The main objective and the purpose of the combined code of corporate governance best practice is to have a board which acts in the best interest of the company as a whole and manage risks and have sufficient processes and systems to protect the assets of the company and to have a trusting relationship with shareholders and above all to maximize the shareholders wealth in the long-term the company being a going concern in the future. That is in other word the board must act in the best interest of the company and not maximizing rents for themselves in the same time eroding the value of the company in the long-term and not maximizing shareholders wealth particularly in UK as the shareholders interest and as owners are paramount as opposed to other theories of corporate governance like the stakeholder theory or stewardship or information theory even though they may be relevant to some companies particularly given the size and complexity of operation and external regulation in the area of corporate governance.
As discussed above on the basis that the Corporate governance practices of Abbots Group plc has sufficient monitoring of directors behavior to act in the best interest of the company and to the extent that their practices and processes enable the board to have a
strategic direction to maximize shareholder wealth in the long-term and not have short-term view which jeopardize the survival of the company and growth of the company as a going concern and the objective of the combined code is similar even though the
practices slightly vary from the combined code, the objectives of the combined code and the governance practices of the Abbots group are similar. As well, the Annual report highlight that they have applied the code in the governance practice throughout the year 2006 highlight that Abbot group plc has to a greater extent complied with the code. As well the Abbots group has policies and practices in a strategic manner to have resources allocated to satisfy other stakeholders like the community, environmental groups, the government and legal requirements of Company law and other legal regulations, employee health and safety issues and value the employees. That is it maximizes shareholders wealth in the context of its social responsibility and in an ethical manner given its operating circumstances in terms of its size and the nature of its operations and its affect on society as a whole.
Because of the above discussion, it can be argued that the Abbots Group plc given its unique circumstances and operating environment its code of practice and corporate governance actions and policies comply with the combined code of best practice even though it departs in some respects from the code as the code do not recognize other stake holders interest in formulating its strategic plan and implementation and concentrates only on the share holders interest and assumes it meets the needs of other stakeholders.
Evaluation of Abbots group plc Earnings Management tendencies given its corporate governance and practices as well of its external private and public environment.
The earnings management arises in the use of discretion of the management in the selection and application of accounting methods in such a way to distort the real, economic performance of the company and distort earnings and therefore in effect the value of a firm. It can be the result of opportunistic behavior of management to gain advantage while sacrificing the best benefit of the company and can arise because of unethical practices of the management not monitored by an organization and do not detect earnings management by the capital market or by the internal and external auditors. It also cans arise because of the nature of ownership of a firm the power structure of the board and the independence and ethical practices of individual managers and the sub committees of organizations corporate governance practice.
Abbot Group plc is in the energy industry. The environmental issue is vital for the industry due to the fact the global warming issues affect this industry than any other industries. From the Annual report 2006 it is certain that Abbot Group plc has a policy to protect the environment which is recognized by the top management and by the non-executive managers and the lower level management within the company. That is the management has a long-term view to maximize profiting and not a short-term view on a strategic perspective. Therefore it is not practicable. the directors or other non-executive directors will have an opportunistic way in applying the accounting standards and have estimates in a fraudulent manner and it's this limited occurrence fact. In effect as mentioned above the corporate governance of Abbots Limited given its size, complexity of operations and its recognition of social responsibility beyond legal restricts the management recognize ethical practice within the organization it can be argued its corporate governance is based on stakeholder theory of corporate governance
