Текст книги "Английский язык. Практический курс для решения бизнес-задач"

Lesson 15
Corporate Governance

Read and translate the text and learn terms from the Essential Vocabulary

Corporate governance

Corporate governance is the set of processes, policies, laws and institutions affecting the way a corporation is directed or controlled. Corporate governance also includes the relationships among the stakeholders and the goals for which the corporation is governed.

Corporate governance is a multi-faceted subject. An important part of corporate governance deals with accountability, fiduciary duty and mechanisms of auditing and control. Thus, corporate governance players should comply with codes to the overall good of all constituents. Another important focus is economic efficiency, both within the corporation (such as the best practice guidelines) and externally.

Recently there has been considerable interest in the corporate governance practices of corporations, particularly since the high-profile collapse of Enron. Also, during the Asian financial crisis, a lot of the attention fell into the corporate governance systems of the developing world.

The corporate governance structure spells out the rules and procedures for making decisions on corporate affairs. It also provides the mechanisms through which the company objectives are set, as well as the means of attaining and monitoring the achievement of those objectives.

As a result of the separation of stakeholder influence from control in modern organizations, a system of corporate governance controls is implemented on behalf of stakeholders to reduce agency costs and information asymmetry. Corporate governance is used to monitor whether outcomes are in accordance with plans; and to motivate the organization to be more fully informed in order to maintain or alter organizational activity. Primarily, corporate governance is the mechanism by which individuals are motivated to align their actual behaviors with the overall corporate good.

Parties to corporate governance

Parties involved in corporate governance include the governing or regulatory body (e.g. the U.S. Securities and Exchange Commission), the CEO, the BoD, management, shareholders and other stakeholders.

All parties to corporate governance have an interest in the effective performance of the organization. Directors, workers and management receive salaries, benefits and reputation; whilst shareholders receive capital return. Customers receive goods and services; suppliers receive compensation for their goods or services. In return these individuals provide value in the form of natural, human, social and other capital.

A key factor in an individual’s decision to participate in an organization (e.g. through providing capital or expertise or labor) is trust that they will receive a fair share of the organizational returns. If some parties receive more than their fair return (e.g. exorbitant executive remuneration), then participants may choose to not continue participating (e.g. shareholders withdrawing their capital). Corporate governance is the key mechanism through which this trust is maintained across all stakeholders.

Principles

Key elements of good corporate governance principles include honesty, trust and integrity, openness, performance orientation, responsibility and accountability, mutual respect, and commitment to the organization. In particular, senior executives should conduct themselves honestly and ethically, especially concerning actual or apparent conflicts of interest, and disclosure in financial reports.

Commonly accepted principles of corporate governance include:

– Rights of, and equitable treatment of, shareholders.

– Interests of other stakeholders.

– Role and responsibilities of the board.

– Integrity and ethical behavior.

– Disclosure and transparency.

Mechanisms and controls

Corporate governance mechanisms and controls are designed to reduce the inefficiencies that arise from moral hazard and adverse selection. For example, to monitor managers’ behavior, an independent auditor attests the accuracy of information provided by management to investors.

Internal corporate governance controls

Internal corporate governance controls monitor activities and then take corrective action to accomplish organizational goals. Examples include:

 – Monitoring by the board of directors: The BoD, with its legal authority to hire, fire and compensate top management, safeguards invested capital. Regular board meetings allow potential problems to be identified, discussed and avoided. Whilst non-executive directors are thought to be more independent, they may not always result in more effective corporate governance. Executive directors possess superior knowledge of the decision-making process and therefore evaluate top management on the basis of the quality of its decisions that lead to financial outcomes, ex ante.

 – Remuneration: Performance-based remuneration is designed to relate some proportion of salary to individual performance. It may be in the form of cash or non-cash payments such as shares and share options, superannuation or other benefits. Such incentive schemes, however, are reactive in the sense that they provide no mechanism for preventing mistakes or opportunistic behavior.

– Audit committees.

External corporate governance controls

External corporate governance controls encompass the controls external stakeholders exercise over the organization:

– debt covenants;

– external auditors;

– government regulations.

Rules versus principles

Rules are typically thought to be simpler to follow than principles, demarcating a clear line between acceptable and unacceptable behavior. Rules also reduce discretion on the part of individual managers or auditors.

In practice rules can be more complex than principles. They may be ill equipped to deal with new types of transactions not covered by the code. Moreover, even if clear rules are followed, one can still find a way to circumvent their underlying purpose – this is harder to achieve if one is bound by a broader principle.

Corporate governance models around the world

There are many different models of corporate governance around the world. The liberal model that is common in Anglo-American countries tends to give priority to the interests of shareholders. The coordinated model that one finds in Continental Europe and Japan also recognizes the interests of workers, managers, suppliers, customers, and the community. Both models have distinct competitive advantages, but in different ways. The liberal model of corporate governance encourages radical innovation and cost competition, whereas the coordinated model of corporate governance facilitates incremental innovation and quality competition.

In the United States, a corporation is governed by a BoD, which has the power to choose the CEO. He has broad power to manage the corporation on a daily basis, but needs to get board approval for certain major actions, such as hiring his/her immediate subordinates, raising money, acquiring another company, major capital expansions, or other expensive projects. Other duties of the board may include policy setting, decision making, monitoring management’s performance, or corporate control.

The BoD is selected by and responsible to the shareholders. It is the responsibility of directors to endorse the organization’s strategy, develop directional policy, appoint, supervise and remunerate senior executives and to ensure accountability of the organization to its owners and authorities. But the bylaws of many companies make it difficult for all but the largest shareholders to have any influence over the makeup of the board; normally, individual shareholders are not offered a choice of board nominees among which to choose, but are merely asked to rubberstamp the nominees of the sitting board. Perverse incentives have pervaded many corporate boards, with board members beholden to the chief executive whose actions they are intended to oversee. Frequently, members of the BoDs are CEO’s of other corporations, which some see as a conflict of interest.

Codes and guidelines

Corporate governance principles and codes have been developed in different countries and issued from stock exchanges, corporations, or institutional investors, with the support of governments and international organizations. As a rule, compliance with these governance recommendations is not mandated by law, although the codes linked to stock exchange listing requirements may have a coercive effect.

Companies quoted on the Toronto and London Stock Exchanges formally need not follow the recommendations of their respective national codes. However, they must disclose whether they follow the recommendations in those documents and, where not, they should provide explanations concerning divergent practices. Such disclosure requirements exert pressure on listed companies for compliance.

In contrast, the guidelines issued by associations of directors, corporate managers and individual companies tend to be wholly voluntary. For example, The GM Board Guidelines reflect the company’s efforts to improve its own governance capacity. Such documents may have a multiplying effect prompting other companies to adopt similar documents and standards of best practice. One of the most influential guidelines has been the 1999 OECD Principles of Corporate Governance revised in 2004.

Corporate governance and firm performance

In its ‘Global Investor Opinion Survey’ of 200 institutional investors undertaken in 2000, McKinsey found that 80% of the respondents would pay a premium for well-governed companies. They defined a well-governed company as one that had mostly outside directors, undertook formal evaluation of its directors, and was responsive to investors’ requests for information on governance issues. The size of the premium varied by market, from 11% for Canadian companies to around 40% for companies where the regulatory background was least certain (in Morocco, Egypt and Russia).

Other studies have linked broad perceptions of the quality of companies to superior share price performance. A study of five-year cumulative returns of Fortune’s survey of ‘most admired firms’ found that those «most admired» had an average return of 125%, whilst the ‘least admired’ firms returned 80%. In a separate study Business Week enlisted institutional investors and ‘experts’ to assist in differentiating between boards with good and bad governance and found that companies with the highest rankings had the highest financial returns.

Source: Wikipedia

Essential Vocabulary

1. corporate governance – корпоративное управление

2. fiduciary (fid) a – доверенный, порученный, фидуциарный, основанный на доверии; доверенное лицо, опекун, душеприказчик по завещанию, попечитель

3. constituent n – составная часть, элемент; избиратель

constituent a – имеющий право голоса, избирающий; законодательный; составной

4. best practice – лучшая практика

5. information asymmetry – информационная асимметрия

6. regulator n – регулирующий орган, орган надзора

regulation n – регулирование, правило

regulate v – регулировать

regulatory a – регулирующий

7. Securities and Exchange Commission (SEC) – Комиссия по ценным бумагам и биржам

8. withdrawal n – изъятие, увод, уход, удаление

withdraw v – изымать, отнимать, отказываться, уходить, отходить

9. disclosure n – раскрытие (информации), разглашение

disclose v – раскрывать (информацию), разглашать

10.transparency n – прозрачность

transparent a – прозрачный

11. controls n – регулирующие устройства, рычаги или механизмы контроля

12. moral hazard – моральный риск (риск того, что действия по ослаблению последствий рискованных действий повысят вероятность таких событий)

13. executive director – исполнительный директор

14. superannuation n – пенсия по выслуге лет

15. ex ante – ожидаемый, предполагаемый

16. scheme n – план, программа, схема, диаграмма, структура

17. covenant n – договор, условие или статья договора, ограничивающие действия одной или двух сторон

18. discretion n – усмотрение, свобода действий; полномочия; осторожность, осмотрительность

discretionary a – предоставленный на усмотрение, дискреционный

19. subordinate n – подчиненный

subordinate (to) v – подчинять, ставить в зависимость

subordinate a – зависимый, подчиненный, второстепенный, придаточный

subordinated a – субординированный, младший по объему прав

20. raise money (capital, funds) – привлекать деньги (капитал, средства)

21. expansion n – рост, экспансия, расширение производства, продаж и т. п.

expand v – расширять

22. endorsement n – индоссамент, одобрение, передаточная надпись на векселе, свидетельство известной личности о качестве товара

endorse v – индоссировать, делать передаточную надпись на векселе, подтверждать правильность, подписываться

23. bylaw n – подзаконный акт, регламент, внутренние правила и регламент деятельности компании

24. nominee n – кандидат; лицо, выдвинутое на должность; получатель чего-либо по доверенности

nomination n – номинация, выставление, выдвижение кандидата, назначение на должность

nominate v – предлагать кандидата, назначать на должность

25. mandate n – мандат, наказ, доверенность, поручение

mandate v – передавать под мандат, обязывать

mandatory a – обязательный, принудительный, мандатный

26. listing n – листинг (котировка на бирже)

list n – список

list v – внести в листинг, перечислять

27. London Stock Exchange (LSE) – Лондонская фондовая биржа

28. respondent n – респондент, ответчик (в суде, в ходе опроса или переписи населения)

29. Organization of Economic Cooperation and Development (OECD) – Организация экономического сотрудничества и развития (ОЭСР)

30. premium (pm, prem) n – премия, маржа

31. background n – задний план, фон, обстановка; подготовка, образование, квалификация

background a – фоновой, прошлый

Exercise 1. Answer the following questions.

1. What is corporate governance? 2. What are the important foci of corporate governance? 3. Why has the interest in corporate governance strengthened recently? 4. Who are the parties to corporate governance? 5. What are the key principles of corporate governance? 6. What are the internal corporate governance controls? 7. What are the relative merits of executive and non-executive directors? 8. What are the external corporate governance controls? 9. Are rules better suited than principles to practical implementation of corporate governance? 10. What are the competitive advantages of the liberal and coordinated models of corporate governance? 11. What authority do BoDs have in the U.S.? 12. What is the main difference between corporate governance codes and guidelines? 13. How does the quality of corporate governance affect performance of a company?

Exercise 2*. Find terms in the text that match definitions given below and make sentences of your own with each term.

1. individuals associated together by the fact of residence in the same locality, or of subjection to the same laws and regulations

2. indicating trustee or his office; accepted only because the public has faith in its value

3. empowered to appoint or elect a representative; serving to make up a thing; component

4. a particular course or model of action

5. that which comes out of or results from something; the consequence; the conclusion

6. specialized knowledge

7. an agreement between two or more persons to do or refrain from doing some act; an incidental clause in a legal agreement

8. to assign by writing one’s name on the back; to sanction, ratify or approve

9. a standing rule of an organized group, created for the regulation of its internal organization and the governing of its members; a local law or ordinance enacted by a municipality or other community

Exercise 3. You are a corporate governance expert hired by a Russian company to introduce appropriate corporate governance procedures and develop its corporate governance code. You have to explain to the CEO the potential benefits of the good corporate governance track record and create the corporate governance principles for the company.

Exercise 4*. Fill in the blanks using terms given below.

Techniques that Keep Staff Toeing the Line

According to Sir David Tweedie, chairman of the UK International Accounting Standards Board, the……. and negligence that made a mockery of…….. in the US came down to one thing: greed. «The excessive………. was obscene,» he says. «75% of…….. issued by major companies in America went to the top five…… By fiddling the……., you could end up making so much money from stock options that you didn’t have to work thereafter – and neither did your family for several generations.»

Sir David is equally scathing about those involved in corporate governance who……. to prevent problems. In his view, executive…… failed; non-executives were kept in the dark;……. committees failed;……. fell asleep at the wheel;…… agencies did none too well;…… missed it; the…….. failed to regulate; and the…….. and lawyers were part of the problem, helping companies with their questionable……..

«That is why it was such a shock to corporate America,» he explains. «It wasn’t just one little piece gone wrong, but a whole line of…….. that went flat. The whole system was collapsing.»

Since 2001, the debate about corporate governance has spun off in many directions. It has taken in executive remuneration, financial……. standards, the…….. of non-executive directors, auditor……… investor trust, the split between the roles of…….. and chief executive, and wider……… The unifying theme in all such……. is that they primarily concern company boards. The subtext is clear: corporate governance is the preserve of the very…….. business people.

Yet corporate governance has far wider resonance. The Turnbull Report, aimed at spreading……. in UK governance, made clear that while…….. for internal control ultimately rests with a board…….. involves employees too. «All employees have some responsibility for internal control as part of their……… for achieving objectives,» the report states. «The system of internal control should be…….. in the operations of the company and form part of its culture.»

Bill Waite, chief executive of the Risk Advisory Group, says that like so many other things in business, governance involves the…….. and…….. of a workforce. «The biggest risk in any company comes from the…….. Even where the…….. is external, you usually find an employee has been befriended and then exploited.»

On the other hand, staff can also be antennae for…….. When investigating the Tyco International fraud, the Manhattan District Attorney remarked that he found it «extremely troublesome… that no………. had come forward.» The majority of FTSE 500 companies now have these………. in place.

Traditionally, of course…….. practices have been seen as somewhat beneath the interest of boards. Yet if the systems and procedures operating within an organisation to…….. risks are governance issues, theoretically that ought to change. So how far should companies go towards embedding……… behaviour?

Andrew Wilson, director of the Ashridge Centre for Business and Society, says the answer depends on both the…….. culture of individual companies and the…….. business cultures in which those companies………. US companies tend to take a very……….-driven attitude to governance, setting down on paper exactly what is expected of employees. «Gift policies sometimes say a case of wine is inappropriate, while a bottle of wine is fine – it is that detailed», he explains.

Meanwhile, European companies prefer broad principles that allow greater……. for individual……… Ideally, says Mr. Wilson, governance should allow for «disciplined……….».

«A rule-based, bureaucratic……… encourages people to think about what they can get away with, when what you want are sensible judgements in line with business…….. Perhaps, the classic question to ask is „How would I feel if this (action) was reported in the press?“

Although detailed rules make it easier for an auditor to control its clients, they also make it easier for people to work out exactly what to do to get around them. «An investment bank will come up with a……. in three seconds,» he says. «In contrast, a……. will catch all variations.»

According to Brian Gregory from Oracle, corporate governance may serve to break down «the fortress HR formality», as boards take a greater interest in an area normally seen as off-limits. «There has been a huge amount of attention on……., but so much less on the people aspects of risk,» he says.

The renewed…… on corporate governance has given a spur for HR…….. systems to be developed that are able to interact with accountancy and other business systems, he says. Information about the skills, competencies……… aspirations and…… of individual employees is now no more than a few mouse clicks away from…….-conscious board members. Modern HR software enables additional……. on employee risk. «At the end of the day,» concludes Mr. Gregory, «governance is about making sure there are no surprises.»

Source: Financial Times

Terms:

SEC, boards, audit, investment banks, focus, fraud, corporate governance, accounts, failed, auditors, analysts, checks and balances, reporting, procedure, effectiveness, background, independence, operate, competence, chairman, internal, empowerment, malfeasance, principle, accountancy, whistleblowers, conflicts of interest, credit rating, remuneration, controls, issues, executives, senior, stock options, expenses claims, mitigate, best practice, responsibility, deals, managing risks, accountability, discretion, embedded, quality, staff, threat, HR, ethical, domestic, compliance, scope, approach, values, scheme, security, IT

Exercise 5. Translate into English.

Корпоративное управление в ТНК-ВР

Стратегия ТНК-ВР подчеркивает важность прозрачности и хорошего корпоративного управления в построении русской компании мирового класса и достижении уровня, сопоставимого с уровнем наших международных коллег.

ТНК-ВР рассматривает хорошее корпоративное управление как ключевой двигатель создания ценностей. Этика управления и профессионализм – фундамент, на котором строятся эксплуатационные усовершенствования.

В течение следующих пяти лет ТНК-ВР будет внедрять стандарты корпоративного управления, которые помогут достигнуть самого высокого уровня не только на российском рынке, но и с течением времени позволят конкурировать с лидерами международного рынка.

Совместно с высоким качеством человеческого капитала, полученным от трех компаний-предшественниц, высокие стандарты управления обеспечат ТНК-ВР устойчивым фундаментом для дальнейшего роста.

Совет директоров из 10 членов (с одинаковым количеством представителей двух акционеров компании – ВР и AAR) управляет ТНК-ВР. Правление имеет два комитета – Комитет по аудиту и Комитет по компенсациям. Ежедневное управление компанией выполняет команда высшего руководства.

Точная и своевременная информация – основа хорошего корпоративного управления. Прозрачность, обеспеченная своевременным потоком точной информации от производства до управления (и обратно), дает возможность эффективного прогнозирования и планирования, принятия обоснованных решений и логичного распределения ресурсов.

ТНК-ВР находится на стадии реализации нескольких проектов, целью которых является повышение уровня корпоративного управления и увеличение прозрачности. Так, широкомасштабный проект трансформации бухгалтерского учета (ATP) начался в начале 2004-го и был нацелен на модернизацию систем и практики учета. Как первый проект подобного рода в российской нефтяной промышленности, он разрабатывался для того, чтобы компания получала в ускоренном режиме более точную и полную информацию для нужд внешней и внутренней отчетности. В ходе проекта были достигнуты следующие цели:

– время, необходимое для закрытия данных, сократилось до 10 дней;

– был разработан единый план счетов (chart of accounts);

– учет в соответствии со стандартами МСФО (IAS) осуществляется в регионах;

– сохранность и целостность данных обеспечивается внедренными и контролируемыми системами.

В дополнение к этому было начато внедрение проекта по усовершенствованию системы внутреннего контроля и «Кодекса деловой практики и корпоративных стандартов».

Источник: www.tnk-bp.ru