Corporate Governance Mechanisms 3 Corporate Governance is the process through which companies are governed in order to maximize performance and profits as well as manage and monitor risks. (Monks, 2003) Accountability and transparency especially to stakeholders and shareholders is an indication of good governance. Corporate governance seeks to promote accountability, transparency and corporate fairness. It ensures shareholders’ interests are protected, transparency and accountability in business transactions is applied, compliance to legal and statutory requirements, adequate disclosures, ethical business conduct, and effective decision making. Corporate governance, in other words, recognizes the shareholders as the owners of the business and the company’s role as stewards and trustees to the business. In this regard, the company’s actions are geared towards benefiting the greatest number of stakeholders. Companies are required to fully understand their responsibilities and the impact of their actions on the environment and society at large. This involves the establishment of roles and responsibilities among the company employees. The employees are then expected to be accountable and answerable to one or more people. In addition to this, there needs to be a clear system of communication flow, control and supervision. The company is not only expected to offer financial accounting but also social and environmental accounting. This entails a thorough analysis into the firm’s activities and their impacts on the company, its shareholders, the environment and society in order to achieve sustainable development. Sustainability, ethical and financial issues are directly linked to governance. Corporate governance also requires good risk analysis and management. The board especially must understand the full impacts and risks involved in the activities and strategies undertaken by the company. They are required under corporate governance, to thoroughly analyze the risks involved in such strategies and their impact on the company, the environment and society before they approve of them. This should be followed by adequate monitoring of the implementation, reporting, accounting and audit. (Belimoria, 1994) Corporate governance is a requirement for all companies listed in the London Stock Exchange. Given the nature and functions of corporate governance, it would be expected that these companies would thrive and experience improved performance. (Gugler, 2001) Recently however, the 20008/2009 global financial crisis saw the collapse of several companies including many high profile banks. (Himick, 1998) The media attributed these failures to lack of adequate corporate governance mechanisms yet these debacles continued to take place even after the company governance was put in the lime light. While it appears that in many cases, the comp.

1. Corporate Governance Mechanisms
3
Corporate Governance is the process through which companies
are governed in order to maximize performance and profits as
well as manage and monitor risks. (Monks, 2003)
Accountability and transparency especially to stakeholders and
shareholders is an indication of good governance. Corporate
governance seeks to promote accountability, transparency and
corporate fairness. It ensures shareholders’ interests are
protected, transparency and accountability in business
transactions is applied, compliance to legal and statutory
requirements, adequate disclosures, ethical business conduct,
and effective decision making. Corporate governance, in other
words, recognizes the shareholders as the owners of the
business and the company’s role as stewards and trustees to the
business. In this regard, the company’s actions are geared
towards benefiting the greatest number of stakeholders.
Companies are required to fully understand their responsibilities
and the impact of their actions on the environment and society
at large. This involves the establishment of roles and
responsibilities among the company employees. The employees
are then expected to be accountable and answerable to one or
more people. In addition to this, there needs to be a clear
system of communication flow, control and supervision. The
company is not only expected to offer financial accounting but
also social and environmental accounting. This entails a
thorough analysis into the firm’s activities and their impacts on
the company, its shareholders, the environment and society in
order to achieve sustainable development. Sustainability, ethical
and financial issues are directly linked to governance.
Corporate governance also requires good risk analysis and

2. management. The board especially must understand the full
impacts and risks involved in the activities and strategies
undertaken by the company. They are required under corporate
governance, to thoroughly analyze the risks involved in such
strategies and their impact on the company, the environment and
society before they approve of them. This should be followed by
adequate monitoring of the implementation, reporting,
accounting and audit. (Belimoria, 1994)
Corporate governance is a requirement for all companies listed
in the London Stock Exchange. Given the nature and functions
of corporate governance, it would be expected that these
companies would thrive and experience improved performance.
(Gugler, 2001) Recently however, the 20008/2009 global
financial crisis saw the collapse of several companies including
many high profile banks. (Himick, 1998) The media attributed
these failures to lack of adequate corporate governance
mechanisms yet these debacles continued to take place even
after the company governance was put in the lime light. While it
appears that in many cases, the companies lacked adequate
corporate governance mechanisms it is also clear that some of
them did collapse in spite of applying these mechanisms. This
of course sparked a lot of debate concerning the effectiveness of
corporate governance.
To a large extent, the media was right. There was evidence of
poor corporate governance mechanisms. However, this was not
the case entirely because even after the media managed to put
pressure on companies to adopt corporate governance, failure
cases continued to occur which caused the public to question
the corporate governance mechanisms in place.
In regards to poor corporate governance mechanisms, an
example would be the crisis that resulted from securitization, a
strategy whose risk potential was not analyzed or was ignored.
The financial crisis that occurred in the UK in 2008 has been

3. blamed on a financial instrument that was meant to
revolutionize the banking sector. Securitization refers the use of
a collection of mortgages as security for new loans.
Securitization was meant to encourage borrowing hence
increase investment and have the banks grow financially which
it did. However this large amount of borrowing was its undoing
when borrowers were no longer in a position to pay. It was the
beginning of a global financial crisis. This strategy was a large
contributor to the 2008/2009 global financial crisis. The crisis
was attributed to lack of adequate corporate governance
mechanisms. One of the most important features of corporate
governance is risk assessment and management. Securitization
is characterized by a high risk level which banks overlooked in
view of its great gain.
In this case the media was right to attribute the financial crisis
in large to ineffective corporate governance. The board of
directors and senior management in the bank appeared not to
understand the concept and implications of securitization and in
view of this; they should have refrained from engaging their
banks in it until they clearly understood the implications
involved. Corporate governance requires prudent monitoring
which can only result from a prudent understanding of the
implications and risks involved in implementing such a strategy.
The occurrence of these risks were in large a result of
ignorance.
The failures that resulted from securitization were an indicator
of lack of corporate governance in a large part of the banking
sector. This is because corporate governance involves
intentional and prudent monitoring of strategies implemented in
the company which was lacking in the case of securitization.
(Bhagat, 2002) During the implementation of the securitization
process and its execution it was important to identify the
securitization risks and where possible engage the help of
experts in mitigating them.
Corporate governance would also have the banks ensure

4. securitization monitoring which involves the management of
securitization risks and disclosure of such information.
Therefore the financial institutions would have closely
monitored the credit risk resulting from securitization positions
that had not been transferred yet because usually they carry the
highest risk. A systematic analysis of the quality and
performance of the assets to limit the risk of damaging the
bank’s reputation should have been put in place and overseen by
committed personnel charged with the responsibility of ensuring
that there were no malpractices and that the financial institution
acted prudently in relation to its role in the securitization
process. This is one of the examples of the danger of ineffective
or lack of adequate corporate governance mechanisms.
Following the collapse of the banking sector and the resulting
financial crisis sustainability has become an issue that needs to
be addressed and incorporated in the governance of companies.
Sustainability issues have to be embedded into corporate
governance systems if they are to become truly integrated into
operations, strategy and performance. Sustainability entails
efficient allocation and use of resources and accountable
stewardship of the same.
In embracing sustainability, there is need for a board that
possesses integrity, the ability to manage risks and make
difficult decisions wisely. The board needs to be able to
evaluate the sustainability position of the company seeing as
they are the main determinants of the company’s level of risk
taking and tolerance of risks. The board in addition to assessing
risks annually are required to disclose risk assessment and
management information annually. Good corporate governance
should entail a couple of characteristics. These include
transparency which is defined as the ease with which the
company can be analyzed by an outsider, accountability, a
commitment to discipline and ethical behavior, financial,
environmental and social responsibility and fairness.
Sustainable performance is highly influenced by consideration
of the effects of long term performance rather than the short

5. lived impacts. Incentives that encourage short-term thinking
should be done away with and incentives that encourage
sustainability put in place. (Clarke, 2004) This is achieved by
taking sustainable risks after careful assessment and
consideration of their impacts thus avoiding business failures.
Successful corporate governance requires careful setting of
goals and working towards maintaining the specified focus. The
goals are both economical and social hence building a relation
between the two. This helps the company focus on the financial
as well as the non financial performance of an organization
therefore bringing about effective governance which promotes
the sustainability of the organization.
Boards involved in governance should have people with great
skill who are also highly knowledgeable so that they are able to
easily make difficult decisions and take manageable risks which
they can handle effortlessly. By doing so, transparency is
achieved such that outsiders are able to analyze an organization
without raising queries. To ensure that there is accountability
for decisions made , the board involved in the governance of an
organization should not only include employee representatives
but also other individuals who are equipped with expertise in
various fields such as the environment, health, human resources
and social responsibility. (Pfeffer, 1972) With such a wide
scope of individuals involved in decision making, thorough
analysis of an organization’s performance is ensured and the
decisions made are prone to be more informed. Investors too
play an important role in ensuring sustainability and adequate
corporate governance mechanisms. They are responsible for
generating long term value on behalf of the company and its
shareholders. (Institute of Directors publication, 2005)
Lloyd’s
Lloyd’s is the world’s leading insurance market. Based in
London it operates in 200 different countries. Lloyd’s
specializes in insuring new, unusual and complicated risks.
Lloyd has managed to stay ahead by continually increasing

6. efficiency and its standard of service. Lloyd’s is recognized by
the world’s leading insurance rating agencies for its financial
strength and robust capitalization. They have invested in their
capital foundation which has enabled them remain financially
strong and self sufficient over the years. In light of recent
economic fluctuations it is important that a company have a
strong financial position and a safe liquidity ratio.
Lloyd’s is known to be expertly entrepreneurial which stems
directly from their affinity for unusual risk and their collective
experience over the years. Overtime Lloyd’s has proven its
ability to withstand extreme demands such as the need to
finance rapid reconstruction after major catastrophes. Lloyd’s is
always prepared to take on new risks since they remain updated
on emerging risks through monitoring, measuring and
anticipating risk. Consequently they assess these risks on time
and are prepared to address them on occurrence. Lloyd’s clearly
has been effective in the application of corporate governance.
They have managed to successfully apply the main features of
corporate governance which are risk assessment and
management, accountability, disclosure, sustainability,
responsibility and prudent monitoring. They are constantly
reshaping themselves and providing a secure and rigorous
platform without being excessively rigid. This way they remain
relevant over time since they change with changing risk needs.
Their systematic management also ensures an organized
environment and a high level of accountability. The corporation
of Lloyd’s manages its worldwide licenses, oversees the market,
establishes standards and provides services to support its
activities. They are responsible for raising the standards and
improving the performance in addition to providing cost
effective services to ensure the smooth running of the market.
(Flower, 1987)
Risk and performance management of the market involves a
couple of responsibilities. One of them is setting the level of
capital every member must provide to support their proposed
underwriting. They also work alongside managing agents of

7. syndicates whose performance is poor in an effort to improve
their performance. If stronger action is required they intervene
directly. Besides helping monitor the underperforming
syndicates they monitor the performance of the other syndicates
in terms of exposure management, cycle management, claims
management and operational risk management.
Lloyd’s strategy of staying afloat s detailed and effectively
designed. They have made the market secure by ensuring a
central fund that acts as backup in case of financial disasters.
Among their priorities is the protection of the central fund.
British American Tobacco
British American Tobacco is an international tobacco company
with its headquarters in London. This company has continued to
grow over the years and has managed to popularize its products
all over the world. They managed to remain stable during the
financial crisis in the UK and continued to report high sales.
This can be attributed to their governance strategies which
reflect adequate corporate governance and sustainability
characteristics.
British American Tobacco has incorporated the corporate social
responsibility, also known as, the sustainable business
responsibility mechanism into their governance system. This
policy is a self regulation mechanism that ensures compliance to
the law, to ethical behavior and international norms. This
mechanism is in line with corporate governance because it
advocates for social accounting which entails reporting or
communicating the impacts of a firm’s economic activities on
the society and the environment to the relevant groups. The
company has appointed a board CSR committee that is
responsible for the monitoring the performance of the company
against their standards and principles.
The company also appears to be consistent in the application of
corporate governance as is evident in their annual sustainability
and accountability reports. As a result they have managed to
grow from strength to strength even in light of global financial

8. crisis. Their principles are clearly defined in their Standard of
business Conduct which has been in place for many years. They
reflect their commitment to adhere to ethical and acceptable
corporate behavior. The company is kept accountable by the
requirement to give annual reports concerning their activities as
well as their strategies throughout the year. They also exhibit a
very high level of transparency which keeps the shareholders
and the public constantly informed. In a way it also helps keep
the firm accountable.
Coca-cola Hellenic
The coca cola Hellenic company is the leading bottler of non
alcoholic beverages. The coca cola company is governed by a
couple or corporate governance guidelines. The board is
selected by the shareholders and is charged with making
decisions and approving strategies and activities within the
company. They are required to make decisions that serve the
best interests of the shareholders as well as those of the
employees. The board also oversees the maintenance of
financial control and the safeguarding of the company’s assets.
Meetings are held at least five times a year to discuss issues as
they arise and to ensure operations are in line with the
company’s vision at all times.
The Cooperative Bank
The Cooperative bank was one of the banks that survived the
financial crisis that saw the collapse of a significant part of the
banking sector in the UK. The governance exhibited by this
bank indicates a commitment to the principles of corporate
governance. The 2008/09 financial crisis was found to be a
result of negative amortization, insufficient underwriting and
subprime mortgage loans. The Cooperative bank appears to have
these issues under control as it maintains a prudent approach to
its underwriting and to its lending services. Their liquidity
ratios are relatively high which makes it easy to convert their
assets to cash should the need arise. In line with corporate
governance they exhibit integrity in risk management by
guarding against excessive risk taking and ensuring they are

9. well capitalized at all times to ensure they have a solid fall back
plan should the risks being guarded against occur.
An indicator of their risk management mechanisms is the fact
that their lending does not rely on financial markets like most
banks but relies solely on customer deposits. They are therefore
less vulnerable to the vagaries of the market compared to banks
that rely on financial markets to fund their lending. They are in
always in a position to pay general insurance claims since these
are funded by the premiums they receive every month. However,
should the claims exceed the premiums received they have back
up in form of government bonds which can be liquidated should
the need arise.
The Cooperative bank has always been very transparent in the
way they carry out their transactions. They have always
disclosed their management information to the public which
keeps them accountable hence ensures responsible action
amongst the managerial team and the board of directors.
Conclusion
It is clear that companies, especially banks that survived the
2008/09 financial crisis applied corporate governance
mechanisms especially in regards to risk management,
responsibility and accountability. They are clearly better placed
when the financial market is not in their favor and due to
adequate risk management and planning they manage to stay
afloat when faced with financial crisis. Their levels of
transparency compared to companies that were adversely
affected by the 2008/09 financial crisis were found to be higher.
Transparency was found to have largely affected their levels of
accountability and ensured more prudent decision making.
However, the universality or lack thereof of corporate
governance has been a point of contention among economists.
(Steinberg, 2000) The question of whether or not corporate
governance models work in the same way across all economies
and all companies is yet to be proved. It is clear that different

10. countries and economies adopt different corporate governance
systems. This can be attributed to the differences in the
products of different companies hence differences in risks and
market conditions. The models suggested by various economists
differ in their approaches and key players. (Krainer, 2003)
However, the vision shared is the same; the promotion of
transparency, accountability and corporate fairness. The means
to achieving this vision however, are diverse.
While it would be expected that globalization would encourage
the adoption of similar corporate governance mechanisms across
most economies it appears to encourage just the opposite.
(Cohen, 2003) Due to competition and differentiation,
companies feel compelled to be unique in order to remain
relevant and ensure a constant market share. In addition to this,
corporate governance is bound to differ among different
countries and economies due to different laws and regulations
as well as differences in societal cultures and environments.
(O’Sullivan, 2000) A lot of societal issues are put into
consideration during the making of corporate governance
models.
These differences are bound to exist for a long time and while it
is clear that there cannot be one corporate governance model
applied to all economies and companies it is important that the
principles of corporate governance and its goals be met by
whatever model or system put in place. The means may differ
but the end does not. (Poole, 1997) The end is ensuring
sustainable development, transparency, social and economic
responsibility, prudent management of risks and strategies and
accountability. All these in addition to acting in the interests of
the shareholders are requirements in the UK approach to
corporate governance. Compliance costs associated with this
approach have been found to be lower compared to other
countries. This approach has also managed to outperform other
countries in regards to governance standards. It encourages
constant communication and between the company and its
shareholders and emphasizes this as the key relationship.

11. Bibliography
Belimoria, D. a. (1994). Qualifications of Corporate Board
committee Members. Group and Organization Management,.
Bhagat, S. a. (2002). The Econometrics of Corporate
Governance Studies. The Econometrics of Corporate
Governance Studies.
Clarke, T. (2004). Theories of Corporate Governance; The
Philosophical Foundations of Corporate Governance. New York:
Routledge.
Cohen, S. S. (2003). Corporate Governance and Globalization.
Edward Elgar Publishing Ltd.
Flower, R. (1987). Lloyd's of London: an illustrated history.
London: Lloyd's of London Press.
Gugler, K. (2001). Corporate Governance and Economic
Performance. Oxford University Press.
Himick, M. (1998). Securitized insurance risk: strategic
opportunities for insurers and investors. Chicago: Global
Professional Publishing.
Kothari, V. (2006). Securitization: the financial instrument of
the future. Toronto: John Wiley and Sons.
Krainer, R. E. (2003). Corporate Finance, Governance and
Business Cycles: Theory and International Comparisons.
Amsterdam: Elsevier Science B.V.
Monks, R. A. (2003). Corporate Governance. Blackwell
Publishing Ltd.

12. O’Sullivan, M. A. (2000). Contest for Corporate Control:
Corporate Governance and Economic performance in the United
States and Germany. Oxford University Press, Inc.
Pfeffer, J. (1972). Size and Composition of Corporate Boards of
Directors: the Organization and its Environment. Administrative
Science Quartely.
Poole, P.-J. (1997). Diversity: A Business Advantage: A
Practical Guide. Poole Publishing Company.
publication, I. o. (2005). The handbook of international
Corporate Governance. A definitive guide. Institute of Directors
publication.
Steinberg, R. M. (2000). Corporate Governance and the Board.
What works best. The Institute of Internal Auditors Research
Foundation.
Write a three to four (3-4) page paper in which you:
1. Describe the company that you currently work for, have
previously worked for, or would like to work for in the future.
Determine at least two (2) compelling reasons that this company
should prepare and manage a budget. Predict the two (2) most
likely positive and negative financial outcomes for this
company if it properly or improperly performs effective
budgeting.
2. Outline a high-level budget plan for the company. In your
high-level budget plan, recommend the most appropriate
budgeting phases for the company.
3. Propose two (2) methods and techniques that the company
should use to manage its budget over time in preparation for the
fact that budgets are ever changing. Justify your response.
4. Imagine that the company is facing a financial challenge that
is causing the actual amounts of money that it spends to become

13. significantly off target from its budgeted amounts. Prepare an
action plan to resolve the budget misalignment. In your action
plan, recommend at least one (1) budgeting technique to resolve
the budget and actual discrepancies. Provide a rationale for your
response.
5. Use at least three (3) quality academic resources in this
assignment. Note: Wikipedia and other Websites do not quality
as academic resources.
Your assignment must follow these formatting requirements:
· Be typed, double spaced, using Times New Roman font (size
12), with one-inch margins on all sides; references must follow
APA or school-specific format. Check with your professor for
any additional instructions.
· Include a cover page containing the title of the assignment, the
student’s name, the professor’s name, the course title, and the
date. The cover page and the reference page are not included in
the required page length.
The specific course learning outcomes associated with this
assignment are:
· Evaluate management control systems and examine their
relationship with accounting and planning, including feedback
and non-financial performance measurements.
· Evaluate decision making tools for capital investments,
budgeting, and budgeting controls.
· Analyze financial accounting tools and techniques that convert
financial accounting data into information for decision making.
· Use technology and information resources to research issues in
financial accounting for managers.
· Write clearly and concisely about financial accounting using
proper writing mechanics.
Grading for this assignment will be based on answer quality,
logic / organization of the paper, and language and writing
skills, using