AGM -an ineffective forum for shareholder democracy Essay

AGM -an ineffective forum for shareholder democracy - Essay Example Corporate governance - an awkward phrase with several definitions among which the simplest and effective is the one that describes corporate governance as a system by which companies are directed and controlled (Committee on the Financial Aspects of Corporate Governance, 1992)1. Corporate Governance supports businesses that are well managed, well directed, and well controlled. Indeed one of the functions of good corporate governance is to help ensure that good management is in place. Nevertheless, some of the most conspicuous failures in recent years have stemmed from a failure of the control function or from poor direction.All systems of corporate governance have to be considered against the social, economic, legal, and political background of the country in which they developed. A study of the relevant laws governing corporations does not reveal enough in any country unless they are understood on the basis of attitudes and patterns of behaviour to make sense of them. Examples are t hat of the company laws of Japan and the UK that are not too dissimilar in structure, but the results are poles apart. When we examine remuneration we find a marked difference in approach between the USA and Germany, where exorbitant share schemes have in the one become common and barely exist in the other. According to Charkham & Simpson (1999) "The impact upon competitiveness appears irrelevant, however other differences tell us that banks play a much larger part in Germany and Japan, not because of any deliberate policy, but because their economies happened to develop in ways in which this occurred and by the same token the stock market has a bigger role in the UK and USA"2 (Charkham & Simpson, 1999, p. 28). Reforms on both sides show that no system is immune to pressure for change, be it domestic or international. One purpose of good corporate governance is to reduce this accident rate, because unnecessary collapse is so damaging to all concerned; and where it occurs in a major company may be catastrophic. Another purpose is to encourage management to seize opportunities, and we can only speculate on how many have not been taken in the UK over the years. Corporate governance as a subject therefore is as broad as life itself, because it touches upon fundamental elements in the economy and society at large. The Role of AGM The reason for considering AGM ineffective might be the choice of a year as the period between company meetings appear a reflection of the world of nature and the tyranny of the seasons, rather than any particular logic dictated by the needs of any organisation that is not subject to them. Shareholders recognised this in the political world by having elections at various intervals and, even the UK has itself varied and to this day does not have a uniform period between elections for all levels of government. This means AGM does not support shareholders in terms of democratic elections and as far as companies are concerned, there is no particular reason, especially in these days of overflowing information, why the annual AGM cycle should be a year long. Sometimes it might be a half-year, or a quarter, for that matter eighteen months or two years, there is no particular timings for conducting regular elections. On the other hand taxation has a bearing on the choice of period and most governments raise taxes on an annual cycle but even this is not necessarily immutable and the accounting period does not have to be twelve months either; indeed