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. Thus the organization adheres to the spirit rather than adhering to what the code stipulates. This approach is largely used in the UK and is a listing requirement by the stock exchange. (Tricker, 2004) Those that champion the use of this approach argue that by setting up rules that all should follow; the rules-based approach does not speculate the invention of imaginative ways to get around the rules by some organisations. Principles-based approach is the best approach to use for those organisations that do not only want to abide by the minimum standards that are put in place; the implementation of this approach impresses all stakeholders in an organization. Part 2 Role of Institutional Investors in a Business Institutional investors are basically organisations which invest money in securities, real property and any other investment assets held in their name or held in trust for others like investment funds and pension funds. Corporate governance codes and principles have over the years stressed the importance of institutional investors in corporate governance. Not only are institutional investors being significantly influential in their home countries, through their increased cross-border ventures, institutional investors are also becoming an integral element in other countries as well. The global financial crisis triggered corporate governance reforms which subsequently stressed on the crucial role that institutional investors play. (Tricker & Mallin, 2005) The Cadbury Report in 1992 accentuated on the role of institutional investors by stating that, ‘We look to the institutions in particular to use their influence as owners to ensure that the companies in which they have invested comply with the Code’. (Tricker & Mallin, 2005) It is the role of institutional investors to ensure that there is a mutual understanding with the company regarding the objectives of the firm. Institutional investors should also evaluate companies’ governance structures, laying particular emphasis on the board structure and composition. The third main role of instituti
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…
The researcher of this paper gives the meaning and importance of corporate governance in order to assess the various theories and approaches of corporate governance adopted by various countries. The paper also compares the various approaches of corporate governance adopted by United Kingdom and USA.
2). The system of corporate governance includes the board of directors, the professional service firms for audit and legal advice, and the government regulators (Larsch 2006, p. 2). A country’s system of corporate governance “comprises the formal and informal rules, accepted practices, and enforcement mechanisms, private and public, which together govern the relationships between people who effectively control corporations” (Oman and Blume 2005, p.
Introduction Page 2 2. The aims of corporate governance Page 3 3. Corporate governance in the US and UK explained Page 5 4. Corporate governance scandals in the UK and US, during the period of 1990-1992 Page 6 5. Rules based and principles based responses to corporate governance scandals Page 9 6.
The series of financial collapse led by the Lehman Brothers caused credit markets to cease functioning while capital flows effectively ground to a halt. A year later, the majority of world economies would be in recession and the global growth was collectively stunted, continuing way until.
Analysts estimate the United Kingdom’s median age to be on a steady rise, with the older population surpassing the young generation. The population of those over 60 years of age is more than that of the under 16. This phenomenon is occasioned by improvements in healthcare, while women are having fewer children.
The introduction section gives general principles and concepts about corporate governance. The main body of the paper carries out a comparison of the UK and the US corporate governance models. It is divided into
In complex organisations with variety of interested parties and many potential conflicts of interest, corporate governance can inform these parties about the organisation’s activities and also protects stakeholder’s rights through
Since the rules and the laws of every country and region differ from one another, there are differences in the practice of corporate governance and external auditing too.
With regards to corporate governance, a huge debate is raging the world of governance these
In this regard, institutions refer to the financial, legal and regulatory framework that is there in the governance system. There also has been an increasing focus on legal institutions to strengthen such
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