Fundamental Legal Concepts Of Corporate Identity And Activity In A Global Context

Commercial law at global context

Demonstrate an advanced and detailed knowledge and understanding of the Fundamental legal Concepts that characterise Corporate Identity and activity in a Global Context.

Designing the accurate legal system is considered as fundamental challenge, when government attempts to promote the economic growth in a developing country. It must be noted that entire legal infrastructure of the company matters.

Corporate law is the body of law which is applied to the rights, relations, and conduct of persons and business engaged in commerce, merchandising, trade and sales. This law mainly focuses on the interaction of shareholders, directors, employees, creditors, and other stakeholders of the company. Corporate law is the part of companies’ law, and usually it is considered as branch of civil law and it deals with the issues of both private law and public law.

International commercial law is a body of legal rules, conventions, treaties, domestic legislation, and commercial customs or usages that governs international commercial or business transactions and sales transactions. Any transaction is considered as international transaction if elements of more than one country are involved. Lex mercatoria is considered as part of international commercial law which is not written. It includes the customary commercial law, rules and evidence of customary commercial law, and general principles of commercial law (Newman, 1998).

In this paper, following matters are discussed:

Detailed knowledge related to the fundamental legal concepts of corporate identity and activity in a global context, and understanding of the theoretical framework underpinning corporate governance theories, strategies and regulation.  
This paper also critically analyze the statement of report of the Cadbury Committee, December 1992 on the Financial Aspects of Corporate Governance that is “ Had a Code such as ours been in existence in the past, we believe that a number of the recent examples of unexpected company failures and cases of fraud would have received attention earlier. It must, however, be recognized that no system of control can eliminate the risk of fraud without so shackling companies as to impede their ability to compete in the market place.” this statement is analyzed by providing the reference of corporate failures and steps taken by UK authorities and international authorities since 1992. Lastly, this paper is concluded with brief conclusion.

Commercial law is a sub-division of civil law under which both private and public issues are addressed. Usually, it constitutes rules and regulations which govern the commercial transactions, and these are known by others name also that is business or trade law. Broad areas of business are administered under this law, and it includes both transactions and consumer transactions. Commercial law includes company contracts, consumer credits, house loans, and secured transactions, etc.

Challenges in 21st Century

In 20^th Century, laws related to global trade have been codified, strengthened, and harmonized. Therefore, it becomes necessary to change the commercial law into denationalized form for the purpose of dealing with all types of business regulatory issues related to private and public activities. In 21^st Century, various new features are included in the business trends. For example, Intellectual property law was introduced for the purpose of securing the business interest of particular organizations in international business organizations and international arbitration was used for the purpose of removing trade disputes in different countries (Law teacher, n.d.).

Application of commercial law in 21^st century is completely different from the applicability in 19^th Century because of the resurgence of older aspects. At the initial stage, commercial law is largely applicable to transactions related to marine business and trading by sea. Later, because of globalization various new conventions, regulations, and agreements related to business practices are included.  During the period of 20^th Century, number of countries such as US and UK adopt the practices related to private commerce. On the other hand, some other countries such as South African countries did not find any suitable domestic laws which were followed in New York and England.

In previous centuries, international trade laws have very narrow scope, but now in 21^st century it was transformed in the modern business world. Commercial practices were also changed for the purpose of dealing with these new changes. Therefore, harmonization of commercial law and intellectual property rights will have great ramifications and effects on the business practices at global level. It must be noted that at global level, protection of intellectual property rights is very necessary especially in cross border transactions (Paradese, n.d.).

In this period of harmonized trade practices, the need related to intellectual property rights is increased because of the increase in the competition level in international trade practices. However, any enforcement procedures against parties or countries involved in the business are considered as crucial factors for the purpose of working globally in this harmonized fashion. For the ensuring this, rights of parties must be protected in the business transaction at international level (Gaillard, 1999).

The universality of commercial law at international level is not because of the export and import transactions confront problems, but because of the persons such as merchants, insurance underwriters, bankers, distributors, and others create a transnational community which has more or less continuous history. This ancient mercantile community was the originator of commercial law, and same community developing the present mercantile law. Development of one uniform and universal mercantile law is possible because of the contract practices conducted by mercantile community through the common understanding and customs on which they are based, and also through the regulations of self-governing trade associations, and decisions of arbitral tribunal to which they submit their disputes (Kerkovic, n.d.).

Lex mercatoria

From all these contract practices, regulations, customs, and decisions help in constituting the body of commercial law, and this body is the foundation on which national and international commercial legislations has been build. In Middle age, Lex Mercatoria was originated from new European trading community, and it helps in creating the new system of a law for the purpose of governing commercial activities. The Roman law was introduced in the first universities and it mainly deals with the different types of commercial transactions. The main factors related to Lex mercatoria are stated below:

• in was the transnational law,
• principle source of this law was mercantile custom,
• judgments related to any dispute are not given by the professional judges but by the merchants themselves,
• speedy and informal procedure was adopted, and
• It mainly focuses on the principle related to equity (University of Aarhus, n.d.).

The main aim of corporate governance is to ensure effective, entrepreneurial, and prudent management which results in long-term success of the company. Cadbury Committee produced the first version of the UK corporate governance code in 1992. Paragraph 2.5 of this code states the definition of the context of the code, and as per this definition corporate governance is considered as system through which companies are directed and controlled. It must be noted that Board of directors of the company are responsible for the governance of their companies. Role of shareholder’s in governance is important as they appoint directors and officers in the company for ensuring appropriate governance structure in the place (FRC, 2016).

The responsibilities of the board of directors also include setting the strategic aims, providing the leadership to put them into effect, directing the management and report actual status to the stewardship. It must be noted that actions of board are subject to laws, regulations, and shareholder’s approval in general meeting. Therefore, corporate governance is considered as actions of the board of a company and how they set the values of the company. Activities of corporate governance are different from the day-day activities of the company executed by management of the company. This code is considered as guide for various important matters and ensuring effective board practice. It is clearly depends on the underlying principle of good governance, such as accountability, transparency, etc.

Fitness of the code for the purpose of adapting permanent economic and social changes requires its evaluation at appropriate levels. The new code applies on the corporation on or after the 17^th June 2016, and this code applied to all listing companies no matter whether these companies are incorporated in the UK or elsewhere.

This code contributed in the improved corporate governance in the UK, and it is considered as part of framework of legislation, regulation, and best practice standards. In other words, these regulations and standards mainly aim to deliver corporate governance of high quality, but also ensure flexibility for companies for adopting the changes (ICAEW, n.d.).

Corporate Governance in UK

Investors must ensure thee way through which management of the company have decided to implement the code. It is necessary for make continuous improvement in the applicability of the code by ensuring that code remains relevant and improve the quality of reporting. Boards must think comprehensively about their overall tasks and implication of these tasks on particular individual. The most important key related to these endeavours are the leadership of the board chairman and support given by CEO. 

The most important role of the board is to establish the culture, values, and ethics of the company, and must ensure that there is correct tone from the top management. Directors of the company must make such examples which ensure that good standards of behavior are promoted at all levels of the organization. This will help in preventing the misconduct, unethical behavior, practices which are not ethical, and it also help in ensuring the long term success of the organization.

This update of the code has been adopted from the changes required by European Union’s Audit Regulation and Directive. Section C.3 related to audit committee was reviewed to ensure that these practices must remain consistent and only those changes have been made which are necessary. It is important for companies to consider these changes along with the revised guidance on audit committees.

Following are some code amendments which were introduced in 2014, and focused on the company’s provision related to information about the risks which affect longer term viability, and authorities monitor the compliance related to these changes on continuous basis.

Companies must present this information for the purpose of giving clear and broader view of solvency, liquidity, risk, and viability.

Principles of Corporate Governance: following are some important principles of the code of corporate governance:

Leadership: it is necessary that every company must be directed through effective board, because they are ultimately responsible for the long-term success of the company. it is necessary that responsibilities must be clearly divided between the head of the department and executive management of the company for conducting day to day operations of the company.

It must be noted that not even single individual possessed unfettered powers of decision, and chairman of the board is responsible to lead the board in effective manner and ensure all the compliance. Non-executive directors of the company are also play major roles as members of the board and they must provide proposals on the strategy of the company.

Effectiveness: The board of directors of the company possesses balance of skills, experience, independence, and knowledge of the company for the purpose of discharging their duties with due care and diligence. There must be transparent and formal procedure for appointing the new directors in the organization. Directors must give proper time to the company for discharging their duties in effective manner. Induction is received by the directors of the board on their joining, and they update their knowledge and skills on continuous basis. Information must be supplied to the board in timely manner in such form and quality which enable them to discharge their duties in effective manner. Board must undertake formal and rigorous annual evaluation of its own performance, and that of its committees and individual directors. Directors of the company must be submitted for re-election at regular intervals which ensure satisfactory performance.

Accountability: it is the duty of board to present fair and actual picture of the company’s position and stability to the shareholders and other stakeholders of the company. it is also the responsibility of the board to determine the nature and extent of significant risk which are taking for achieving the target of the company. Board of directors of the company must maintain the effective risk management and internal control system. Board must establish arrangement which are formal and transparent in nature for considering how they should apply the corporate reporting, risk management, and internal control principles.

Corporate failure is the most researched topic in this era and in strategic management literature. This fast moving business environment, international competition, huge amount of investment required tools related to decision making so that investors make safe and fast decisions for the organization.

The Cadbury Report, titled Financial Aspects of Corporate Governance was the report issued by “The Committee on the Financial Aspects of Corporate Governance”. This meeting was chaired by Adrian Cadbury which sets the recommendations on the board of the company and accounting systems for the purpose of mitigating the corporate governance risks and failures. In May 1192, report was published in draft, and its revised and final version of the report was issued in December 19992. This report is recommended for establishing other codes such as OECD. European Union, United States, World Bank. There are number of examples of corporate failure which are not expected and cases of fraud receive the intention earlier, and they also recognized that no system of control can eliminate the risk related to fraud without shackling the companies to compete with fair ethics in market place (ECGI, n.d.).

Some of the popular brands in UK and around the world are not exist, because of the various reasons. But there is one thing common in these corporate failures that are failure to stay relevant in the internet age (Jee, 2016). Some of these examples are stated below (Law teacher, n.d.):

US photo film giant Kodak was established in 1888, and this company reach the heights of success in 1980’s and 1990’s. It has staff of 145300 people and 2/3^rd of global market share. However, this company was bankrupt in 2012 because of the struggle and competition faced by the company such as instagram and smartphones. The firm is still going on, but maximum part of the firm has been sold off (Rayton, n.d.; Neohytou, n.d.).

There are number of failures in 2017. And some of these failures are listed below (Centre for retail research, n.d.):

Store 21: this store is known for the budget fashion and home wares, and this store was opted for liquidation and finally closed. This liquidation involves sale of 125 stores and redundancy of employees. From many years company make late payment to their suppliers, and some of the landlords put in the bailiffs for the purpose of recovering their rent. Action related to company’s failure started early in this year when HMRC appointed to appoint an administrator because of the non-payment of tax. Maximum stores of these companies were situated on high streets and almost 10000 to 20000 sq. feet.

Linens Direct- An online and store retailer with 35 branches went for administration process in July and trading was ceased in these stores. They make the announcement of appointing the administrators in May. This company was established almost 25 years ago and seemed to be trading successfully with sales of £21mn until it went into administration. There was 320 staff.

Love reading- this was the online booking recommendation site which went into liquidation in June 2017. The company continues to trade, and there only 8 employees.

Therefore, it is clear from the above facts that corporate failure is happened for different reasons.

Conclusion:

After considering the above facts, it is clear that corporate governance and corporate law play very important role in the success and activities of the corporation. As stated, Corporate law is the body of law which is applied to the rights, relations, and conduct of persons and business engaged in commerce, merchandising, trade and sales. This law mainly focuses on the interaction of shareholders, directors, employees, creditors, and other stakeholders of the company. Corporate law is the part of companies’ law, and usually it is considered as branch of civil law and it deals with the issues of both private law and public law, and corporate governance is considered as actions of the board of a company and how they set the values of the company. Activities of corporate governance are different from the day-day activities of the company executed by management of the company. This code is considered as guide for various important matters and ensuring effective board practice. It is clearly depends on the underlying principle of good governance, such as accountability, transparency, etc.

This report also discuss the corporate failures on the basis of Cadbury report, and this section states that there are number of examples of corporate failure which are not expected and cases of fraud receive the intention earlier, and they also recognized that no system of control can eliminate the risk related to fraud without shackling the companies to compete with fair ethics in market place.

References:

Centre For retail research, Who’s Gone Bust in Retailing 2010-17?. https://www.retailresearch.org/whosegonebust.php. Accessed on 2^nd August 2017.

ECGI. The Financial Aspects Of Corporate Governance. Available at: https://www.ecgi.org/codes/documents/cadbury.pdf. Accessed on 2^nd august 2017.

FRC, (2016). The UK Corporate Governance Code, Available at:  https://www.frc.org.uk/Our-Work/Publications/Corporate-Governance/UK-Corporate-Governance-Code-April-2016.pdf. Accessed on 2^nd August 2017.

Gaillard, E. (1999). Use of General Principles of International law in International Long-Term Contracts. Available at: https://www.shearman.com/~/media/Files/NewsInsights/Publications/1999/05/Use-of-General-Principles-of-International-Law-i__/Files/View-Full-Text/FileAttachment/IA_General-Principles-in-Long-Term-Contracts_040__.pdf. Accessed on 2^nd August 2017.

ICAEW, UK Corporate Governance Code. Available at: https://www.icaew.com/en/library/subject-gateways/corporate-governance/codes-and-reports/uk-corporate-governance-code. Accessed on 2^nd august 2017.

Jee, C. (2016). of the UK’s best-known brands bankrupted by new technology: HMV, Game, Jessops and more: Businesses that went bust, Available at: https://www.techworld.com/picture-gallery/apps-earables/eight-big-companies-bankrupted-by-new-technology-3611714/. Accessed on 2^nd August 2017.

Kerkovic, T. Origin, development and main features Of the new lex mercatoria. Available at: https://facta.junis.ni.ac.rs/eao/eao97/eao97-10.pdf, Accessed on 2^nd August 2017.

Law Teacher, Failure Of Corporate Governance. Available at: https://www.lawteacher.net/free-law-essays/trading-law/failure-of-corporate-governance-law-essay.php. Accessed on 2^nd August 2017.

Law Teacher. Foundations of International Commercial Law. Available at: https://www.lawteacher.net/free-law-essays/commercial-law/foundations-of-international-commercial-law.php, Accessed on 2^nd August 2017.

Neophytou, E. Predicting Corporate Failure in the UK: A Multidimensional Scaling Approach. Available at: https://eprints.soton.ac.uk/35733/1/01-172.pdf. Accessed on 2^nd august 2017.

Newman, W. L. (1998). General principles of International commercial law, Available at: https://arbitrationlaw.com/library/general-principles-international-commercial-law-part-6-chapter-6-practice-international, Accessed on 2^nd August 2017.

Paredes, T. The Importance of Corporate Law: Some Thoughts on Developing Equity Markets in Developing Economies. Available at: https://www.mcgeorge.edu/Documents/Conferences/JUDIND_PAREDES_MASTER.pdf, Accessed on 2^nd August 2017.

Rayton, A. B. Corporate Governance in UK. Available at: https://www.bath.ac.uk/management/research/pdf/2004-13.pdf, Accessed on 2^nd August 2017.

University of Aarhus, Lex Mercatoria, Available at: https://law.au.dk/fileadmin/site_files/filer_jura/dokumenter/forskning/rettid/artikler/20020046.pdf. Accessed on 2^nd August 2017.