Corporate Governance Sustainability During the Last Several Essay

  • Length: 8 pages
  • Sources: 2
  • Subject: Business
  • Type: Essay
  • Paper: #27049919

Excerpt from Essay :

Corporate Governance Sustainability

During the last several years, the issue of corporate governance has been increasingly brought to the forefront. This is because the financial crisis exposed the weaknesses of the current system by: failing to protect the interests of stakeholders. In response to these challenges, various reports have been reexamined. One of the most notable is the King Report of 2002. It identified several different criteria that can be used to prevent excessive risk taking. To fully understand how these ideas can be implemented in a corporate environment requires examining the recommendations provided with an actual firm (i.e. Galaxo Smith Kline PLC). Once this takes place, is when the positive and negative elements of these practices will be obvious.

The King Report of 2002

The King Report found that one of the most effective strategies for improving governance is to embrace practices that are reducing risk. The best way to achieve these objectives is to focus on a number of areas to include: discipline, transparency, independence, accountability, responsibility, fairness and social responsibility. The combination of these factors will illustrate the positive and negative aspects of reporting.

Discipline

Discipline is when there is a commitment of maintaining behavior that is in line with company policies. This characteristic can help the board of directors and executives in creating an environment that is supportive of these ideas. When this happens, there will be specific practices utilized as a part of a larger plan (in protecting the firm against a host of risks). (Corporate Governance 2002)

In the case of Galaxo Smith Kline PLC, there is focus on maintaining these standards by having the board of directors and managers working together. Evidence of this can be seen with comments from Christopher Gent (the Chairman of the Board) who said, "I am acutely aware of the pressures and challenges faced by the company and I receive regular reports of how these are being addressed. During the year I was particularly pleased to see further commitments made to improve global access to our medicines, including agreements to supply large quantities of our vaccines to protect against rotavirus gastroenteritis and pneumococcal diseases such as pneumonia and meningitis to the poorest countries of the world at fractions of western prices. The company has also made substantive progress in other areas such as environmental sustainability and in supporting the communities in which we operate." (Corporate Responsibility Report 2011) This is illustrating how the firm is imposing a certain amount of discipline based on the practices they are utilizing. Over the course of time, this keeps everyone focused on reaching the larger organizational objectives. (Corporate Responsibility Report 2011)

However, the negative aspect of this reporting is that decision making can be limited to a select group of individuals. This can make any kind of program ineffective at dealing with a host of issues by: not understanding the critical needs of personnel and stakeholders. When this happens, the company will be unable to achieve financial objectives and will see a reduction in market share. This is because these ideas are inflexible which have a limited effect on stakeholders. As a result, any kind of discipline should be used in correlation with the ability to adjust to a host of challenges. (Corporate Responsibility Report 2011)

Transparency

Transparency is allowing individuals outside of the company to use various pieces of financial data to make investment decisions (surrounding the firm's value). This helps improve confidence in different projections and comments that are made about an organization's activities. Galaxo Smith Kline is taking this information and they are providing investors with a full disclosure of their activities. (Corporate Governance 2002) (Corporate Responsibility Report 2011)

Evidence of this can be seen in the 2011 Corporate Responsibility Report. Inside, it is discussing a host of ideas that are designed to address the needs of stakeholders to include: governance / management, the firm's approach, their behavior and commitment to people / communities. These elements are highlighting how Galaxo Smith Kline, is using their annual report as a way to highlight what they are doing in the area of social responsibility. (Corporate Responsibility Report 2011)

This is providing communities with benefits by informing various stakeholders of these activities. In the future, any kind of issues can be addressed, so that the negative impacts of the firm's activities are limited. Once this takes place, is when the community will look at the company in a positive light. This is the point that there will be better relations with local leaders and citizens groups (leading to even greater support for a host of activities). (Corporate Responsibility Report 2011)

The negative aspect of this report is that the company is doing as much as possible to satisfy the needs of stakeholders. The problem is that this is often not enough and different groups will want even more. The increased reporting will be used to demonstrate how they are concentrating on one area and ignoring others. When this happens, there is a possibility that social responsibility will become ineffective with each group of stakeholders wanting the equivalent of others. This can become a distraction for executives, who are trying to maintain their profit margins and address frivolous complaints. (Corporate Responsibility Report 2011)

Independence

Independence is when there are various mechanisms that are utilized to prevent any kind of conflicts of interest from occurring. This means that there must be policies that will monitor and enforce this kind of activity. In the case of Galaxo Smith Kline, they are focused on improving corporate governance through concentrating on: audits / assurance, external assurance and risk management. These areas are designed to ensure that there is a certain amount of independence during the process. (Corporate Governance 2002) (Corporate Responsibility Report 2011)

The benefits of this approach are the sufficient checks and balances to prevent any kind of major abuses. At the same time, this will make certain that all of the programs are effectively addressing the needs of stakeholders. Over the course of time, this will ensure that these initiatives are intelligently addressing the root causes of the problems. (Corporate Responsibility Report 2011)

The drawbacks of this approach is it could lead to executives trying to micro manage these programs. This is troubling, as these kinds of efforts will hurt the ability of employees, managers and community leaders in working together. When this happens the odds increase that there will be some kind of negative backlash. This could hamper efforts to deal with challenges impacting communities by over regulating how these initiatives are ran. As a result, any kind of initiatives must have provisions that allow for increased amounts of flexibility. If this kind of approach is taken, the firm will be able to control the effectiveness its programs and the way services are delivered. (Corporate Responsibility Report 2011)

Accountability

Accountability is when various decision makers are held accountable for their actions. In the case of Galaxo Smith Klein, they are focused on having an anti-corruption and bribery program. This is where the firm will go after individuals who are engaging in practices that are considered to be unethical. (Corporate Governance 2002) (Corporate Responsibility Report 2011)

When this happens the odds increase that there will be some kind of standard for holding different stakeholders accountable. Moreover, the firm will have elections for the board of directors every single year. This will increase accountability by having procedures for monitoring and changing any kind of actions (which are considered to be against these guidelines). (Corporate Governance 2002) (Corporate Responsibility Report 2011)

The benefits of this aspect of reporting, is that there are mechanisms in place to enforce various policies and procedures. Anyone who is in violation of them will be subject to these standards over the long-term. When this kind of approach is used, it will help a firm to be able to ensure that everyone is following these regulations. This will create an atmosphere that is conducive of supporting the needs of various stakeholders. (Corporate Responsibility Report 2011)

The negatives of this reporting are shareholders could become emotional about particular actions (such as: cutting back on funding a specific program). This could lead to sudden changes in the board of directors from stakeholders who are emotional about what happened. Once this occurs, is when the firm could lose key talent. This will have an adverse impact on the profit margins of the organization. (Corporate Responsibility Report 2011)

Responsibility

Responsibility is when there are procedures in place that will allow an organization to correct inappropriate behavior (i.e. mismanagement). Galaxo Smith Klein is using the Compliance department to monitor and address any kind of issues. The way that this will take place, is there will be regular audits (based upon the risk profile). This will determine how frequently an audit is required. In the event that there is some kind of discrepancy, these policies are allowing Compliance to quickly fix any problems. This helps to improve transparency and accountability by having a way of rectifying potential abuses. (Corporate…

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