Shareholders and Stakeholders Conflict



In the early nineteenth century, the company had to aim the optimal transformation of inputs into outputs. The firm was as a black box, i.e. a production function to convert the input stream (raw material, labour and capital) in the output stream (services and finished products etc.).  This is justified by the state of the environment of the time, which was not very competitive and stable and where information is perfect and costless. The manager of the company had a clear agenda to organize, set goals, monitor results and measure gaps etc. The manager presents himself as a leading man behind the business of the company to a constellation of interests and seeking to maximize the creation of economic value.
At the end of the nineteenth century, the development of business, the changing environment and technological advances have introduced new rules of organization and management. Henceforth, he took the responsibility to restructure production to increase profitability and to adapt to technological changes. The uniqueness of the owner manager was challenged with the development of industrial capitalism and the increasing complexity of the environment.  Different changes like use of outside contractors funding to pay for new production structures, result in the gradual disappearance of the pure capitalist firm in favour of the management company, characterized by the separation between the property and the management (Holmstrom & Milgrom, 1994).
The new structure of management depends on the stakeholders and shareholders of the company. Among stakeholders, there are mainly shareholders, officer, employees, customers and the community, and in the context of a broader vision, it also integrates suppliers, creditors, lenders, unions, State etc. The stakeholder of a company is an individual or group of individuals who can affect or be affected by the achievement of business objectives. Stakeholders can be individuals, communities, social groups or organizations defined by their legitimate interest in the company. A company is a coalition of individuals with disparate aspirations. Although all have a stake in the company, individuals have different and conflicting expectations. The decisions are not optimal choices but are the product of negotiation and compromise between coalitions of diverse or conflicting interests. In business, individuals and groups have goals that do not exactly coincide with each other and with those of the company. Everyone has their own vision of the means necessary to ensure the functioning of the whole. This leads to different representation strategies not always consistent because everyone tries to influence the other for the most compatible solution with its interests.
According to the new stakeholder theory that is now practiced in contemporary organizational mainstream the number and quantity of stakeholders that constitute the organizational framework of a non-profit organization can either be classified as external or internal. External stakeholders of the organization primarily comprise of people and general public belonging to a certain community or area that are either directly or indirectly influenced or affected by the working or the functioning of the organization. In addition to this, there are also some other associated factors that need to be considered which make the working and functioning of an organization more effective and sustainable at the same time. One of such variables includes the stakeholders that comprise any organization. The decisions that are taken by these stakeholders basically play an extremely pivotal role in determining the course and direction of the policies and organizational features that the company intends to project and implement in times to come (Wiener, 1988).  
The matter of managerial ethics and values is even more complex than that of obedience to law. Some studies reflect roughly an even split between the number who believe ethics are important and those who do not, and between those who feel current ethics are bad and those who feel behaviour is for the most part satisfactory (Anand & Rosen, 2008). On the dilemma of illegal payoffs, for example, one survey showed about seventy-five percent of the respondents believes bribes and payoffs are not problems in their industries. Fifty-two percent said US companies should adhere to US standards in conducting overseas business, whereas forty-eight percent said the commercial modes and standards of the foreign countries should be followed (Unusual Foreign Payments: A Survey of the Policies and products of U.S. Companies abroad, 1976).
Despite the complexities, organizations- particularly large and powerful corporations- are increasing their efforts to include combinations of the following:
1.      Establishing policies and guidelines for ethical behaviour
2.      Incorporating ethics and values into processes of education
3.      Developing codes of conduct; and
4.      Using advisors on ethical and moral problems
The concept of corporate governance is appeared because of increased managerial power of leaders in companies whose capital belongs to shareholders. Corporate governance focuses first on the ways in which capital providers, business owners can ensure that their investment will pay off and that leader acts in this direction. This notion, however, limits the corporate governance to maximize shareholder wealth. More generally, corporate governance encompasses all organizational mechanisms that have the effect of defining the powers and influence management decisions in a direction favourable to the interests of all stakeholders (Aglietta & Rebérioux, 2005).
Thus, corporate governance takes into account all contracts and relations that the company (management) with its many stakeholders: employees, creditors, customers, government, etc. It is an institutional and behavioural device for leaders since the structure of their tasks and appointments, to control their actions and regulatory decisions concerning them. In this sense, corporate governance can be defined as "the management of management."
The shareholder model of governance emphasizes on the leader / shareholder relationship. It aims to maximize shareholder value, i.e., the wealth created for shareholders. In managerial company, ownership of the company (shareholders) is separated from its management (directors). The executive with considerable freedom of action, there is a risk of losing control of the shareholders. The goal is to submit internal control to the director
The Stakeholder model of governance, on the other hand, is based on a more realistic vision of the company as it takes into account all stakeholders. It aims to defend the interests of all stakeholders of the company whose well-being is affected by the decisions of the company (Freeman, 1990). The analysis of these two systems means how corporate governance can manage and mediate conflicts of interest among all stakeholders. This is to examine the components of the system of governance structures, procedures and behaviour.
This paper will shed light on shareholder and Stakeholder conflict and importance of corporate governance in Glencore Plc.
Glencore Plc
The Glencore Group is a Swiss group, which was founded by a controversial businessman Marc David Rich in 1974 and it is now one of the largest suppliers and materials traders in the field of mining. Today the group has 50 offices located in over 40 countries, where it employs more than 2,800 collaborators. In its industrial operations, Glencore employs approximately 55,000 people in 13 countries (Ammann, 2009). Glencore is a company that makes the biggest business sales: U.S. $186 billion in 2011, more than 28% as compared to 2010. The company has three business segments:
·         Metals and minerals (U.S. $ 52 billion in sales in 2011);
·         Energy commodities (U.S. $ 117 billion) and
·         Agricultural commodities (U.S. $ 17 billion)
Glencore has significant stakes in several listed companies, including Xstrata Plc, Century Aluminum, Katanga Mining, Chemoil Energy, UC Rusal. In recent years, Glencore has increased its control over the whole process of production of raw materials. Through investments and acquisitions the firm has provided a broad network covering the whole supply chain of raw materials, from production to trade.
In 1994, Marc Rich gave the reins of Glencore International to his second, Willy Strothotte, who occupied the position of Executive Director for 8 years and then became Chairman of the Board. Willy Strothotte left Glencore in 2011. It has also served as President of the Board of Xstrata from 2002 to 2011. Since 2002 Ivan Glasenberg has taken the executive management of the firm. Glasenberg has been working for Glencore since 1989, served as head of the coal industry since 1991.
The reputation of Glencore group is regularly marred by scandals.  In the late 70s, Marc Rich built his fortune by bypassing the U.S. embargo on Iran and selling oil to Ayatollah Khomeini. A few years later, he sold oil to apartheid (South Africa), despite the United Nations embargo. It continued in 1983 by the American court for tax evasion, trading with the Enemy, etc. Marc Rich took refuge in Switzerland and moved the headquarters of his company in Zug.
In 2004, Glencore charged with tax manipulation by the government of Nigeria. In 2005, the group was accused for circumventing the embargo against Iraq. The report by CIA revealed that Glencore has paid more than 3 million surcharge to Saddam Hussein to gain access to his oil. In 2007, the Bolivian government decided to enter one of the tin mines in the hands of the Swiss multinational, accusing it of having underpaid exploitation rights. In 2008, a Glencore partner in Russia was under investigation for “illegal business ".
In the year 2010 alone, Glencore has paid $780,000 in fines for non-compliance of environmental laws. In 2011, Glencore is suspected of tax evasion in Zambia and five NGOs filed complaint for violation of the OECD Guiding Principles. Finally, after the IPO of Glencore in 2011, Glencore decided to exclude from its investment universe because of the social and environmental controversies related to the group. The IPO of Glencore has had positive effects on the transparency of the group, which compelled the group to publish more detailed information. Thus, in September 2011, Glencore published its first "Sustainability Report" and is committed to supporting the Initiative of Extractive Industries Transparency Initiative (EITI).
Shareholders and Stakeholders Conflicts in Glencore
In present scenario, as discussed above, a large majority of companies whose capital is held by shareholders are managed by employees, officers (managers). This separation of ownership and management has led to design the company not as a community of actors with shared goals but as a coalition of agents which may have different objectives or antagonists. The approach of the management company is particularly interested in contractual relations between two groups: shareholders and stakeholders. Under the agency theory shareholders have decision-making powers exercised at the election of the Board of Directors who in turn appoint the leaders becoming agents (agents) responsible for conducting management activities. Therefore, shareholders hold less information than the leaders of the business management of the company.
The effective presence of the stakeholders in the business gives them a lien on the shareholders to the extent they hold information inaccessible to shareholders (at least not without costs). This unequal distribution of information poses the problem of information asymmetry between the two sides. Since the leader has technical, financial and legal powers, he may conceal the existence of information or delay publication. Two phenomena then arise from this situation. On the one hand, the shareholder necessarily struggling to define precisely the conditions for the formation and execution of the contract in its negotiations with the manager (agent) that he does not know the exact capacity of work. On the other hand, the shareholder is unable to accurately assess the activity of the stakeholders as much as it may have caused the moral hazard.
Considered in theory and rational agents, managers seek in practice to maximize their utility function in an uncertain future. Thus, they are encouraged to assert their own interests with those of shareholders, which gives rise to conflicts and increase agency costs. The interests of executives are associated with obtaining the highest possible compensation, seeking prestige and power and ensuring greater security. But the stakeholders, however, must reconcile their objectives and those of shareholders to the extent that they can still be removed from power in a vote at a general meeting. Meanwhile, external and internal mechanisms control help reduce the differences of interest between managers and shareholders (Rappaport, 1986).
On the external front, a leader who is implementing a strategy to meet his own interests over those of shareholders, may make the company less competitive and at the same time to put himself in danger of revocation, provided that the labour market leaders allows the selection of the best and the exclusion of less competitive and / or more opportunistic (Gospel & Pendleton, 2006). In the same vein, the liberalization of financial markets allows shareholders to sell their shares at any time in case of proved opportunism or mismanagement on the part of stakeholders. Internally, the right to vote exercised by the shareholders in the general meeting of shareholders can punish non-performance of an officer. For the allocation of shares to the executive (stock options), shareholders promote sharing of the leader articulating his interests with theirs.
Glencore had been involved in many corporate scandals and needs implementation of proper and effective corporate governance rules within the company. All the scandals pf Glencore have highlighted the vulnerabilities of a system that turned out to be more adapted to make the emergence of a new form of capitalism: shareholder capitalism (Peter & Ross, 2002). The scandal of Enron has shown an example that could be caused due to a lack of professional ethics within a company. This case has also had repercussions on United States society and ultimately on people’s daily life. 
Glencore exists and functions in a society and that is why company and its leaders are responsible for planning and implementing their strategies carefully. Companies who are aware of their social responsibilities have an ethic in mind when developing and implementing strategic plans and in carrying out their daily procedures. Fight against corruption is also an important segment of creating an ethical business environment as it helps to improve the profile and quality of the profession (Kaufmann, 1999).
Facilitation payments pose problems of interpretation, business managers and legislators alike want to discriminate between acceptable and unacceptable practices.  The problem is to find a formulation that acknowledges the difficult situations in which companies may find themselves without creating gap in the anti-corruption standards. Some companies prohibit facilitation payments altogether and, in general, seem reluctant to use it. Some organizations tolerate them explicitly while other offer transparency mechanisms (e.g. require that facilitation payments are pre-authorized by the senior management of the company and duly recorded in the books) (Rose-Ackerman, 1998).
However, Glencore do not fully prohibit accepting gifts or entertainment from business partners. The boundary between acceptable business practices and corruption is rather vague, which is probably inevitable. It uses terms and very different concepts to indicate what is allowed or not (Gordon & Maiko, 2001). The concepts include, for example, gifts and entertainment "whose value is not excessive" or that are "consistent with the standard business practices: etc. Considering the importance given to the notion of gift and entertainment, one might think that the public opinion and social pressure play a role in the evaluation of companies what is or what is not an acceptable conduct.
Different scandals in Glencore and other companies, related to unethical business practices, havealso depicted that changes in accounting standards, and awareness of the legislators is required to maintain the balance between the application of work ethics and transformation of the economic context. The problems encountered in all these scandals were due to a major slippage in the implementation of professional work ethics. However, the size of the Standards, especially accounting standards, always resulted in a stiffening of professional ethics. While in definition, it means questioning the moral standards to be adopted in one given professional sector. Hence, ethics should not be constrained to give it the flexibility it needs to fuel its own questioning.
            In this perspective, if the presence of standards is being required to promote the application of professional ethics, the best way for ethics to take its true place in the company and in the society is to educate leaders and to educate future business leaders to all the problems and issues related to the implementation of professional ethics.
Corporate Governance
Based on the long debate between conflict and / or convergence of interests of stakeholders with those of the shareholders, the concept of corporate governance has emerged.  In a system of corporate governance focusing on the creation of value for the shareholders, the company's aim is to enhance the market price of the securities held by the shareholder. It follows the implementation of measures to align the interests of stakeholders with those of shareholders or, more generally financial investors of organization and role of the Board of Directors for the regulatory transparency and executive compensation arrangements.
First, the separation of the roles of management and control appears to be a primary requirement of good corporate governance. Business must provide a clear framework and identifiable to each of the roles of the two parties as well as relations they maintain between them. The objective here is to ensure the independence of the board and its president whose decisions should not be influenced by special interests but the general direction dictated by the sole objective of creating shareholder value over the long term.
The obligation to disseminate information about the companies is a second fundamental requirement of the corporate governance. On this theme, the OECD principles enacted in 1999 aimed at strengthening the dissemination of reliable and comparable information periodically is necessary for the exercise of information, shareholder voting rights and decision-making of potential investors.
The final basic requirement of corporate governance emphasizing shareholder value requires the establishment of an incentive system to associate a part of executive compensation to company performance. These incentive schemes for linking executive compensation directly to the accounting firm performance or market performance of the company including the allocation of shares and stock options. On this aspect, shareholder information on the remuneration received by directors (for determining the remuneration policy, the allocation principles aggregate the nature of compensation) and the options that are allocated to them (allocation policy, categories of beneficiaries, nature of options etc.).
Under a different aspect, it is possible to design another system of corporate governance enhancing value creation for all stakeholders and thereby promoting creative cooperation of human and material resources between stakeholders. In this context, the performance of the company is no longer assessed on the sole interests of shareholders but in relation to those of all partners (stakeholders). Therefore, the system of corporate governance should encourage leaders to implement creative activities and distribution of benefits to all partners of the firm in order to maximize the overall value of the firm.
Indeed, the development of a business depends on two specific resources, financial capital provided by shareholders and human capital (skills, knowledge and experience) provided by non-executive employees. The firm is seen in part as a set of skills that could be valued at the cost of an investment. The remuneration of non-executive employees through actions may be an incentive to invest in human capital mechanism.
This design position of the employee to share ownership at the center of this type of corporate governance to the extent that the holding of shares by non-executive employees can make the sharing of benefits credible and the employees directly involved in the process of creating value by aligning their interests with those of shareholders. Promoting the participation of non-executive employees to representative bodies and decision-making of the company (board of directors or supervisory board), employee ownership can influence not only the agency relationship between shareholders and managers, but also the relationship between managers and employees. It also allows non-management employees to protect their investment in human capital and at the same time increasing their involvement and productivity by sharing relevant information in the field of work organization and collective bargaining.
Finally, the ownership policy which created a feeling of trust shared between managers and non-executive employees in the future of their company can also generate confidence among financial partners, customers and suppliers of the company.
Researchers have argued that the strategic governance is the process of management planning and its basic purpose is to formulate comprehensive business strategies and to implement these strategies in order to make company effective and efficient enough to compete with its international competitors. The strategies will affect organizational performance thereafter link with the success or failure of the company. According to Charles et al (2003) “corporate governance can be highly influential to organisational performance in so far as it is related to the strategic management of the corporation” (330).
Unfortunately, recent collapses and scandals are offering negative examples that may serve as a lesson. Despite many reasons led to failure of different companies, like lack of enough oversight, serious interest, conflicts between board and management etc. we can also see board that is unable to implement its strategic role in all the major collapses in the recent past like Enron, WorldCom, AIG etc. The importance of strategic management for organization performance has been proved; it is thus necessary for both legislators and professional bodies in strategic role of the board, to have a clear focus.
It is necessary for legislators and professional bodies across the globe to reform current governance practice for bringing back investor and shareholder confidence and better company performance no matter what approaches they take, because there is no one-size-fits-all model will be adopted globally (Charles et al, 2003). This is the point that also has been summarized by other researchers, as there is no one model that adequately reflects the governance requirements of all forms of organization (Charles et al, 2003).
Effective and efficient governance of an organization is a team effort which can be accomplished with the help and support of all the stakeholders. Governance is the primary focus of any organization because it is the governance which decides the fate of the organization; whether it is a good organization or bad.
Officer’s scope of Authority
If the board of directors makes the wrong decision in compensating the firm’s strategic leader, the whole firm suffers along with the shareholders. Compensation is used to motivate CEO as well as the upper management to act in the best interests of the firm – in particular – the shareholders.
The benefits of good governance should not be seen as the successful completion of an audit or a milestone achieved. It should be a model of best practice by all stakeholders. The board, employees and staff of all levels should extend a structure that best suits its legislation, operating environment and objectives.
There should be a culture for the responsive internal control of weakness system and training for the employees to identify and minimize the risk of omission of transactions. The impact of missing journal entry can overstate the profits and understate the expenses recognized in the financial statement. It can even window dress the financial position of the company by overriding the management principles of overstating revenue, understating expenses which as a result overstate the profits in the financial statements.
If it is asked whether the Glencore officers acted within the scope of their authority, we first have to decide what the meaning of scope of authority is? If the authority means the powers granted to the officers by the company’s directors and president then the answer of the above question is yes. However, if the authority means the powers which are under the circumference of ethical practices and corporate governance then the answer of the question is a big fat no. All the officers who were responsible and involved in different malpractices within the organization were showing more promising balance sheet of the company by hiding debts and booking fake future profits as present profit and income of the company.
Corporate Culture of Glencore
The corporate culture of the organization tells much about the overall working of the organization. Organizations having ethical and friendly environment usually follow ethical practices in their business practices also. Glencore group had an arrogant environment where the officers were more concerned in earning profits for the company instead of producing profits for the shareholders. The corporate culture of Glencore encouraged their officers to break or mend rules and ethical considerations for the sake of profit. The performance of the employees is evaluated bi-annually and it is a practice that has introduced a culture of taking short cuts and all unethical means to stay at the organization rather than the hard work. This has also affected the cohesiveness between the employees as each of them considers all the others as his or her competitor. Thus, the most prominent attribute of Glencore’s culture is the ‘survival of the fittest’.
Role of Board
In order to achieve the goal of effective governance, the role of board revolves around three basic responsibilities: 
1.      Policy establishment
2.      Strategic and significant decision making and
3.      Oversee organization’s activity
Policies set the goals and define strategies to achieve these goals. A well-written and well-managed policy makes the target achievement much easier. It is the duty of the board that, for efficient and effective governance, does not try to implement policies. Board’s responsibility is to set the policy and leave the implementation to the management of the organization because board’s time is more valuable; it meets for only 24 hours in a year, so they have to utilize their time on more important issues. It is also the duty of the board to review the past policies and refine these policies, if necessary.
Decision making is an important responsibility of the board. It must make significant decisions, keeping the vision, mission and strategies of the organization in mind. However, it is advisable to delegate the power to make non-governance type decisions to the management.
Boards must oversee the working of the organization but do not try to intervene in management activities. The oversight role makes the board responsible for whatever happens in the organization (Garland, 2001). In addition to these above-mentioned roles, board has various other responsibilities. These responsibilities include:
·         Monitoring the management of the organization
·         Oversee quality and finance issues
·         Set ethical standards and values and
·         Select a CEO and monitor his / her performance etc.
Among all the mentioned responsibilities, selecting a CEO and monitor his performance is most important because CEO is the person who runs and manages the day to day management and affairs of the organization.
In a nutshell, the basic responsibility of company’s board is to make company profitable for the shareholders (Alessandra et al, 2003). Board should "shifting attention to sustainable value creation, has not thus far addressed what those architectures should be" (Peter & Ross, 2002). As once the seventh biggest public company in U.S, Enron's board failed to provide shareholders with safeguard as the phenotype of allowing the management to involve in unethical as well as risky accounting practices, high compensation for executives as well as in inappropriate conflict of interest transactions and other self serving actions (Peter & Ross, 2002).
Enron's bankruptcy was partly from its board failure as it not succeeded to understand the inherent risks apparent in company’s strategic plan and thus, did not implement appropriate and effective internal control to manage the situation (Peter & Ross, 2002)
Similarly collapse of Parmalat, Italy's largest food company, in 2004 resulted due to the embezzlement of more than $10 billion from company’s assets (Claudio, 2004). Parmalat is accused of having used dozens of offshore financing vehicles to manipulate its balance sheet and defraud investors. The board of this dairy giant was responsible for the scandal owing to the lack of monitoring transparency in bond market and out of controlling use of offshore financing vehicles. Corporate governance is also falling into dire straits in other countries. Economic Value Added (EVA) can be seen as a tool to create shareholder value creation which also includes the cost of equity capital when measuring profitability.
In fact, board's role of strategic maker and guider is a traditional one. With global economy is undergoing new changes and facing rigorous challenges on behalf of collapses and scandals of many traditional multinational companies, new demand for consideration of broader issues of integrity, accountability and transparency in the way people manage companies, have been much more focused. Nevertheless, ignorance of traditional strategic function will make company in risk because any strategic flaw would be the root of the failure that can be seen by examples of Enron, Parmalat and AOL Time Warner.
The board should use every strategy available to measure and evaluate company’s performance, whether it is a balanced scorecard or ten measures formula. The primary goal of this performance evaluation is to govern the organization more effectively and thus every tool is used to achieve this goal.
Internal Control
Internal Control is the process by which the governing body of the organization regulates its activities to accomplish its mission, effectiveness and efficiency. Internal control should not be considered as a separate system; instead, it should be recognized as an integral part of any system used by the managers to guide their operations (Doyle et al, 2007). The establishment of an effective internal control involves evaluating the risks the organization faces both from the outside and from within. A prerequisite for risk assessment is formulation, organization, clear objectives and consistency, which are the goals or the desired outcome. Risk assessment is identification and analysis of relevant risk inherent in achieving the objectives (Doyle et al, 2007).
Internal control methods (such as procedures, process of the physical organization, organizational structure and the allocation of responsibility and authority) should then be developed and implemented to achieve the goals. Similarly, in order to make managers more efficient and to make them take more ethical decisions, it is necessary that the relevant information must be communicated to them. Monitoring of internal control should be to assess the quality of results in time and to ensure that the findings made during audits and other controls are prompt solutions. New legal obligations imposed by different new legislations induce a change in the definition and organization instead of the internal control (Hawkins, 2010). Internal control is of more global ambitions.
Internal control system refers to the procedures and policies in place to ensure that the company’s objectives are achieved. Controls attempt to ensure that the risk factors which stop the achievement of the company objectives are minimized. The objective of internal control relates to the effectiveness and efficiency of the operations. However it only provides reasonable assurance not absolute assurance.
Laws for Corporate Governance
All the scandals of Glencore and other companies did not only malign the economic and corporate sector but at the same time also resulted in massive unemployment and retrenchment of people from these companies. Hence it became necessary for the government as well as the opposition to collectively draft a legal framework that could actually play an effective role in curbing such measures in the country. For such purpose, many developed countries have introduced legal reforms in corporate governance and accounting systems, like Sarbanes-Oxley Act (SOX) by United States and Companies Act 2006 by UK.  Guided by three principles, namely the accuracy and accessibility of information, managerial accountability and independence of auditors, the law aims to increase corporate accountability and provide protection to investors in an effective way (Shakespeare, 2008).
Given the Act is in response to collapses of Enron and WorldCom in the United States, The Act also expands corporate reporting requirements and creates a Public Company Accounting Oversight Board which comprised of 5 members. This five-member board will be responsible for related activities of public accounting firms, including approval of audit reports and the testing and reporting of internal control systems etc. (Robert & Hillary, 2003).
If the stated objective is to promote ethics and corporate responsibility, it is nevertheless mainly in order to restore investor’s confidence and thereby restore the emblem of capitalism seriously eroded by repeated financial scandals. Among the arsenal of measures in place to achieve this goal, these legal reforms have introduced a requirement for listed companies to have audit committees must establish procedures which enable employees to report fraud or accounting irregularities or financial to their knowledge. Learning the lessons of Enron (Cohan, 2002), governments have given broad scope to these reforms by incorporating a mechanism to protect whistleblowers (authors of termination).  These reforms require to establish a code of ethics or conduct and a device allowing employees to anonymously report information concerning behaviour contrary to ethical rules and fraud and accounting irregularities and financial resources they have gained (Stephen et al, 2004)
The system is generally based on the use of a toll or intranet that employees use to anonymously denounce practices that seem fraudulent. Examples include employees who spend budgets unexpectedly, that do not respect the rules of tenders or, more rarely, that divert funds. The current situation may not be comparable to that which prevailed in the inter-war period, but many people still do not draw a parallel within the end markets stock in disarray, investors and ruined financial establishment to cast opprobrium popular.
Implementation of laws
The return to a conservative market is in itself a solution to the irrational exuberance and fraudulent practices. To some extent, the market has punished the guilty and investors now more cautious. Note also that most of the companies have responded positively to the measures announced and they are being rapidly compliance with new rules (Fritzsche, 2000). Anxious to an image of respectability with investors, some are sometimes beyond what the law requires.
In fact, problems of enforcement are numerous which may act as hindrance in the proper enforcement of the act. The first problem is the government itself, which does not show great determination in the fight against economic crimes. In this regard, one should not be naively optimistic. The measures are adopted without any comparison with those taken in the early twentieth century against the trusts and monopolies, nor with those in the 30 years, established the rules on business governance. While these laws are a step toward greater market surveillance but at the same times these are also the recognition of the limits of self-regulation. However, they focus on the individual virtues and corporate ethics. The idea remains that capitalism is fundamentally healthy. This is the message trying to get across the government. These laws put some order into the accounting and corporate governance, but they leave open the question of self-regulation markets.
It should be noted that the law does not challenge the restrictive notion of responsibility of the companies. Responsibility consists primarily of companies with respect to interests of investors. The interests of employees were doubly affected by the scandals and bankruptcies in wealth, both as employees and as investors, are only marginally taken into account. Certainly the promises of capitalism in which employees become finally all shareholders are deeply involved.
The current challenge is to find adequate instruments, regulation and rules that will draw the line between regulation and autonomy of the market in a significant economic changes that challenges the established order. Over time, we can judge whether these laws and their implementation have contributed to meet this challenge. Already, it appears that the year 2002 was that of the beginning of a return of politics in the economy in response to the inability of self-regulation markets.
For the time being, these laws seem to have somewhat calmed the game. The question now is whether these laws mark, officially at least, the return of the State in the supervision and market surveillance after two decades of laissez faire and almost unlimited confidence in self markets, is yes or no answer to his promises and bring order in corporate governance. The context that led to the adoption of the laws of corporate governance were driven by globalization and new financial instruments, drawing about a quarter of all direct investment world, fuelled by the stock market in full euphoria, the economy has experienced throughout years to grow the longest in the post-war period (Stephen et al, 2004).
It then seemed to have not only regained all its competitive potential and all its dynamism, but also have found the magic recipe for growth which seemed boundless as to be the envy of most for some, including Japan and Europe. Nothing seemed to shake investor credibility and investment funds especially that demanded increasing yields. Thus, the growth, actual departure was maintained, the increasing artificially by speculation and expectations which, to self, grew to investment and thus growth.
However, it was in the midst of all these circumstances when the trend of business ethics began to change drastically all over the world. Companies such as Glencore, WorldCom and Enron along with others began large scale covert campaigns through which they endeavoured to incorporate and encourage fraudulent practices and counterfeiting strategies for maximizing their profit margins.
In addition to this, some of them also went to the extent of conducting nepotism and cronyism for the sake of acquiring public support and opinion. All of these reasons collectively led to the urgency of proper legislation through which unethical corporate practices could be curbed and controlled in the economic system. 
A Corporation does not only have economical responsibilities but it also has some social responsibilities. The utilization of resources and to get involved in the activities to provide services to the community has to be addressed responsibly. It needs to be engaged with the activities that not only gain financial profits but also social profits. The competition is healthy but if it runs fairly without fraud. The main objective should be to serve community. Corporations must act within the law. Governments are responsible for designing the legal framework to monitor and control the activities of corporations in order to protect employees, stakeholders etc. The legal and regulatory requirement that affect corporate governance should be enforceable and transparent.
Notwithstanding the contributions of corporations to communities in terms of employment, education, development of infrastructure, contributions to social and cultural events and being a corporate citizen generally, there are also negative side effects. The factor of competitors must also be viewed in relation to corporate governance. One of the main objectives of any corporation is to secure value for shareholders investments. An ill effect of transparency in corporate governance is that competitors may be able to view market policies, past trends and other information of an organization. They may then be able to formulate plans to penetrate opponents markets thereby diminishing the returns of the first organization, an effect to be felt by all stakeholders.
Performing corporate governance correctly is important to economic success. However, there is little evidence to verify that this practice will prevent further corporate failure or improve organizational effectiveness. The quality of corporate governance practices has become as important as financial performance. The benefits of good governance should not be seen as the successful completion of an audit or a milestone achieved. It should be a model of best practice by all stakeholders. The board, employees and staff of all levels should extend a structure that best suits its legislation, operating environment and objectives.
There should be a culture for the responsive internal control weakness system and training for the employees to identify and minimize the risk of omission of transactions. The impact of missing journal entry can overstate the profits and understate the expenses recognized in the financial statement. It can even window dress the financial position of the company by overriding the management principles of overstating revenue, understating expenses which as a result overstate the profits in the financial statements.
To develop an effective control system there should be a control culture and environment, system of identification of risk, assessment and prevention, applying and adherence to suitable internal controls, communicating and providing control information and carrying out reviews over the scope, procedures and implementation of internal control system.
In conclusion, through foregoing discussion, it may be asserted that in order to eliminate or reduce shareholders and stakeholders conflicts, improve corporate governance and company performance, legislators, regulators and professional bodies should, focus on the pathology of governance failure, but no ignorance of developing board's real strategic contribution for companies. For both authorities and board of directors, only one way to effective corporate governance is cohesion between compliance with the governance code and construction of board itself.




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