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Corporate Accountability Essay

1904 words - 8 pages

Corporate Accountability

Table of Contents Page
1.0 Introduction…………………………………………………………………….3
2.0 The UK and the USA approaches………………………………………………3
3.0 Critical Evaluation of the use of the different Approaches…………………....4
3.1 The UK Rule-based Approach…………………………………………...4
3.2 The U.S.A Principle-based Approach……………………………………6
4.0 Evaluation of the reflection of specific systems…………………………………..7
5.0 Conclusion……………………………………………………………………….....8

Corporate Accountability
1.0 Introduction
Although the definition of corporate governance varies from one person to another, it is indicated that the 1992 United Kingdom Cadbury Report as well as the South African King Report of 1994 defined corporate governance as a system through which companies are controlled and directed. A much broader definition is however provided by the 1999 Organization for Economic Co-operation and Development (OECD), which describes corporate governance as the existing relationships between a company’s board, shareholders and other stakeholders involved. Furthermore, the definition stipulates that, corporate governance avails a structure through which the company objectives are set and the how these objectives are to be attained and monitored is also determined by corporate governance. Corporate governance in the UK and the USA however has frameworks that are predictable under distinct approaches.
2.0 The UK and the USA approaches
Corporate Governance frameworks in the UK are predicted using the rule-based approach while in USA it is the principle-based approach that is utilized. The U.K rule –based approach is basically controlled by the existing market and the lack of enforcement. In this approach to corporate governance, the reforms and listings are usually very rigid in nature and are applied to all companies which are required to comply by the given rules. Under the USA corporate governance approach however, the approach is principle-based which is mainly controlled by flexibility and the Government. This approach establishes the norm and benchmarks for exercising good governance and gives corporations more flexibility in establishing their own rules of corporate governance that best fit their circumstances. However, The USA principle-based and UK rule-based approaches are criticized as discussed below.
3.0 Critical Evaluation of the use of the different Approaches
3.1 The UK Rule-based Approach
Evidently, the UK principle-based approach combines high corporate governance standards with low associated costs. The rationale behind the UK-based approach recognizes the fact that good governance is a device that can be utilized in the improvement of the board’s management ability and also providing accountability to the company shareholders.According to the Cadbury report, Britain’s competitive position is determined by how effective the boards exercise their responsibilities.The boards must thus be free to take steps in driving the...

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