Global Corporate Governance

Global Corporate Governance

Introduction

The systematic problem of child labor is a global developmental issue worth researching. The idea behind children being exploited and forced into labor is a concern that has drawn sharp attention to many people. China and Nestle is a good study case of a country and business that suffers from such an issue of child labor (Human Rights Watch, 1996 p. 1).

While carrying out the study the following questions will be addressed. China’s point of view on the issue of child labor, how China regulates business and society to consider social responsibility, the influence on governments from the business organization to give freedom to operate, the influence on governments from the society to make laws and regulations to control the activities of business, the principles of corporate governance, lastly, the impact of TWO external forces on Nestle from the competition government intervention.

Question 1:

• The Chinese government relies heavily on law-enforcement measures to fight the problem of child labor. It has enacted laws and regulations that seek to prohibit employers from exploiting children to labor.
• On the other hand, government labor agencies using fines as stop gap measures to discourage employers by forcing them to dismiss child workers.

Prohibitions on Child Labor in China

• In the early 90s the State Council enacted “Regulations Prohibiting the Use of Child Labor” which was later revised in 2002.
• According to the statue Article 2 an employer is not allowed to employ any minor under the age of 16. Therefore, the regulation prohibits legal minors from entering employment.
• In addition, it is mandatory to all employers to verify the age of each employee when recruiting.
• The regulation has also imposed steep penalties for employers found violating the legal prohibitions by hiring child workers. Those found employing minors are to be fined 5,000 Yuan per child per month, while those arranging employment of minors are to be fined 5000 Yuan per child who employment is arranged.
• However; current Criminal Law on punishment of those who force other into child labor is very lenient. Article 224 does not give a clear meaning on “excessive labor” which is subject to different interpretation and abuse. Therefore, many cases fail to be prosecuted due to this ambiguity.

Question 2:

• The China government has put in place varied measures that would regulate the business sector and society so as to acquire social responsibility.
• Apart from passing laws that outlaw child labour, Beijing has accorded the child labour issue in the remit of labour agencies in all of the local government.
• It in conjunction with the agencies connected to public security and industry and commerce as well as labour companies.
• When a company is noted to apply child labour it is meant to dismiss the child labor force instantly, taken them back to their family and pay fine (Fu, 2010). This is known as “handling on demand”; the labour companies are able to respond to tip-offs from the public or society to scrutinize a business with no warning.
• Fine is issued if the business is found to be applying child labor according to the provisions put in place by the law.

Question 3:

• Business pressure groups can use their influence in government to affect the decision making within   government.
• Business pressure group will influence public opinion in-order to have public support from the general public to force the government to listen.
• Business pressure groups use a number of methods: lobbying petitions, demos depending on the need. In the case of child labor in China businesses have used lobbying in government to reduce penalties on child labor laws legalizations.
• Therefore, child labor laws enacted are often watered downed and favor businesses.

Question 4:

• The society similarly has a role to play in influencing the government in putting in place laws and regulations that manage the activities of business.
• The society should encourage the government in putting place measures that overhaul China’s school system and invest more money into upholding an academic and vocational compulsory education model (Hands, 2007). This should be appropriate to the requirements to most of the poor families, and this to limit the supply of child labour from where it starts.
• Considering that there are flaws in the system the government handles child labour issues, the society is similarly able to influence the government in incorporating the NGOs.
• The NGOs could set up connections with school drop outs, parents and child laborers that are not willing to interact with the government. This would help to manage the issue through convincing, clarification and help as opposed to legal steps. The NGOs would offer assistance to them.

Question 5:

• According to Cadbury committee (1992) corporate governance is “the system by which companies are directed and controlled” (Lin, 2004). It entails a regulatory framework that encompasses the relationship between the company’s management board and its shareholders.
• Shareholders, stakeholders and the board of directors need to have a common understanding of the purpose and scope of cooperate governance.
• The boards are held accountable for the performance and financial results of the business by the shareholders and other major stakeholders (Institute of International Finance, 2006).The boards are to lead by example, they are to observe the ethics of the organization and ensure that they behave appropriately.
• The performance and integrity of the organization should be challenged through an independent external audit; this will enable the shareholders to know if the management is truly overseeing their duties and that the organization is not losing sight of its objective (Noked, 2012).
• Boards set the goals, policies and structures for the organization; they also delegate duties and empower the executive management to implement them.
• The boards ensure that the strategies that have or are to be implemented considers both the risk and reward over time, they need to understand their risks and also how to manage them when they occur.
• The board needs to be balanced, it should have a combination of both executive and non-executive directors, and this will enable them to work as a team (Tenev, Zhang & Brefort, 2002).
• The boards should be in a position to understand financial issues so that they know the risks and benefits that come with their decisions.
• Executive remuneration should be aligned with an individual’s performance, this will enable the organization to uphold integrity and promote the performance (Fu, 2010).
• Boards should prioritize and incorporate the interests of various shareholders and also work for the organizations success.

Question 6:

• Competition has greatly influenced Nestle in its operations. The company has made use of child labour so as to keep its prices more competitive.
• It has applied dynamic competitive services through limited outlay on labour costs through application of child labour (Hands, 2007). No salaries are paid.
• With the putting in place of stringent measures to manage child labour in companies, Nestle has fallen behind in terms of competition.
• It has been forced to lose to lose its competitive advantage. Nestle has hence been forced to look into other areas that are more costly and hence lost its competitive authority.
• The government interventions have similarly impacted the operation of Nestle in varied ways. The company has been stricter in the labour that it hires to undertake its operations.
• A number or government and non-governmental operations that are supported by regulations are keener in the form of labour being applied in Nestle. This has been due to the punishments and fines to be imposed on such companies.

Reference

Cadbury, Sir Adrian, (1996). “Corporate Governance: Brussels”. Instituut voor Bestuurders.             Brussels.

Fu.J. (2010).Corporate Disclosure and Corporate Governance in China. Netherlands, Kluwer       Law International.

Hands, S., (2007). A Survey Report on Child Labour in China: China Labour Bulletin. Research           Report No. 3.

Institute of International Finance. (2006). Corporate Governance in China: An Investors Perspective. Beijing: IIF Equity Advisory Group.

Lin, T. W. (2004). Corporate Governance in China: Recent Developments, Key Problems, and Suggested Solutions. Retrieved 17 December 2012 from http://jacg.rd.fcu.edu.tw/dl/1101.pdf

Noked, N. (2012). Principles of Corporate Governance 2012. Retrieved 17 December 2012, http://blogs.law.harvard.edu/corpgov/2012/08/17/principles-of-corporate-governance-2012/

Tenev.S, Zhang.C, Brefort.L. (2002).Corporate Governance and Enterprise Reform in China: Building the Institutions of Modern Markets. World Bank Publications.

Human Rights Watch, (1996). The Small Hands of Slavery: Bonded Child Labor in India. Human Rights Watch. New York.