Corporate Governance

In his word, Mr Alastair Ross Goobey mentioned that "Corporate Governance is only about reducing the cost of capital: If we can't establish that beyond peradventure then we are wasting our time. This is not a moral crusade." The question here is whether you are going to agree to his words.

As for me, I could not agree totally with him. No offence but I do accept the fact that there are certain elements of truth in his words. No doubt that the purpose i which he mentioned it during his speech as a chairman of the International Corporate Governance Network back in July 2003 where he was the chairman was to encourage corporate earnings and to reduce cost, nevertheless, we have to give it a wholistic approach as what my beloved Mr. Reuben Rozario would say during my English Legal System lessons.

What is Corporate Governance? It is the accountability of a company's directors to its company and also its shareholders (if it is a public listed company). From what I have seen in the newspapers and also financial magazines, Corporate Governance is one of the major headaches of the government. Why? This is because they are having problems in ensuring that company directors comply to the Combined Code. Oh well, for starters, the government might hit a snag because not every single company established in the UK are affected by the Combined Code which includes the Listing Rules.

If you noticed, partnerships and private limited companies have exceptions to the way the accountability of public listed companies lies. Partnerships and Private Limited Companies are only obliged to the government in dealing with their tax issues where they need to supply their yearly income tax to the Inland Revenue and Customs. I take this as a result of the informal structure of the said partnership or private limited companies. They do not need to publish their annual report which includes a statement of how they achieved the compliance of the Combined Code which satisfied the Listing Ruls under the Hampel report which the public listed companies (hereinafter PLC) do. I think it is all down to the fact that a PLC would have to take more responsiblity in ensuring that they are doing everything within their powers to run the company properly.

This is really important because we do not want directors especially executive directors to do whatever they like to benefit themselves rather than to benefit shareholders (in a PLC). Having said that, Non Executive Directors have tendency to abuse their position to influence others too. We do not want a repeat of major scandal of Polly Peck, the collapse of Barings and also Maxwell. How to govern them? It is easy. We alter the existing rule to protect shareholders especially minority shareholders.

I do think that the government is quite adamnent in ensuring that companies are complying to the Companies Act 2006. Non Executive Directors are there to provide a check and balance on the works of the Executive Directors. We do not want a director to misuse his powers in a company to buy luxury gifts for himself, right? That is why we have the Combined Code and the Turnbull review which was being adopted to improve the security of those vulnerable people.We also have to look into the Myners Report and the Higgs Review in order for us to fully understand the role of the Non-Executive Directors.

The question of whether we need to comply to corporate governance is clear. We need those rules. Otherwise it will have a bad effect on the earnings of the people. Look at Northern Rock. The near collapse of Northern Rock was partly due to the immense pressure on the credit crunch in the USA. The result? Nothern Rock owes the Bank of England around £30 billion! Now, the bank is nationalised. I have never come across any bank to be nationalised except for the Bank of England as it is owned by the government of UK.

Corporate Governance is essential for a PLC to live a healthy and responsible lifestyle. We do understand that by virtue of the rule in Foss v Harbottle, the responsibility of the owners are separate from the company itself. The company has its own legal identity. Lets not make a company diminishes, we have to fight and survive! Everyone in the trade including employees and also auditors are there to ensure that rules and regulations are being adhered to. We have to stand firm on this.