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Reviews on Corporate Governance Reform

2019-05-16 来源: 51due教员组 类别: Essay范文

下面为大家整理一篇优秀的essay代写范文- Reviews on Corporate Governance Reform,供大家参考学习,这篇论文讨论了英国的公司治理。长期以来,英国一直被认为是全球公司治理的领导者,受到世界各地众多投资者和商人的关注。英国公司治理框架的高标准、低负担和灵活性取决于它的不断完善。由于公司治理框架直接影响到英国公司的利益相关者利益,迫使许多公司做出调整,因此,政府发布的文件不可避免地引发了广泛的讨论,并在企业和社会各界产生了巨大的反响。

Corporate Governance Reform,英国公司治理,essay代写,作业代写,代写

Introduction

The United Kingdom has long been regarded as a world leader in corporate governance, and attracts the attention of numerous investors and businessmen all over the world. The high standards, low burdens and flexibility of corporate governance framework in the UK depend on its improvement from time to time. With the help of business representative and professional bodies, company secretaries, trade unions, executive and non-executive directors, consumer bodies, academics, the investment community, think-tanks and wider civil society groups, on 29 August 2017, the UK government published the Green paper on corporate reform for the sake of strengthening the UK’s corporate governance framework. The document identifies nine proposals for reform which involves three specific aspects of corporate governance, executive pay, strengthening the stakeholder voice and corporate governance in large privately-held business.

Since the corporate governance framework directly impacts the stakeholder interests in UK companies and forces many companies to make adjustments, it is inevitable that the document generates a wide debate and a big response from a cross-section of business and society. In this way, the paper seeks to demonstrate the rationality and effectiveness of the nine proposals, in order to provide useful suggestions for stakeholders. It discusses pay ratio, worker representative and code for large private firm respectively. Finally, it draws out some more general conclusions.

Pay Ratio

It is necessary to take into account the executive pay in the corporate governance framework. According to the Association of Chartered Certified Accountants, executive pay plays an important role in boosting the organizational performance, and it should be transparent (Solomon, 2010). Nevertheless, high executive remuneration negatively influences the shareholders’ interests and dampens the incentives of some managers. Meanwhile, it is also one of the major factors which undermines public trust in business and demotivates the wider workforce through reducing the productivity and employee engagement (Nicholls, 2017). What is more, even though previous reforms have paid attention to the issue of high executive pay, the problem still exists currently. The High Pay Centre calculated that leading bosses typically earn 129 times more than their employees (Allen, 2017). Therefore, the introduction of pay ratio is essential. The pay ratio is the only one which has not been watered down by Prime Minister in July 2016 (Ford and Pickard, 2017). The pay ratio requires listed firms to publish the total pay of the chief executive and average worker, with an explanation of changes annually.

However, it is important to note that pay ratio is not a good idea for curbing the high executive since it is unpractical and insufficient in the realistic conditions. Take the American practice as example, for the sake of solve high unemployment rate and economic recession, the SEC’s pay ratio disclosure rule requires companies to disclose the compensation data with annual reports. However, the fact is that many Americans still face unemployment (Yingling, 2015). Furthermore, the comparative value of the ratios will be undermined, and the provision tends to mislead investors who try to compare the pay ratios of CEO with differing levels of worker pay (Shorter, 2013). Because of the differences among different business structures, crude pay ratio is not comparable in different industries. What is more, it is necessary to take into account the difficulties in gathering the huge data and following with the compliance rule when to adopt pay ratio (Bikard, 2011). For example, part-time employees, sudden quit of staff, and timetable exchange between employees cause administrative nightmare by computing the data for employees. As it is time-consuming and costly to execute pay ratios, the information that shareholder receives may be useless (Bikard, 2011). For example, there are thousands of employees in multinational corporations, and it is very complex and difficult to compute pay ratio due to the various rates in different countries and frequent alteration of pay scale. In addition, the proposal is not good for the harmonious relationship in companies. In accordance with the agency theory, shareholder is the owner of the company, and managers are delegates who help shareholders to manage the firm and make profits (Fama and Jensen, 1983). However, a high executive pay may make shareholders unsatisfied since it threatens their interests, and a decline of morale of workers is caused by high pay ratio as well (Lacmanovic, 2013). Most senior management and board members argue that pay ratio does not provide shareholders with useful information and give them additional information about decision makings, since it is regarded as a politically motivated disclosure for shaming the executive directors (Constantinides et al., 2013). Sometimes, pay ratio even significantly dampens the enthusiasm of directors if some companies aim to reduce the gap. Besides, some firms may try to lower the pay of executive for the sake of reducing gap, but it is not easy and unrealizable; since CEOs receive the majority of remuneration in form of incentive compensation such as annual incentives and stock option, while general employees get company pay and benefit. In this way, the pay of CEOs is 10 to 20 times as much as mid-level employees, pay ratio is still high due to CEO’s performance pay (Davis and Mishel, 2014). 

At the same time, many people who support the proposals of executive pay are hopeful that it would provide greater transparency for investors about the efficiencies of a publically-traded company (Department for Business, Energy & Industrial Strategy, 2017). Since there is great disparity between the pay of low-level of employees and executives, the low-level of employees may have less loyalty, morale and commitment to their employers. Therefore, supporters claim that, it is necessary to adopt these proposals to make investors know about pay disparity because high disparities negatively influence the overall organizational performance. Furthermore, Sarah O’Connor, the writer of Financial Times holds that the disclosure of pay ratio will stimulate average workers to demand more salary, and the actual effect of this pay ratio policy is not necessarily to reduce the emolument of the executive directors but to cause an increase of other people’s pay (O’Connor, 2017). For example, the US uses median of employee’s pay for ratio computation and the remuneration package evaluation is regularly conducted by Remuneration Committee and consultants of other firms, thus median has a big impact. As salaries becomes more transparent, this will naturally result in a rise of pay as the competition among companies. Therefore, this is the reason why CEOs benefits from transparency side of inflation (Warrell and Pickard, 2016). However, the disclosure of information may confuse investors since companies may use different methods and statistical sampling method techniques to calculate median of employee compensation. In the meanwhile, the lack of defined private-sector standards may lead some issuers to take a statistical short cut for saving the money, and more cautious firms will bear extra costs to ensure that they make accurate ratio but this fact would not be considered by investors as compared with their peers. Moreover, take American practice as example, in order to overcome the difficulty in calculating the full value of all employees in a company, the Securities and Exchange Commission provides companies shortcut which allows companies to use statistical sampling to determine the median employee (Anon, 2015). However, based on the data of Executive Pay Center, sampling does not reduce the core burden of the majority of corporates, and most large multinational companies do not keep a concentrated list of employees with regard to their payroll information (Anon, 2015). Confederation of British Industry is widely favored in disclosing pay ratio as a way to build corporate trust (CBI, 2017). However, a group of chief executives write a letter to the Securities and Exchange Commission at U.S Business Roundtable and they indicates that compensation rules will lead to internal discord among employees (Goldstein, 2017). What is more, for the inflationary pay ratio, it does not make a difference but turns on the setter of pay.

In summary, proposals regarding executive pay are insufficient and problematic. This simple ratio usually could not largely change the difference of pay immediately, but a long-term trend of pay gap may become more evident for both shareholders and employees. The controversy of discourse of pay ratio is drastic and continuous in the society. The evidence mentioned above suggests that the publication of pay ratio is feeble and ineffective. Moreover, for estimation of pay ratio, it is suggested that pay ratio should be limited to full-time U.S. employees. Once the part-time and seasonal employees are included, the Securities and Exchange Commission should allow the company to conduct an annual analysis of the payroll data of these employees annually. Andy Haldane, the Bank of England's chief economist, denies the role of pay ratio. She argues that, companies should be forced to publish the trend rather than a single rate. The relative trends in real pay could lead to a stronger transparency and interpretation of gap of pay between CEOs and average workers, and there will not be a loss of deferred share award depending on the value of stock by simply listing a snapshot ratio (Moshinsky, 2017).

Worker Representative

Strengthening the employee, customer and wider stakeholder voice is another key subject in this reform. The subject is very important since it plays a significant part in improving boardroom decision-making and delivering better and more sustainable business performance (Department for Business, Energy & Industrial Strategy, 2017). In fact, many companies have the problem of ignoring the interests of customers, suppliers, employees and wider society; which seriously impact the image and reputation of companies. For instance, the scandals of BHS and Sport Direct largely undermine the reputation of UK’s firms. According to Hill and Jones (1992), large films affect the whole society in various aspects, and it is necessary for them to take accountability to stakeholders except shareholders such as employees.

The process of promoting and implementing the subject is difficult as well. In the July of 2016, Theresa May put forward a proposal to put workers on corporate boards. Nevertheless, she was suspected by many people and the proposal was finally watered down (Financial Time, 2016a). Specifically, the proposal threatens the interests of senior executives and leads to a panic among some cabinet ministers and most ministers in conservative party. In this way, certain ministers clearly expressed their disagreement. For example, Philip Hammond are trying to undermine this radical proposal under the support of business secretary Greg Clark (Financial Time, 2016a). On the other hand, it is important to note that the subject does not accord with the neoliberalism that Britain has advocated for a long time. According to the thoughts of neoliberalism, free market competition, individualism and privatization are vital to social development (Harvey, 2007). Therefore, the interest and voice of shareholder are much more important than employees, suppliers, customers and wider society.

However, in this reform, those proposals regarding strengthening the voice of employee, customer and wider stakeholder are rational and effective. In the first place, these proposals promote organizational democracy, which is good for improving the loyalty and engagement of employees.   The idea of putting workers on the board is similar to Germany practice. Based on the law, there are worker representatives on the supervisory board. What is more, workers have the right to oversee, access, and appoint people who actually run the company. In this way, it undoubtedly promotes democratization in the workplace to a larger degree compared with other advanced economies (Rebérioux, 2002). In the second place, the participation of other stakeholders such as workers can increase the effectiveness of oversight committee (Fauver and Fuerst, 2006). In the meantime, the information asymmetry between manager and non-executive directors will be reduced based on agency theory, since the worker representative of board has insider knowledge and professional skills (Jensen and Meckling, 1976). Stiglitz (1985) points out that, with the help of workers, less money is spent in supervising managers. Workers tend to have internal knowledge of the company, and they are willing to maintain a safe working place. Consequently, they have the motivation to monitor senior managers efficiently.

At the same time, some people raise their objections. On the one hand, they think the participation of workers will impact the schedule of decision-making. In view of the differences between workers and board members in terms of standpoints and knowledge background, it may be difficult for workers and board members to achieve effective communication (Kleinknecht, 2015). On the other hand, some people argue that, shareholder interests should be given top priority by the company because shareholders own the greatest risk in the company. However, it is easy to find the deficiency of the two opinions. For one thing, the participation of workers can improve boardroom decision-making. Great things may be done by mass effort. Due to the increasing diversity of decision makers, a range of strategic decisions can be stimulated, and it is much easier to update and adjust strategy based on different knowledge and views (Pfeffer, 1983). It also reduces the risk of inertial and group thinking thanks to the limited evaluations of alternatives (Janis, 1989). For another thing, the opinion that shareholders bear the major management risks is not appropriate. Investors are able to shift the risk due to a highly diversified portfolio, while overwhelming majority of employees rely on one company to earn a living. Therefore, employees also take huge risk along with the shareholders, especially for the people who rely on the job to feed their family. Kleinknecht (2015) claims that, the economic effect of employee on the board depends on the business cycle status and it is positive. For example, the board’s response to the crisis will be more effective since board may consider a range of strategic options if the board can receive more information form workshop (Kleinknecht, 2015). Meanwhile, a more trusted labor relation could prevent industrial unrest and promote a faster adaption to the crisis. Employees are not more interested in long-term safety work instead of short-term profits, which may strengthen the company’s ability of overcoming the difficulties by driving more anti-risk policies during a downturn (Kleinknecht, 2015). However, some people also concern that there will be potential inherent conflicts of interest, since the directors have specific legal responsibilities to shareholder (Department for Business, Energy & Industrial Strategy, 2017). On the contrary, Fauver and Fuerst (2006) insist that these proposals in some cases can actually increase firm value especially in complex and intensive industries according to the analysis of 786 German firms. An increased value of company means that shareholders can obtain more satisfactory return through a higher share price. Hambrick and Mason (1984) also believe that heterogeneous teams could more closely reflect strategic decisions and improve long-term profitability.

Generally, evidence mentioned above show that, worker representative is a rational and effective method. It promotes organizational democracy, improves the loyalty and engagement of employees. At the same time, the participation of other stakeholders such as workers can increase the effectiveness of oversight committee, and reduce the information asymmetry between manager and non-executive directors. less money is spent in supervising managers, and less time will be taken in figuring out rational strategic decisions. All in all, work representative is good for organizational performance, and the proposal should be legitimized in the UK due to its great benefits for both shareholders and general employees in the long term.

Code for Large Private Companies

The last key proposal which is discussed in the Green paper is the corporate code for large private companies. This proposal is made due to the collapse of BHS which makes thousands of workers lose their jobs and pensions (Financial Time, 2016b). Although BHS scandal is an exception in UK, it still damages the reputation of UK’s business. Therefore, it is essential to develop a voluntary series of corporate governance principles for large private firms.

Over three quarters of respondents support the proposal since they deem that the social and economic impact of large private companies may be as huge as that of public companies (Department for Business, Energy & Industrial Strategy, 2017). As corporate citizen, it is necessary for companies to bear their social responsibilities. The use of survey is important for the exploration of corporate governance issues, especially the attitudes and practice of various stakeholders, such as directors or external participants involved in governance (Uhlaner et al., 2007). However, for corporate governance researchers, it is very difficult to access related data in privately held companies and combine it with other data. Different from listed companies, privately held companies only reveal its data based on the constraint of jurisdictions (Uhlaner et al., 2007).

After the scandals of Enron and Worldcom, the Sarbanes-Oxley law (SOX) is made for addressing the corporate governance (Labaton, 2017). Although it is not aimed at private firms, many large private companies follow this law for its improvement of strategic decisions and stronger development of financial and corporate culture. Nevertheless, some objectors argue that, with the increasing disclosure for listed companies, private companies are experiencing additional costs in following the rules.  A young company may cost one percent of its sale in compliance (Wolff and Berkenblit, 2003). For instance, The American Institute of Certified Public Accountants points out that, the cost of internal auditing rises by 32% due to SOX, and there will be 20% of time added to the CFO and CIO spending on the compliance (Wolff and Berkenblit, 2003). Furthermore, the time added on the boards cannot bring benefits, it merely increases the confidence of shareholder in the face of increasing burdens. Besides, private firm modifies its appearance of corporate governance scorecard for reaching a higher mark, but this behavior also cheats shareholders and it cannot prevent the next Enron. However, supporters argue that if private companies know the impact of SOX on their business, it could avoid the risk of lowering value (Toomey, 2005). The pressure from non-stakeholders and the litigation of shareholders promote managers and the board of directors to work honestly on compliance (Toomey, 2005).

In general, the code for large private companies is essential and rational since it large privately-held businesses play important roles in the whole society, and it is meaningful for private companies to improve its standards of management.

Conclusion

In conclusion, the paper discusses three key proposals which are suggested in the Green Paper and three proposal all arouse a controversy debate in the society. In accordance with the mixed evidence and responses, pay ratio is not a good idea for curbing the high executive since it is unpractical and insufficient in the realistic conditions. It cannot solve the problem of unemployment, and it undermines the comparative value of the ratios and misleads investors who try to compare the pay ratios of CEO with differing levels of worker pay. At the same time, it is difficult to gather the huge data and follow with the compliance rule when to adopt pay ratio. In addition, it is not good for the formation of good labor relations and helpless to reduce the gap between the top executives and low-level workers. Worker representative is rational and effective since it promotes organizational democracy, improves the loyalty and engagement of employees, increases the effectiveness of oversight committee, reduces the information asymmetry between manager and non-executive directors, and improves organizational performance. Besides, corporate code for large private companies is rational since it helps the companies to improve their standards of management and better bear their social responsibility.

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