Corporate Governance Principles and Responsibility

Question: Discuss about the Corporate Governance for Principles and Responsibility. Answer: Introduction Governing refers to the process of exercising power that one is conferred with over a group of people. This group can be the state, organization, market or tribe. Governance involves the use of established rules and policies to manage processes and systems as well as people. Corporate governance can be defined as the systems, processes and policies through which organizations are directed. Every organization has its governance structure that defines the distribution of power and authority among the people involved in the organization. This includes all the stakeholder in the organization such as suppliers, shareholders, managers, creditors, auditors and the industry regulators. Corporate governance incorporates the rules and guidelines to be followed by the stakeholders in making decisions that have consequences on the performance of the organization. The core function of corporate governance involves evaluation, monitoring and implementing the actions and practices in an organizatio n to make sure they are in line with the organizations code of ethics or are in line with the organizations` goals and objectives. It is therefore very important to understand an organizations corporate governance structure and how it works. Corporate governance helps in ensuring order and establishing a clear hierarchy of power (Yocam, 2008). This is important to avoid misunderstanding and run-ins among the members of the organization. Decision making is also made easy when a proper corporate governance structure is in place. Organizations employees should be made aware of its governance structure in order to help them respect the power and flow of authority as well as improve relations between employees in different levels within an organization. Companies profile The company that will be analyzed in this report is Dhiraagu ltd. Dhiraagu was the first Maldivian telecommunication company and it was formed in the year 1988. it was formed as a result of joint venture arrangement between the government and the Cable and wireless communications limited. The company is headquartered in Male, Maldives. Some of the products offered by the company include mobile telephone network services, mobile broadband, and fixed broadband fixed telephony. Dhiraagu ltd has the longest underwater microwave links in the world covering a distance of more than 65 km. Dhiraagu is a privately owned company with 48% of shares owned by the Maldivian Government and 52% by Batelco (Rezaee, 2008).The company has undergone a series f transformations over the years to become one of the best telecommunication service providers. In the year 2005 Dhiraagu signed an agreement with a Sri Lankan Telecommunication company Optical Submarine Cable systems. This agreement allowed the co mpanies to cooperate in laying down an internet cable which allowed the organizations` customers to enjoy the tier 2 networks. Dhiraau also has very broad history ethical and fair dealings with both the employees and corporate businesses. The company also has a great openness policy when it comes to dealing with shareholders and industry regulators like the government. Dhiraagu has had many successes in corporate governance in the over 4 decades it has been in operation. This has helped the company to maintain a good reputation among its customers. Good corporate governance in Dhiraagu have been integral to the companies continued growth and success in the telecommunication industry. An evaluation and analysis of the structure of the company is ideal in understanding the corporate governance of Dhiraagu. The corporate structure of the company is organized in such a way that there is good coordination of all functions and policies in the organization. Corporate governance structure of Dhiraagu The companys corporate governance structure incorporates many stakeholders. The above governance structure gives a comprehensive framework to improve accountability to shareholders and other people involved in the organization. A well organized governance structure will also help to ensure disclosure off all materials and resources of the organization on time. Corporate governance code is a written set of rules and regulations that are developed by the government to help ensure that companies are directed and operated in a fair, open and transparent manner. It provides guidelines on the how the objectives of the companies are set and achieved. It guides the company on other aspects such as management of risk and optimization of performance of the company. Maldives has its set of rules that help in guiding companies in their corporate governance processes (Tricker, 2015). Corporate governance is important to Maldives for many reasons. First, it helps in determining the cost of capital at the capital markets authority. It also helps local companies compete globally and instills confidence among foreign investors. Board of directors On board matters, the corporate governance code states that every company must be headed by a board which is effective and it is responsible to the shareholders. All board members must be qualified to fulfill their obligation and must fulfill the ethics code to be appointed to this position. The board should be composed of between 7-10 members depending on the size of the company. The board should compose of both executive and non-executive members and executive members. The board is expected to make major decisions on behalf of the organization (Raezee, 2009). New board members should be nominated by the nomination committee for appointment to be made. The board of Dhiraagu is headed by the Chairman. The company also has a different CEO to ensure balance of power and increased accountability. The role of chairman of the board is to lead the board to ensure efficiency and effectiveness of all the activities carried out by the board (Fernando, 2009). Dhiraagu board of directors has fu lfilled all the requirement of the corporate governance code of conduct. As per the articles of association of the company the board of the company should consist of seven directors. 4 directors should be appointed by the Batelco, including the CEO. There two directors by the government and one by the public shareholders. Committees The Maldives code of corporate governance states that a company must establish a nomination committee which will make recommendation to the board and shareholders on matters concerning the appointment of senior company managers. The nomination board should compose of at least 3 non-executive directors(Macey, 2011). Another committee that is established under the Maldives corporate code of governance is the remuneration committee. This board is expected to provide recommendations on remuneration structures of the company for directors CEO and other employees of the organization. The committee is expected to come up with a remuneration package that can retain, attract and motivate employees to be more productive. Another committee that is required in the corporate governance code of conduct is the auditors committee. The committee should compose of at least 3 non-executive directors who should be independent. At least two members of the board must be professions in the accounting and financial related fields. Audit committees should meet at least one time every quarter. The main function of this committee is to review the risk control systems and strategies and to monitor the integrity of annual financial statements by the company. Dhiraagu has complied with the requirements of the auditors committee. The auditors committee is expected to prepare and present on all board meetings and make recommendations in the annual report of Dhiraagu which can be considered by shareholders. CEO and other executive managers The next in line is the CEO and management executives. The CEO is the spokesperson of the organization and he/she represents the interests of the company in various meetings and forums. The CEO of this organization is expected to give leadership to all the employees who work under him. They are expected to mobilize employees to work and remain focused on achieving the vision of the organization. The CEO of any company is expected to motivate his employees to give them a road map which they will need to follow to achieve the goals and objectives of the organization. The CEO of the company is the key decision maker in the organization. The CEO is expected and required to analyze situations and make quick decisions that will influence the organization positively. It therefore means holders of this position must possess strong analytical and interpersonal skills. Bad decisions by the CEO can result to catastrophic loss for the organization both financially and economically. The position of CEO and other top company executives is very crucial in the governance structure of Dhiraagu (Macey, 2011). The CEO has the most responsibilities in the organization is responsible for the general performance of the organization. The CEO is answerable to the board of executives. All employees are answerable to the organizations` CEO. The CEO also has power over other stakeholders such as suppliers. Under the corporate governance code, the management is required to make disclosures regarding all the materials and financial transactions in cases where there is conflict of interest. The management can also obtain legal or any other professional advice at the expense of the board in cases where this is deemed necessary. Internal and external audit and internal control The code requires all listed companies to have an internal audit function. The appointments of members of the internal control department is done by the nomination board and approved by the audit committee. The internal audit department has a very wide scope of work. It ensures all the accounting principles and requirements are followed when recording initial transactions and preparing final financial statements. The internal audit department is very important for Dhiraagu because it helps in making sure that the company accounting is done according to the expected and required standards. The primary role of external auditors is to investigate the financial reports presented by the company to the shareholders at the annual general meeting. The auditors prepare a report after carrying out the research to issue an independent opinion on the financial statements that have been presented by shareholder. Since Dhiraagu is not a public company, it does not have to fulfill this requirement. Shareholders rights The code establishes the rights of shareholders to help protect shareholder from bad management practices and loss of capital. All companies are required to educate members of their rights and responsibility in order to make operations of the company more efficient. The company should be in regular contact with shareholder to inform them of various issues arising in the organization. All shareholders should also be invited to meetings on time and be informed of their rights to vote. Dhiraagu has complied with all the requirements of the code concerning the shareholders rights. Dhiraagu strives to communicate with its shareholders through various methods such as through AGM, quarter year reports and interacting through the Dhiraagu Website.The Company also has an Investor relations team to help cater for special needs of investors. Dhiraagu has been successful in most aspects of its corporate governance. One of the key areas of success in the corporate governance of Dhiraagu is in dealing with the shareholders. The company has policies that govern the payment of dividends among the shareholders. The company pays dividends on time and the returns on investment for the shareholders is high (Fernando, 2009). The board of directors approves the payment of dividends after every financial year. The investments decisions undertaken by the company are also heavily influenced by the shareholders. The shareholders always have a say on how their money should be invested. This is important for the organization to perform well in terms of cooperate governance. Another area of strength for the company is in terms of dealing with auditing department. The company respects the independence of auditors. Auditors are independent and the management of the company as well as the board of directors does not put undue pressure on its auditors to manipulate the financial reports of the company (Monks, 2011). This is especially important because, investor confidence is increased and therefore the company is able to undertake more investment projects. The auditors of the company have always highlighted errors in the financial reports of the company and gives reports that represent the true and fair financial value of the organization. The policies of the company as well as government policies regarding auditing of companies has been implemented and adhered too. There are also areas of concern in the cooperate governance of the company. The aspect of employee needs and requirement has not been handled well in the organization. The company has a very large number of employees who are both skilled and unskilled (Sison, 2008). The company has failed to reward and motivate the employees of the company adequately and has led to some of the employees getting discourage. This has resulted to decrease productivity for employees and therefore it leads to poor performance of the organization. Employees may fail to adhere to the code of ethics and behavior set by the company for various reasons. Some of these reasons include frustrations due to poor pay and reward criteria. The employees may also be facing personal domestic problems that may affect their productivity in the workplace. The company should make sure that it focuses on the needs of the employees to improve the morale of the workforce which in turn will increase the productivity of the comp any. Conclusion Corporate governance is very important aspect of each and every organization. A well structured corporate governance structure helps in improving the organization in very many aspects. A good corporate governance helps in easing the decision making process in the organization. This is because the roles and responsibilities of every individual in an organization are well elaborated. The decision making process therefore becomes faster and the organization is able to perform better. Organizations should have proper policies in place to govern its relationship with various stakeholders of the company. The organization should be able to protect the interest of shareholders and try to maximize their returns on investment. Companies should also put in place internal control mechanisms that will help in achieving proper accounting in the organization. Recommendations The company should improve the internal auditing and internal control mechanisms of the organization. This will help in improved risk management as well as proper and accounting is done. The financial reports of the organization are more accurate and reflect true and fair value of the organization when this is done. Dhiraagu should also improve its relations with shareholders through more regular communication. The organization should educate consumers more on their rights and responsibility of the company. References Aras, g., crowther, d. (2016). A handbook of corporate governance and social responsibility. London, routledge. https://www.tandfebooks.com/isbn/9781315564791. Calder, a. (2008). Corporate governance: A practical guide to the legal frameworks and international codes of practice. London, kogan page. Fernando, a. C. (2009). Corporate governance: Principles, policies and practices. New delhi, pearson education. International business publications, u. (2015). Maldives investment and business guide: Strategic and practical information. [place of publication not identified], intl business pubns usa. International monetary fund, maldives. (2008). 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