Английский язык. Практический курс для решения бизнес-задач - Нина Пусенкова

Internal corporate governance controls

Internal corporate governance controls monitor activities and then take corrective action to accomplish organizational goals. Examples include:

 – Monitoring by the board of directors: The BoD, with its legal authority to hire, fire and compensate top management, safeguards invested capital. Regular board meetings allow potential problems to be identified, discussed and avoided. Whilst non-executive directors are thought to be more independent, they may not always result in more effective corporate governance. Executive directors possess superior knowledge of the decision-making process and therefore evaluate top management on the basis of the quality of its decisions that lead to financial outcomes, ex ante.

 – Remuneration: Performance-based remuneration is designed to relate some proportion of salary to individual performance. It may be in the form of cash or non-cash payments such as shares and share options, superannuation or other benefits. Such incentive schemes, however, are reactive in the sense that they provide no mechanism for preventing mistakes or opportunistic behavior.

– Audit committees.

External corporate governance controls

External corporate governance controls encompass the controls external stakeholders exercise over the organization:

– debt covenants;

– external auditors;

– government regulations.

Rules versus principles

Rules are typically thought to be simpler to follow than principles, demarcating a clear line between acceptable and unacceptable behavior. Rules also reduce discretion on the part of individual managers or auditors.

In practice rules can be more complex than principles. They may be ill equipped to deal with new types of transactions not covered by the code. Moreover, even if clear rules are followed, one can still find a way to circumvent their underlying purpose – this is harder to achieve if one is bound by a broader principle.

Corporate governance models around the world

There are many different models of corporate governance around the world. The liberal model that is common in Anglo-American countries tends to give priority to the interests of shareholders. The coordinated model that one finds in Continental Europe and Japan also recognizes the interests of workers, managers, suppliers, customers, and the community. Both models have distinct competitive advantages, but in different ways. The liberal model of corporate governance encourages radical innovation and cost competition, whereas the coordinated model of corporate governance facilitates incremental innovation and quality competition.

In the United States, a corporation is governed by a BoD, which has the power to choose the CEO. He has broad power to manage the corporation on a daily basis, but needs to get board approval for certain major actions, such as hiring his/her immediate subordinates, raising money, acquiring another company, major capital expansions, or other expensive projects. Other duties of the board may include policy setting, decision making, monitoring management’s performance, or corporate control.

The BoD is selected by and responsible to the shareholders. It is the responsibility of directors to endorse the organization’s strategy, develop directional policy, appoint, supervise and remunerate senior executives and to ensure accountability of the organization to its owners and authorities. But the bylaws of many companies make it difficult for all but the largest shareholders to have any influence over the makeup of the board; normally, individual shareholders are not offered a choice of board nominees among which to choose, but are merely asked to rubberstamp the nominees of the sitting board. Perverse incentives have pervaded many corporate boards, with board members beholden to the chief executive whose actions they are intended to oversee. Frequently, members of the BoDs are CEO’s of other corporations, which some see as a conflict of interest.

Codes and guidelines

Corporate governance principles and codes have been developed in different countries and issued from stock exchanges, corporations, or institutional investors, with the support of governments and international organizations. As a rule, compliance with these governance recommendations is not mandated by law, although the codes linked to stock exchange listing requirements may have a coercive effect.

Companies quoted on the Toronto and London Stock Exchanges formally need not follow the recommendations of their respective national codes. However, they must disclose whether they follow the recommendations in those documents and, where not, they should provide explanations concerning divergent practices. Such disclosure requirements exert pressure on listed companies for compliance.

In contrast, the guidelines issued by associations of directors, corporate managers and individual companies tend to be wholly voluntary. For example, The GM Board Guidelines reflect the company’s efforts to improve its own governance capacity. Such documents may have a multiplying effect prompting other companies to adopt similar documents and standards of best practice. One of the most influential guidelines has been the 1999 OECD Principles of Corporate Governance revised in 2004.

Corporate governance and firm performance

In its ‘Global Investor Opinion Survey’ of 200 institutional investors undertaken in 2000, McKinsey found that 80% of the respondents would pay a premium for well-governed companies. They defined a well-governed company as one that had mostly outside directors, undertook formal evaluation of its directors, and was responsive to investors’ requests for information on governance issues. The size of the premium varied by market, from 11% for Canadian companies to around 40% for companies where the regulatory background was least certain (in Morocco, Egypt and Russia).

Other studies have linked broad perceptions of the quality of companies to superior share price performance. A study of five-year cumulative returns of Fortune’s survey of ‘most admired firms’ found that those «most admired» had an average return of 125%, whilst the ‘least admired’ firms returned 80%. In a separate study Business Week enlisted institutional investors and ‘experts’ to assist in differentiating between boards with good and bad governance and found that companies with the highest rankings had the highest financial returns.

Source: Wikipedia

Essential Vocabulary

1. corporate governance – корпоративное управление

2. fiduciary (fid) a – доверенный, порученный, фидуциарный, основанный на доверии; доверенное лицо, опекун, душеприказчик по завещанию, попечитель

3. constituent n – составная часть, элемент; избиратель

constituent a – имеющий право голоса, избирающий; законодательный; составной

4. best practice – лучшая практика

5. information asymmetry – информационная асимметрия

6. regulator n – регулирующий орган, орган надзора

regulation n – регулирование, правило

regulate v – регулировать

regulatory a – регулирующий

7. Securities and Exchange Commission (SEC) – Комиссия по ценным бумагам и биржам

8. withdrawal n – изъятие, увод, уход, удаление

withdraw v – изымать, отнимать, отказываться, уходить, отходить

9. disclosure n – раскрытие (информации), разглашение

disclose v – раскрывать (информацию), разглашать

10.transparency n – прозрачность

transparent a – прозрачный

11. controls n – регулирующие устройства, рычаги или механизмы контроля

12. moral hazard – моральный риск (риск того, что действия по ослаблению последствий рискованных действий повысят вероятность таких событий)

13. executive director – исполнительный директор

14. superannuation n – пенсия по выслуге лет

15. ex ante – ожидаемый, предполагаемый

16. scheme n – план, программа, схема, диаграмма, структура

17. covenant n – договор, условие или статья договора, ограничивающие действия одной или двух сторон

18. discretion n – усмотрение, свобода действий; полномочия; осторожность, осмотрительность

discretionary a – предоставленный на усмотрение, дискреционный

19. subordinate n – подчиненный

subordinate (to) v – подчинять, ставить в зависимость

subordinate a – зависимый, подчиненный, второстепенный, придаточный

subordinated a – субординированный, младший по объему прав

20. raise money (capital, funds) – привлекать деньги (капитал, средства)

21. expansion n – рост, экспансия, расширение производства, продаж и т. п.

expand v – расширять

22. endorsement n – индоссамент, одобрение, передаточная надпись на векселе, свидетельство известной личности о качестве товара

endorse v – индоссировать, делать передаточную надпись на векселе, подтверждать правильность, подписываться

23. bylaw n – подзаконный акт, регламент, внутренние правила и регламент деятельности компании

24. nominee n – кандидат; лицо, выдвинутое на должность; получатель чего-либо по доверенности

nomination n – номинация, выставление, выдвижение кандидата, назначение на должность

nominate v – предлагать кандидата, назначать на должность

25. mandate n – мандат, наказ, доверенность, поручение

mandate v – передавать под мандат, обязывать

mandatory a – обязательный, принудительный, мандатный

26. listing n – листинг (котировка на бирже)

list n – список

list v – внести в листинг, перечислять

27. London Stock Exchange (LSE) – Лондонская фондовая биржа

28. respondent n – респондент, ответчик (в суде, в ходе опроса или переписи населения)

29. Organization of Economic Cooperation and Development (OECD) – Организация экономического сотрудничества и развития (ОЭСР)

30. premium (pm, prem) n – премия, маржа

31. background n – задний план, фон, обстановка; подготовка, образование, квалификация

background a – фоновой, прошлый

Exercise 1. Answer the following questions.

1. What is corporate governance? 2. What are the important foci of corporate governance? 3. Why has the interest in corporate governance strengthened recently? 4. Who are the parties to corporate governance? 5. What are the key principles of corporate governance? 6. What are the internal corporate governance controls? 7. What are the relative merits of executive and non-executive directors? 8. What are the external corporate governance controls? 9. Are rules better suited than principles to practical implementation of corporate governance? 10. What are the competitive advantages of the liberal and coordinated models of corporate governance? 11. What authority do BoDs have in the U.S.? 12. What is the main difference between corporate governance codes and guidelines? 13. How does the quality of corporate governance affect performance of a company?

Exercise 2*. Find terms in the text that match definitions given below and make sentences of your own with each term.

1. individuals associated together by the fact of residence in the same locality, or of subjection to the same laws and regulations

2. indicating trustee or his office; accepted only because the public has faith in its value