THE UNIVERSITY OF ZAMBIA

INSTITUTE OF DISTANCE EDUCATION

STUDENT NAME: CHELU MWENIFUMBO

STUDENT ID: 23006732

COURSE: CORPORATE GOVERNANCE & BUSINESS ETHICS

LECTURER: MR SIAKALIMA

TASK: ASSIGNMENT ONE

QUESTION ONE

(a) According to the Corporate Governance and Business Ethics module of the University of
Zambia, corporate governance is “a set of relationships among the companies,
management, its board of directors, its shareholders, auditors and other stakeholders”
which involves “various rules and incentives, provide the structure through which the
objectives of the company are set and the means of attaining these objectives as well as
monitoring performance” (University of Zambia Ecampus).

In the history of corporate world there has been many cases of corporate fraud and
scandals. It was felt that the system for regulation was not satisfactory and that it needed
external regulations. These regulations stated that wrongdoers should be penalized while
market forces should reward those who followed rules and regulations.
The landmarks in the emergency of corporate governance were developments in the UK
and developments in USA. (St Hoyme, 1953).

In the UK specifically England, corporate governance gained its inception by the Bank of
Credit and Commerce International (BCCI) scandal where according to Wikipedia, a US
customs undercover operation led by special agent Robert Mazur infiltrated the bank’s
private client division at Tampa, Florida and uncovered their active role soliciting
deposits from drug traffickers and money launderers. Another landmark was the Barings
Bank where according to in 1995 narrates how a single employee committed the bank to
losses of roughly €80 million from which it could not recover. These examples of
corporate failures showed the absence of a proper structure and top management
objectives. (Bankruptcy of Barings Bank,1995).

Development of corporate governance in the UK encompassed the Cadbury, Greenbury,

and hamper reports which looked at specific areas;
1. The Myners report on institutional investments
2. The Turnbull report on internal controls.
3. The Higgs review was on the role of effectiveness of non executive directors.
4. The Tyson report on the recruitment and development of non executive directors.
 5. The Smith review was on audit committees.
6. The Davies report and the Hampton Alexander report focused on board diversity
7. where gender was focused.

Cadbury Report [1992]

In the UK in 1992, this report outlined the importance of corporate governance by raising
standards and the level of confidence in financial reporting and auditing as well as introduced
the concept of “comply or explain". This was done by clearly setting respective responsibilities
of people involved and what they were expected to do. The accountability of board of directors
to the shareholders and to the society was investigated. Following various financial scandals and
collapses and a perceived general lack of confidence in the financial reporting of many UK
companies the FRC, the London Stock Exchange and the accountancy profession stablished the
committee on the financial aspects of corporate governance in may 1991. After the committee
was set up the scandals of Bank of Credit and Commerce International And Maxwell occurred,
and as a result the committee interpreted its remit more widely and looked beyond the financial
aspects to corporate governance as a whole. The committee was chaired by Sir Adrian Cadbury
and when the committee reported in December 1992. (Cadbury Report, 1992).

The recommendations covered the operation of the main board the establishment, composition
and operation of keyboard committees, the importance of, and contribution that can be made by
non executive directors and the reporting and control mechanism of a business.

The Cadbury Report recommended a code of best practice with which the boards of all listed
companies registered in the UK should comply and utilize a ‘comply or explain’ mechanism.

This mechanism means that a company should comply with the code but if it cannot comply with
any particular aspect of it, there should be an explanation why it is unable to do so. This
disclosure gives investors information about instances of non compliance and enablers them to
make a decision whether the company’s non compliance is justified.
 1. The Sarbanes-Oxley Act of 2002

In 2002, the US enacted The Sarbanes-Oxley Act in relation to corporate accounting scandals. It
emphasized on addressing issues related with corporate failure in order to achieve quality
governance and restore the confidence of investors. This Act was formulated in order to protect
investors by improving accuracy and reliability of corporate disclosures. The Act includes
provisions that change the reporting and the corporate director’s governance obligations of
public companies, the director and the officers. (The Sarbanes-Oxley Act of 2002).

The provisions in the act are;

(i) the establishment of the Public Company Accounting Oversight Board (PCAOB)
which creates a new board of five members of which two of them will be certified
public accountants and all accounting firms will have to be registered with the board.
The board will therefore make regular inspections and report to the Securities and
Exchange Commission (SEC)
(ii) the Sarbanes-Oxley Act provides for a new audit committee whose responsibility is to
appoint, fix fees and the oversight of independent auditors work
(iii) the act prohibits companies from making or arranging from third parties any type of
personal loans to directors.
(iv) the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO) are
required to affirm their financials their reports are supposed to be certified and filed
with Securities and Exchange Commission (SEC).

This act makes it clear that the companies senior officers are responsible for the corporate
culture they make and must act in utmost good faith to the rules they create for other
employees.

Corporate governance gained its importance with the happenings of the Watergate scandal in
USA. After investigations, the US regulatory and legislative bodies were able to highlight control
failures that had allowed several corporations to make illegal political contributions and bribe
government officials. This resulted into the development of the Foreign and Corrupt Practices
Act of 1977 that contained specific provisions regarding the establishment, maintenance and
review of systems of internal control. (Corporate Compliance Insights, 2018; Koehler, 2012;
JSTOR).

Corporate Governance codes and theories

i. The OECD principles of corporate governance

This emphasizes on accountability, transparency and equitable treatment of the shareholders.

These principles were published in 1999, following a request from OECD council to develop
corporate governance standards and guidelines. The principles focus on publicly traded
companies but as in the Cadbury Report, there is an encouragement for other business forms
such as privately owned or state owned enterprises, to utilize the principles to improve corporate
governance. (OECD, 1999).

The OECD principles of corporate governance recognize that good corporate governance is not
an end in itself, it is rather a means to create market confidence and business integrity which is
essential for companies that need access to equity capital for long term investment.

ii. The Cadbury code

Following various financial scandals and collapses and the perceived general lack of confidence
in the financial reporting of many UK companies, the FRC, the London Stock Exchange and the
accountancy profession established the committee on the financial aspects of corporate
governance, In may 1991 after the committee was set up, the scandals at Bank of credit and
commerce international BCCI and Maxwell occurred and as a result the committee interpreted its
remit more widely and looked beyond the financial aspect of corporate governance as a whole.
The committee was chaired by Sir Adrian Cadbury and when the committee reported in
December 1992 the report became widely known as the Cadbury report. they’re commendations
cover the operations of the main board and the establishment composition and operation of the
board committees the importance of and contribution that can be made by non executive
directors and the reporting and control mechanism of a business the Cadbury report
recommended a code of best practice with which the board of all listed companies registered in
the UK should comply and utilize the comply or explain mechanism this mechanism means that
the company should comply with the cord but if cannot comply with any particular aspect of it
should then explain why it’s unable to do so this disclosure gives investors detailed information
about any instances of non compliance and enables them to decide whether the company is non
compliance is justified

This code focuses on the responsibilities of non executive directors and the different
roles of the chairman and the CEO.
iii. The stewardship theory

This theory suggests that the managers of a company are likely to perform in the best interest
of shareholders when they tend to have a sense of ownership or stewardship over the firm.

iv. The agency theory

This theory focuses on the relationship between shareholders and agents and how to
align their interests to mitigate agency costs.
v. The stakeholder theory t
This theory suggests that companies must put into consideration the interests of all
stakeholders not just shareholders in their processes of decision making.
These codes and theories have influenced the development of corporate governance
by outlining frameworks for transparenc, best practices and accountability as well as
addressing agency problems

(B) Anglo-American Model

- When it comes to shareholders primacy, this theory emphasizes on maximizing shareholders

value as the primary goal.

- This model to relies on Securities laws, market forces and corporate governance codes.

- This model has strong focus on independent boards as well a active shareholders engagement.

- This model is mostly tied to company performance therefore promoting alignment with
shareholder interests.

2. German Model

- This model focuses on stability and long term success rather than short term profits.
- Historically there are close ties between banks and corporations influence governance
decisions.

- There is an inclusion of employee representatives in the supervisory board.

3. Japanese Model

- This model encourages stability and loyalty amongst employees and impacting decision
making.

- Decision are often reached through consensus rather than by a single authority

- This model fosters stability but may impede shareholder activism and transparency.

- This model emphasizes long term relationships with stakeholders and suppliers

4. Indian Model

- Many large corporations are family controlled, with significance influence over corpse
decision making

- Regulatory changes: Recent reforms aims at strengthening the rights of shareholders and board
independence

- Dual board structure: similar to German model, with a supervisory board overseeing
strategic decisions and a management board handling day-to-day operations

5. South African Model

- King code of Governance: This model promotes accountability, ethical conduct and
transparency.
- Dual Listing: A lot of companies are listed both internationally and domestically
impacting governance standards.
- Black Economic Empowerment (BEE): focuses on inclusion and diversity,
impacting board composition.
 REFERENCES

Allen, F. and M Zhao, 2007. The corporate governance model of Japan: shareholders are not
rulers. PKU Business Review,36(7): 98-102.

Black, R. W. (2005). Access and Affiliation: The literacy and composition practices of English-
Language learners in an online fanfiction community. Journal of Adolescent & Adult Literacy,
49(2), 118–128. https://doi.org/10.1598/jaal.49.2.4

Cadbury, A. (2002). Corporate governance and chairmanship A personal view.

https://doi.org/10.1093/acprof:oso/9780199252008.001.0001

OECD. (1999). OECD Principles of Corporate Governance. Retrieved from OECD iLibrary.

Smith, A, 1993. An inquiry Into the nature and causes of wealth of nations Indianapolis: Hackett

Supplementary notes Corporate- governance 2023

St Hoyme, L. E. (1953). Physical Anthropology and its Instruments: an Historical study.

Southwestern Journal of Anthropology, 9(4), 408–430.
https://doi.org/10.1086/soutjanth.9.4.3628672.

Zhang, I. X. (2007). Economic consequences of the Sarbanes–Oxley Act of 2002. Journal of

Accounting & Economics/Journal of Accounting and Economics, 44(1–2), 74–115.
https://doi.org/10.1016/j.jacceco.2007.02.002.