Corporate Governance and Business Ethics (Essay Sample)

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Module Title : Corporate Governance and Business Ethics
Assessment : Individual Assignment
Date : 07th of May, 2014

Question 1
The importance of corporate governance is to necessitate effective and prudent management that will deliver long term success to the business (Richard 2006, p. 15). Corporate governance is the system where the companies are directed and controlled. According to the UK corporate governance code (2012), the board of directors is responsible for facilitating acceptable code of corporate governance. The shareholders role in corporate governance is to appoint directors and auditors who will ensure the company is in compliance with the regulations.
Tesco PLC in UK is dedicated to operating within the values expected in its capacity. This enables identification of commercial risks that are dealt with. The code of governance of Tesco PLC in 2013 has not significantly changed from the one of the year 2012. The approach to corporate governance is not using a set code of rules but developing a framework to determine what is acceptable or not.
The backbone of every company is having a strong Board. The board of Tesco PLC is usually committed to providing the required standards of corporate governance. The board of governance of Tesco comprises of two executive directors. It also comprises eight independent non-executive directors and the Chairman. The board meets once every month. The board is committed to achieving strategic goals of the company to acceptable standards.
The board of Tesco PLC has various functions. The board makes approval of the financial statements of the company. The board authorises major sales, acquisitions, approves expenditure and makes risk management policies. The board also plans major succession plans in management (Khalid, 2011).
Tesco PLC has an Audit Committee which meets at least three times a year. The Audit committee engages the Board in reviewing the fairness of the financial statements of the Company. The audit committee also formulates the internal control of the Company. It also reviews and approves the accounting policies of the Company.
The Company also has a remuneration Committee is formed by entirely non-executive directors chaired by Baroness O’Çathain. The remuneration committee addresses matters of remuneration policies of directors, incentives, compliance, benefits and profit sharing.
The UK Corporate Governance Code (the ‘Code’) has the provisions of how a company should be set in order to achieve the set standards of good corporate governance. This code was revised in the year 2012 with greater focus on the company diversifying in achieving good corporate governance. In the year 2012/2013, the board considers that Tesco PLC has complied with the set corporate governance standards set in the Code.
Question 2
Tesco PLC receives an annual report on corporate governance. The report ensures the company improves on its performances on corporate governance. The company has many governance issues such as the board, remuneration committee and audit committee.
The role of the Board of Tesco PLC is to make sure that the supermarket achieves the laid down strategic goals. It also promotes high standards of corporate governance. Through the Chairman, the board is mandated to develop and maintain an effective board. This is by ensuring competence directors are employed. Annually, the directors are appraised and awarded based on their performance.
The board of governors has a responsibility in addressing the internal controls of the company. The implementation and execution of internal controls are the responsibilities of the internal management. The board, through the Audit Committee, checks the strength, efficiency and effectiveness of these internal controls. The internal controls are assumed to be reasonable but not absolute in preventing material misstatements of the financial statements (Tricker, 2009).
The audit committee determines the effectiveness of the internal controls by looking at several factors. The financial framework of the company needs to be on point. Tesco has laid out financial structures that ensure fair preparation of accounting statements. The layout is such that monthly and yearly forecasts are reviewed against the actual figures. Variances arising are well addressed.
The company ensures strength in internal controls by drafting effective processes and procedures. The group has an employee base of 153, 000 and over 1,200 senior management officers. Formal policies exist which guides the management of the company. These policies are meant to eliminate significant risks that the Company may be exposed to. These policies are in line with the compliance audit.
Tesco PLC has an internal audit function which focuses on high risk areas. Areas with high risk are identified, and adequate control measures are taken to address these risks. The internal audit function updates the audit committee on a regular basis. The audit function of the company is also strengthened by the external auditors. The company hires reputable external auditors from credible firms such as Price Water Coopers (Tesco Plc, 2013). These are independent parties that give a fair view of the financial affairs of the company. They also assess the strength of internal controls.
The company has a remuneration committee reports on remuneration packages of directors and staff. Among its duties includes monitoring the contract periods of directors. The remuneration committee ensures the salary packages aligns with the responsibility of the directors. The remuneration is dependent on the financial performance of the group. It is also determined by retaining of management (Wheeler and Maria, 1997).
The salaries of the directors are reviewed every year by the committee. The remuneration of the directors includes the basic salary and benefits. The benefits include car, health, disability and health insurance benefits. Copies of employment contracts of the directors are always available for viewing by the shareholders. The competitive nature of the industry enables the company des the appraisals with assistance of two external independent surveyors.
The directors are also entitled to executive incentive plan. The scheme was introduced in March 1993. The scheme comprises of both long term and short term share bonuses. The long term bonus shares are determined by the earnings per share. They are also determined by the achievement of corporate strategic goals. The performance of the company in relative to peer companies is also a determinant. The maximum percentage for long term bonuses is 25% of the salary (Tesco Plc, 2013).
Short term bonuses are also awarded annually based on the same determinants as those of short term bonuses. The maximum percentage is 25 % that can be increased by a further 12.5%. The remuneration committee sets a performance target for criteria of awarding of each of the incentive scheme (Tesco Plc, 2013). The committee confirms attainment of the performance and ensures proper administration of each of the schemes.
Question 3
CSR is a strong business tool. It is described as the commitment of a business entity in improving the economic and social status of the society. It also involves working with employees, their families and the society in general to raise the quality of life. CSR can also be described as a situation where an organization integrates with the community to develop their social, economic and environmental concerns on a voluntary basis. CSR describes the positive impact made by businesses to the society. It is the way organizations respond to economic and environmental imbalances in the society.
By the definition of CSR, Tesco PLC has adopted various CSR strategies in line with the literature as part of its business core values. The social reporting policies of the company compares well with the literature reviews that have been formulated.
Tesco PLC has a CSR committee that ensures the board achieves the required level of corporate responsibility. The key responsibilities of the committee are set out in the terms of reference. Tesco PLC has developed social practices that are directed to the community, workplace, market, environment and health. The Board of Tesco receives an annual report on the Company’s CSR achievements from this committee (Tesco Plc, 2013).
In terms of the community, Tesco has created a special support for children. Tesco has created a community based programs that support children. These create a peaceful environment to operate.
Tesco has maintained high ethical standards with its suppliers. The company encourages long term relationship with its business partners such as suppliers. The company encourages transparency and accountability to ensure suppliers continue providing the required quality products and services. The company also does this to encourage competitive bidding and pricing.
The company promotes the health of its customers by addressing their choices. This is by providing a wide variety of goods and services. Their slogan is: Be inclusive by: which means that the company will continue providing a wide variety of goods to its customers. The company is also innovative in providing new products, new developments and technology. This ensures customers can choose from a wide range of products for different prices and quality.
Tesco provides its employees the opportunity to improve their skills through trainings and development programs. The employees are also motivated through rewards, benefits, bonuses in accordance to their performances. Tesco encourages employees’ feedback from it team. Employees are also motivated by joining pension schemes and save as you earn scheme.
Question 4
Tesco PLC is one of...