Introduction: Beazley’s Corporate Governance
Corporate governance is a broad concept that covers a set of processes, laws and policies that determine the operations of a corporation or company in terms of administration and control (Bebchuk and Roe 1999). It essentially encompasses accountability of individuals in the corporation and mechanisms that advocate against the principle agent problem (Dignam and Lowry 2006).
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Beazley is an insurance company that provides its clients with excellent underwriting and claims services all over the world. The company was started in 1986 by Andrew Beazley and Nicholas Furlonge and since then the company has grown steadily in terms of the risks they cover, the number of clients they serve and their geographic reach (Beazley Annual report 2010).
Beazley Company has had a continued growth record in the insurance business which has given it a diversified market value. The company has further operated with a continuous record of profitability since its formation.
Since 1986 the company has expanded in its operations and by 2010, the company included the following as its business lines:
- Life, accident and health – life, personal accident and sports
- Marine – energy, hull, cargo and war
- Political risks and contingency
- Property – commercial and private
- Reinsurance – insurance of insurance companies covering risks such as hurricanes and other natural catastrophes; and
- Specialty lines – insurance for professional and management liabilities ( Beazley Annual Report 2010).
In this paper we are going to evaluate the case of Beazley Company’s corporate governance with regard to its compliance and disclosure of principles of governance and stakeholders as required by the UK corporate governance act of 2010.
Compliance and Disclosure of Principles of Governance
Any company’s corporate leadership is composed of the top executives who oversee the company’s operations and plot its strategies for the future where these leaders include the chief executive Officer (CEO), Chief Financial Officer (CFO), Chief Operating Officer (COO) and Chief Information Officer (CIO) and board members (Pound 1993).
Under the UK corporate governance code these involve clear cut role of the board which encases managing organization’s assets as well as determining and organizing company’s strategy, the role of the chairman who is responsible for efficient running of the board and the role of the chief executive who is responsible for efficient running of the company’s business.
The strategic leadership under the corporate code requires a well authored and effective board of directors with outstanding competencies in the operation of the business (Johnson and Ellstrand 1996). In leadership Beazley company has a well constituted system with nine independent non executive directors and eight executive directors (Beazley Annual report 2010).
All non executive directors are taken by the company to be independent of management and free of any relationship and this helps because they don’t get interference in their autonomous judgments (Hayek 1969).
Moreover the Beazley Annual report (2010) lists the competency of the board members and from this it can be seen that members have a wide range of business experience and this is a proof of the kind of skills that has propelled such a big company to success for years (p. 6).
However the corporate governance act 2010 outlines the diversity which should be considered in the board appointments and which is not seen in the Beazley company report in terms of implementation. According to the report there is no woman in the board executive and this shows gender disparity in the administration of Beazley Company (Curtis 2007).
Another role which is not well spelled as required by the corporate governance of the UK is the role of the chairman and the information whether he holds any private meetings with non executive members of the board as required by the corporate governance (Blair 1995).
Holding meeting with non executive board members enables the chair to develop a kind of universality where by he works with each party and can effectively know the strengths and weaknesses of both executive and non executive members (Allen 1995). Failure to check on these components can undermines the well being of the company and can easily lead to its questionable corporate governance (O’Sullivan 2000).
Accountability is the obligation of a company to present an account of its operations to another party which involves two parties; the agent and the principle. The agent must give an account of the company while the principle is the party to whom the account is given (Sternberg 1998).
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Interestingly, the relationship between the principle and the agent is that one is in favour of more accountability, while the other is in favour of less accountability and this leads to a kind of power battle between the two (Warren 2000).
The report of Beazley demonstrates accountability in their operations in terms of leadership, investor relations, board member composition and competencies, remunerations as well as rewards for both shareholders and staff. The most comprehensive part of accountability is narrated in the report’s financial statements (Beazley Annual report 2010, p.79).
The report also gives a clear analysis of the group income statements, the statement of comprehensive income, statement of changes in equity, statement of financial positions and statement of cash flows all which is in line with the requirements of the UK corporate governance (Hayek 1969).
The elements of accountability include not only the financial but also some sensitive information which if not disclosed to all stakeholders it can undermine the integrity of the company (Gamble and Kelly 2001).
It is therefore required that every corporate company understand the importance of disclosing even sensitive information like financial and property ownership without regard to the corporate face before competitors so as to maintain investor confidence which can mean that investors are rational and would tend to invest where they can feel and see transparency (Warren 2000).
Corporate effectiveness is achieved when a company supervise its duties well and adopts correct skills, knowledge and experienced resources. For a company to be effective the board should be of sufficient size that caters for the requirement of the business and this means that the board should not be too large (Johnson and Ellstrand 1996).
For any company to claim effectiveness the UK corporate governance requires that the combinations of the executive and non-executive writers should be balanced (Gamble and Kelly 2001).
For effectiveness there is also a provision that the board committees must have appropriate balance of skills, experience and knowledge which should be refreshed through rigorous training so as to carry their duties effectively (O’sullivan and Mcnaughton 2010).
In effectiveness Beazley company has a very effective management as demonstrated by the 2010 report where qualified staff with traceable experience and knowledge in business in their line of operation (Beazley Annual Report 2010). The company has eight executive directors and nine non executive directors which demonstrate a balance as required by the UK corporate code (O’sullivan and Mcnaughton 2010).
This is a sufficient size that is composed of people with skills that all fulfill the requirements of the company business. However the report has not stated how the committee members should be refreshed nor has it set out procedures for the appointment of directors which should allude to the effectiveness of the board (Curtis 2007).
The corporate governance has that appointments should be made on merit and this should be seen stated in the report including strategies for orderly succession for both board and senior management for continued skills and experience (Turnbull 1998).
The monetary rewards and some complementary benefits that an employer issues to the employee in exchange for their services rendered in the operations of the business is what is termed as remuneration and they also encompass other mechanisms that are coming up as means of complementary benefits (Greenbury Committee1995).
Corporate balance is also driven by the ability of the company to strike a level of remuneration that attract, retain and motivate qualified talents as directors and at the same time enable the company to operate smoothly.
A remuneration package for executive directors should be checked so that rewards are relative to individual performance and this should be done by a remuneration committee (Greenbury Committee 1995).
According to the report of the company there are many benefits that stakeholders accrue from this company and most of the strategies that are identified for the employees especially the remuneration packages and the bonus packages (Friedman and Miles 2002).
The company has also constituted remuneration committee which has enlisted clearly the remuneration elements with the remuneration package payable to each executive director. Beazley Annual Report (2010) establishes the package to each executive director comprises basic salary, short term incentive payments, pension contribution, long term and share based incentives and others.
The remuneration committee considers the individual remuneration package of the deputy chairman, chief executive among other senior members of staff. There is also a remuneration policy which is put in place where a general reward strategy for executive directors is trickled down to all other company’s employees and therefore fair remuneration to management and staff is assured.
The report also outlines the key elements of the company’s remuneration policies, the risk and reward as well as a detailed report of salaries and fees for the 2010 and 2011 for all staff starting with the executive director’s fee to executive salary. However, under the level and components of remuneration the report does not clearly narrate whether non executive’s remuneration should reflect time commitment or not.
This is vital information in order to ensure that the company do not encourage poor performance among the directors. Further the report do not include measures put forward in case a director terminate his duties before is term, a gap which could lead to rewarding non performers.
Generally the performance incentive for executive officers come from firm’s shares they own and this goes to an extend where in corporate governance when the shares of executive directors are above 20 percent, they tend to be reluctant on the issues and welfare of shareholders (La Porta et al. 1999).
Although this information, regarding shareholding by executives, is crucial for the investor to know the level of share owned by the executives, it is never clearly stated in the report.
Relations with Shareholders
A shareholder, also known as a stockholder, is an individual or institution with legal ownership of one or more shares of stock in a private or public company and generally shareholders own the stock but not the corporation (Adolf 1962).
The corporate code of the UK provides that companies establish a dialogue framework with shareholders so as to strengthen mutual understanding of the company’s objectives and responsibilities of the board. This policy should also keep abreast of the shareholder opinions in a way that is practical and efficient for the good of both the company and stakeholders (La Porta et al. 1999).
Under the shareholder relation the chairman should ensure that shareholder opinions are communicated to the board and make sure that governance and strategy are discussed with major shareholders.
Moreover, non executive directors should be allowed to attend meetings with major shareholders and especially the senior independent non executive director should attend as many meetings as possible so as to have sufficient understanding of shareholder issues and concerns (O’sullivan and Mcnaughton 2010).
It is crucial for the company board of directors to ensure that all board members are well versed with the views of major share holders (Adolf 1962). Beazley report covers investor relations through frequent communication to address shareholder’s needs by supplying a flow of information about the company especially its strategy and performance.
For efficiency the committee seeks advice from Hewitt new bridge street and Deloitte LLP and specialist advice from a variety of additional sources especially from Bluefin advisory services limited for benefits and pensions advice.
Moreover the group performance reward incentive initiatives are enumerated starting with a long term incentive plan performance related pay, enterprise bonus pool, among other share schemes that are aimed at retaining staff (Beazley Annual Report 2010, p.7).
All these packages give employees and other stakeholders a sense of commitment and can also attract more investors, instill sustainable investor confidence and therefore good company performance (Turnbull 1998).
However, Beazley company report of 2010 does not exhaustively cover how they foster dialogue with major shareholders. While this may seem to be insignificant the opinion of the shareholders is very vital especially for board members when discussing governance strategies (Allen 1995).
Risk management disclosure
In the report also the company has disclosed the risks they underwrite and states:
The risks we underwrite are diverse, including the crews of ships and aircraft, television crews on assignment to high risk locations, credit card holders and key man cover for corporate executives. The depth of our experience as a direct insurer in this class is often invaluable to us as a reinsurer, giving us a better understanding of the risks we are shown. (Beazley Annual Report 2010, p.20)
The report discloses that the company management operates in a solvency II environment where a challenge is provided to the business and reporting to the board on the risk landscape.
This has been clearly disclosed by the report with a clear framework with risk appetite, risk governance and reporting categories (Beazley Annual Report 2010, p. 47). This information is vital to the stakeholders, investors and clients in instilling company’s confidence for its success (O’sullivan and Mcnaughton 2010).
A stakeholder is defined as any human agency that is able to influence or get influenced the activities of the organization and for the case of Beazley Company the stakeholders whose welfare is very much emphasized are employees (Gamble and Kelly 2001).
The most important stakeholders for this Beazley insurance company are clients, employees, competitors, financial community, customer advocates and shareholders and being an insurance company a lot of customer relation will be paramount because it will basically deal with claims and legal matters (Friedman and Miles 2002; Freeman 1984).
Beazley and stakeholders
According to the company report the company can be said to have considerations for its stakeholders such as employees and shareholders and this enable it to have a wider purpose to deliver quality services to its clients.
One strategy that the company has taken to deal with competitors is to ensure that the UK corporate governance requirements are implemented largely and this is not only better for competitor management but also for all other stakeholders.
Beazley has given enough information concerning its operations which could enable the company to foster good relation and hence performance (Bebchuck 2004).
Companies that are transparent to stakeholders can easily articulate their demands as explained by the legitimacy theory and this can be true with Beazley Company because it has given substantial information regarding its accounts that spells out the importance of stakeholder in the company (O’sullivan and Mcnaughton 2010).
For any company to demonstrate transparency and good corporate governance it must be clear in dealing with some important areas such as leadership, well supervised performance, sustainable access to capital market, risk reduction among others which all play an important role in the continuity of the corporate performance (Warren 2000).
This will be good for both the stakeholders; shareholders in the company who plays a key role in fostering investor confidence (Freeman 1984). However more has to be done on stakeholder engagement like taking customer views by establishing a customer care services and making strategies that are in line with changing treads in the market (O’sullivan and Mcnaughton 2010).
The company can also establish some workable relation with all stakeholders for the sake of furthering its interest and this can be by giving substantial financial and social information which will enable the company to garner wide support to beat their opponents.
According to this report Beazley Company can be said to have a higher stake in operating in line with the UK corporate rules. Today much debate on corporate governance has centered on practical issues and that is true with the UK corporate governance which is tailored to check on corporate fraud, abuse of managerial power as well as social irresponsibility.
This paper found out that the Beazley Company has substantially tried to apply the corporate governance provisions with regard to putting measures that can ensure accountability, effectiveness, sustainable leadership, and encouraging remunerations.
However Beazley has to work out some loopholes like gender balance, chairman roles disclosure among others evident in their report in order to rank high in its corporate governance. This is the dream and the objective of the UK corporate governance which seeks to regulate the investor interest and the corporation interests as well.
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