Published: Last Edited:

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

"Corporate Governance is the system by which business corporations are directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as, the board, managers, shareholders and other stakeholders, and spells out rules and procedures for making decisions on corporate affairs. By doing this it also provides the structure through which the company objectives are set, and the means of attaining those objectives and monitoring performance."

"Corporate Governance can be described as a system of structuring, operating, and controlling a company with a view to achieve long term strategic goals to satisfy shareholders, creditors, employees, customers, and suppliers with the legal and regulatory requirements, apart from meeting environmental and local community needs. It leads to the building of a legal, commercial and institutional framework. It also demarcates the boundaries within which these functions are to be performed."


As we all know that in today's scenario market forces are increasingly replacing government controls, corporate governance is gaining prominence in a business industry. Today corporate governance can be seen as a prerequisite for attracting funds from foreign institutions. Investors these days make sure that the company in which they are investing their corpus is not only properly managed but also follow corporate governance. It is regarded as a control mechanism that ensures the optimum use of human, physical and financial resources for an enterprise. It addresses various issues faced by board of directors, top management, owners, stakeholders and the society at large.

Corporate governance practices are a set of structural arrangements that emerge in free market economies to align the management of companies with the interest of their shareholders, stakeholders and the society at large. Corporate governance aims to address three basic issues:

Ethical Issues

Efficiency Issues

Accountability Issues

Ethical Issues as the name suggests relates to the problem of ethics in business. Corporations employ fraudulent means to achieve their goals.In order to exert pressure on the government to formulate public policies the companies form cartels which often go against the interest of the public. Companies in order to gain loyalty from customers may give bribes or offer gifts to potential customers.

Efficiency Issues are concerned with the performance of the management. Management is responsible for ensuring reasonable returns on investment made by shareholders. The issues relating to efficiency of management is of interest to the shareholders as their return on investment is at stake.

Accountability Issues relate to the shareholders need for transparency of management in the conduct of the business.

Characteristics of corporate governance:







Social Responsibility


Rights and equitable treatment of shareholders: Organizations should respect the rights of shareholders and in turn encourage shareholders to exercise their rights. They can help shareholders exercise their rights by effectively communicating information which is in an understandable form to them and encouraging shareholders to participate actively in general meetings.

Interests of other stakeholders: Organizations should recognize that they have legal and other obligations towards all legitimate stakeholders such as the creditors, suppliers, employees etc.

Disclosure and transparency: Organizations should clarify and make publicly known all the facts and findings so as to provide shareholders with a level of accountability. They should also implement policies and procedures to verify and safeguard the integrity of the company's financial reports. Disclosure of material facts concerning the organization should be timely and balanced to ensure that all investors have access to clear, factual information.

Roles and responsibilities of board: The board needs a lot of skills and understanding to be able to deal with various ethical issues. It needs to have a level of commitment to fulfill its responsibilities and duties. There are issues about the appropriate mix of executive and non-executive directors within a company.

Integrity and ethical behaviour: Ethical and responsible decision making is not only important for public relations, but it is also an important element in risk management. Organizations should invoke a code of conduct for their directors and top management that promotes ethical and responsible decision making at all levels of the organization. Many organizations have also established Compliance and Ethics Programs to minimize the risk that the firm goes against the ethical and legal boundaries.

Issues involving corporate governance include:

internal controls and internal audits

rules regarding preparation of the company's financial statements

dividend policy

the independence of the entity's external auditors and the quality of their audits

efficient use of resources made available to directors in carrying out their responsibilities

management of risk

review of the compensation for the chief executive officer and other senior executives

the process of nominations of individuals for positions on the board




Anita Roddick is the founder of The Body Shop. She is one of the renowned personalities who is engaged in Ethical Consumerism. She is actively involved in campaigns for environmental and social issues including the campaigns such as Greenpeace and the Big Issue(2007),Hepatitis C. She is an enthusiastic person who takes an initial responsibility to cause a vision to become a success and is a positive thinker and an excellent decision maker.

The Body Shop is a worldwide known British chain of cosmetics stores. It was taken over by French Cosmetics group L'Oreal in 2006. The Body Shop is distinguished for selling its own line of products which are produced in an eco friendly manner and are not tested on animals. The Body Shop considers the concept of corporate governance as their competitive advantage. Anita Roddick who is the head of the decision making body of the company creates a value system not only in selling its products but also in maintaining a significant relationship with all its stakeholders. The company has established a properly structured framework in order to deal with corporate matters. It has established a proper structured program which is reinforced by company policies and other procedures for proper guidance of the directors in carrying out their daily duties. The company has a clear reference guide to its business operations and corporate governance. This includes the maintenance of the standards with respect to the corporate governance in the corporation's different sectors.

The Board of the company consists of ten directors out of which two are executive while six are non executive due to which there is a fair division of responsibilities among them. The board is in charge of taking care of the company's operations, assets, and its shareholders with a view of maximizing performance. The Board conducts a monthly review of the company's businesses in relation to its financial movements in order to ensure the firm's competent operations. The company law obliges the board of directors to carefully prepare each year, a financial report that needs to be accurate and reliable reflecting the true state of the company. The Board of Directors are also responsible for the proper safekeeping of accounting statements and ensure that these records are precise and truthful. It is also vested with the responsibility of safeguarding the company's other assets as well as making the necessary steps in order to prevent complications such as fraud and other types of risks.

Apart from the board there are other committees which are formed which have a well-established reference guide which also discusses their duties and their scope of authority within the corporation. The remuneration committee handles the outline for the company's remuneration policy which would be reviewed by the board. Moreover, this group is also responsible for the various remuneration packages that are offered to the executive directors. The audit committee makes proper recommendations with regards to the company's accounting policies as well as overseeing financial control within the corporation. The company also has a clear code of ethics and all employees must conform to this code. The code of ethics includes a conflict of interest policy to ensure that key corporate decisions are taken by individuals who do not have a financial interest in the outcome separate from their interest as company officials. The company also monitors compliance with the law and the global financial policies and practices in the area of internal controls, financial accounting and reporting, fiduciary accountability and safeguarding of corporate assets.


With regard to the entrepreneurship practices followed by Anita Roddick, the company has been able to achieve complete control of all the matters concerning the company and its stakeholders. The self perseverance and obligation to the duties by all the employees of the company and their obedience to the company laws and regulations all of which have contributed to the development of the corporation as a whole.

The Board has constant belief in the fact that that all the data pertaining to the financial information and other facts regarding their operations that are currently being practiced are reliable.

The authority of the Board is clearly recognized within the company because of which it is able to have a solid grip on the corporation's actual operations, stakeholders and its financial concerns. The well defined structure of the organization and the commitment of the board towards the stakeholders and the community has proved the fact that the organization can handle both its ethical and legal responsibilities efficiently.

The company maintains good relations and open communications with its investors. The shareholders are regularly invited by the company on a regular basis to discuss trade updates. Moreover, in annual general meetings investors also get an opportunity to meet the Board members. Private investors can access the company's website for various services. The company has a good consideration for all its stakeholders be it past, present, or future.

There seems to be a very well defined framework in the firm's corporate division. It has policies and procedures with regard to financial matters and operational concerns. Its procedures for assessing different kinds of situations that come up is certainly well defined. Furthermore, they have always maintained good relations with their stakeholders. And finally, The Board's authority has always remained unsurpassed.

Clearly, the above mentioned points prove the strength of the company's corporate governance structure.

The weakness of this case is the fact that one cannot always be assured that there are no losses or other errors which may result from mistakes and inconsistencies by one of the committees or employees involved. In addition, due to the presence of diverse cultural beliefs there can be internal problems between the members. There are times when the shareholder is not given enough information about the status of the company, especially if that shareholder which holds a small part in the business. This happens when the board of directors do not provide value to their shareholders. Other negative aspect includes the limitation of financial reporting procedures which may definitely result in ineffective corporate governance. 


MOTTO: "Nature's way to Beautiful"

Body shop has constantly sought out wonderful natural ingredients from all across its globe and strives to protect this beautiful planet and the people who depend on it.

The Body Shop believes that business has the power to make the right kind of difference to the world. This principle allows all customers round the globe to become activists

The first cosmetics company to source harvested palm oil and introduce the ingredient into the beauty industry, working in partnership with a certified organic producer in Colombia, in 2007.

In 2008 introduction of 100% PCR bottles (post consumer recycled)

Community Trade program creates sustainable trading relationships with disadvantaged communities around the globe and provides essential income to more than 25,000 people.

The Body Shop continues to raise awareness and funding for women across the world affected by domestic violence in 2008. Launch of Stop Violence In The Home campaign runs in more than 55 countries and has raised more than US$4 million.

In 2008campaign to raise awareness of HIV and AIDS among young people, working with MTV Networks International was carried on.

The Body Shop has committed to become Carbon Neutral by 2010, ensuring that carbon dioxide emissions from the company's core retail business worldwide are reduced to a large extent.

The Company is committed to trading ethically. The sourcing team is trained in ethical audits and trade with suppliers who abide by the Code of Conduct for Suppliers.


Nestlé is committed to the following Business Principles in various countries it operates in, taking into account all the local legislations prevailing within that particular country, cultural and religious practices:

Nestlé's business objectives, and that of management and employees at all levels, is manufacturing and marketing the Company's products in such a way so as to create value that can be sustained over the long term for shareholders, employees, consumers, business partners and all the other stakeholders.

Nestlé doesn't favor short-term profit at the expense of successful long-term business development, but recognizes the need to create healthy profit every year in order to maintain the support of our shareholders, keep them content, and the financial markets, and to finance investments.

Nestlé recognizes that its consumers have a sincere and legitimate interest in the behavior, beliefs and actions of the Company behind brands in which they have their trust, and that without its consumers the Company would not have come into existence.

Nestlé believes that legislation is most effective safeguard of responsible conduct.

Nestlé is conscious of the fact that the success of a company is a reflection of the professionalism, conduct and the responsible attitude of its management and the employees working in that company. Therefore, recruitment of the right people at the right time and training and development are the critical factors in any company's success.

Nestlé operates in various countries and in many cultures throughout the world. The rich diversity is a very valuable source for a company's management.

National Legislations and International Recommendations

Nestlé emphasizes that its employees must abide by the laws applicable in the countries in which it operates.

Nestlé ensures that the highest standards of responsible conduct towards its customer and the society are met throughout the organization, by complying with the Nestlé Corporate Business Principles, which guides the Company's activities and relationships worldwide in each sector of business interest.

The company supports and widely advocates the United Nations Global Compact and its ten principles, an initiative of the Secretary-General of the United Nations. The Global Compact asks the companies to take up, support and enact, within their sphere of influence, a set of core values in the areas of human rights, the international labour standards and the environment.

The company also recognizes the fact that increasing globalization is leading to the development of more and more international recommendations. Although, as a rule, these recommendations are addressed to governments, they undoubtedly impact the business practices. Among others, Nestlé has incorporated relevant International Labour Organization Conventions, and the International (WHO) Code of Marketing of Breast-milk Substitutes into its policies.

Nestlé endorses relevant commitments and recommendations for voluntary self-regulation issued by competent companies in the same sector, provided they have been developed in full consultation with the parties concerned. These include the International Chamber of Commerce (ICC) Business Charter for Sustainable Development. Also, Nestlé uses the Organization for Economic Co-operation and Development (OECD) Guidelines for Multinational Enterprises, approved in June 2000, as a reference point for its Corporate Business Principles.



WorldCom the world's second largest telecommunication company had filed for bankruptcy in the year 2002 in Manhattan after the disclosure of massive accounting irregularities.

The deviations from corporate behaviour happened because of the Board of directors who failed to recognize, and to deal effectively with, abuses reflecting what was identified as a "culture of greed" within the corporation's top management. Others resulted from a failure of responsible persons within the company to fulfill their fiduciary obligations to shareholders. Another contributing factor was a lack of transparency between senior management and the Company's Board of Directors. There was a complete breakdown of corporate governance.

The checks and balances intended to prevent wrongdoing and irregularities failed to operate. The checks didn't balance and the balances didn't match.

The actual fraud which took place in WorldCom consisted of a number of "topside adjustments" to accounting entries to prop up declining earnings. Mostly these comprised of improper drawdowns of reserves accumulated from its acquisition program and other sources and improper capitalization of costs which should have been expensed for.

While WorldCom has not completed the restatement of its financials, the company overstated its income by approximately $11 billion, overstated its balance sheet by approximately $75 billion and, as a result, caused losses in the shareholder value of as much as $250 billion, a significant amount of which affected the employee retirement funds.

During the 1990s, favorable market views of WorldCom was sustained by a series of acquisitions. The company was in an almost-constant acquisition during this period. This generated great pressure to keep the stock prices high in order to fuel the acquisition spree and to provide lucrative cash-outs for executive stock options. To do this, the company had to meet Wall Street's earnings expectations, but when, in 2000, a proposed merger with Sprint was disapproved by the government and the telecommunications boom came to an end, WorldCom earnings began to slip. Management first sought to utilize its aggressive accounting techniques to improve its eroding financial picture. But when these were exhausted, the management resorted to false entries to generate what could impersonate as genuine earnings and enable them to make the numbers and sustain the picture of a company continuing to meet Wall Street's earnings targets. As a result, during the last thirteen quarters prior to bankruptcy, the Company consistently reported that it met those targets, but the fact was it missed them in 11 out of 13 of those quarters and, in the last four quarters, actually should have reported losses.

The balloon finally collapsed in 2002 when internal auditors finally fingered substantial improprieties and the top officials were fired or resigned, earnings were restated, SEC and criminal investigations had been initiated which resulted in bankruptcy. The company's approach to deals was completely adhoc and with little meaningful or coherent strategic planning. The board used to approve billion dollar deals with no discussion or very less discussions. WorldCom management or the Board of Directors never even bothered to monitor the Company's debt level and its ability to satisfy its outstanding obligations. WorldCom's issuance of more than $25 billion in debt securities in the four years preceding its bankruptcy was clearly facilitated by its huge accounting fraud which allowed it to falsely represent itself as creditworthy. The Board again passively used to get the proposals approved through unanimous consent resolutions which were adopted with very little or no discussion. The compensation committee of the Board agreed to provide enormous loans and a separate guaranty for Mr. Ebbers(director) without initially informing the full Board or taking appropriate steps to protect the Company. The Board was also considered at fault for not raising any questions about the loans adopting, without meaningful consideration, the recommendations of the compensation committee.

Another reason was the absence of internal controls as a cause of this debacle was the lack of transparency between senior management and the Board of Directors at WorldCom. A culture and internal processes that discourage or forbid scrutiny and comprehensive questioning are breeding grounds for fraudulent misdeeds. In accordance with the accounting irregularities, these shortcomings created the illusion that WorldCom was far more healthy and successful than it actually was.

The audit committee of the Board failed to devise a work plan with the internal auditors and the outside accountants. The internal audit operation within the company was purposely diverted away from auditing responsibilities and forced to concentrate upon increased efficiencies and cost cutting instead of internal policy framing. Moreover, it was understaffed, underpaid and under-qualified for carrying out a responsible internal audit function.

The company inappropriately styled some $20 billion worth obligations by its subsidiaries to itself as so-called "royalties" for what WorldCom designated as "management foresight" that is, the subsidiaries were supposed to have the advantage of WorldCom's "management foresight" for which they would pay a handsome fee. These "royalty" amounts were accounted in a way that drastically reduced the taxable income of certain WorldCom subsidiaries for state tax purposes. However, these amounts, while they were accrued, were never actually paid to WorldCom.

Reasons for collapse:

Non compliance to Serbanes-Oxley Act

Board lacked sufficient information to fulfill its responsibilities.

WorldCom's culture was not generally supportive of a strong legal function which prevented counsel from meeting their obligations to their corporate clients.

Improperly aggressive accounting strategies were proposed by management.

With its own overambitious strategies and flawed accounting, WorldCom also fell victim to a glut of telecommunications capacity.

Cheap and plentiful financing allowed companies rapidly to build transcontinental and transoceanic fiber optic networks in the 1990's. The additional capacity resulted in lower prices for WorldCom's services, which include phone service and the transmission of Internet data for huge companies.

The filing for bankruptcy would relieve WorldCom of about $2 billion of interest payments in the coming next year. Lower debt costs allowed WorldCom to compete on a stronger foothold with its rivals, involving a probable price-cutting policy concerning about the wider strength of the telecommunications industry.

In April 2004, WorldCom emerged from bankruptcy and changed its name to MCI, which it acquired in 1998. Ironically, having shed $36 billion in debt, WorldCom emerged from bankruptcy with a improved balance sheet than most of its competitors. It also wound up with a corporate name respected for its revolutionary efforts in telecom. 


On December 2, 2001 Enron, the then seventh largest corporation in US had filed for bankruptcy. It resulted in billions of dollars being lost, thousands of people losing their jobs, and a large amount of employee's retirement savings had been wiped out. Billions of U.S. dollars had been concealed in the balance sheet of the company which had overstated its income by $600 million.

The performance incentives created a climate where employees were required to generate profit at the expense of the company's stated standards of ethics and strategic goals. Enron had all the structures and mechanisms for working towards good corporate governance. In addition, it had also framed a policy for corporate social responsibility and a reasonable code of conduct on security, human rights, social investment and public engagement. Yet the problem occurred as no one followed the code.

Impact on the Company's Finance:

Decreasing investor confidence (negative)

Retreat to simplicity & easy to understand models (positive and negative).

Increased call for corporate transparency (positive).

Review of auditor and consultant relationships (positive and negative).

Return to fiscal conservatism and practices (positive and negative)

Call for increased regulation and scrutiny (positive and negative).

Political fallout on all levels (negative).

The Board was found to have failed in its duties in the following areas:

Fiduciary failure

High-risk accounting

Inappropriate conflicts of interest

Extensive undisclosed off the books activities

Excessive compensation to the directors

Lack of independence

The problem started off when the board of directors allowed the management openly to violate the code, particularly when it allowed the CFO to serve in the special purpose entities (SPEs) and also the audit committee suspected false accounting practices but still it made no attempt to examine the SPE transactions. So the auditors failed to prevent questionable accounting.

Failure of Enron resulted as a result of a conflict of interests that occurred the managers to act at the expense of the shareholders. Internal control measures also failed to work.

The action taken by Enron made a false appearance by misleading the market by showing greater creditworthiness and financial stability.

Even after Enron's failure the market for swaps and derivatives worked without any disruptions and worked as expected. The market did what it was expected to do i.e. to use reputation as a means for monitoring market participants.

Auditors failed because of not maintaining their integrity and independence in their working. The auditors committee had to proactively function and monitor the decisions to ensure that a realistic view is presented to the users of the financial statements of the company.

Enron created partnerships with nominally independent companies, some of which were offshore. This was basically done to obscure debt exposure and allegedly to cover losses at Enron's entity.

Enron's board members were misinformed and mislead. The substantial information about Enron's plans and activities were hidden from the board. The board had however failed in its oversight duties.

High risk accounting policies were being followed. The company was found to be in non compliance of Generally Accepted Accounting Principles.

Enron's multi-billion dollar, off-the-books activity was disclosed to the Enron Board members and received Board approval as an explicit strategy to improve Enron's financial statements. In fact, Enron's massive off the books activity could not have taken place without Board action to establish new special purpose entities, issue preferred Enron shares, and pledge Enron stock as the collateral needed for the deals to go forward. In the end, the Board knowingly allowed Enron to move at least $27 billion or almost 50 percent of its assets off balance sheet.

Enron's board failed in its fiduciary duty to ensure adequate public disclosure of its assets and liabilities. None of the board members objected to this corporate strategy.

Enron provided its executives with unreasonable lavish compensation. Stock options were distributed to all the executives in large numbers. It was argued that the company used to do this in order to attract and retain the good executives.