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Corporate Governance in the United Kingdom - Essay Example

Undergraduate
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Finance & Accounting
Pages 10 (2510 words)
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Corporate Governance in the United Kingdom Institution Date Part 1 Rules-based vs. Principles-based Approaches to Corporate Governance The UK Corporate Governance Code of June 2010 was formulated with the purpose of facilitating effective, prudent and entrepreneurial management practices that can be successful to an organization in the long run…

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Corporate Governance in the United Kingdom

The rules-based approach to corporate governance was largely influenced by the Sharbanes and Oxley Act in the USA, which enshrined that the management and the board of an organization are expressly accountable for the financial reports that are published by their organization. (Mallin, 2005) Penalties are put in place for any instances of transgression as wells as setting rules on corporate governance which are also applicable to a company’s subsidiaries. This approach issues liability to directors in case of mismanagement, improves the communication of important issues to an organisation’s shareholders, improves the confidence that investors and the public have in the company, improves the internal control measures that a company puts in place as well as improving an organisation’s overall governance structures. Therefore, this approach is essential in the establishment of the minimum standards of practice that all should abide by. The principles-based approach to corporate governance on the other hand, is a complete contrast to the rules-based approach. This is because instead of the use of hard and strict rules to reform corporate governance as is the case with rules-based approach, the principles-based approach influences a broad set of practices that meet the expectations of all stakeholders. ...
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