Corporate Governance as an Asset to the Company

Alexander V. Shchepot’ev

, Ellada V. Shelispanskaya

and Yana Y. Fedorova

Consulting group "New Paradigm", Tula, Russia

Tula State Lev Tolstoy Pedagogical University, Tula, Russia

Financial University under the Government of the Russian Federation, Moscow, Russia

Keywords: Corporate Governance, Globalization, Model, Management, Shareholder, Valuation, Informal Asset.

Abstract: The subject of the research is the corporate governance system as a hidden asset of the company. The corporate

governance system, regardless of its accounting in the accounting registers, is an informal but real asset of

any company. The article examines the main current models of corporate governance, which is defined as a

system of relationships between owners of capital, management and others who are interested in achieving

the goals of the organization, based on fair and legitimate activities. The factors influencing the emergence

and development of globalization are listed, and also influence the improvement of corporate governance

models. It is concluded that the peculiarities in the formation of corporate governance of each country are

related to the territorial individuality, national characteristics of states and world relations, which allow to

highlight the strengths and weaknesses of the three models of corporate governance.

1 INTRODUCTION

The current economic environment, with the

development of globalization, increased competition

and the role of the private sector, is characterized by

increasing factors influencing management tasks.

Improving and expanding the economy has made

management's objectives much more difficult. This

is of primary importance to large enterprises and their

associations, which use world markets to market their

products. Corporate governance has a direct impact

on both domestic and external investment. Without an

effectively formed corporate governance system, it is

impossible to obtain any financing and investment.

That is why corporate governance plays a significant

role in the development of the country's economy,

especially at a time of a lot of new developments and

improvements. The authors note that at the same time

as the development and consolidation of companies

that grow in to huge corporations, the model of

corporate governance has developed. Globalization,

the process of integrating factors of production and

forming a single global market, has the greatest

impact on the development of corporate governance

https://orcid.org/0000-0003-3451-2947

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models by influencing the processes of the socio-

economic world, accelerating economic growth and

modernization. Such factors include: the rapid growth

of international exchange flows of goods and

services, the increase in the initial costs of production,

science and technology projects, the creation of

fundamentally new financial technologies that enable

the implementation of round-the-clock financial

transactions in any country of the world and in real

time.

2 RESEARCH METHODOLOGY

In this study, the authors emphasize the fact that

corporate governance, regardless of its accounting in

the accounting registers, is an informal but real asset

of any company. The term corporate governance has

become much more common in our speech, but no

one can give a unified form of definition. British

economists were the first to formulated the term

corporate governance, which read: "Corporate

governance refers to internal means of ensuring the

activities of corporations and controlling them."

Shchepotev, A., Shelispanskaya, E. and Fedorova, Y.

Corporate Governance as an Asset to the Company.

DOI: 10.5220/0010597407750779

In Proceedings of the International Scientiﬁc and Practical Conference on Sustainable Development of Regional Infrastructure (ISSDRI 2021), pages 775-779

ISBN: 978-989-758-519-7

775

The peculiarity of forming the corporate

governance of the company in each country

individually and depends primarily on the legislation

that regulates the rights and responsibilities of the

participants in the relationship, as well as on the

company's charter and the level of corporate

governance development. That is, we can say that all

countries have an individual corporate governance

structure that has characteristics and characteristics

that make it different from others. Thus, in developed

countries, researchers formulated three models of

corporate governance: Anglo-American, Japanese

and Continental European (German).

The creation of transnational and international

corporations is a major factor in the development of

globalization. A transnational corporation (TNK) is

an organization that has its headquarters in one

country and its subsidiaries are scattered in many

other countries around the world. An international

corporation is an organization that has economic units

in two or more countries, regardless of their legal

form and area of their activities, but which operate

within a decision-making system that allows for

centralized policies and a common strategy through a

single management center. International corporations

differ from multinationals by the ability to have

parent companies in several countries that affect all

other divisions. To increase competitiveness,

corporations regularly update production, improving

production technologies and innovative ideas to meet

consumer demand. Improving competitive strategies

is primarily aimed at maintaining the share of

influence in the market, and then on strengthening

and expanding the market position. The regulation of

transnational and international corporations is an

important area of corporate governance, ensuring that

the interests of all participants in economic relations

are met. Corporations seek to capture most of the

market and share the economy, but this is contrary to

many interests, including consumers.

Increased exports and imports, weakening of

exchange rate controls, reduced regulation by states

of market mechanisms, increased trade and

procurement links between countries in the context of

globalization have affected the formation and

development of offshore zones, zones with

preferential conditions of registration, licensing and

taxation for non-resident companies. The negative

consequence of the formation of offshore zones is the

creation of a favorable environment for the

commission of economic crimes, such as tax evasion,

and the legalization of proceeds derived through

criminal means. This is the reason for the need to

improve tax controls at the legislative level of

regulation.

3 THE RESULTS OF THE STUDY

The process of managing all business processes of a

functioning business is an integral part of the

activities of each business entity. The relevant

executive body (CEO, Chairman of the Board of

Directors, Chairman of the Board, etc.) organizes the

work and relationship of each service of a functioning

company (production department, marketing service,

supply department, accounting, personnel service,

security and other units). Building all business

processes and connections between structural units is

a fairly time-consuming task, in some ways, creative,

and requires constant monitoring, improvement and

control. The authors conclude that the development

of globalization, the formation of transnationals,

international corporations and offshore zones have a

huge impact on changing corporate governance

models.

4 DISCUSSIONS

In modern scientific economic thought, there are

several basic models of corporate governance.

Consider the three main corporate governance models

used in economically developed countries.

The study of the Anglo-American model of

corporate governance is of the greatest interest, as it

was in the United States that the science and practice

of corporate governance was first formed. The

emergence of the American corporate governance

model fell during the U.S. economic boom at the turn

of ΧΙΧ ΧΧ centuries. The development of corporate

governance in the United States, primarily associated

with a favorable economic situation, that is, the

economy was characterized by the country's

democracy, high level of education of citizens and of

course the orientation of big businessmen on relations

with consumers (Chernyshev et al., 2016).

The development of the Anglo-American model

of corporate governance is based on the school of

classical capitalism. The main features of the school

of classical capitalism are a free market economy

with the division of ownership and control, the spread

of individual entrepreneurship and the predominance

of large and medium-sized producers. In the market

economy, investors are able to contribute their capital

to the company and stay with business owners, but

not to be legally responsible for the company's

ISSDRI 2021 - International Scientiﬁc and Practical Conference on Sustainable Development of Regional Infrastructure

776

actions. The so-called agency problem was caused by

a mismatch between the interests of the owners of

capital and managers who were transferred to the

rights of capital management. which determined the

number of losses of capital owners that appeared in

connection with the separation of ownership and

control.

The main feature of the American corporate

governance model is the lack of shareholders who

have a major influence on corporate governance

decisions. This means that corporations have a huge

number of shareholders with a small shareholding.

The fragmentation of the stake counteracts the

emergence of monopolies in the market and gives

shareholders equal rights to manage the corporation.

A characteristic of the Anglo-American model of

corporate governance is the presence of "insiders"

and "outsiders" who make up the single-tier board of

directors of the company. An "insider" in the Anglo-

American corporate governance model is a director

or shareholder who owns more than 10% of the

company's equity, or otherwise an executive director.

The "outsider" is recognized as a person who directly

influences the management of the company, an

independent director. Initially, the chairman of the

Board of Directors and the executive director was the

same person, the consequence of this phenomenon

was the abuse of his position and concentration of

power for personal purposes, ignoring the interests of

other shareholders. Currently, to prevent this

situation, each company increases the number of

independent directors, so the shareholding is split.

Factors that can increase the number of independent

directors include changes in the ownership structure,

increasing numbers and influences on decisions in

annual meetings of shareholders, institutional

investors, as well as recommendations of the

Corporate Governance Finance Committee and

independent self-regulatory organizations.

Compared to other corporate governance models,

the Anglo-American model has the strictest rules on

insider disclosure and has a clear system of

relationships between shareholders, directors and

managers. This affects the size and value of securities

in the country's economy and international arena.

The characteristics of my policy and corporate

governance are the nationalities of culture, which

leadfooted greatest importance of corporate culture,

social policy, community and solidarity. The main

feature is the leading role of banks, the presence of

financial and industrial networks and systems of

lifelong recruitment of staff. The relative liquidity

and low cost of capital are a characteristic feature of

the economy, so that hostile acquisitions do not have

a significant impact on corporate governance.

The relative features of the Japanese corporate

governance model are: high concentration of

ownership, high level of competitiveness of

companies, group of interconnected companies, high

stability of companies and confidence of all

employees of the company in the "tomorrow" day.

The development of the Japanese corporate

governance model is recognized as cross-ownership

of shares and unilateral control, as well as the

formation of super-large keirets and coquens. Keirezu

is a financial and industrial corporation, and here they

are associations of keirets in the type of financial and

industrial groups. Keirezu and here are grouped

around a large bank that provides financing to

companies and thus promotes protection from raiding

by other companies.

Unlike the American model of corporate

governance in Japan almost no small private and

institutional investors, as well as in the Japanese

model almost not developed the institution of

independent directors, that is, all directors are either

former managers or representatives of senior

management.

The continental European corporate governance

model is characterized by a large concentration of

interested groups who know the right to manage the

company. The main feature is social partnership,

which is based on the different interests of

participants interested in success. Social partnership

is officially enshrined both in the governance

structure of the organization and in the laws that

regulate the economic activities of the organization.

The characteristics of the European model are

two-tiered structures, the board of directors, the

representation of stakeholders, cross ownership of

shares and universal banks (Vlasova, 2018).

The Board of Directors of the European model, in

comparison with other models, consists of

management and supervisory boards.

A distinctive feature of the European corporate

governance model, as well as the Japanese model, is

the active participation of banks in corporate

governance processes. This is due to the versatility of

commercial banks; they can both engage in lending

and advisory services.

The state also plays an important role in the

European model. In most cases, the state owns a

significant share of the shares and has its

representatives in the management of the

organization. The state is engaged in stimulating and

supporting relationships between organizations in

one industry.

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777

A corporate governance system can be an asset of

two kinds. If the management system is designed

according to all criteria of the asset, for example, as

the quality management system of the ISO 9001

organization (certificate of compliance with the

requirements of the international standard ISO 9001),

then this asset will be an asset under all accounting

rules (Shchepotyev and Rozhok, 2011).

In today's environment, when assessing a

business, you should take into account informal

assets. Informal assets are accumulated reserves of

value expressed in property or other rights, capable of

bringing economic benefits or a number of economic

benefits, but do not meet all the formal criteria for the

concept of "asset" in the formation of accounting

(financial) reporting (Dementieva, 2018).

The concept of "informal asset" includes

economic categories such as "imaginary asset,"

"asset, lost some of its qualifications in the process of

transformational changes in the course of significant

transformations of the business entity, "hidden asset",

"property (property rights), not having legal

documents and/or the corresponding state

registration)," "economic analogue of the asset,"

"probability asset," and other actual, anticipated and

probabilistic economic benefits that do not meet all

the characteristics of the formal asset, but ultimately

affect the value of the company (Shchepot'ev, 2019).

An informal asset can (and should) be included in

appraisal and other financial procedures as an asset of

the company. It can also include a highly qualified

staff (defined by modern scientific thought as human

capital).

5 CONCLUSIONS

The analysis of the characteristics of different models

of corporate governance allows the authors to

conclude that each model has its weaknesses and

strengths, distinguishing it from other models. That

is, there is no ideal model of corporate governance.

Each model is based on the characteristics of

territorial individuality, national characteristics of

states and world relations. The corporate governance

model is based on structural ownership, its level of

concentration, the specifics of economic regulation

mechanisms, stock markets and national equity

legislation.

Corporate governance is essential in achieving the

organization's goals. Corporate governance is defined

as a system of relationships between owners of

capital, management and others who are interested in

achieving the goals of the organization, based on fair

and legitimate activities (Shchepotyev and Rozhok,

2011). Thus, it is not possible to build a model of

corporate governance of an organization without

being based on the changes brought about by

globalization. Globalization plays an important role

in choosing the strategy for developing our economy

and leveling international economic relations among

countries. Globalization redirects the goal of

corporate governance to the development of a system

capable of organizing security, independence of the

country and organization through the stability and

effective functioning of society, which requires the

analysis of the experience of other countries.

Regardless of the management system model

used, a well-formed, well-established and

successfully functioning management system in a

particular company is its asset. At the same time, the

management system includes various elements of

management and control, including a quality control

system, a personnel selection and management

system, mechanisms for interaction between

departments, etc.

In economic practice, individual elements of

control can be identified as an asset that is accounted

for in accounting and reflected in the financial

statements. Examples include the ISO 9001 quality

control management system, the internal quality

control system according to Russian standards, and

other similar assets. The company's management

system, as a single integrated system, may not be

reflected as a formal asset, but should be considered

as an informal asset (in a larger or smaller size) during

financial analytical procedures. The use of informal

assets in economic science (for individual

procedures) (including such as the company

management system) will allow us to more accurately

and clearly solve the tasks set.

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