Ethics, Corporate Governance and Social Responsible Investemtn Essay

Ethics, Corporate Governance and Social Responsible Investemtn - Essay Example A number of other major economies have however embraced the adoption of the enabling mode of governance and rejected the mandatory corporate governance. A number of differences exist between these two systems as outlined by Anand, (2005). Mandatory corporate governance is practiced in major states of the United States, a mandatory system provides guarantee that firms in this system will have to implement any reforms that market regulators put in place. This is contrary to the enabling governance where nothing guarantees a fair play and the enforcement of implementation of any changes. Enabling governance has the ability to ensure that there is compliance to regulatory mechanisms especially when it is implemented together with mandatory disclosure of organizations practices. Mandatory system is also slightly more costly to implement when compared to the enabling governance style (Anand, Milne, and purda, 2006). Mandatory corporate governance is majorly practiced in the United States w hile the United Kingdom practices the enabling kind of governance. Canada and Australia are other major countries that also practice the enabling kind of governance apart of the United Kingdom. The United States mandatory governance is however a blend of the two systems. In some states, companies are not compelled to adhere to the requirements but are required to make formal disclosure of the rules they have or have not adhered to. Firms that are cross listed in the United States are required according to the Sarbanes-Oxley act to submit their evidence of compliance to the mandatory governance regulation. The SOX regulation has a prohibition for ‘insider loans’ especially among companies listed under this act. Such companies must also ensure that they submit their balance sheets for each financial year (Anand, 2005). The mandatory corporate governance system of the United States also has a requirement for all companies listed under its stock exchange at the NYSE and NAS DAQ. They are required to include independent directors in the management board of the firms; the same policies are also practiced in Canada. Firms are required to submit their compliance statuses through proxy to the provincial commissions who are also mandated to ensure that there is strict formulation and administration of the guidelines (McCahery and Vermeulen, 2010). Under the enabling system as practiced in the UK, compliance with corporate guidelines is voluntary. Only companies that are listed in the London stock exchange are obligated by law to submit their compliance in their annual reports. The system as practiced in the United Kingdom has been adopted in Australia with a few modifications on the reporting mechanisms. The UK system also applies incentives that are meant to make firms disclose their compliance information; disclosure of information in the enabling system depends on the sensitivity of the information. In situations where firms feel that their competitors ma y benefit from exposure, such firms have the right to withhold their compliance (Anand, 2005). Enabling systems is also known as voluntary governance system, this is majorly because of the free atmosphere that it creates for its firms. Firms in this system can either chose to disclose their information or not to be based on their reasons; this is the system which is practiced in the