In England, corporate governance is neither defined by legislation nor has it been defined by the courts. Mead, Sagar & Bampton indicated that “corporate governance is primarily concerned with the effective control, business efficacy and accountability of the management of public listed companies for the benefit of stakeholders” (2007 p. 332). The Cadbury Committee defined corporate governance in its report on the financial aspects of corporate governance as a system by which companies are directed and controlled. Mead, Sagar & Bampton (2007) continue say that corporate government is lays more emphasizes on companies which in terms of size and economic impact are important to the country. Corporate governance deals with “the interaction between the management of listed companies and the desire of directors to produce wealth for themselves and the shareholders and on the other hand the impact of management structures and decision making on stakeholders” (Mead, Sagar & Bampton, 2007 p. 332).
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Mead, Sagar & Bampton (2007) indicated that the main concern in England is the apparent lack of effective control of directors of public listed companies which have manifested themselves in perceived excessive remuneration packages and mismanagement leading to a umber of high profile corporate collapses. Corporate governance in England attempts to effectively control the activities of the directors in their management of public companies so as to avoid high profile scandals. In this context Mead, Sagar & Bampton (2007) found out that corporate governance is not static, but it rather develops to meet the urgent issues of the day within the company.
Although there is an overlap between business ethics, company law and corporate governance, company law is made up of ethical principles and standards in which company directors are supposed to adhere to (Mead, Sagar & Bampton, 2007). They also indicated that in United Kingdom boards are usually unitary which means that there is one board that is responsible for management and governance of a company.
Corporate governance code of ethics requires that listed companies include a statement in their annual reports confirming that they had complied with the code or not. Mead, Sagar & Bampton (2007) says that this corporate governance law also requires that this should be included were necessary, detailing instances of non compliance and the reasons of not complying with the codes. The connection between the code of ethics in companies and business law requires that the directors express the correct standard of behavior expected of directors when they are carrying out their duties of management. In England registered listed companies must disclose in their annual report the extent to which they have complied with the Combined Code in the last 12 months and to give reasons of not complying.
Company’s corporate governance obligation should not be restricted to economic and financial matters but it should also include social and environmental matters. Mead & Sagar (2006) indicated that “compliance with corporate governance adds more red tape to the running of a business with the result that it is required to spend more time complying with regulatory matters to the detriment of its profit making activities” (p. 361). Other people argue that increasing compliance with social responsibility increases company performance. In their further studies Mead & Sagar mentioned that it is important to encourage shareholders, non executive directors and auditors to accept their legal responsibilities and scrutinize the stewardship of companies and also impose adequate checks and balances on executive directors without unduly restricting the enterprise side of governance (2006).
Public companies which are listed on international stock exchanges should first focus on complying to corporate governance rules because they are the main players in the world economy and therefore the main targets f corporate governance. Mead, Sagar & Bampton (2007) says that morality and ethical behavior are also covered in corporate governance law. It is considered wrong and unethical that directors and other insiders benefit from inside information and knowledge by making a profit or avoiding a loss in connection with the share dealing under insider dealing legislation. It is also considered inappropriate to compromise the integrity of accountant’s role as independent auditors. Mead, Sagar & Bampton (2007) says that it might be in the auditor’s role to give the company a clean bill of health so that company will continue to contact with them. The success of public companies is crucial to United Kingdom and the global economy.
In addition, Mead, Sagar & Bampton (2007) says that “when a high profile company collapses they do not only impact on those directly involved for example the shareholders, creditors, suppliers and customers but also has a big impact worldwide in such a way that it creates lack of confidence on the part of investors” (p. 339). This implies that companies should maximize their profits and at the same time strike the balance of adhering to corporate laws and codes of ethics. In order to attain this balance the directors should understand that they duties of care and skill to the shareholders as a body and that their duties are enforceable by the company. Mead, Sagar & Bampton (2007) also indicated that although the duties are not owed to the company’s creditors, and therefore if the company becomes insolvent then the directors are supposed to owe fiduciary duties of good faith to creditors.
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In United Kingdom directors are mainly concerned with the short and long term interests of the company’s owners who are the shareholders. Mead, Sagar & Bampton (2007) found out that corporate governance law requires that directors of a company must take account of interests of employees. There should effective control of directors for companies to maintain the correct balance between the need of companies to maximize profitability and their duty to conduct their business ethically. This can be achieved by ensuring internal regulation of the activities of directors such as requiring them to fully disclose their dealings to the shareholders (Mead, Sagar & Bampton, 2007). Moreover, companies can achieve this by giving the shareholders the power to regulate the activities of the directors through their control of the company’s constitution, and also ensuring that the shareholder have the ultimate power to appoint and dismiss the directors.
In conclusion, companies in England should strive to maintain the correct balance between the need to maximize profitability and conduct their business ethically and therefore there is a need for constant evaluation of the risks and categories of risk which may be facing the company (Mead, Sagar & Bampton, 2007). There is also a need to ensure that effective safeguards and internal controls are put in place to prevent or reduce risk. Besides this, companies should ensure that annual assessment of risk is made transparent to reduce fraud. With all these considerations companies can maximize profitability and at the same time meet the standards required for business ethics at corporate level.