Corporate governance is an idea which helps propose how a company is to be directed and controlled. It is a system of rules and measures which helps govern a company through certain practises and procedures, which in turn will allow it to achieve its objectives and aims. The way in which corporate governance does this is through certain guidelines and constraints. Not only does corporate governance allow for a company to meet its objectives, but it does so in a way that it ensures a company has an ethical approach to its goals. As well as this, it also ensures that the company is in compliance with laws and regulations which it must adhere to in order to operate legally ("What is Corporate Governance?", 2018).
In terms of a company’s objectives, the use of corporate governance helps outline what they are as well as a direction for the company. It can be seen through agency theory that interests of shareholders and board members may differ, leading to diverse opinions on the success and future of the company. Corporate governance decreases the risk of this by helping align interests of the principles and the agents. Overall, corporate governance is important “as it applies a system of policies and procedures which help maintaining the cohesiveness of a company.” ("Why is corporate governance important?", 2018).
Each country around the world has its own set of practises and processes which in turn make up their view on corporate governance. In this essay, I will look to compare and contrast the application and development of Corporate Governance between the United Kingdom and Japan.
The UK’s corporate governance code is set out by the Financial Reporting Council (FRC) who aim to facilitate companies who are listed on the London Stock Exchange by setting standards of good practise ("UK Corporate Governance Code | Codes and reports | Corporate governance | Subject gateway | Library | ICAEW", 2018). The UK’s stance on corporate governance is of a ‘comply or explain’ nature. What this means is that UK listed companies do not have to comply to the principles set out in the code, but instead would just have to explain whether they have or not, this being a legality ("The UK Corporate Governance Code", 2016). There are five principles of UK code which are listed and explained below.
The leadership element of the code states that every company should be controlled by an effective board who are responsible for the long-term success of the company. It also states that the chairman of the company is responsible for the leadership of the board and that non-executive directors should always play a part in strategy of the company.
The effectiveness element ensures that that the present board have all the required level of skill and experience in order to carry out their roles at the company. This should in turn ensure success for the company.
Accountability looks to ensure that the board is always to present a...