In light of recent share market volatility and problems with disclosure of corporate debt by listed entities, do corporate governance framworks need to be revised and strengthend?
In this report, it’s discussed about the corporate governance of Australia, the core principles of the corporate governance, and most important the corner stones of the corporate governance. For understanding this completely, first we need to understand the stock market volatility and disclosure of the corporate debt.
To verify whether the corporate governance rules are appropriate for the current volatility of the stock market and the problems relate to the disclosure of the debts. Thus, for that, first it is important to understand the current corporate governance practices. The approach related to the corporate governance practices are also important.
Corporate governance is actually a systematic process by which the corporate sector and the companies of corporate sector are directed and controlled. These processes help in generating the wealth and capacity of the company. Large corporations provide the employment opportunities to various people. The corporate governance process should ensure that the companies work in the legal way and proper manner according to the aspirations of the stakeholders and expectation of the society.
The core principles of corporate governance are as follows:
1. Management of every company should have the freedom for executives to run their enterprise for growth but for effective accountability, the freedom of management should be framed in limitations so that the legal exercises should be managed properly.
2. The management of any company should be empowered from the corporate governance. It should also balance and check the activities related to the management of the companies. The main principle of the corporate governance is to create a balance between company and the stakeholder and help in managing a legal and strong relationship. This also ensures that the management of the company is not misusing its powers.
Thus, the principles of the corporate governance include the creation of legal values between company and its stakeholders.
The cornerstones of the corporate governance are as follows:
Trusteeship
Large organisations have various purposes like social and economic. Any organization is a group of various people. Stakeholders, employees and other capital providers are the main group of people but the responsibility of the trusteeship generally lies on the board of directors of the company. Board of members have the responsibility to enhance the value of shareholders and protect them from any discrepancy.
Transparency
The company’s activities and policies should be clear to all those who are related to the company. Therefore, the transparency includes disclosing of all the data and activities which is necessary without considering the company’s strategic interest. The relationship of company and employee is actually an internal transparency of the company. Transparency helps in managing and enhancing the accountability. This also helps to strengthen the relationship between the company and other entities of the company.
Empowerment and Accountability
According to the empowerment, the management must be free to run their enterprise forward. Empowerment actually helps in using the actual potential of employees according to their interest and objective. Empowerment creates the opportunity of innovation and helps to enhance the creativity within the organization. This helps the organization to use their decision making power up to the required level according to the need of the organization.
Accountability should be a property of the members of board of directors’ in an organization for the shareholders. When both the empowerment and accountability mix together then it will create various opportunities for the organization to grow even in this competitive market.
Control
Control is the core principle of corporate governance. According to the principle of control, the freedom of management should be framed in certain limitations for the purpose of checking and balancing various activities. The misuse of powers can be prevented by the control. This also helps in managing the response change, timely. It also ensures that the management of the business risk is performing effectively and pre- emptily.
Ethical Corporate Citizenship
According to the Ethical corporate citizenship, corporates have the responsibility to create and manage the ethical behaviour for the company. These ethical behaviour should be imposed on both internal and external relationships (Daily Rackoning, 2014).
Stock market volatility defines the fluctuation of the stock market. When in one day the stock market goes up and another day it goes down, this process of going up and down of the stock market is volatility. Stock market volatility depends on various factors.
The corporate governance law also affects the volatility of the stock market. The various factors of corporate governance laws help in managing and controlling the volatility of stock. In terms of stock market volatility, the corporate governance laws manages the legal issues related to corporate sector. The management of the company is free to take decision but they need to consider the overall growth of the company rather than personal profit. The decision should also consider the legal issues related to the motive of the decision.
Thus, the corporate governance law helps the organization in making a right decision for the growth of the company by not allowing the management to misuse their powers. Thus, it also affects the stock value of the companies (ISSAI, 2014).
Thus, corporate governance laws affect the stock market volatility by preserving the legal rights for the stake holders of the organisation by preventing the misuse of the powers by the board of members in the company.
It is very important to gain the knowledge of corporate debts by stakeholders of the organizations as these help the stakeholders to gain the overall knowledge about the organization. These also help in reducing the risk for the stakeholders by various means but it is also important to get a proper corporate debt report from the company. Without a proper and clear report, the stakeholders may not be able to identify the situation of the organization very well. Thus, there may be following problems in disclosure of the corporate debt.
1. The corporate debts disclosed by the company should be clear and should have all the details.
2. The details of the boards, experience of board, committees included in the decision making of various processes. Policies and the processes should be mentioned clearly and fully by the management of the organization.
3. The summary statement from the company should also be included into the debt report of the organization. This report should also include the statement from the company that they are following the corporate government laws specified by the ASX (ICAE, 2013).
Current corporate governance practices are very much successful up to a satisfactory extent but there needs to be some changes in the corporate governance laws of Australia. The current corporate governance practices in Australia is divided into eight principles and recommendations.
First principle for the corporate governance is to create a solid foundation for oversight and management; this means that the company should disclose the responsibility of the management and the leading board of the organization with their respective roles and responsibility within the organization. This law defines who is their decision making team and what are their roles and responsibility in the organization.
The second principle for the corporate governance is that the structure of the board also affects the organization’s growth in the market. This principle defines that the board of the companies should consist of enough members according to the size of the organization. This principle also defines that each part of the board should be committed to responsibility and duty towards the organization.
The third principle of the corporate governance is that the organization should promote the responsible decision making and ethical values of the company. This principle actually describes that the organization should have their own ethical values for their stakeholders, employees and society which will help the organization in running in a proper and legal way. The organization should also promote these values and decisions within the organizations and among stakeholders.
The fourth principle of corporate governance of Australia is for creating the safeguard integrity in the financial reporting. According to this principle of corporate governance, the structure of company should be verified independently and with safeguard integrity in financial report. This principle is mainly related to the financial report of the company. According to this principle, the board should establish a special committee for creating a financial report of the organization.
The fifth principle of the corporate governance law is related to the balanced and timely disclosure of the reports. According to this principle of the corporate governance the organization should disclose their balanced report with all the required material on time. This will help the organization in gaining the faith and trust of the stakeholders. The companies should create the written policies and present those policies to the stakeholders. This time period of disclosing the policies should depend on the size of the organization. Some companies publish quarterly, some half yearly and some yearly.
The sixth principle of corporate governance is really important as this principle is related to the laws related to share holder. This principle states that the rights of the shareholders should be reserved; an organization should respect the laws and rights of the shareholders. These should not only respect the rights of the shareholders but also create the awareness about it. These rights should also be mentioned in the report disclosed by the organization.
The seventh principle of the corporate governance is related to the management and identification of the risk associated in various decision making. According to this principle, the company should establish a system of risk management and internal control within the organization which identifies the various types of risks associated for the current situation and finds the solution for that. These risk and solutions associated with these risks should be reported to the shareholders in the published report.
The final principle of the corporate governance is related to the fair and responsible remuneration. According to this principle of the corporate governance, reasonable and sufficient remuneration should be levelled and composited by the companies. This clears the relationship and performance of the company with the shareholders (ASX, 2014).
Thus, by analysing the above principles, it can be clearly said that the Australian corporate governance is clearly working efficiently in Australia. The laws and regulations are helping very much but these frameworks can be more effective by implementing and adding more limitations. The first point that can be added to Australian corporate governance is that the time of disclosing the debts should be fixed by the corporate governance. The laws related to the rights of the shareholders should be stricter as these laws may not work in some cases. Some more situations in defining the corporate governance should be considered.
These will help in making the law more successful and managed.
Corporate governance uses various approaches to balance the corporate activities. These approaches help in managing the various types of corporate organizations and help in managing the corporate activities related to these organizations. These approaches also help in developing the system to fulfil the objectives of the corporate governance like creating a legal bridge between the stakeholders of the company and the leading management of the organization. Thus, this topic helps in getting a raw image of these approaches for corporate governance.
The primary method of Australia that used to regulate information privacy is principle-based regulation. Principle means general rules that expresses the fundamental obligation. It focuses on process to outcomes. Process means action that firms must take and outcomes means the result that requires from firms to achieve. Secondly, a regulatory approach base of it is using prescriptive rules can provide regulation a greater clarity, that make regulated entity to determine rules, it must comply minimum standards of compliance. In turn, these can straightaway be accountable for the regulatory system away from the persons being regulated. Product innovation and hand-on technology can be dead hand, this rule-based regulations are contrary to assentation of clarity and certainty.
The first approach that was adopted by the Australian corporate governance was the self – regulatory approach. Profit maximization and economic liberalism inspired the self – regulation approach. This profit maximization and economic liberalism was emerged in the developed countries. These countries mainly belonged to the Europe. This approach was first developed in the 20th century. According to the self – regulatory approach of Australian corporate governance, the governance guidelines, code of conducts, reports and governance guidelines creates the base for creating the environment of self – regulated market.
A set of best recommendation of practices according to the structure of a company and behaviour of the company were set as guidelines and codes for the self – regulatory approach. According to the self – regulatory approach the market itself imposes the necessary sanctions related to the market. This approach of corporate governance looks as a perfect solution (Anreadakis, 2014).
According the self – regulatory approach, the market itself defines the necessary limitations and recommendations for the market and organizations. This approach also has various faults but it was a best modern approach in the 20th century. This was proved to be a most liberal version after completion of deregulation of regulation. Thus, the self – regulatory approach helps the corporate governance in managing the better relationship of shareholders and management of the organisation.
Conclusion
The report is based on the various studies and research. The above report is basically on the Australian corporate governance. The Australian Corporate governance manages the relationship between the shareholders and the management of the companies. It basically follows the various principles for effectively managing the rights of shareholders and the management of the organization. The principles of the Australian corporate governance considers each and every factor and situation related to the legal laws and regulations related to the organizations and stakeholders of the organizations. The corporate governance helps to handle the stock market volatility and the problems related to disclosure of corporate debts. This is very essential to disclose the corporate debts for stakeholders.
References
ASX (2014). Corporate governance Principles and recommendations [online]. Available at:.
ICAEW (2013). When is comply or explain the right approach [online].
Andreadakis, Stelios (2012). Research Notes: Regulatory or Non- Regulatory Corporate governance: A dilemma Between statute and codes of best Practice [online].
Daily Reckoning (2014). Measuring Stock Market Volatility [online].
Issai (2014). Guidance on definition and disclosure of public debt [online].
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