With reference to appropriate case law and statute law, outline what the term corporate governance in the United Kingdom Model means
Case Law and Corporate Governance
Introduction
Business entities and their success elements depend on effective and efficient implementation of corporate governance. The role of the corporate governance is to offer critical guidance towards the growth and development of the organizations. This is through determining the level of interactions within the corporate worlds. The corporate governance is essential towards the promotion of the interests of the stakeholders within the economy. These stakeholders include consumers, employees, government, and the local community. It is the role of corporate governance to ensure that the interests of these stakeholders are the driving factors in relation to the decision-making process. Corporate governance operates under the provisions of certain laws especially the common laws in the United Kingdom. This indicates that case laws have a critical role to play in the illustration of corporate governance and its role in enhancing performance of corporations.
A case law refers to the section or part of the common law that constitute judgment offered or delivered by higher courts also known as appellate courts. This relates to the interpretation of the statuses applicable to the context of the case before the court “Anthony (3rd ed., OXFORD) 22”. Interpretation of case laws occurs within the context of the provisions of the constitution. The case laws are also the precedents. This indicates that they prove to be binding on all the courts within the land. The courts need to follow similar jurisdictions when attending to such laws in same circumstances. The recognition, affirmation, and enforcement of the precedents occur over time with reference to decisions by the court of law thus an opportunity for the expansion of the common law “Anthony (3rd ed., OXFORD) 23”. The contrast of the case law is the statute law. The statute law in other cases is the judge made law. [1] It reflects on the body of the legal system developed and enacted through legislature. From the perspective of the statute laws unlike in the case laws, the civil law does not have the ability to recognize, affirm, or enforce any precedent.
Corporate governance in the narrow sense focuses on the direction and controlling of organizations and business entities (companies). This involves extensive monitoring of the systems, procedures, and process within the operations of the companies with the aim of ensuring accountability and transparency or openness in their transactions “Mallin (2nd ed., OXFORD) 14”. These monitoring aspect aim at protecting the consumers and business owners through effective and efficient application of ethics and laws governing transactions within the economy. In the broader perspective, corporate governance also involves extensive protection and advancements in relation to the interests of the shareholders.[2] This is through effective and appropriate direction to the development of the company. To some extent in the United Kingdom, Corporate Governance focuses on the appointment of effective and sufficient management to advance the interests of the shareholders within the economy. The main concern of corporate governance in relation to the case law is relationships “Weatherill (3rd ed., OXFORD) 154”. These relationships exist among the board of directors, shareholders, top leadership of the companies, and relevant stakeholders. Corporate governance from the perspective of case law aims at providing appropriate structure through which objectives within the company are set and developed.
The other aspect of the corporate governance relates to the determination of the legal manners of obtaining the objectives and goals of the companies. Corporate Governance as a case law also focuses on the development of clear channels of communication that exists in relation to the association within the corporate world. The stakeholders within the context of the corporate governance include financiers, suppliers, employees, local communities, and the government of the land. According to United Kingdom’s corporate law or governance, it is necessary for the board of directors to have significant interests of employees of the company, suppliers, and relevant consumers within the process of making crucial decisions. The process should also focus on the relevant impacts or influences of operations in relation to the environment and the local community “Mallin (2nd ed., OXFORD) 12”.
In the context of the United Kingdom, corporate governance is under the provision by unique or different laws, rules, and relevant recommendations. An appropriate example of the common laws or rules (case laws) offering provision to the corporate governance is directors’ fiduciary duties law “Arnold & Porter 1”. Directors’ fiduciary duties law focuses on the role and obligations of a member of the board of directors to a nonprofit organization (corporation). The case law offers an opportunity for the economy to guide and monitor the financial management of the nonprofit organization within the corporate world. The law recognizes the fact that the director owes a fiduciary duty on behalf of the corporation. Since corporate governance aims at ensuring openness and transparency within the United Kingdom, the director in the execution of his or her duties must operate with the interests of the organization at heart “Arnold & Porter 1”. This is an illustration of having positive influences on the organization through the actions of the director.
Corporate governance demands that the director must adopt the interests of the corporation while making crucial decisions concerning the company or any of the related entities. This is through the ability of the director to execute his or her duties in the manner that fulfills the purpose of tax-exempt and its maintenance. [3] From this perspective, corporate governance prevents the director from acting in a manner likely to benefit a third party rather than the corporation and its stakeholders. This law ensures that there is transparency in the dealings by the director “Arnold & Porter 1”. One of the roles of the corporate governance is to ensure openness in the activities relating to the company. This case law ensures that the director operate in good faith through disclosing to other members, the material impact that any action by the management might possess. This ensures that there is financial interest in the decision. [4] The case law prohibits the director from participating in any of the decision-making process by the board or vote on critical issues unless under vital determination by the board of directors. In this case, the director will have to determine the existence of conflict of interest before deciding on the participation. This is a reflection of promoting the interest of the company in the execution of the duties and responsibilities.
Corporate governance focuses on the effective management of the business entity within the corporate world. This relates to the demands of this case law by defining the duties. For instance, under the duty of obedience, the law prohibits the director from engaging in the ultra vires acts. This involves acting within the context of the corporation. The director cannot perform or execute duties beyond the powers of the organizations. The other aspect of corporate governance is to attend to extensive care of the organization. This reflects on the case law that relates to the care duty. The duty of care demands that the director must have critical information relating to different aspects of the corporation. This information is vital for the decision making process within the organization relevant to its stakeholders. This ensures that the director must consult the committee or other stakeholders in order to obtain crucial information pertaining to the corporation. According to definition of the corporate governance, the director must act within the interest of the stakeholders. This is a reflection of the case law governing the duties of the director while executing his or her roles within the corporation. The duty of loyalty demands that the director must promote the interests of the corporation rather than his or her interests “Hicks & Goo (2nd ed., OXFORD) 86”. The case law indicates that the role of corporate governance is to offer effective management of the corporations though quality guidelines of the operations of the companies.
Statute law and Corporate Governance
Statute law represents a section of law comprising various written laws that the legislative body incorporates. It is different to the case laws, which owes its origin to the provisions by the appellate courts. The statute laws have a strong influence to the establishment of the cooperate governance in the UK. As evidenced in the provision of the cooperate governance, it is true that a statute law takes part in the formation of the latter. The Cooperate governance represents the situation where the existing companies in a country get their activities controlled by the government in order to exhibit good principles towards the public. From the definition, it is true that the statute law, Financial Services and Market Act 2000 (in UK) apply in ensuring that there is Cooperate governance in the region. The establishment of the Financial and Market Act 2000 occurred as the result of the need by the government to control the activity of the insurance, banking and other cooperate business, towards the public. It serves in ensuring that the cooperate businesses achieves a desirable behavior to their clients. It is the result of the Financial Service Authority created by the parliament of the United Kingdom[5].
The act involves several section, which forms the basis for the cooperate governance in the UK. In section 2, there is an outline about the duties of FSA in controlling the activities of the Cooperate business[6]. Among the objectives, include market confidence, financial stability, public awareness, and protection of consumers and the reduction of financial crime[7]. The objective of public awareness ensures that consumers have known their rights inside the Cooperate businesses thereby helping in reducing the rates of Cooperate breach. During the establishment of the act, most of the consumers were not aware of what they should be expecting from the Cooperated businesses making them be exclusive subjects of the businesses. Most of the insurance companies utilized the opportunity in optimizing their exploitation on the consumers. This made the government pass the act, which could ensure that consumers have received aggressive awareness about the operation of the Cooperate businesses[8].
Another objective is to protect consumers from the harmful activities of the cooperate businesses. Some of the harmful activities include providing substandard products to consumers. Cooperate businesses like banking and insurance companies always provide their interest at exorbitant rates making the consumers to strain when repaying for the loan they have taken. This has always led to most of the consumers missing the essential services of insuring themselves because of the fear of exploitation from the businesses. In this case, the financial service authority (FSA) ensures that the interest rates provided by the banks are within the standards of the consumers. Further, the act also aimed to establish market confidence in the consumers, which allows the latter to go for what they want without the influence of the existing firms[9]. The aim of the government is to ensure that consumers are able to receive the services they require from Cooperate businesses. This led to the establishment of the act, which could build confidence inside the consumers. The confidence makes the consumers believe in the existing Cooperate businesses in the region.
The other objective, which is to ensure that there is a reduction in the financial crimes, provides a favorable environment for consumers to obtain services from the businesses. The war against financial crimes involves reducing the crimes related to converting the property ownership, by the cooperate businesses, from the real owner[10]. The Cooperate businesses always involve in the financial crimes for their self-interest while leaving the real owners to surfer. The increase in the financial crimes associated with the Cooperate businesses upheld a bad image of the industry. Consequently, this called for the need of the financial act, which could act towards reducing the financial crimes.
Section 19 of the Financial act also illustrates on the meaning of cooperate governance in the UK. The section requires that there must be authorization of any firm, which would want to involve in regulated activities[11]. This provision ensures that the Cooperate business only operate on the services, which meets the interest of the client they are serving and not their own interest. The authorization also ensures that businesses are responsible to the government for any wrong activity they exhibit in carrying out their daily activities. Further, Section 71 also thrust onto a private person the chance to sue a firm for any damages, if the person performing controlled function is not approved[12]. This ensures that the businesses only operate within the interests of the consumers since they will be responsible for any deviation.
Conclusion
Corporate governance refers to attempts by the common laws or case laws to control and direct corporations or companies. This is through extensive monitoring of the procedures, processes, and systems. Corporate governance aims at promoting openness and transparency in the interactions among stakeholders: government, employees, consumers, and the local communities. Corporate governance operates towards the promotion of the interests of the corporation and its relevant stakeholders. An example of the case law illustrating the concept of corporate governance is the director’s fiduciary duties law. This law determines the relevant actions by the director in his or her execution of duties and obligations within the corporation. The case law outlines the duties of the director towards enhancing the interests of the corporation thus an effective approach in controlling and directing the companies. It demands that the director must operate within the powers of the corporation thus avoiding conflict of interests. Statute law forms an important part of the cooperate governance in the UK. The statute laws have a strong relationship to the establishment of the cooperate governance in the UK as evidenced in the Financial Services and Market Act 2000. While the need of cooperate governance is to ensure that the government controls the activities of the existing businesses, the sections of the financial act contains all the regulations which are in favor of the consumers. The financial act operates as the vehicle for which the UK government executes the Cooperate governance since most of the sections talks about the need for the cooperate business to provide proper services. The objectives of the financial act are also enough illustration on the meaning of the Cooperate governance.
References
Arnold & Porter. 2006. Memorandum: Fiduciary Duties of a Director and Conflicts of Interests. (p. 1-6). Retrieved from,
http://www.cof.org/files/documents/education_collaborations/difficultboards/handout1.pdf
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Hicks, A., & Goo, S. H. 2008. Cases and materials on company law. Oxford [u.a.: Oxford Univ. Press.
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Legislation.gov. UK. Financial Services and Market Act 2000. Retrieved from: http://www.legislation.gov.uk/ukpga/2000/8/contents
[1] Financial Services and Market Act 2000, s 19(1)(a)
[2] Anthony, G. 2002. UK Public law & European law. Oxford: Hart
[3] Great Britain. 2007. Proposal for the Regulatory Reform. London: The Stationery Office, p 3
[4] Financial Services and Market Act 2000, s 19(1)(a)
[5] Great Britain. 2007. Proposal for the Regulatory Reform. London: The Stationery Office, p 3
[6] Financial Services and Market Act 2000, s 2(1)(b)
[7] Financial Services and Market Act 2000, s 3-6.
[8] Kettell et al 2011. Case questions & answers. West Sussex, UK: Wiley, p 92.
[9] Great Britain. 2007. Proposal for the Regulatory Reform. London: The Stationery Office, p 3
[10] Baums, T. 2004. Hedge funds: Risks and regulation. Berlin: de Gruyter Recht.
[11] Financial Services and Market Act 2000, s 19(1)(a)
[12] Financial Services and Market Act 2000, s 71(1)
