of the major and leading global companies in terms of producing energy and petrochemical products (Shell, 2013). With regard to the business practice of Shell, the organization has faced different challenges towards maintaining good citizenship in the global business environment. However, in its present corporate governance system of the organization, Shell preserves the principles of the UK Corporate Governance Code which ensures to set out an effective and efficient governance body for the organization. The corporate governance policy of the organization significantly tends to ensure adequate value of its wide range of business activities through effective, economically responsible, socially as well as environmentally integrated manner. The corporate governance principles of the organization also ensure to strengthen the good citizenship efforts of Shell in the global business environment (Shell, 2010). Corporate Governance Framework of Shell The framework of corporate governance, as applied in Shell, mainly constitutes five major attributes where the executive body of the organistion plays the crucial role of operating its other four segments, namely accountability, controls, strategic framework as well as performance of each operation executed within the organization. The framework depicts the roles and responsibilities of its governing executive body and tends to portray various functions performed by the executives, executing management bodies along with the audit risk and evaluation dimensions of the organization (Department of Communications, Information Technology and the Arts, 2008). The following graphical representation briefly highlights the major roles and resposibilities of the executive body of Shell in different fucnctions within the organization. Figure: Corporate Governance Framework Source: (Department of Communications, Information Technology and the Arts, 2008) The corporate governance framework is applied as an integrated approach within Shell which determines adequate support for the organization to efficiently perform its global business operations. When assessing the organizational corporate governance framework, it is often recognized that Shell preserves strong and effective standards which enable it to perform independently in the global energy and petrochemical industry. Contextually, the corporate governance framework of the company can be classified into five major categories namely the independent non-executive director, Corporate governance committee and compensation committee, audit committee, ‘Shareholder Approval of share-based compensation plans’ and ‘Code of Ethics’. Each of these governing bodies involves different roles and responsibilities in accordance with the provisions of the UK Corporate Governance Code (Shell, 2013). Independent Non-Executive Director The main role and purpose of Shell’s independent non-executive directors is to ensure effective control of its business operations and ordering efficient business strategies to accomplish the determined organizational goals within the stipulated guidelines. The independent non-executive directors of Shell also intend to involve decision making process which further enables the organization to prepare effective working structure for attaining the desired business objectives. Moreover, the roles and responsibilities of the independent non-executive directors also ensure to enhance the efficiency of the organization towards improving its citizenship in the global context (Shell, 2013). Corporate Governance Committee and Compensation Committee The corporate governance committee and compensation committee of the organization fundamentally involves making strategic plan of the organizational processes. The independent directors of these committees are likely to act as an independent body, responsible for structuring different organizational processes and ensuring to comply with the New York Stock Exchange (NYSE) listing standards. The remuneration along with the nomination and succession committee of Shell are thus designed in a manner complying with the NYSE listing standards which have evidently assisted these bodies to perform their assigned roles and responsibilities preserving high degree of integrity. Therefore, it can be stated that the effective compensation plan as well as adequate capability of the corporate governance committee of Shell further ensures to reduce possible hindrances which may affect the organization to maintain its good citizenship efforts within the global business environment (Shell, 2013). Audit Committee The audit committee of Shell can be regarded as one of the major supporting bodies of its overall corporate governance system. The major purpose of the audit committee of Shell is to ensure adequate confidence within the integrity of its different processes and actions concerning internal control as well as corporate reporting such as financial statement. The committee also ensures to offer independent assurance to the executive boards by its reliable monitoring as well as oversight financial activities. Moreover, the audit committee of the organization also plays an important role, especially in terms of representing the oversights of the risk management guidelines and programs of the company. The audit committee of the organization possesses the major responsibility of minimizing different potential threats regarding accounting practices or disclosing financial performances. With this regard, the audit committee of Shell is highly focused on disclosing its financial performances in a more frequent and apparent manner which further enables the organization to reduce possible threats for the company towards maintaining its good corporate citizenship (Shell, 2008). Shareholder Approval of Share-Based Compensation Plan In relation to maintain an effective and good citizenship within its business industry structure, it is highly important for an organization to recognize the importance of shareholders’ value, especially when developing any compensation plan. The share-based compensation plan of Shell is significantly focused on providing extensive as well as frequent financial report to its respective shareholders and investors in accordance with their interests and participation. In relation to the present share-based plan and performance of Shell, it has been observed that the company tends to refer its financial decisions to its respective shareholder groups in terms of obtaining any approval (Shell, 2012). Therefore, it can be stated that the process of involving shareholders in terms of developing compensation plan significantly ensures to enhance the capability of Shell towards its corporate citizenship efforts. Code of Ethics Code of ethics can be regarded as one of the major elements of Shell’s corporate governance mechanism which ensures to promote integrity, ethical practice and appropriate disclosure of its financial statement to its respective investors, shareholders and customers. In relation to the organizational context, the main purpose of Shell is to maintain higher recognition of ethical standards in terms of dealing with its customers, investors, suppliers along with the communities and the employees of the organization. Moreover, ethical conducts of the company also ensures to deliver effective financial performances in a transparent way, maintaining comprehensiveness, accuracy and fairness to its global stakeholders (Shell, 2012). Hence, the integration of adequate ethical considerations in the organization’s accounting practices has enabled it to enhance its efficiency of good citizenship. Evaluation of the Corporate Governance Framework In accordance with the corporate governance framework of Shell, it can be recognized that the organization tends to comply with the UK Corporate Governance Code when practicing its business in a transparent way and thus ensure good citizenship. The governing bodies of the organization involve major roles and responsibilities with respect to their controlling, limiting as well as ordering the overall codes of business conducts which further assists the organization to gain its corporate citizenship capabilities. Independent Non-Executive Directors In relation to the observation of the corporate governance framework of Shell, the board considerably complies with the provision stipulated by the UK Corporate Governance Code. According to the statement of the UK Corporate Governance Code, it has been witnessed that nearly half of the members in the executive board, apart from the Chairman, should be the independent non-executive directors. This group of directors is independent in terms of decision making process which ensures to increase the efficiency of the organizational processes at large (Shell, 2013). Therefore, the existence of reliable governance code along with adequate supremacy of executive directors, enable Shell to protect itself from various hindrances concerning corporate citizenship. Corporate Governance Committee and Compensation Committee In accordance with the listing standards of the New York Stock Exchange (NYSE), Shell significantly maintains its own corporate governance as well as compensation committee that ensure to act as the independent body concerning different roles and responsibilities. The Nomination and Succession committee and Remuneration Committee of Shell identically follow the stipulated responsibilities apart from the terms of nomination’s reference to ensure that the company is not distracted from preserving integrity and transparency when aiming at financial gains. In this regard, the succession committee needs to possess majority of the members of the committee in order to act as an independent body (Shell, 2013). Audit Committee With regard to the audit committee of Shell, it has been observed that the company upholds an independent auditors committee which ensures to assist the oversights within the financial statements of the boards. The audit committee of the organization tends to comply with the rule of ‘10A-3’ stated by the US Security and Exchange Commission along with the guidelines of the company’s manual ‘Section 303A.06’ which has been listed by the NYSE (Shell, 2013). The audit committee of Shell generally involves five major activities namely risk management and control, financial reporting, internal audit, external audit and reporting roles which are extensively focused on ensuring the compliance of higher standard in a comprehensive, clear and understandable manner. Moreover, the audit committee of the organization also tends to focus on re-examining the deficiency of any conflicts, legal counsels and other concerning matters (Shell, 2008). Shareholder Approval of Share-Based Compensation Plan In relation to the share-based compensation plan of Shell, the company tends to comply with the listing guidelines of the UK Listing Authority (UKLA). In accordance with the guidelines of UKLA, the compensation cannot be altered without the approval of the shareholders, excluding any minor amendment in Shell (Shell, 2013). The approvals of the shareholders are obtained by Shell by delivering and disclosing its financial reports in a transparent and timely manner which significantly enables the organization to gather a large number of shareholders and investors. Moreover, the reliability as well as the integrity in the financial reporting processes of Shell also enhances the efficiency of its business functions with a greater involvement of its potential shareholders within the organizational operations. With this regard, it can be stated that the practice of share-based compensation plan of Shell is highly committed towards ensuring the company’s good citizenship maintaining a balance between its financial objectives and sustainability as integrity (Shell, 2012). Code of Ethics It has been witnessed in this regard that the listing standard of the company tends to comply with the NYSE listing guidelines which further ensures to adopt ethics and code of conducts for each group of directors, executive members along with other officers and employees of the company. With this regard, the framework adopted by Shell in terms of ‘Shell General Business Principles’ tends to comply with each requirements guided by the NYSE concerning ethical considerations within its business practices (Clark, 2005). Moreover, shell also possesses its internal course of actions which provide each employee to independently raise their opinion regarding any concern relating to auditing or any accounting control mechanism which further exhibits transparency at a higher level. In addition, the employees of Shell possess authority and rights to report to the management concerning any irregularity or misdeed (Shell, 2013). Conclusion With regard to the different roles and responsibilities of the organizational governing bodies and executive committees, it can be identified that the governing directorial bodies and governance committees of Shell constitute adequate guiding principles of the UK Corporate Governance Code in its course of actions to ensure good citizenship. Moreover, the code also ensures to disclose financial reports to the investors, shareholders, communities along with its employees and customers in an ethically accepted manner to ensure that the company is not compromising with its integrity and corporate responsibilities when aiming at financial gains. Furthermore, the shareholder approval policy of Shell also tends to reflect an effective corporate governance and good citizenship initiative in the global business environment. References Bennett, Coleman & Co. Ltd. (2013). What is corporate governance? Retrieved from http://articles.economictimes.indiatimes.com/2009-01-18/news/28462497_1_corporate-governance-satyam-books-fraud-by-satyam-founder Clark, R. C. (2005). Corporate governance changes in the wake of the Sarbanes-Oxley Act: A morality tale for policymakers too. Retrieved from http://www.law.harvard.edu/programs/olin_center/papers/pdf/Clark_525.pdf Department of Communications, Information Technology and the Arts (2008). 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Retrieved from http://s05.static-shell.com/content/dam/shell/static/nga/downloads/pdfs/apology-letter.pdf Shell. (2008). Audit committee. Retrieved from http://www-static.shell.com/content/dam/shell/static/investor/downloads/company-information/committees/tor-auditco-july2008.pdf Solomon, J. (2011). Corporate governance and accountability. United Kingdom: John Wiley Sons. Read More