Finance Principles Essay Example | Topics and Well Written Essays - 1500 words

Finance Principles - Essay Example Stakeholders include all individual and institutions that are financially and non financial associated with the company i.e. from board of directors and top management to shareholders, creditors, suppliers, employees, society and the environment (Ross, Westerfield, & Jordan, 2008, p.7). Corporate governance policies are developed and implemented by mainly the board of directors and top management of companies. Executive directors play important on this business activity. Many executive directors of leading firms of both UK and USA have been criticized for major corporate failure of their organizations. Few of these firms are WorldCom, Enron, Tyco, Fannie Mae, Northern Rock, Freddy Mac, Barings Bank, Royal Bank of Scotland. Principles underlying corporate governance and its importance Corporate governance is generally a set of principles developed by the companies to show its extent of confidence in terms of capability of the company to maintain sustainable interest of all the stakeho lders. Main objective of corporate governance principles to conduct a business with integrity and fairness and the business should be transparent in all financial transactions. It should provide all necessary disclosure and discussions following all laws of the land and it should have responsibility and accountability towards its commitment to the stakeholders so that it can run a business with an ethical manner. Good corporate governance refers to standard level of confidence from a company through its positive commitment through corporate governance policies. The independent present in board leads to high confidence of the company in the market. It one of the important criteria on which the long term investors value a target company or an institutional investment decision is made by leading investment firms. Therefore, companies should have very clean, transparent and objective oriented corporate governance which would help to raise fund from both creditors and from market (Van Ho rne & Wachowicz, 2008, p.15). Combined Code on corporate governance Combined code is a popular corporate governance code of conduct that was derived from three different report of corporate governance. These are Hampel Committee’s Final Report, Greenbury report and Cadbury Report. The combined code was developed in 1988 and it is appended mandatory to the corporate governance policies of the companies listed in London Stock Exchange. Therefore, compliance of the combined code was mandatory to all the listed companies. The main constituents of combined code i.e. Cadbury report and Greenbury report were developed by Hample Committee and Greenbury Committee respectively in 1995. The main objective of combined code is to ensure that companies need to follow a standard set of corporate governance policies. The board of directors need to develop and maintain confidential corporate governance policies to safeguard the interest of the stakeholders’ interests. For this purpose the board need to have full control over the business activities so that shareholders’ investment and companies’ assets can generate adequate return for profitability of the companies as well as the shareholders (Block & Hirt,