Answer :
Fostering long-term sustainability: The codes emphasize the need for companies to focus on long-term value creation, stakeholder engagement.
According to the Cadbury Report (1992), corporate governance (CG) can be defined as the system by which companies are directed and controlled. It encompasses the relationships between the board of directors, management, shareholders, and other stakeholders, and involves the structures, processes, and policies through which objectives are set and achieved, risks are monitored and controlled, and performance is optimized.
The Cadbury Report emphasized the importance of transparency, accountability, and fairness in corporate governance. It highlighted the role of the board of directors in ensuring effective oversight and stewardship of the company, promoting ethical behavior, and safeguarding the interests of shareholders and stakeholders.
The debate about whether organizations should exist to serve the interests of shareholders or stakeholders is an ongoing one. Both perspectives have valid arguments:
a) Shareholder perspective: This viewpoint argues that the primary purpose of an organization is to maximize shareholder wealth. Shareholders provide capital to the company and bear the financial risks, so they should have a significant say in decision-making and enjoy the returns on their investment.
b) Stakeholder perspective: This viewpoint considers that organizations should serve the interests of all stakeholders, including shareholders, employees, customers, suppliers, communities, and the environment. It recognizes that organizations operate within a broader societal context and should take into account the impact of their actions on various stakeholders.
Arguably, a balanced approach is necessary, where the long-term sustainability and success of the organization depend on addressing the needs and concerns of both shareholders and stakeholders. This entails responsible and ethical management practices, considering the impact on all stakeholders while also generating value for shareholders.
As the general manager of Brunco Limited, if the corporate governance policies in a country allow for "comply or explain," it means that companies have the flexibility to either comply with specific governance requirements or provide an explanation if they choose not to comply. This approach recognizes that different companies may have unique circumstances and structures, but they need to be transparent and accountable for their governance practices.
Operating in a country with a "comply or explain" corporate governance policy can be beneficial as it provides some flexibility in adapting governance practices to the specific needs and circumstances of the company. It encourages a more principles-based approach rather than a strict rules-based approach, allowing for innovation and customization while ensuring transparency and accountability.
One example of a country with a "comply or explain" approach to corporate governance is the United Kingdom. The UK Corporate Governance Code, formerly known as the Combined Code, sets out principles and provisions for good corporate governance. It encourages companies to comply with the code's principles, but also allows them to deviate from specific provisions if they can provide a satisfactory explanation.
The UK Corporate Governance Code is a set of principles and provisions that provides guidance on good corporate governance practices in the United Kingdom. It was initially developed by the Cadbury Committee and has since been revised and updated by various bodies, such as the Financial Reporting Council (FRC).
These codes are crucial in the management of every organization for several reasons:
a) Enhancing accountability and transparency: The codes promote transparency in reporting, disclosure, and decision-making processes, ensuring that shareholders and stakeholders have access to reliable and timely information about the company's performance, risks, and governance practices.
b) Protecting shareholders' interests: The codes establish standards for the board of directors' composition, independence, and responsibilities, aiming to safeguard shareholders' rights, improve board effectiveness, and mitigate conflicts of interest.
c) Promoting ethical behavior and integrity: The codes emphasize the importance of ethical conduct, integrity, and responsible corporate citizenship. They encourage companies to adopt and uphold high ethical standards in their operations and interactions with stakeholders.
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