Table of Contents
Letter of Transmittal 3
Introduction. 4
Background information. 4
History. 4
Bank goes global 4
Group performance. 5
Corporate governance. 5
Barclay’s corporate governance. 7
Barclays Board. 8
Board performance. 11
The Management 11
Recommendations. 12
Appendix. 14
Reference List 15
Letter of Transmittal
Corporate Governance is a very important issue in investment. Company performance is centrally anchored on good corporate performance. Many individual and institutional investors focus attention of company’s corporate governance framework when making investment decisions
This report discusses the importance of about Barclays PLC by clearly focusing on its corporate governance framework. It begins with an analysis of the background, history and global expansion of Barclays PLC. It further discusses the concept of corporate governance before analysis Barclays PLC corporate governance. The company Board of Directors responsibilities and duties, Committees, and the Management are discussed at large. The report concludes by giving recommendations on the improvement of Barclay’s corporate governance framework and the advice of the client to invest in Barclays PLC.
Corporate Governance: Barclays PLC
Introduction
Background information
Barclays PLC is a leading global financial services provider. It is engaged majorly in retail and commercial banking, investment banking, credit cards, wealth management, and investment management services. The company operates its business through portfolio segments that include UK banking, International Retail and Commercial Banking, Barclaycard, Barclays Wealth, Barclay Wealth-Closed Life Assurance Business, Barclays Global Investors (BGI), Barclays Capital, and Head office and other operations (Stock Market Review, 2012).
History
The history of Barclay bank dates back to 1690 when John Freame and Thomas Gould started trading as goldsmith bankers in Lombard Street, London. In 1736, James Barclays became a partner in the business after Freame and Gould had moved to another premise on the same street and after around 30 years the company builds a banking house along the same street. In 1896, the business joined other 19 private banking enterprises to form Barclays and Company Limited with 182 branches and deposits of £26m. Barclays and Company was listed on the London Stock Exchange in 1902 and within three years it acquired Consolidated Bank of Cornwall that marked the beginning of its expansion strategies. This expansion strategy culminated in the amalgamation with the London Provincial and South Western Bank to become one of the United Kingdom big banks (Barclays, 2012a).
The bank goes global
The first oversee Barclays Bank was incorporated in 1922 as Barclays Bank (Oversees) in France. In 1955 the bank established itself outside Europe when it merged with Colonia Bank, the Anglo Egyptian Bank and National Bank of South Africa. This stretched its business in Africa, the Middle East and the West Indies. Since then Barclays Bank has expanded worldwide to cover over 50 countries. It operates in 21 countries in the Asia Pacific, 35 countries in Africa and in the Middle East, countries in Latin and North America, and 45 countries in Europe (Barclays, 2012a).
Group performance
Barclays Bank is one of the FTSE 100 public listed companies on the London Stock Exchange with the highest market capitalization. This is an index that is commonly used to gauge business prosperity that is London Stock Market subsidiary, FTSE. The Barclays group has always strived to improve its business performance, reduce expenses, and disciplined approach to capital and fund costs as measures to improve and maintain higher business returns. This strategic objective has enabled the company to grow its income growth that has enabled it improve its profitability and market share thus providing it with a competitive advantage in the industry. Though the group profitability has sometimes been hampered by hard economic times, it has been able to come back track.
Corporate governance
By definition, corporate governance refers to system of policies, principle, and process that governs a particular company or organization (Tricker, 2012). Corporate governance provides a foundation on which companies set their goals, assign responsibilities and measure their performance (The Economist, 2002). It is generally thought that companies that practice good governance register better performance and higher market capitalization thereby guaranteeing shareholder value (Handley-Schachler Juleff & Paton, 2007).
It is generally believed that the governance structure of any corporate entity largely affects the ability of the organization to respond to external factors that have a final bearing on the performance of the organization or company (Clarke & Rama, 2008). Many studies of corporate governance note that companies that are well governed performing better than companies with weak corporate governance (Bauer, 2003). The concept of corporate governance has increasingly gained ground with many companies across the world emphasizing the need to have a strong corporate structure not only for business performance purposes but for sustainable economic growth. Additionally, corporate governance enhances company’s corporate entrepreneurship and competitiveness outlook that is critical in attracting investors (Abor & Adjasi, 2007).
From the above overview of corporate governance, it is evident that corporate governance plays a great role in the success of a particular company. The greatest benefit of corporate governance is that it gives investors confidence to invest in the company (Talamo, 2011). At the same time, corporate governance promotes company’s competitiveness in the market. Besides these, corporate governance is responsible for creating an efficient company that at the same time is environmentally and socially responsible (OECD, 1998). Additionally, strong corporate governance protects the organization by providing a mechanism for savings and investment, generation of income and income tax thereby enhancing company sustainability. Furthermore, good corporate governance aligns the interests of the company, its shareholders, board, employees, and the society in which the company operates. Finally, it guarantees separation of ownership and control.
Corporate governance principles of integrity, openness, and accountability of any company are reflected in four dimensions. These structural dimensions include balance of power and authority, organization structure and processes, control, and external reporting (Shaykh & Rees 1995). The balance of power dimension requires that the company should have Board of Director/Trustees/Governors, Non-executive governing body, and the Executive Management. These bodies are composed of company leaders that determine values and standards of the company. They polish the company formal code of conduct that enhances the principles of governance. The balance of power enhances good relationships are maintained by ensuring that actual or potential conflict of interest that could include political interests are disclosed. The structure and processes stipulate clear policy of hiring and removal of employees, directors or contractors. The structure and processes of the company also provide clarity on the role of the Board of Directors and management at the same time providing qualification requirements for such positions. Additionally, this corporate governance dimension is critical in providing clarity on remuneration. It also pronounces company code of conduct and specifies corporate social responsibility (Keasey, Thompson & Wright, 2005; Vitols, 2011).
Control underlies the importance of identifying risk management issues such as budgeting, auditing, internal control, anticipation of future business risks as well as financial management and training among many other control issues. Corporate governance on external reporting is a critical dimension ensures that the company annual reporting use appropriate accounting standards, reports company performance against targets, utilizes external audit, statements are in compliance with relevant codes, and provides commentary on accounts and performance (Vallabhaneni, S. R., & Association of Professionals in Business Management, 2008).
Barclay’s corporate governance
Barclays PLC has a clear framework that provides a basis for promoting the highest standards of corporate governance. Barclays recognizes the importance of corporate governance to the success of its banking system in the United Kingdom and the whole world at large. The company has over the years focused on good corporate governance practices to contribute substantially to its sustainability. At the same time, Barclays recognizes the critical role played by good governance in creating and sustaining shareholder value and ensuring that behaviour is ethical, legal and transparent (Barclays, 2012). Barclays corporate governance practices provide directors with the guidance that enable them to maintain highest standards of corporate governance in Barclays. The guiding practices ensure that the implementation of the corporate governance practices of the company is in line with United Kingdom’s Corporate Governance Code as well as Walkers Review recommendations and their related guidance. Additionally, the company ensures that the governance practices complies with the Companies Act, the United States Sarbanes-Oxley Act of 2002, and the FSA’s Code on Remuneration (Barclays, 2012).
Barclays Board
It is the highest decision making body of the Group. The Barclays PLC Board is responsible to the shareholders and it is therefore concerned with creating and delivering sustainable shareholder value. The Board does this through management of the Group’s business. It determines the strategic objectives and policies for the Group. Additionally, the Board provides the overall strategic direction with regard to control, reward, and incentives within the Group. The purpose of this is delivering a long term value to the shareholder. On top of this, the Board also ensures that the management objectively focuses on promoting and delivering short term goals and long term growth. It is the responsibility of the Barclays Board to ensure that the management maintains internal control systems that give an assurance of business operations are efficiently and effectively run. The Board also ensures that the management maintains an internal financial control and makes sure that it remains in compliance with law and regulation. Furthermore, the Board ensures that the Group management maintains highest level and effective risk management and oversight processes.
As the Board carrying its functions, it demonstrates ethical leadership and promotes the company’s collective vision. It does this for the purpose of upholding the company’s culture, values, purpose, and behaviours. Barclays Directors actions are guided by the principle of good faith and in a manner that promotes the success of the company for the benefit of company shareholders, employees, community and the environment. The Board also ensures that its acts and functions are in the best interest of the business and reputation. The body is also empowered to approve the Group strategies, interim and final financial statements, appointment and removal of company Directors or Secretary, make changes to capital structure, accounting policy and practices. Equally, the Board approval company mergers, disposal, or capital expenditure (Barclays, 2012)
Barclays PLC Directors are required to promote the success of the company at all times. The directors are furthermore required to exercise the judgement independently and use their skills and diligence in the long term benefit of the company and shareholder value. The Board is composed of Executive and Non-Executive Directors. Executive Directors are full-time employees of the company responsible for the day to day management of the company. Executive Directors are supported in their function by a management team. On the other hand Non-Executive Directors are independent of the management team and their key role is to constructively challenge the management team (Barclays, 2012b). Additionally, Executive Directors are responsible for monitoring the success of the management team so as to ensure that the management team delivers the agreed strategy within a framework approved by the Board. The Board Chairman, the Company Secretary as well as Board Committee Chairpersons provide the much needed leadership of the company.
The Directors to the bank should be approved persons as required in principle by FSA. They should be persons of great integrity and proper conduct. The Board Corporate Governance & Nomination Committee recommends the desired experiences and competencies of Directors to be appointed. The Chairman and the Company Chief Executive are members of this committee. The Board considers a balance and mix of appropriate skills and experiences when appointing either Executive or Non-Executive Directors. Board Corporate Governance & Nomination Committee is also involved in succession planning whereby it conducts an annual review of succession planning and proposes necessary changes in the process (Barclays, 2012b).
To carry out its responsibilities in the best interest of the company and the shareholders, the Board has delegated these responsibilities to Board Committee. The Board Audit Committee is responsible for internal and external auditing, accounting and financial reporting policies, monitoring of internal control systems, and oversees external auditing by building good relationships. Board Citizenship Committee reviews and approval community investment strategies as well as key performance indicators and objectives. It also deals with reputational risks and exposures. Additionally, the committee ensures that customers are fairly treated and also approval the Groups overall citizenship strategy (Barclays, 2012b).
The Board Risk Committee monitors the risk appetite of the business as well as limits the Group’s individual types of risks and formulates risk management strategy. Moreover, this committee monitors the risk profile of the company and ensures that principal risks are identified properly and recommends the level of risk that the company can take. Board Remuneration Committee sets remuneration policy, considers and approves Directors and senior executive remuneration. It also deals with strategic human resources issues and company executive incentive plans. Finally, the Corporate Governance and Nomination Committee as mentioned above is the responsible appointment of new directors, draw up succession plans for Chairman and Chief Executive position, reviews Board composition as well monitoring corporate governance issues (Barclays 2012b).
Board performance
Since the year 2004, the Barclays PLC Board has conducted the effectiveness review to assess its performance in terms of corporate governance. This exercise is undertaken externally under the facilitation of the Board of Corporate Governance and Nomination. This enables the Board to check its annual performance against set target. The key theme for this evaluation is enable the Board to stay focused on strategic decisions, necessary skills and experience, and diversity within the Board is maintained, and to ensure the Board remains effective in carrying out of its key responsibilities. This evaluation is also important for the company to also adequately highlight and address emerging issues (Barclays, 2012b).
The Management
Barclays PLC Management is a very important component in the operation the Group’s corporate governance. The management is involved in the day-to-day management of the company operations. It is responsible for the implementation of business strategies and other strategies for the Board of Directors. The management is headed by the Chief Executive who is as a member of the Board. The management Executive Committee which is the top body of the management is composed of Business Unit Heads and Heads of Key Group control functions. The management Committees which is at the lower level of the management is made up of the Disclosure Committee, Group Governance and Control Committee, Financial Risk Committee, Operational Risk Committee, and Treasury Committee. The Management Committees are responsible for overseeing the implementation of the broad strategies originating form Board Committees (Barclays 2012b).
Recommendations
At this point it should be recognized that corporate governance underpins market confidence, integrity and efficiency of any given company. Moreover, good corporate governance enhances company’s economic growth and financial stability. From the analysis of Barclays Corporate governance, it is clear that the company has firm corporate governance framework that guarantees efficient operation and performance of the company. Additionally, the Barclays PLC corporate governance is strongly anchored on shareholder. The analysis reveals that good corporate culture by Barclays PLC is a source of its business growth, profitability, competitiveness, and sustainability. However, the analysis also reveals the Barclays PLC corporate governance loopholes in terms of integrity and openness and therefore makes the following recommendations to further enhance its integrity:
Development of corporate governance in view of its impact on overall economic performance, Board integrity, and transparency to tackle issue such as the current accusation of fixing libor rates
The Board should allow shareholders to effectively participate in the removal and appointment of Directors so as to enhance Board integrity, transparency, and accountability.
The Board of Directors should ease the restrictions on institutional investors about their role in the voting and appointment of Board Directors.
Conclusion
From the analysis of the Barclays corporate governance, it is evident that the company is committed to guarantee shareholder value both in the short and long term. Additionally, it is noted that the profound expansion of the company both locally and internationally is largely attributed to good corporate. The resulting performance of the company in terms of profitability, market capitalization, economic stability, and competitiveness has fundamentally contributed to the sustainability of the company. In good faith and in the best interest of my client, Barclays PLC should be selected for investment
Appendix
Barclays PLC corporate governance framework
Source: Barclays Corporate Governance
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