Monitor Corporate Governance Activities

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Monitor Corporate Governance Activities

Monitor Corporate Governance Activities

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Question one: State differences and similarities between corporate governance statements and codes of conduct of the two companies

According to Anonymous (2014), corporate governance represents the framework of rules, relationships, systems and processes that corporations use to exercise authority. The processes of corporate governance describe mechanisms for holding companies and those in control responsible. A company that practices effective corporate governance always succeeds in all its operations and achieves its business goals and objectives. The two selected publically traded companies are American Airlines and General Electric (GE) Company from United States. The corporate governance statements, and codes of conduct of both companies show some similarities and differences. The appendix section shows an attachment of corporate governance statements and code of conducts for both companies.

Similarities

Both companies are committed to strong corporate governance by ensuring all board members undergo intensive scrutiny before being given authority to plan for firm’s operations. In American Airline Company, for example, board members are elected annually through the ballot process and those failing to receive the affirmative vote of majority votes are not considered. Rejected members are required by the company law to tender their resignation because they become unfit to hold leadership positions (American Airlines 2014). Likewise, General Electric Company offers a platform for selecting effective board of directors’ members through laid-down guidelines that determine the independence and qualification of individual directors (GE 2007 Proxy Statement 2007). Additionally, both companies’ corporate governance statements give board of directors’ mandate to review corporate governance practices and offer recommendations where necessary to ensure growth and development of their firms.

The code of conduct represents a mode of communication adopted by the organization to demonstrate its values, ground rules for behaviors and acceptable criteria for decision-making (International Federation of Accountants 2007). Both companies also show similar codes of conducts in the manner of each company’s ethical considerations. Both companies ensure their employees understand the company’s code of conduct and use it to behave ethically and in accordance to the rules and regulations of the organization. GE Corporation requires all directors, employees and officers working in the corporation to act ethically and follow policies that make up the company’s code of conduct. Any director or executive officer not behaving in accordance to the company code of ethics risks losing their jobs according to the Board’s of Governance Principles (GE 2007 Proxy Statement 2007). Similarly, the American Airline Company puts strict regulations towards its employees on the issue of corporate governance. The company trains all its members regardless of the position held through the company’s business ethics (American Airlines 2014).

Differences

Although both companies share similar views on corporate governance systems and codes of conduct, a different exist on how each company operates. Firstly, American Airlines’ corporate governance allows Board of Directors to acquire their position through a majority vote and not any other form. On the contrary, Board of Directors at GE achieve their positions through appointment from the company’s Board of Trustees assisted by company stakeholders. Members undergo intensive interviewing following Board of Governance Principles to establish individual qualifications and suitability for the post. The roles of Board of Directors in both companies differ.

On the issue of the code of conduct, American Airline’s code of conduct addresses many areas compared to GE’s that provide general ethical requirements of employees without necessary mentioning individual groups. Secondly, as seen on appendix II, America Airline’s code of conduct links employees, managers, board of directors and company stakeholders into a single entity covered by the firm’s code of ethics. At GE, the stamen gives only rules and regulations of the board of directors and ignores other company employees who should also be covered.

Question two: Explain the relationship between code of conduct and corporate governance

For a corporation to have effective corporate governance, it must have a working code of conduct. The two concepts go hand-in-hand because lack of one leads to the failure of the other. Corporate governance represents the method used by the company’s board to direct and control business operations. The main issues involved in governance include board composition, structure, and ethical framework as stated in individual corporation’s corporate governance statements. The ethical framework issue represents the ethics that the board should follow while deciding and planning for different operations within and outside the corporation. The lack of a good ethical framework leads to poor governance and failure of the company. On the other hand, the rule of law, transparency, protection, and accountability required of the company board follows the code of conduct of the company (Naonawat and Meena 2013). The above argument proves that the code of conduct relates strongly to the corporate governance of the corporation.

Corporate governance and the code of conduct also relates in terms of firm governance and success. Business experts place special emphasize claiming that good governance occurs in the presence of cardinal ethical values. Good ethical values should be compatible with all aspects of governance and be present in all decisions and actions of the board. On the other hand, some aspects of governance such as risk management, functioning reporting, and board complication are also dependent of cardinal ethical values. According to Rodriuez-Dominguez, Gallego-Alvarez, and Garcia-Sanchez (2009), most corporate scandals experiences by organizations today calls for a need to create internal codes of conduct and ensure top management and members of Boards of Directors follow them strictly. Code of ethics describes the expected behavior of all members of the staff, and the members of the board of directors should understand those ethics in order to react accordingly and maintain expected business ethics.

Additionally, abuse of corporate power and criminal activities practiced by corporate officers has been linked to improper application of corporate governance and code of conduct. The effective corporate governance regime in the current business environment has the responsibility of prosecuting individuals fond of conducting unethical or criminal acts in the organization. Corporate governance codes practiced by most corporations give the organization’s board the freedom of developing code of ethics. Ethics forms one of the most fundamental components in the success of any business. Firstly, employees should practice honest and ethical behaviors while under the guidance of firm boards representing the corporate governance. Secondly, the firm should comply with government laws, rules, and regulations. Government rules combine corporate governance and code of ethics of businesses in different sectors. Finally, the code of conduct and corporate governance encourages improved management and realization of corporate culture (Naonawat and Meena 2013).

Question three: Research and report on current issues and trends in corporate governance reporting

Many firms have reported different cases related to corporate governance. The fall of trade barriers leads to market expansion, improved flow of information, and fewer restrictions on investments making it easier for investors to operate in many countries. Moving to a worldwide capital market has substantial effects on corporate governance. The current business diversity and stiff competition experienced in the global business environment leads to many issues and trends affecting international firms’ corporate governance. Succeeding in business in 2013 seems more challenging because companies experience a climate of uncertainty characterized by huge debt crises. Additionally, unfavorable business conditions found in some parts of the world contributed by insecurity, underdevelopment, and unpredicted economic growth accelerates current issues in corporate governance (Association of Corporate Counsel 2013).

Board composition acts as the major trending issue in corporate governance today. Selecting suitable candidates for board of directors’ positions has become more difficult. Directors should have financial and industrial expertise in addition to extreme knowledge on international and overseas risks. Additionally, the issue of gender brings a lot of debate in the current process of board selection because of diversification (Association of Corporate Counsel 2013). Presence of these new highly demanding characteristics required of board members forms key trending issues in corporate governance that all firms should consider before developing corporate governance statements.

Secondly, succession planning also has become an issue with corporate governance today. Companies discuss the need of coming up with a detailed Chief Executive Officer’s (CEO) succession plan. Developing an effective succession plan that caters for all aspects related to costs, shares, and shareholders’ demands form the most challenging concept for most corporations. The issue keeps trending as organization managers look for ways of developing transparent and effective succession plans that promote active participation of CEOs in the future (Association of Corporate Counsel 2013).

Finally, the issue of board compensation has been trending in corporate governance reporting. Shareholders experience hard moments voting on executive compensation policies. Problem arises when members of Board of Directors offer themselves high compensations because they engage in overall planning of the organization. The problem has created a lot of debates from lower staff members and other stakeholders claiming they also take part in organization’s growth. In order to solve such issues in the future, directors should introduce company policies that communicate all controversies arising from board compensation issues both externally and internally (Association of Corporate Counsel 2013).

References List

AMERICAN AIRLINES. (2014). Corporate Governance. Accessed December 11, 2014 from

http://www.aa.com/i18n/amrcorp/corporateInformation/governance.jsp

ANONYMOUS. (2014). Corporate governance principles and recommendations. (3rd Ed.).

Australia: ASX Corporate Governance Council

ASSOCIATION OF CORPORATE COUNSEL. (January 31, 2013). Corporate governance

Trends in 2013. Accessed December 11, 2014 from http://www.lexology.com/library/detail.aspx?g=0be67d97-4e8d-4936-baf6-3924a779226b

CHEFFINS, B. R. (2010). Current trends in corporate governance: Going from London to Milan

Via Toronto. Duke Journal of Comparative & International Law, 10(5), 5-42.

GE 2007 PROXY STATEMENT. (2007). Corporate Governance. Accessed December 11, 2014

from

http://www.ge.com/ar2006/proxy/governance.htm

INTERNATIONAL FEDERATION OF ACCOUNTANTS. (2007). Defining and developing

Effective code of conduct for organizations. Accessed December 11, 2014 from

http://www.ifac.org/sites/default/files/publications/files/Defining-and-Developing-an-Effective-Code-of-Conduct-for-Orgs_0.pdf

NAINAWAT, R., and MEENA, R. (2013). Corporate governance and business ethics, Global

Journal of Management and Business Studies, 3(10), 1085-1090

RODRIGUEZ-DOMINGUEZ, L., GALLEGO-ALVAREZ, I., and GARCIA-SANCHEZ, I. M.

(2009). Corporate Governance and Code of Ethics, Journal of Business Ethics, 90(2), 187-202

APPENDICES

Appendix II: Corporate governance statement for American Airlines

Appendix II: Code of conduct for American Airlines

Appendix III: General Electric Company’s corporate governance statement

Appendix IV: General Electric Company’s code of conduct

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