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This is a corporate social responsibility and governance assignment, which is part fulfilment of the award of Diploma in Accounting and Finance level 7. The company I studied is; “Jeis Construction and Property Development and Maintenance Ltd”. The company is on-going concern and it’s into; roads and property construction and maintenance with approximately seventy million pounds annual turnover. It has long-term contacts with local authorities all over the country (UK) as well as subcontracting with big national and international construction companies in the UK; and has total permanent workforce of one thousand. The essay is presented by discussing six sub-issues relevant to the company and they are as follows:
1. An Indication and assessment of key Laws and Practice on Both a National and International context
The bankruptcies of well-known companies sent major shock waves across the world, resulting stricter regulations than before. This served as a red alert to all the countries worldwide to concentrate more on how companies are run. Companies must have closer focus on regulatory compliance and corporate governance principles and be mindful of how they are influencing behavioural change in organisation. The high profile cases (such “WorldCom and Enron”), of corporate governance failure around the world let to vigorous reform in the already prevailing regulatory framework. Thus, the corporate governance and reporting requirements applicable to all companies significantly changed with the enactment and publications of series of laws, guidance on good practice in corporate governance, reports and code of principles of corporate governance.
For example, the UK commissioned a number of reports and guidance such as the Cadbury report (1992), the Hample report (1998) and guidance on good practice in corporate governance disclosure (2008). Equally, the USA enacted the SOX Act (2002), the EU commissioned the Euro shareholders corporate guideline (2002) and Accounting and Finance Level 7 – Corporate Social Responsibility and Governance the OECD (2004) produced the principles of corporate governance and also the UK’s Company Act (2006) added sections on corporate governance.
However, one of the most critical inputs to this monitoring process is accurate information and disclosure of facts on the company’s operating performances in a given period. If a board of directors has inaccurate information, it cannot do its job. While the SOX Act (2002) for example contains many provisions, the overall interest of the legislation, guidance and, or codes was to improve the accuracy of information given to both the board and to shareholders. The SOX Act as well as other regulatory frameworks attempted to achieve this goal in there ways: 1). By overhauling incompetence and independence in the audit process. 2). By stiffing penalties for providing false information. 3). By forcing companies to validate their internal financial control processes.
For example, many of the problems at “Enron, WorldCom, and Northern Rock” and elsewhere in the world was that management had hidden facts from boards and shareholders until it was too late. In the wake of all these scandals, it was felt that the accounting statements of these companies, while often remain true to the later of the GAAP, did not present accurate pictures of the financial health of the company.
On reflection, the company I studied for example “Jeis Construction and Property Development Ltd”, has a number of lapses with the laws and guidance/code of corporate governance such as disclosure issues, conflict of interest, poor records keeping and absence of standard codes (see details on q3 below). The management is more or less oblivion of the requirements of the laws and regulatory frameworks therefore, seen as opponent of corporate governance and believe that shareholders can and should take care of themselves. Unfortunately, shareholders often cannot exercise the control necessary to solve agency problems that they could not have anticipated when the firm was first founded. The company’s governance structure, while many have been sensible when the firm was a small company founded primarily by the founder, may no longer be appropriate for a large.
Although, there are a number of laws and guidance of corporate governance scattered all over the globe yet, they have universal principles in common which are as follows:
Equitable treatment of shareholders: All shareholders must be treated fairly, including minority and foreign shareholders..
2. The role of shareholders: The corporate governance frameworks should recognise the rights of all stakeholders, establish by laws and regulations of the land.
3. Disclosure and transparency: The corporate governance frameworks should ensure that truly and accurate disclosure is made on all material regarding the organisation.
4. Audit: An annual audit should be constructed by an independent competent and qualified auditor in order to provide an external and objective assurance to the board and shareholders.
5. The rights of the board: The corporate governance frameworks should ensure the strategic guidance of the company, the effective monitoring of management and the board’s accountability to the company and its shareholders.
The legislation and guidance/code of corporate governance are generally good but, it has some notable unintended consequences in practice. The power it gives to audit firms over their corporate clients allows them to interpret the laws to their own advantages and thereby increases the work necessary to comply with guidance and regulatory frameworks. Also, the regulations impose unnecessary costs upon the companies to abide by and practice within the laws, this has some implications on the profits of the organisation (Sharma 2015; Berk and Demarzo 2010; Rossouw and Sison 2010).