Table of Contents
Corporate governance refers to a set of practices and rules by which companies are controlled and directed. Companies have many stakeholders who are interested in ensuring that their activities in businesses are carried out in an acceptable manner. Businesses vary in terms of size, nature, operating environment, and the number of shareholders. Such differences justify the existing variations in approaches of governing companies. Private companies have less corporate governance issues as compared to public companies. Organizations operating in a relatively unstable environment are faced with corporate governance issues that are quite different from those that organizations operating in a stable environment are faced. Large companies tend to have more corporate governance issues as compared to small companies. Companies that have a large number of shareholders face many corporate governance problems due to the divergent views held by the shareholders. Corporate governance is emphasized on public companies, large companies, and those with many shareholders. Policy makers seek for establishing a framework that aims at ensuring companies to be governed well in order to safeguard interests of different stakeholders. The lack of good corporate governance is damaging to economic development as it makes investors lose faith in companies. It is important to create a framework that ensures error-free reporting in companies. Such a framework is realized when critical policy makers interact for creating reliable code of corporate governance. A good code of the latter supports proper business running that leads, in its own turn, to economic development.
The company’s key stakeholders are interested in ensuring companies that are run well. These stakeholders include employees, shareholders, the government, suppliers, strategic allies, and financiers. Employees are classified into management teams and lower level employees. Top management has the responsibility of governing the company to make sure the entity operates in a sustainable manner. Poor corporate governance threatens the existence of a company that puts the employees’ jobs at stake. Employees feel secure when the company they work for is being governed well. The shareholders of large companies and public limited companies are not involved directly in the running of the company. They elect directors during general meetings to manage the company on their behalf. In their turn, the directors put in place top management that is charged with the responsibility of manning the company for the best interests of shareholders. The managers and directors are, therefore, agents of the shareholders. The agency relationships increase corporate governance risks as some people being in control of the company may manage it against the interests of the shareholders. Subdivision of the board of directors into executive and non-executive directors promotes good corporate governance. The executive directors are involved in daily running of the organization while non-executive directors oversee the operations of the executive directors in order to ensure the company is governed in line with the shareholders’ expectations. The non-executive directors establish the internal audit function whose responsibility is to monitor the preparation of financial statements and to see if the relevant accounting framework is followed. The government is responsible for ensuring the existence of relevant regulatory framework to promote good corporate governance. The government also monitors operations of businesses to ensure compliance with the existing regulatory framework. The government is also interested in running of businesses due to tax revenues. A substantial proportion of corporate governance issues arising in the contemporary business environment relates to tax evasion. The relationships between suppliers and businesses are governed by the principles of corporate governance. The suppliers are only comfortable when dealing with organizations that are governed properly and that guarantee them payment for the products provided. Organization forms strategic alliances for increasing their capacity in order to respond to forces of the environment. A party in a strategic alliance may fail to comply with the principles of corporate governance that may expose the other party to losses. Lastly, the financiers have interests in corporate governance as unethical managers can present erroneous reports with an aim of fraudulent acquiring money from financial institutions. Policy makers in the United Kingdom have been striving for establishing a reliable corporate governance code to provide good guidance for managers in terms of control and corporate directions. Such efforts have resulted in legislative interventions where laws have been formulated to govern businesses’ running. The UK Corporate Governance Code was established to govern public companies. The financial reporting council is charged with the responsibility of overseeing the Code’s implementation. The Code has five sections namely leadership, effectiveness, accountability, remunerations, and relationships with shareholders. Directives provided in each of these sections offer good guidance that clears the ambiguity that surrounds corporate governance.
Aims and Focus of the Study
Having understood corporate governance, it is imperative to conduct a study for the investigation of realities in corporate governance and identify its actual impacts on the stakeholders and the economy as a whole. The specific aims of the study include:
- Identifying the impacts of corporate governance on corporate development
- Establishing the relationship between corporate governance and operating costs
- Identifying the impacts of corporate governance on key stakeholders
- Identifying the effects of corporate governance of UK economic development
The area of corporate governance has attracted many studies, but none of them has addressed specific aims highlighted conclusively. It is important to ascertain whether corporate governance has impacts on corporate development as there are various factors affected by the former that influence organizational growth. For example, corporate image and customer loyalty affect organizational development. The presence of good corporate governance improves corporate image while the absence of the same is damaging to the image of any organization. Businesses operating in today’s environment are confronted with customers who are not willing to be engaged in a business dealing with unethical practices. Good corporate governance enables the company to act ethically, and this supports the creation of customer loyalty. Corporate governance has cost impacts on businesses. The existing studies fail to provide a breakdown of the cost impacts of corporate governance. Failure to practice good corporate governance can increase operating costs. For example, failure by the management to comply with the existing legal framework exposes a company to litigations that are costly to it. The matters revolving around corporate governance affect different classes of stakeholders. It is important to identify how corporate governance affects different classes of stakeholders dwelling on negative and positive issues. The thing that affects wellbeing of business has tangible impacts on economic development. Economic growth is realized when individual businesses in a country register boost. Corporate governance supports beneficial interactions among businesses that lead to economic growth. Beneficial interactions among companies operating in an economic system lead to the realization of synergy that is translated to massive economic growth.
Corporate governance in the UK is highly regulated, and there are strong agencies charged with the responsibility to oversee the compliance with the Corporate Governance Code. The UK business environment is characterized by intense competition in conditions that may lead to violation of the Code. Businesses exploit different strategies of survival, some of them are not in line with the principles of corporate governance. Managers may engage in unethical practices with an aim of addressing competitive forces. Profitability is the main concern for every prudent manager, and the managers are always under pressure from the shareholders in terms of increasing profits. As a result, they may get used the loopholes in the accounting rules in order to inflate profits so as to satisfy the shareholders’ desires. The company law requires managers of public companies to make their annual reports publicly and give interested parties a chance to inspect the financial statements. The managers are tempted to provide wrong figures aimed at making the company’s performance appear attractive. UK tax rate is among the world’s highest ones making businesses to exploit different avenues of avoiding and evading taxes. Such an environment raises many corporate governance problems.
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The research will use primary data due to the absence of sufficient secondary sources. A total of fifty respondents will be engaged in answering standard questionnaire. The judgmental method of sample selection will be used to identify twenty top managers in public limited companies, twenty shareholders in public companies, and ten employees in private and public companies. The respondents will be familiarized with the questionnaires before filling them in in order to give them a chance to seek clarifications. The dependent variable is corporate governance while the independent variables are business growth, operating costs, economic development, and impacts on stakeholders. The analysis will focus on identifying the correlation between the dependent and independent variables.
- Statistics skills
- Data gathering skills
- Analytical skills. These skills are important in the visualization of the relationships between dependent and independent variables.
- Software skills for supporting usage of statistics software
- Interpersonal skills for convincing respondents to participate in the study. These skills are also essential in ensuring proper interactions with authorities so as to carry out the research with a proper authorization.