Corporate Governance and Social Responsibility Adoption Case Study

Pages: 10 (3265 words)  ·  Bibliography Sources: 4  ·  File: .docx  ·  Level: Doctorate  ·  Topic: Business

Corporate Governance and Social Responsibility

Adoption of Corporate Governance Principles

Evaluations & Recommendations

Adoption of Corporate Social Responsibility Initiatives

In the United States, corporate governance legislation was initiated mainly directed at listed enterprises requiring executives to confirm financial statements as accurate and requiring increased oversight of boards and auditors. Private unlisted enterprise though, remains free from such regulatory control and protection.

Adoption of Corporate Governance Principles

Evaluations & Recommendations

I would recommend the following Corporate Governance principles; gleaned from the Sarbanes-Oxley Act (2002), OECD (2004), Combined Code (2003) and the Australian Securities Exchange (2007).

Corporate Governance and Managerial Compensation

Being a mining company in today's economic climate, a major responsibility as far as corporate governance goes is for the board of directors is to determine managerial compensation systems. How should managers be compensated? Should pay be tied to performance?Buy full Download Microsoft Word File paper
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Case Study on Corporate Governance and Social Responsibility Adoption of Assignment


Measures of relative performance may be one answer. Owners can measure managerial performance relative to the performance of other firms in the industry or some other benchmark. For example, managerial performance can be benchmarked against such industry wide financial ratios as profit margins, return on assets, return on shareholders' equity, and rates of growth in sales and net income. As we will discover, many companies do use such relative performance measures and measure performance against peer groups' With respect to the stock price, managerial performance can be evaluated by adjusting the change in the company's stock price for what happened to the market in general-all companies-during the same period. Suppose the 'per share' price of XYZ Corporation fell by 8% over the year. Was the decline in the share price due to poor management or to factors beyond the control of management, such as an economy wide recession? Some insights into this question can be gained by looking at what happened to a broad-based market index such as the Standard & Poor's 500. If the index fell by 20%, perhaps the managers of XYZ Corporation should be paid a substantial bonus because they were able to guide the company through the recession far better than the managers of other companies. However, if the index rose by 20% during the period, a different story emerges.

Common Pay and Performance Schemes


Corporate Governance Dividend Issues

Managers can do two things with present year's earnings: They can hand them out as cash dividends, or they can keep them in the company. If the salary is retained, management can use them to make extra investments or to pay down debt. The choice to pay down debt is part of the financing decision and is associated to the notion of an optimal capital structure and solving governance troubles through the financial structure decision. So, setting aside the ?pay down the debt' alternative, when should management retain earnings and reinvest them in the company, and when should management distribute the earnings as cash dividends ? Arguably, the best reason for paying cash dividends is that management knows that no positive NPV investments exist for the firm. Therefore, rather than keeping cash in the company, where it earns no return, the managers should distribute it to the owners of the company as cash dividends. The owners of the company can then use these cash dividend payments to invest in other companies that have positive NPV projects available to them. Thus, they would be able to create jobs and economic growth for the economy as a whole were they to receive the funds-essentially the public policy objective of a well-functioning corporate governance system . This hypothesis is called the residual theory of cash dividends. If conglomerates were actually following this policy, though, we would detect much more volatility in year-to-year cash bonus payments than we do in reality-volatility that would be more similar to that observed in net income and earnings per share (Drucker, 1984; pg. 156).

The Board of Directors and Shareholders' Rights

The board should have audit, compensation, and nominating committees made up entirely of outside directors. The audit committee ensures that the books aren't being cooked and that shareholders are properly informed of the financial status of the firm (Levitt, 2005; pg. 109). Typically, the audit committee recommends the CPA firm that will audit the company's books, reviews the activities of the company's independent accountants and internal auditors, and reviews the company's internal control systems and its accounting and financial reporting requirements and practices. The compensation committee normally does the following: (1) recommends the selection of the CEO, (2) reviews and approves the appointment of officers who report directly to the CEO, (3) reviews and approves the compensation of the CEO and the managers reporting to the CEO, and (4) administers the stock compensation and other incentive plans (Lunnie, 2007; pg. 256). The nominating committee sets up qualifications for potential directors. It also puts together a list of applicants for board membership for the shareholders to vote on. In all these cases, the point of having only external directors is to stop management from concealing information, deciding on its own pay, and advancing effective control of the company by controlling the board election procedure. Diversity should be a significant factor in building a board. The members should all be capable individuals, but there should be a variety of experience, gender, race, and age.


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APA Style

Corporate Governance and Social Responsibility Adoption.  (2010, August 7).  Retrieved June 2, 2020, from

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"Corporate Governance and Social Responsibility Adoption."  7 August 2010.  Web.  2 June 2020. <>.

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"Corporate Governance and Social Responsibility Adoption."  August 7, 2010.  Accessed June 2, 2020.