Best Practice in Corporate Governance - Essay Example

The Professional Accountant Assignment The old structure The old structure was different from the UK corporate governance standards in a number of ways. To begin with, it was very clear and very evident that the structure of the cooperative governance did not have enough non-executive directors. In the UK cooperative governance standards, any cooperation is required to have at least three non executive directors. The cooperative failed to have enough numbers with regard to the non executive members of the boards. The original structure of governance had too many directors but failed in that it did not have enough independent directors. In this case, the definition of the independent directors may vary. An independent member of the board should be in depend in terms of not just the definition but also in terms of the structure of his or her work and how he relates to the firm. They have to be independent from the executives of the firm with regard to the financial gains. The new governance The new governance is very difference from the UK cooperate governance standards. For instance, it will have to include a council o a maximum of 100 members who will be in control of the firm with regard to overseeing the decisions of the firm through voting. This is very different from the corporate governance for UK cooperates because they do not usually have these (Solomon, 2011). This is however necessary for the cooperative because as Lord Myner said in his report, the cooperative should always be in the control of its owners. In this regard, he proposed that there must be as many members of the council in order to make sure that they oversee the decisions and actions for the executives. Corporations do not have this kind of government and only depend on bound members and the CEO as well as the chainman to the board. However, for a cooperative, this may be necessary on order to guarantee that the vested interests of the cooperative members have been achieved (Mallin, 2013). The other difference between the new structure in the cooperative and the UK cooperate structure is the senate which will be elected by the council members. This senate will help co-ordinate the activities of the council. It will also help in coordinating the relationships and operation of the council, the board and the executives of the cooperative. This is different from the standard UK corporate governance as these corporations do not have a senate or even a council (Thompson & Wright, 2013). Question II The non-executive directors are involved in the strategy development by contributing to the processes they help in this by challenging and challenging the strategy developed by the executive with regard to how effective it is. They do not only challenge, but also contribute to process of strategy development. This is important because these members have a different kind of interest in the firms (Modesty, 2014). Their independence, especially when they are financially independent from the CEO and the executive directors is able to help them to be sober with regard to the decisions making process and to guarantee that the vested interests of the shareholders have been protected (Martin, 2006). As a result, their role is to make sure that the executives do not make decisions that are in their own (executives) interests at the expense of the shareholders. It is also to be noted that thin most cases, the non-executive directors are also allowed to own shares in the firms and this makes them further closer to the shareholders and ties their interests with the interests of the shareholders (Mallin , 2011). In such a case, they will be more interested in protecting the interests of the shareholders and to safeguard them from selfish interests of the executives. The non-executive directors are also involved in performance management. They scrutinize performance of the executives as well as senior management in the firm in order to make sure that their job performance satisfies the strategy of the firm. In this regard, they are involved in two main processes that are important for any firms; Removing senior executives The non-executive directors are very much involved in the removal of senior executives in the cases where the meeting-agreed standards have not been met (Davies, 2012). The non-executive directors in most case have the mandate to make sure that the non-performing executives are removed. They have to follow the right procedure and standards to remove such an executive from his or her position. In this regard, the non-executive directors are not only useful in monitoring performance but are also useful in making the necessary changes when they realize that the required performance standards have not been met (Maassen, 1999). In this regard, they have the mandate to remove non performing directors and executive. Succession planning Of course, the fact that the non-executive directors have the mandated to remove non performing executive also mean that they also have to have the power to implement a succession planning. In most cases, bringing a high raking exceptive in a firm is not usually an easy thing and in this case what happens is that the process can be aided by these non executive directors. The non-executive directors have the mandate to make this process smooth and success in terms of the removing an executive and replacing the executive with a new one (Filatotchev, 2013). Risk management Non-executive directors are also involved in monitoring the risk that the firms are involved in, especially in terms of finance. They should be convinced that the risk being take are within the levels that are appropriate for the firm, they have to know that the risk are inevitable since that every nature of any business is taking risk and making money from the risk (Nguyen et al, 2012). However they have to make sure that the risk that the firm is taking is within the threshold that is considered to be safe and not too risky. Non-executive directors also have more roles with regard the HR strategy within a firm. In this case, they are responsible for such things as monitoring remuneration especially the remuneration of the executive directors and the high ranking managers. This is very importance in any firms when done well, those can be very useful in helping the firms to achieve its goals (Mallin , 2013). Non-executive are very useful for any firms. However, is has to be noted that it is not in all cases that the Non-executive directors are effective. Even these Non-executive directors can also have selfish interests that conflict with the interests of the firm for the interests of the shareholders. In such a case, they are likely to branch the trust they have been given by the shareholders and in such a case there is a risk that the firms will suffer. The main role of the non-executive directors is to bring a control mechanism to make sure that the executives in a firm are kept in line and that they do not misbehave (Kluyver, 2008). The fact that a number of firms in the London stock exchanges have failed in the past is an indication of how the use of Non-executive directors can be ineffective. For instance, the failure of the Lehman brothers in early 2000s is an indication that the use of Non-executive directors is not necessarily a guarantee that the shareholders are protected fully. Therefore, it is necessary for further mechanisms to be taken in place. Sometimes the effectiveness of the non-executive directors is dependent on how independent they are. At the very end of the day, their independence is not complete especially with regard to how they get remunerated. There have been strategies that have been put in place to try and see how the issue of remunerating the non-executive directors can be bootstrapped in such a way that their financial independence is from the executives because thesis the main way they can have full control and oversight of the exceptive (Solomon, 2011). The other issues that come up with regard to how effective non-executive directors can be is with regard to the issue of their qualifications. In most cases and for a line time, the non-executive directors do not have any specific qualification and in most cases the non-executive directors are selected from retired people. However in a modern world that is so rapidly caring, non-executive directors do not have to be retiree and in the modern business world, it is not hard for there to be a young Non-executive director in a firm. Education institutions such as Edexcel have also come up with a certification course for Non-executive directors in order to train Non-executive directors to be effective in their specific areas of performance. The use of non-executive directors has however been seen to be successful in most cases and therefore he few cases of fails of these non-executive directors cannot be used to deliver a blanket judgment that these Non-executive directors are not effective in the long run. Big firms such as Barclays have always depended on Non-executive directors to be their point of reason and oversight in order to make sure that the executive directors are kept in line and that their selfish interests do not interfere with the interests of the shareholders. This is very important and very crucial for any firm. Question 3 The cooperative is seeking to make sure that the governance of the cooperative is effective in not only making the cooperative to be competitive, but also to avoid cases where the executives end up acting against the interest of the shareholders. The UK model of cooperative governance is good but can learn a few points from other countries such as the USA (Wright & Bruining, 2008). In USA cooperatives are managed just like corporations and this makes the management to be managed in a firm way. While this does not in itself guarantee that the managed will not sometimes do things and a way that will affect the firms in a negative way, it has the potential to make sure that professional and technical competency is given priority when deciding who is going to be at the leadership of the cooperative. Cooperatives in the UK may suffer from having leadership that this not technically and professionally competent, in favor of people who are members of the cooperative society. This solves one problem but introduces a bigger problem. For instance, as Lord Maynor identified, he believe that the best thing about cooperatives is that they should be owned and managed by the people who make these cooperatives, this may be what informed his decision to have a committee of 100 members to oversee the business of the cooperative. This is important became it makes sure that the interest of the firm are looked at. However, it introduces a new and bigger problem of the fact that these committee members are not technically competent with regard to the running of a cooperative and so they are in no place to make informed decisions about the firm. Their ability to oversee the decision of the executive is low because they don’t have technical and professional competence. At the same time, when there is too much oversight as seen in the new governance strategy introduced by Lord Mynor in the cooperation, the problem with this is the decision making process that will suffer a lot due to the fact that before a decision is made, too many people have to agree, and this from a common sense point of view is always very difficult. It is very difficult to put a lot of people on one side of the issue when it comes to making critical decisions. In this regard, the UK cooperate governance can learn from the US cooperative governance that the way to make sure that the shareholder interest is protected is not necessarily to crate too many hurdles and too much oversight over the executive, but to have better way of vetting people before they take up important roles in the firm. These roles have to be those which are very critical for the firm and which when mismanaged will lead to the firm having issues and maybe ending up failing completely (Tricker, 2012). 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