Problem

Inadequate corporate governance

Other Names:
Deficient boardroom standards
Inappropriate appointment of company directors
Nature:

Questionable company board practices, usually reflected in the articles of a company, include lack of separation of the roles of chairman and chief executive, or director and executive positions; payment of directors; board prerogative to re-elect board members without any nomination procedure; absence of fixed term or rotational requirements for directors; absence of requirement of retirement by company directors. Such practices can reduce the accountability of the company and, if a public company, limit the interests of the shareholders. Financial dealings which breach a director's duty to a company are another significant cause for concern. Improper loans to company directors are frequently cited. Another noteworthy practice is directors or their families illegally buying shares in other companies on their own or their company's behalf, the most obvious example being when they knew that their own company's relationship with the other company was about to change.

Incidence:

The UK Department of Trade and Industry found 651 directors unfit to run firms in 1992/93, 50% more than in any other year. The majority were leading companies which collapsed, but more that 25% were also convicted of Companies Act offences (e.g. insider dealing, fraudulent trading and theft). There were 187 statutory inquiries launched during the year, and 13 companies were compulsorily shut down because they were against the public interest.

Claim:

Corporate governance is ultimately about accountability, and legislation is not a substitute for good practice. There is no justification for thinking that what is not prohibited by law is acceptable behaviour.

Problem Type:
F: Fuzzy exceptional problems
Related UN Sustainable Development Goals:
GOAL 1: No PovertyGOAL 12: Responsible Consumption and ProductionGOAL 16: Peace and Justice Strong Institutions
Date of last update
02.11.2017 – 16:36 CET