Theories On Corporate Governance And Their Application Accounting Essay

Corporate administration in worldwide are implementing several of patterns in their organisations and the most of import and common thing is that they should hold a regulative model. In this authorship, I would wish to analyse the current model in a selected organisation and how the model gives impact to the corporation administration. I will discourse largely on the corporation I chose for the survey and how corporate administration can be effectual and how the effectual administration gives impact on the corporation pertinent to the current market worldwide. Two important theories in administration are bureau theory and stakeholder theory, when using in a corporation can give a great return and benefit.

Since the post-Enron society, corporate administration has become a hot issue. Some companies ‘ claims they can modulate, the authorities purpose is disagreeable. But what happens was those companies who they claim can be regulate, they ca n’t proof themselves. At the terminal of epoch 1990s and get downing of concern millenary, the universe was shocked by the accounting dirts of companies like Enron ( 2001 ) , Worldcom ( 2002 ) , Ahold ( 2003 ) and Parmalat ( 2003 ) . If we study the ground of this incident, what comes in research was these companies more concentrate on net income, portion holder wealth and large fillips merely. They wholly have forgotten about moralss, society public assistance and the long term of office consolidation of the companies. When they give small purpose to moralss and corporate societal duty, they become ignorance of corporate administration. In this survey, I will give an illustration organisation and how the corporate administration gives a great impact to the organisation when the corporate administration was non implemented efficaciously. Finally I do trust this paper gives a clear feeling of the corporate administration issue and the execution of the issue efficaciously.

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Corporate administration

In this portion, I will intentionally supply the definition of corporate administration. The first thing we should cognize how effectual is the corporate administration in certain organisation, we need to cognize what the term is truly signify. Understanding the term decently will give us large thought on how the term can be implemented and used efficaciously.

Corporate administration was defined in the class of narrow definitions and wide definitions. The narrow definition was ‘Corporate administration trades with the ways in which providers of finance to corporations guarantee themselves of acquiring a return on their investing ‘ ( Shleifer and Vishny, 1997 ) . Another definition was corporate administration is ‘the procedure of direction and control anticipated to do certain that the company ‘s disposal acts in integrity with the involvements of stockholders ‘ ( Parkonson, 1994 ) .

If we see from the wide position, the definition is ‘The administration function is non concerned with the running of the concern of the company per Se, but with giving mostly way to the endeavor, with supervising and intriguing the executive actions of disposal and with satisfying legitimate outlooks of duty and guideline by involvements beyond the company boundaries ‘ ( Tricker, 1984 ) . Other than this, the other definition for this term is corporate administration as ‘a set of association between a company ‘s board, its stockholders and extra stakeholders. It besides provides the constellation through which the aims of the company are set, and the agencies of achieving those aims, and oversing act, are determined ‘ ( OECD, 1999 ) . We besides can see corporate administration as a apprehensiveness with keeping the balance between financial and community ends and between entity and public ends. The purpose is to convey into line every bit about as possible the public assistance of persons, corporations and society ‘ ( Cadbury, 1999 ) .

Theories in corporate administration

Different theories in corporate administration have developed to explain and size up the corporate administration, which each of it have a scope of attacks. The four chief theories in corporate administration are bureau theory, dealing cost theory, stewardship theory and stakeholder theory.

Agency theory derives from finance and economic sciences Fieldss, dealing theory comes from economic and organisational theory, stewardship theory are fundamentally from hypothesis of bureau theory and dealing cost theory and eventually the stakeholder theory from a more social position on corporate administration ( Solomon & A ; Solomon, 2004: 16 ) . In this paper, I will discourse two theories which is bureau theory and stakeholder theory and how it can be implemented for the usage of proper corporate administration.

Agency theory illustrates the relation between a primary individual, who assigns undertaking, and the go-between who executes that undertaking. Agency theory concerns work outing two sorts of jobs that can come up in this relationship. ( Jensen and Meckling, 1976 ) Berle and Means ( 1932 ) highlight that as a state industrializes and develop its market, the ownership and control of companies will be estranged. This rupture together with the predication that the agent is self interested has been making the bureau crisis: due to information dissymmetries and dissimilar positions in comprehending hazards, foremost, the agents are non likely to move in the best involvements of the principals, taking to the decline of stockholders ‘ value, and 2nd, it is many-sided and expensive for the principal to size up and authenticate the activities of the agent ( Eisenhardt, 1989 ) . In this theory, it is crystal clear to see the agent is playing a most critical portion in finding the position of an organisation.

A research worker Dalton et Al. ( 1998 ) clear up that bureau theory has been the chiefly outstanding conjectural position in corporate administration field. This is by and large because first, it decreases immense corporations into two participants, which are director and agent and another two participants, the stockholder and the principal. Their involvements are understood to be unmistakable and stable. Second the predication that human existences are self interested is widespread ( Daily et al. , 2003 ) . Other research workers like Jensen and Meckling ( 1976 ) propose that bureau theory means the rupture of ownership and control. For illustration the primary individual allots the everyday work to the go-between, which acts as an agent. This elucidate on how unequal duty exists in companies.

From other research worker ‘s position bureau theory might be different. Blair ( 1996 ) propositions that to avoid the abuse of director ‘s power, they should be monitored and direction must make routine cheques on them. This is called bureau costs. The costs may ensue directors botching their place, every bit good as the costs of observation and training them to seek to queer ill-treatment. In this instance, the boards of managers play their function in supervising the principal, agent relationship in order to decrease the bureau jobs. Thus the managers are considered as company ‘s stewards and will be disposed to move in the best involvement of the principals, which is the chief strategy of stewardship theory ( Donaldson & A ; Davis, 1991 ) .

The stakeholder theory might give a different image from bureau theory. The traditional school of corporate administration focused on the maximization of stockholders ‘ assets. ( O ‘ Sullivan, 2000 ) The Japanese or European theoretical account on the other manus, followed the pluralistic attack of stakeholder theory. In this theory, the company incorporates duty to a broader mixture of parties instead than merely concentrating on stockholders ( Freeman, 1984 ) . It stresses that non merely must a company make the most of stockholder value, but at the same clip it must besides do usage of its capital to transport reimbursement to the society as a whole ( Mallin, 2007: 16 ) . The chief dissension for this is that it is non merely the material assets in which stockholders invest that bring appraisal for the company. Human attempts are besides of import as good. Furthermore determinations of the houses have effects for society as a whole, as they have a large force on for case the depletion of capital or toxic waste ( Bhasa, 2004 ) . Solomon & A ; Solomon ( 2004: 24 ) elucidate that as corporate societal duty has been a major issue, it is the clip for companies to move scrupulously and morally. Quinn and Jones ( 1995 ) besides argue that the most of import cause is the directors. The directors must non disregard their ethical duties as human existences and they must lodge to ethical behaviour regardless the gross it may or may non convey. Net income that comes in might non remain long in an organisation, but human value and their gratefulness will stay everlastingly.

British American Tobacco

For this paper, I have chosen British American Tobacco as an illustration organisation, in implementing corporate administration in the working sphere. Chiefly before associating corporate administration in the organisation, I will briefly make some compose up on the company ‘s history and background.

British American Tobacco Malaysia occurs from the merger of Rothmans of Pall Mall ( Malaysia ) Berhad and Malaysian Tobacco Company Berhad on 3 November 1999. The combination pooled aptitude, cognition and an matchless aggregation of highly winning domestic trade names to bring forth the state ‘s chief baccy corporation. Today, British American Tobacco Malaysia is the clear market place managerA withA in the part of 60 % market portion, and ranks in the thick of the top 25 companies on Bursa Malaysia Securities Berhad in footings of advertise capitalisation. British American Tobacco Malaysia ‘s chief industry is industrialized and markets high distinction baccy goods designed to run into assorted consumer penchants. Their portfolio includes well-established international names such as Dunhill, Kent and Pall Mall.

British American Tobacco has a shared narrative of over 90 old ages in Malaysia traveling back to 1912. The wealth of cognition, fixed with first fringe engineering and efficient systems and patterned advance employed in all parts of their concern activities, site them good to run into the challenges of the hereafter. They pay about 1,600 employees who are implicated in the full scope of the baccy fabrication, from foliage concern and dispensation to fabrication, advertisement and allotment. Their inclusive distribution agreement spans the measuring lengthwise and broadness of the state, guaranting that their trade names are accessible everyplace in Malaysia.

The chief purpose of British American Tobacco is to continue our leading in the industry all the manner through intensifying their split of the baccy industry and agreeable consumer trouble better and more well than their oppositions. In run intoing these ends, they guarantee that they market faithfully, and in a method sensitive to the milieus. For them, counsel goes farther than merely market portion ; it has to be approximately qualitative counsel in our eyes, and in the eyes of the stakeholders.

British American Tobacco is the universe ‘s 2nd major quoted baccy group by planetary market portion. It holds vigorous market places in each of its parts and has leading in more than 50 markets around the universe. The British American Tobacco Group has 45 coffin nail mills in 39 states, buying approximately 460,000 tones of foliage in 2010, grown by around 200,000 husbandmans. In 2010, their auxiliary companies sold 708 billion coffin nails. The Group employs more than 60,000 people worldwide. Its portfolio of more than 200 trade names includes most of import international trade names such as Dunhill, Kent, Lucky Strike and Pall Mall. The British American Tobacco Group ‘s vision is to accomplish counsel of the planetary baccy fabrication in order to make long term investor appraisal.

Even the company ‘s chief fabrication merchandises are baccy which they sell coffin nails, they do cognizant of the effects they might confront by selling something that could harm homo ‘s organic structure and variety meats. Therefore they do implement safety classs and runs.

Corporate administration in British American Tobacco

Since 2001 until 2010, the British American Tobacco has gained batch of accomplishments, awards and acknowledgments. In the twelvemonth 2001, the company achieved the best in Corporate Governance 2001 award and best in The Asset Magazine Corporate Governance Ranking 2001 award. In the twelvemonth 2002, they achieved national Annual Corporate Awards 2002. In 2003, the organisation achieved best in the plus magazine corporate administration ranking 2003, most commitment to making stockholder value and best corporate administration in Malaysia 2003 and KPMG stockholder value awards 2002. In 2004, they achieved most Committed to Strong Dividend Policy, Best Managed Company and Best Corporate Governance in Malaysia 2004. In twelvemonth 2005, the company achieved national Annual Corporate Report Awards ( NACRA ) 2005. In the 2006, the company still achieved KPMG stockholder value awards 2005, best managed company, best corporate administration, best committedness to strong dividend payment, 3rd topographic point for best investor dealingss 2006 and national one-year corporate study awards ( NACRA ) 2006. Latest in the twelvemonth 2010, the company achieved national Annual Corporate Report Awards ( NACRA ) 2010, KPMG/The Edge Shareholder value award 2010, Malayan corporate administration ( MCG ) index 2009, the plus corporate administration awards 2009, finance Asia awards canvass 2009, best corporate administration 3rd topographic point and best corporate societal duty 3rd topographic point.

The Board of Directors in British American Tobacco MalaysiaA is committed to keeping high criterions of corporate administration throughoutA British American Tobacco MalaysiaA as a primary portion of its mundane occupations in disposal the production and personal businesss ofA British American Tobacco Malaysia. The Company ‘s corporate administration construction is directed towards carry throughing the Company ‘s key concern aims in a method which is accountable and in understanding with high criterions of unity, simpleness and duty. This cogent evidence that the company implement bureau theory and stakeholder theory in their day-to-day concern. Their chief purpose is non approximately net income merely, but more on humanity.

In actuating high criterions of corporate administration, the Board of Directors is besides directed by the Company ‘s Code of Corporate Governance ( British American Tobacco Malaysia Code ) , which is formulated based on the political orientation and best patterns set out in the Malayan Code on Corporate Governance ( Revised 2007 ) ( Malayan Code ) and developments of internationally predictable best administration patterns. These rules and best patterns are accomplished throughout British American Tobacco MalaysiaA as the cardinal rule in dispatching the Board of Director ‘s answerability and to do certain of simpleness and corporate answerability.

British American Tobacco Malaysia launched a corporate societal duty ( CSR ) commission to measure the company ‘s direction. This is due the company ‘s policy and the demands of deductions of CSR. The commission will detect the direction whether it is associated with the statement of Business Principles approved by the corporation.

The chief composings are the CSR Committee shall dwell of members of the top squad, the president of CSR commission will be the Managing Director, the Corporate Affairs manager shall be the secretary of the CSR Committee, The CSR Committee will be describing to the Board via the Audit Committee and to the Regional CSR Committee.

Purpose of the CSR Community

The chief and first intent of the community is to measure the Company ‘s disposal of CSR and this includes the managing of association with the Statement of Business Principles. Scrutinizing of fulfilment with the Standards of Business Conduct may remain set the horizon of the Audit squad.

The CSR Committee will seek for to foreground on the Company ‘s community and ecological narration whereby societal and ecological hazards and issues or failings of allegation are to be acknowledged and pertinent and timely accomplishment is being in usage to set about any of the same. The CSR Committee must besides provide as a forum which exhibits that the chief beliefs of CSR are proficiently entrenched throughout the company.

Authority of the Committee

The CSR Committee is certified by the Board of Directors to measure behaviours inside the company, which will be within the sphere of the Company ‘s disposal of CSR. It is besides endorsed to ask about the information it requires from disposal in order to carry through this purpose. The Managing Director will be the appropriate channel as his familiarity will do certain that the CSR Committee has admittance to all appropriate and important information. The CSR Committee in executing its maps is besides sanctioned by the Board of Directors to protect exterior autonomous professional suggestion and ifA indispensable, the presence of 3rd parties with pertinent accomplishment and expertness, every bit good as parties from within the Company. The CorporateA andA Legal Affairs Director will describe notable CSR public presentation affairs and hazards to the CSR Committee and afford the CSR Committee at each criterion assembly with status studies. The CSR Committee will run into at least twice yearly.


Some expressed countries of reactivity are to do certain there is due procedure for acknowledgment and disposal of cardinal community and ecological issues. The designation of and battle with cardinal stakeholders are besides considered as chief aims for this organisation. Another aim is supervising competency and efficiency of CSR direction systems and controls. The company besides must guarantee the fidelity of societal and ecological recital supervising information and in conclusion nonsubjective can be achieved by detecting alliance with the Company ‘s declaration of industry doctrines.


The British American Tobacco MalaysiaA recognizes the importance of keeping transparence and answerability to its stockholders and investors. The Board therefore maintains a duologue with stockholders directed towards guaranting a common apprehension of the aims of British American Tobacco Malaysia. The Board besides ensures that all the Company ‘s stockholders are treated equitably and that the rights of all investors, including minority stockholders are protected.

Annual Report

A major channel used by the Board to supply its stockholders and investors with information on its concern, financials and other cardinal activities is the Annual Report of the Company, which contents are continuously enhanced to take into history developments, amongst others, in corporate administration. An indispensable facet of an active and constructive communicating policy is the seasonableness in circulating information to stockholders and investors. The Company sends out the Notice of the Annual General Meeting and related handbill to stockholders at least 21 yearss before the meeting as required by the Companies Act, 1965 and in order to ease full apprehension and rating of the issues involved.

Where particular concern points appear in the Notice of the Annual General Meeting, a full account is provided to stockholders on the consequence of the proposed declaration emanating from the particular concern point. Prompt and timely release of fiscal consequences on a quarterly footing enables stockholders to hold an overview of the British American Tobacco Malaysia Group ‘s public presentation and operations and do informed investing determinations.

Annual General Meeting

The Annual General Meeting ( AGM ) A is the chief opportunity for the Board to run into the stockholders of the Company and for the Chairman to explicate the Company ‘s advancement and receive inquiries from the stockholders. At the AGM, stockholders participate in the deliberations of the declarations being proposed or on the British American Tobacco Malaysia Group ‘s operations in general.A

Agency theory in the British American Tobacco Malaysia

The bureau theory, when we do the association to the company British American Tobacco Malaysia, does lend a figure of statements and information. In bureau theory, the most of import standards discussed were the direction and the agent. In this theory, the agent plays an of import function in finding the effectivity of the theory. Therefore in this instance scenario, the bureau will be the direction. The direction should play a responsible function in finding the chances of the organisation. This is an aspect worried by the stakeholders if they to the full let the direction find their destiny in the company they invest.

As for Jensen and Meckling ( 1976 ) defined the bureau association as a bond under which one party ( the principal ) appoints another party ( the agent ) to execute some service on their behalf. In this scenario, the other party assigns the direction of British American Tobacco as another individual to transport out inspection and repair on their behalf. As portion of this agreement, the primary individual will depute some or all of the decision-making ability to the agent. In pattern in British American Tobacco, stockholders from most corporations manus over the finding of fact doing ability to the board of managers ( BOD ) . In bend, the BOD base on ballss on power to the main executive officers ( CEO ) . Sometime this can make jobs because of the infeasibility of perfectly styptic for every possible action of an agent whose determinations affect both his ain involvements and the public assistance of the primary individuals. But as I studied the British American Tobacco, these sorts of jobs are non acute to go on due to the strong ethic and responsible behaviour of the direction. As the direction truly gives precedence to the humanity and the trust they gain from the stakeholders.

At the same clip, the bureau theory besides disputes that an bureau relationship subsists when stockholders ( principals ) hire directors ( agents ) as the determination shapers of the corporations. The bureau jobs occur because directors will non wholly move to maximise the stockholders ‘ prosperity ; they may support their ain well-being or seek the aim of maximising companies ‘ enlargement alternatively of net incomes while doing determinations. Jensen and Meckling ( 1976 ) suggested that the ineffectualness may be abridged as administrative motive to take value maximising determinations increased. Agency costs are originating from divergency of involvements between stockholders and company directors. “ Agency costs ” are defined by Jensen and Meckling as the amount of monitoring costs, adhering costs and staying loss.

In 2010, the British American Tobacco developed a web-based work flow system, Bridge Net to better the efficiency of work procedures between British American Tobacco runing units in the Asia Pacific part and its bureau spouses based on the New Operating guidelines between British American Tobacco and its bureaus. This new solution replaced the old system of carry oning work procedures between British American Tobacco terminal markets in Asia Pacific and its bureaus spouses via electronic mail, wherein full visibleness of work procedures was non available to all squad members. This shows how much the direction concentrates on the bureaus under them non to derive net income merely, but to be responsible to them in an honorable manner.

Stakeholder theory in the British American Tobacco Malaysia

The direction of British American Tobacco Malaysia believes that non merely they liable to stakeholders but besides responsible for running a winning and dynamic relationship with their several stakeholders. The Group besides distinguishes the significance of go oning intelligibility and duty to its stakeholders. The Board ensures that all the Company ‘s stakeholders are taken attention of reasonably and do certain that the rights of all investors, including minority stakeholders are sheltered. The Group ‘s primary contact with stakeholders is through the Chairman, Managing Director, Finance Director and Company Secretary. All stakeholders ‘ uncertainty will be received by the Company Secretary. The Company Secretary will give replies and responses to stockholders ‘ questions and where any information may be regarded as undisclosed stuff information about the Group such information will non be made available to a stakeholder unless already in the populace sphere through unmasking.

The chief concern for the British American Tobacco Malaysia is keeping the great relationship with the stakeholders. However, quantitative processs do non in themselves address all the things they are obliged to make as a company. The company takes a long period position, giving precedence to the distinction of their concern and how they work. As a consequence, qualitatively, they seek to be accepted as a fabrication leader and to be the spouse of first pick for their cherished stakeholders. The company values for their stakeholders, non merely for the interest of net incomes but as the direction ‘s comrade in selling. It is in the company ‘s vision and mission.

As appropriately outlined by Bursa Malaysia in its Sustainability Guide, sustainability means dissimilar things to different people, and for British American Tobacco Malaysia, it is turn toing cardinal concern related community, ecological and financial impacts to construct stakeholder and stockholder value, thereby bettering profitable sustainability. The move towards sustainability was farther spurred by increasing chances from stakeholders.


As for the decision, corporate administration can be complex and complicated. Chiefly as it involves other issues as good, that makes this issue more complicated than any organisation of all time imagine of. The authorities, exclusive organisations and market plays their most of import portion in doing the corporate administration effectual. For case, moralss and responsible is really of import facet and factor in finding the long term advancement of a company. If there is deficiency of ethic in the direction, the company will be doomed shortly plenty before it could even recognize the effects. The directors and board of managers are most common factors in finding the advancement of the company and keeping the relationship with the stakeholders and bureaus. There are mechanisms in all organisations to work out this sort of behaviour such as compensation patterns. Additionally effectual solutions for the trade-off between moralss and efficiency should be in topographic point. Most of all, all the employees of an organisation should hold their ain functions and dramas in maintain good concern chance.

Corporate administration nonsubjective grow from simple stockholder consciousness ( bureau theory ) to stakeholders ( stakeholder theory ) and the Triple-Bottom Line ( legitimacy theory ) . However, there still issue of ‘corporate sociopath ‘ which obstructs the attempt to present profit accumulates to these parties. Following this affair and wake East fiscal crisis in 1997, a assortment of corporate administration and sustainability mechanism have been implemented to better corporate administration degree among Malayan companies such as Malayan Code of Corporate Governance ( revised 2007 ) ( Malayan codification ) , chief market listing demands of Bursa Malaysia Securities Berhad, Corporate Governance usher: Toward council chamber excellence of Bursa Malaysia Securities Berhad, British American Tobacco Malaysia ‘s Code of Corporate Governance ( BATM Code ) , Standards of Business Conducts, Statement of concern rules ( Business rules ) and Statement of Delegated Authorities. This shows that issue of corporate administration are being paid good attending by all. These guidelines have been implemented by the British American Tobacco Malaysia in specifying the corporate administration.

Even there has been small experimental work done to revise the relationship between corporate administration and sustainability ( from stakeholder position ) in Malaysia. This survey has done in order to hold some experimental cognition on this issue, by analyzing the relationship between stakeholder added value and corporate administration degree. Overall we can see and understand that size affairs most. The ethical value, duty, honestness and moral values has a important effect to corporate administration.

As we see the illustration company for this survey was the British American Tobacco Malaysia and how this company puts great attempt in implementing the corporate administration issue efficaciously. Aside from the abovementioned policies and processs, other internal control policies, criterions and guidelines such as British American Tobacco International Marketing Standards, Employment Principles, and the Environment, Health and Safety Policy which the company tolerates to in the running of its concern can correspondingly be obtained from the company. The Group ‘s duty and doggedness in running its concern faithfully amidst a demanding state of affairs for the baccy fabrication is manifest from the awards and testimonials that the company had received from the twelvemonth 2001 until the twelvemonth 2010.

By and large there might be tonss of factors and facets in finding the effectivity of corporate administration in organisations. But the nucleus and fundamental of all is the bureau theory and stakeholder theory which humanity, honestness, moralss and responsible is the primary key in the procedure of selling. Net income is merely a affair of finance, but what remain in the bosom of worlds are the humanity and the respects and the trust they gain from the organisation. In this term, the British American Tobacco Malaysia can be an illustration successful company in implementing the corporate administration efficaciously.

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