Multinationals and Corporate Governance

Multinationals And Corporate Governance With Particular Reference To OECD Guidelines

Introduction:

Assuming that the principles of the laissez-faire economy and free trade are logically correct, different corporate structures have emerged as great wealth producing business bodies. The involvement of such big monetary values makes them vulnerable. It therefore requires a strong and effective internal control by the management and supervision of the whole process in terms of external control. This becomes priority as it is the public’s money involved in the businesses, who are the major stakeholders and the owners. It is a rational approach to say that most of the corporate governance issues are taken care of by effective audits and disclosures. The theory of the market for corporate control provides the shareholders the rationale behind the need to take action as the market forces would become active upon disclosures.

What Are Multinational Enterprises?

Corporations that have production operations in various countries for many reasons including,securing supplies of raw materials,utilizing cheap labour,taking advantage of local markets, saving tax differences etc. the economy has become most important issue in this globalize world and now all the companies are welcomed and appreciated to start their operations internationally. Multinational enterprises have a strong influence on local and world economy. and playing important role in international relations and globalizations. multinationals are actually the best form of organization, making the effective use of worlds resources and transferring technology between the countries.

What Is Corporate Governance

“Corporate governance is a system by which the companies are directed and controlled” report of committee on the financial aspects of corporate governance (the UK Cadbury code ),London,1992.actually corporate governance involves a set of relationships between a company, s management ,its board, its shareholders and other stakeholders. this term of corporate governance is very wide in which rights and responsibilities are shared among all stakeholders in a company and all stakeholders perform their liabilities with due care and diligence to contribute in good corporate governance in concerned companies.

Corporate Governance:

According to Solomon “there is no single, accepted definition of corporate governance.’”, hence it shows that the subject cannot be confined to a oneliner definition. To get an idea of the approach of corporate governance it can be defined as “the system by which companies are directed and controlled”’, this relates to the corporate social responsibility which is critical in the current ever changing political and economic environment. However the definition aiding this coursework would be that corporate governance “contributes both to business prosperity and to accountability and requires an appropriate balance so as the maximum is achieved from these two goals.

Importance Of Corporate Governance

Corporate governance has gained an increasingly high profile in the last decade. The intrest in corporate governance spans countries and continents, and applies not only to large public corporations but also to a wider range of business forms including state-owned enterprises, family-owned firms and not-for-profit organisation.“Corporate governance is about performance. Corporations must deliver good result not only to the shareholders, but also to all of the stakeholders, the community, the society, and the economy as a whole”

That good corporate governance contributes to competitiveness facilitates corporate access to capital markets, and thus helps develop financial markets and spur economic growth. Improvement in corporate governance practices can improve the decision making process within and between a company’s governing bodies, and should thus enhance the efficiency of the financial and business operations. Better corporate governance also leads to an improvement in the accountability system, minimizing the risk of fraud or self-dealing by company officers. An effective system of governance should help ensure compliance with applicable laws and regulations, and further, allow companies to avoid costly litigation.

The presence of strong governance standards provides better access to capital and aids economic growth. Corporate governance also has broader social and institutional dimensions. Properly designed rules of governance should focus on implementing the values of fairness, transparency, accountability, and responsibility to both shareholders and stakeholders. In order to be effectively and ethically governed, businesses need not only good internal governance, but also must operate in a sound institutional environment. Therefore elements such as secure private property rights, functioning judiciary, and free press are necessary to translate corporate governance laws and regulations into on-the-ground practice.

Good corporate governance ensures that the business environment is fair and transparent and that companies can be held accountable for their actions. Conversely, weak corporate governance leads to waste, mismanagement, and corruption. It is also important to remember that although corporate governance has emerged as a way to manage modern joint stock corporations it is equally significant in state-owned enterprises, cooperatives, and family businesses. Regardless of the type of venture, only good governance can deliver sustainable good business performance. Good corporate governance is key to the integrity of corporations, financial institutions and markets, and central to the health of our economies and their stability. OECD work on in this area revolves around the  OECD Principles of Corporate Governance and their implementation in economies throughout the world.

OECD Guidelines

The oecd guidelines are actually the recommendations undertake by governments for multinational enterprises running in form of cleave countries.guidelines provide willful principle and standards for responsible business conduct in very vast field including environment,employment,industrial relation,human rights competition taxation ,science and technology.these guidelines have been endorsed by 41 countries.

Many business codes are available now but OECD guidelines are the only complete and authentic code which is multilaterally accepted and governments are happy to promote it.the main objective is to elevate reasonable contribution that multinational may make in environmental, economic and social progress.

The main trait of these guidelines are that the principles are non binding and these are on the will of enterprises,how effectively they are complying with their own circumstances,the aim of these principles are not to control the enterprises,actually these principles are worldly recognized and can promote mutually understanding and confidence between all stakeholders,due to its non binding nature, guidelines need support from business community, labour representative and non governmental organisations for its effectiveness.guidelines are the part of the package under oecd declaration on international investment and multinational enterprises,a wide politically commitment by oecd member countries in 1976 to promote direct investment in member countries .

these guidelines have become a basic framework for many enterprises and especially large enterprises that have a big share in international investment. international trade and investment make the relationship strong between OECD economies and acceptance of national rights for all these enterprises played a significant contribution for the economy of host country as well. OECD guidelines are comprehensive in their connection with multinational interprises.

Concept And Principles

a. these guidelines are actually instructions addressed by the governments to multinational enterprises and provide principle and standards those are not legally binding and depends on will. For good corporate governance these principles are not binding and are voluntary basis.

b. multinational enterprises are now operating from different countries,the government of the concerned country should observe and encourage the multinational enterprises to adopt the guidelines according to that country,s circumstance and contribute their share in good corporate governance.

c. in the guidelines there is not mention for a specific kind of companies every company is include (parent companies or/ local entities )no issue of ownership is involve. good governance is necessary for all departments.

d.the guidelines are equal for multinational and domestic companies it is the duty of host country to treat them equal.

e.governments should always encourage all enterprises to follow the guidelines as a whole but as for as the small and medium enterprises are concerned governments suggests them to follow the guidelines according to their capacity and ensure their part in good corporate governance .

f. governments should not use the guidelines for protection purpose or other type of misuse as well and promote these guidelines for better future of good corporate governance in all companies.

g. the governments have the right under international law to make legislation for the erterprises those are operating in their territories and solve their problems instead of making hardles for them.

h. governments following the guidelines should treat enterprises equally according to international law and should fulfil their contractual obligations and assist enterprises on the way of good corporate governance.

i. all problems will be solved through a dispute settlement mechanism including arbitration,if the problem arise between host country and multinational enterprises.

j. the concerned governments will establish national contact point and that will be a forum for discussion and all relevent issue will be discussed and adhering countries will participate in reviews and they consult and interpret the issue according to the guidelines.

Scope and implementation of OECD guidelines

Key feathers of good governance

Corporate Social Responsibilities

The corporative according to their volumes has their social responsibilities in the society where they are doing their business.

This is common question that what its means difference organization has create different definitions. My own definition is that C S R i

Corporate social responsibilities – what does it means? s about own which process companies operate the business procedure to product and overall positive results on society.

According the world business council for sustainable development in its publication”making good business sense” by lord holms and Richard watts, used the following definitions, corporate social responsibilities is the continuing commitment by business behave ethically and contribute to economic development whilst improving the quality of life of the work force and their family as well as of the local community and society at large”

In the USA, C S R has been defined much more in terms of a philanthropic model.

Companies make profits, unhindered except buy full filling their duties to pay taxes. They denote certain part of their earnings to charitable cause. Its means this act of the company shows that they spend that money which they received from the benefit after giving the charity.

European model is more focussed on managing the core business in social responsible way, implemented by investment in communities for strong business. Personally, I believe this model is more suitable because:

1. Social responsibilities become and essential part of the wealth generate process which is organized properly should increase competitiveness of business and pick the value of wealth creation to society.
2. When times get tough, there is the incentive to the practice C S R more and better it is a philanthropic exercise which is peripheral to the main business, it will always be the propriety things to go when push comes to shove.

But as with any procedure based on the collective activities of communities of human beings (as companies are) there is no “one size fits all”. In different countries of the world there is different priority and values that will show how business act. And even the oberservation of the circumstances shows the changing over time. In USA also growing numbers of people looking towards important business issues. When we review each of these that they agree that the definition now focus to the impact of the core business how can they manage.

It is key difference, when many business leaders that their companies are note doing satisfactorily social responsibilities and that companies have no democratic legitimacy to play such role. Those particular debates will continue.

(B S reporter- new Delhi November 18,2009,0;51 IST)

Union minister’s corporate affairs salman khrshaid has asked the industry to propose a corporate social responsibilities system that rewards industry.

Addressing a conference on “companies’ bill” organised by the Federation Indian chamber commerce and industry here today, Khurshaid suggests that the incentives for C S R could even be facial incentives that are proportionate to the C S R initiative being under taken.

Corporate Code Of Conduct

Code of conduct is a single most element of ur ethics and complies project. It managed the direction and tone for the function of the company. Therefore, the code is modal document, to provide the concept of ethics and compliances and given and summary of what you mean what you talk about ethical business conduct.

It provide why do employees read a code of conduct

For example we have a good idea of the kind of question that employees are likely to ask.

Which person do I talk when I want to make a report ?

Which are our rules on oudside employment ?

What our C E O say about ethics?

Is our rules on ethics apply to everyone, including members of the board ?

Who is accountable under our code ?

What is my role as a member of management and what is expected of me and my team and this code is enforceable?

Can there be a universal code for a global company ?as much as we would like to find common grounds amongst the legal systems of global 193 nations each sovereign nations laws are unique

So the simple answer the above question are when ever necessary we can change or update their codes in every specific times for example every five years because this is not longer relevant the business itself has changed radically in the interim.

Frankly we can say code of conduct is hard work. It is time consuming non binding and voluntarily code. This is probably good thing.

Actually code of conduct must help your employee may great decision,quickly and effectively. They need to get to the point. Remember a code of conduct part of all of the laws that my in effect your compnies operation.

Companies with effectives labour union how to manage and bargain terms and conditions and employment.

Competition:

Multinational Enterprises must encourage fair competition and refrain from entering into or carrying out anti-competitive agreements that restrict free trading and competition between business entities. The fair and free competition is regarded to contribute to the promotion of trade and investment, the maintenance of sustainable economic growth by enhancing economic efficiency and productivity. Competition law assumes that markets generally work best when competitors compete, rather than co-operate on the other hand anti-competitive agreements or practices such as such as fixing prices, collusive tenders, output restrictions or quotas and sharing markets or unlawfully excluding competitors are harmful for economic growth.

Multinational Enterprises should act in compliance with national and international competition laws and promote awareness to the employee for the importance of compliance with all applicable competition laws and policies.

Multinational Enterprises should co-operate with the competition authorities at national level by, among other things and subject to applicable law and appropriate safeguards, providing as prompt and complete responses as practicable to requests for information.

Disclosure And Transparency

Structure Disclosure:

Multinational enterprises should disclose the information about the structure of the company, the directors, shareholder and stakeholders of the company. Enterprise should disclose the name of the company, its affiliations and the parent enterprise’s name.

Objectives:

Multinational enterprises should disclose the information about the objectives of the company the financial operating results of the company.

Risk Factors and Policies:

Enterprise should disclose the Information about the key executives their roles and about their remuneration, Information about the risk factors and the issues of the shareholders and Information about the future policies.

Financial And Non Financial Disclosure:

Multinational Enterprises should disclose the information regarding their financial situation, their performance, their costs, their activities and their structure as a whole. All this information should match to the size, nature and location of the company. Business confidentiality and competitive concerns should also be taken in to account.

Multinational enterprises should disclose the financial and non financial information including environment, audit and accounting.

Multinational enterprises should disclose the information about the objectives of the company the financial operating results of the company. Enterprise should disclose the Information about the key executives their roles and about their remuneration, Information about the risk factors and the issues of the shareholders and Information about the future policies.

Code Of Conduct Disclosure:

Multinational enterprises should disclose the code of conduct of the company and in how many countries these codes will be applied in relation to their performance. Enterprise should disclose the Information about the relation between the shareholders and the employees and how to manage the risks.

All this information should be disclosed under the national law of individual country in which they operate.

Combating Bribery

It is the duty of enterprises to avoid bribery because it is harmful for society, enterprises should not involve, offer or demand bribe and should not take any illegal advantage for company or for personal purpose. the enterprises should not offer bribe to any public official or employees and should not promise the payment of any portion of contract. Enterprises should make sure about the remuneration of their agents and remuneration should be reasonable according to their job and the enterprises should maintain the record of their dealings with public bodies and other enterprises for a fair check.

The company’s activities should be transparent to fight for bribery and the enterprises should disclose the system which they have adopted to eradicate bribery and honour their commitments with society. The enterprises should start training programmes and disciplinary procedures to enhance employee’s awareness for the compliance of the policies against bribery and fraud. Enterprises should promote management control system that hinder bribery and corruption and promote financial and tax accounting and discourage the establishment of secret accounts and fake records of transactions. Enterprises should not donate money to any public office holder or political candidate or political organization for the achievement of their illegal advantage and all donations if any given should be in knowledge of senior management. After following all these measures the enterprises can contribute in good corporate governance under OECD guidelines.

Arias Of Improvement And

The business costs of “government failures” and of associated problems of rights violations (including investors’ rights), violence and corruption are large – they include direct costs and missed opportunities. Individual companies and the business sector as a whole might therefore find it in their broad self interest – as important members of weak governance host societies – to help these societies get on the path of institutional reform.

However, the roles they can usefully play in this area are not always well defined and there may be risks associated with business engagement in this area.

A durable exit from poverty and insecurity will need to be driven by the leadership and people of the countries concerned: host country actors – including citizens, politicians and civil servants – have the primary responsibility for reforming institutions in weak governance zones.

International organisations and home country governments can play important supporting roles.

OECD consultations on possible roles for companies in promoting institutional reform in weak governance countries revealed mixed views.
Some consultation participants welcomed such involvement, noting that multinational enterprises are relatively powerful actors in weak governance host societies and that they might be better placed to advocate reform than most of the citizens of these countries. Some participants underscored the risks for companies of being seen as associated with or even complicit with a weak governance regime – it may be prudent for companies in weak governance zones to be seen as making credible efforts to promote better policies and practices in both the public and the private sectors. Others were strongly opposed to political advocacy by companies, fearing that it would inevitably deteriorate into inappropriate involvement in local politics.

When discussing how companies can support weak governance host countries’ efforts to enact institutional reform, consultation participants generally agreed on the importance of partnership. Multinational enterprises can help by working in partnership with host country business and professional associations, trade unions and civil society organisations. They also noted the potential usefulness of partnerships involving international organisations, home governments and international business, trade union

and civil society organisations (the Extractive Industries Transparency Initiative was cited by many as a good example of international, multi-stakeholder partnership for promoting fiscal reform and transparency).

Future Of Corporate Governance In Multinational Enterprises

Speculation on the future of corporate governance suggest both a conclusion and a question: It will be different, but will it be more effective?

Corporate governance in the future will, reflect an increasing emphasis on customer satisfaction as a way of measuring the adaptability of the organization over time. “By focusing too strongly on financial records (and audit committee work), we lose sight of the fact that departments like operations and human resources are very important components (in forecasting future success).

the world of corporate governance will benefit from the establishment of “a new type of corporate information and control architecture.” that a network of more specialized board groups and “advisory stakeholder councils” comprising employees, lead customers, suppliers, and others offers a useful solution to the governance vacuum that exists in many large corporations today.

While agreeing that “customer and employee satisfaction and loyalty are indeed good predictors for (the) future success of a company,” these measures have to be viewed with a long-term lens, one that accommodates the fact in the short-run, managements may take actions to reduce costs and the size of the labor force to achieve long-term success—actions that could adversely affect non-financial indicators used as inputs for corporate governance.

Conclusion

OECD Guidelines are just a step towards the destination not the destination itself. We can increase the transparency but cannot achieve the dream of having a foolproof corporate governance system. We can say that we might get solution for many problems related to the corporate governance by adopting these OECD Guidelines but it does not provide an absolute solution.