Among the many failures that resulted in the disaster at the Royal Bank of Scotland, there was obviously failing of corporate governance. So it is only right that, along with all the current other regulatory reviews, there should be an assessment of the governance of corporate governance.
In Britain, this is partly a matter of self-regulation, with companies likely to follow the best practice corporate governance standards lay out in the so-called Combined Code.
It is surely only a matter of your time before some headline-grabbing politician identifies the root cause of most our problems: we have been letting the rascals regulate themselves.
So it is very sensible for the Financial Reporting Council, which acts as caretaker of the Code, to get its retaliation in first. And it is very sensible that it'll work closely with Sir David Walker, who is conducting a separate overview of governance of banks.
Critics of the British method of corporate governance - particularly in the us - enjoy pointing out that RBS was, in fact, a model pupil. It did everything by the book, ticked all the boxes and filled page after page of its total annual report with an exhaustive analysis of its corporate governance performance.
In particular, it had a separate, non-executive chairman - a central pillar of the UK code, but far from standard practice in america - a post was created to restrain an over-mighty chief executive. Yet the RBS chairman Sir Tom McKillop failed to restrain Sir Fred Goodwin, with catastrophic consequences for the bank and the taxpayer.
American critics of the British system claim that our company is so centered on ticking the boxes that it does make us complacent. It is one thing following all the rules, but boards also need to ensure they are employed in practice.
There are a few clear areas the review should examine.
The roles of chairman, chief executive and senior non-executive director need to be better-defined. The code should encourage non-execs to get outside advice on big decisions. It will consider whether there must be special rules deciding on banks - it could plainly be advantageous if at least the chairman and members of the chance committee of banks had specialist experience.
The review should consider ways to encourage more vigorous involvement of shareholders in corporate governance questions. And not merely traditional institutions, but also sovereign wealth funds and even hedge funds.
The problem with all this is that, nonetheless they are structured; boards are just as effective as the people on them.
And, for many reasons, the work of non-executive director of a large company, let alone chairman of an bank, is not getting any more attractive. Even good people fail. Example is RBS board. It included the likes of Peter Sutherland and Sir Steve Robson. And, given that so many reputations have been tarnished by the credit crisis, the pool of good people is shrinking.
But it would be a mistake to permit the few good visitors to take on way too many jobs. As chairman of BP, Mr Sutherland is currently supporting the reappointment as a director of Sir Tom, whom he helped to be chairman of RBS. Sir Tom, the person ultimately in charge of Sir Fred's pension, even sits on the BP remuneration committee.
Royal bank of Scotland was among following corporate governance which follows all the code of corporate governance. Despite this RBS needed to bail out by taxpayer money, and most it's share now owned by taxpayer.
Board of directors of RBS was all outsiders and reputed independently field and there is no inner member on the Board. This proposal found a written report that RBS trader bought 34 billion pounds of sub-prime toxic assets in US without informing it's Board. The sub-prime assets are being blamed for triggering the bank's near collapse in 2008. Last year RBS posted a loss of 28 billion - the greatest in British corporate history.
There may be a conflict between Board of members and Management. Maybe if there have been member in Board from inside or from management this trouble in RBS might be avoided.
This proposal will attempt to learn structure and role of Board of Member and Management at RBS. And try to learn any conflict between Board and management which put RBS in turmoil.
This proposal will try to analyze on theory of corporate governance and their practice at RBS; try to find out the impact of corporate governance and its practice at RBS.
This proposal use secondary date because of its quantitative research.
The Corporate Governance is a broad and important subject that covers a range of issues from accountability and transparency and the partnership between the board of directors, management and shareholders to assist in determining the path and performance of the organization (Hunger & Wheelen, 2007, p. 18). The organization governance system was designed to help oversee the decisions and best interest of the shareholders. The system should works accordingly: The shareholders elect directors, who in turn hire management to help make the daily executive decisions on the owner's behalf. The company's board of director's position is to oversee management and ensure that the shareholders interest has been served. Corporate governance focus is with promoting enterprise, to boost efficiency, and address disputes of interest which can force upon burdens on the business. Making certain the clearness, and truth in a company's business can make contribution to increasing the enterprise standards and public governance. In brief, corporate governance is the machine of controls to ensure that investors can assure themselves that they can get their investment back.
Depending on laws and other standard it could vary, but generally Board of Director describes as bellow:
Those who set the entire path, vision and mission within the business enterprise.
Those who make the decisions to hire and, or fire any top management member (Hunger & Wheelen, 2007, p. 19)
Those who oversee management and evaluate strategy.
Those who have the shareholders' best interest at heart.
Those who review and approve the use of company resources, as well as monitoring the effectiveness of the governance practices.
Corporate governance is varied in nearly every country depending on lots of factors like the financial development of the united states, the strength of the legal system, the stability of the government but despite this the U. K is decidedly different from that of it's neighbouring regions in the E. U. There is a unitary board of management and a broader shareholder bases as well as hardly any dual shares and no pyramid structures. (Franks et al. 2004) An study of the history and development of corporate governance and legislation in the U. K may provide some answers to the considerable differences that contain occurred in contrast to many other European countries and worldwide.
The U. K corporate governance practices have evolved from a company perspective and the main agent theory with a solid bias towards shareholder protection and shareholder rights. The protection of shareholders, in particular minority shareholders is included in Company Law which is a major reason for the wide shareholder base characteristic of U. K listed companies.
The major developments of your workable corporate governance system for the U. K came about due to a few notable high profile financial scandals and public corporate collapses such as Maxwell's Communication Corporation and Bank of Credit and Commerce International (BCCI). Robert Maxwell have been taking money from the pension funds to aid his downwardly spiralling financial situations and were able to bypass auditors and shareholders alike. His uncurbed power made this possible. The BCCI scandal had an internationally effect. The Bank was guilty of bribery, arms trafficking, money laundering, the sale of nuclear technology, tax evasion, unlawful immigration etc. Auditors were blamed again. After these and different other scandals there were too little confidence in the power of many U. K companies to accurately report on their financial situations. This led to an important committee being formed; the Committee on the Financial Areas of Corporate Governance.
The report issued by the committee in December 1992 is one the most influential codes on corporate governance and has been used and adapted by a great many other countries in the introduction of their corporate governance systems. Sir Adrian Cadbury was the Chairman of the Committee and so the report became known as the Cadbury Report. This report made many valuable recommendations on the composition and roles of the board of directors as well as the non executive directors.
Some of the tips given in the Cadbury Report were the separation of the Chairman and the CEO, the inclusion on non executive directors, regular and scheduled board meetings, directors access to advice, the space of appointments, the system of appointing non executive directors, disclosure of remuneration and the system of reporting and controls.
All U. K registered companies who want to be listed must adhere to the Codes of Best Practice recommended by the Cadbury Report. This 'comply or explain' system instead of statutory regulation is thought to give the United Kingdom an advantage for the reason that it doesn't "unnecessarily constrain business practice and innovation. " (Financial Reporting Council 2006)