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Business Studies Essay

Nature of Board Level decisions and the contribution of the finance director

The performance of any organization, may it be for profit or not for profit, heavily depends on the decisions that are made by the management of the organization. It is worth noting that decisions made in the organization differ greatly, depending on the position of those involved in making those decisions. The board is one body that plays a crucial role in determining the future of an organization, based on the nature of the decisions that they make. A board refers to a group of individuals who have been legally accorded the responsibility of governing an organization. Another key player in decision making is the finance director. Unquestionably, financial resources are one of the key resources for any organization, and for that reason, the contributions of the finance director influences the decisions that are undertaken or rather formulated by the board of directors. This easy seeks to critically analyze the nature of board level decisions as well as the contribution made by the finance director in the formulation of these decisions.

Composition of board members varies from one organization to another, depending on its nature as well as its objectives. Despite of these variations, the decisions made at the board level tend to be similar in one way or another. Being at the top in managerial rank in the organization, the nature of decisions that are made by the board varies a lot, as these decisions affect the organization in all perspectives, (Christopher, 2004). For instance, decisions made by the board influences the way the particular organization will be managed. The board is responsible for the selection and appointment of the chief executive, who is accorded the mandate to carry out administration duties in the organization. It is the duty of the board to determine how their organization is managed by for instance, reviewing and evaluating the performance of the chief executive on a regular basis based on leadership of the organization, planning and implementation of these plans, as well as management of the workforce. To some extent, the board also provides administrative guidance to the chief executive. Thus, one of the characteristics of the decisions that are made at the board level is that, these decisions influences the governance or rather management of the organization by the chief executive, (Bruce & Alexander, 2002).

Another characteristic of the decisions made at the board level is that, they influence the policies and objectives of the organization in general. Together with the chief executive, the board makes decisions on organization policies and objectives that are aimed at the general growth of the organization. They are also responsible for changing policies depending on the situations that the organization is facing. Some of the decisions made at the board level concerning organizational policies and objectives include assigning priorities as well as ensuring the capacity of the organization to undertake services/products/programs by a continuous review of its work, (Iti, 2009).

One of the responsibilities of the board is to ensure that there are adequate resources and that these resources are managed effectively. Therefore, another characteristics made at the board level is that they are always focused to resource acquisition and management. For instance, at one point the organization may be facing financial challenges which require considering alternative sources of funds. Some of the available options may include using external sources of funds such as a loan from a financial institution, or using internal sources such as increasing the share capital, (Soo, 2011). The board is obligated to give the final decision on the best alternative, based on the short-term and long-term objectives of the organization. Besides making decisions on acquisition of resources, the board also has to come up with the best ways in which these resources are going to be utilized. Therefore, they must make decisions which will ensure accountability and efficient use of the resources.

Lastly but not least, the board is responsible for making final investment decisions. In almost all organizations, the board is mandated to review programs that have been proposed by the chief executive. This review incorporates investment decisions that are being proposed by the chief executive and his/her team, as well as the expenses that are expected to be incurred in implementing the investment program. The final decision on the implementation of investment projects lies on the board. The decisions they make in this case will depend on the financial position of the company, the expected returns, the costs to be incurred in the process, and more importantly, the risks that are associated with the proposed investment program. Based on these factors, the board may decide to support the investment or decline this proposal. Thus, the other nature of the board level decisions is that they influence the investment programs in their organizations.

Finally, as mentioned above, financial resources are very crucial in any organization, and the contribution of the financial director in decision making is very vital. The financial director is an individual who has been given the responsibility to manage financial risks of an agency or business. He/she is also given the mandate to undertake financial planning, reporting as well as record-keeping on behalf of the higher management. Therefore, the contribution of the financial director in decision making more especially at the board level decision making is very vital. Any investment and financial decisions to be made by the board are based on the financial reports that have been prepared by the financial director. Through these reports, the board decides whether to or not to ratify use of alternative sources of financing investments, as well as the impacts of any investment on the organization in general.

Role of corporate governance in a company listed on London stock market

Arguably, corporate governance is an important part of any company. It entails various processes, laws, policies, customs, as well as institutions which influence the way a company is controlled. A crucial subject matter of corporate governance is the character and scope of people’s accountability in business, as well as the means of decreasing the principal-agent problem. It also incorporates the relationship among stakeholders involved as well as the goals for which the company is managed. Stakeholders involved in corporate governance can be broadly classified into two categories: external stakeholders and internal stakeholders. External stakeholders include communities impacted by activities of the corporation, customers of the corporation, suppliers, trade creditors, debtors, and the shareholders, (FRC 2010). On the other hand, internal stakeholders include the employees, executives, and the board of directors. There are various rules and regulations that have been set by the government as well as the stock markets on how corporate governance in any given corporation should be undertaken. These rules and regulation have been stipulated in the various codes and corporate governance principles. For instance, there are specific rules and regulations which have to be followed for companies that have been listed on the London Stock Market. This essay will be focused on discussing the various roles of corporate governance in a company listed on the main London Stock Market (LSM).

The role of corporate governance in companies listed on London Stock Market covers five broad areas: auditing, ownership structure and exercise of control rights, financial transparency and information disclosure, corporate responsibility and compliance, and lastly, board and management structure and process. In connection to the board and management structure and process, every corporation listed on LSM should be headed by a board which will be charged with the long-term success of the corporation. A clear division of the responsibilities of the executive and the board should be drawn, in running the business of the company. Moreover, the board should be under the leadership of the chairman, who ensures its efficiency of its role in all aspects, (FRC 2010). To ensure effectiveness of the board, there should be suitable experience, skills, independence as well as knowledge of the company in both the board and its committees. Corporate governance should also ensure that new directors of the board are appointed through a transparent, rigorous and formal process. For efficient discharge of duties, it is the role of corporate governance to ensure that the board is supplied with information in a timely manner. Lastly, through corporate governance, a good relationship between the board and the shareholder should be enhanced. The progress of the business of the company is communicated to the shareholders during the Annual General Meeting called for by the board of directors, (Pol, Jeffrey, and Howard, 2010).

There other role of corporate governance is ensuring that there is financial transparency and information disclosure in the company. The LSM has set rules and regulations that should be followed to ensure that there is accountability in the governance of companies. As part of these rules and regulations, it is a requirement for companies to prepare annual financial reports that represents are fair and a representative of the position of the company at a given time. These reports should be produced on half-yearly and annual basis. The main objective of these reports is to assure the stakeholders of the company the business is a going concern, based on various supporting assumptions, (Christopher, 2004). Additionally, disclosing of material involving the company should be made at in a timely manner to guarantee that investors will access clear and factual information. Company auditing is yet another function of corporate governance. The roles as well as responsibilities of auditing committee should be outlined in a written form, which may include monitoring the truthfulness of the financial statements of the corporation, appraising internal financial controls of the company, keeping an eye on and reviewing the efficiency of the internal audit function of the company, and reviewing and monitoring the independence of the external auditor as well as the impartiality and efficiency of the auditing process, ( Peter & Krisztina, 2011).

Corporate responsibility and compliance is also part of corporate governance in a company. In the corporate governance code of London Stock Market, there are defined standards that should be followed or adhered to concerning ethics in the course of their business. These are aimed at enhancing companies to carry out their business in a responsible and ethical manner, respecting not only the employees and the customers, but also the environment, (Berghe, 2005). Through effective corporate governance, companies are required to implement programs that could promote compliance, to ensure that the companies operate within an ethical and legal framework. Companies educate their employees concerning the code of ethics that have been set, to avoid ethical and legal violations. Hence, corporate governance in companies that have listed on main London Stock Market have a pivotal role to play in ensuring that corporate responsibility and compliance within the company meet the ethical and legal standards that have been set.

In conclusion, it is undeniable that corporate governance is very vital in any company. Basically, it is concerned with the various processes, laws, policies, customs, as well as institutions which influence the way a company is controlled. For the case of companies that have been listed on the main London Stock Market, corporate governance ensures that companies are governed according to the rules and regulations that have been set. The role of corporate governance in these companies broadly covers the following major areas: auditing, ownership structure and exercise of control rights, financial transparency and information disclosure, corporate responsibility and compliance, and lastly, board and management structure and process, (Christopher, 2004). Generally, through corporate governance, companies are managed within the legal and ethical framework, as well as reducing conflicts that are associated with principal-agent relationships.

Personal learning outcomes from this assignment and their impact on my future career

I would have to admit that by undertaking this assignment, I have come across a number of things that will have considerable impact on my career in the future. To begin with, I have realized that in any organization, boards are very influential on the way the organization is managed. Being the final decision makers in the hierarchy of organizational management, they determine the direction that an organization is likely to follow. As noted above, another important person in an organization is the financial director. To some extent, contributions of the financial director form the basis of board level decisions. Based on the relationship of the board and the financial director, I have learnt these two parties must work hand in hand in the organization. This implies that, organizations can only succeed when all the stakeholders in the managerial positions are involved in decision making. This has had a positive impact on my future career, as I am aware of the importance of shared decision making.

Board level decisions vary in various ways. However, the most interesting thing is the way these decisions are reached. From this assignment, I have become aware of the procedures that are supposed to be followed while making decisions not only at an organizational level, but any decision making in general. It is evident that decision making is never a one step process, but it entails a lot of consultation to make what is perceived to be the right decision from the available alternatives. Based on this, my decision-making techniques as well as problem-solving techniques have improved considerably. It is no possible for me to approach decision-making at the personal level, with minimal challenges. Moreover, this lesson will definitely have an impact on the way I will be making decisions in my leadership career.

In conclusion, corporate governance is another area that I have dealt with in this assignment. There are various benefits that an organization can achieve by having good corporate governance. Generally, corporate governance can be described in terms of the relationship between shareholders, company management, stakeholders, as well as the board. Lately, this concept has gained popularity, as globalization led to increase of the complexity and volume of trade, leading to difficulties in controlling external factors. Some of the befits that are likely to be attained through good corporate governance include ensuring corporate success and growth of the company, maintaining the confidence of the investors enhancing chances of the company to increase capital effectively and efficiently, lower cost of capital, reduces corruption, wastages, mismanagement and risks, and finally, brand formation as well as development. Thus, my perception of corporate governance has been improved significantly. In the context of my future career, corporate governance will play a major role on the way I will be making decisions affecting my organization.

Reference List

Christopher, P. 2004. “Corporate governance and the role of non-executive directors in large UK

Companies: an empirical study”, Corporate Governance, Vol. 4 Iss: 2, p

Financial Reporting Council (FRC). 2010. The UK Corporate Governance Code. London

Iti, B. 2009. “Corporate governance and law-role of independent directors: theory and practice in

UK”, Social Responsibility Journal, Vol. 5 Iss: 1, pp.94 – 111

Bruce, C, & Alexander, K. 2002. “Evaluating corporate board cultures and decision

making”, Corporate Governance, Vol. 2 Iss: 2, pp.27 – 45

Berghe, T. B. (2005) “The complex relation between director

independence and board effectiveness”, Corporate Governance, Vol. 5 Iss: 5, pp.58 – 83

Peter, H,. & Krisztina, B. 2011 “Corporate Governance Variables: lessons from a holistic

approach to Central-Eastern European practice”, Corporate Governance, Vol. 12 Iss: 1

Pol, H,. Jeffrey, K,. and Howard, A. 2010 “The role of corporate governance in R&D intensity of

UK-based international firms”, International Journal of Commerce and Management, Vol. 20 Iss: 2, pp.91 – 108

Soo, W. K. 2011 “The quality impact of governance change on board decision making”,

UK Journal on Quality, Vol. 12 Iss: 1, pp.113 – 123

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