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Corporate Officer

Corporate officer

A corporate officer or corporate executive is a manager or other similarly high-ranking officer in a corporation. Lower-ranking positions are usually not considered to be corporate officers. Corporate officer positions include:
- chief executive officer (CEO)
- chief financial officer (CFO)
- chief operating officer (COO)
- chief administrative officer (CAO)
- chief technology officer (CTO)
- president
- vice-president
- treasurer/comptroller/controller The members of the board of directors, including the chairman of the board, depending on context, are sometimes considered to be and sometimes considered not to be corporate officers. The exact relationship between corporate executives varies from firm to firm, with different firms having quite diverse hierarchical organizations. Often, the relationships between positions are quite complicated; some firms may omit certain positions, place multiple executives in single position, or place single executives in multiple positions. For instance, a firm could have multiple vice-presidents, one of whom is also the CFO. In one firm, the CEO could also be the President, while in another, the CEO appoints someone else to be the President.

Manager

:Manager redirects to here. For use in sports, see coach (sport). :Enterprise management redirects to here. For use in computer networks, see Network management or Systems management "Management" (from Old French ménagement "the art of conducting, directing", from Latin manu agere "to lead by the hand") characterises the process of leading and directing all or part of an organization, often a business, through the deployment and manipulation of resources (human, financial, material, intellectual or intangible). Early twentieth-century management writer Mary Parker Follett defined management as "the art of getting things done through people." One can also think of management functionally, as the action of measuring a quantity on a regular basis and of adjusting some initial plan, and as the actions taken to reach one's intended goal. This applies even in situations where planning does not take place. From this perspective, there are five management functions: Planning, Organizing, Leading, Co-ordinating and Controlling. Management is also called "Business Administration", and schools that teach management are usually called "Business Schools". The term "management" may also be used to describe the slate of managers of an organization, for example of a corporation. A governing body is a term used to describe a group formed to manage an organization, such as a sports league.

Historical development

Some writers trace the development of management thought back to Sumerian traders and ancient Egyptian pyramid builders. Slave-owners through the centuries faced the problems of exploiting/motivating a dependent but sometimes recalcitrant workforce, but many pre-industrial enterprises, given their small scale, did not feel compelled to face the issues of management systematically. But innovations such as the spread of Hindu-Arabic numerals (5th to 15th centuries) and the codification of double-entry book-keeping (1494) provided tools for management assessment, planning and control.

19th century

Modern management as a discipline began as an off-shoot of economics in the 19th century. Classical economists such as Adam Smith and John Stuart Mill provided a theoretical background to resource allocation, production, and pricing issues. About the same time, innovators like Eli Whitney, James Watt, and Matthew Boulton developed technical production elements such as standardization, quality control procedures, cost accounting, interchangeability of parts, and work planning. By the middle of the 19th century, Robert Owen, Henry Poor, and M. Laughlin and others introduced the human element with theories of worker training, motivation, organizational structure and span of control. Compare the analyses of Karl Marx and of Friedrich Engels. By the late 19th century, marginal economists Alfred Marshall and Leon Walras and others introduced a new layer of complexity to the theoretical underpinings of management. Joseph Wharton offered the first tertiary-level course in management in 1881.

20th century

By about 1900 we find managers trying to place their theories on a thoroughly scientific basis. Examples include Henry Towne's Science of management in the 1890s, Frederick Winslow Taylor's Scientific management (1911), Frank and Lillian Gilbreth's Applied motion study (1917), and Henry L. Gantt's charts (1910s). J. Duncan wrote the first college management text book in 1911. The first comprehensive theories of management appeared around 1920. People like Henri Fayol and Alexander Church described the various branches of management and their inter-relationships. In the early 20th century, people like Ordwat Tead, Walter Scott and J. Mooney applied the principles of psychology to management, while other writers, such as Elton Mayo, Mary Parker Follett, Chester Barnard, Max Weber, Rensis Likert, and Chris Argyris approached the phenomenon of management from a sociological perspective. Peter Drucker wrote one of the earliest books on applied management: Concept of the Corporation (published in 1946). It resulted from Alfred Sloan (chairman of General Motors until 1956) commissioning a study of the organisation. Drucker has gone on to write 32 books, many in the same vein. H. Dodge, Ronald Fisher, and Thorton C. Fry introduced statistical techniques into management. In the 1940s, Patrick Blackett combined these statistical theories with microeconomic theory and gave birth to the science of operations research. Operations research, sometimes known as "management science", attempts to take a scientific approach to solving management problems, particularly in the areas of logistics and operations. Some of the more recent developments include the theory of constraints, Management by objectives, reengineering, and various information technology driven theories such as agile software development. As the general recognition of managers as a class solidified during the 20th century and gave perceived practitioners of management a certain amount of prestige, so the way opened for popularised systems of management ideas to peddle their wares. In this context many management fads may have had more to do with pop psychology than with scientific management theory. Towards the end of the 20th century, business management came to consist of six separate branches, namely:
- Human resource management
- Operations management or production management
- Strategic management
- Marketing management
- Financial management
- Information Technology management

21st century

In the 21st century we find it increasingly difficult to subdivide management into functional categories in this way. More and more processes simultaneously involve several categories. Instead, we tend to think in terms of the various processes, tasks, and objects subject to management. A list of some of the areas of management can be found later in this article. It is also the case that many of the assumptions made by management have been under attack from business ethics, critical management studies, and anti-corporate activism. One consequence is that workplace democracy has become both more common, and more advocated, in some places distributing all management functions among the workers, each of whom takes on a portion of the work. However, these models predate any current political issue, and may be more natural than command hierarchy. All management is to some degree democratic in that there must be majority support of workers for the management in the long term, or they leave to find other work, or go on strike. Hence management is becoming less about command-and-control, and more about facilitation and support of collaborative activity, utilizing principles such as those of human interaction management to deal with the complexities of human interaction.

Nature of the work

In for-profit work, the primary function of management is satisfy a range of stakeholders. This typically involves making a profit (for the shareholders), creating valued products at a reasonable cost (for customers), and providing rewarding employment opportunities (for employees). In nonprofit work it is also important to keep the faith of donors. In most models of management, shareholders vote for the board of directors, and that board then hires senior management. Some organizations are experimenting with other methods of selecting or reviewing managers senior managers (such as employee voting models) but this is very rare. In the public sector of countries constituted as representative democracies, politicians are elected to public office. They hire many managers and administrators, and in some countries like the United States a great many people lose jobs during a regime change. 2500 people serve "at the pleasure of the President" including all the top US government executives. Public, private and voluntary sectors place different demands on managers, but all must retain the faith of those who select them (if they wish to retain their jobs), retain the faith of those people that fund the organization, and retain the faith of those who work for the organization. If they fail to convince employees that they are better off staying than leaving, the organization will be forced into a downward spiral of hiring, training, firing, and recruiting. Management also has a responsibility to innovate and improve the functioning of the organization. In all but the smallest organizations, achieving these objectives involves a division of management labour. People specialize in a limited range of functions so as to more quickly gain competence and expertice. Even in employee managed workplaces such as a Wobbly Shop, where managers are elected, or where latitude of action is sharply restricted by collective bargaining or unions, managers still take on roughly the same functions and job descriptions as in a more traditional command hierarchy. Chief executive officer (CEO) - The CEO is ultimately responsible for the success or failure of the business. He or she provides overall strategic direction for the firm, often with the assistance of a team of vice presidents. Strategic management decisions like what products to market, what market segments to target, what functions to outsource, what business model to employ, and what geographical areas to operate in are the responsibility of the CEO. The CEO is accountable to the board of directors. Typically a CEO will delegate many responsibilities to one or more executive vice presidents. In small firms, the owner, president, or chief executive officer typically assume many roles and responsibilities. Vice president, Marketing - An executive vice president of marketing might direct overall marketing strategies, advertising, promotions, sales, product management, pricing, and public relations policies. The direct reports of the EVP oversee advertising and promotion. In a small firm, they may serve as a liaison between the firm and the advertising or promotion agency to which many advertising or promotional functions are contracted out. In larger firms, advertising managers oversee in-house account, creative, and media services departments. Marketing managers - Marketing managers develop the firm's detailed marketing plans and procedures. With the help of subordinates, including product development managers and market research managers, they determine the demand for products and services offered by the firm and its competitors. In addition, they identify potential markets—for example, business firms, wholesalers, retailers, government, or the general public. Marketing managers develop pricing strategy with an eye towards maximizing the firm's share of the market and its profits while ensuring that the customers are satisfied. In collaboration with sales, product development, and other managers, they monitor trends that indicate the need for new products and services and oversee product development. Marketing managers work with advertising and promotion managers to promote the firm's products and services and to attract potential users. Promotions managers - Promotions managers supervise sales promotion specialists. They direct promotion programs that combine advertising with purchase incentives to increase sales. In an effort to establish closer contact with purchasers—dealers, distributors, or consumers—promotion programs may involve direct mail, telemarketing, television or radio advertising, catalogs, exhibits, inserts in newspapers, Internet advertisements or Web sites, instore displays or product endorsements, and special events. Purchase incentives may include discounts, samples, gifts, rebates, coupons, sweepstakes, and contests. Public relations managers - Public relations managers supervise public relations specialists. These managers direct publicity programs to a targeted public. They often specialize in a specific area, such as crisis management or in a specific industry, such as healthcare. They use every available communication medium in their effort to maintain the support of the specific group upon whom their organizations success depends, such as consumers, stockholders, or the general public. For example, public relations managers may clarify or justify the firms point of view on health or environmental issues to community or special interest groups. They also evaluate advertising and promotion programs for compatibility with public relations efforts and serve as the eyes and ears of top management. They observe social, economic, and political trends that might ultimately affect the firm and make recommendations to enhance the firm's image based on those trends. They may also may confer with labor relations managers to produce internal company communications—such as newsletters about employee-management relations—and with financial managers to produce company reports. They assist company executives in drafting speeches, arranging interviews, and maintaining other forms of public contact; oversee company archives; and respond to information requests. In addition, some handle special events such as sponsorship of races, parties introducing new products, or other activities the firm supports in order to gain public attention through the press without advertising directly. Sales managers - Sales managers direct the firm's sales program. They assign sales territories, set goals, and establish training programs for the sales representatives. Managers advise the sales representatives on ways to improve their sales performance. In large, multiproduct firms, they oversee regional and local sales managers and their subordinates. Sales managers maintain contact with dealers and distributors. They analyze sales statistics gathered by their staffs to determine sales potential and inventory requirements and monitor the preferences of customers. Such information is vital to develop products and maximize profits. Account executive - The account executive manages the account services department, assesses the need for advertising, and, in advertising agencies, maintains the accounts of clients. Creative director - The creative services department develops the subject matter and presentation of advertising. The creative director oversees the copy chief, art director, and associated staff. Media director - The media director oversees planning groups that select the communication media—for example, radio, television, newspapers, magazines, Internet, or outdoor signs—to disseminate the advertising.

Areas of management

- Administrative management
- Association management
- Change management
- Communication management
- Constraint management
- Cost management
- Crisis management
- Customer relationship management
- Earned value management
- Enterprise management
- Facility management
- Human interaction management
- Integration management
- Knowledge management
- Land management
- Logistics management
- Marketing management
- Operations management
- Pain management
- Perception management
- Procurement management
- Program management
- Project management
- Process management
- Product management
- Quality management
- Resource management
- Risk management
- Skills management
- Spend management
- Stress management
- Supply chain management
- Systems management
- Talent management
- Time management

Corporation

A corporation is a legal entity (distinct from a natural person) that often has similar rights in law to those of a natural person. Civil law systems may refer to corporations as "moral persons;" they may also go by the name "AS" (anonymous society) or something similar, depending on language (see below). In colloquial usage, "corporation" usually refers to a commercial entity set up in accordance with a governmental framework. Churches (mainly in US, but not so much in other countries, where Churches have a different status), interest groups (both can form as not-for-profit corporations or can exist as voluntary associations), cities and townships (often chartered as public corporations), among others, may also have historically lengthy corporate identities.

Legal status

The law typically views a corporation as a fictional person, a legal person, or a moral person (as opposed to a natural person); United States law recognises this as corporate personhood. Under such a doctrine (obviously a legal fiction), a corporation enjoys many of the rights and obligations of individual citizens, such as the ability to own property, sign binding contracts, pay taxes, have certain constitutional rights, and otherwise participate in society. (Note that corporations do not possess all the rights appertaining to individuals: in most jurisdictions, for example, a corporation cannot vote.) In common law countries, the classic statement of this principle is found in Lennard's Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915], where Lord Haldane said: :"My Lords, a corporation is an abstraction. It has no mind of its own any more than it has a body of its own; its active and directing will must consequently be sought in the person of somebody who is really the directing mind and will of the corporation, the very ego and centre of the personality of the corporation." The most salient features of incorporation include: #Limited Liability. Unlike in a partnership, stockholders of a corporation hold no liability for the corporation's debts and obligations: see leading case in common law, Salomon v. Salomon & Co.. As a result their "limited" potential losses cannot exceed the amount which they paid for the stock. Not only does this allow corporations to engage in risky enterprises, but limited liability also forms the basis for trading in corporate stock. Without the limitation on the amount that an investor can lose, the time and effort required to determine whether the stock could wipe the investor out would render the stock market very illiquid (as one can observe in the very illiquid market for partnership interests). A lender can, however, require a personal guarantee on a loan to a corporation, thus introducing personal liability. #Perpetual Lifetime. The assets and structure of the corporation exist beyond the lifetime of any of its shareholders, officers or directors. This allows for stability of capital, which thus becomes available for investment in projects of a larger size and over a longer term than if the corporate assets remained subject to dissolution and distribution. This feature also had great importance in the medieval period, when land donated to the Church (a corporation) would not generate the feudal fees that a lord could claim upon a landholder's death. In this regard, see Statute of Mortmain. #Profit Maximization. In Anglo-American jurisdictions, business corporations are generally required to serve the best interests of the shareholders, a rule that courts have generally interpreted to mean the maximization of share value, and thus profits. Corporate directors are prohibited by corporate law from sacrificing profits to serve some other interest. Originally this included such areas as environmental protection, or the improvement of the welfare of the community. For example, when Henry Ford cut dividends and reduced car prices in order to increase the number of people who could afford to buy his cars, his brother-in-law, Mr. Dodge, a shareholder, sued him for having harmed profitability: Dodge v. Ford Motor Company, 170 N.W 688 (Mich.S.C. 1919). Mr. Dodge succeeded and went on to form his own car company with the proceeds of the suit. However, modern law by statutes and court decisions holds that a corporation does have an implied authority to make charitable contributions to society.

Ownership and control

Humans and other legal entities (such as trusts and other corporations) can hold shares. When no stockholders exist, a corporation may exist as a "non-stock corporation", a "membership corporation", or similar — this second type of corporation counts as a not-for-profit corporation. In either category, the corporation comprises a collective of individuals with a distinct legal status and with special privileges not vouchsafed to ordinary unincorporated businesses, to voluntary associations, or to groups of individuals. Typically, a board of directors governs a corporation on the stockholders' behalf. The board has a fiduciary duty to look after the interests of the corporation. The corporate officers such as the CEO, president, treasurer, and other titled officers are chosen by the board to manage the affairs of the corporation. Corporations can also be controlled (in part) by creditors such as banks. In return for lending money to the corporation, creditors can demand a control interest analogous to that of a shareholder, including one or more seats on the board of directors. Creditors are not said to "own" the corporation as shareholders do, but can outweigh the shareholders in practice, especially if the corporation is experiencing financial difficulties and cannot survive without credit. Shareholders in a corporation are said to have a "residual interest." Should the corporation end its existence, the shareholders are the last to receive its assets, following creditors and others with interests in the corporation. This can make investment in a corporation risky; however, the risk is outweighed by the corporation's limited liability, which ensures that the shareholder will only be liable for the amount they invested.

Formation

Historically, corporations were created by special charter of state governments. Today, corporations are usually registered with a state, and become regulated by the laws enacted by that state. Registration is the main prerequisite to the corporation's assumption of limited liability. As part of this registration, it must designate the principal address of the corporation (where to contact it in the event of legal process), and often an agent or other legal representative of the corporation. Generally, a corporation files articles of incorporation with the government, laying out the general nature of the corporation, the amount of stock it is authorized to issue, and the names and addresses of directors. Once the articles are approved, the corporation's directors meet to create bylaws that govern the internal functions of the corporation, such as meeting procedures and officer positions. The law of the state in which a corporation operates will regulate most of its internal activities, as well as its finances. If a corporation operates outside its home state, it is often required to register with other governments as a foreign corporation, and is almost always subject to laws of its host state pertaining to employment, crimes, contracts, civil actions, and the like.

Naming

Corporations generally have a distinct name. Historically, corporations were named after their membership: for instance, "The President and Fellows of Harvard College." Nowadays, corporations in most jurisdictions have a distinct name that does not need to make reference to their membership. In Canada, this possibility is taken to its logical extreme: many smaller Canadian corporations have no names at all, merely numbers (e.g., "Ontario 123-4567 Limited"). In most countries, corporate names include the term "Corporation", or an abbreviation that denotes the corporate status of the entity. See Types of corporations for a full list. These terms, known as words of limitation, obviously vary by jurisdiction and language. Their use puts all persons on constructive notice that they have to deal with an entity whose liability remains limited, in the sense that it does not reach back to the persons who constitute the entity; one can only collect from whatever assets the entity still controls at the time one obtains a judgment against it. Certain jurisdictions do not allow the use of the word "company" alone to denote corporate status, since the word "company" may refer to a partnership or to a sole proprietorship, or even, archaically, to a group of not necessarily related people (for example, those staying in a tavern).

Unresolved issues

The nature of the corporation continues to evolve, both through existing corporations pushing new ideas and structures, and governments regulating them in response to new situations. A current question is that of diffused responsibility: for example, if the corporation is found liable for a death, then how should the blame and punishment for this be allocated across the shareholders, directors, management and staff of the corporation? The present law diffuses this responsibility. One may think that the owners of the business - the shareholders - should be ultimately responsible for such circumstances, but the modern corporation may have many millions of small-scale shareholders who know nothing about its business activities. Worse still, traders - especially hedge funds - may rapidly turn over their partial ownership of a corporation many times a day. One suggestion is that the directors should be passed the burden of moral and legal responsibility as part of their job of representing the shareholders. This is currently an active area of debate.

Origins

Etymology

The word "corporation" derives from the Latin corpus (body), representing a "body of people"; that is, a group of people authorized to act as an individual (Oxford English Dictionary). The word universitas also used to refer to a group of people but now refers specifically to a group of scholars (see University). In the United Kingdom and Republic of Ireland, the term corporation was also used for the local government body in charge of a borough. This style was replaced in most cases with the term council in the United Kingdom in 1973, and in the Republic of Ireland in 2001. The sole exception is the Corporation of London which retains the title.

Pre-modern corporations

Corporations have been present in some forms as far back as Ancient Rome. Although devoid of some of the core characteristics by which corporations are known today, they nonetheless were enterprises, sanctioned by the state, with a form of shareholders who invested money for a specific purpose. With the collapse of the Roman Empire, the rise of Christianity and the influx of Germanic tribes, the Roman conception of the corporation merged with other views. Germanic tribes, for example, maintained that a group entity in and of itself could have a separate identity from that of its members. These influences came together in the body of canon law built around the conception of the church as corporate structure in the Middle Ages. Different theories of the church as corporate body were favored by different individuals but all agreed on one key component: that the church was more than just its members and could maintain an existence perpetually, regardless of the death of any individual member. This, together with discussion as to the relationship between the head of a corporation (such as the Pope) and its members, contributed not only to the development of modern corporations and corporate theory but also set the stage for many ideas that would come to fruition during the enlightenment. Kenneth Pomeranz, an economic historian, argues that the need to perform pseudo-governmental operations (such as the waging of war) accounts for the development of this economic structure in Europe but not in China or in the Middle East. Older corporate entities gained incorporation as "the person/people of xx". This reflected the people who made up the "body" and also emphasised their legal identity. The law classifies a corporation either as a corporation sole (one person) or as a corporation aggregate (any other number). Examples include (the link gives the legal name; the nickname appears in brackets with the nature of the corporation)
- The Governor and Company of the Bank of England (Bank of England — corporation aggregate)
- The Chancellor Masters and Scholars of the University of Cambridge (Cambridge University — corporation aggregate)
- The President and Fellows of Harvard College (Harvard College — corporation aggregate)
- Her Majesty the Queen in Right of New Zealand (New Zealand Government — corporation sole)
- The Archbishop of Canterbury (corporation sole)
- The Dean, Chapter and Students of the Cathedral Church of Christ in Oxford of the Foundation of King Henry VIII (Christ Church, Oxford — corporation aggregate) Using strict definitions, universities and colleges count as corporations since they merely comprise groups of people.

Development of modern commercial corporations

college, dating from 7 November 1623, for the amount of 2,400 florins]] Early corporations of the commercial sort were formed under frameworks set up by governments of states to undertake tasks which appeared too risky or too expensive for individuals or governments to embark upon. The alleged oldest commercial corporation in the world, the Stora Kopparberg mining community in Falun, Sweden, reportedly obtained a charter from King Magnus Eriksson in 1347. Many European nations chartered corporations to lead colonial ventures, such as the Dutch East India Company, and these corporations came to play a large part in the history of corporate colonialism. In the United States, government chartering began to fall out of vogue in the mid-1800s. Corporate law at the time was very restrictive and very closely regulated by the states. Forming a corporation usually required an act of legislature. Investors generally had to be given an equal say in corporate governance, and the corporation's activities were tightly restricted to its express purposes. Many private firms in the 19th century avoided the corporate model for these reasons (Andrew Carnegie formed his steel operation as a limited partnership, and John D. Rockefeller set up Standard Oil as a trust). Eventually, state governments began to realize the economic value of providing more permissive corporate laws. New Jersey was the first state to adopt an "enabling" corporate law, with the goal of attracting more business to the state. Delaware followed, and soon became known as the most corporation-friendly state in the country; even today, most major public corporations are set up under Delaware law. The 20th century saw a proliferation of enabling law across the world, which helped to drive economic booms in many countries before and after World War I. After World War II, and especially starting in the 1980s, many countries with large state-owned corporations moved toward privatization, the selling of publicly-owned services and enterprises to private, normally corporate, ownership. Deregulation - reducing the public-interest regulation of corporate activity - often accompanied privatization as part of an ideologically laissez-faire policy. Another major postwar shift was toward conglomerates, in which large corporations purchased smaller corporations to expand their industrial base. Japanese firms developed a horizontal conglomeration model, the keiretsu, which was later duplicated in other countries as well. While corporate efficiency (and profitability) skyrocketed, small shareholder control was diminished and directors of corporations assumed greater control over business, contributing in part to the hostile takeover movement of the 1980s and the accounting scandals that brought down Enron and WorldCom following the turn of the century. More recent corporate developments include downsizing, contracting-out or out-sourcing, off-shoring and scoping down activities to core business, as information technology, global trade regimes, and cheap fossil fuels enable corporations to reduce labour costs, transportation costs and transaction costs, and thereby maximize profits. For a history of corporations that is “pro-corporate”, see John Micklethwait and Adrian Wooldridge, The Company: a Short History of a Revolutionary Idea (New York: Modern Library, 2003). For a history of corporations that is “critical”, see Joel Bakan, The Corporation. The pathological pursuit of profit and power (Toronto: Viking Canada, 2004).

Types of corporations

For-profit and non-profit

Main article: non-profit organization In modern economic systems, the corporate conventions of governance commonly appear in a wide variety of business and non-profit activities. Though the laws governing these creatures of statute often differ, the courts often interpret provisions of the law that apply to profit-making enterprises in the same manner (or in a similar manner) when applying principles to non-profit organizations — as the underlying structures of these two types of entity often resemble each other.

Closely-held and public

The institution most often referenced when the word "corporation" is used, as in the title of the movie The Corporation, is a public or publicly traded corporation, the shares of which are traded on a public market (e.g., the New York Stock Exchange or Nasdaq) designed specifically for the buying and selling of shares of stock of corporations by and to the general public. Most of the largest businesses in the world are publicly traded corporations. However, the majority of corporations are said to be closely held, privately held or close corporations, meaning that no ready market exists for the trading of ownership interests. Many such corporations are owned and managed by a small group of businesspeople or companies, although the size of such a corporation can be as vast as the largest public corporations. The affairs of publicly traded and closely held corporations are similar in many respects. The main difference in most countries is that publicly traded corporations have an additional burden of complying with securities laws, which (especially in the U.S.) grant further rights to stockholders to protect them from fraud or unfairness in connection with the sale and purchase of stock. The publicly traded corporation must usually follow much more stringent disclosure requirements, and sometimes additional procedural obligations in connection with major transactions (e.g. mergers) or events (e.g. elections of directors).

Multinational corporations

Following on the success of the corporate model at a national level, many corporations have become transnational or multinational corporations: growing beyond national boundaries to attain sometimes remarkable positions of power and influence in the process of globalising. The typical "transnational" or "multinational" may fit into a web of overlapping ownerships and directorships, with multiple branches and lines in different regions, many such sub-groupings comprising corporations in their own right. Growth by expansion may favour national or regional branches; growth by acquisition or merger can result in a plethora of groupings scattered around and/or spanning the globe, with structures and names which do not always make clear the structures of ownership and interaction. In the spread of corporations across multiple continents, the importance of corporate culture has grown as a unifying factor and a counterweight to local national sensibilities and cultural awareness.

National features

There are various types of corporations throughout the world.

United States

In the United States, several corporate forms exist; the name of "corporation" generally applies to a business, run for profit, to which one of the states of the United States has granted a corporate charter. American corporations often charter as a Delaware Corporation in Delaware, which charges no tax on activities outside the state and has courts experienced in commercial law. Corporations set up for privacy or asset protection often charter in Nevada, which allows setting them up with no record of who owns them. The federal government of the United States usually does not grant corporate charters, except for some special instances such as Amtrak and Freddie Mac and banks and credit unions which opt not to receive charters from their home states. Historically, most U.S. states issued charters for fixed lengths of time (for example, a manufacturing corporation might receive a charter good for 40 years), and only by an act of the legislature. In theory, a limited charter forced corporations to remain accountable to government (that is, to the community) for the special privileges granted to them. Investors protested that it actually led to unhealthy amounts of political payoffs and graft. Most states now charter unlimited-term corporations for a small fee, and possibly for a yearly tax. Legally, corporations are accorded some corporate personhood, i.e. Constitutional rights similar to those held by persons. The U.S. Supreme Court ruled on this question in the 1886 case Santa Clara County v. Southern Pacific Railroad. Many countries around the world now have corporate laws based upon state laws from the United States. For example, corporations in Japan are organized under a variant of the corporate law of Illinois, and corporations in Saudi Arabia follow corporate laws copied from New York. The oldest corporation in the United States, and the oldest in North America, is the President and Fellows of Harvard College (also known as the Harvard Corporation), chartered in 1650.

Canada

In Canada both the federal government and the provinces have corporate statutes, and thus a corporation may have a provincial or a federal charter. Many older corporations in Canada stem from Acts of Parliament passed before the introduction of general corporation law. The oldest corporation in Canada, and second oldest in North America, is the Hudson's Bay Company, chartered in 1670. Federally recognized corporations are regulated by the Canada Business Corporations Act

German-speaking countries

Germany, Austria and Switzerland recognize two forms of corporation: the Aktiengesellschaft (AG), analogous to public corporations in the English-speaking world, and the Gesellschaft mit beschränkter Haftung (GmbH), similar to (and an inspiration for) the modern limited liability company.

Corporate taxation

In many countries, including the United States and United Kingdom, corporate profits are taxed at a corporate tax rate, and dividends paid to shareholders are taxed at a separate rate. Such a system is sometimes referred to as "double taxation," because any profits distributed to shareholders will eventually be taxed twice. One solution to this (as in the case of UK tax system) is for the recipient of the dividend to be entitled to a tax credit which addresses the fact that the profits represented by the dividend have already been taxed. The company profit being passed on is therefore effectively only taxed at the rate of tax paid by the eventual recipient of the dividend. Where a double taxation system exists, the additional tax burden is often an incentive for smaller businesses to organize in the form of a partnership, limited liability company, or other type of entity that is not separately taxed. Such entities are often called "pass-through entities." In the United States, business corporations owe taxes according to two basic categories. A "C corporation" must pay corporate taxes, while "S corporations" pay no corporate taxes but instead pass profits and losses directly to their owners (the stockholders) who declare such profits and losses as part of their personal taxable income. An S corporation must generally have no more than 100 stockholders, who must be natural persons (not other corporations or entities), must reside in the United States, and must consent to the classification; moreover, the S corporation can only issue a single class of stock. As a result of these restrictions, all publicly traded corporations and many larger close corporations have C corporation status. Certain kinds of investment companies are also exempt from corporate income taxes, provided they distribute almost all of their income to shareholders in the form of dividends or capital gains distributions.

Other commercial entities

Several other forms of business entity exist under the laws of various countries. These include:
- Partnership
- Limited partnership (LP)
- Limited liability partnership (LLP)
- Limited liability company (LLC)
- Sole proprietorship

Quotes

- Corporations have neither bodies to be punished, nor souls to be condemned, they therefore do as they like. —Lord Thurlow
- An ingenious device for obtaining individual profit without individual responsibility. —"Corporation" as defined by Ambrose Bierce in The Devil's Dictionary
- The opinion of the Court, after mature deliberation, is that this [a corporate charter] is a contract, the obligation of which cannot be impaired without violating the Constitution of the United States. —Chief Justice John Marshall, Dartmouth College v. Woodward (1819).

External links

- [http://www.econlib.org/library/Enc/Corporations.html Corporations] — article by Robert Hessen
- [http://www.company-formation-glossary.co.uk Company Formation Glossary]
- [http://www.ukcorporator.co.uk/guidance/G59.php Standard UK Company Formation Configurations]
- [http://www.gangsofamerica.com/ Gangs of America by Ted Nace] — A free book on historical and legal bases of Corporations Category:Business law Category:Corporations law Category:Legal entities Category:Types of companies ko:주식회사 ja:株式会社

Chief Financial Officer

For other uses of the abbreviation "CFO" see CFO (disambiguation) The Chief Financial Officer (CFO) of a company is the corporate officer primarily responsible for managing the financial risks of a business (see External Link below). This executive is also responsible for financial planning and record-keeping. In recent years, however, the role has expanded to encompass communicating financial performance and forecasts to the analyst community. The title is equivalent to finance director, commonly seen in the United Kingdom. The CFO typically reports to the Chief Executive Officer, and is frequently a member of the board of directors.

Background

Whereas a UK Finance Director is commonly a chartered accountant, it has become commonplace for non-accountants to become CFOs in the United States. Indeed, many CFOs have an MBA but no CPA or other accounting qualification. This has been criticised in some quarters as a contributory factor to the wave of accounting scandals seen in the US in 2002. The Sarbanes-Oxley Act of 2002 aims to address this by requiring at least one member of the company's Audit Committee to hold an accounting or finance qualification. By comparison of CEO with CFO as strategic business partner and statutory duties under SEC and Sarbanes-Oxley Act, both are equal ranking top executive and separate posts. Though there is no official industry benchmark, CFOs/Finance Directors of public listed corporations are ex-Big 4 accounting firm professionals, controllership exposure, BS in Accounting, and holder of CPA and or MBA.

Part-Time or Temporary CFO's

A more recent development is for small businsses to hire permanent, part-time CFO's or for medium-sized companies to hire a temporary CFO until a permanent CFO can be hired.

External links

- [http://www.communityharvest.com/Types%20Of%20Risk.htm Financial Risks]
- [http://www.communityharvest.com/compliance_risks.htm Compliance Risks-Sarbanes-Oxley]
- [http://www.communityharvest.com/ Part-Time or Temporary CFO's]
- [http://www.communityharvest.com/Teaching.htm Corporate Governance/Sarbanes-Oxley Seminars] Category:Management occupations Category:Corporate governance

Chief operating officer

A chief operating officer (or COO) is a corporate officer responsible for management of day-to-day activities of the corporation. The COO is one of the highest ranking members of an organization, monitoring the daily operations of the company and reporting to the chief executive officer directly. The COO in some companies is also the president, but they are usually an executive or senior vice president. See also: corporate title, corporate governance, chief information officer, chief knowledge officer Category:Management occupations Category:Corporate governance

Chief Technology Officer

Chief Technical Officer or Chief Technology Officer, usually seen as CTO, is a business executive position whose holder is focused on technical issues in a company. It emerged in the United States in the 1980s as a business-focused extension of the position of Director of R&D. Large research-oriented companies like General Electric, AT&T, and ALCOA created this position to increase the profits yielded from research projects in their laboratories. During the dot-com and computer boom of the 1990s, many companies used the CTO title for their senior technical person. The MIS and IT community often use the title CTO as either synonymous with Chief Information Officer, or as a subordinate to the CIO who is more versed in the technical intricacies of the systems being deployed. There is no uniform application of the title and some confusion is caused when people across domains discuss the role of this person. The role of the CTO varies between companies and industries, but usually relates to technology. The roles include:
- Long term technology direction (strategic)
- Short term technology direction (tactical)
- Business-focused oversight of R&D
- Software used in the corporation

References

- Roger D. Smith, [http://www.ctonet.org/resources/SmithR_CTOStrategy.pdf "The Chief Technology Officer: Strategic Responsibilities and Relationships"], Research Technology Management, July-August, 2003.
- Roger D. Smith, [http://www.ctonet.org/resources/MaximumCTO.pdf "Maximizing the CTO's Contribution to Innovation and Growth",] CTOnet.org.

External links

- [http://www.ctonet.org/ CTO Network: Resource Library]
- [http://ctonet.blogspot.com/ CTO Network Blog] Category:Management occupations

Vice President

:VP also stands for Verb phrase. A vice president is an officer in government or business who is next in rank below a president. The name comes from the Latin vice meaning in place of. In some countries, the vice president is called the deputy president. In American slang, the American Vice President is sometimes referred to as the V. P. or the veep. The spouse of a vice president may be known as the Second Lady or Second Gentleman.

Vice presidents in government

In politics, a vice president is a politician whose primary function is to replace the president on the event of his or her death or resignation. Vice Presidents are often elected jointly with the president as his or her running mate, elected separately, or appointed independently after the president's election. Governments with vice presidents generally have only one person holding this role and generally if the president is not present, dies, resigns, or is otherwise unable to fulfill his job, the vice president will serve as a president. In many presidential systems, the vice president does not wield much day to day political power, but is still considered an important member of the cabinet. Many Vice Presidents in the Americas hold the symbolic position of President of the Senate. The vice president can sometimes assume some of the symbolic and less important functions of president, such as some ceremonial functions and events that the actual president may be too busy to attend; the Vice President of the United States, for example often attends funerals of world leaders on behalf of the president. In this capacity the vice president may thus assume the role of a de facto symbolic head of state, a position which is lacking in a system of government where the powers of head of state and government are fused. Because of the localization of democratic structures and linguistic differances, the vice-presidential position can mean different things in different democracies. In parliamentary systems, most states do not have a vice president but instead name another office-holder, often the chairperson or president of the upper house of parliament or even the prime minister to act as effective vice president. In the Republic of Ireland, a collective vice presidency exists called the Presidential Commission, made up of chairmen of both houses of the Oireachtas (parliament), along with the Irish Chief Justice. In Germany, the de facto vice president is the President of the Bundesrat (upper house) and in France it is the speaker of the Senate. In the Russian Federation, the Prime Minister serves as the de facto vice president, although he has much more power than the Vice President of the United States. In Israel, the situation is somewhat vice versa as the President is the symbolic Head of State and performes the duties commonly assigned to a vice-president, while the Prime Minister is the actual Head of State.

Vice presidents in business

In business, vice-president refers to a rank in senior or middle management. Most companies that use this title generally have large numbers of persons with the title of vice president with different types of vice president (i.e. vice president for finance). A corporate vice-president is rarely "second in line" to succeed the corporate president following death or resignation. Such decisions are usually left up to the board of directors. Category:Titles ko:부통령 ja:副大統領

Comptroller

A comptroller may refer to a royal-household official who examines and supervises expenditures, or a public official who audits government accounts and sometimes certifies expenditures. In the United States the term is similar and is used as the name of the government office of the Comptroller of the Currency. In the US and other countries, a comptroller is also another name referring to a controller, one of the chief financial officers in a corporation charged with managing the cash flows of the organization. The term comptroller is pronounced the same way as controller. Whilst comptroller is often seen as an archaic term, it is still a relatively common way to spell the job description. In the US government, the Comptroller General is the director of the Government Accountability Office (GAO), an agency founded in 1921 to ensure the accountability of the federal government. The title of comptroller is also used in British Politics - the Comptroller of the Household is the title given to a senior Whip. The Comptroller is a senior member of the Royal Household though his duties in this regard are purely nominal. The Comptroller of the Lord Chamberlain's Office, however, is a full-time member of the Royal Household. His duties are concerned with the arrangement of ceremonial rather than of a financial nature. It should be noted that the word "Comptroller", borrowed from French lingusitics, is pronounced without the 'p', making it a homophone to the word 'Controller'.

External links

- [http://www.occ.treas.gov/ US office of the Comptroller of the Currency] Category:Accounting

Board of directors

A board of directors, also called board of trustees, board of governors, board of managers, or board of curators, is a group of individuals who govern the affairs of a corporation. Board members in most legal jurisdictions have specific fiduciary duties whereby they must act for the benefit of the corporation. A board is either self-perpetuating or elected by the members of the corporation. In the case of an incorporated joint-stock company, the board is almost always elected by the members (shareholders) of the company. Individuals can be members of the board of directors of multiple corporations at one time. The main duties of the board are to choose the chief executive officer and other officers to run the day-to-day operations of the corporation and to exercise high-level oversight. Typically corporate boards are involved in issues of ownership, strategy, financing, and mergers and acquisitions. The actual power held by the board of directors varies widely from corporation to corporation. In some, the board of directors form a powerful body to which senior management is subservient. Other times, the board is a formality which merely rubber stamps decisions of the CEO and senior management. The board is run by the chairman of the board. Often the CEO serves concurrently as the chairman. Some hold that this is inappropriate in a publicly-traded joint-stock company, for, they contend, it gives management too much power over the board, which is supposed to provide oversight of management. Larger boards are partitioned into several committees with specific tasks. For example, a compensation committee is commonly formed to make decisions regarding salary and stock allocations for top management (and sometimes for the entire employee pool). Others might include an audit committee, a legal affairs committee, and a mergers and acquisitions committee. A board will often consist of executive and non-executive directors. Executive directors play an active part in running the company, while non-executive directors are only there to offer advice. It is widely considered good management practice to create a board of directors with persons with expertise from diverse backgrounds and to have outside directors or non-executive directors who can provide a perspective on a situation which is independent from management. For example it is extremely common for a good percentage of the boards of most large corporations to be from academia, especially business schools. Sometimes relatives of powerful politicians are selected to serve on boards, such as when Hillary Clinton served on the board at Arkansas-based Wal-Mart while her husband, Bill, was Governor of Arkansas.

Failures

While the primary responsibility of boards is to ensure that the corporation's management is performing its job correctly, actually achieving this in practice can be difficult. In a number of "corporate scandals" of the 1990s, one notable feature revealed in subsequent investigations is that boards were not aware of the activities of the managers that they hired, and the true financial state of the corporation. A number of factors may be involved in this tendency:
- Most boards largely rely on management to report information to them, thus allowing management to place the desired 'spin' on information, or even conceal or lie about the true state of a company.
- Boards of directors are part-time bodies, whose members meet only occasionally and may not know each other particularly well. This unfamiliarity can make it difficult for board members to question management.
- CEOs tend to be rather forceful personalities. In some cases, CEOs are accused of exercising too much influence over the company's board.
- Directors may not have the time or the skills required to understand the details of corporate business, allowing management to obscure problems.
- The same directors who appointed the present CEO oversee their performance. This makes it difficult for some directors to dispassionately evaluate the CEO's performance.
- Directors often feel that a judgement of a manager, particularly one who has performed well in the past, should be respected. This can be quite legitimate, but poses problems if the manager's judgement is indeed flawed.
- All of the above may contribute to a culture of "not rocking the boat" at board meetings. Because of this, the role of boards in corporate governance, and how to improve their oversight capability, has been examined carefully in recent years, and new legislation in a number of jurisdictions, and an increased focus on the topic by boards themselves, has seen changes implemented to try and improve their performance.

Sarbanes-Oxley Act

The Sarbanes-Oxley Act (SOX) has introduced new standards of accountability on the board of directors. Members now risk large fines and prison sentences in the case of accounting crimes. Internal controls are now the direct responsibility of directors. This means that the vast majority of public companies now have hired internal auditors to ensure that the company adheres to the highest standards of internal controls. Additionally, these internal auditors are required by law to report directly to the audit board. This group consists of board of directors members where more than half of the members are outside the company and one of those members outside the company is an accounting expert.

Corporate governance

Corporate governance is the set of processes, customs, policies, laws and institutions affecting the way a corporation is directed, administered or controlled. Corporate governance also includes the relationships among the many players involved (the stakeholders) and the goals for which the corporation is governed. The principal players are the shareholders, management and the board of directors. Other stakeholders include employees, suppliers, customers, banks and other lenders, regulators, the environment and the community at large. Corporate governance is a multi-faceted subject. An important part of corporate governance deals with accountability, fiduciary duty and mechanisms of auditing and control. In this sense, 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) as well as externally (national institutional frameworks). In this "economic view", the corporate governance system should be designed in such a way as to optimize results. Some argue that the firm should act not only in the interest of shareholders, but also of all the other stakeholders. Recently there has been considerable interest in the corporate governance practices of modern corporations, particularly since the high-profile collapses of firms such as Enron Corporation.

Definition

The term corporate governance has come to mean many things. It may describe:
- the processes by which companies are directed and controlled
- encouragement of companies' compliance with codes (as in corporate governance guidelines)
- investment technique based on active ownership (as in corporate governance funds)
- a field in economics, which studies the many issues arising from the separation of ownership and control At its broadest, corporate governance encompasses the framework of rules, relationships, systems and processes within and by which fiduciary authority is exercised and controlled in corporations. Relevant rules include applicable laws of the land as well as internal rules of a corporation. Relationships include those between all related parties, the most important of which are the owners, managers, directors of the board (when such entity exists), regulatory authorities and to a lesser extent employees and the community at large. Systems and processes deal with matters such as delegation of authority, performance measures, assurance mechanisms, reporting requirements and accountabilities. In this way, the corporate governance structure spells out the rules and procedures for making decisions on corporate affairs. It also provides the structure through which the company objectives are set, as well as the means of attaining and monitoring the performance of those objectives. Issues of fiduciary duty and accountability are often discussed within the framework of corporate governance. Whilst the term has a descriptive content, it is commonly used in an aspirational sense, by way of holding out a model which practice should seek to emulate. Reference can be made in this regard to various statements of corporate governance principles or guidelines, both hortatory and prescriptive. As a result of the separation of stakeholder influence from control in modern organisations, 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 organisation to be more fully informed in order to maintain or alter organisational activity. Primarily though, corporate governance is the mechanism by which individuals are motivated to align their actual behaviours with the overall corporate good (ie maximum aggregate value generated by the organisation and shared fairly amongst all participants).

History

In the 19th century, state corporation law enhanced the rights of corporate boards to govern without unanimous consent of shareholders in exchange for statutory benefits like appraisal rights, in order to make corporate governance more efficient. Since that time, and because most large publicly traded corporations in America are incorporated under corporate administration friendly Delaware law, and because America's wealth has been increasingly securitized into corporate entities, the rights of owners and shareholders have become derived and dissipated. The concerns of shareholders over administration pay and stock losses periodically has led to more frequent calls for Corporate Governance reforms. In the first half of the 1990's the issue of corporate governance received considerable press attention due to the wave of CEO dismissals (e.g.: IBM, Kodak, Honeywell) by their boards. CALPERS led a wave of shareholder activism, as a way to ensure that value would not be destroyed by the traditionally cozy relationship between the CEO and the boards of directors. In the second half of the 1990's, during the Asian financial crisis, a lot of the attention fell into the corporate governance systems of the developing world.

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 Chief Executive Officer, the board of directors, management and shareholders. Other stakeholders who take part include suppliers, employees, creditors, customers and the community at large. In corporations, the principal (shareholder) delegates decision rights to the agent (manager) to act in the principal's best interests. This separation of ownership from control implies a loss of effective control by shareholders over managerial decisions. Partly as a result of this separation between the main two parties, a system of corporate governance controls is implemented to assist in aligning the incentives of managers with those of shareholders, in order to limit the self-satisfying opportunities for managers. With the significant increase in equity holdings of institutional investors, there has been an opportunity for a reversal of the separation of ownership and control problems because ownership is not so diffuse. A board of directors often plays a key role in corporate governance. It is their responsibility to endorse the organisation's strategy, develop directional policy, appoint, supervise and remunerate senior executives and to ensure accountability of the organisation to its owners and authorities. Individuals may be members of the board of directors of multiple corporations. All parties to corporate governance have an interest, whether direct or indirect, in the effective performance of the organisation. 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 forms of capital. A key factor in an individual's decision to participate in an organisation (e.g. through providing financial capital or expertise or labor) is trust that they will receive a fair share of the organisational returns. If some parties are receiving more than their fair return (e.g. exorbitant executive remuneration), then participants may choose to not continue participating...potentially leading to organisational collapse (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 organisation. Of importance is how directors and management develop a model of governance that aligns the values of the corporate participants and then evaluate this model periodically for its effectiveness. 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: Organisations should respect the rights of shareholders and help shareholders to exercise those rights. They can help shareholders exercise their rights by effectively communicating information that is understandable and accessible and encouraging shareholders to participate in general meetings.
- Interests of other stakeholders: Organisations should recognise that they have legal and other obligations to all legitimate stakeholders.
- Role and responsibilities of the board: The board needs a range of skills and understanding - to be able to deal with various business issues and have the ability to review and challenge management performance. It needs to be of sufficient size and have an appropriate level of commitment to fulfill its responsibilities and duties. There are issues about the appropriate mix of executive and non-executive directors. The key roles of chairperson and CEO should not be held by the same person.
- Integrity and ethical behaviour: Organisations should develop a code of conduct for their directors and executives that promotes ethical and responsible decision making. It is important to understand, though, that systemic reliance on integrity and ethics is bound to eventual failure.
- Disclosure and transparency: Organisations should clarify and make publicly known the roles and responsibilities of board and management to provide shareholders with a level of accountability. They should also implement procedures to independently verify and safeguard the integrity of the company's financial reporting. Disclosure of material matters concerning the organisation should be timely and balanced to ensure that all investors have access to clear, factual information. Issues involving corporate governance principles include:
- oversight of the preparation of the entity's financial statements
- internal controls and the independence of the entity's auditors
- review of the compensation arrangements for the chief executive officer and other senior executives
- the way in which individuals are nominated for positions on the board
- the resources made available to directors in carrying out their duties
- oversight and management of risk

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' behaviour, an independent third party (the auditor) attests the accuracy of information provided by management to investors. An ideal control system should regulate both motivation and ability.

Internal corporate governance controls

Internal corporate governance controls monitor activities and then take corrective action to accomplish organisational goals. Examples include:
- Monitoring by the board of directors: The board of directors, 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. Different board structures are optimal for different firms. Moreover, the ability of the board to monitor the firm's executives is a function of its access to information. 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 performance outcomes, ex ante. It could be argued, therefore, that executive directors look beyond the financial criteria.
- 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 behaviour, and can elicit myopic behaviour.
- Audit committees

External corporate governance controls

External corporate governance controls encompass the controls external stakeholders exercise over the organisation. Examples include:
- debt covenants
- external auditors
- government regulations

Systemic problems of corporate governance

- Supply of accounting information: Financial accounts form a crucial link in enabling providers of finance to monitor directors. Imperfections in the financial reporting process will cause imperfections in the effectiveness of corporate governance. This should, ideally, be corrected by the working of the external auditing process, but lack of auditor independence may prevent this.
- Demand for information: A barrier to shareholders using good information is the cost of processing it, especially to a small shareholder. The traditional answer to this problem is the efficient market hypothesis, which suggests that the small shareholder will free-ride on the judgements of larger professional investors. However, there is an expanding empirical literature on apparent departures from this.
- Monitoring costs: In order to influence the directors, the shareholders must combine with others to form a significant voting group which can pose a real threat of carrying resolutions or appointing directors at a general meeting. The costs of combining in this way might well be prohibitive relative to the benefits.

Role of the accountant

Financial reporting is a crucial element necessary for the corporate governance system to function effectively. Accountants and auditors are the primary providers of information to capital market participants. The directors of the company should be entitled to expect that management prepare the financial information in compliance with statutory and ethical obligations, and rely on auditors' competence. Current accounting practice allows a degree of choice of method in determining the method of measurement, criteria for recognition, and even the definition of the accounting entity. The exercise of this choice to improve apparent performance (popularly known as creative accounting) imposes extra information costs on users. In the extreme, it can involve non-disclosure of information. One area of concern is whether the accounting firm acts as both independent auditor and management consultant to the firm they are auditing. This may result in a conflict of interest which places the integrity of financial reports in doubt due to client pressure to appease management. The power of the corporate client to initiate and terminate management consulting services and, more fundamentally, to select and dismiss accounting firms contradicts the concept of an independant auditor. The Enron collapse is an example of misleading financial reporting. Enron concealed huge losses by creating illusions that a third party was contractually obliged to pay the amount of any losses. However, the third party was an entity in which Enron had a substantial economic stake. In discussions of accounting practices with Arthur Andersen, the partner in charge of auditing, views inevitably led to the client prevailing. However, good financial reporting is not a sufficient condition for the effectiveness of corporate governance if users don't process it, or if the informed user is unable to exercise a monitoring role due to high costs (see Systemic problems of corporate governance above).

Regulation

See regulation.

Self-regulation

Rules versus principles

Rules are typically thought to be simpler to follow than principles, demarcating a clear line between acceptable and unacceptable behaviour. 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.

Enforcement

Enforcement can affect the overall credibility of a regulatory system. They both deter bad actors and level the competitive playing field. Nevertheless, greater enforcement is not always better, for taken too far it can dampen valuable risk-taking.

Corporate governance models around the world

There are many different models of corporate governance around the world. These differ according to the variety of capitalism in which they are embedded. 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 board of directors, which has the power to choose an executive officer, usually known as the chief executive officer. The CEO 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 board of directors is nominally selected by and responsible to the shareholders, 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 in the developed world, with board members beholden to the chief executive whose actions they are intended to oversee. Frequently, members of the boards of directors 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, institutional investors, or associations (institutes) of directors and managers 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. For example, companies quoted on the London and Toronto 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 a significant 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, however, may have a wider multiplying effect prompting other companies to adopt similar documents and standards of best practice.

Corporate governance and firm performance

In its 'Global Investor Opinion Survey' of over 200 institutional investors first undertaken in 2000 and updated in 2002, 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 out-side directors, who had no management ties, 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 backdrop was least certain (those in Morocco, Egypt and Russia). Other studies have linked broad perceptions of the quality of companies to superior share price performance. In a study of five year cumulative returns of Fortune Magazine's survey of 'most admired firms', Antunovich et al 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. On the other hand, research into the relationship between specific corporate governance controls and firm performance has been mixed and often weak. The following examples are illustrative.

Board composition

Some researchers have found support for the relationship between frequency of meetings and profitability. Others have found a negative relationship between the proportion of external directors and firm performance, while others found no relationship between external board membership and performance. In a recent paper Bagahat and Black found that companies with more independent boards do not perform better than other companies. It is unlikely that board composition has a direct impact on firm performance.

Remuneration

The results of previous research on the relationship between firm performance and executive compensation have failed to find consistent and significant relationships between executives' remuneration and firm performance. Low average levels of pay-performance alignment do not necessarily imply that this form of governance control is inefficient. Not all firms experience the same levels of agency conflict, and external and internal monitoring devices may be more effective for some than for others. Some researchers have found that the largest CEO performance incentives came from ownership of the firm's shares, while other researchers found that the relationship between share ownership and firm performance was dependent on the level of ownership. The results suggest that increases in ownership above 20% cause management to become more entrenched, and less interested in the welfare of their shareholders. Firm performance has been found to be positively associated with share option plans. These plans direct managers' energies and extend their decision horizons toward the long-term, rather than the short-term, performance of the company.

Attention to corporate governance

Corporate governance issues are receiving greater attention in both developed and developing countries as a result of the increasing recognition that a firm’s corporate governance affects both its economic performance and its ability to access long-term, low-cost investment capital. In response to calls by OECD ministers, a revised version of its "Principles of Corporate Governance" was produced in 2004. Numerous high-profile cases of corporate governance failure have focused the minds of governments, companies and the general public on the threat posed to the integrity of financial markets, although it is not clear that any system will or should prevent business failures, or that it is possible to provide a guarantee against fraud. Corporate Governance concerns have been widely studied. For the United States, an analysis of these concerns has been published by the New York Society of Securities Analysts in their 2003 Corporate Governance Handbook. What constitutes good and bad corporate governance is an on-going debate in politics, civil society, and academia. For an international survey of the scientific literature see [http://ssrn.com/abstract=343461 Becht, Bolton and Roell 2002]. The OECD publishes an annual paper on corporate governance. First issued in 1999, this paper has provided the framework for regional corporate governance roundtables in cooperation with the World Bank around the world. It has been endorsed as one of the Financial Stability Forum's 12 key standards, and form the basis for the World Bank's Review of Observance of Standards and Codes.

Foot notes

- [http://theyrule.net Theyrule.net]
- [http://www.oecd.org/dataoecd/32/18/31557724.pdf OECD Principles of Corporate Governance]

References

- Becht, Marco, Bolton, Patrick and Roell, Ailsa A., "Corporate Governance and Control" (October 2002). ECGI - Finance Working Paper No. 02/2002. [http://ssrn.com/abstract=343461 SSRN 343461]
- Brickley, James A., William S. Klug and Jerold L. Zimmerman, Managerial Economics & Organizational Architecture, ISBN 0072828099
- [http://en.wikipedia.org/wiki/Sir_Adrian_Cadbury Cadbury, Sir Adrian], "The Code of Best Practice", Report of the Committee on the Financial Aspects of Corporate Governance, Gee and Co Ltd, 1992.
- [http://en.wikipedia.org/wiki/Sir_Adrian_Cadbury Cadbury, Sir Adrian], "Corporate Governance : Brussels", Instituut voor Bestuurders, Brussels, 1996.
- [http://en.wikipedia.org/wiki/Thomas_Clarke Clarke, Thomas] (ed.) (2004) "Theories of Corporate Governance: The Philosophical Foundations of Corporate Governance," London and New York: Routledge, ISBN 041532307X
- [http://en.wikipedia.org/wiki/Thomas_Clarke Clarke, Thomas] (ed.) (2004) "Critical Perspectives on Business and Management: 5 Volume Series on Corporate Governance - Genesis, Anglo-American, European, Asian and Contemporary Corporate Governance" London and New York: Routledge, ISBN 0415329108
- Colley, J., Doyle, J., Logan, G., Stettinius, W., What is Corporate Governance ? (McGraw-Hill, December 2004) ISBN 0071444483
- [http://en.wikipedia.org/wiki/Frank_Easterbrook Easterbrook, Frank H.] and Daniel R. Fischel, The Economic Structure of Corporate Law, ISBN 0674235398
- Erturk, Ismail, Froud, Julie, Johal, Sukhdev and Williams, Karel (2004) Corporate Governance and Disappointment Review of International Political Economy, 11 (4): 677-713.
- Monks, Robert A.G. and Minow, Nell, Corporate Governance (Blackwell 2004) ISBN 1405116986
- Monks, Robert A.G. and Minow, Nell, Power and Accountability (HarperBusiness 1991), full text available [http://www.thecorporatelibrary.com/power/contents.html online]
- New York Society of Securities Analysts, 2003, Corporate Governance Handbook, [http://www.nyssa.org/Template.cfm?Section=corp_gov_com&Template=/TaggedPage/TaggedPageDisplay.cfm&TPLID=3&ContentID=499]
- [http://en.wikipedia.org/wiki/OECD OECD] (1999, 2004) Principles of Corporate Governance Paris: OECD
- Whittington, G. "Corporate Governance and the Regulation of Financial Reporting", Accounting and Business Research, Vol. 2, 1993, Corporate Governance Special Issue, pp. 311-319.

Corporate officer

See also

Manager

Historical development

19th century

20th century

21st century

Nature of the work

Areas of management

See also

Lists

Corporation

Legal status

Ownership and control

Formation

Naming

Unresolved issues

Origins

Etymology

Pre-modern corporations

Development of modern commercial corporations

Types of corporations

For-profit and non-profit

Closely-held and public

Multinational corporations

National features

United States

Canada

German-speaking countries

See also

Corporate taxation

Other commercial entities

Quotes

Further reading

See also

Lists

Documentary

External links

Chief Financial Officer

Background

Part-Time or Temporary CFO's

External links

Chief operating officer

Chief Technology Officer

References

External links

Vice President

Vice presidents in government

Vice presidents in business

Comptroller

See also

External links

Board of directors

Failures

Sarbanes-Oxley Act

See also

Corporate governance

Definition

History

Parties to corporate governance

Principles

Mechanisms and controls

Internal corporate governance controls

External corporate governance controls

Systemic problems of corporate governance

Role of the accountant

Regulation

Self-regulation

Rules versus principles

Enforcement

Corporate governance models around the world

Codes and guidelines

Corporate governance and firm performance

Board composition

Remuneration

Attention to corporate governance

Foot notes

References

See also